As filed with the Securities and Exchange Commission on April 23, 1999
Registration No. 333-62225, 333-62225-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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<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 52-6936487
(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:
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<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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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 April *, 1999
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 * , 2029 (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." The Capital Securities have
been approved for quotation on the American Stock Exchange, Inc. ("AMEX"),
subject to notice of issuance. (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)
<S> <C> <C> <C>
Per Capital Security ......... $ 10.00 (4) $ 10.00
Total (5) .................... $ 20,000,000 (4) $ 20,000,000
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(1) Plus accumulated Distributions (as defined herein), if any, from * ,
1999.
(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 $395,000 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 * , 1999, against payment
therefor in immediately available funds.
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Wheat First Securities
The date of this Prospectus is April *, 1999.
<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 semi-annually in arrears on June 30 and December
31 of each year (each a "Distribution Date"), commencing June 30, 1999, 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 10 consecutive semi-annual
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 described 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 semi-annually, 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 "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 * , 2009, 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
(the "Redemption Price," as defined herein separately with respect to the
Capital Securities and the Junior Subordinated Debentures). The Junior
Subordinated Debentures are redeemable prior to maturity at the option of
BancShares (i) on or after * , 2009, 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 the applicable 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 -- Redemption" and " -- Liquidation
Distribution Upon Dissolution" and "Description of the Junior Subordinated
Debentures -- Redemption."
2
<PAGE>
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 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
<PAGE>
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 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 as an exhibit to the Registration Statement are not necessarily complete
and, in each instance, reference is made to the copy of such document so filed
for a more complete description of the matter involved. Each such statement is
qualified in its entirety by such reference.
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 * , 1999, 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 * , 1999, 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 * , 1999, 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 December 31, 1998, BancShares had total
consolidated assets of approximately $694.1 million, total consolidated
deposits of approximately $609.6 million, and total consolidated shareholders'
equity of approximately $64.8 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 46 banking offices in 31
central North Carolina communities, 16 of which were opened or acquired within
the last three fiscal years. During October 1998, the Bank purchased an
aggregate of $36.6 million in assets, and assumed an aggregate of $75.1 million
in deposit liabilities, associated with five branch offices of an affiliated
financial institution, First-Citizens Bank & Trust Company, Raleigh, North
Carolina ("FCB"). In addition, the bank has agreed, subject to regulatory
approval and other customary closing conditions, to purchase assets totaling
approximately $22.1 million, and to assume an aggregate of approximately $111.9
million in deposit liabilities, of seven branch offices of FCB. The second
transaction is expected to be consummated during August 1999. See "Certain
Relationships and Related Transactions." BancShares is likely to incur
additional operating and capital expenses in 1999 as a result of its expansion
program. These increased expenses could cause BancShares' 1999 earnings to
decline from earnings in 1998.
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 December
31, 1998, non-interest bearing accounts equaled 14.42% of total deposits. The
remaining deposits were comprised of 35.86% in savings and interest bearing
deposits and 49.72% in time deposits.
BancShares' return on average assets and return on average equity were
1.25% and 12.36%, respectively, for the year ended December 31, 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 December 31, 1998,
BancShares' loan-to-deposit ratio was 72.04%, and over 45% of its $188.7
5
<PAGE>
million investment portfolio was invested in U.S. government obligations with
an average maturity of 8 months. Consistent with its management philosophy,
BancShares has emphasized a low-risk loan portfolio derived from its local
markets. At December 31, 1998, BancShares' non-performing assets were $111,000,
or 0.03% of gross loans and other real estate. Net charge-offs for the year
ended December 31, 1998 were 0.04% of average loans. The allowance for loan
losses at December 31, 1998, was 1.05% 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," "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.............. June 30 and December 31 of each year,
commencing June 30, 1999.
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 10
consecutive semi-annual 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
6
<PAGE>
Interest Payment Period" and "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 which holders of the
Capital Securities are entitled will
accumulate) at the rate of * % per annum,
compounded semi-annually, 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,
semi-annual Distributions on the Capital
Securities will be deferred (though such
distributions will continue to accumulate
and compound semi-annually, 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 "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."
7
<PAGE>
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 case subject to possible regulatory
approval, and (iii) in whole or in part at
any time on or after * , 2009,
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. The Capital Securities have been
approved for quotation on AMEX, subject to
notice of issuance. However, there can be no
assurance that an active public market in
the Capital Securities will develop or, if
one does develop, that it will be
8
<PAGE>
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.... The Capital Securities have been approved
for quotation on AMEX, subject to notice of
issuance. See "Underwriting."
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," "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. Growth in the
Bank's assets resulting from acquisitions of branch offices and the opening of
de novo branches has reduced, and is expected to continue to reduce, the Bank's
capital ratios. During October 1998, the Bank purchased assets and assumed the
deposit liabilities of five branch offices of FCB, and the Bank has agreed,
subject to regulatory approval and other customary closing conditions, to
acquire seven additional branch offices of FCB during 1999. Based on current
projections, if the pending transaction had been consummated on December 31,
1998, the effect, absent an increase in the Bank's capital, would have been to
reduce the Bank's capital ratios to a level that would classify it as
"adequately capitalized" rather than "well capitalized." See "Use of Proceeds,"
"Capitalization" and "Supervision and Regulation -- Capital Adequacy" and " --
Prompt Corrective Action." 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 of
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, 1998,
1997, 1996, 1995 and 1994. The selected consolidated financial data as of and
for each of the years in the five-year period ended December 31, 1998 have been
derived from BancShares' audited consolidated financial statements. The
consolidated financial statements as of December 31, 1998, 1997 and 1996 and
for each of the years in the three-year period ended December 31, 1998, and the
independent auditors' reports thereon, are included elsewhere in this
Prospectus. 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
year ended December 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(Dollars in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest income .......................................... $ 46,570 $ 43,249 $ 37,238 $ 30,607 $ 23,859
Interest expense ......................................... 19,892 19,016 16,245 12,616 8,437
--------- --------- --------- --------- ---------
Net interest income ...................................... 26,678 24,233 20,993 17,991 15,422
Provision for loan losses ................................ 630 360 360 360 360
--------- --------- --------- --------- ---------
Net interest income after provision for loan losses ...... 26,048 23,873 20,633 17,631 15,062
Noninterest income ....................................... 5,476 3,974 3,348 2,628 2,867
Noninterest expense ...................................... 19,418 15,878 14,191 10,998 9,968
--------- --------- --------- --------- ---------
Income before income taxes ............................... 12,106 11,969 9,790 9,261 7,961
Income taxes ............................................. 4,457 4,581 3,487 3,254 2,955
--------- --------- --------- --------- ---------
Net income ............................................... $ 7,649 $ 7,388 $ 6,303 $ 6,007 $ 5,006
========= ========= ========= ========= =========
Selected Period-End Balances
Total assets ............................................. $ 694,134 $ 582,995 $ 542,138 $ 406,304 $ 334,390
Investment securities and federal funds sold ............. 186,804 177,240 161,429 107,341 71,816
Loans, gross ............................................. 439,208 358,250 334,880 268,931 242,301
Interest earning assets .................................. 627,874 537,293 497,963 377,449 314,117
Deposits ................................................. 609,646 505,237 479,140 352,566 296,297
Interest bearing liabilities ............................. 533,380 448,832 429,649 313,409 264,370
Shareholders' equity ..................................... 64,808 59,117 51,242 44,351 38,433
Common shares outstanding ................................ 28,410 28,410 28,410 28,582 28,582
--------- --------- --------- --------- ---------
Selected Average Balances
Total assets ............................................. $ 610,306 $ 558,119 $ 476,559 $ 371,036 $ 331,956
Investment securities and federal funds sold ............. 167,337 163,125 139,262 84,748 84,184
Loans, gross ............................................. 390,162 349,526 297,229 260,103 226,400
Interest earning assets .................................. 559,348 514,410 437,880 345,604 310,584
Deposits ................................................. 528,672 487,985 414,829 323,352 287,876
Interest bearing liabilities ............................. 465,999 433,979 370,876 286,412 258,390
Shareholders' equity ..................................... 61,870 54,840 46,824 39,255 34,158
Common shares outstanding ................................ 28,410 28,410 28,570 28,582 28,640
--------- --------- --------- --------- ---------
Profitability Ratios
Return on average total assets ........................... 1.25% 1.32% 1.32% 1.62% 1.51%
Return on average shareholders' equity ................... 12.36 13.47 13.46 15.30 14.66
Dividend payout ratio (1) ................................ 11.88 12.31 14.51 11.42 13.72
--------- --------- --------- --------- ---------
Liquidity and Capital Ratios
Average loans to average deposits ........................ 73.80% 71.63% 71.65% 80.44% 78.64%
Average shareholders' equity to average total assets ..... 10.14 9.83 9.83 10.58 10.29
Tier 1 capital ratio (2) ................................. 10.51 13.39 13.59 15.57 16.58
Total capital ratio (2) .................................. 12.11 14.56 14.84 16.82 17.83
Leverage capital ratio (2) ............................... 7.77 8.46 8.78 10.74 10.78
--------- --------- --------- --------- ---------
</TABLE>
10
<PAGE>
<TABLE>
As of and for the
year ended December 31,
---------------------------
1998 1997
------------- -------------
(Dollars in thousands,
except share and per share
data)
<S> <C> <C>
Per Share of Common Stock
Net income applicable to common shares (3) ................................ $ 269.25 $ 260.04
Cash dividends ............................................................ 32.00 32.00
Book value (4) ............................................................ 2,281.17 2,080.86
---------- ----------
Asset Quality Ratios (5)
Nonperforming assets to total gross loans and other real estate owned ..... 0.03% 0.02%
Net charge-offs to average loans .......................................... 0.04 0.10
Total allowance for loan losses to total loans ............................ 1.05 1.16
Total allowance for loan losses to total
nonperforming assets ..................................................... 4,145.05 7,271.93
As of and for the
year ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
(Dollars in thousands, except share and
per share data)
<S> <C> <C> <C>
Per Share of Common Stock
Net income applicable to common shares (3) ................................ $ 220.63 $ 210.18 $ 174.80
Cash dividends ............................................................ 32.00 24.00 24.00
Book value (4) ............................................................ 1,803.66 1,551.70 1,344.65
---------- ---------- ----------
Asset Quality Ratios (5)
Nonperforming assets to total gross loans and other real estate owned ..... 0.02% 0.00% 0.00%
Net charge-offs to average loans .......................................... 0.14 0.03 0.01
Total allowance for loan losses to total loans ............................ 1.24 1.52 1.56
Total allowance for loan losses to total
nonperforming assets ..................................................... 7,261.40 N/A N/A
</TABLE>
- ---------
(1) For each indicated period, total common dividends declared divided by net
income.
(2) See "Supervision and Regulation -- Capital Adequacy" for a more detailed
description of these ratios.
(3) 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.
(4) At the end of each indicated period, shareholders' equity divided by the
number of common shares outstanding.
(5) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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.
Risk Factors Relating to the Capital Securities
Subordinate Ranking of 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 December 31, 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.
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
December 31, 1998, the Bank had total liabilities (excluding liabilities owed
to BancShares) of approximately $628.9 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."
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 10 consecutive semi-annual 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 -- Option to Extend Interest Payment Period." As a consequence of
any such deferral, semi-annual 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 semi-annually 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 two. 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
12
<PAGE>
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 10 consecutive semi-annual 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 (together with interest
thereon at a rate equal to * % per annum, compounded semi-annually),
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 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 "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.
Possibility of 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 the Common
Securities. In addition, on or after * , 2009, 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 and the Common
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 the Common
Securities, respectively, together with any applicable redemption premium and
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
13
<PAGE>
other governmental charges. Adverse developments relating to the deductibility
of interest could give rise to a Tax Event. 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 "Federal Income Tax Consequences --
Classification of the Junior Subordinated Debentures."
"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."
Possible Regulatory Changes. The Federal Reserve's treatment of trust
preferred securities as Tier 1 capital for regulatory capital purposes is
subject to possible change. While the Federal Reserve has not indicated any
intention of changing the regulatory capital treatment of trust preferred
securities, no assurance can be given that this will continue to be the case.
In particular, on October 27, 1998, the Basle Committee on Banking
Supervision ("Basle Committee") issued an interpretation of the Basle framework
for capital adequacy ("Basle Accord") regarding instruments eligible for
inclusion in Tier 1 capital. The interpretation states that the Basle Committee
has determined that minority interest in equity accounts of consolidated
subsidiaries that take the form of special purpose vehicles may be included in
Tier 1 provided they meet certain minimum criteria. These criteria include
permanence, deferability of distributions on a noncumulative basis, and ability
to absorb losses within the bank on a going concern basis. Further, the Basle
Committee determined that moderate step-ups after a minimum of ten years are an
acceptable feature in a Tier 1 instrument. Issuances of instruments with such a
feature, however, are limited to 15 percent of Tier 1 capital in order to avoid
undue reliance on innovative noncommon instruments in Tier 1.
The Federal Reserve will make a determination as to how to implement the
Basle interpretation with regard to U.S. banks after consulting with other
federal financial institutions' regulatory agencies. With regard to bank
holding companies, the Federal Reserve has noted that by its terms, the Basle
Accord applies to internationally-active banks but states that ownership
structures should not be allowed to weaken capital positions of banks.
Since the inception of the Basle Accord, U.S. bank holding companies,
entities which are legally separate from banks, have been subject to a
risk-based capital regime that is identical to the Basle Accord, with the
exception that holding companies are allowed to include cumulative preferred
stock in Tier 1 on a limited basis. Consistent with the principles that common
equity should be the predominant component of Tier 1 capital and that ownership
structures should not weaken bank capital positions, state member banks and
bank holding companies generally have been expected to maintain risk-based
capital ratios above Basle minimums, without reliance on preferred stock. State
member banks and bank holding companies
14
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disclose the components of their capital positions in sufficient detail to
allow analysts and supervisors to calculate capital ratios on many different
bases, including the Basle capital standard.
Possible 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 "Federal Income Tax Consequences --
Distribution of Junior Subordinated Debentures to Holders of Capital
Securities."
Limitation on 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 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.
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<PAGE>
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 the Capital Securities have been approved for quotation on AMEX,
subject to notice of issuance, there can be no assurance 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 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
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. Therefore, BancShares may
be unable to meet its obligations under the Junior Subordinated Indenture and
the Guarantee in the event the Bank is unable to pay dividends. 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 December 31, 1998, approximately $3.9 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 December 31, 1998,
BancShares had separate assets (consisting primarily of marketable equity
securities) with a fair value of approximately $9.6 million that could be
liquidated, if necessary, in order to pay obligations of BancShares. 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.
See "Supervision and Regulation."
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.
16
<PAGE>
During October 1998, the Bank purchased an aggregate of $36.6 million in
assets, and assumed an aggregate of $75.1 million in deposit liabilities,
associated with five branch offices of an affiliated financial institution,
First-Citizens Bank & Trust Company, Raleigh, North Carolina ("FCB"). In
addition, the bank has agreed, subject to regulatory approval and other
customary closing conditions, to purchase assets totaling approximately $22.1
million, and to assume an aggregate of approximately $111.9 million in deposit
liabilities, of seven branch offices of FCB. The second transaction is expected
to be consummated during August 1999. See "Certain Relationships and Related
Transactions." BancShares is likely to incur additional operating and capital
expenses in 1999 as a result of its expansion program. These increased expenses
could cause BancShares' 1999 earnings to decline from earnings in 1998. See
"Business."
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 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, 1998, based on management's
assumptions derived from its experience, the Bank calculated that it had a
positive one-year cumulative gap position representing 13.05% 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.
Possible Inadequacy of 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 December 31, 1998, BancShares'
allowance for loan losses totaled $4.6 million which was 1.05% of gross loans.
No Assurance of Continued Growth or Successful Growth Management.
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.
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<PAGE>
BancShares has experienced growth over the past five years, as total
assets have increased from $334.4 million at December 31, 1994 to approximately
$694.1 million at December 31, 1998. 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." Transactions between the Bank and such other companies
may be covered by Sections 23A and 23B of the Federal Reserve Act, which limit
the amount of the transactions and impose certain arms-length requirements.
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. Also, certain
of the competing banks in the Bank's market area are controlled by the Holding
family which also controls BancShares. See "Business" and "Certain
Relationships and Related Transactions." BancShares' profitability depends upon
the Bank's ability to continue to compete in its primary market areas. See
"Business -- Description of Business -- Competition."
Year 2000 Issue. 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. In 1997, resources were committed and implementation began to
modify the affected information systems. Implementation is currently on
schedule, but the ultimate degree of success of the project cannot be
determined at this time. BancShares uses third-party vendors for substantially
all of its data processing. See "Fidelity BancShares (N.C.), Inc. --
Relationship with Affiliated Financial Institutions." Additionally, BancShares
could be adversely affected by year 2000 problems experienced by others,
including its customers, their vendors, correspondent banks, government
agencies, and the financial services industry in general. As a result, much of
BancShares' remediation effort relates to monitoring and communicating with
those vendors. BancShares has assessed its risks and developed and implemented
a detailed strategy to prevent or at least minimize problems related to the
year 2000 issue. However, no assurances can be given that BancShares will not
be adversely affected by year 2000 problems relating to its own systems or
those of third parties, and those problems could have a material adverse effect
on BancShares' financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Year 2000 Issue" for a description of BancShares' plan to address the year 2000
issue.
Developments in Technology. 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 Economies. BancShares and the Bank are
headquartered and operate primarily in 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
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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 December 31, 1998, BancShares had total
consolidated assets of approximately $694.1 million, total consolidated
deposits of approximately $609.6 million, and total consolidated shareholders'
equity of approximately $64.8 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 46 banking offices in 31
central North Carolina communities, 16 of which were opened or acquired within
the last three fiscal years. During October 1998, the Bank purchased an
aggregate of $36.6 million in assets, and assumed an aggregate of $75.1 million
in deposit liabilities, associated with five branch offices of an affiliated
financial institution, FCB. In addition, the bank has agreed, subject to
regulatory approval and other customary closing conditions, to purchase assets
totaling approximately $22.1 million, and to assume an aggregate of
approximately $111.9 million in deposit liabilities, of seven branch offices of
FCB. The second transaction is expected to be consummated during August 1999.
See "Certain Relationships and Related Transactions." BancShares is likely to
incur additional operating and capital expenses in 1999 as a result of its
expansion program. These increased expenses could cause BancShares' 1999
earnings to decline from earnings in 1998.
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 December
31, 1998, non-interest bearing accounts equaled 14.42% of total deposits. The
remaining deposits were comprised of 35.86% in savings and interest bearing
deposits and 49.72% in time deposits.
BancShares' return on average assets and return on average equity were
1.25% and 12.36%, respectively, for the year ended December 31, 1998.
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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 December 31, 1998,
BancShares' loan-to-deposit ratio was 72.04%, and over 45% of its $188.7
million investment portfolio was invested in U.S. government obligations with
an average maturity of 8 months. Consistent with its management philosophy,
BancShares has emphasized a low-risk loan portfolio derived from its local
markets. At December 31, 1998, BancShares' non-performing assets were $111,000,
or 0.03% of gross loans and other real estate. Net charge-offs for the year
ended December 31, 1998 were 0.04% of average loans. The allowance for loan
losses at December 31, 1998, was 1.05% 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, together with certain services, through FCB. Amounts paid by the
Bank to FCB pursuant to those arrangements during 1998, 1997 and 1996 totaled
approximately $2.0 million, $1.9 million and $1.4 million, respectively.
Management of the Bank estimates that amounts payable during 1999 will total
approximately $2.3 million. The Bank has agreed, subject to regulatory approval
and other customary closing conditions, to purchase assets totaling
approximately $22.1 million, and to assume an agregate of approximately $111.9
million in deposit liabilities, of seven branch offices of FCB. That
transaction is expected to be consumated during August 1999. During October
1998, the Bank purchased an aggregate of $36.6 million in assets, and assumed
an aggregate of $75.1 million in deposit liabilities, associated with five
branch offices of FCB. 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 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
20
<PAGE>
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 BancShares' consolidated financial statements. For
financial reporting purposes, Distributions on the Capital Securities will be
recorded in the consolidated financial statements as interest expense of
BancShares. See "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. Growth in the Bank's assets resulting from acquisitions of
branch offices and the opening of de novo branches has reduced, and is expected
to continue to reduce, the Bank's capital ratios. During October 1998, the Bank
purchased the assets and assumed the deposit liabilities of five branch offices
of FCB, and the Bank currently expects to acquire seven additional branch
offices of FCB during August 1999. Based on current projections, if the pending
transaction had been consummated on December 31, 1998, the effect, absent an
increase in the Bank's capital, would have been to reduce the Bank's capital
ratios to a level that would classify it as "adequately capitalized" rather
than "well capitalized." Additional capital contributions by BancShares to the
Bank will allow the Bank to maintain its status as a "well capitalized" bank
under bank regulatory capital guidelines. See "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Supervision and Regulation -- Capital Adequacy" and " -- Prompt Corrective
Action."
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 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
21
<PAGE>
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 year ended December 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Earnings to fixed charges:
Excluding interest on deposits ......... 30.35x 37.99x 35.07x 34.02x 28.84x
Including interest on deposits ......... 1.61 1.63 1.60 1.73 1.94
</TABLE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization
of BancShares and its subsidiary as of December 31, 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 December 31, 1998
-------------------------------------
As adjusted for Capital
Securities issuance (1)
Actual (Unaudited)
------------ ------------------------
(Dollars in thousands)
<S> <C> <C>
Short-term borrowings
TT&L and repurchase agreements ................................................ $ 11,617 $ 11,617
-------- --------
Total short-term borrowings ................................................. 11,617 11,617
-------- --------
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 ........................................................... 11,617 31,617
-------- --------
Shareholders' equity
Common stock: 29,200 shares authorized; 28,410 shares issued and outstanding at
December 31, 1998 ........................................................... 710 710
Surplus ....................................................................... 6,251 6,251
Retained earnings ............................................................. 53,660 53,660
Accumulated other comprehensive income ........................................ 4,187 4,187
-------- --------
Total shareholders' equity ................................................. 64,808 64,808
-------- --------
Total capitalization ...................................................... $ 76,425 $ 96,425
======== ========
Capital ratios (3)
Tier 1 capital ratio .......................................................... 10.51% 13.14%
Total capital ratio ........................................................... 12.11% 16.26%
Leverage capital ratio ........................................................ 7.77% 9.71%
</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, 1998,
1997, 1996, 1995 and 1994. The selected consolidated financial data as of and
for each of the years in the five-year period ended December 31, 1998 have been
derived from BancShares' audited consolidated financial statements. The
consolidated financial statements as of December 31, 1998, 1997 and 1996 and
for each of the years in the three-year period ended December 31, 1998, and the
independent auditors' reports thereon, are included elsewhere in this
Prospectus. 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
year ended December 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(Dollars in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest income .......................................... $ 46,570 $ 43,249 $ 37,238 $ 30,607 $ 23,859
Interest expense ......................................... 19,892 19,016 16,245 12,616 8,437
--------- --------- --------- --------- ---------
Net interest income ...................................... 26,678 24,233 20,993 17,991 15,422
Provision for loan losses ................................ 630 360 360 360 360
--------- --------- --------- --------- ---------
Net interest income after provision for loan losses ...... 26,048 23,873 20,633 17,631 15,062
Noninterest income ....................................... 5,476 3,974 3,348 2,628 2,867
Noninterest expense ...................................... 19,418 15,878 14,191 10,998 9,968
--------- --------- --------- --------- ---------
Income before income taxes ............................... 12,106 11,969 9,790 9,261 7,961
Income taxes ............................................. 4,457 4,581 3,487 3,254 2,955
--------- --------- --------- --------- ---------
Net income ............................................... $ 7,649 $ 7,388 $ 6,303 $ 6,007 $ 5,006
========= ========= ========= ========= =========
Selected Period-End Balances
Total assets ............................................. $ 694,134 $ 582,995 $ 542,138 $ 406,304 $ 334,390
Investment securities and federal funds sold ............. 186,804 177,240 161,429 107,341 71,816
Loans, gross ............................................. 439,208 358,250 334,880 268,931 242,301
Interest earning assets .................................. 627,874 537,293 497,963 377,449 314,117
Deposits ................................................. 609,646 505,237 479,140 352,566 296,297
Interest bearing liabilities ............................. 533,380 448,832 429,649 313,409 264,370
Shareholders' equity ..................................... 64,808 59,117 51,242 44,351 38,433
Common shares outstanding ................................ 28,410 28,410 28,410 28,582 28,582
--------- --------- --------- --------- ---------
Selected Average Balances
Total assets ............................................. $ 610,306 $ 558,119 $ 476,559 $ 371,036 $ 331,956
Investment securities and federal funds sold ............. 167,337 163,125 139,262 84,748 84,184
Loans, gross ............................................. 390,162 349,526 297,229 260,103 226,400
Interest earning assets .................................. 559,348 514,410 437,880 345,604 310,584
Deposits ................................................. 528,672 487,985 414,829 323,352 287,876
Interest bearing liabilities ............................. 465,999 433,979 370,876 286,412 258,390
Shareholders' equity ..................................... 61,870 54,840 46,824 39,255 34,158
Common shares outstanding ................................ 28,410 28,410 28,570 28,582 28,640
--------- --------- --------- --------- ---------
Profitability Ratios
Return on average total assets ........................... 1.25% 1.32% 1.32% 1.62% 1.51%
Return on average shareholders' equity ................... 12.36 13.47 13.46 15.30 14.66
Dividend payout ratio (1) ................................ 11.88 12.31 14.51 11.42 13.72
--------- --------- --------- --------- ---------
Liquidity and Capital Ratios
Average loans to average deposits ........................ 73.80% 71.63% 71.65% 80.44% 78.64%
Average shareholders' equity to average total assets ..... 10.14 9.83 9.83 10.58 10.29
Tier 1 capital ratio (2) ................................. 10.51 13.39 13.59 15.57 16.58
Total capital ratio (2) .................................. 12.11 14.56 14.84 16.82 17.83
Leverage capital ratio (2) ............................... 7.77 8.46 8.78 10.74 10.78
--------- --------- --------- --------- ---------
</TABLE>
23
<PAGE>
<TABLE>
As of and for the
year ended December 31,
---------------------------
1998 1997
------------- -------------
(Dollars in thousands,
except share and per share
data)
<S> <C> <C>
Per Share of Common Stock
Net income applicable to common shares (3) ................................ $ 269.25 $ 260.04
Cash dividends ............................................................ 32.00 32.00
Book value (4) ............................................................ 2,281.17 2,080.86
---------- ----------
Asset Quality Ratios (5)
Nonperforming assets to total gross loans and other real estate owned ..... 0.03% 0.02%
Net charge-offs to average loans .......................................... 0.04 0.10
Total allowance for loan losses to total loans ............................ 1.05 1.16
Total allowance for loan losses to total
nonperforming assets ..................................................... 4,145.05 7,271.93
As of and for the
year ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
(Dollars in thousands, except share and
per share data)
<S> <C> <C> <C>
Per Share of Common Stock
Net income applicable to common shares (3) ................................ $ 220.63 $ 210.18 $ 174.80
Cash dividends ............................................................ 32.00 24.00 24.00
Book value (4) ............................................................ 1,803.66 1,551.70 1,344.65
---------- ---------- ----------
Asset Quality Ratios (5)
Nonperforming assets to total gross loans and other real estate owned ..... 0.02% 0.00% 0.00%
Net charge-offs to average loans .......................................... 0.14 0.03 0.01
Total allowance for loan losses to total loans ............................ 1.24 1.52 1.56
Total allowance for loan losses to total
nonperforming assets ..................................................... 7,261.40 N/A N/A
</TABLE>
- ---------
(1) For each indicated period, total common dividends declared divided by net
income.
(2) See "Supervision and Regulation -- Capital Adequacy" for a more detailed
description of these ratios.
(3) 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.
(4) At the end of each indicated period, shareholders' equity divided by the
number of common shares outstanding.
(5) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three Years Ended December 31, 1998, 1997 and 1996
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, 1998, 1997, and 1996. 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.
1998 Acquisitions. In October 1998, BancShares acquired the deposits of
five North Carolina branches of FCB. These acquisitions were accounted for as a
purchase and, therefore, the results of operations prior to the purchase are
not included in BancShares' consolidated financial statements. These
acquisitions were as follows:
<TABLE>
Loans Deposits
Transaction Date Acquired Acquired
------------------ ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Siler City branch .................. October 1998 $ 6,754 $14,202
Salisbury branch ................... October 1998 11,754 20,310
Gastonia Main branch ............... October 1998 5,933 33,544
Gastonia Union Road branch ......... October 1998 3,419 3,518
Gastonia Cox Road branch ........... October 1998 5,834 3,519
------- -------
1998 acquisition totals ......... $33,694 $75,093
======= =======
</TABLE>
Since December 31, 1998, the Bank has agreed, subject to regulatory
approval and other customary closing conditions, to purchase assets totaling
approximately $22.1 million, and to assume an aggregate of approximately $111.9
million in deposit liabilities, of seven branch offices of FCB. That
transaction is expected to be consummated during August 1999.
