<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER: 33-64304
FIRST INTERSTATE BANCSYSTEM, INC.
(Exact name of registrant as specified in its charter)
MONTANA 81-0331430
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
401 NORTH 31ST STREET
BILLINGS, MONTANA 59116
(Address of principal executive offices) (Zip Code)
(406) 255-5390
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value (appraised minority value) of the common stock of
the registrant held by non-affiliates of the registrant as of February 28,
1998 was $21,864,742.
The number of shares outstanding of the registrant's common stock as of
February 28, 1998 was 8,023,826.
-1-
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
First Interstate BancSystem, Inc. ("FIBS" and collectively with its
subsidiaries, the "Company") is a bank holding company. FIBS was
incorporated in 1971 and is headquartered in Billings, Montana. In October
1997, FIBS changed its name from "First Interstate BancSystem of Montana,
Inc." to "First Interstate BancSystem, Inc."
FIBS operates two wholly-owned bank subsidiaries (collectively, the
"Banks" and individually a "Bank") with 32 banking offices in 23 Montana and
Wyoming communities and FIB Capital Trust ("FIB Capital"), a wholly-owned
non-bank subsidiary. At December 31, 1997, the Company had assets of $2.2
billion, deposits of $1.8 billion and total stockholders' equity of $146
million, making it the largest independent banking organization headquartered
in Montana or Wyoming.
The Company, through the Banks, delivers a comprehensive range of
consumer and commercial banking services to individual and business
customers. These services include personal and business checking and savings
accounts, time deposits, individual retirement accounts, cash management,
trust services and commercial, consumer, real estate, agricultural and other
loans. Additionally, the Company operates a substantial data processing
division that performs data processing services for the Banks and 34
non-affiliated financial institutions in Montana, Wyoming and Idaho. The data
processing division also supports over 630 ATM locations in 13 states,
principally Montana, Wyoming, Idaho, Colorado and North Dakota.
The Company is the licensee under a trademark license agreement between
Wells Fargo & Company and the Company granting it an exclusive,
nontransferable license to use the "First Interstate" name and logo in the
states of Montana and Wyoming with additional rights in selected other
states.
In October 1997, the Company effected a four-for-one stock split of its
existing common stock. Unless otherwise indicated, information regarding
common stock of the Company contained herein has been retroactively restated
to give effect to the stock split.
COMMUNITY BANKING PHILOSOPHY
The Company's banking offices are located in communities with
populations generally ranging from approximately 5,000 to 70,000 people, but
serve market areas with greater populations because of the limited number of
financial institutions within a reasonable distance from the communities in
which such offices are located. The Company believes that these communities
provide a stable core deposit and funding base, as well as economic
diversification across a number of industries, including agriculture, energy,
mining, timber processing, tourism, government services, education and
medical services.
The banking industry is presently undergoing change with respect to
regulatory matters, consolidation, changing consumer needs and economic and
market conditions. The Company believes that it can best address this
changing environment through its "Strategic Vision." Through the Strategic
Vision, the Company emphasizes providing its customers full service
commercial and consumer banking at a local level using a personalized service
approach, while serving and strengthening the communities in which the Banks
are located through community service activities.
The Company grants significant autonomy and flexibility to the banking
offices in delivering and pricing products at the local level in response to
market considerations and customer needs. This flexibility and autonomy
enables the banking offices to remain competitive and enhances the
relationships between the banking offices and the customers they serve. The
Company also emphasizes accountability, however, by establishing performance
and incentive standards for the Banks which are tied to net income at the
individual branch level. The Company believes that this combination of
autonomy and accountability allows the banking offices to provide a high
level of personalized service to customers while remaining attentive to
financial performance.
-2-
<PAGE>
GROWTH STRATEGY
The Company's growth strategy includes growing internally and expanding
into new and complementary markets when appropriate opportunities arise. The
Company believes it has in place an infrastructure that will allow for growth
and yield economies of scale on a going forward basis. The Company has
received regulatory approval to open three new banking offices in Montana and
Wyoming and will continue to expand its presence in the Montana and Wyoming
markets.
INTERNAL GROWTH
The Company's internal growth strategy is to attract and retain
customers by providing personalized "high touch" service, increasing its
offering of products and services and cross-selling existing products and
services. The Company believes its ability to offer a complete package of
consumer and commercial banking products and services enhances the Company's
image as a "one-stop" banking organization. The Company creates awareness of
its products and services through various marketing and promotional efforts,
including involvement in community activities.