BancShares made no acquisitions in 1997.
1996 Acquisitions. In May 1996, BancShares acquired the deposits of the
Biscoe, Troy, Rockingham, and Hamlet, North Carolina branches of a North
Carolina commercial bank. These acquisitions were accounted for as purchases,
and therefore,
24
<PAGE>
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 branch ...................... May 1996 -- $ 7,574
Troy branch ........................ May 1996 -- 21,647
Rockingham branch .................. May 1996 -- 12,134
Hamlet branch ...................... May 1996 -- 13,949
Perpetual State Bank ............... September 1996 $40,000 35,000
------- -------
1996 acquisition totals ......... $40,000 $90,304
======= =======
</TABLE>
Results of Operations.
Net Income. For 1998, net income of $7.6 million represented a 3.54%
increase from 1997 net income of $7.4 million. Net income for 1996 was $6.3
million. The increase in 1998 net income was principally the result of an
increase in net interest income resulting primarily from growth within the
existing branch network and the fourth quarter acquisition of five branches.
Noninterest income also increased primarily due to the selling of the Bank's
right to service mortgage loans, a gain on the contribution of a building at
fair value to a non-profit agency, and increases in fee income due to growth
within the existing branch network. These increases were partially offset by
increased operating expenses associated with the six de novo branches and the
expense associated with the contribution described above.
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 branches
acquired or established in 1996. This increase was partially offset by
increased operating expenses associated with these branches. Net income per
share increased to $269.25 in 1998, from $260.04 in 1997, due to increased
earnings. 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 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
1998, net interest income was $26.7 million as compared to $24.2 million in
1997, an increase of $2.5 million or 10.09%. In 1997, net interest income was
$24.2 million as compared to $21.0 million in 1996, an increase of $3.2 million
or 15.44%. The 1998 increase was primarily attributable to increased interest
income from an 11.63% increase in average loan balances outstanding from $349.5
million in 1997 to $390.2 million in 1998. Interest expense increased slightly,
by 4.60% during 1998, due to higher volumes of interest bearing deposits, while
the rates paid on interest bearing liabilities decreased from 4.38% in 1997 to
4.27% in 1998.
The increase in net interest income in 1997 was due to 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 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 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.
Loans produced the largest component of interest income, amounting to
$37.6 million in 1998, $34.1 million in 1997, and $29.1 million in 1996. This
represented an increase of 10.26% in 1998 and 17.40% in 1997. During 1998,
average loans outstanding increased $40.6 million or 11.63% due to loan growth
from acquired branches, de novo branch openings, and loan growth within the
existing branch network. The increase in interest income for 1997 was primarily
due to loan growth in the existing branch network. In 1998, the average yield
on loans decreased to 9.64% from 9.76% in 1997. This decrease resulted from the
overall lower market interest rates during most of 1998. The 1996 average yield
was 9.78%.
Earnings from investments and federal funds sold provided the balance of
interest income, contributing $9.0 million in 1998, $9.1 million in 1997, and,
$8.2 million in 1996. During 1998, BancShares had a lower average balance of,
and realized lower yields on, investment securities. These decreases were
offset by an increase in the average balance of federal
25
<PAGE>
funds sold of $42.0 million, or an increase of 493%, while the average rate
earned declined from 5.41% to 5.27% between 1997 and 1998. This increase in
federal funds sold increased interest income by $2.2 million in 1998, an
increase of 477% over 1997.
Total 1998 interest expense was $19.9 million, an increase of 4.60% over
total 1997 interest expense of $19.0 million. Total 1997 interest expense was
$19.0 million, an increase of 17.06% over total 1996 total interest expense of
$16.2 million. The principal component of BancShares' interest expense is
interest paid on deposits which totaled $19.5 million in 1998, $18.7 million in
1997, and $16.0 million in 1996. BancShares' deposit base increased 20.67% in
1998, primarily as a result of growth in the existing branch network. The cost
of interest bearing deposits also increased in 1998 as a result of deposit
growth. The cost of interest bearing deposits was unchanged in 1997 from 1996.
The average effective rates paid on interest bearing liabilities were 4.27%,
4.38%, and 4.38% in 1998, 1997, and 1996 respectively.
BancShares' interest rate spread was 4.06%, 4.01%, and 4.10% on a tax
equivalent basis in 1998, 1997, and 1996 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 $1.5 million in 1998. Total
noninterest income was $5.5 million in 1998, as compared to $4.0 million in
1997 and $3.3 million in 1996. The primary increase in noninterest income was
attributable to the sale of the Bank's right to service $51 million in mortgage
loans to Southern Bank and Trust Company for $522,000, resulting in a gain of
$507,456 (see notes 4 and 14 to BancShares' consolidated financial statements).
Also affecting noninterest income was the contribution of one of the Bank's
banking facilities to the North Carolina Community Foundation. BancShares
recorded the market value of the land and building, $448,000, as contribution
expense and, after writing off the value of the land of $40,000, recognized a
gain of $408,000. Noninterest income did not include any securities gains in
1998, 1997 or 1996. Service charges on deposit accounts increased $247,000, or
10.71%, in 1998 to $2.6 million, as compared to $2.3 million in 1997. This
increase was primarily attributable to de novo branch openings in 1998 and
deposit growth in the existing branch network. Service charges on deposit
accounts increased $311,000, or 15.55%, in 1997, to $2.3 million as compared to
$2.0 million in 1996. This increase was primarily attributable to acquisitions
and de novo branch openings in 1996, and deposit growth in the existing branch
network.
BancShares had increases in other service charges and fees of $292,000 and
$278,000, respectively in 1998 and 1997.
Noninterest Expense. Noninterest expense includes expenses attributable to
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 $19.4 million in 1998, as compared to $15.9 million in
1997 and $14.2 million in 1996. Control of noninterest expense is an important
aspect in managing net income. The 1996 and 1998 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 acquisitions.
The most significant element of BancShares' noninterest expense is
personnel costs. In 1998 salaries and benefits represented $9.5 million, or
48.78%, of total noninterest expense. The 1998 increase resulted primarily from
the hiring of new employees associated with the offices acquired and de novo
offices established during 1998. The Bank has entered into an agreement,
subject to regulatory approval and other customary closing conditions, to
acquire seven FCB branches in a transaction that is expected to be consummated
in August 1999. BancShares expects increased personnel expenses in 1999 due to
the hiring of personnel from the acquired FCB branches in 1999 as well as de
novo branch openings expected to occur during 1999. 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 and de novo branches 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 branches established in 1996.
Occupancy and equipment expenses increased from $2.5 million in 1996 to
$3.2 million in 1997 and to $3.7 million in 1998. The 1998 increase of 16.91%
principally related to new branches added as a result of acquisition activity
and establishment of de novo branches. The 1997 increase of 28.90% was
principally the result of the full year impact of the six new branches
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.
26
<PAGE>
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 were $1.4 million in 1998, $1.2 million
in 1997, and $1.4 million in 1996. The increase in data processing fees during
1998 was due primarily to de novo branch openings and branch acquisitions.
Other miscellaneous operating expenses were $4.8 million, $3.3 million,
and $3.5 million for 1998, 1997, and 1996, respectively. The 1998 increase in
miscellaneous operating expenses was partially due to BancShares' contribution
of a building at fair market value to a non-profit agency and the recognition
of $448,000 in contribution expense on this donation. Another component of
miscellaneous operating expense is intangibles amortization. Intangibles
amortization was $599,000 in 1998, $589,000 in 1997, and $361,000 in 1996. 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 remaining components of miscellaneous operating expenses increased
due to acquisitions, de novo branch openings, and general growth within the
branching network during the year.
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 1999. However, beginning
in 1997 the FDIC began collecting from all banks an assessment for Financing
Corporation ("FICO") funding requirements. Accordingly, BancShares expects a
1999 FDIC FICO assessment expense of approximately $100,000, based on the FDIC
FICO assessment rates in effect for the first quarter of 1999.
Income Taxes. In 1998, 1997 and 1996, BancShares had taxable income for
book purposes that resulted in income tax expense of $4.5 million, $4.6 million
and $3.5 million, respectively. The resulting effective income tax rates for
the years ended December 31, 1998, 1997 and 1996 were 36.82%, 38.28% and
35.62%, respectively. The decrease in the effective income tax rate for the
year ended December 31, 1998, as compared to the year ended December 31, 1997,
was primarily due to the Bank's contribution of a building to a non-profit
agency. The increase in the effective income tax rate for the year ended
December 31, 1997, as compared to the year ended December 31, 1996, was
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 1998 were $559.3 million, an increase of 8.74% from the 1997
average of $514.4 million. This increase was primarily due to growth within the
existing branch network and the fourth quarter acquisition of five branches.
The cash received in the acquisition was invested in loans and short-term
investments, including federal funds.
Average earning assets during 1997 were $514.4 million, an increase of
17.48% from the 1996 average of $437.9 million. This increase was due primarily
to the full year impact of the 1996 acquisitions, 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 noninterest earning assets during 1998 were $51.0 million, an
increase of 16.58% from the 1997 average of $43.7 million. Average noninterest
earning assets during 1997 were $43.7 million, an increase of 13.00% from the
1996 average of $38.7 million. The increase in 1998 was primarily due to
increases in cash, fixed assets and intangible assets resulting from the 1998
de novo branch openings. BancShares' principal noninterest earning asset is
fixed assets which averaged $22.9 million in 1998, $20.0 million in 1997 and
$17.5 million in 1996.
Return on total average assets was 1.25% in 1998 as compared to 1.32% in
both 1997 and 1996. The decline in 1998 was principally the result of the
establishment of six de novo branches in 1998.
Interest Bearing and Noninterest Bearing Liabilities. Interest bearing
liabilities consist of deposits and short term borrowed funds. Average interest
bearing liabilities during 1998 were $466.0 million, an increase of 7.38% from
the 1997 average of $434.0 million. This increase was primarily due to growth
within the existing branch network and the fourth quarter
27
<PAGE>
acquisition of five branches. BancShares' principal interest bearing
liabilities are interest bearing deposits. Average non-interest bearing
liabilities during 1998 were $82.4 million, an increase of 18.96% from the 1997
average of $69.3 million. Noninterest bearing demand deposits are the principal
noninterest bearing liability. The cost of total interest bearing liabilities
was 4.27% and 4.38% in 1998 and 1997, respectively.
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, and growth in the four de novo branches established in
1996. 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 BancShares' principal noninterest bearing
liability.
Loans. As of December 31, 1998, loans, net of the allowance for loan
losses, totaled $434.6 million compared to $354.1 million at year-end 1997. The
increase was attributable to normal loan growth, particularly in the real
estate mortgage and construction loan portfolios, which grew $19.2 million and
$17.6 million, respectively. Also, the Bank acquired $33.7 million in loans
from the acquisition in the fourth quarter of five branches.
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 1998, 37.66% of the loan portfolio was due to mature or be available for
repricing of interest rates in 1999.
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, 1998, the fair value of available-for-sale securities
exceeded the carrying value by $7.0 million, deferred taxes related to these
available-for-sale securities were $2.8 million, and shareholders' equity
included $4.2 million for the net unrealized gain related to these
available-for-sale securities. 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. BancShares does not
maintain a trading account.
Asset Quality.
Provision and Allowance for Possible Loan Losses. Because BancShares' loan
portfolio represents its 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 1998, BancShares charged-off loans net of recoveries of
$174,000. This represents a decrease of $180,000 from 1997 net charge-offs of
$354,000. This decrease is primarily the result of increased recoveries in
1998. The percentage of charge-offs (net of recoveries) to average outstanding
loans was 0.04% in 1998, 0.10% in 1997, and 0.14% in 1996.
The ratio of total non-performing assets to total loans plus other real
estate was 0.03%, 0.02% and 0.02% at December 31, 1998, 1997 and 1996,
respectively. Assets classified as other real estate were $111,000 at December
31, 1998, and $57,000 at December 31, 1997 and 1996.
Accrual of interest is discontinued on a loan when management believes the
borrower's financial condition is such that the collection of principal or
interest is doubtful. Loans are returned to accrual status when the factors
indicating doubtful collectibility cease to exist.
28
<PAGE>
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 an 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, 1998 and 1997, the Bank did not have any nonaccrual loans,
nor did the Bank have any restructured or impaired loans. At December 31, 1998
and 1997, the Bank did not have any accruing loans 90 days or more past due.
The allowance for loan losses represented 1.05% and 1.16% of loans
outstanding at year end 1998 and 1997, respectively. The Bank's provision for
loan losses charged against earnings was $630,000 in 1998 and $360,000 in both
1997 and 1996. The increase in the provision for loan losses between 1997 and
1998 was primarily due to growth within the loan portfolio.
Management considers the December 31, 1998 allowance for loan losses
adequate to cover probable 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 35.75% of
deposits at December 31, 1998, a decrease from 38.47% at December 31, 1997.
The Bank's liquidity ratio, which is defined as cash plus short term and
marketable securities divided by deposits and short term liabilities, was
33.29% at December 31, 1998, compared to 35.13% at year-end 1997. 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
it 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.
Funds received from any maturing investments that 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 66.71%, 88.64% and 26.04% of the total investment
securities portfolio at December 31, 1998, 1997 and 1996, respectively.
In addition, BancShares held marketable equity securities with fair values
of $9.6 million, $11.8 million and $8.9 million at December 31, 1998, 1997 and
1996, respectively. These investments are classified as available-for-sale and
could be sold at management's discretion.
29
<PAGE>
BancShares' consolidated statements of cash flows disclose the principal
sources and uses of cash from operating, investing, and financing activities
for 1998, 1997, and 1996. In 1998, BancShares' operating activities provided
cash flows of $12.6 million. Net income of $7.6 million, adjusted for non-cash
operating activities, provided the majority of cash generated from operations.
Investing activities, including lending, provided $26.2 million of BancShares'
cash flow. Loans originated, net, of principal collected, used $47.4 million.
Cash received in connection with the acquisition of branches provided $35.4
million of BancShares cash flow. Securities maturities, net of purchases,
provided $42.0 million, and expenditures for premises and equipment utilized
$4.1 million of BancShares' cash flow. Net additional cash inflows of $28.9
million resulted from financing activities, principally from deposit inflows of
$29.3 million.
In 1997, BancShares' operating activities 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.
In 1996, BancShares' operating activities 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 acquired during
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.
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, 1998, 1997 and 1996, jumbo CD's represented 9.63%, 9.88%, and 9.88%,
respectively, of total deposits.
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, during the next
twelve months, 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.
30
<PAGE>
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, 1998. 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, 1998.
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 1999 since they are subject to immediate repricing.
<TABLE>
Maturing in year ended December 31,
----------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter
------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans:
Fixed Rate .................... $ 69,124 $ 50,091 $ 54,634 $ 9,162 $ 18,669 $ 22,340
Average rate (%) .............. 9.53% 9.02% 8.78% 8.51% 8.44% 8.06%
Variable rate ................. $ 96,278 $ 15,559 $ 12,948 $ 3,722 $ 4,103 $ 82,577
Average rate (%) .............. 8.68% 8.69% 8.59% 8.56% 8.47% 8.17%
Investment securities (1):
Fixed rate .................... $ 60,132 $ 30,000 -- -- -- $ 14
Average rate (%) .............. 5.55% 5.50% -- -- -- 10.87%
Liabilities
Savings and interest bearing
checking:
Fixed rate .................... $218,616 -- -- -- -- --
Average rate (%) .............. 2.06% -- -- -- -- --
Certificates of deposit:
Fixed rate .................... $242,301 $ 44,822 $ 8,883 $ 7,141 -- --
Average rate (%) .............. 5.00% 5.69% 5.42% 5.44% -- --
Short-term obligations:
Variable rate ................. $ 11,617 -- -- -- -- --
Average rate (%) .............. 3.22% -- -- -- -- --
Total Fair Value
------------- -----------
<S> <C> <C>
Assets
Loans:
Fixed Rate .................... $ 224,020 $224,557
Average rate (%) .............. 8.95%
Variable rate ................. $ 215,187 $215,187
Average rate (%) .............. 8.47%
Investment securities (1):
Fixed rate .................... $ 90,146 $ 90,568
Average rate (%) .............. 5.53%
Liabilities
Savings and interest bearing
checking:
Fixed rate .................... $ 218,616 $218,616
Average rate (%) .............. 2.06%
Certificates of deposit:
Fixed rate .................... $ 303,147 $304,912
Average rate (%) .............. 5.13%
Short-term obligations:
Variable rate ................. $ 11,617 $ 11,617
Average rate (%) .............. 3.22%
</TABLE>
- ---------
(1) Marketable equity securities with a book value of approximately $2,645,000
and a fair value of approximately $9,608,000 have been excluded from this
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).
As of December 31, 1998, BancShares had a positive one year cumulative gap
position of 13.05%. BancShares has interest earning assets of $410.4 million
maturing or repricing within one year and interest bearing liabilities of
$328.4 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.
31
<PAGE>
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, 1998, BancShares' Leverage Capital Ratio (as defined
herein) was 7.77%, as compared to 8.46% and 8.78%, respectively, at year end
1997 and 1996. 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, 1998
was 10.51% which is, along with the ratios of 13.39% and 13.59% for 1997 and
1996, 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, 1998 BancShares' Total Capital Ratio was
12.11%, which is representative of a well capitalized institution (one whose
ratio exceeds 10.00%). The Total Capital Ratios for 1997 and 1996 were 14.56%
and 14.84%, respectively. See "Supervision and Regulation -- Capital Adequacy."
The reason for the decline in ratios between 1996 and 1998 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 improve if BancShares' capital increases at a rate
proportionately faster than liabilities. Management is aware that growth must
be controlled. BancShares' 1999 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 1998, equity
capital increased through retention of earnings by $6.7 million, by $6.5
million in 1997 and by $5.4 million in 1996. BancShares' internal capital
generation rate was 10.89% in 1998, 11.81% in 1997, and 11.51% in 1996. At
December 31, 1998, shareholders' equity totaled $64.8 million compared to $59.1
million in 1997. The shareholders' equity for 1998 and 1997 included, as
discussed above, $4.2 million and $5.2 million, respectively, of net unrealized
securities gains on available-for-sale securities.
The ratio of average shareholders' equity to average total assets was
10.14% in 1998, and 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 both 1998 and 1997, BancShares paid $909,000 in
dividends, versus $914,000 in 1996. As a percentage of net income, dividends
were 11.88% in 1998, 12.31% in 1997, and 14.51% in 1996. 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 1998, the Financial Accounting Standards Board ("FASB") issued
Statement 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
32
<PAGE>
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. BancShares plans to adopt this statement on
January 1, 2000 and does not anticipate any material effect on its consolidated
financial statements.
In October 1998, FASB issued Statement No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." This statement allows mortgage
banking firms to account for certain securities and other interests retained
after securitizing mortgage loans that were held for sale based on the intent
and ability to hold or sell such investments. This statement is effective for
the first fiscal quarter beginning after December 15, 1998. BancShares plans to
adopt this statement effective January 1, 1999 and does not anticipate any
material effect on its consolidated financial statements.
During April 1999, the Bank entered into an agreement, subject to
regulatory approval and other customary closing conditions, to purchase seven
North Carolina branches of FCB. The effect of this transaction on the Bank will
be an increase of approximately $111.9 million in deposits and approximately
$22.1 million in assets (including premises and loans). In connection with that
transaction (which is expected to be consummated during August 1999), the Bank
expects to pay an aggregate deposit premium of approximately $5.2 million.
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.
33
<PAGE>
Statistical Information.
The following tables contain certain additional statistical information
regarding BancShares' business operations.
Table I.
Average Balance Sheet Items and Net Interest Differential
Average Balances and Average Rates Earned and Paid
<TABLE>
December 31, 1998 December 31, 1997
--------------------------------- ---------------------------------
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) ...................... $390,162 $37,615 9.64% $349,526 $34,116 9.76%
Taxable investment
securities ...................... 105,157 6,009 5.71 144,218 8,440 5.85
Non taxable investment
securities (3) .................. 570 33 5.79 88 5 5.68
Federal funds sold ................ 50,527 2,664 5.27 8,519 461 5.41
Other ............................. 12,932 260 2.01 12,059 229 1.90
-------- ------- ---- -------- ------- ----
Total interest earning assets ...... 559,348 46,581 8.33 514,410 43,251 8.41
-------- ------- ---- -------- ------- ----
Noninterest earning assets:
Cash and due from banks ........... 19,602 15,811
Premises and equipment ............ 22,860 19,974
Other ............................. 8,496 7,924
-------- --------
Total assets ....................... $610,306 $558,119
======== ========
Liabilities & Equity
Interest bearing liabilities:
Demand deposits ................... $138,573 3,866 2.79 $118,582 3,321 2.80
Savings deposits .................. 46,444 1,136 2.45 46,008 1,142 2.48
Time deposits ..................... 271,068 14,477 5.34 262,000 14,230 5.43
Short-term borrowings (4) ......... 9,914 413 4.17 7,389 324 4.38
-------- ------- ---- -------- ------- ----
Total interest bearing
liabilities ....................... 465,999 19,892 4.27 433,979 19,017 4.38
-------- ------- ---- -------- ------- ----
Noninterest bearing liabilities:
Demand deposits ................... 72,587 61,395
Other ............................. 9,850 7,905
Shareholders' equity ............... 61,870 54,840
-------- --------
Total liabilities and equity ....... $610,306 $558,119
======== ========
Interest rate spread (5) ........... 4.06% 4.03%
==== ====
Net interest income and net
interest margin (6) ............... $26,689 4.77% $24,234 4.71%
======= ==== ======= ====
December 31, 1996
---------------------------------
Average Average
Balance Interest Rate
----------- ---------- ----------
(Dollars in thousands,
taxable-equivalent)
<S> <C> <C> <C>
Assets
Interest earning assets:
Loans (1)(2) ...................... $297,229 $29,060 9.78%
Taxable investment
securities ...................... 119,042 7,250 6.09
Non taxable investment
securities (3) .................. 158 11 6.96
Federal funds sold ................ 13,442 704 5.24
Other ............................. 8,009 216 2.70
-------- ------- ----
Total interest earning assets ...... 437,880 37,241 8.50
-------- ------- ----
Noninterest earning assets:
Cash and due from banks ........... 14,043
Premises and equipment ............ 17,519
Other ............................. 7,117
--------
Total assets ....................... $476,559
========
Liabilities & Equity
Interest bearing liabilities:
Demand deposits ................... $ 99,928 2,684 2.69
Savings deposits .................. 42,954 1,073 2.50
Time deposits ..................... 221,304 12,201 5.51
Short-term borrowings (4) ......... 6,690 287 4.29
-------- ------- ----
Total interest bearing
liabilities ....................... 370,876 16,245 4.38
-------- ------- ----
Noninterest bearing liabilities:
Demand deposits ................... 50,643
Other ............................. 8,216
Shareholders' equity ............... 46,824
--------
Total liabilities and equity ....... $476,559
========
Interest rate spread (5) ........... 4.12%
====
Net interest income and net
interest margin (6) ............... $20,996 4.79%
======= ====
</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) See Table XI.
(5) Interest rate spread is the difference between earning asset yield and
interest bearing liability rate.
(6) Net interest margin is net interest income divided by average earning
assets.
34
<PAGE>
Table II.
Average Balance Sheet Items and Net Interest Differential
Analysis of Changes in Interest Differential
<TABLE>
December 31, 1998 Increase (Decrease)
-------------------------------------------------------
Total Attributable Attributable Attributable
Change to Change to Change to Change in
1997-1998 in Volume in Rate Rate/Volume
------------- ------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets
Interest earning assets:
Loans, net ................................ $ 3,499 $ 3,966 $ (419) $(48)
Taxable investment securities ............. (2,431) (2,285) (202) 56
Non taxable investment securities ......... 28 27 -- 1
Federal funds sold ........................ 2,203 2,273 (12) (58)
Other ..................................... 31 17 13 1
------- -------- ------ ----
Total interest income ...................... 3,330 3,998 (620) (48)
------- -------- ------ ----
Liabilities & Equity
Interest bearing liabilities:
Demand deposits ........................... 545 560 (12) (3)
Savings deposits .......................... (6) 11 (14) (3)
Time deposits ............................. 247 492 (236) (9)
Short-term borrowings ..................... 89 111 (16) (6)
--------- -------- ------ -------
Total interest expense ..................... 875 1,174 (278) (21)
--------- -------- ------ ------
Net interest income ........................ $ 2,455 $ 2,824 $ (342) $(27)
========= ======== ====== ======
</TABLE>
<TABLE>
December 31, 1997 Increase (Decrease)
-----------------------------------------------------
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 ..................................... 13 109 (64) (32)
------- ------- ------- ------
Total interest income ...................... 6,010 6,494 (388) (96)
------- ------- ------- ------
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 ........................ $3,238 $3,644 $(319) $(88)
======= ======= ======= ======
</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 1998, 1997 and 1996, respectively.