EXTERNAL GROWTH
The Company has grown in recent years by selectively acquiring banks in
additional markets in Montana and Wyoming. Since September 1996, the Company
has acquired eight banking offices. The Company considers acquisitions which
will enhance its existing position within a market, expand its presence into
complementary markets, or add capabilities or personnel that will enhance the
Company as a whole. The Company has a selective acquisition strategy in that
it principally considers those institutions with strong financial and
managerial resources already in place.
THE BANKS
First Interstate Bank in Montana ("FIB Montana"), a Montana chartered
bank organized in 1916, has 21 banking offices in 15 Montana communities,
including Billings, Bozeman, Colstrip, Cut Bank, Eureka, Evergreen, Gardiner,
Great Falls, Hamilton, Hardin, Kalispell, Livingston, Miles City, Missoula
and Whitefish. These communities are home to a variety of industries,
including agriculture, mining, energy, timber processing, tourism, government
services, education and medical services, with a significant number of small
to medium sized businesses. As of December 31, 1997, FIB Montana held assets
and deposits totaling $1.5 billion and $1.2 billion, respectively. FIB
Montana is the largest independent bank headquartered in Montana. The Bank's
main office is located in Billings, Montana. During June 1997, the Company
merged together three of its Montana bank subsidiaries, First Interstate Bank
of Commerce, First Interstate Bank of Montana, N.A. and Mountain Bank of
Whitefish, and changed the resultant bank name to "First Interstate Bank" in
Montana. In December 1997, First Interstate Bank, fsb, the Company's savings
bank subsidiary, was merged into FIB Montana and the Company's thrift charter
was terminated.
First Interstate Bank in Wyoming ("FIB Wyoming"), a Wyoming chartered
bank organized in 1893, has 11 banking offices in eight Wyoming communities,
including Buffalo, Casper, Gillette, Greybull, Lander, Laramie, Riverton and
Sheridan. These communities are home to a variety of industries, including
energy, agriculture, mining, tourism, government services, education and
medical services with a significant number of small to medium sized
businesses. As of December 31, 1997, FIB Wyoming held assets and deposits
totaling $750 million and $642 million, respectively. The Bank's main office
is located in Sheridan, Wyoming. During 1997, the Company merged together
its two Wyoming bank subsidiaries, First Interstate Bank of Commerce in
Wyoming and First Interstate Bank of Wyoming, N.A., and changed the resultant
bank name to "First Interstate Bank" in Wyoming.
-3-
<PAGE>
ADMINISTRATION OF THE BANKS
Each of the Banks and their respective banking offices operate with a
significant level of autonomy and are responsible for day-to-day operations,
the pricing of loans and deposits, lending decisions and community relations.
FIBS also emphasizes accountability, however, by establishing performance
and incentive standards for the Banks which are tied to net income at the
individual branch level. FIBS provides general oversight and centralized
services for the Banks to enable them to serve their markets more
effectively. These services include data processing, credit administration,
auditing, asset/liability management, investment analysis, human resources
management, marketing and planning coordination. FIBS continues to emphasize
corporate administration of functions which assist the Banks and their
branches in more effectively focusing on their respective markets and
customers. Key among those functions are the following:
DATA PROCESSING
FIBS provides most of its and the Banks' data processing requirements.
These services, including general ledger, investment securities management
and loan and deposit processing, are performed through the use of computer
hardware which the Company owns and maintains and software which it licenses.
The Company's data processing division also operates an extensive ATM network
for the benefit of the Banks' customers.
CREDIT ADMINISTRATION
FIBS has established comprehensive credit policies which guide the
Banks' lending activities. These policies establish system-wide standards and
assist Bank management in the lending process. On the local level, the Banks
are granted significant autonomy and flexibility with respect to credit
pricing issues and lending decisions.
FINANCIAL AND ACCOUNTING
FIBS provides all accounting services for the Banks, including general
ledger administration, internal and external reporting, asset/liability
management and investment portfolio analysis. In addition, the Company has
established policies regarding capital expenditures, asset/liability
management and capital management.
SUPPORT SERVICES
FIBS provides the Banks with legal and compliance services, internal
auditing services, marketing services, planning coordination, human resources
and employee benefits administration, and various other services. The Company
believes the centralization of these services yields economies of scale,
increases the efficiency of the Banks and allows management of the banking
offices to focus on serving their market areas and customers.