35
<PAGE>
Table III. Investment Portfolio
The following table sets forth the carrying amount of investment
securities:
<TABLE>
December 31,
----------------------------------
1998 1997 1996
---------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
U.S. Treasury and U.S. Government agencies ......... $90,146 $130,131 $128,592
States and political subdivisions .................. -- 2,000 219
Marketable equity securities ....................... 9,608 11,809 8,918
------- -------- --------
Total ............................................. $99,754 $143,940 $137,729
======= ======== ========
</TABLE>
The following table sets forth the maturities of investment securities at
December 31, 1998 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) $60,132 5.55% $30,000 5.50% $14 10.87%
Other (2) ........................................... 2,645 4.67 -- -- -- --
------- ---- ------- ---- --- -----
Total .............................................. $62,777 5.51% $30,000 5.50% $14 10.87%
======= ==== ======= ==== === =====
</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,
------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Real estate:
Construction and land development .......... $ 51,499 $ 33,851 $ 28,787 $ 24,728 $ 24,369
Mortgage:
One to four family residential .......... 134,681 141,301 144,331 99,228 94,743
Commercial .............................. 65,339 57,222 51,629 48,736 42,733
Equity lines of credit .................. 62,205 44,915 35,971 29,011 22,973
Other ................................... 4,983 4,579 5,839 4,757 6,933
Commercial and industrial ................... 79,724 41,851 36,330 30,080 24,129
Consumer .................................... 33,849 28,630 26,934 24,870 20,956
Agricultural ................................ 4,523 3,335 2,669 2,368 1,982
Other ....................................... 2,405 2,566 2,390 5,153 3,483
-------- -------- -------- -------- --------
Total ................................... 439,208 358,250 334,880 268,931 242,301
Less allowance for possible loan losses ..... 4,601 4,145 4,139 4,078 3,786
-------- -------- -------- -------- --------
Net loans ............................... $434,607 $354,105 $330,741 $264,853 $238,515
======== ======== ======== ======== ========
</TABLE>
36
<PAGE>
Table IV. Loan Portfolio (continued)
The following table identifies the maturities of all loans as of December
31, 1998 and addresses the sensitivity of these loans to changes in interest
rates:
Loan Sensitivity
<TABLE>
December 31, 1998
----------------------------------------------
Within One To Five After
One Year Years FiveYears Total
---------- ------------ ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate -- construction and land development $ 51,499 $ -- $ -- $ 51,499
Commercial and industrial ....................... 30,020 30,653 19,051 79,724
Other ........................................... 83,883 138,236 85,866 307,985
-------- -------- -------- --------
Total ....................................... $165,402 $168,889 $104,917 $439,208
======== ======== ======== ========
Loans maturing after one year with:
Fixed interest rates ........................... $132,557 $ 22,340 $154,897
Floating or adjustable rates ................... $ 36,332 82,577 118,909
-------- -------- --------
Total ....................................... $168,889 104,917 $273,806
======== ======== ========
</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,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans ............................ $ -- $ -- $ -- $ -- $ --
Restructured loans .......................... -- -- -- -- --
--------- --------- --------- --------- ---------
Total nonperforming loans .................. -- -- -- -- --
Other real estate ........................... 111 57 57 -- --
--------- --------- --------- --------- ---------
Total nonperforming assets ................. $ 111 $ 57 $ 57 $ -- $ --
========= ========= ========= ========= =========
Accruing loans 90 days or more past due ..... -- $ -- $ 85 $ 10 $ 109
Loans at December 31 ........................ $ 439,208 $ 358,250 $ 334,880 $ 268,931 $ 242,301
Ratio of nonperforming assets to total loans
plus other real estate ..................... 0.03% 0.02% 0.02% 0.00% 0.00%
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 years in the five-year period ended
December 31, 1998:
<TABLE>
December 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses -- beginning of year .. $ 4,145 $ 4,139 $ 4,078 $ 3,786 $ 3,452
Charge-offs:
Commercial, financial, and agricultural ................. 96 196 32 -- --
Real estate:
Construction .......................................... -- -- -- -- --
Mortgage:
One to four family residential ...................... 1,192 273 283 -- --
Commercial .......................................... -- -- -- -- --
Equity lines of credit .............................. -- -- 19 -- --
Other ............................................... -- -- -- -- --
Consumer ................................................ 253 379 262 153 85
--------- --------- --------- --------- ---------
Total charge-offs ........................................ 1,541 848 596 153 85
--------- --------- --------- --------- ---------
Recoveries:
Commercial, financial, and agricultural ................. 36 63 3 9 --
Real estate:
Construction .......................................... -- -- -- -- --
Mortgage:
One to four family residential ...................... 1,193 308 90 -- 8
Commercial .......................................... -- -- -- -- --
Equity lines of credit .............................. -- -- 19 -- --
Other ............................................... -- -- -- -- --
Consumer ................................................ 138 123 68 76 51
--------- --------- --------- --------- ---------
Total recoveries ......................................... 1,367 494 180 85 59
--------- --------- --------- --------- ---------
Net charge-offs .......................................... 174 354 416 68 26
Provision for loan losses ................................ 630 360 360 360 360
Addition from acquisition of Perpetual Savings Bank ...... -- -- 117 -- --
--------- --------- --------- --------- ---------
Allowance for possible loan losses -- end of year ........ $ 4,601 $ 4,145 $ 4,139 $ 4,078 $ 3,786
========= ========= ========= ========= =========
Average loans outstanding during the year ................ $ 390,162 $ 349,526 $ 297,229 $ 260,103 $ 226,400
========= ========= ========= ========= =========
Ratio of net charge-offs to average loans outstanding .... 0.04% 0.10% 0.14% 0.03% 0.01%
========= ========= ========= ========= =========
</TABLE>
38
<PAGE>
Table V. Summary of Loan Loss Experience (continued)
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,
--------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ----------------------
% 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 ............ $ 154 12% $ 102 10% $ 86 9%
Mortgage:
One to four family
residential ........... 456 31 617 39 659 43
Commercial ............. 328 15 620 16 681 15
Equity lines of
credit ................ 187 14 135 13 108 11
Commercial, industrial
and agricultural ......... 2,132 19 1,227 12 1,088 11
Consumer .................. 911 8 958 8 956 8
Other ..................... 72 1 77 2 72 3
Unallocated ............... 361 -- 409 -- 489 --
------ -- ------ -- ------ --
Total .................. $4,601 100% $4,145 100% $4,139 100%
====== === ====== === ====== ===
December 31,
--------------------------------------------
1995 1994
---------------------- ---------------------
% 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 ............ $ 74 9% $ 73 10%
Mortgage:
One to four family
residential ........... 560 37 554 39
Commercial ............. 750 18 757 18
Equity lines of
credit ................ 87 11 69 9
Commercial, industrial
and agricultural ......... 942 11 788 10
Consumer .................. 950 9 862 9
Other ..................... 155 5 104 5
Unallocated ............... 560 -- 579 --
------ -- ------ --
Total .................. $4,078 100% $3,786 100%
====== === ====== ===
</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>
1998 1997 1996
------------------- --------------------- ---------------------
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 ......... $ 72,587 --% $ 61,395 -- $ 50,643 --
Interest bearing demand ............. 138,573 2.79 118,582 2.80% 99,928 2.69%
Savings ............................. 46,444 2.45 46,008 2.48 42,954 2.50
Time deposits ....................... 271,068 5.34 262,000 5.43 221,304 5.51
-------- -------- --------
Total deposits ..................... $528,672 $487,985 $414,829
======== ======== ========
</TABLE>
Maturities of time certificates of deposit of $100,000 or more at December
31, 1998 are summarized as follows (dollars in thousands):
<TABLE>
<S> <C>
Maturity category:
Three months or less ...................... $16,844
Over three through six months ............. 12,418
Over six months through twelve months ..... 19,573
Over one year through five years .......... 9,858
Over five years ........................... --
-------
$58,693
=======
</TABLE>
39
<PAGE>
Table VII. Return on Equity and Assets
The following table presents certain ratios of BancShares:
<TABLE>
Year ended December 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Return on assets (net income divided by average total assets) ............ 1.25% 1.32% 1.32%
Return on equity (net income divided by average total equity) ............ 12.36 13.47 13.46
Dividend payout ratio (dividends paid divided by net income) ............. 11.88 12.31 14.51
Equity to assets ratio (average equity divided by average total assets) .. 10.14 9.83 9.83
</TABLE>
Table VIII. Capital Adequacy
The following table presents certain calculations of BancShares' capital
and related ratios:
<TABLE>
December 31,
--------------------------------------
1998 1997 1996
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Total shareholders' equity ......... $ 64,808 $ 59,117 $ 51,242
Leverage capital ................... 50,656 47,477 40,612
Tier 1 capital ..................... 50,656 47,477 40,612
Total capital ...................... 58,381 51,622 44,347
Leverage capital ratio (1) ......... 7.77% 8.46% 8.78%
Tier 1 capital ratio ............... 10.51 13.39 13.59
Total capital ratio (2) ............ 12.11 14.56 14.84
</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,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Return on average assets (based on net income) ................. 1.25% 1.32% 1.32%
Average equity as a percentage of total average assets ......... 10.14 9.83 9.83
Return on average equity ....................................... 12.36 13.47 13.46
Dividend payout ratio .......................................... 11.88 12.31 14.51
(dividends paid divided by net income)
Earnings retention ............................................. 88.12 87.69 85.49
(net income less dividends divided by net income)
Rate of internal capital generation ............................ 10.89 11.81 11.51
(return on average equity ratio times earnings retention ratio)
</TABLE>
40
<PAGE>
Table X. Interest Rate Sensitivity Analysis
<TABLE>
December 31, 1998
-----------------------------------------
1-30 31-90 91-180
Days Days Days
Sensitive Sensitive Sensitive
------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Assets:
Loans .................................... $ 202,726 $ 22,525 $ 12,656
Investment securities .................... -- 45,027 --
Federal funds sold ....................... 87,050 -- --
Other .................................... -- -- --
Total interest earning
assets ................................ $ 289,776 $ 67,552 $ 12,656
========= ========= =========
Liabilities
Savings and checking with interest ....... $ -- $ -- $ --
Money market savings accounts ............ 74,526 -- --
Time deposits ............................ 30,775 54,786 69,862
Short-term borrowings .................... 11,617 -- --
--------- --------- ---------
Total interest bearing
liabilities ........................... $ 116,918 $ 54,786 $ 69,862
========= ========= =========
Interest sensitivity gap ................. $ 172,858 $ 12,766 $ (57,206)
========= ========= =========
Cumulative interest sensitivity gap ...... $ 172,858 $ 185,624 $ 128,418
Cumulative interest sensitivity gap to
total interest earning assets ........... 27.53% 29.56% 20.45%
December 31, 1998
--------------------------------------------------------
181-365 Total
Days One-Year Total
Sensitive Sensitive Nonsensitive Total
------------- ------------- -------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets:
Loans .................................... $ 25,312 $ 263,219 $ 175,989 $ 439,208
Investment securities .................... 15,105 60,132 39,622 99,754
Federal funds sold ....................... -- 87,050 -- 87,050
Other .................................... -- -- 1,862 1,862
Total interest earning
assets ................................ $ 40,417 $ 410,401 $ 217,473 $ 627,874
========= ========= ========= =========
Liabilities
Savings and checking with interest ....... $ -- $ -- $ 144,090 $ 144,090
Money market savings accounts ............ -- 74,526 -- 74,526
Time deposits ............................ 86,878 242,301 60,846 303,147
Short-term borrowings .................... -- 11,617 -- 11,617
--------- --------- --------- ---------
Total interest bearing
liabilities ........................... $ 86,878 $ 328,444 $ 204,936 $ 533,380
========= ========= ========= =========
Interest sensitivity gap ................. $ (46,461) $ 81,957 $ 12,537 $ 94,494
========= ========= ========= =========
Cumulative interest sensitivity gap ...... $ 81,957 $ 81,957 $ 94,494 $ 94,494
Cumulative interest sensitivity gap to
total interest earning assets ........... 13.05% 13.05% 15.05% 15.05%
</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>
1998 1997 1996
------------------- ------------------- -------------------
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%
Maximum month end balance during year ..... -- 4,800 7,100
Repurchase agreements:
At December 31 ............................ $11,467 3.21% $7,632 4.12% $3,995 4.38%
Average during year ....................... 8,231 3.88 4,741 3.86 3,827 3.53
Maximum month-end balance during year ..... 11,467 7,632 4,111
U.S. Treasury tax and loan accounts:
At December 31 ............................ $ 150 4.11% $3,419 5.25% $1,980 5.15%
Average during year ....................... 1,681 5.55 1,752 5.20 1,504 5.26
Maximum month-end balance during year ..... 3,591 3,594 3,441
</TABLE>
41
<PAGE>
Table XII. Selected Quarterly Data -- Unaudited (1)
<TABLE>
1998
---------------------------------------------------
Fourth Third Second First
------------ ------------ ------------ ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income .................. $ 12,420 $ 11,716 $ 11,329 $ 11,105
Interest expense ................. 5,237 4,968 4,866 4,821
-------- -------- -------- --------
Net interest income .............. 7,183 6,748 6,463 6,284
Provision for loan losses ........ 300 150 90 90
-------- -------- -------- --------
Net interest income after
provision for loan losses ....... 6,883 6,598 6,373 6,194
Noninterest income ............... 1,708 1,622 1,093 1,053
Noninterest expense .............. 6,207 4,825 4,287 4,099
-------- -------- -------- --------
Income before income taxes ....... 2,384 3,395 3,179 3,148
Income taxes ..................... 850 1,232 1,237 1,138
-------- -------- -------- --------
Net income ....................... $ 1,534 $ 2,163 $ 1,942 $ 2,010
======== ======== ======== ========
PER SHARE OF STOCK
Net income per common shares ..... $ 53.99 $ 76.15 $ 68.36 $ 70.75
Cash dividends -- common ......... 8.00 8.00 8.00 8.00
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 shares ..... $ 61.77 $ 70.54 $ 66.66 $ 61.07
Cash dividends -- common ......... 8.00 8.00 8.00 8.00
</TABLE>
- ---------
(1) The selected quarterly data included in the tables for the quarterly
periods in 1998 and 1997 are unaudited, and limited quarterly review
procedures have not been performed by an independent certified public
accountant.
Year 2000 Issue
Introduction.
The year 2000 ("Y2K") issue confronting BancShares and its suppliers,
customers, customers' suppliers and competitors centers on the inability of
computer systems to recognize the year 2000. Many existing computer programs
and systems originally were programmed with six digit dates that provided only
two digits to identify the calendar year in the date field. With the impending
new millennium, these programs and computers will recognize "00" as the year
1900 rather than the year 2000. These problems may also arise from other
sources as well, such as the use of special codes and conventions in software
that make use of the date field.
Financial institution regulators recently have increased their focus upon
Y2K compliance issues and have issued guidance concerning the responsibilities
of senior management and directors. The Federal Financial Institutions
Examination Council ("FFIEC") has issued several interagency statements on Y2K
Project Management Awareness. These statements require financial institutions
to, among other things, examine the Y2K implications of their reliance on
vendors and with respect to data exchange and the potential impact of the Y2K
issue on their customers, suppliers and borrowers. These statements also
require each federally regulated financial institution to survey its exposure,
measure its risk and prepare a plan to address the Y2K issue. In addition, the
federal banking regulators have issued safety and soundness guidelines to be
followed by insured depository institutions, such as the Bank, to assure
resolution of any Y2K problems. The federal banking agencies have asserted that
Y2K testing and certification is a key safety and soundness issue in
conjunction with regulatory exams and, thus, that an institution's failure to
address appropriately the Y2K issue could result in supervisory action,
including the reduction of the institution's supervisory ratings, the denial of
applications for approval of mergers or acquisitions or the imposition of civil
money penalties.
Risks.
Like most financial service providers, BancShares and its operations may
be significantly affected by the Y2K issue due to its dependence on information
technology and date-sensitive data. Computer hardware and software and other
equipment, both within and outside BancShares' direct control, and third
parties with whom BancShares electronically or operationally interfaces
(including without limitation its customers and third party vendors) are likely
to be affected. If computer systems are not modified in order to be able to
identify the year 2000, many computer applications could fail or create
erroneous results. As a result, many calculations which rely on date field
information, such as interest, payment or due dates and other operating
functions, could generate results which are significantly misstated, and
BancShares could experience an inability to process transactions, prepare
statements or engage in similar normal business activities. Likewise, under
certain circumstances, a failure to adequately address the Y2K issue could
adversely affect the viability of BancShares' suppliers and creditors and the
creditworthiness of its borrowers. Thus, if not adequately addressed, the Y2K
issue could result in a significant adverse impact on BancShares' operations
and, in turn, its financial condition and results of operations.
42
<PAGE>
State of Readiness.
During October 1997, BancShares developed its plan to address the Y2K
issue. A substantial portion of BancShares' data processing functions are
performed by FCB on its mainframe systems and/or on systems supported by FCB,
which also provides similar services to several other financial institutions.
See "Certain Relationships and Related Transactions." Therefore, BancShares'
plan for addressing the Y2K issue divides information technology systems ("IT
Systems") into groups which include (i) FCB's mainframe systems used for
processing BancShares' data ("Group A Systems"), (ii) BancShares' non-mainframe
systems which are supported by FCB ("Group B Systems"), and (iii) BancShares'
separate non-mainframe systems ("Group C Systems"). BancShares' Y2K plan also
addresses non-information technology systems ("Non-IT Systems"). As to Group A
Systems and Group B Systems, BancShares' Y2K plan necessarily is designed to be
implemented jointly with FCB. FCB has retained an outside consultant to plan
and direct its Y2K compliance efforts, and BancShares participates in a
committee made up of representatives of the consultant, FCB and each of the
financial institutions for which FCB provides data processing services that
meets periodically to monitor the status of FCB's compliance efforts. Periodic
progress reports are made to Bancshares' Board of Directors.
Separate from its Y2K plan, during 1997 the Bank installed new local area
networks at all of its offices. This installation had previously been planned
and was not made solely in response to the Y2K issue. However, the timing was
such that the new equipment, when acquired, was Y2K-ready, which eliminated the
need to include many issues relating to that equipment in BancShares' Y2K plan.
The following paragraphs summarize the phases of BancShares' Y2K plan:
Assessment Phase. During the assessment phase, a Y2K corporate inventory
and business risk assessment was made (jointly with FCB in the case of Group A
Systems and Group B Systems, and separately in the case of Group C Systems and
Non-IT Systems) to quantify the extent of BancShares' Y2K exposure and identify
systems that required remediation. IT Systems identified as being affected by
the Y2K issue were designated as (i) "Priority 1" or "mission critical" (where
core operations could be sustained for up to three days in the event of a
failure), (ii) "Priority 2" (where core operations could be sustained for up to
seven days in the event of a failure), and (iii) "Priority 3" (where core
operations could be sustained for more than seven days in the event of a
failure). A general plan for dealing with each system was developed and
responsibilities for each system were assigned. This phase has been completed.
Remediation and Testing. With respect to IT Systems, this phase
contemplates the implementation of modifications, upgrades or system
replacements determined to be necessary to achieve Y2K compliance and the
testing of modified or upgraded systems to determine their functionality and
operating capability. FCB's outside consultant is responsible for coordinating
necessary modifications, upgrades or replacements, and testing with respect to
Group A Systems and Group B Systems. This phase has been completed as to all
Group A Systems and Group B Systems, with the exception of one Priority 1 Group
B System which is awaiting receipt and installation of an upgrade from an
outside vendor. As to Group C Systems, BancShares' staff is coordinating
remediation (which, in most cases, entails the installation of upgrades
provided by outside vendors) and testing, and this phase has been completed as
to substantially all systems (with completion of this phase as to remaining
systems scheduled to be completed during the second quarter of 1999).
Validation. The validation phase contemplates intensive testing, in an
isolated environment, of the ability of new and modified systems, which have
been determined to be functional, to accurately process date sensitive data
beginning January 1, 2000. Validation testing as to Group A Systems and Group B
Systems is being conducted by FCB's outside consultant and has been completed
as to all Group A Systems and Group B Systems, with the exception of the Group
B System described above which is awaiting remediation and five other systems
(four Priority 1 and one Priority 3) for which validation testing has not yet
been conducted. As to Group C Systems, BancShares' staff is conducting
validation testing which has been completed in the case of most systems and is
scheduled to be completed during the second quarter of 1999 in the case of
certain systems.
Implementation. Under BancShares' plan, once new and modified systems were
tested for functionality, they were being put into production before validation
testing was actually completed. With the exception of the Group B System
described above which is awaiting remediation, all BancShares' Group A Systems
and Group B Systems currently are in production.
Integrated Testing. During 1999, primary emphasis is being placed on
continued testing to determine that Group A Systems, which have been or are
being tested independently, properly process year 2000 dates in an integrated
mainframe environment. That testing process has begun and is scheduled to be
completed during September 1999.
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Non-IT Systems, Loan Customers and Third Party Service Providers.
Activities under BancShares' plan with respect to Non-IT Systems (including
security systems, office equipment, etc.), substantially all of which have been
categorized as Priority 3, primarily involve identifying potential Y2K problems
and insuring that outside vendors provide necessary upgrades or replacements.
Each system has been assigned to an officer of BancShares whose responsibility
it is to communicate with the vendor of that system and coordinate any
necessary remediation. Validation testing for Non-IT Systems is planned for the
second and third quarters of 1999.
During early 1998, BancShares identified those borrowing customers whose
existing aggregate borrowings from BancShares exceeded $500,000 and whose
businesses were of a nature that they could be adversely affected by the Y2K
issue. A meeting was held individually with each such borrowing customer to
assess the customer's plan for and progress toward addressing the Y2K issue,
and BancShares plans to schedule individual follow-up meetings with certain of
those customers during 1999. With respect to loans to new borrowers, BancShares
has begun making an assessment of Y2K risk and steps being taken by those
borrowers to address the Y2K issue as part of the credit approval process.
Costs.
BancShares is expensing all costs associated with required system changes
as those costs are incurred, and such costs are being funded through operating
cash flows. Because a substantial portion of BancShares' data processing
functions are performed by FCB on its mainframe systems and/or on systems
supported by FCB, FCB is bearing a substantial portion of the expenses related
to the remediation and testing of systems that affect BancShares. BancShares
has budgeted $412,000 for its separate Y2K project expenses. Expenses actually
incurred through December 31, 1998 were not material. BancShares does not
expect significant increases in future data processing costs relating to Y2K
compliance.
Contingency Plans.
During the assessment phase, BancShares began to identify a back-up or
contingency plan for each of its Priority 1 systems. Virtually all of
BancShares' Priority 1 systems are dependent upon third party vendors or
service providers, therefore, contingency plans with respect to system failures
during the remediation and validation phases included selecting a new vendor or
service provider and converting to their system. In the event a current
vendor's system fails during continued testing and it is determined that the
vendor is unable or unwilling to correct the failure, BancShares will convert
to a new system from a pre-selected list of prospective vendors. Together with
FCB and the other institutions for which FCB provides data processing services,
BancShares is assessing business risks associated with a Priority 1 Group A
System or Group B System failure on or after January 1, 2000, and business
continuation plans for dealing with such failures are still being developed.
BancShares also currently is developing contingency plans with respect to
Non-IT Systems and matters such as interruptions in electric or telephone
service or in deliveries of business supplies. While interruptions in certain
services could make it difficult or impossible for BancShares to conduct normal
operations, its contingency plans will include things such as increased
inventories of critical business forms and other supplies and methods of
providing for reduced operations until interrupted services are restored.
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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 December 31, 1998, BancShares had total
consolidated assets of approximately $694.1 million, total consolidated
deposits of approximately $609.6 million, and total consolidated shareholders'
equity of approximately $64.8 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 46 banking offices in 31
central North Carolina communities, 16 of which were opened or acquired within
the last three fiscal years. During October 1998, the Bank purchased an
aggregate of $36.6 million in assets, and assumed an aggregate of $75.1 million
in deposit liabilities, associated with five branch offices of FCB. In
addition, the Bank has agreed, subject to regulatory approval and other
customary closing conditions, to purchase assets totaling approximately $22.1
million, and to assume an aggregate of approximately $111.9 million in deposit
liabilities, of seven branch offices of FCB. The second transaction is expected
to be consummated during August 1999. See "Certain Relationships and Related
Transactions." BancShares is likely to incur additional operating and capital
expenses in 1999 as a result of its expansion program. These increased expenses
could cause BancShares' 1999 earnings to decline from earnings in 1998.
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 December
31, 1998, non-interest bearing accounts equaled 14.42% of total deposits. The
remaining deposits were comprised of 35.86% in savings and interest bearing
deposits and 49.72% in time deposits.
BancShares' return on average assets and return on average equity were
1.25% and 12.36%, respectively, for the year ended December 31, 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 December 31, 1998,
BancShares' loan-to-deposit ratio was 72.04% and over 45% of its $188.7 million
investment portfolio was invested in U.S. government obligations with an
average maturity of 8 months. Consistent with its management philosophy,
BancShares has emphasized a low-risk loan portfolio derived from its local
markets. At December 31, 1998, BancShares' non-performing assets were $111,000,
or 0.03% of gross loans and other real estate. Net charge-offs for the year
ended December 31, 1998 were 0.04% of average loans. The allowance for loan
losses at December 31, 1998, was 1.05% 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
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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.
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 December 31, 1998, approximately 73% 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 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.
In addition to the real estate loans described above which are carried in
the Bank's loan portfolio, the Bank makes conventional, long-term mortgage
loans which are underwritten to FHLMC guidelines, closed in the Bank's name,
and then sold in the secondary market. The servicing rights on these loans are
sold by the Bank to an affiliated financial institution. See "Certain
Relationships and Related Transactions." With the exception of these
conventional mortgage loans, none of the Bank's real estate loans are
underwritten to conform to FNMA or FHLMC guidelines.
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.
With the exception of conventional mortgage loans underwritten to FHLMC
guidelines as described above, none of the Bank's loans are made or
underwritten for sale in any secondary market, and there is no established
secondary market into which any of the loans carried in the Bank's loan
portfolio could be sold. However, while the Bank has not previously sold, or
attempted to sell, any of its portfolio loans, management of the Bank believes
that, should the need arise (for purposes of liquidity or otherwise), portions
of its loan portfolio could be sold to other banks or financial institutions on
a privately negotiated basis. Because it believes the Bank has adequate other
sources of liquidity, and because the Bank's loans generally are made at
variable interest rates and/or provide for a call option or a balloon payment
after not more than five years (in order to minimize interest rate risk),
management currently does not foresee a need to sell any of the Bank's
portfolio loans.
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. As described above, the Bank's loan
portfolio consists primarily of loans made for a variety of commercial,
agricultural and consumer purposes. Because these types of loans are made
based, to a
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great extent, on the Bank's assessment of borrowers' income, cash flows,
character and abilities to repay (as compared to long-term residential mortgage
loans in which greater emphasis is placed on collateral), such loans generally
are viewed as involving a higher degree of credit risk than is the case with
long-term residential mortgage loans. To manage this risk, 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
9.63% of the Bank's total deposits at December 31, 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.
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 December 31, 1998, the Bank's investment
portfolio consisted almost entirely of U.S. government securities 66.71% of
which mature within one year and 33.28% 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.
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Employees. At December 31, 1998, the Bank employed 263 full-time employees
and 29 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
six branch offices which are leased, and one tract of land that is leased and
upon which the Bank has constructed a branch office, the Bank owns all of the
real property utilized in its operations. At December 31, 1998, the Bank's
investment in premises and equipment, net of depreciation, was approximately
$24.9 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 LLP to serve as its
independent certified public accountants. KPMG 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 the fiscal year preceding the change (1996), 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 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 LLP audited BancShares'
consolidated financial statements for 1998 and 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
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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 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 December 31, 1998, approximately $3.9 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. See "Risk Factors -- Risk Factors Relating
to BancShares -- Reliance on Dividend Payments by Bank."
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
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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 December 31, 1998, BancShares' consolidated Total Capital Ratio
and its ratio of Tier 1 Capital to risk-weighted assets ("Tier 1 Capital
Ratio") were 12.11% and 10.51%, 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 December 31,
1998 was 7.77%.
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 December 31, 1998, the Bank's
consolidated Total Capital, Tier I Capital and Leverage Capital Ratios were
10.81%, 9.86% and 7.29%, 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
50
<PAGE>
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 December 31, 1998, the Bank had the requisite capital levels to qualify
as well capitalized. However, growth in the Bank's assets resulting from
acquisitions of branch offices has reduced, and will continue to reduce, the
Bank's capital ratios. During October 1998, the Bank purchased the assets and
assumed the deposit liabilities of five branch offices of FCB, and the Bank
currently proposes to acquire seven additional branch offices of FCB during
August 1999. Based on current projections, if the pending transaction had been
consummated on December 31, 1998, the effect, absent an increase in the Bank's
capital, would have been to reduce the Bank's capital ratios to a level that
would classify it as adequately capitalized. See "Use of Proceeds."
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 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 December 31, 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.
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<PAGE>
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. The
affiliates covered by these restrictions may include companies that the Holding
family owns or controls, in which it has power to vote more than 25% of any
class of voting stock, or with respect to which it has the power to elect the
majority of the directors. These restrictions prevent 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,
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<PAGE>
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.
Pending Legislation
The Banking Committees of the U.S. Senate and House of Representatives
recently have approved different versions of bills that would modernize the
financial services industry. If either of the bills becomes law -- which
requires full Senate and House approval of the same bill and Presidential
approval -- insurance and securities firms would be allowed to affiliate with
banks. Such changes in the banking industry could have a material effect on
BancShares' financial condition or results.
BENEFICIAL OWNERSHIP OF SECURITIES
Principal Shareholders
As of the close of business on December 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) 39.27
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.
53
<PAGE>
Management
As of the close of business on December 31, 1998, the beneficial ownership
of BancShares' voting securities by the directors of BancShares, individually
and as a group, was as follows:
<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 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 731(2) 2.57
Fuquay-Varina, N.C.
All directors and executive officers 1,166 4.11
as 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 -- 40 shares held jointly with his spouse and 40 shares held by a
corporation which he controls; Mr. Riddle -- 22 shares held by his spouse;
Mr. Woodard -- 318 shares held by his spouse and adult children.
54
<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 names 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,
77 State of North Carolina, Raleigh, N.C.
Haywood A. Lane, Jr. President and Director 1979 Formerly Executive Vice President of
62 the Bank and BancShares
Wallace H. Mitchell Director 1968 Retired; Partner, Mitchell Farms; former
71 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
68 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
68
Haywood A. Lane, Jr. President
62
</TABLE>
55
<PAGE>
EXECUTIVE COMPENSATION
Executive Officers
Cash Compensation. The following table shows, for 1998, 1997 and 1996, 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 1998 $220,817 $50,000 $1,600 $7,594
Chairman and Chief 1997 159,304 44,000 1,600 7,260
Executive Officer 1996 148,883 39,000 1,600 7,240
Haywood A. Lane, Jr. 1998 $174,075 $40,000 $1,600 $7,022
President 1997 125,000 30,000 1,600 6,921
1996 110,476 25,000 1,600 6,096
</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 estimated 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
average
compensation Years of service
- -------------- -------------------------------------------------
10 years 20 years 30 years 40 years
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$ 50,000 $ 7,227 $14,453 $ 21,680 $ 28,293
75,000 11,852 23,703 35,555 45,981
100,000 16,477 32,953 49,430 63,668
125,000 21,102 42,203 63,305 81,356
150,000 25,727 51,453 77,180 99,043
175,000 30,352 60,703 91,055 116,731
200,000 34,977 69,953 104,930 130,000
225,000 38,533 77,066 115,599 130,000
250,000 38,533 77,066 115,599 130,000
</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 highest average annual compensation for any five consecutive
years during the last ten complete calendar years as a pension plan
participant. Under current
56
<PAGE>
tax laws, $160,000 was the maximum amount of compensation for 1998 that could
be included for purposes of calculating a participant's "final average
compensation."
The years of service and the "final average compensation," respectively,
as of December 31, 1998, for each of the named executive officers in the
Summary Compensation Table above are as follows: Billy T. Woodard - 40 years
and $195,170; and Haywood A. Lane, Jr. - 36 years and $146,865. During 1998,
the maximum annual benefit permitted by tax laws for a retiring participant was
$130,000, and the maximum "final average compensation" was $219,224.
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 Haywood A. Lane, Jr.,
both of which Agreements were amended as of January 1, 1999. 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, and will not compete against,
the Bank and will receive monthly payments (an aggregate of $8,738 for Mr.
Woodard and $7,125 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,
together with certain other services, through FCB. Fees paid by the Bank to FCB
for such services during 1998, 1997 and 1996 totaled approximately $2.0
million, $1.9 million and $1.4 million, respectively. Management of the Bank
estimates that fees payable during 1999 will total approximately $2.3 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 "Beneficial Ownership of Securities," also controls 43.3% of
the Class A, and 69.5% 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 April 1999, the Bank agreed, subject to regulatory approval and
other customary closing conditions, to purchase assets (including premises and
loans) totaling approximately $22.1 million, and assume an aggregate of
approximately $111.9 million in deposit liabilities, of seven branch offices of
FCB located in Gibsonville, Kings Mountain, Polkville,
57
<PAGE>
Shelby, Stokesdale, Stoneville and Wentworth, North Carolina. In connection
with that transaction (which is expected to be consummated during August 1999),
the Bank expects to pay an aggregate deposit premium of approximately $5.2
million.
During October 1998, the Bank purchased assets (including premises and
loans) totaling $36.6 million, and assumed an aggregate of $75.1 million in
deposit liabilities, of five branch offices of FCB located in Gastonia (three
branches), Salisbury and Siler City, North Carolina. The Bank paid an aggregate
deposit premium of $4.1 million in connection with that transaction.
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 51.9% 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.
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 the 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 semi-annually in arrears on June 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 June 30, 1999. The amount of Distributions
payable for any period less than a full Distribution period will be computed on
the basis of a 360-day year of twelve 30-day months and the actual days elapsed
in a partial month in such period. Distributions payable for each full
Distribution period will be computed by dividing the rate per annum by two. 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 10 consecutive semi-annual 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
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a Distribution Date. As a consequence of any such deferral, semi-annual
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 semi-annually 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 two. 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 10
consecutive semi-annual 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 "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 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") and the
related amount of the premium, if any, paid by BancShares upon the concurrent
redemption of such Junior
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Subordinated Debentures. 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. The amount of premium, if any, paid by
BancShares upon the redemption of all or any part of the Junior Subordinated
Debentures to be repaid or redeemed on a Redemption Date 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 * , 2009, 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 below), 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) above, shall
equal the following prices, expressed in percentages of their Liquidation
Amount, together with accumulated Distributions to but excluding the date fixed
for redemption, if redeemed during the 12-month period beginning * :
<TABLE>
Year Redemption Price
- ------------------ -----------------
<S> <C>
2009 ........... %
2010 ...........
2011 ...........
2012 ...........
2013 ...........
2014 ...........
2015 ...........
2016 ...........
2017 ...........
2018 ...........
</TABLE>
and at 100% on or after * , 2019.
The Redemption Price, in the case of a redemption on or after * , 2009
following a Tax Event, Investment Company Event or Capital Treatment Event
shall equal the Redemption Price then applicable to a redemption under (i)
above. The Redemption Price, in the case of a redemption prior to * , 2009
following a Tax Event, Investment Company Event or Capital Treatment Event as
described under (ii) above, will equal for each Capital Security the Make-Whole
Amount (as defined in the Trust Agreement) for a corresponding $10 principal
amount of Junior Subordinated Debentures together with accumulated
Distributions to but excluding the date fixed for redemption. The "Make-Whole
Amount" will be equal to the greater of (i) 100% of the principal amount of
such Junior Subordinated Debentures and, (ii) as determined by a Quotation
Agent (as defined in the Trust Agreement), the sum of the present values of the
principal amount and premium payable as part of the Redemption Price with
respect to an optional redemption of such Junior Subordinated Debentures on
* , 2009, together with the present values of scheduled payments of interest
(not including the portion of any such payments of interest accrued as of the
Redemption Date) from the Redemption Date to * , 2009 (the "Remaining
Life"), in each case discounted to the Redemption Date on a semi-annual basis
(assuming a 360-day year consisting of 30-day months) at the Adjusted Treasury
Rate.
"Adjusted Treasury Rate" means, with respect to any Redemption Date, the
Treasury Rate plus (i) * basis points if such Redemption Date occurs on or
before * , 2000 or (ii) * basis points if such Redemption Date occurs after
* , 2000.
"Treasury Rate" means (i) the yield, under the heading which represents
the average for the week immediately prior to the calculation date, appearing
in the most recently published statistical release designated "H.15 (519)" or
any successor publication which is published weekly by the Federal Reserve and
which establishes yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury Constant Maturities,"
for the maturity corresponding to the Remaining Life (if no maturity is within
three months before or after the Remaining Life, yields for the two published
maturities most closely corresponding to the Remaining Life shall be determined
and the Treasury Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding to the nearest month) or (ii) if such release
(or any successor release) is not published during the week preceding the
calculation date or does not contain such yields,
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the rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such Redemption Date. The Treasury Rate shall be
calculated on the third Business Day preceding the Redemption Date.
"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 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.
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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", as defined in
the Trust Agreement, 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 certificate 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 Capital Securities evidenced by separate
certificates ("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 semi-annually in arrears on June 30
and December 31 of each year (each, an "Interest Payment Date"), commencing
June 30, 1999, 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 two. 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 ("Additional Interest") on
the amount thereof (to the extent permitted by law) at a rate equal to * % per
annum, compounded semi-annually 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 two. The term "interest" as
used herein includes semi-annual interest payments, Additional Interest and
Additional Sums (as defined under "Description of the Capital Securities --
Redemption"), as applicable.
The Junior Subordinated Debentures will mature on * , 2029.
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 10 consecutive semi-annual 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 semi-annually 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 two. 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 "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 10 consecutive semi-annual 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 * , 2009, 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) above shall equal the following prices, expressed in
percentages of their principal amount, together with accrued interest to but
excluding the date fixed for redemption, if redeemed during the 12-month period
beginning * :
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<TABLE>
Year Redemption Price
- ---------------- -----------------
<S> <C>
2009 ......... %
2010 .........
2011 .........
2012 .........
2013 .........
2014 .........
2015 .........
2016 .........
2017 .........
2018 .........
</TABLE>
and at 100% on or after *, 2019.
The Redemption Price in the case of a redemption on or after * , 2009
following a Tax Event, Investment Company Event or Capital Treatment Event
shall equal the Redemption Price then applicable to a redemption under (i)
above. The Redemption Price for Junior Subordinated Debentures, in the case of
a redemption prior to * , 2009 following a Tax Event, Investment Company
Event or Capital Treatment Event as described under (ii) above, will equal the
Make-Whole Amount (as defined under "Description of the Capital Securities --
Redemption"), together with accrued interest to but excluding the date fixed
for redemption.
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.
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Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
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.
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.
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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 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 Prospectus, 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.
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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 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.
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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 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
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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 December 31, 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 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
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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.
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.
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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 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 the Common Securities; (ii) the interest rate and interest and other
payment dates on the Junior
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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."
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.
FEDERAL INCOME TAX CONSEQUENCES
General
The following is a summary of the material 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
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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.
Classification of the Junior Subordinated Debentures
The Junior Subordinated Debentures are intended to be, in the opinion of
Hunton & Williams will 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. 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.
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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 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.
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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 Forms 1099
mailed to Securityholders by January 31 following each 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 United 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, with
respect to payments made after December 31, 1999, satisfies certain
documentary evidence requirements for establishing that it is not a United
States person) 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."
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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 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
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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 95-60 (for certain
transactions involving insurance company general accounts), PTCE 91-38 (for
certain transactions involving bank collective investment funds), 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 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 Account Regulations") in December 1997 with respect to
insurance policies that are supported by an insurer's general account. The
Proposed General Account 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, but apply only to general account policies issued on or before
December 31, 1998. The assets of a plan invested in an insurance company
general account also may be exempt from the definition of plan assets pursuant
to Section 401(b) of ERISA.
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 Securities, a division of
First Union Capital Markets Corp. (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
85
<PAGE>
(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 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. The Capital Securities have been approved for listing on AMEX,
subject to notice of issuance. However, no assurance can be given as to the
liquidity 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., and as to
certain matters of New York law on the opinion of White & Case LLP. A member
of Ward and Smith, P.A. beneficially owns 153 shares of BancShares' common
stock.
86
<PAGE>
EXPERTS
The consolidated balance sheets of Fidelity BancShares (N.C.), Inc. and
subsidiary as of December 31, 1998 and 1997, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
years then ended, have been included herein and in the Registration Statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated statements of income, changes in shareholders' equity and
cash flows of Fidelity BancShares (N.C.), Inc. and subsidiary for the year
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.
87
<PAGE>
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 December 31, 1998 and 1997 ............................. F-5
Consolidated Statements of Income for each of the years in the three-year period ended F-6
December 31, 1998
Consolidated Statements of Changes in Shareholders' Equity for each of the years in the
three-year period ended
December 31, 1998 ....................................................................... F-7
Consolidated Statements of Cash Flows for each of the years in the three-year period F-8
ended December 31, 1998
Notes to Consolidated Financial Statements ............................................... F-9
</TABLE>
All other schedules are omitted as the required information is
inapplicable or the information is presented in the consolidated financial
statements or related notes.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Fidelity BancShares (N.C.), Inc.:
We have audited the accompanying consolidated balance sheets of Fidelity
BancShares (N.C.), Inc. and subsidiary (the "Company") as of December 31, 1998
and 1997, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 financial position of Fidelity
BancShares (N.C.), Inc. and subsidiary as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Raleigh, North Carolina
February 5, 1999, except for note 15 which is as of April 9, 1999
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 statements of income,
changes in shareholders' equity and cash flows of Fidelity BancShares (N.C.),
Inc. and subsidiary for the year 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of Fidelity BancShares (N.C.), Inc. and subsidiary
for the year ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 1, the accompanying financial statements have been
restated to reflect an accounting change and additional disclosures resulting
from the adoption of recent accounting pronouncements.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
February 28, 1997, except as to the last paragraph above, as to
which the date is February 5, 1999
F-3
<PAGE>
(This Page Intentionally Left Blank)
F-4
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
1998 1997
---------------- ----------------
<S> <C> <C>
Assets
Cash and due from banks .................................................. $ 31,137,382 $ 17,125,430
Federal funds sold ....................................................... 87,050,000 33,300,000
------------ ------------
Total cash and cash equivalents ....................................... 118,187,382 50,425,430
------------ ------------
Investment securities (note 3):
Held to maturity (estimated fair value of $90,567,934 in 1998 and
$132,289,335 in 1997).................................................. 90,146,476 132,131,039
Available for sale (cost of $2,644,600 in 1998 and $3,100,600 in
1997) ................................................................. 9,608,000 11,809,125
------------ ------------
Total investment securities ........................................... 99,754,476 143,940,164
------------ ------------
Loans (note 4) ........................................................... 439,207,586 358,250,205
Allowance for possible loan losses (note 4) .............................. (4,601,000) (4,144,752)
------------ ------------
Loans, net ............................................................ 434,606,586 354,105,453
------------ ------------
Federal Home Loan Bank of Atlanta stock, at cost (note 1) ................ 1,862,402 1,803,300
Premises and equipment, net (note 5) ..................................... 24,877,879 20,906,093
Accrued interest receivable .............................................. 3,651,655 4,069,044
Intangible assets ........................................................ 10,395,185 6,903,955
Other assets ............................................................. 798,698 841,139
------------ ------------
Total assets .......................................................... $694,134,263 $582,994,578
============ ============
Liabilities and Shareholders' Equity
Deposits (note 6):
Noninterest-bearing demand deposits .................................... $ 87,883,295 $ 67,456,795
Savings and interest-bearing demand deposits ........................... 218,615,950 172,873,085
Time deposits .......................................................... 303,147,090 264,907,190
------------ ------------
Total deposits ........................................................ 609,646,335 505,237,070
Short-term borrowings (note 7) ........................................... 11,617,344 11,051,315
Accrued interest payable ................................................. 4,123,464 3,303,447
Other liabilities ........................................................ 3,938,944 4,285,643
------------ ------------
Total liabilities ..................................................... 629,326,087 523,877,475
------------ ------------
Commitments and contingencies (note 11)
Shareholders' equity (note 10):
Common stock ($25 par value; 29,200 shares authorized; 28,410 shares
issued and outstanding in 1998 and 1997) .............................. 710,250 710,250
Surplus ................................................................ 6,251,174 6,251,174
Accumulated other comprehensive income ................................. 4,186,818 5,235,996
Retained earnings ...................................................... 53,659,934 46,919,683
------------ ------------
Total shareholders' equity ............................................ 64,808,176 59,117,103
------------ ------------
$694,134,263 $582,994,578
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1998, 1997 and 1996
<TABLE>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans .......................................... $ 37,614,925 $ 34,116,250 $ 29,060,388
Interest and dividends on investment securities:
Non taxable interest income ....................................... 21,840 3,150 7,387
Taxable interest and dividend income .............................. 6,268,594 8,668,343 7,466,128
Interest on federal funds sold ...................................... 2,664,161 461,434 703,633
------------ ------------ ------------
Total interest income ............................................ 46,569,520 43,249,177 37,237,536
------------ ------------ ------------
Interest expense:
Deposits (note 6) ................................................... 19,478,840 18,692,963 15,957,942
Short-term borrowings ............................................... 412,516 323,548 287,329
------------ ------------ ------------
Total interest expense ........................................... 19,891,356 19,016,511 16,245,271
------------ ------------ ------------
Net interest income .............................................. 26,678,164 24,232,666 20,992,265
Provision for possible loan losses (note 4) .......................... 630,000 360,000 360,000
------------ ------------ ------------
Net interest income after provision for possible loan losses ..... 26,048,164 23,872,666 20,632,265
------------ ------------ ------------
Noninterest income:
Service charges on deposit accounts ................................. 2,557,659 2,310,203 1,999,341
Other service charges, commissions and fees ......................... 1,857,945 1,565,952 1,287,586
Gain on sale of assets acquired in settlement of loans .............. -- -- 3,391
Gain on sale of mortgage servicing rights (note 4) .................. 507,456 -- --
Other income ........................................................ 553,561 98,241 57,669
------------ ------------ ------------
Total noninterest income ......................................... 5,476,621 3,974,396 3,347,987
------------ ------------ ------------
Noninterest expenses:
Salaries and employee benefits (note 9) ............................. 9,471,641 8,232,811 7,045,092
Occupancy and equipment ............................................. 3,699,708 3,164,555 2,454,998
Data processing ..................................................... 1,420,359 1,213,034 1,225,585
Other ............................................................... 4,826,706 3,267,203 3,464,266
------------ ------------ ------------
Total noninterest expense ........................................ 19,418,414 15,877,603 14,189,941
------------ ------------ ------------
Net income before income taxes ................................... 12,106,371 11,969,459 9,790,311
Income tax expense (note 8) .......................................... 4,457,000 4,581,823 3,486,933
------------ ------------ ------------
Net income ....................................................... $ 7,649,371 $ 7,387,636 $ 6,303,378
============ ============ ============
Per share information:
Net income .......................................................... $ 269.25 $ 260.04 $ 220.63
Cash dividends declared ............................................. $ 32.00 $ 32.00 $ 32.00
Weighted average shares outstanding ................................. 28,410 28,410 28,570
</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
Years ended December 31, 1998, 1997 and 1996
<TABLE>
Common Stock
Shares Amount Surplus
---------- ----------- -------------
<S> <C> <C> <C>
Balance December 31, 1995 ................. 28,582 $714,550 $6,289,020
Net income ............................... -- -- --
Cash dividends ($32.00 per share)......... -- -- --
Purchase and retirement of common
stock ................................... (172) (4,300) (37,846)
Unrealized gain on securities available
for sale, net of deferred taxes of
$646,874................................. -- -- --
------ -------- ----------
Comprehensive income .....................
Balance December 31, 1996 ................. 28,410 710,250 6,251,174
Net income ............................... -- -- --
Cash dividends ($32.00 per share)......... -- -- --
Unrealized gain on securities available
for sale, net of deferred taxes of
$1,152,886............................... -- -- --
------ -------- ----------
Comprehensive income .....................
Balance December 31, 1997 ................. 28,410 710,250 6,251,174
------ -------- ----------
Net income ............................... -- -- --
Cash dividends ($32.00 per share)......... -- -- --
Unrealized loss on securities available
for sale, net of deferred taxes of
$695,947................................. -- -- --
------ -------- ----------
Comprehensive income .....................
Balance December 31, 1998 ................. 28,410 $710,250 $6,251,174
====== ======== ==========
Accumulated
other Total
comprehensive Retained Comprehensive shareholders'
income earnings income equity
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Balance December 31, 1995 ................. $ 2,081,500 $35,265,579 $ 44,350,649
Net income ............................... -- 6,303,378 $ 6,303,378 6,303,378
Cash dividends ($32.00 per share)......... -- (914,336) -- (914,336)
Purchase and retirement of common
stock ................................... -- (213,454) -- (255,600)
Unrealized gain on securities available
for sale, net of deferred taxes of
$646,874................................. 1,757,902 -- 1,757,902 1,757,902
------------- ----------- ------------- ------------
Comprehensive income ..................... $ 8,061,280
=============
Balance December 31, 1996 ................. 3,839,402 40,441,167 51,241,993
Net income ............................... -- 7,387,636 $ 7,387,636 7,387,636
Cash dividends ($32.00 per share)......... -- (909,120) -- (909,120)
Unrealized gain on securities available
for sale, net of deferred taxes of
$1,152,886............................... 1,396,594 -- 1,396,594 1,396,594
------------- ----------- ------------- ------------
Comprehensive income ..................... $ 8,784,230
=============
Balance December 31, 1997 ................. 5,235,996 46,919,683 59,117,103
------------- ----------- ------------
Net income ............................... -- 7,649,371 7,649,371 7,649,371
Cash dividends ($32.00 per share)......... -- (909,120) -- (909,120)
Unrealized loss on securities available
for sale, net of deferred taxes of
$695,947................................. (1,049,178) -- (1,049,178) (1,049,178)
------------- ----------- ------------- ------------
Comprehensive income ..................... $ 6,600,193
=============
Balance December 31, 1998 ................. $ 4,186,818 $53,659,934 $ 64,808,176
============= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
<TABLE>
1998 1997 1996
---------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .............................................................. $ 7,649,371 $ 7,387,636 $ 6,303,378
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ......................................... 2,560,884 2,192,046 1,659,572
Amortization (accretion) on investment securities ..................... 23,475 (16,999) 68,723
Gain on sale of assets acquired in settlement of loans ................ -- -- (3,391)
Loss (gain) on disposition of premises and equipment .................. 97,994 (4,569) (6,900)
Provision for possible loan losses .................................... 630,000 360,000 360,000
Origination of loans held for sale .................................... (18,860,150) (6,811,425) (16,006,555)
Proceeds from sales of loans held for sale ............................ 18,920,919 6,845,794 16,056,305
Gain on sales of loans held for sale .................................. (60,769) (34,369) (49,750)
Deferred income taxes ................................................. (523,835) (163,177) (125,411)
Decrease (increase) in accrued interest receivable .................... 417,389 (321,228) (1,197,301)
Decrease (increase) in other assets, net .............................. 516,341 258,732 (340,251)
Increase in other liabilities, net .................................... 399,183 126,118 548,851
Increase in accrued interest payable .................................. 820,017 167,167 568,451
------------- ------------- --------------
Net cash provided by operating activities ............................ 12,590,819 9,985,726 7,835,721
------------- ------------- --------------
Cash flows from investing activities:
Purchase of securities available-for-sale ............................... -- -- (1,000,600)
Purchase of securities held to maturity ................................. (75,256,467) (46,854,606) (115,082,700)
Return of capital on securities available for sale ...................... 456,000 -- --
Proceeds from maturities and issuer calls of securities held to
maturity .............................................................. 117,217,555 43,551,896 59,500,000
Purchase of FHLB of Atlanta stock ....................................... (59,102) (149,400) (105,200)
Proceeds from the redemption of FHLB of Atlanta stock ................... -- -- 48,900
Net increase in loans ................................................... (47,437,432) (23,724,169) (26,665,184)
Purchases of premises and equipment ..................................... (4,077,361) (3,840,387) (6,587,279)
Proceeds from sales of premises and equipment ........................... 18,671 975,581 554,309
Proceeds from the sale of assets acquired in settlement of loans ........ -- -- 67,832
Net cash received on purchases of bank and branches ..................... 35,375,611 -- 42,028,648
------------- ------------- --------------
Net cash provided (used) by investing activities ..................... 26,237,475 (30,041,085) (47,241,274)
------------- ------------- --------------
Cash flows from financing activities:
Net increase in deposits ................................................ 29,276,749 26,097,049 36,577,301
Net increase in short-term borrowings ................................... 566,029 5,076,673 482,553
Cash dividends paid ..................................................... (909,120) (909,120) (914,336)
Purchase and retirement of common stock ................................. -- -- (255,600)
------------- ------------- --------------
Net cash provided by financing activities ............................ 28,933,658 30,264,602 35,889,918
------------- ------------- --------------
Net increase (decrease) in cash and cash equivalents ................. 67,761,952 10,209,243 (3,515,635)
Cash and cash equivalents at beginning of year ........................... 50,425,430 40,216,187 43,731,822
------------- ------------- --------------
Cash and cash equivalents at end of year ................................. $ 118,187,382 $ 50,425,430 $ 40,216,187
============= ============= ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ................................ $ 19,071,339 $ 18,849,344 $ 15,466,820
============= ============= ==============
Cash paid during the period for income taxes ............................ $ 4,959,400 $ 4,437,300 $ 3,599,540
============= ============= ==============
Supplemental disclosure of noncash financing and investing activities:
Unrealized gains (losses) on available-for-sale securities, net of
deferred tax effects of $695,947, $1,152,886 and $646,874,
respectively .......................................................... $ (1,049,178) $ 1,396,594 $ 1,757,902
============= ============= ==============
</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, 1998, 1997 and 1996
(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 forty-six offices primarily in central North Carolina.
The Bank's primary source of revenue is derived from interest income on 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 of the Bank, the Company's 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.
(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 the amortized
cost of each security, are included in other income at the time of the sale.
(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.
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)
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 rate 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. 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, less estimated selling costs, 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.
(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 1998 or 1997.
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)
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, 1998
and 1997, the Company owned 18,624 and 18,033 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) Comprehensive Income
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 fianacial 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. Comparative financial statements for earlier
periods have been presented to reflect application of this statement. The
Company's only component of accumulated other comprehensive income is
unrealized gain/loss on securities available for sale.
(o) Disclosures about Pensions
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and other Postretirement Benefits." This statement standardizes
the disclosure requirements of pensions benefits. Adoption of SFAS No. 132 by
the
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)
Company did not result in changes to any measurement or recognition provisions,
but has resulted in altered disclosures relating to pension obligations.
(p) Reclassifications
Certain amounts in the 1997 and 1996 consolidated financial statements of
the Company have been reclassified to conform with the 1998 presentation, with
no effect on previously reported stockholders' equity or net income.
(2) ACQUISITIONS OF BRANCHES
On October 23, 1998, the Company purchased five branches from
First-Citizens Bank & Trust Company, a related party (see note 14). Loans and
deposits acquired were approximately $33,694,000 and $75,093,000, respectively.
An intangible asset of approximately $4,090,000 resulted from this purchase.
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 would have been
approximately $22,350,000 and $6,550,000, respectively, assuming the
acquisition of Perpetual occurred at the beginning of 1996.
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.
(3) INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities at
December 31, 1998 and 1997 are as follows:
<TABLE>
1998
------------------------------------------------------
Amortized Gross Gross Estimated
cost gains losses value
-------------- unrealized unrealized fair
<S> <C> <C> <C> <C>
Available-for-sale:
Marketable equity securities ..... $ 2,644,600 $6,963,400 $-- $ 9,608,000
=========== ========== === ===========
Held to maturity:
U.S. agency obligations .......... $ 14,052 $ 2,319 $-- $ 16,371
U.S. Treasury .................... 90,132,424 419,139 -- 90,551,563
----------- ---------- --- -----------
$90,146,476 $ 421,458 $-- $90,567,934
=========== ========== === ===========
</TABLE>
F-12
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(3) INVESTMENT SECURITIES -- (Continued)
<TABLE>
1997
----------------------------------------------------------
Amortized Gross Gross Estimated
cost gains losses value
--------------- unrealized unrealized fair
<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>
The amortized cost and estimated fair value of debt securities at December
31, 1998 by contractual maturities are as follows:
<TABLE>
Amortized Estimated
cost value
-------------- fair
<S> <C> <C>
Due in one year or less:
U.S. Treasury ............................ $60,132,424 $60,279,688
Due after one year through five years:
U.S. Treasury ............................ 30,000,000 30,271,875
Due after ten years:
U.S. agency obligations .................. 14,052 16,371
----------- -----------
$90,146,476 $90,567,934
=========== ===========
</TABLE>
There were no sales of investment securities during 1998, 1997 or 1996.
Investment securities with an amortized cost of approximately $35,850,000
and $27,343,000 were pledged to secure public deposits at December 31, 1998 and
1997, respectively.
(4) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Major classifications of loans as of December 31, 1998 and 1997 are
summarized as follows:
<TABLE>
1998 1997
---------------- ----------------
<S> <C> <C>
Loans secured by real estate:
Construction .......................... $ 51,498,973 $ 33,850,960
Single-family residential ............. 196,886,357 186,216,002
Farmland .............................. 4,982,701 4,579,022
Commercial ............................ 65,338,524 57,221,618
Commercial ............................. 79,723,684 41,850,966
Consumer ............................... 33,848,515 28,630,156
Agricultural ........................... 4,523,374 3,335,116
Other .................................. 2,405,458 2,566,365
------------ ------------
439,207,586 358,250,205
Allowance for possible loan losses ..... (4,601,000) (4,144,752)
------------ ------------
$434,606,586 $354,105,453
============ ============
</TABLE>
There were no loans designated as held for sale at December 31, 1998 and
1997.
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 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.
The following is a reconciliation of aggregate loans outstanding to
executive officers, directors, and their immediate families for the year ended
December 31, 1998:
<TABLE>
<S> <C>
Balance at beginning of year ..... $2,147,031
New loans ........................ --
Principal repayments ............. (42,658)
----------
Balance at end of year ........... $2,104,373
==========
</TABLE>
A summary of the allowance for possible loan losses for the years ended
December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
1998 1997 1996
--------------- --------------- -------------
<S> <C> <C> <C>
Balance at beginning of year ...... $ 4,144,752 $ 4,138,816 $4,077,691
Allowance acquired in acquisition . -- -- 116,765
Provision for possible loan losses 630,000 360,000 360,000
Charge-offs ....................... (1,540,681) (848,275) (595,288)
Recoveries ........................ 1,366,929 494,211 179,648
------------ ----------- ----------
Balance at end of year ............ $ 4,601,000 $ 4,144,752 $4,138,816
============ =========== ==========
</TABLE>
At December 31, 1998 and 1997, the Company had no nonaccrual loans and no
accruing loans ninety days or more past due. In addition, at and during the
years ended December 31, 1998 and 1997, the Company had no impaired loans.
At December 31, 1997 the Company was servicing loans for others amounting
to $47,936,000. 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 included service fees from investors and certain charges
collected from borrowers, such as late fees.
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 (see note 14). The Company no longer services loans for others.
(5) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1998 and 1997 are as follows:
<TABLE>
1998 1997
--------------- ---------------
<S> <C> <C>
Land .......................... $ 7,393,822 $ 6,069,565
Building and improvements ..... 19,665,711 16,746,236
Furniture and equipment ....... 6,866,054 5,704,251
------------ ------------
33,925,587 28,520,052
Less accumulated depreciation . (9,047,708) (7,613,959)
------------ ------------
Premises and equipment, net ......... $ 24,877,879 $ 20,906,093
============ ============
</TABLE>
F-14
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(6) DEPOSITS
At December 31, 1998 and 1997, time deposits of $100,000 or more amounted
to approximately $58,693,000 and $49,903,000, respectively. For the years ended
December 31, 1998, 1997 and 1996, interest expense on time deposits of $100,000
or more amounted to approximately $2,750,000, $2,596,000, and $2,304,000,
respectively.
Time deposit accounts as of December 31, 1998, mature in the following
years and approximate amounts: 1999 - $242,301,000; 2000 - $44,822,000; 2001 -
$8,883,000; and thereafter - $7,141,000.
(7) SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1998 and 1997 consist of the
following:
<TABLE>
1998 1997
-------------- -------------
<S> <C> <C>
Securities sold under agreements to repurchase $11,467,000 $ 7,632,000
Treasury tax and loan deposits -- note option 150,344 3,419,315
----------- -----------
$11,617,344 $11,051,315
=========== ===========
</TABLE>
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<S> <C> <C>
Average rate during year ........... 3.88% 3.86%
Average balance during year ........ $ 8,231,000 $ 4,741,000
Maximum month-end balance during year 11,467,000 7,632,000
</TABLE>
These borrowings have maturities of less than 90 days. Securities sold
under agreements to repurchase represent transactions whereby the Bank sells
investment securities to certain of its commercial customers on an overnight
basis and repurchases such securities the next day.