LENDING ACTIVITIES
The Banks offer short and long-term commercial, consumer, real estate,
agricultural and other loans to individuals and small to medium sized
businesses in each of their market areas. The lending activities of the Banks
and their branches are guided by the Company's comprehensive lending and
credit guidelines. The Company believes that it is important to keep the
credit decision at the local branch level in order to enhance the speed and
efficiency with which the customer is served. While each loan must meet
minimum underwriting standards established in the Company's lending policy,
lending officers are granted certain levels of autonomy in approving and
pricing loans. The Company-established credit policies are intended to
maximize the quality and mix of loans, while also assuring that the Banks and
their branches are responsive to competitive issues and community needs in
each market area. The credit policies establish specific lending authorities
to Bank officers, reflecting their individual experience and level of
authority, type of loan and collateral, and thresholds at which loan requests
must also be approved at a Bank committee level and/or by FIBS.
FIBS oversees the lending activities of the Banks and is responsible for
monitoring general lending activities. Areas of oversight include the types
of loans, the mix of variable and fixed rate loans, delinquencies,
non-performing assets, classified loans and other credit information to
evaluate the risk within each Bank's loan portfolio and to recommend general
reserve percentages and specific reserve allocations.
-4-
<PAGE>
The Company's loan portfolio is diversified across commercial, consumer,
real estate, agricultural and other loans, with a mix of fixed and variable
rate loans. Individual branches are granted autonomy with respect to product
pricing, which is significantly influenced by the markets in which the
particular banking offices are located.
Unlike residential mortgage loans and consumer installment loans, which
generally are made on the basis of the borrower's ability to make repayment
from his or her employment and other income or which are secured by real
property whose value tends to be more easily ascertainable, commercial
business loans involve different risks and are typically made on the basis of
the borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of
commercial business loans may be substantially dependent on the success of
the business itself. Further, the collateral securing the loans may
depreciate over time, may be difficult to appraise and may fluctuate in value
based on the success of the business. The Company attempts to limit these
risks by employing underwriting and documentation standards contained in
written loan policies and procedures. These policies and procedures are
reviewed on an ongoing basis by management and adherence to stated policies
are monitored by credit administration.
COMMERCIAL LOANS
The Banks provide a mix of variable and fixed rate commercial loans. The
loans are typically made to small to medium sized manufacturing, wholesale,
retail and service businesses for working capital needs and business
expansions. As of December 31, 1997, 35.8% of the Company's loan portfolio
was composed of commercial loans. Commercial loans generally include lines of
credit and loans with maturities of five years or less. The loans are
generally made with the business operations as the primary source of
repayment, but also include collateralization by inventory, accounts
receivable, equipment, real estate and/or personal guarantees.
CONSUMER LOANS
The Banks' consumer loans include personal automobile loans, home
improvement loans and equity lines of credit. The consumer loans are
generally secured by automobiles, boats and other types of personal property
and are made on an installment basis. The equity lines of credit are
generally floating rate, reviewed annually and secured by residential real
estate. Over two-thirds of the Company's consumer loans are indirect dealer
paper which is created when the Company advances money to dealers of consumer
products who in turn lend such money to consumers purchasing automobiles,
boats and other consumer goods. As of December 31, 1997, 34.4% of the
Company's loan portfolio was composed of consumer and personal loans.
REAL ESTATE LOANS
The Banks provide interim and permanent financing for both single-family
and multi-unit properties and medium term loans for commercial and industrial
buildings. The Banks originate variable and fixed rate real estate mortgages,
generally in accordance with the guidelines of the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation. Loans originated
in accordance with these guidelines are sold in the secondary market. Real
estate loans are typically secured by first liens on the financed property.
As of December 31, 1997, 18.3% of the Company's loan portfolio was composed
of real estate loans, many of which are fixed rate loans, with maturities
generally less than 15 years.
AGRICULTURAL LOANS
Agricultural loans generally consist of short and medium-term loans and
lines of credit and are made to the large base of farm and ranch operations
in the Company's market areas. The Banks make agricultural loans in many of
the communities they serve, which are generally used for crops, livestock,
buildings and equipment, and general operating purposes. Agricultural loans
are generally secured by assets such as livestock or equipment and are repaid
from the operations of the farm or ranch. As of December 31, 1997, 11.1% of
the Company's loan portfolio was composed of agricultural loans.