F-15
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(8) INCOME TAXES
The components of income taxes for the years ended December 31, 1998, 1997
and 1996 are as follows:
<TABLE>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal ......... $4,440,197 $4,399,708 $3,374,644
State ........... 540,638 345,292 237,700
---------- ---------- ----------
4,980,835 4,745,000 3,612,344
---------- ---------- ----------
Deferred:
Federal ......... (442,637) (139,382) (197,950)
State ........... (81,198) (23,795) 72,539
---------- ---------- ----------
(523,835) (163,177) (125,411)
---------- ---------- ----------
$4,457,000 $4,581,823 $3,486,933
========== ========== ==========
</TABLE>
The reconciliation of expected income tax expense at the statutory federal
rate with income tax expense for the years ended December 31, 1998, 1997 and
1996 is as follows:
<TABLE>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Expected income tax expense at statutory rate (35%) ..... $4,237,230 $4,189,311 $3,426,609
Increase (decrease) in income tax expense resulting from:
State taxes, net ....................................... 298,636 208,973 (48,560)
Tax exempt income ...................................... (6,320) (25,389) (23,482)
Other, net ............................................. (72,546) 208,928 132,366
---------- ---------- ----------
Income tax expense ..................................... $4,457,000 $4,581,823 $3,486,933
========== ========== ==========
</TABLE>
The deferred tax components at December 31, 1998 and 1997 are as follows:
<TABLE>
1998 1997
------------- -------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses ...................... $1,616,623 $1,312,939
Amortization of intangibles .................... 93,773 102,750
Deferred compensation .......................... 211,606 163,777
Depreciation ................................... 157,062 54,474
Pension costs .................................. 8,929 --
Other .......................................... 132,415 155,525
---------- ----------
Total gross deferred tax assets ............... 2,220,408 1,789,465
---------- ----------
Deferred tax liabilities:
Premises and equipment ......................... 196,960 193,426
Bond accretion ................................. 32,698 70,309
Pension costs .................................. -- 58,824
Unrealized gains on available-for-sale securities 2,776,582 3,472,529
---------- ----------
Total gross deferred tax liabilities ......... 3,006,240 3,795,088
---------- ----------
Net deferred tax liability ................... $ 785,832 $2,005,623
========== ==========
</TABLE>
No valuation allowance for deferred tax assets was required at December
31, 1998 or 1997 as management has determined that it is more likely than not
that the deferred tax asset can be realized.
F-16
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(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 $245,166, $227,427, and $196,491 of
expense related to the Plan for the years ended December 31, 1998, 1997 and
1996, respectively.
Pension Plan
The Company has a noncontributory, defined benefit pension plan
("Retirement 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 Retirement Plan
utilizes the projected unit credit actuarial cost method.
The following table reconciles the beginning and ending balance of the
Retirement Plan's benefit obligation, as computed by the Company's independent
actuarial consultants as of December 31, 1998, 1997 and 1996:
<TABLE>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net benefit obligation at beginning of year $5,338,120 $4,587,062 $4,259,320
Service cost ............................... 221,431 167,609 131,738
Interest cost .............................. 423,837 343,859 310,667
Actuarial loss ............................. 844,420 367,027 (19,502)
Gross benefits paid ........................ (172,352) (127,437) (95,161)
---------- ---------- ----------
Net benefit obligation at end of year ...... $6,655,456 $5,338,120 $4,587,062
========== ========== ==========
</TABLE>
The following table reconciles the beginning and ending balance of the
Retirement Plan's plan assets as of December 31, 1998, 1997 and 1996:
<TABLE>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Fair value of plan assets at beginning of year ..... $7,296,169 $6,178,798 $5,777,357
Actual return on plan assets ....................... 1,291,598 1,244,808 496,602
Benefits paid ...................................... (172,352) (127,437) (95,161)
---------- ---------- ----------
Fair value of plan assets at end of year ........... $8,415,415 $7,296,169 $6,178,798
========== ========== ==========
</TABLE>
The following table presents information regarding the funded status of
the Retirement Plan as of:
<TABLE>
1998 1997
--------------- ---------------
<S> <C> <C>
Funded status at the end of year ......... $ 1,759,959 $ 1,958,049
Unrecognized net actuarial gain .......... (1,478,712) (1,457,873)
Unrecognized prior service cost .......... 67,028 76,588
Unrecognized transition obligation ....... (202,318) (257,491)
------------ ------------
Net asset recognized at end of year ...... $ 145,957 $ 319,273
============ ============
</TABLE>
F-17
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(9) EMPLOYEE BENEFIT PLANS -- (Continued)
The following table presents the components of net periodic benefit cost
for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Service cost ...................... $ 221,431 $ 167,609 $ 131,738
Interest cost ..................... 423,837 343,859 310,667
Expected return on assets ......... (441,093) (404,021) (382,905)
Amortization of:
Transition obligation ........... (55,173) (55,173) (55,173)
Prior service cost .............. 9,560 9,560 9,560
Actuarial loss .................. 14,754 -- --
---------- ---------- ----------
Net periodic benefit cost ......... $ 173,316 $ 61,834 $ 13,887
========== ========== ==========
</TABLE>
Actuarial as assumptions used to determine the Retirement Plan's funded
status were as follows:
<TABLE>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Discount rate .............................. 6.75% 7.25% 7.25%
Rate of increase in compensation levels .... 4.50% 4.50% 4.25%
Expected long-term rate of return on assets 8.00% 8.25% 8.25%
</TABLE>
The Retirement Plan's investment portfolio consists of approximately 51%
equity securities, and 49% fixed income and other investments at December 31,
1998. The majority of the Retirement Plan's assets are invested with a related
party who serves as trustee. See note 14 for additional information.
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 (included in other
liabilities) for these future benefits was approximately $496,000 and $420,000,
at December 31, 1998 and 1997, respectively.
F-18
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(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
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, 1998 and
1997 the Bank was required to maintain such balances at $9,314,000 and
$5,782,000, 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, 1998, that
the Company and the Bank meet all capital adequacy requirements to which they
are subject.
As of December 31, 1998, 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 Bank are presented in the
table below (dollars in thousands):
<TABLE>
corrective
For capital action
adequacy under prompt
As of December 31, 1998: Amount Ratio purposes provisions
- ------------------------------------------------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets) ... $52,142 10.81% >/=8.00% >/= 10.00%
Tier 1 Capital (to Risk Weighted Assets) .. 47,541 9.86% >/=4.00% >/= 6.00%
Tier 1 Capital (to Average Assets) ........ 47,541 7.29% >/=4.00% >/= 5.00%
</TABLE>
F-19
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(10) REGULATORY RESTRICTIONS -- (Continued)
<TABLE>
corrective
For capital action
adequacy under prompt
As of December 31, 1997: Amount Ratio purposes provisions
- ------------------------------------------------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets) ... $48,345 13.63% >/=8.00% >/=10.00%
Tier 1 Capital (to Risk Weighted Assets) .. 44,200 12.47% >/=4.00% >/= 6.00%
Tier 1 Capital (to Average Assets) ........ 44,200 7.87% >/=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 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, 1998 and 1997, outstanding financial instruments whose
contract amounts represent credit risk were as follows:
<TABLE>
1998 1997
--------------- ---------------
<S> <C> <C>
Outstanding commitments to lend, unfunded loans and lines of
credit .................................................... $167,918,107 $113,927,044
============ ============
Standby and commercial letters of credit ................... $ 3,649,816 $ 5,806,858
============ ============
</TABLE>
F-20
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(11) COMMITMENTS AND CONTINGENCIES -- (Continued)
The Company's lending is concentrated primarily in 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
SFAS 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 and Federal Home Loan Bank of Atlanta Stock
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.
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 fair value due to its
short-term nature.
F-21
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS -- (Continued)
The following table presents information for financial assets and
liabilities as of December 31, 1998 and 1997
(in thousands):
<TABLE>
1998 1997
---------------------- ----------------------
Carrying Estimated Carrying Estimated
value value value value
----------- fair ----------- fair
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks ................... $ 29,990 $ 29,990 $ 17,125 $ 17,125
Federal funds sold ........................ 87,050 87,050 33,300 33,300
Investment securities available-for-sale .. 9,608 9,608 11,809 11,809
Investment securities held to maturity .... 90,146 90,568 132,131 132,289
Federal Home Loan Bank of Atlanta stock ... 1,862 1,862 1,803 1,803
Accrued interest receivable ............... 3,652 3,652 4,069 4,069
Loans, net ................................ 434,607 435,143 354,105 353,561
-------- -------- -------- --------
Total financial assets ................ $656,915 $657,873 $554,342 $553,956
======== ======== ======== ========
Financial liabilities:
Deposits .................................. 609,646 611,411 505,237 503,848
Short-term borrowings ..................... 11,617 11,617 11,051 11,051
Accrued interest payable .................. 4,123 4,123 3,303 3,303
-------- -------- -------- --------
$625,386 $627,151 $519,591 $518,202
======== ======== ======== ========
</TABLE>
F-22
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(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, 1998
and 1997 and for the three years ended December 31, 1998, are as follows (in
thousands):
Condensed Balance Sheets
<TABLE>
1998 1997
---------- ---------
<S> <C> <C>
Cash ............................................... $ 428 $ 141
Investments ........................................ 9,608 11,809
Investment in wholly-owned subsidiary .............. 57,506 50,604
Other assets ....................................... 43 36
------- -------
Total assets ................................... $67,585 $62,590
======= =======
Deferred tax liability ............................. 2,777 3,473
Shareholders' equity ............................... 64,808 59,117
------- -------
Total liabilities and stockholders' equity ..... $67,585 $62,590
======= =======
</TABLE>
Condensed Statements of Income
<TABLE>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Dividends from wholly-owned subsdiairy ........................... $ 920 $1,971 $ 965
Other dividends .................................................. 123 100 90
Miscellaneous expenses ........................................... (296) (26) (40)
------ ------ ------
Income before equity in undistributed earnings of wholly-owned
subsidiary .................................................. 747 2,045 1,015
Equity in undistributed earnings of wholly-owned subsidiary ...... 6,902 5,343 5,288
------ ------ ------
Net income ................................................... $7,649 $7,388 $6,303
====== ====== ======
</TABLE>
Condensed Statements of Cash Flows
<TABLE>
1998 1997 1996
------------- ----------- -----------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income ......................................................... $ 7,649 $ 7,388 $ 6,303
Equity in undistributed earnings of wholly-owned subsidiary ........ (6,902) (5,343) (5,288)
Dividend of investment securities from wholly-owned subsidiary ..... -- (1,001) --
(Increase) decrease in other assets ................................ (7) (28) 1
---------- -------- --------
Net cash provided by operating activities ....................... 740 1,016 1,016
--------- -------- --------
Cash flows from investing activities:
Return of capital on investment securities ......................... 456 -- --
--------- -------- --------
Net cash provided by investing activities ....................... 456 -- --
--------- -------- --------
Cash flows from financing activities:
Dividends paid ..................................................... (909) (909) (914)
--------- -------- --------
Redemption of common stock ......................................... -- -- (255)
Net cash used in financial activities ........................... (909) (909) (1,169)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents ............ 287 107 (153)
Cash and cash equivalents at beginning of year ...................... 141 34 187
--------- -------- --------
Cash and cash equivalents at end of year ............................ $ 428 $ 141 $ 34
========= ======== ========
</TABLE>
F-23
<PAGE>
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(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, who are also significant shareholders of the Company.
At December 31, 1998, the first significant shareholder beneficially owned
11,155 shares, or 39.27 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, 1998, beneficially owned 2,553,656 shares,
or 28.69 percent, and 1,543,942 shares, or 17.35 percent, respectively, of the
Corporation's outstanding Class A common stock, and 641,641 shares, or 37.30
percent, and 164,347 shares, or 9.55 percent, respectively, of the
Corporation's outstanding Class B common stock. The above totals include
530,522 Class A common shares, or 5.96 percent, and 110,668 Class B Common
shares, or 6.43 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 $1,420,000,
$1,213,000 and $1,012,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. Other expenses paid by the Company to the Corporation totaled
approximately $627,000, $639,000 and $392,000 for the years ended December 31,
1998, 1997 and 1996, respectively. The Company also has a correspondent
relationship with the Corporation. Correspondent account balances with the
Corporation included in cash, due from banks and federal funds sold totaled
$82,552,362 and $41,253,338 at December 31, 1998 and 1997, respectively.
During January 1998, the Bank sold rights to service mortgage loans to
Southern Bank and Trust Company. See note 4.
(15) SUBSEQUENT EVENTS
The Bank has agreed, subject to regulatory approval and other customary
closing conditions, to buy seven branches from FCB. The effect on the Bank will
be an increase of approximately $111.9 million in deposits and $22.1 million in
assets (including premises and loans). In connection with that transaction
(which is expected to be consummated during August 1999), the Bank expects to
pay an aggregate deposit premium of approximately $5.2 million.
F-24
<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 * , 1999 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. .......................... 19
FIDBANK Capital Trust I ................................... 20
Accounting Treatment ...................................... 21
Use of Proceeds ........................................... 21
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 .................................................. 45
Supervision and Regulation ................................ 48
Beneficial Ownership of Securities ........................ 53
Directors and Executive Officers .......................... 55
Executive Compensation .................................... 56
Certain Relationships and Related Transactions ............ 57
Description of the Capital Securities ..................... 58
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
Federal Income Tax Consequences ........................... 80
ERISA Considerations ...................................... 84
Underwriting .............................................. 85
Legal Matters ............................................. 86
Experts ................................................... 87
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 Securities
April *, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 ........... $100,000
Legal fees and expenses .............. 135,000
Accounting fees and expenses ......... 120,000
Blue Sky fees and expenses ........... 5,000
Trustees' fees and expenses .......... 10,000
Other (1) ............................ 25,000
--------
Total .............................. $395,000
========
</TABLE>
- ---------
(1) Includes Securities and Exchange Commission registration fee of $6,785.
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-4 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.
II-2
<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 Amendment No. 2 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Fuquay-Varina, North
Carolina, on April 23, 1999.
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 Amendment
No. 2 to Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
Signature Title Date
- ----------------------------------- ------------------------------- ---------------
<S> <C> <C>
/s/ BILLY T. WOODARD Chairman, Chief Executive April 23, 1999
- ---------------------------------
Billy T. Woodard Officer and Director
(principal executive officer)
/s/ HAYWOOD A. LANE President and Director April 23, 1999
- ---------------------------------
Haywood A. Lane
/s/ F. RAY ALLEN Director April 23, 1999
- ---------------------------------
F. Ray Allen
/s/ WILEY H. COZART, M.D. Director April 23, 1999
- ---------------------------------
Wiley H. Cozart, M.D.
/s/ WALLACE H. MITCHELL Director April 23, 1999
- ---------------------------------
Wallace H. Mitchell
/s/ SAM C. RIDDLE Director April 23, 1999
- ---------------------------------
Sam C. Riddle, Jr.
</TABLE>
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
Amendment No. 2 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Fuquay-Varina, North Carolina, on
April 23, 1999.
FIDBANK CAPITAL TRUST I
By: FIDELITY BANCSHARES (N.C.), INC.
By: /s/ BILLY T. WOODARD
---------------------------------
Billy T. Woodard
Chairman and Chief Executive Officer
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
Exhibit No. Description Page No.
- ------------- ---------------------------------------------------------------------------------------------------- ---------
<S> <C> <C>
1.1 *Form of Underwriting Agreement for Capital Securities
3.1 *BancShares' Certificate of Incorporation
3.2 *BancShares' By-laws
4.1 *Initial Trust Agreement of FIDBANK Capital Trust I, as amended
4.2 *Certificate of Trust of FIDBANK Capital Trust I
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
10.2 *First Amendment to Employee Death Benefit and Post-Retirement Noncompetition and Consultation
Agreement between Billy T. Woodard and The Fidelity Bank
10.3 *Employee Death Benefit and Post-Retirement Noncompetition and Consultation Agreement between
Haywood A. Lane, Jr., and The Fidelity Bank
10.4 *First Amendment to Employee Death Benefit and Post-Retirement Noncompetition and Consultation
Agreement between Haywood A. Lane, Jr., and The Fidelity Bank
10.5 Agreement for Banking Support Services (filed herewith)
10.6 Second Amendment to Employee Death Benefit and Post-Retirement Noncompetition and
Consultation Agreement between Billy T. Woodard and The Fidelity Bank (filed herewith)
10.7 Second Amendment to Employee Death Benefit and Post-Retirement Noncompetition and
Consultation Agreement between Haywood A. Lane, Jr., and The Fidelity Bank (filed herewith)
12.1 Statement re: computation of ratio of earnings to fixed charges (filed herewith)
16.1 *Letter regarding change in certifying accountant
21.1 *List of subsidiaries
23.1 Consent of KPMG 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)
23.6 Consent of White & Case LLP (included as Exhibit A to Exhibit 5.1 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
27.1 Financial data schedule (filed herewith)
</TABLE>
- ---------
* Previously filed.
II-4
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 _________, 1999
---------------------------
FIDBANK CAPITAL TRUST I
---------------------------
<PAGE>
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
- --------------------------- -----------------------
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.
<PAGE>
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 ...............................................................................................
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 ...........................................................................................
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>
<PAGE>
Exhibit A Certificate of Trust
Exhibit B [Intentionally Omitted]
Exhibit C Form of Common Securities Certificate
Exhibit D Form of Capital Securities Certificate
-iv-
<PAGE>
AGREEMENT
THIS AMENDED AND RESTATED TRUST AGREEMENT, dated as of ___________,
1999, 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.
"ADJUSTED TREASURY RATE" means, with respect to any Redemption Date, the
Treasury Rate plus (i) ___% if such Redemption Date occurs on or before _______,
2000, or (ii) ___% if such Redemption Date occurs after ______, 2000.
-2-
<PAGE>
"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
-3-
<PAGE>
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.
-4-
<PAGE>
"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 ______________________, 1999 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.
"COMPARABLE TREASURY ISSUE" means with respect to any Redemption Date the
United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining
Life. If no United States Treasury security has a maturity which is within a
period from three months before to three months after _______, 2009, the two
most closely corresponding United States Treasury securities shall be used as
the Comparable Treasury Issue, and the Treasury Rate shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using such
securities.
"COMPARABLE TREASURY PRICE" means (A) the average of five Reference
Treasury Dealer Quotations for such Redemption Date, after excluding the highest
and lowest of such Reference Treasury Dealer Quotations, or (B) if the Debenture
Trustee obtains fewer than five such Reference Treasury Dealer Quotations, the
average of all such Reference Treasury Dealer Quotations.
"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 _________________, 1999
between the Depositor and the Issuer Trust, as the same may be amended from time
to time.
-5-
<PAGE>
"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
-6-
<PAGE>
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
______________, 1999, between the Depositor and the Debenture Trustee (as
amended or supplemented from time to time) relating to the issuance of the
Junior Subordinated Debentures.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended.
"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
-7-
<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 ________________, 2029, 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.
"QUOTATION AGENT" means Wheat First Securities, Inc. and its successors;
provided, however, that if the foregoing shall cease to be a primary U.S.
Government Securities dealer in New York City(a "Primary Treasury Dealer"), the
Depositor shall substitute therefor another Primary Treasury Dealer.
"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) in the case of a redemption, other than as provided in paragraph (b)
below, the following prices expressed in percentages of the Liquidation Amount,
together with accumulated Distributions to but excluding the date fixed for
redemption, if redeemed during the 12-month period beginning _________:
Year Redemption Price
---- ----------------
2009.............................._________
2010.............................._________
2011.............................._________
2012.............................._________
2013.............................._________
2014.............................._________
2015.............................._________
2016.............................._________
2017.............................._________
2018.............................._________
and 100% on or after __________, 2019.
(b) in the case of a redemption prior to ________, 2009 following a Tax
Event, Investment Company Event or Capital Treatment Event, an amount equal to
for each Capital Security the Make-Whole Amount for a corresponding $10
principal amount of Junior Subordinated Debentures together with accumulated
Distributions to but excluding the date fixed for redemption. The "MAKE-WHOLE
AMOUNT" will be equal to the greater of (i) 100% of the principal amount of such
Junior Subordinated Debentures, and (ii) as determined by a Quotation Agent, the
sum of the present values of the principal amount and premium payable as part of
the Redemption Price with respect to an optional redemption of such Junior
Subordinated Debentures on _________, 2009, together with the present values of
scheduled payments of interest (not including the portion of any such payments
of interest accrued as of the Redemption Date) from the Redemption Date to
_______, 2009 (the "REMAINING LIFE"), in each case discounted to the Redemption
Date on a semi-annual basis (assuming a 360-day year consisting of 30-day
months) at the Adjusted Treasury Rate. The Redemption Price in the case of a
redemption on or after __________, 2009 following a Tax Event, Investment
Company Event or Capital Treatment Event shall equal the Redemption Price then
applicable to a redemption under paragraph (a) above.
"REFERENCE TREASURY DEALER" means (i) the Quotation Agent and (ii) any
other Primary Treasury Dealer selected by the Debenture Trustee after
consultation with the Depositor.
"REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such Redemption Date.
"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.
"TREASURY RATE" means (i) the yield, under the heading which represents
the average for the week immediately prior to the calculation date, appearing in
the most recently published statistical release designated "H.15 (519)" or any
successor publication which is published weekly by the Board of Governors of the
Federal Reserve System and which establishes yields on actively traded United
States Treasury securities adjusted to constant maturity under the caption
"Treasury Constant Maturities," for the maturity corresponding to the Remaining
Life (if no maturity is within three months before or after the Remaining Life,
yields for the two published maturities most closely corresponding to the
Remaining Life shall be determined and the Treasury Rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding to the
nearest month) or (ii) if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, calculated using a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price for such Redemption Date. The Treasury
Rate shall be calculated on the third Business Day preceding the Redemption
Date.
"TRUST AGREEMENT" means this Amended and Restated Trust Agreement, as the
same may be modified, amended or supplemented in accordance with the applicable
provisions hereof, including (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
______________________, 1999 among the Issuer Trust, the Depositor and the
Underwriter, as the same may be amended from time to time.
ARTICLE II
CONTINUATION OF THE ISSUER TRUST
SECTION 2.1. Name
The Issuer Trust continued hereby shall be known as "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
____________________, 1999 and, except in the event (and to the extent)
that the Depositor exercises its right to defer the payment of interest on
the Junior Subordinated Debentures pursuant to the Indenture, shall be
payable semi-annually in arrears on June 30 and December 31 of each year,
commencing on ______________________, 1999. If any date on which a
Distribution is otherwise payable on the Trust Securities is not a Business
Day, then the payment of such Distribution shall be made on the next
succeeding day that is a Business Day (without any 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 two. 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 10 consecutive semi-annual
periods (an
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"Extension Period"), provided that no Extension Period may extend beyond
_______________, 2029. As a consequence of any such deferral, semi-annual
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 semi-annually 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
two. 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 (and premium, if any, on) any Junior
Subordinated Debentures which have become due otherwise than by such
declaration of acceleration and interest and Additional Interest
thereon at the rate borne by the Junior Subordinated Debentures, and
(D) all sums paid or advanced by the Debenture Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and
advances of the Debenture Trustee and the Property Trustee, their
agents and counsel; and
(ii) all Events of Default with respect to the Junior Subordinated
Debentures, other than the non-payment of the principal of the Junior
Subordinated Debentures which has become due solely by such acceleration,
have been cured or waived as provided in Section 5.13 of the Indenture.
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,
2000, the Property Trustee shall transmit to all Holders in accordance with
Section 10.8, and to the Depositor, a brief report dated as of the immediately
preceding 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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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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(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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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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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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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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(c) REPORTS BY THE PROPERTY TRUSTEE. Within 60 days after January 31 of
each year commencing January 31, 2000, the Property Trustee shall provide to the
Holders of the Trust Securities such reports as are required by Section 313 of
the Trust Indenture Act, if any, in the form, in the manner and at the times
provided by Section 313 of the Trust Indenture Act. The Property Trustee shall
also comply with the requirements of Section 313(d) of the Trust Indenture Act.
(d) PERIODIC REPORTS TO PROPERTY TRUSTEE. Each of the Depositor and the
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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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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_______________________________
Name: _______________________
Title: Administrator
____________________________
Name: _____________________
Title: Administrator
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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 __________________, 1999, 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 __________________, 1999.
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
___________________, 1999, 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 _____________________,
1999, as the same may be amended from time to time (the "Guarantee Agreement"),
to the extent provided therein. The Issuer Trust will furnish a copy of the
Trust Agreement and the Guarantee Agreement to the Holder without charge upon
written request to the Issuer Trust 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 _____________________, 1999.
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 ______________, 1999
<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 _________________, 1999 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 ___________________, 1999, 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 $23,000,000 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 __________________________, 2029
(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 _________________, 1999 and payable semi-annually in arrears
on June 30 and December 31 of each year, commencing _____________________, 1999,
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.
2
<PAGE>
"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
_________________, 1999, 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
3
<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 _________________________, 1999, 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
<PAGE>
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) semi-annually, not more than 15 days after the last day
of May 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 May 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,
2000, the Guarantee Trustee shall provide to the Holders such reports, if any,
as are required by Section 313 of the Trust Indenture Act in the form and in the
manner provided by Section 313 of the Trust Indenture Act. 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.
5
<PAGE>
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;
7
<PAGE>
(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.
8
<PAGE>
(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.
9
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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.
10
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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
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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
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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 __________, 1999
<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 ________, 1999, 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:
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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
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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 _______, 1999
(herein called the "INDENTURE"), between the Company and Bankers Trust Company,
as Trustee (herein called the "TRUSTEE", which term includes any successor
trustee under the Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee, the holders of Senior Indebtedness and the Holders of the Securities,
and of the terms upon which the Securities are, and are to be, authenticated and
delivered. This Security is one of the series designated on the face hereof [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 2009, 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.]
[IF APPLICABLE, INSERT--In the case of a redemption on or after_________
2009, the Redemption Price shall equal the following prices, expressed in
percentages of the principal amount hereof, together with accrued interest to
but excluding the date fixed for redemption, if redeemed during the 12-month
period beginning ____________________:
Redemption
Year Price
---- ----------
and 100% on or after _________ 2019.
In the case of a redemption on or after _________ 2009 following a Tax
Event, Investment Company Event or Capital Treatment Event, the Redemption Price
shall equal the Redemption Price then applicable to a redemption under the
preceding paragraph.
In the case of a redemption prior to _________ 2009 following a Tax
Event, Investment Company Event or Capital Treatment Event in respect of the
Issuer Trust, the Redemption Price shall equal the Make-Whole Amount for a
corresponding $___________ principal amount hereof, together with accrued
interest to but excluding the date fixed for redemption, which Make-Whole Amount
will be equal to the greater of (i) 100% of the principal amount hereof, and
(ii) as determined by a Quotation Agent (as defined in the Trust Agreement), the
sum of the present values of the principal amount hereof and premium, if any,
payable as part of the Redemption Price with respect to an optional redemption
hereof on ___________, together with the present values of scheduled payments of
interest (not including the portion of any such payments of interest accrued as
of the Redemption Date) from the dated fixed for redemption to ____________, in
each case discounted to the date fixed for redemption on a [monthly] [quarterly]
[semi-annual] basis (assuming a 360-day year consisting of 30-day months) at the
Adjusted Treasury Rate (as defined in the Trust Agreement).)
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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) semi-annually, not more than 15 days after the last day of May 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 May 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 or, if the Redemption Price cannot be
calculated prior to the time the notice is required to be sent, the estimate of
the Redemption Price provided pursuant to the Indenture together with a
statement that it is an estimate and that the actual Redemption Price will be
calculated on the third Business Day prior to the Redemption Date (if such an
estimate of the Redemption Price is given, a subsequent notice shall be given as
set forth above setting forth the Redemption Price promptly following the
calculation thereof):
(c) if less than all Outstanding Securities 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.]
April 23, 1999
Fidelity BancShares (N.C.), Inc.
100 South Main Street
Fuquay-Varina, North Carolina 27526
RE: Our File 88-1308(O)
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, as
amended by Amendment No. 1 and by Amendment No. 2, 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, New York 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. As to
matters of New York law, we have relied exclusively on the opinion of
White & Case LLP addressed to us and attached hereto as Exhibit A.
(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.
<PAGE>
EXHIBIT A
[Letterhead of White & Case LLP]
April 22, 1999
Ward and Smith, P.A.
Suite 2400
Two Hanover Square
Fayetteville Street Mall
Raleigh, NC 27602
Re: FIDBANK Capital Trust I
- ----------------------------
Ladies and Gentlemen:
We have acted as special counsel to Bankers Trust Company, a New York
banking corporation (the "Trust Company") in connection with (i) the Junior
Subordinated Indenture, (the "Indenture"), to be entered into between Fidelity
Bancshares (N.C.), Inc. (the "Company") and the Trust Company, not in its
individual capacity, but solely as trustee (the "Indenture Trustee"), and (ii)
the Guarantee Agreement, (the "Guarantee Agreement"), to be entered into between
the Company and the Trust Company, not in its individual capacity, but solely as
trustee (the "Guarantee Trustee").
In this connection, we have examined the form of the Guarantee Agreement
and the form of the Indenture, each filed as an Exhibit to the Registration
Statement described hereinafter. We have also examined such certificates of
public officials, such certificates of officers of the Trust Company, and copies
certified to our satisfaction of such corporate documents and records of the
Trust Company, and of such other papers, as we have deemed relevant and
necessary for our opinion hereinafter set forth. We have relied upon such
certificates of public officials and of officers of the Trust Company with
respect to the accuracy of material factual matters contained therein which were
not independently established. In rendering the opinion expressed below, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity to authentic original documents
of all documents submitted to us as certified, conformed or photostatic copies.