Agricultural loans generally have maturities of five years or less, with
operating lines lasting for one production season.
-5-
<PAGE>
FUNDING SOURCES
Each of the Banks offers usual and customary depository products
provided by commercial and retail banks, including personal and business
checking accounts, savings accounts and time deposits (including IRAs).
Deposits at the Banks are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to statutory limits. While the Company develops and
offers a wide array of deposit products, local branch management is given
relative autonomy in pricing the depository products offered to customers, in
an attempt to best compete in each Bank's particular market. As of December
31, 1997, approximately 38.0%, 23.9% and 38.1% of the Company's deposits
consisted of demand, savings and time deposits, respectively.
The Company also has a significant number of repurchase agreements
primarily with commercial depositors. Under the repurchase agreements, the
Company sells, but does not transfer on its books or otherwise, investment
securities held by the Company to a customer under an agreement to repurchase
the investment security at a specified time or on demand.
OTHER OPERATIONS
In addition to the services mentioned above, the Company offer safe
deposit boxes, night depository services and wire transfers, among other
things. The Company also operates a substantial data processing division
that performs data processing services for the Banks and 34 non-affiliated
financial institutions in Montana, Wyoming and Idaho. The data processing
division also provides support for over 630 ATM locations in 12 states,
principally in Montana, Wyoming, Idaho, Colorado and North Dakota.
The Company, through the Banks, offers a full range of fee-based trust
services to its individual, non-profit and corporate clients, including
corporate pension plans, individual retirements plans and 401(k) plans.
COMPETITION
The banking and financial services business in both Montana and Wyoming
is highly competitive. The Banks compete for loans, deposits and customers
for financial services with other commercial banks, savings and loan
associations, securities and brokerage companies, mortgage companies,
insurance companies, finance companies, money market funds, credit unions and
other nonbank financial service providers. The Company competes in its
markets on the basis of its Strategic Vision philosophy, timely and
responsive customer service and general market presence. Several of the
Company's competitors are much larger in total assets and capitalization,
have greater access to capital markets and offer a broader array of financial
services than the Banks. Moreover, the Banking and Branching Act has
increased competition in the Banks' markets, particularly from larger,
multi-state banks. See "Regulation and Supervision." The Company competes
with several large, multi-state banks as well as numerous smaller community
banks. Principal competitors include Norwest Corporation, U.S. Bancorp and
Community First Bankshares, Inc. With respect to core deposits, the Company
believes it ranks second in market share to all other competitors in each of
Montana and Wyoming. See "Risk Factors-Competition."
EMPLOYEES
The Company employed approximately 971 full-time and 226 part-time
employees as of December 31, 1997. None of the Company's employees are
covered by a collective bargaining agreement. The Company considers its
employee relations to be good.
REGULATION AND SUPERVISION
Bank holding companies and commercial banks are subject to extensive
regulation under both federal and state law. Set forth below is a summary
description of certain laws which relate to the regulation of FIBS and the
Banks. The description does not purport to be complete and is qualified in
its entirety by reference to the applicable laws and regulations.
FIRST INTERSTATE BANCSYSTEM, INC.
As a bank holding company, FIBS is subject to regulation under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), and to supervision and
regulation by the Federal Reserve.
-6-
<PAGE>
The Federal Reserve may require that FIBS terminate an activity or terminate
control of or liquidate or divest certain Banks if the Federal Reserve
believes such activity or control constitutes a significant risk to the
financial safety, soundness or stability of any of the Banks or is in
violation of the BHCA. The Federal Reserve also has the authority to regulate
provisions of certain bank holding company debt, including authority to
impose interest ceilings and reserve requirements on such debt. Under certain
circumstances, FIBS must file written notice and obtain approval from the
Federal Reserve prior to purchasing or redeeming its equity securities.
Further, FIBS is required by the Federal Reserve to maintain certain levels
of capital. See "Capital Standards" herein.
FIBS is required to obtain the prior approval of the Federal Reserve for
the acquisition of 5% or more of the outstanding shares of any class of
voting securities or substantially all of the assets of any bank or bank
holding company. Prior approval of the Federal Reserve is also required for
the merger or consolidation of FIBS and another bank holding company.