<PAGE>
WHITE & CASE LLP
Page 2
Based upon the foregoing and subject to the assumptions, exceptions and
qualifications set forth below, it is our opinion that:
When the Indenture and the Guarantee Agreement have been properly
authorized, executed and delivered by the Company and by the Indenture Trustee
and the Guarantee Trustee, respectively, and when the Junior Subordinated
Debentures have been executed, authenticated and delivered in accordance with
the terms of the Indenture and the Company shall have received valid
consideration therefor, then the Junior Subordinated Debentures and the
Guarantee Agreement will be valid, binding and legal obligations of the Company
under the laws of the State of New York.
The foregoing opinions are subject to the following assumptions, exceptions
and qualifications:
A. We do not express or purport to express any opinion with respect to
laws other than the laws of the State of New York, and the Federal laws of the
United States (except that we express no opinion with respect to (i) state
securities or blue sky laws and (ii) federal securities laws, including without
limitation, the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the Trust Indenture Act of 1939, as amended, and the
Investment Company Act of 1940, as amended) and we have not considered and
express no opinion on the laws, rules or regulations of any other jurisdiction.
B. We have assumed that the Company has the power and authority to
execute, deliver and perform each such document.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-1 filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. We also
consent to the reference to White & Case LLP under the caption "Legal Matters"
in the Registration Statement.
Very truly yours,
/s/ White & Case LLP
EXHIBIT 5.2
[Letterhead of Richards, Layton & Finger, P.A.]
April 22, 1999
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) Amendment No. 2 to 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 April 22, 1999; and
(f) A Certificate of Good Standing for the Trust, dated April 22,
1999, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined
are used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents
other than the documents listed in paragraphs (a) through (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.
Very truly yours,
/s/ Richards, Layton & Finger, P.A.
[Letterhead of Hunton & Williams]
April 22, 1999
Fidelity BancShares (N.C.), Inc.
100 South Main Street
Fuquay-Varina, North Carolina 27526
FIDBANK CAPITAL TRUST I
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.
October 20, 1998
Page 2
Based on the foregoing, we confirm that the statements
of law and legal conclusions contained in the Prospectus under the caption
"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 material federal income tax matters as set forth in the
preceding paragraph, we express no opinion on any other tax or legal matter. We
do not undertake to advise you of any changes in our opinion expressed herein
(or under the heading "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 "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
AGREEMENT FOR BANKING SUPPORT SERVICES
This Agreement for Banking Support Services is made and entered into as of the
1st day of January, 1994, by and between First-Citizens Bank & Trust Company, a
North Carolina banking corporation ("FCB"), and The Fidelity Bank, a banking
corporation incorporated under the laws of North Carolina (the "Client").
In support of its own banking operations, FCB has developed the staff,
resources, organization, and technology required to deliver a broad variety of
banking products and services to FCB's customers. The organization created by
FCB now has the expertise, technology, and excess capacity to provide banking
and support services and other related banking products and services to other
financial institutions. The processes, programs, products and services to be
provided under this Agreement are referred to collectively as the "services."
The Client, recognizing the benefits it can derive by subscribing to various
services offered by FCB, desires to utilize and avail itself of the expertise,
technology, and excess capacity of FCB. For and in consideration of the terms
and conditions contained in this Agreement, and for other good and valuable
consideration, FCB and the Client agree as follows:
1. The parties intend for this Agreement to be a "master" agreement. This
Agreement identifies the overall framework within which FCB will offer
various services from time to time to the Client. This Agreement is not
exclusive, however, and the parties may enter into various other
agreements outside the scope of this Agreement. The nature, scope and cost
of specific services to which the Client may subscribe pursuant to this
Agreement will be identified on one or more forms entitled "Specific
Services Schedule", an example of which is attached to this Agreement and
incorporated herein by reference. The nature and scope of the services to
be provided by FCB, and the terms and conditions under which the services
will be provided, may therefore be modified from time to time by the
parties by the execution of new or amended Specific Services Schedules
executed by FCB and the Client. The purpose of this arrangement is to
insure flexibility for the delivery of specific services under the
"umbrella" of this master agreement. Each Specific Services Schedule duly
executed by both parties shall become a part of this Agreement.
2. By way of example, but not by way of limitation, FCB may offer the Client
some or all of the following bank-related services: accounting, internal
auditing, administrative, personnel administration (including payroll
services and benefits administration), check processing, courier, data
processing, loan servicing, shared research and development for products
and services, marketing, and education and training. FCB may also license
or sell the Client the right to use certain other products and services
offered by FCB to its customers which fall outside the scope of this
Agreement. The foregoing list is not intended to be a comprehensive list
of all of the various services which may be offered from time to time by
FCB on a subscription basis.
3. The Client agrees to pay FCB for all services rendered by FCB under this
Agreement. Invoices shall be due and payable upon presentation. The
initial fees, rates and charges for the services to be provided by FCB
(collectively, the "fees"), shall be as set forth on the Specific Services
Schedule applicable to such services. The fees (including those "standard
rates" adopted by FCB) may be increased or decreased by FCB from time to
time, provided:
<PAGE>
A. FCB may not increase fees more frequently than annually;
B. No annual fee increase shall be greater than five percent
(compounded annually), but the Client agrees to negotiate in good
faith with respect to fee increases in excess of five percent
requested by FCB necessary to cover the costs of providing the
service or services in question; and
C. FCB may pass on to the Client any increased "pass-through" charges
or fees.
In addition to the fees charged by FCB, FCB shall be entitled to recover
its reasonable out-of-pocket expenses. Any increase in fees shall become
effective only after FCB gives the Client at least 45 days prior written
notice of the increase. All such fees shall be determined in an "arms
length" manner. In determining its pricing structure, FCB will
periodically conduct surveys of the marketplace to insure that the fees
are reasonable in light of the nature, extent, and quality of the services
to be delivered according to this Agreement and competitive in the
marketplace. The Client acknowledges that it is not a "captive" customer.
When goods and services are offered by FCB, the Client shall conduct its
own market survey to determine whether the nature, extent, quality and
price of the services offered by FCB are satisfactory to the Client.
4. In order to deliver the services contemplated by this Agreement, FCB may
require from the Client access to or delivery of various information,
data, records, materials, commercial banking items, and policies and
procedures (collectively referred to in this Agreement as the "input
data"). The Client will prepare and process input data with reasonable
care in a manner acceptable to FCB and in a manner commercially reasonable
given the range of services to be provided by FCB. The Client will deliver
input data to the place designated by FCB for processing in a timely
manner according to the timetable prescribed from time to time by FCB. In
addition, the Client will furnish all necessary records and materials
reasonably required by FCB to provide the services contemplated by this
Agreement, even though such records and materials are not specifically
identified in this Agreement.
5. All deliveries and pick ups from FCB shall be the responsibility of the
Client and shall be accomplished at the Client's expense. If the receipt
of input data from the Client by FCB is delayed, FCB will use its best
efforts to reschedule and process the work and perform its services as
promptly as it reasonably can, but both parties understand and acknowledge
that completion time may be delayed. If the Client's input data is not
received in a timely manner or in a form reasonably acceptable to FCB,
additional costs may be incurred by FCB to provide the services
contemplated by this Agreement within commercially acceptable time limits.
The Client will be responsible for the payment of any such additional
costs. All deliveries to FCB will be made at the time, place, and in the
form prescribed by FCB.
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<PAGE>
6. FCB may impose additional charges for any changes in the input data,
output data or any computational procedures which may be requested by the
Client after FCB has begun performing the services contemplated by this
Agreement. Such charges shall be based on FCB's then prevailing standard
rates for personnel and/or machine time occasioned by such changes. If
additional personnel or machine time is required as a result of these
changes, FCB reserves the right to extend delivery dates. FCB will use its
best efforts to reschedule and process the work and perform its services
as promptly as it reasonably can.
7. FCB is authorized to make minor corrections or minor adjustments to input
data when an original source document may be in error or incomplete.
Unless in the judgment of FCB the volume of minor corrections and
adjustments becomes burdensome, FCB will make no charge for minor
corrections or adjustments. If the volume becomes burdensome, FCB may
notify the Client of its intention to impose charges for such additional
work at the then prevailing standard rate charged by FCB for personnel
and/or machine time.
8. In the delivery of the services contemplated by this Agreement, FCB will
use the personnel, facilities, equipment and machines selected by it. FCB
will make reasonable efforts to deliver the services with the same care
and in substantially the same manner as used by it in connection with the
delivery of its own banking services. FCB assumes no liability or
responsibility for any errors or omissions in the delivery of the services
contemplated by this Agreement except those which may arise out of FCB's
gross negligence or bad faith. FCB's liability to the Client arising out
of this Agreement shall not exceed the damages or losses directly
sustained by the Client as a consequence of FCB's gross negligence or bad
faith. FCB shall not be liable for indirect, punitive, special or
consequential damages, nor shall FCB be liable to the Client or any other
person because of failure to perform or delay in performance of the
services provided by FCB pursuant to this Agreement when such failure or
delay is caused by: (a) an event or circumstance within the control of the
Client, or (b) an event or circumstance beyond the control of FCB,
including, but not limited to, any of the following events: fire; flood;
explosion; other catastrophe; legal acts of public authorities; strikes;
riots; war; civil insurrection; acts of terrorism; or the failure of
communications, power supply, or mechanical difficulties with any
equipment which could not be reasonably anticipated and prevented. In the
event of any emergency, the internal operational needs of FCB will take
priority over the Client's needs. FCB agrees to maintain adequate backup
procedures in the event of a computer system failure.
9. Significant delays beyond the control of either party may occur in the
delivery of the services contemplated by this agreement. When delays
occur, it may be necessary to prioritize the Client's work based upon the
Client's needs. When possible, FCB will consult with the Client to
prioritize the delivery of the services. If the parties cannot consult
regarding the prioritization of the Client's needs, FCB may rely upon any
written
3
<PAGE>
prioritization supplied to FCB by the Client or, in the absence of a
written prioritization, its own best judgment.
10. The parties anticipate that the services which will be provided to the
Client by FCB will include a variety of data processing services. The
nature and extent of those services will be as set forth in the Specific
Services Schedules approved by the parties. The purpose of this Section 10
is to address a variety of general issues relating specifically to data
processing services. All data processing services provided by FCB shall be
subject to the terms and provisions of this Section 10 in addition to the
other sections of this Agreement and to the Specific Services Schedules
executed by the parties. If a conflict arises between the terms of this
Agreement and the language of a Specific Services Schedule, the terms and
provisions of the Specific Services Schedule shall control.
A. Applications to be processed will be as set forth in the Specific
Services Schedules. In providing data processing services, FCB will
apply daily accrual calculations. Data will be processed and reports
generated on a daily basis, excluding weekends and holidays. The
Client will provide FCB with a list of its banking holidays. FCB
will generate for the Client the same types of reports that FCB
generates for its own use when it processes its own data. FCB will
provide to the Client any special forms which FCB may require from
time to time in connection with data processing services. FCB may
charge Client for any forms supplied to Client in bulk at the then
prevailing standard rate charged by FCB.
B. Other provisions of this Agreement and the Specific Services
Schedules address the payment of fees, rates and charges for
services to be provided by FCB. In addition to the fees charged by
FCB, FCB shall be entitled to recover its reasonable out-of- pocket
expenses. Any costs of conversion and the time frame for conversion
shall be as specified in the Specific Services Schedule or as
otherwise may be agreed between the parties. Costs for satisfying
special management requests, audit needs, regulatory requirements
and mergers and acquisitions shall be negotiated on a case by case
basis and shall be billed at the then prevailing standard rate
changed by FCB. FCB shall own any special software developed for
Client to process its applications, and FCB may use such special
software for the benefit of its other clients, and may license
and/or sell such software as it deems appropriate.
C. Unless otherwise provided in the Specific Services Schedule, the
operating hours for online communications networks to Client's
branches shall be from 8:00 a.m. until 7:00 p.m. on a daily basis,
weekends and holidays excluded. The operating hours for online
communication networks for the ATM system, however, shall be 7 days
per week, 24 hours per day. While the ATM system is encrypted, other
communications networks are not presently encrypted. In order to
provide security to the system, FCB utilizes "RACF" user sign-on,
with various password levels authorized to individual users. This
method assures that an individual cannot obtain access to certain
information within the data processing system without
4
<PAGE>
having been properly authorized and without utilizing his or her
unique password to access the information.
D. FCB shall, at all times during the term of this Agreement, make
available to the Client data processing emergency kits as well as
FCB's backup data processing site in Raleigh, North Carolina.
E. If so designated in a Specific Services Schedule, FCB will be
responsible for capturing and processing Client's FED (or "cash")
letter.
F. The Internal Audit Department of FCB will not be responsible for
conducting servicer audits with FCB staff. FCB will, however,
annually contract for and provide copies to the Client of a third
party CPA review of the data processing services provided. The cost
of this review shall be passed on to the data processing clients of
FCB on a pro-rata basis based upon asset size. FCB shall use its
best efforts in good faith to minimize the cost of this review.
G. FCB maintains an effective disaster recovery/contingency plan, a
copy of which shall be delivered to Client upon Client's request. In
connection with its disaster recovery/contingency plan, FCB has
established and shall maintain adequate backup arrangements for all
data processing functions to which the Client subscribes. The
details of all backup arrangements shall be made available to Client
upon Client's request.
H. FCB shall not be responsible for, nor liable for, any source
documents while in transit to or from FCB's service center. FCB
maintains and shall continue to maintain reasonable and adequate
insurance for fidelity, fire, liability and data losses from error
and omissions. Details of FCB's insurance protection shall be
provided to Client at Client's request.
I. Upon termination of any data processing services, computer programs
and related documentation shall remain the property of FCB. FCB
shall provide to the Client, however, at the Client's expense the
Client's master and transaction data files in machine-readable
format within adequate time to convert in an orderly and timely
manner. The fees for providing the master and transaction data files
in machine- readable format shall be in accordance with FCB's then
prevailing standard rates, plus out-of-pocket expenses. In the event
of the termination of any specific data processing services, the
parties agree to provide for the orderly and timely conversion from
FCB to the Client or another servicer selected by the Client.
J. FCB will provide notification to Client of all systems changes that
may affect Client's procedures, reports, and operations. Whenever
possible, this notification shall be given at least 45 days prior to
the time the change will become effective.
5
<PAGE>
K. Customer will give FCB prompt notice of any program changes required
by federal or state regulations or required to consummate planned
mergers and acquisitions. FCB will make every reasonable effort to
effect program changes in a timely manner to insure regulatory
compliance and to accommodate Client's anticipated acquisitions and
mergers.
L. Unless a Specific Services Schedule provides to the contrary, FCB
will provide any training and documentation required by Client's
personnel prior to the time of data services conversion without
additional charge (other than out-of-pocket expenses). After
conversion, subsequent training shall be performed at Client's
request at the then prevailing standard rates charged by FCB for
such training, plus out-of-pocket expenses. Training may be
addressed in a specific services schedule.
M. FCB shall establish a "user's group." If Client subscribes to data
processing services with FCB, Client will be invited to participate,
at its expense, in the user's group.
N. Nothing in this Agreement limits the ability of any regulator to
arrange for an orderly and reasonable conversion of data to another
vendor, or to a receiver in the event of a receivership. FCB shall
be entitled, however, to compensation for the conversion work
performed at its then prevailing standard rate, plus out-of-pocket
expenses.
11. In the performance of its obligations under this Agreement, FCB will hold
in strict confidence all information to which it may become privy
regarding the accounts and affairs of the Client and its customers, except
to the extent disclosure to federal or state regulatory agencies is
permitted or required by applicable law or regulation, and except as
otherwise required by applicable law or regulation. Similarly, in the
receipt of services and the performance of its obligations under this
Agreement, the Client will hold in strict confidence all information to
which it may become privy regarding the accounts, systems, technology,
services, processes, products and affairs of FCB and its customers, except
to the extent disclosure to federal or state regulatory agencies is
permitted or required by applicable law or regulation, and except as
otherwise required by applicable law or regulation.
12. The parties recognize that the performance of the services contemplated by
this Agreement may be subject to regulation, audit, and examination by
various regulatory authorities to the same extent as if the services were
being performed by the Client itself on its own premises. The Client
authorizes FCB to furnish, when requested, any information requested by
the Federal Deposit Insurance Corporation or any other regulatory
authority, agency, or commission having jurisdiction over the FCB or the
Client (including the state Banking Commission). Any additional work
performed by FCB or information provided by FCB shall be paid for by the
Client at FCB's then prevailing standard rates.
6
<PAGE>
13. Services provided under this Agreement may be audited by the internal
audit staff of FCB and by the certified public accounting firm regularly
employed by FCB to perform its annual audits. The Client may annually
audit FCB with respect to the services provided under this Agreement.
14. FCB will provide the Client with FCB's annual financial statement and such
other financial information as may be required by any regulatory agency
having jurisdiction over the Client or FCB.
15. In the delivery of the services contemplated by this Agreement, FCB is an
independent contractor and not the agent of the Client. The Client agrees
to indemnify FCB and hold it harmless from any loss, cost or damage
(including attorneys fees and court costs, if any) which FCB may suffer or
be liable for by virtue of this Agreement unless the loss, cost or damage
arises from FCB's bad faith or gross negligence without contributory
negligence on the part of the Client or any other person, firm, or
corporation, whether or not acting as an agent or employee of the Client.
This Agreement to indemnify and hold FCB harmless shall include, but not
be limited to, all risk of loss of any information or documents during
transit between the Client and FCB. This indemnity provision shall survive
the termination of this Agreement.
16. FCB owns extensive computer hardware and uses a broad array of computer
software which may be used in the delivery of the various services
contemplated by this Agreement. From time to time FCB may significantly
change its hardware configuration, the software used in the delivery of
services, and the procedures and documentation which may be required for
the delivery of the services. FCB will use diligence in promptly notifying
the Client of any prospective system changes so the Client will have an
opportunity to analyze and approve any applicable test results. Whenever
possible, the Client will be notified at least 45 days prior to the
effective date of any change. All computer hardware, software, programs,
written procedures, and similar items, including master and transaction
data files, shall be and remain the property of FCB unless otherwise
specified in writing by FCB.
17. The Client will pay any taxes or governmental assessments arising out of
this Agreement or any of the services rendered according to this
Agreement, other than FCB's income taxes.
18. The Client and FCB recognize that the cost of the delivery of services to
the Client and the fees paid by the Client may be reduced to the extent
FCB can avoid "customizing" the services to the peculiar or unique needs
of the Client. To this extent, the parties acknowledge that it may be to
the mutual benefit of both parties for the Client to adapt aspects of its
internal operations, policies and procedures to match those of FCB. For
that purpose, employees of the Client may be asked to participate in
workshops, study sessions, user groups, and other similar activities
conducted by FCB for the benefit of its own operations.
7
<PAGE>
19. The parties acknowledge that they are competing financial institutions and
that they are subject to various laws and regulations relating to
anti-trust and unfair competition. It is the intent of FCB and the Client
to adhere strictly to such applicable laws and regulations, and the
parties agree that they will each make every effort to insure there is no
violation of any such law or regulation. The parties further acknowledge
that discussions about or the exchange of information concerning the
retail pricing of products and services may be unlawful, and the parties
agree that each shall be excluded during any discussion or determination
of the other's retail pricing. Each party shall determine its own retail
pricing structure independently of the other, totally without collusion.
20. This Agreement contemplates that the parties may jointly undertake the
research, development, testing and delivery of various services which may
thereafter be offered by FCB and the Client to their respective customers,
but serviced operationally by FCB. The Client agrees, at its own expense,
that it will cooperate and participate fully in the research, development,
testing, evaluation, implementation and delivery of such services as may
be reasonably requested by FCB. Any such service shall be and remain the
property of FCB. Neither this Agreement nor the Client's participation in
the research, development, testing, evaluation, implementation or delivery
of a service shall vest any ownership interest therein in the Client.
Except for the fees agreed upon between the parties, each party shall bear
its own costs and expenses in the research, development, testing,
evaluation, implementation and delivery of a service undertaken pursuant
to this Agreement, and, except as to the fees agreed upon, neither party
shall be entitled to any reimbursement or refund from the other, even if,
for any reason, a service is rejected or abandoned.
21. Unless otherwise agreed in writing with respect to a particular service,
either party may terminate this Agreement (either in full or as to one or
more services) by giving at least 60 days prior written notice to the
other. Any pending increases in the fees shall not become effective prior
to the stated termination date. Notwithstanding this time limitation, upon
default in the performance in any of the obligations by one party to this
Agreement, the non-defaulting party may terminate this Agreement upon 30
days prior written notice to the party in default. Neither the Client nor
FCB shall be construed to be in default permitting termination of this
Agreement if either is unable to comply with the provisions of this
Agreement due to causes beyond its control, including, but not limited to,
those events and circumstances enumerated in paragraph 8 of this
Agreement. Provided the Client is not in default under the terms of this
Agreement, the Client may postpone the stated termination date of any data
processing services for a period of up to 360 days, and any other services
for a period of up to 180 days, in order to permit the Client adequate
time to effect a smooth transition and conversion from FCB to another
service provider (including the Client, if the services will thereafter be
provided by the Client "in-house").
22. Any other agreements previously entered into between the parties relating
to the delivery of services to the Client by FCB are superseded by this
Agreement. Any prior or subsequent agreements between the parties relating
to services provided by Frank B.
8
<PAGE>
Holding, however, are outside the scope of this Agreement and shall not be
affected by this Agreement.
23. This Agreement shall be binding upon and inure to the benefit of the
parties to this Agreement, their successors and assigns. Notwithstanding
the foregoing, neither party shall have the right to assign its rights
under this Agreement without the written consent of the other. This
restriction on assignment shall not apply in the event of a merger or
acquisition.
24. This Agreement constitutes the entire agreement between the parties
concerning the delivery of the services contemplated hereunder. All
services contemplated by this Agreement shall be provided and delivered by
FCB to Client in the State of North Carolina, and this Agreement shall be
governed by the laws of the State of North Carolina. No representations,
except when made in writing by a duly authorized officer of FCB, shall be
deemed to be a part of this Agreement, nor shall this Agreement be deemed
or construed to be modified or amended in whole or in part except by a
written agreement duly executed by the parties (including each Specific
Services Schedule signed by the parties).
When signed by both parties, this Agreement shall be effective as of the 1st day
of January, 1994. This Agreement is executed under seal on behalf of FCB and the
Client by their duly authorized officers. This Agreement and all Specific
Services Schedules executed pursuant to this Agreement are subject to
ratification by the FCB Board of Directors.
FIRST-CITIZENS BANK & THE FIDELITY BANK
TRUST COMPANY Client
By: /s/ W. R. White, Jr. By: /s/ Billy T. Woodard
---------------------- ---------------------
Senior Vice President President
(Corporate Seal) (Corporate Seal)
Attest: Attest:
/s/ J. E. Creekman /s/ Nancy R. Pore
---------------------- ---------------------
Assistant Secretary Secretary
9
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
ADDENDUM #1
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
PURCHASING SERVICES:
1. The services to be provided:
Purchasing services, which include requisition processing and
procurement of forms, equipment and supplies.
2. The initial fees, rates and charges for such services are as follows:
FULL Purchasing services, per $100 million of Assets
(as of the previous year end rounded to the nearest $100 million) $330.00
LIMITED Purchasing services, per $100 million of Assets $250.00
(SERVICES TO BE RENDERED UNDER 'LIMITED' SERVICES MUST BE
NEGOTIATED BETWEEN THE CLIENT AND THE MANAGER OF THE PURCHASING
DEPT.)
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
ADDENDUM #2
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
FACILITIES CONSULTING SERVICES:
1. Services to be provided:
Consultation services involving Bank facilities.
2. The initial fees, rates and charges for such services are as follows:
Personnel: FCB's Facilities Management Staff $75.00/hour
FIRST CITIZENS BANK IS ALSO ENTITLED TO RECOVER ALL DIRECT OUT-OF-POCKET
EXPENSES, INCLUDING THE CHARGES OF THIRD PARTY VENDORS AND TRAVEL, MEALS AND
LODGING.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
ADDENDUM #3
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
<TABLE>
<CAPTION>
EDUCATIONAL SERVICES:
LEASED CBE COURSE
<S> <C> <C> <C> <C> <C> <C>
Client Bank uses Course as is, with no customization No Charge
INTERNALLY DEVELOPED CBE COURSE
Master CBE course $500.00 (1 time charge)
FCB customization for Client Bank $ 50.00 per hour
Changes Made to Course by Client Bank No Charge
Changes/customization by Outside vendor Pass through at Cost
ON-LINE MANUAL
MASTER ON-LINE MANUAL $500.00 (1 time charge)
FCB Customization for Client Bank $ 50.00 per hour
Changes made to Course by Client Bank No Charge
Changes/customization by Outside Vendor pass through at Cost
SELF-REGISTRATION CAPABILITY No Charge
STUDENT USAGE OF CBE COURSES No Charge
ASSOCIATE EDUCATION RECORD REPORT $100.00 per month
Includes; printed report monthly
manual payroll changes
manual course history updates
CLASSROOM COURSES
Master classroom course which includes: $500.00 (1 time charge)
-paper & electronic file copy of all materials (FCB standard)
-one-time/one person audit of class
FCB customization for Client Bank $ 50.00 per hour
Changes made to Course by Client Bank No Charge
CLASSROOM PARTICIPATION
Per student per day $ 50.00
COURSES PURCHASED FROM OUTSIDE VENDOR Pass through at Cost
FACILITATOR TRAINING
Leader Training for Client Bank Trainer $1,500.00 per day
Consulting $ 50.00 per hour
</TABLE>
ANY SPECIAL REQUESTS WILL BE HANDLED ON A PER QUOTE BASIS, THROUGH THE CORPORATE
EDUCATION DEPARTMENT. ALL OUT OF POCKET EXPENSES INCURRED BY FCB (AS A RESULT OF
A REQUEST MADE BY THE CLIENT BANK) WILL BE PASSED THROUGH TO THE CLIENT BANK.
PLEASE CONTACT EDUCATION SERVICES, 919-716-2787, FOR INFORMATION OR ASSISTANCE
ON ANY OF THE ABOVE.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
ADDENDUM #4
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
CASH MANAGEMENT SERVICES:
1. THE SERVICES TO BE PROVIDED:
DataNet services including balance and deposit reporting.
2. THE INITIAL FEES, RATES, AND CHARGES FOR SUCH SERVICES ARE AS FOLLOWS:
Balance Reporting - Audio Response per account $32.00/month
Balance Reporting - PC/Terminals
Maintenance $20.00/month
Minimum $32.00/month
Per login .40
Per minute .21
Per detail item loaded .008
Per detail item reported .032
Outbound Data Exchange per account $35.00/month
Deposit Reporting
Maintenance $20.00/month
Minimum $32.00/month
Per login .40
Per minute .21
Per entry .064
Per management report 1.20
Installation per location $ 8.00
P. 1 of 2
<PAGE>
P. 2 of 2 Cash Management Services (cont'd)
B. CLIENT BANK TRAINING:
1) SALES TRAINING
A Sales Training course can be customized to meet the needs of the
Client Bank.
The cost will be as noted below unter item "C" at the standard
Consulting rate plus the cost of materials.
2) OPERATIONS AND SUPPORT TRAINING
FCB Cash Management Services will customize an in-house on-the-job
training program (to be conducted at FCB) to meet the needs of the
Client Bank, on a per Quote basis.
C. CONSULTING SERVICES:
FCB Cash Management Services will provide the Client Bank with
Consulting services related to the following areas:
1) FCB will assist the Client Bank with the writing of Bid Proposals,
by making available all of the necessary information and suggested
formats for completing bids. FCB will assist the Client Bank in
preparing to make Sales Calls. The Client Bank will be responsible
for producing the Bid Proposal documents and making the Sales Call
without an FCB representative present.
2) FCB will provide consulting services to the Client Bank related to
the development of Cash Management Products and Services on an as
needed basis.
COST:
All Consulting services are provided to the Client Bank at the standard
rate as indicated in Schedule "A", plus out of pocket expenses.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
ADDENDUM #5
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
EASYTRIEVE REPORTING:
1.) FCB REPORT CREATION FOR THE CLIENT BANK:
If an FCB associate writes an Easytrieve (Ad Hoc) Report for the Client
Bank, the cost associated with the man hours spent to write the report
as well as the systems usage will be charged back to the Client Bank as
follows:
a) $75.00 per man hour, with a minimum charge of $75.00, plus
b) $25.00 per Easytrieve Report produced (for system resources and
support)
2.) CLIENT BANK REPORT CREATION:
a) Easytrieve and/or TSO Training for Client Bank Associates will be
arranged for as a special request, and will be provided on a per
quote basis.
b) All Easytrieve reports must be written and run by an FCB certified
Client Bank associate, that has been given TSO access and completed
all FCB required training.
c) Each Client Bank that chooses to have the ability to write
Easytrieve Reports in-house will be charged the following flat
monthly fee:
$500.00 per month
d) Additional ongoing Support or Special Requests for access to back
dated files, or other requests not covered in this document, will
be billable using the Standard Fees listed in Schedule A.
PLEASE NOTE: ANY EASYTRIEVE REPORTS THAT ARE REQUESTED TO BE PLACED INTO
PRODUCTION MUST BE WRITTEN BY FCB FOR THE CLIENT BANK AND THEN
PLACED INTO PRODUCTION. THE FCB REPORT CREATION DEVELOPMENT COSTS
WOULD THEREFORE APPLY.
e) FCB reserves the right to restrict the hours of system usage for
the production of Easytrieve Reports, by Client Bank associates, if
it should become necessary in the future. FCB also reserves the
right to revoke the Easytrieve and/or TSO access of any User
without prior consent.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
ADDENDUM #6
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
LOAN OPERATION SUPPORT SERVICES
SERVICES COVERED BY THIS SCHEDULE:
1. Commercial and consumer loan operations/loan servicing
2. Business loan underwriting
3. Retail central underwriting
4. Retail risk management
5. Credit policy
PRICING:
1. ONE TIME FEES FOR NEW LOAN SET UP (PER LOAN BOOKED):
o Loans set up on AFS system $ 164.09
o New modifications set up on AFS system 116.88
o Equity line set up 145.56
o CheckLine Reserve set up 33.82
o CheckLine Reserve Plus or Capital Line set up 83.01
o Loans set up on IL System 139.10
2. MONTHLY MAINTENANCE/SERVICING FEE (PER LOAN ON FILE):
o Loans on the AFS system 2.68
o Loans on the IL system .84
o Equity Lines on the Hogan system .66
o CheckLines on the Hogan system .49
o CheckLine Plus on the Hogan system .47
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
ADDENDUM #7
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
PAYROLL PROCESSING SERVICES
First Citizens Bank of North Carolina will offer to its client banks an array of
payroll service offerings, allowing the client banks to select only those
offerings it wishes to purchase. The specific functions that FCB/NC will perform
within each service offering are detailed in this document.
SPECIFIC SERVICES TO BE PROVIDED:
1. PAYROLL PROCESSING, TIME AND ATTENDANCE, POSITION CONTROL AND CUSTOMER
SERVICE
o Maintain records of hours worked, days worked, vacation, sick leave,
personal
leave.
o Pay employees by Check or direct deposit (Pay periods are determined by
the client bank)
o Calculate all deductions for tax purposes, 401 K, spending
accounts, charities, insurance
o Create W2's
o Create all General Ledger entries for payment of payroll and deductions
o Create a file by Employee of Job number, Grade, Job Description, Salary
evaluation, email address, mail code, telephone number and provide this
information to Motivator, the email system, telephone book.
o Provide personnel customer service representatives that can be called to
answer payroll related questions
2. TAX ACCOUNTING
o Biweekly/Monthly distribution of funds to the federal and state governments
o Quarterly filing to the federal and state governments
o Distribution to 401K plan investment vehicles
o Distribution to Insurance companies
o Distribution to selected charities
o Balancing distributions to the General Ledger
3. BENEFITS
o Update hours each payroll for pension related benefits
o Update pension earnings
o Annually determine new participants for pension
o Create a participant tape for the pension actuary
o Create benefit statements that include pension information, health plan,
vacation time, sick leave
o Determine 401K eligibility
o Maintain welfare plan elections and report to vendor
o Produce annual re-enrollment election forms and update files
P. 1 of 2
<PAGE>
P. 2 of 2 Payroll Services (cont'd)
4. SPENDING ACCOUNT ADMINISTRATION
5. PERSONNEL
o Create and maintain a file of employee information that is not payroll or
benefits related such as sex, home address and phone number, corporate
title, salary history, position history, birthdate, marital status,
employment date, acquisition date, race, hourly rate, monthly hours, group
number, and numerous other fields.
FCB/NC will not:
o Perform pension distribution calculations
o Administer any 401K plans (investment, loans, distributions)
INITIAL FEES, RATES AND CHARGES FOR SUCH SERVICES ARE AS FOLLOWS:
ONE TIME CHARGES:
MONTHLY CHARGES (PER EMPLOYEE):
1. PAYROLL PROCESSING, TIME AND ATTENDANCE, POSITION CONTROL
AND CUSTOMER SERVICE $ 6.27
2. TAX ACCOUNTING $ 3.07
3. BENEFITS $ 3.07
4. SPENDING ACCOUNT ADMINISTRATION $ .57
5. PERSONNEL $ 1.37
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
ADDENDUM #8
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
COMMERCIAL LEASING & PUBLIC FINANCE SERVICES:
1. THE SERVICES TO BE PROVIDED ARE IDENTIFIED AS FOLLOWS:
a. Computer and Operations services to provide finance accounting for
the Client's commercial leasing and public finance portfolio.
b. A comprehensive public finance service for both real and personal
property types of financing with municipalities.
c. Product/Sales training, and consulting services to develop a
commercial leasing portfolio. Fees for these services are negotiable
and are not included below.
2. THE DESCRIPTION AND THE SCOPE OF SERVICES TO BE PROVIDED ARE AS FOLLOWS:
A. OPERATIONS/COMPUTER: Input of data to book leases and public finance
contracts, billing of customers, payment processing, documentation
follow-up and general ledger interface, property tax and sales tax
reporting to State/Local authorities.
B. PUBLIC FINANCE: Complete service support from bidding to closing for
every transaction. This includes completion of all documents,
collecting fees and disbursing proceeds on behalf of the client.
C. COMMERCIAL LEASING: Assistance in developing new documents, training
personnel, assisting with sales calls and providing consultation for
a one year period. These services are optional and fees are
negotiable.
3. THE INITIAL FEES, RATES AND CHARGES FOR SUCH SERVICES ARE AS FOLLOWS:
OPERATIONS:
Initiation fee (one time charge) $500.00*
Monthly maintenance fee (based on total groups serviced)
1 - 10 groups $100.00
11 - 20 groups $200.00
21 - 30 groups $300.00
31 - 40 groups $400.00
41 - over $500.00
Monthly processing fee (per lease) $ 6.00
* The Initiation fee is only assessed one time covering both Commercial
Leasing and Business Banking.
P. 1 of 2
<PAGE>
P. 2 of 2 Commercial Leasing & Public Finance (cont'd)
COMMERCIAL LEASING;
Per Proposal charge $250.00
Transaction fee will be charged and a percentage based on the
amount of the lease:
$10,000 - $200,000 $200,001 - $1,000,000 OVER $1,000,000
$250.00 + .10% $500.00 + .05% 1,000.00 + .025%
(THIS INCLUDES STRUCTURING, COMPLETION OF DOCUMENTS, PURCHASING
FROM DEALER OR VENDOR, AND TITLE/INSURANCE FOLLOW-UP.)
CONSULTATION:
Charges are $50.00 per hour with a minimum of $50.00
PUBLIC FINANCE:
Per Proposal Charge $250.00
At closing, a transaction fee $250.00 base fee, plus
additional fee based on the amount financed:
$1 - $100,000 $100,000 - $250,000 $250,000 - & over
.25% .15% .10%
TRAINING - Charges are negotiable
BUSINESS BANKING LEASING:
OPERATIONS
Initiation fee (one time charge) $500.00*
Monthly maintenance fee (based on total groups serviced)
1 - 10 groups $100.00
11 - 20 groups $200.00
21 - 30 groups $300.00
31 - 40 groups $400.00
41 - over $500.00
Monthly processing fee (per lease) $ 6.00
* The Initiation fee is only assessed one time covering both Commercial
Leasing and Business Banking.
LEASE DOC PREP: Per Lease $100.00
CONSULTATION:
Charges are $50.00 per hour with a minimum of $50.00
Clarification of Credit and Collections Responsibilities:
First Citizens Bank will not provide credit analysis or make credit decisions.
Client will be totally responsible for the credit risk of the portfolio and for
all collection efforts.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
ADDENDUM #9
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
INVESTMENT SERVICES:
1. SERVICES TO BE PROVIDED:
- Investment and brokerage services.
- Buying and selling of Federal Funds
- Securities sales and purchase invoicing, appraisal, and related
services to Customer upon the terms and conditions herein set forth:
DAILY TRANSACTIONS
1 - Security Invoicing - Sales and Purchases
2 - Coupon Credit Schedules
3 - Pledge Additions and releases
MONTHLY TRANSACTIONS
1 - Portfolio Accounting Report
2 - Detailed Interest Accounting, Detailed Discount accounting
& Detailed Premium Accounting
3 - U.S. Treasury and Government Agency Appraisals
4 - Pledged Securities Report
5 - Maturity Schedule for Call Statement Information
PERIODICALLY AS REQUESTED
1 - Information for Examiners
2. THE INITIAL FEES RATES AND CHARGES FOR SUCH SERVICES ARE AS FOLLOWS:
A. SECURITY TRANSACTION FEES (PURCHASES & SALES:
1. For Client's Account --
- Securities with par value $55,000 and above; $275.00 per transaction
- Securities with par value below $55,000; $ 5.00 per $1000 par value
2. For the accounts of Client's Customers --
a. Municipal Securities
1) Par value less than $50,000 $ 5.00 per thousand
2) Par value $50,000 and more $ 2.50 per thousand
b. U.S. Government and Government
Agency Securities
1) Treasury Bills $ 50.00 per trade
2) Treasury Notes, Bonds & Government
Agency Securities $ 50.00 per trade
3) One time initial Safekeeping Fee $ 25.00 per account
P. 1 of 2
<PAGE>
P. 2 of 2 Investment Services (cont'd)
B. MONTHLY STATEMENT CHARGE --
Per line item on month-end securities
inventory listing. $ 4.75
(Minimum Charge) $150.00
C. FEDERAL FUNDS TRANSACTIONS (BASED ON FCB
Daily Weighted Average Federal Funds Rate):
- Federal Funds Sold (-) 10bp
- Federal Funds Purchased (+) 10bp
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
ADDENDUM #10
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
TRUST DEPARTMENT SERVICES:
REFERRALS: The client agrees to identify qualified Trust Prospects and to assist
in the solicitation of their business for Trust Services to be rendered by
First-Citizens Bank and Trust Company (FCB).
FCB will for the life of the account, pay the Client Bank 25% of the fees
actually collected by FCB on Trust Business referred or solicited by the Client
Bank and accepted by FCB.
FCB will assign the Client Bank a new business officer to familiarize the
client's personnel with the Trust services offered by FCB and to help identify
trust prospects.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
ADDENDUM #11
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
ON-LINE COLLECTIONS SYSTEM
<TABLE>
<CAPTION>
ONE TIME CHARGES:
<S> <C>
Write Interfaces (FCB Systems Management) $ 7,500.00
Set up CACS System parameters (FCB Collections Dept.) $ 2,000.00
4 Days Client Bank on site training (FCB Collections Dept.)* $ 2,000.00
* Plus out of pocket expenses (Travel & lodging)
TOTAL ONE TIME CHARGES: $ 11,500.00
MONTHLY CHARGES:
OPTION A:
Per Loan Processed on the CACS Collections System
includes all required systems administration support. $ 0.29
Per letter generated and mailed * $ 0.05
*plus postage
OPTION B:
Per Loan Processed on the CACS Collections System
does not include any systems administration support. $ 0.07
Ongoing Systems administration support.(per hour) $ 50.00
Per letter generated and mailed * $ 0.05
*plus postage
OPTION C:
All Collection Efforts (per loan) $ 2.43
- See Service Description #7
</TABLE>
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
ADDENDUM #12
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
DEALER FLOORPLAN PROCESSING SERVICES
First Citizens Bank of North Carolina will offer to its client banks the ability
to offer Dealer Floor Plans to its commercial customers. These accounts will be
set up for each bank in a totally separate Bank file but will be serviced by
First Citizens Bank of North Carolina.
SPECIFIC SERVICES TO BE PROVIDED:
o Set up of all new Dealer Floor Plan Accounts
o Adding and deleting inventory as required
o Posting Payments to the Dealer Floor Plan System
o Filing Trust Receipts
o Returning Trust Receipts when all units are paid off
INITIAL FEES, RATES AND CHARGES FOR SUCH SERVICES ARE AS FOLLOWS:
ONE TIME CHARGES:
o SYSTEM SETUP $ 4,000.00
REOCCURRING CHARGES
o TO SET UP A DEALER FLOOR PLAN (PER 15 UNITS IN THE PLAN) $ 6.30
MONTHLY CHARGES (PER DEALER FLOOR PLAN): $ 20.68
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
ADDENDUM #13
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
INTERNATIONAL BANKING SERVICES:
<TABLE>
<CAPTION>
COMMERCIAL SERVICES FEE
- ------------------- ---
<S> <C>
WIRE TRANSFERS
Incoming: For deposit into an account at First Citizens Bank Free
Outgoing In U.S. Dollars $30.00
In foreign currency $20.00
Recalls/amendments/tracers $20.00
DRAFTS
In U.S. Dollars or foreign currencies $15.00
Stop-payments $20.00
CHECKS FOR DEPOSIT
In U.S. or Canadian dollars drawn on a Canadian bank float only (commercial)
$1.50 (individual)
In other foreign currencies drawn on the respective countries same as above
Returned items $10.00
In U.S. dollars drawn on a foreign bank (other than Canadian) see separate schedule
COLLECTIONS
Clean (checks):
Processing/paying $25.00
Tracers expenses only
Documentary:
Import: Processing/paying 1/10% of draft amount,
Minimum $50.00, Maximum $75.00
Export:
Processing/paying:
Direct (sent by exporter) 1/10% of draft amount,
minimum $40.00, max $65.00
Indirect (sent by FCB) 1/10% of draft amount,
minimum $50.00, max $75.00
Tracers expenses only
Amendments expenses only
LETTERS OF CREDIT
Import:
Issuance $50.00, plus expenses
Amendment $35.00, plus expenses
Negotiation $1/4% of drawing amount,
minimum $60.00
P. 1 of 2
<PAGE>
P. 2 of 2 International Banking Services
Discrepancy $50.00
Non-Utilization $50.00
Banker's acceptance/deferred payment $1 1/2% per annum,
minimum $60.00 per draft
Export:
Pre-advisement $35.00
Advisement $50.00
Confirmation by arrangement, minimum 1/10%
per quarter, minimum $100.00
Negotiation 1/8% of drawing amount,
minimum $50.00
Reimbursement claim $25.00
Discount charge on banker's acceptance by arrangement
Miscellaneous:
Transfer 1/4% of transferred amount,
minimum $200.00
Assignment of proceeds 1/4 of assigned amount,
minimum $150.00
Cargo release $50.00, plus $25.00/month
maintenance
Telex expense $5.00/minute
RETAIL SERVICES FEE
Foreign Currency (bought & sold) No Fees
Foreign Currency Travelers Checks - Supplied 1% of U.S. $
Equivalent or minimum $5.00
</TABLE>
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
ADDENDUM #14
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
REMOTE SITE ACD:
The pricing detailed below will provide remote site ACD capabilities with
standard, system provided reports:
<TABLE>
<CAPTION>
ONE TIME CHARGES:
<S> <C>
18 Winsets FCBSC will purchase directly from Aspect
(see attached Order Schedule from Aspect)
Set up $2,500.00
Bank specific programming/customization Quote
1-800 phone line installation charges Pass through
MONTHLY CHARGES:
Per call $.038
1-800 phone line usage Pass through
</TABLE>
PLEASE NOT THAT THIS PRICING IS FOR USE OF THE REMOTE SITE ACD ONLY. VRU/IVR
CALL USAGE, PORT USAGE AND CTI SCREEN AVAILABILITY ARE ALL PRICED SEPARATELY
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
ADDENDUM #15
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
DIEBOLD DIAL-UP ATMS
1. MONTHLY FEE (PER ATM) $17.22
o The fee is in addition to the normal monthly
ATM fee as disclosed on Schedule "A".
o Monthly Base Charge for 1-800 Number Vendor Charge
o Monthly Usage Charge for 1-800 Number Vendor Charge
2. PASS THROUGH CHARGES (ONE TIME)
o Development cost per unique ATM load $1200.00
o Cost of Modem at the ATM Pass Through
o Cost to Install Phone Lines Pass Through
o Cost to Convert ATM to Dial-up (Diebold) Pass Through
- See Service Description #12
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
SCHEDULE J
MASTER SCHEDULE
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
[GRAPHIC IMAGE APPEARS HERE]
VAULT/NIGHT DEPOSITORY/LOCK SERVICES
THIS SCHEDULE COVERS ANNUAL MAINTENANCE, REPAIRS AND PURCHASES.
I. ANNUAL MAINTENANCE
ALL EQUIPMENT WILL BE GUARANTEED AGAINST MALFUNCTION DUE TO EQUIPMENT FAILURE
AFTER BEING TAKEN UNDER THE MAINTENANCE AGREEMENT AND THE FIRST ANNUAL
MAINTENANCE HAS BEEN PERFORMED BY THE BANK EQUIPMENT SERVICES DEPARTMENT.
FAILURE OF EQUIPMENT DUE TO NEGLIGENCE, ABUSE, MISUSE, CUSTOMER ERROR OR ACT OF
GOD WILL NOT BE COVERED UNDER THE CONTRACT AGREEMENT. ANY WORK PERFORMED BY
INDIVIDUALS OTHER THAN A BANK EQUIPMENT SERVICE DEPARTMENT REPRESENTATIVE
WITHOUT THE EXPRESSED CONSENT OF THE BANK EQUIPMENT SERVICE DEPARTMENT WILL VOID
THE CONTRACT.
<TABLE>
<CAPTION>
VAULT DOORS, ANY MAKE:
CHARGES ARE PER DOOR SERVICED:
<S> <C> <C>
1" Book vault, fire or plate style doors 50.00
Above doors with Timelocks 100.00
2 inches up to 6 inches thick 240.00
6 inches up to 10 inches thick 250.00
10 inches up to 20 inches thick 275.00
HYDRAULIC DOORS: SAME PRICE SCHEDULE AS ABOVE BUT AUTOMATIC BOLT THROWING
DEVICES ARE NOT GUARANTEED.
CIRCULAR:
Up to 10 inches thick 320.00
10 inches up to 16 inches thick 355.00
16 inches up to 20 inches thick 375.00
DRIVE-UP WINDOWS: CHARGES ARE PER LANE
AUTOVEYORS: (BELT DRIVEN) 450.00
TRANS-TRAX: (PLASTIC CHAIN DRIVEN) 350.00
REMOTE TRANSACTION SYSTEMS: (PNEUMATIC - AIR SYSTEM) 650.00
Conditional guarantee: not responsible for damages due to incorrect use.
P. 1 OF 4
<PAGE>
P. 2 Annual Service Pricing cont'd
DRIVE-UP AND WALK-UP WINDOWS:
Manual Operation 250.00
Electric deal drawer 300.00
Package drawer 150.00
Additional
AUDIO EQUIPMENT: Hourly rate
NIGHT DEPOSITORY RECEIVING CHEST ONLY:
Any make 150.00
With Timelocks 200.00
PLEASE NOTE THAT THESE CHARGES COVER THE CHEST ONLY. THE HEAD WILL BE
CLEANED AND SERVICED AS PART OF THE ANNUAL MAINTENANCE. ANY SERVICE REQUIRED
ON THE OUTSIDE HEAD OF THE NIGHT DEPOSITORY (BROKEN KEYS, JAMMED BAGS, ETC.)
IS ON A TIME AND MATERIAL BASIS.
TELLER AND CASH LOCKERS: (VAULT)
1/8" and 1/4" thick doors:
Painted with key lock 5.00
Painted with one combination lock 10.00
Painted with two combination locks 15.00
Polished with key lock 10.00
Polished with one combination lock 15.00
Polished with two combination locks 20.00
1/2" thick door with one combination 25.00
1/2" thick door with two combination locks 30.00
TELLER BUSSES AND STATIONS:
Oil and adjust each bus or station 6.00
For each combination, 5.00
Additional
(NO GUARANTEE ON KEY LOCKS OR PARTS)
MANGANESE MONEY CHEST:
Any make 150.00
Chest with timelocks 200.00
(NO GUARANTEE )
GIANT SAFE DEPOSIT VAULTS:
Tann, LeFebure, Rosengrens, Chubb 150.00
Chest with timelocks 200.00
II. REPAIRS
SAFE DEPOSIT BOX OPENING CHARGES - Parts are not included
(THESE PRICES ARE BASED ON LOCKS WITH A REMOVABLE CUSTOMER TRUNION AND
HORN. ANY PARTS DESTROYED ARE ADDED TO THE CHARGES.)
<PAGE>
P. 3 Annual Service Pricing cont'd
CHARGE FOR OPENING A BOX* - FOR WHICH NO SPECIAL TRIP IS NEEDED (TO BE 75.00
OPENED WITHIN 12 WEEKS). PRICE INCLUDES TWO KEYS.
DRILL DOOR TO SAVE OBSOLETE LOCK, REFINISH PAINTED OR POLISHED DOOR, ALTER 100.00
AND TWO NEW KEYS.*
* If box is being opened for current customer of bank, payment is due at
time of opening. Customer may make check payable to First Citizens Bank.
CHARGE FOR OPENING WHEN THE CUSTOMER DEMANDS SPECIAL TRIP; RESPONSE AS SOON Special Quote
AS NEXT DAY. PRICE INCLUDES TWO KEYS. ** 250.00
Maximum
PARTS TO REPAIR LOCKS (RENTER PLUG AND COVER LID) 13.40
Additional
** OPENING PAST DUE BOXES DOES NOT WARRANT A SPECIAL TRIP
SAFE DEPOSIT LOCK WORK (VIA COURIER):
Switch locks and cut two new keys 8.00
Alter levers and cut two new keys 10.00
Cutting two new keys for changeable locks 15.00
Cutting two new keys for security locks 5.00
III. PARTS: ALL PARTS WILL BE INVOICED SEPARATELY AT FCB COST. THEREFORE, THE
PRICES OF PARTS IS SUBJECT TO CHANGE WITHOUT NOTICE.
KEY LOCKS:
Night Depository Keys, each 2.00
EXCEPTIONS:
HHM Night Depository Keys, each 3.35
Best Locks on Allied Heads-keys, each 3.00
Kumaharia Night Depository Keys, each 4.00
THE FOLLOWING LOCK PRICES ARE IN ADDITION TO THE OPENING FEE IF THE LOCK HAS TO
BE REPLACED.
Diebold Changeable 30.05
Diebold 17505 26.93
HHM 12 100.76
HHM 614 128.67
LeFebure Changeable 1/2" nose 45.29
LeFebure Changeable 3/8" nose 42.85
LeFebure 7300 68.96
Magnum locks 52.50
Mosler 3175 (brass) 20.05
Mosler 3175 (aluminum) 22.06
Mosler 3300 49.85
Mosler 5700 (brass) 24.18
Mosler 5700 (aluminum) 23.75
Security locks 13.56
S&G (4440, 4442, 4443) 19.50
S&G Changeable 21.80
Yale B201 26.30
<PAGE>
P. 4 Annual Service Pricing cont'd
HOURLY AND TRAVEL RATES
FOR SERVICE NOT COVERED UNDER OUR CONTRACT SUCH AS NIGHT DEPOSITORY
HEADS, ELECTRICAL PARTS, DAMAGE CAUSED BY OTHERS, ELECTRICAL STORMS, ABUSE,
OR MISUSE, ETC., TRAVEL WILL BE BILLED BY THE HOUR (ONE WAY) NOT TO EXCEED
3 HOURS (WITH HALF HOUR INCREMENTS), EXCEPT ON AFTER HOURS CALLS, WEEKENDS
AND HOLIDAYS WHERE THE TRIP WILL BE APPLIED.
Per hour 55.00
After hours & weekends 82.50
Holidays 110.00
</TABLE>
COMBINATIONS CAN BE CHANGED AT NO CHARGE TO THE BRANCH WHEN ANNUAL MAINTENANCE
IS PERFORMED. ANY SPECIAL TRIP TO CHANGE COMBINATIONS WILL BE BILLED AT THE
HOURLY RATE. ELECTRONIC COMBINATIONS ARE NOT COVERED UNDER THE CONTRACT
AGREEMENT.
THE BRANCH WILL BE RESPONSIBLE FOR PAYING FOR ALL PARTS USED TO REPAIR OR
MAINTAIN EQUIPMENT.
ACCEPTED AND APPROVED:
FIRST-CITIZENS BANK MASTER SCHEDULE
& TRUST COMPANY
BY: /s/ Timothy D. Seamon BY: /s/ Billy T. Woodard
TITLE:Senior Vice President TITLE:Chairman and CEO
DATE:4/8/99 DATE: 4/9/99
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
SERVICE DESCRIPTION #1
[GRAPHIC OMITTED]
TELEPHONE BANKING SERVICES
1. THE SERVICES TO BE PROVIDED ARE IDENTIFIED AS FOLLOWS:
o Use of the FCB/NC automated telephone banking Voice Response Unit for
Credit Card Balance Inquiries only
o Provide "live customer support" to customers who select that option
o Provide customers with the ability to open new deposit and loan
accounts
2. THE DESCRIPTION AND THE SCOPE OF SERVICES TO BE PROVIDED ARE AS FOLLOWS:
o Any credit card customers may use the FCB/NC Automated Voice Response
Unit to inquire about the balance of their checking account. If they
are a customer of FCB/NC, they may also use this automated voice
response unit to make a credit card payment from their FCB/NC
account.
o A customer using the VRU of FCB/NC or of the client bank, may select
the option to speak with a telephone service representative. In that
case, the call will be directed to one of FCB/NC's TSR's for
resolution of their problem. If the TSR is not able to help the
customer, the call will be directed back to the client bank own bank
.
o A customer may select the option to open a new account or apply for a
loan. In that case, the customer will be directed to the FCB/NC
Telephone Banking Center where a Telephone Banking Representative
will follow normal FCB/NC procedure to open the account or close the
loan for the client bank.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
SERVICE DESCRIPTION #2
[GRAPHIC OMITTED]
BRANCHTELLER ARCHIVING & RETRIEVAL SERVICES:
SERVICES:
1) BRANCHTELLER SYSTEM TRANSACTION ARCHIVING
FCB will perform all of the functions for the Client Bank related
to Centralized Daily archiving of all BranchTeller transactions. This
will be done centrally in Raleigh, NC for all of the Clients Tellers.
The Client will contact FCB via email/eform to request any
necessary Teller Archive data to be printed and forwarded to the
Client Bank as necessary.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
SERVICE DESCRIPTION #3
[GRAPHIC OMITTED]
T-TAX PROCESSING SERVICES
1 . THE SERVICE TO BE PROVIDED:
First Citizens Bank of NC has entered into an agreement with an
outside vendor ("Cash Tax") to provide FCBNC and our Client Banks, the
ability to sell a service to be used by Business customers, to pay
Federal Taxes via ACH Debit to the customers DDA account. The payment
is then forwarded to the IRS on an automated basis.
Once the Client Bank has verified the customers enrollment form
for completeness and accuracy, it will be forwarded to FCBNC for final
review and submission to Cash Tax.
2. PASS THROUGH CHARGES:
All outside vendor charges related to the processing of T-Tax
transactions will be passed through to the Client Bank.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
SERVICE DESCRIPTION #4
[GRAPHIC OMITTED]
REMOTE ACCESS:
1) SECURE NET KEY $65.00 One Time Charge
(FCB retains the right to recall the key
and refund the Client Bank at anytime)
2) TELECOMMUNICATIONS:
Option A: Establish a unique 1-800 for the Client Banks use.
The Client Bank pays all costs associated with the
1-800 line and usage.
(Estimated at $20/month plus $0.17 per minute of
usage)
Option B: Establish direct dial, local or long distance
access. The Client Bank pays all costs associated
with the line (s) and usage. (Estimated at $0.24 to
$0.29 per minute for Long Distance).
3) COMMUNICATIONS SOFTWARE:
Each Institution is responsible for the purchase and installation
of their own Communications software. FCB recommends and Supports
"Procomm".
4) FCB SUPPORT: 10.00 per month per SecureNet Key Issued.
5) FCB reserves the right to limit the number of users to be provided with
Dial Access. Currently the maximum number of SecureNet Keys to be issued
is as follows:
Client Bank with Assets of $1 Billion or Greater = 8 SecureNet Keys
Client Bank with Assets of less than $1 Billion = 4 SecureNet Keys
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
SERVICE DESCRIPTION #5
[GRAPHIC OMITTED]
CRA ANALYSIS AND REPORTING
First Citizens Bank will, as outlined below, perform certain functions and
provide certain information in such a manner as to aid with CRA compliance. Only
those functions described below will be performed automatically by First
Citizens Bank. However, First Citizens Bank, in no way, accepts responsibility
for each individual bank's compliance with CRA.
SPECIFIC SERVICES TO BE PROVIDED:
1. MONTHLY
o Extract the applicable loan information from loans that fall under the CRA
regulation, import this information into the Centrax software, and GEO code
the loans.
o Provide to each bank an Error Reject Report of all loans for which a valid
GEO code was unobtainable.
o Provide to each bank the Annual Revenue Reject Report for all loans for
which there was no income stated on the loan record
o Force GEO code the Business Farm and Business loans, if requested by the
client to do so.
2. QUARTERLY
o Provide the CRA Business Farm and Consumer Performance Report
o Provide the Community Development Loan Report
3. ANNUALLY
o Provide the Year End Assessment Maps (no loans will be plotted on these
maps)
o Provide the Year End Loan Performance Report
o Provide the Remittance File Submission Disk and Form for the bank to sign
and remit.
4. SPECIAL REQUEST
o Any request for a report/map/information not specifically stated in this
schedule should be submitted in writing and FCB/NC will reply with a time
and price estimate.
FCB/NC will not:
o Accept responsibility for each bank's compliance with CRA.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
SERVICE DESCRIPTION #6
[GRAPHIC OMITTED]
PC HOME BANKING SERVICES
PROCESSING:
PC Banking On-Line Processing and interface with CheckFree Systems.
SUPPORT:
OPTION A: FULL SUPPORT
CUSTOMER SET UP: Includes the one time set up of the Customers
on one application on the Check Free System and on
the FCB system.
Includes set up of any Bill Payees associated
with the application over the life of the
relationship.
Includes "fulfillment" (mailing of the
introductory package of Software, manual,
disclosures and letter). Fulfillment does not
include the cost of postage or the materials.
FULL TELEPHONE SUPPORT: This support will be available during the same
days and hours as is available to First Citizens
Bank of NC PC Home Banking Customers.
Technical Support: Includes telephone support for Technical
questions from Client Bank Customers related to
the installation and running of the PC Home
Banking Software.
Non Technical Support: Includes telephone support for all non
technical questions from Client Bank Customers
related to the PC Home Banking Product, PC Bill
Payment Services..
OPTION B: TECHNICAL SUPPORT ONLY
TECHNICAL SUPPORT: Includes telephone support for Technical questions
from Client Bank Customers related to the
installation and running of the PC Home Banking
Software. This support will be available during the
same days and hours as is available to First Citizens
Bank of NC PC Home Banking Customers.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
SERVICE DESCRIPTION #7
[GRAPHIC OMITTED]
COLLECTION OF INSTALLMENT AND LOC LOANS
1. THE SERVICES TO BE PROVIDED ARE IDENTIFIED AS FOLLOWS:
o Extraction of delinquent Installment Loans and Lines of Credit
o Automatic input of these loans into the CACS On-Line Collection
System
o Printing and mailing of Collection Letters
o Phone Calls to delinquent customers
o Repossession of Collateral where necessary
o Filing of any legal documents necessary
2. THE DESCRIPTION AND THE SCOPE OF SERVICES TO BE PROVIDED ARE AS FOLLOWS:
o Procedures to collect delinquent accounts will be the same as those
now in effect to collect delinquent loans for FCB/NC except in the
case where state regulations may cause a change in procedure.
o Collectors will use the ACS on-line collection system now in place to
collect these loans. However, FCB/NC reserves the right to use any
collection system that it deems appropriate for itself.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
SERVICE DESCRIPTION #8
[GRAPHIC OMITTED]
LOAN DOCUMENT PREPARATION SOFTWARE SUPPORT
1. THE SERVICES TO BE PROVIDED TO "AFFILIATE BANKS" ARE IDENTIFIED AS FOLLOWS:
o Use of CFI Laser Pro Software at the Branch and/or Centralized Location
o Software Maintenance Fees (CFI and FCB)
o Implementation of all future vendor supplied SW releases and updates
o All future new product set up, by FCB analysts
o Host interfaces from CFI Laser Pro to the FCB Consumer Loans, CIS and
LOC systems
o Use of the "Loan Remote" Software System for Printing from a central
location*
*Please note that upon conversion from "Loan Remote" to another
Software system, additional SW Licensing fees may apply, which will be passed
through to the Client Bank from the Software Vendor.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
SERVICE DESCRIPTION #9
[GRAPHIC OMITTED]
APPRO MP-100 CBI FAX BACK/LOAN SCORING PROCESS
1. SERVICE:
The Client Bank will submit a formatted CICS transaction in the
format of the required On-line Loan Application to the host computer.
This data will be forwarded to the FCBNC Appro MP-100 system. The Appro
MP-100 System will FAX back to the designated location, a complete CBI
along with a Credit Score. This data will serve as part of the tools
used by the Client Bank Credit Officer in decisioning the loan.
2. PASS THROUGH CHARGES:
All outside vendor charges will be passed through to the Client Bank.
These may include, Credit Bureau charges for the per CBI charge, as well
as phone line charges
for FAX back, etc.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
SERVICE DESCRIPTION #10
(GRAPHIC IMAGE APPEARS HERE)
LARGE CURRENCY TRANSACTION REPORTING:
SPECIFIC SERVICES INCLUDED:
CONVERSION: - Set up Bank Information
- Set up Branch Information
- Set up Branch Access/Limits to System
- Enter Repeat Customer Information on Data Base
- Enter Exemption Information on Customer File
- Assign Report Distribution
ON-GOING: - Use of on-line Large Currency Reporting System
- Hot line for On-Line CTR questions
- Verification of All POD versus On-Line entries
- Maintaining / Updating Customer Data Base
- Magnetic Reporting of CTR Information
- Rendering Mag Tape to IRS
- Correcting/Acknowledgment of IRS Acceptance
- Furnish 60 Day History For Exemption Review/Request
- 5 year Retention of CRTs and Exemption Listings
- Continued Training related to any on-line changes
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
SERVICE DESCRIPTION #11
(GRAPHIC IMAGE APPEARS HERE)
COLLECTION OF PERSONAL CREDIT CARD ACCOUNTS
1. THE SERVICES TO BE PROVIDED ARE IDENTIFIED AS FOLLOWS:
o Using the FDR on-line system, identification of delinquent accounts
o Printing and mailing of Collection Letters
o Phone Calls to delinquent customers
2. THE DESCRIPTION AND THE SCOPE OF SERVICES TO BE PROVIDED ARE AS FOLLOWS:
o Procedures to collect on delinquent accounts will be the same as
those now in effect to collect delinquent loans for FCB/NC except in
the case where state regulations may cause a change in procedure.
o Collectors will use the FDR on-line system now in place to collect
these loans. However, FCB/NC reserves the right to use any collection
system that it deems appropriate for itself.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
SERVICE DESCRIPTION #12
(GRAPHIC IMAGE APPEARS HERE)
MONITORING OF DIEBOLD DIAL-UP ATMS
1. SERVICES PROVIDED TO MONITOR COMMUNICATIONS LINK WITH THE ATMS:
The ATM sends an hourly "healthcheck" message which FCB Network Control uses to
report communications failures. Every hour the host checks two internal
parameters to detect possible problems:
o The host is receiving a "healthcheck" every hour
AND
o The ATM has performed a transaction within 16 hours
If the "healthcheck" is not received, Network will dispatch Diebold immediately
to the ATM site. If there has not been activity within 16 hours, Network
executes an instruction to send a new load to the ATM the next time the
"healthcheck" comes in and continues to monitor for transactions. If no
transactions occur once the load is sent, Diebold is dispatched to the ATM site.
<PAGE>
FIRST CITIZENS BANK
CLIENT BANK PRICING
SCHEDULE A
THE FIDELITY BANK
(GRAPHIC IMAGE APPEARS HERE)
EFFECTIVE JANUARY 1999 THROUGH DECEMBER 2000
INITIAL SYSTEM APPLICATION SET UP CHARGES (NEW BANK, ONE TIME FEES)
-DEMAND DEPOSIT SYSTEM 7,500.00
-TIME DEPOSIT SYSTEM 5,000.00
-LOC 5.000.00
-COMMERCIAL LOANS 7,500.00
-CONSUMER LOANS 5,000.00
-GENERAL LEDGER 5,000.00
ACCOUNT PROCESSING
Includes Contingency planning / Disaster Recovery.
Enterprise Wide Electronic Mail (EMAIL) system access.
Year End Processing.
PRICING BASED ON ACTIVE ACCOUNTS ONLY.
<TABLE>
<CAPTION>
MONTHLY MONTHLY
DESCRIPTION FEE MINIMUM
- ----------- --- -------
<S> <C> <C>
*DDA - (per account) 0.420 2,500.00
*SAVINGS - (per account) 0.420
*TIME DEPOSITS -
-TDA/PRENEED/CLUB (per account) 0.420 1,000.00
*IRA - (per account) 0.500
*MASTER NOTES - (per account) 0.470
*PACKAGED ACCOUNTS - (per account) 0.250
*LOC ACCOUNTS (per account) 500.00
- Checkline Reserve 0.420
- Checkline Plus 0.420
- Equityline 0.440
*COMMERCIAL LOANS - (per account) 0.750 500.00
*CONSUMER LOANS (ILS) - (per account) 0.750 500.00
*GENERAL LEDGER - (per branch) 124.000 750.00
*BR-BANKER & BA-TELLER (per branch) 91.63
ATM - CARD ISSUE (per card) 1.750
ATM - (per ATM) 75.000
IVR PORT - (per port)
- Periphonics 274.000
- Aspect 30.000
IVR USAGE (per phone call)
- Periphonics .030
- Aspect .043
- Externally attached IVR for CPU usage only .030
<PAGE>
P. 2 of 7
MONTHLY MONTHLY
DESCRIPTION FEE MINIMUM
TELEPHONE SERVICE REPRESENTATIVES- (per call) 5.130
- See Service Description #1
TELEPHONE BANKERS - (per call) 18.350
- See Service Description #1
*ACH - (per transaction) 0.055
SAFE BOX ACCOUNTS - (per account) 0.070 200.00
-maintenance & balancing services (optional, 0.030
per account)
CRA EXTRACT - (per record) .050
SPECIAL REQUESTS Quote
*MOTIVATOR - (per employee) 7.520
CENTRAL BANK OPERATIONS
RETURNS - (per item) 0.4458
FAX LARGE ITEM RETURNS - (per item) 2.0000
BA TELLER ARCHIVE - (per teller workstation)
- With Teller Balancing 11.2500
- Without Teller Balancing 4.5300
- See Service Description # 2
FOREIGN ITEMS FOR COLLECTION - (per item) 1.2000
- Also, a float adjustment will be made to the Client Bank
Due to/Due from account for the # of days in collection.
*STATEMENT RENDERING - (per statement rendered)
-ZERO ENCLOSURE STATEMENTS 0.0780
-ENCLOSURE STATEMENTS 0.2300
*PROOF - (per item) 0.0254 500.00
PROOF - (per pre-encoded items) .0000
*SORTER - (per item) 0.0152 750.00
ENCODED - IN STATE - (per item) 0.0027
ENCODED - OUT OF STATE - (per item) 0.0436
ACCOUNT RECONCILIATION PROCESSING (ARP):
-PARTIAL/RANGE
-Minimum Monthly Charge/ per account 20.0000
-Per Item 0.0300
-FULL RECON
-Minimum Monthly Charge/ per account 30.0000
-Per Item 0.0400
-DEPOSIT RECON
-Minimum Monthly Charge/ per account 30.0000
-Per Item 0.0400
CHECK SERIAL SORT
- (minimum monthly charge) 20.0000
- (per item) 0.0200
FOOD COUPONS - (per coupon) 0.0056
SALES DRAFTS - (per item) 0.0716
MC & VISA PAYMENTS - (per item) 0.1217
CD ROM - (per item captured) 0.0400 -
(per CD produced) 16.0000
- Initial Software (Pass Through)
T TAX - (per T TAX account) 0.3000
- See Service Description #3
T T & L PAYMENT PROCESSING - (per payment) .0050
BUSINESS EXPRESS
<PAGE>
P. 3 of 7
MONTHLY MONTHLY
DESCRIPTION FEE MINIMUM
-Per Account added or changed (one time) 1.0000
-Download to ADP & Support (per account) .4500
LCR ANALYSIS - (per CTR) 1.2900
- See Service Description #10
MC & VISA RESEARCH RETRIEVAL - (per item) 1.5000
MC & VISA CONVENIENCE CHECK
PROCESSING:
-CD-ROM Imaging Charges - (per item) 0.0400
-Exception Handling & Processing - (per item) 0.1950
DATA ENTRY SERVICES **:
-Visa, MC, Merchant, ARC, Maintenance,
New Accounts, etc. - (per customer input) 0.2700
** This only applies to companies for which FCBNC
does not provide Account processing services.
RESEARCH (Per Photo Copy) 0.9500
ADJUSTMENTS (Per Adjustment Completed) 7.1800
OTHER
LOCK BOX SERVICES:
-Maintenance - (per box ) 32.0000
-Box Rental - (per box) 1.0000
-Processing - (per item) .2200
-Photo Copy - (per item) .0500
-Deposit Preparation - (per day) 1.0000
-Optional Services;
-Deposit Reporting - (per month) 20.0000
-Toll Call Deposit Reporting - (per month) 32.0000
-FAX Services
-Per month 20.0000
-Per Page .2000
-Research - (per request) .8000
-Mag Tape - (per month) 40.0000
-Postage = Pass through + (per item handling fee) .0400
-Other QUOTE
ENVELOPE OPENING - (per envelop) .0200
REMOTE ACCESS (DIAL ACCESS)
- Secure Net Key Deposit - (per key/one time charge) 65.0000
- Secure Net Key Support - (per key) 10.0000
- See Service Description #4
MERGERS & ACQUISITIONS
-Charges are calculated using "Standard Fees" below.
-Consultant Charges/Out of Pocket Actual Cost
CRA ANALYSIS AND REPORTING - (per CRA record) 1.5800
- See Service Description #5
SECURITY MONITORING - (per branch) 27.5000
MCIF MONTHLY EXTRACT - (per record) 0.0039
MCIF ANALYSIS AND REPORTING - (per record) 0.0100
TSO ACCESS - (per user) 50.0000
NCOA PROCESSING - (per record extracted) 0.0030
OFAC DAILY PROCESSING -(per record extracted) 0.0500
OFAC FULL FILE PROCESSING - (per record extracted) 0.0015 P. 4 of 7
<PAGE>
MONTHLY MONTHLY
DESCRIPTION FEE MINIMUM
OFAC FACS SW COPIES - (per software license/per year) 600.0000
EARLY WARNING FRAUD DETECTION & OFAC PROCESS'G .0500
INTERNAL CONTROLS - (per branch) 74.7300
DESKTOP SUPPORT- (per associate) 29.7200
OPTICAL PROCESSING
-Per Page 0.0007
-Per Disk 95.0300
FILE TRANSMISSIONS USING XCOMM - (per byte) 0.0000347
OTHER FILE TRANSMISSION MODES TBD
PC HOME BANKING
-Per Customer Set Up 14.6000
-Full Support - (per customer) 1.2500
-Technical Support Only - (per customer) .2500
- See Service Description #6
CREDIT CARD COLLECTION - (per credit card delinquent) 3.6000
- See Service Description #11
LOAN DOC PREP
-One Time Charge 2,400.0000
- Per Branch 99.0000
- Vendor Software License Fee Quote
- See Service Description #8
APPRO MP100 - CBI FAXBACK - (per loan processed) 1.0300
Plus Fax Phone Live Charges (Pass Through)
- See Service Description #9
FCB MANUALS
-Initial Set of Manuals 350.000
-Annual Update Fee 100.000
STANDARD FEES (Charged in 1/4 Increments)
-First Citizens Bank Personnel
Management/Technical/Professional & Consulting
(Per Hour) 60.000
Clerical/Administrative (Per Hour) 25.000
-Computer Time (Per Hour) 250.000
-Supplies and Out of Pocket Expense Actual Cost
TRANSPORTATION SERVICES:
-Pass Through from Vendor plus 10% Administrative Fee
</TABLE>
<PAGE>
P. 5 of 7
<TABLE>
<CAPTION>
<S> <C>
PURCHASING SERVICES See Attached Pricing Addendum 1
FACILITIES CONSULTING SERVICES See Attached Pricing Addendum 2
EDUCATIONAL FEES See Attached Pricing Addendum 3
CASH MANAGEMENT (Datanet) See Attached Pricing Addendum 4
EASYTRIEVE REPORTING See Attached Pricing Addendum 5
LOAN SUPPORT SERVICES See Attached Pricing Addendum 6
PAYROLL PROCESSING SERVICES See Attached Pricing Addendum 7
COMM. LEASING & PUBLIC FINANCE SVCS. See Attached Pricing Addendum 8
INVESTMENTS See Attached Pricing Addendum 9
TRUST See Attached Pricing Addendum 10
ON-LINE COLLECTION SYSTEM See Attached Pricing Addendum 11
DEALER FLOOR PLAN PROCESSING SERVICES See Attached Pricing Addendum 12
INTERNATIONAL BANKING SERVICES See Attached Pricing Addendum 13
REMOTE SITE ACD See Attached Pricing Addendum 14
DIEBOLD DIAL-UP ATMs See Attached Pricing Addendum 15
</TABLE>
NETWORK MANAGEMENT:
MONTHLY NETWORK MANAGEMENT FEES:
o FCB Network Management Fee (per line drop) * $ 144.75
o Communication lines and equipment (per line drop) * $ 255.51
o Adds, changes, deletes to existing network * QUOTE
o Installation charges * PASSTHROUGH
* Fee will be changed upon implementation of the Frame Relay Network, as
follows:
o FCB Network Management Fee (per line drop) $ 152.36
o Communication lines and equipment (per line drop) $ 294.00
o Adds, changes, deletes to existing network QUOTE
o Installations charges PASSTHROUGH
<PAGE>
P. 6 of 7
PASSTHROUGH CHARGES:
MONTHLY MONTHLY
DESCRIPTION FEE MINIMUM
MAGNUM/CBI
-Initial Set Up Fee (one-time) 1,260.0000
-Monthly Processing Support 200.0000
-Per CBI Transaction Charge 0.1000 each
-Transaction Processing/Software Maintenance
(pass through from vendor) Actual Cost
POSTAGE AND PRESORT FEES
TRANSPORTATION
EARLY WARNING/WJM TECHNOLOGIES
SERIES E BONDS
MICROFICHE
MICROFILM / MICROFICHE OFFSITE STORAGE
ADP FINANCIAL SERVICES
ADVANTIS
BUSINESS RECOVERY (SC ONLY)
CD ROM INITIAL SOFTWARE
PURCHASING
PC MAINTENANCE
RENTAL FEES AND MAINTENANCE OF LOCK BOX
APPRO FAXBACK CREDIT BUREAU CHARGES AND FAX PHONE LINE CHARGES
CASH TAX
OTHER
<PAGE>
P. 7 of 7
NON CBO DISCOUNTS:
A VOLUME DISCOUNT CREDIT WILL BE APPLIED TO THE TOTAL AMOUNT OF NON CBO
MONTHLY CHARGES FROM THE ITEMS HAVING AN ASTERISK (*) ABOVE, ACCORDING TO THE
FOLLOWING SCHEDULE:
MONTHLY TOTAL DISCOUNT
$ 00,000 - $24,999 NONE
25,000 - 37,499 2.5%
37,500 - 49,999 5.0%
50,000 - 62,499 7.5%
62,500 - 74,999 10.0%
75,000 - 87,499 12.5%
87,500 - 99,999 15.0%
100,000 - 112,499 17.5%
112,500 - 124,999 20.0%
125,000 - 137,499 22.5%
137,500 - 149,999 25.0%
150,000 - 162,499 27.5%
162,500 - 174,999 30.0%
175,000 - 199,999 32.5%
200,000 - ABOVE 35.0%
CBO DISCOUNTS:
A VOLUME DISCOUNT CREDIT WILL BE APPLIED TO THE TOTAL AMOUNT OF CBO MONTHLY
CHARGES FROM THE CBO ITEMS HAVING AN ASTERISK (*) ABOVE, ACCORDING TO THE
FOLLOWING SCHEDULE:
MONTHLY TOTAL DISCOUNT
$150,000 - GREATER 5%
COMPENSATING BALANCE:
Client Bank monthly invoice will be adjusted based upon the compensating average
collected balances of all accounts maintained at First Citizens Bank. Average
positive collected balance will be paid an earnings credit based upon the
average Federal Funds Rate for the month (-10bp).
Average negative collected balances will be charged at the average Federal Funds
Rate for the month (+10 bp).
PRICING CHANGES:
These prices may increase effective January 1, 2000. The total price increase
will not exceed the change in the Consumer Price Index as of the previous August
plus 1%.
ACCEPTED AND APPROVED:
FIRST-CITIZENS BANK THE FIDELITY BANK
& TRUST COMPANY
By:/s/ Timothy D. Seamon By: /s/ Billy T. Woodard
Title:Senior Vice President Title:Chairman
Date: 12/7/98 Date: 12/7/98
STATE OF NORTH CAROLINA
COUNTY OF WAKE
SECOND AMENDMENT OF EMPLOYEE DEATH
BENEFIT AND POST-RETIREMENT
NONCOMPETITION AND CONSULTATION AGREEMENT
THIS SECOND AMENDMENT OF EMPLOYEE DEATH BENEFIT AND
POST-RETIREMENT NONCOMPETITION AND CONSULTATION AGREEMENT ("Second Amendment"),
made and entered into and effective as of the 1st day of January, 1999, 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, as amended by a First Amendment of Employee Death Benefit and
Post-Retirement Noncompetition and Consultation Agreement, dated as of January
29, 1996, both of which are incorporated herein by reference (hereinafter
referred to collectively 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,
<PAGE>
WHEREAS, Employer now desires to enter into Phase III of such
benefit plan, pursuant to 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 Second Amendment.
NOW, THEREFORE, for and in consideration of the mutual
promises and undertakings herein set forth, the parties hereto do agree as
follows:
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 One Hundred Four Thousand Eight Hundred Fifty
and No/100 Dollars ($104,850.00) per year, payable in monthly
installments of Eight Thousand Seven Hundred Thirty-Seven and
50/100 Dollars ($8,737.50) 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:
2
<PAGE>
"3. CONSULTATION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be
paid by Employer the sum of Two Thousand One Hundred
Eighty-Four and 37/100 Dollars ($2,184.37) 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:
"4. NONCOMPETITION PAYMENTS. In the event Employee retires
from employment on Employee's Retirement Date, Employee shall
be paid by Employer the sum of Six Thousand Five Hundred
Fifty-Three and 13/100 Dollars ($6,553.13) 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. Paragraph 5 of the Agreement hereby is deleted in its
entirety and the following replacement Paragraph 5 is inserted in lieu thereof:
3
<PAGE>
"5. CONTINUATION OF PAYMENTS. Upon Employee's death during
said ten (10) year period of payments hereunder, the sum of
Eight Thousand Seven Hundred Thirty-Seven and 50/100 Dollars
($8,737.50) 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."
5. All of the remaining terms and conditions of the Agreement
which are not expressly amended by this Second Amendment shall remain in full
force and effect.
IN TESTIMONY WHEREOF, Employer has caused this Second
Amendment to be executed in its corporate name by its President, attested by its
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.
---------------------------------
Haywood A. Lane, Jr., President
Attest:
/s/ Betty K. Hedgepath
Betty K. Hedgepath, Secretary
/s/ Billy T. Woodard (SEAL)
---------------------------------
Billy T. Woodard
4
STATE OF NORTH CAROLINA
COUNTY OF WAKE
SECOND AMENDMENT OF EMPLOYEE DEATH
BENEFIT AND POST-RETIREMENT
NONCOMPETITION AND CONSULTATION AGREEMENT
THIS SECOND AMENDMENT OF EMPLOYEE DEATH BENEFIT AND
POST-RETIREMENT NONCOMPETITION AND CONSULTATION AGREEMENT ("Second Amendment"),
made and entered into and effective as of the 1st day of January, 1999, 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, as amended by a First Amendment of Employee Death Benefit and
Post-Retirement Noncompetition and Consultation Agreement, dated as of January
29, 1996, both of which are incorporated herein by reference (hereinafter
referred to collectively 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,
<PAGE>
WHEREAS, Employer now desires to enter into Phase III of such
benefit plan, pursuant to 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 Second Amendment.
NOW, THEREFORE, for and in consideration of the mutual
promises and undertakings herein set forth, the parties hereto do agree as
follows:
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 Eighty-Five Thousand Five Hundred and No/100
Dollars ($85,500.00) per year, payable in monthly installments
of Seven Thousand One Hundred Twenty-Five and No/100 Dollars
($7,125.00) 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:
2
<PAGE>
"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 Seven Hundred
Eighty-One and 25/100 Dollars ($1,781.25) 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:
"4. NONCOMPETITION PAYMENTS. In the event Employee retires
from employment on Employee's Retirement Date, Employee shall
be paid by Employer the sum of Five Thousand Three Hundred
Forty-Three and 75/100 Dollars ($5,343.75) 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. Paragraph 5 of the Agreement hereby is deleted in its
entirety and the following replacement Paragraph 5 is inserted in lieu thereof:
3
<PAGE>
"5. CONTINUATION OF PAYMENTS. Upon Employee's death during
said ten (10) year period of payments hereunder, the sum of
Seven Thousand One Hundred Twenty-Five and No/100 Dollars
($7,125.00) 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."
5. All of the remaining terms and conditions of the Agreement
which are not expressly amended by this Second Amendment shall remain in full
force and effect.
IN TESTIMONY WHEREOF, Employer has caused this Second
Amendment to be executed in its corporate name by its Chairman, attested by its
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
---------------------------
Billy T. Woodard, Chairman
Attest:
/s/ Betty K. Hedgepath
- ---------------------------------
Betty K. Hedgepath, Secretary
/s/ Haywood A. Lane, Jr.
--------------------------------
(SEAL) Haywood A. Lane, Jr.
4
FIDELITY BANCORP, INC.
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
<S> <C>
12/31/98 12/31/97 12/31/96 12/31/95
------------- ------------- ------------- -------------
NET INCOME BEFORE TAXES 12,106,371.00 11,969,459.00 9,790,311.00 9,261,231.00
============= ============= ============= =============
FIXED CHARGES:
INTEREST EXPENSE ON DEPOSITS 19,478,840.00 18,692,963.00 15,957,942.00 12,335,539.00
INTEREST EXPENSE ON STB 412,516.00 323,548.00 287,329.00 280,473.00
------------- ------------- ------------- -------------
TOTAL 19,891,356.00 19,016,511.00 16,245,271.00 12,616,012.00
============= ============= ============= =============
NET INCOME BEFORE TAXES AND FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS 31,997,727.00 30,985,970.00 26,035,582.00 21,877,243.00
============= ============= ============= =============
EARNINGS TO FIXED CHARGES:
EXCLUDING INTEREST ON DEPOSITS 30.35 37.99 35.07 34.02
INCLUDING INTEREST ON DEPOSITS 1.61 1.63 1.60 1.73
<CAPTION>
12/31/94
-------------
NET INCOME BEFORE TAXES 7,961,063.00
=============
FIXED CHARGES:
INTEREST EXPENSE ON DEPOSITS 8,150,960.00
INTEREST EXPENSE ON STB 285,960.00
-------------
TOTAL 8,436,920.00
=============
NET INCOME BEFORE TAXES AND FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS 16,397,983.00
=============
EARNINGS TO FIXED CHARGES:
EXCLUDING INTEREST ON DEPOSITS 28.84
INCLUDING INTEREST ON DEPOSITS 1.94
</TABLE>
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 LLP
Raleigh, North Carolina
April 22, 1999
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 (Amendment No.
2) of our report dated February 28, 1997, except as to the last paragraph, as to
which the date is February 5, 1999, on our audit of the consolidated statements
of income, changes in shareholders' equity and cash flows of Fidelity BancShares
(N.C.), Inc. for the year 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
April 21, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000825953
<NAME> FIDELITY BANCSHARES (N.C.), INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 31,137,382
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 87,050,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,608,000
<INVESTMENTS-CARRYING> 90,146,476
<INVESTMENTS-MARKET> 90,567,934
<LOANS> 439,207,586
<ALLOWANCE> 4,601,000
<TOTAL-ASSETS> 694,134,263
<DEPOSITS> 609,646,335
<SHORT-TERM> 11,617,344
<LIABILITIES-OTHER> 8,062,408
<LONG-TERM> 0
0
0
<COMMON> 6,961,424
<OTHER-SE> 57,846,752
<TOTAL-LIABILITIES-AND-EQUITY> 694,134,263
<INTEREST-LOAN> 37,614,925
<INTEREST-INVEST> 6,290,434
<INTEREST-OTHER> 2,664,161
<INTEREST-TOTAL> 46,569,520
<INTEREST-DEPOSIT> 19,478,840
<INTEREST-EXPENSE> 19,891,356
<INTEREST-INCOME-NET> 26,678,164
<LOAN-LOSSES> 630,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 19,418,414
<INCOME-PRETAX> 12,106,371
<INCOME-PRE-EXTRAORDINARY> 12,106,371
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,649,371
<EPS-PRIMARY> 269.25
<EPS-DILUTED> 269.25
<YIELD-ACTUAL> 4.77
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,144,752
<CHARGE-OFFS> 1,540,681
<RECOVERIES> 1,366,929
<ALLOWANCE-CLOSE> 4,601,000
<ALLOWANCE-DOMESTIC> 4,601,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