FIBS is prohibited by the BHCA, except in certain statutorily prescribed
instances, from acquiring direct or indirect ownership or control of 5% or
more of the outstanding voting shares of any company that is not a bank or
bank holding company and from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks or furnishing
services to its subsidiaries. However, FIBS, subject to the prior approval of
the Federal Reserve, may engage in, or acquire shares of companies engaged
in, activities that are deemed by the Federal Reserve to be so closely
related to banking or managing or controlling banks as to be a proper
incident thereto. In making any such determination, the Federal Reserve may
consider, among other things, whether the performance of such activities by
FIBS or an affiliate 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. The Federal Reserve is also empowered
to differentiate between activities commenced de novo and activities
commenced by acquisition, in whole or in part, of a going concern. On
September 30, 1996, the Economic Growth and Regulatory Paperwork Reduction
Act of 1996 (the "1996 Budget Act") eliminated the requirement that bank
holding companies seek Federal Reserve approval before engaging de novo in
permissible nonbanking activities listed in Regulation Y, which governs bank
holding companies, if the holding company and its lead depository institution
are well-managed and Well-Capitalized (as defined herein) and certain other
criteria specified in the statute are met. For purposes of determining the
capital levels at which a bank holding company is considered
"Well-Capitalized" under the 1996 Budget Act and Regulation Y, the Federal
Reserve adopted, as a rule, risk-based capital ratios (on a consolidated
basis) that are the same as the levels set for determining that a state
member bank is Well Capitalized under the provisions established under the
prompt corrective action provisions of federal law. See "Prompt Corrective
Action and Other Enforcement Mechanisms" herein.
Under Federal Reserve regulations, a bank holding company is required to
serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve's policy that in serving as a source of
strength to its subsidiary banks, a bank holding company should stand ready
to use available resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity and should
maintain the financial flexibility and capital-raising capacity to obtain
additional resources for assisting its subsidiary banks. A bank holding
company's failure to meet its obligations to serve as a source of strength to
its subsidiary banks will generally be considered by the Federal Reserve to
be an unsafe and unsound banking practice or a violation of the Federal
Reserve's regulations or both.
THE BANKS
FIB Montana is subject to the supervision of and regular examination by
the Federal Reserve and the State of Montana. FIB Wyoming is subject to the
supervision of and regular examination by the FDIC and the State of Wyoming.
If any of the foregoing regulatory agencies determine that the financial
condition, capital resources, asset quality, earning prospects, management,
liquidity or other aspects of a Bank's operations are unsatisfactory or that
the Bank or its management is violating or has violated any law or
regulation, various remedies are available to such agencies. These remedies
include the power to enjoin "unsafe or unsound" practices, to require
affirmative action to correct any conditions resulting from any violation or
practice, to issue an administrative order that can be judicially enforced,
to direct an increase in capital, to restrict the growth of the Bank, to
assess civil monetary penalties, to remove officers and directors and
ultimately to terminate a Bank's deposit insurance, which would result in a
revocation of the Bank's charter. None of the Banks has been the subject of
any such actions by their respective regulatory agencies.
-7-
<PAGE>
The FDIC insures the deposits of the Banks in the manner and to the
extent provided by law. For this protection, the Banks pay a semiannual
statutory assessment. See "Premiums for Deposit Insurance" herein.
Various requirements and restrictions under the laws of the states of
Montana and Wyoming and the United States affect the operations of the Banks.
State and federal statutes and regulations relate to many aspects of the
Banks' operations, including levels of capital, reserves against deposits,
interest rates payable on deposits, loans, investments, mergers and
acquisitions, borrowings, dividends, locations of banking offices and capital
requirements.
RESTRICTIONS ON TRANSFERS OF FUNDS TO FIBS AND THE BANKS
FIBS is a legal entity separate and distinct from the Banks. Statutory
and regulatory limitations exist with respect to the amount of dividends
which may be paid to FIBS by the Banks. Under Montana banking law, FIB
Montana may not declare dividends in any one calendar year in excess of its
net earnings of the preceding two years without giving notice to the Montana
Commissioner of Banking and Financial Institutions. As a Federal Reserve
member bank, FIB Montana may not, without the consent of the Federal Reserve,
declare dividends in a calendar year which, when aggregated with prior
dividends in that calendar year, exceed the calendar year net profits of FIB
Montana together with retained earnings for the prior two calendar years.
Under Wyoming banking law, FIB Wyoming may not, without the approval of the
Wyoming Banking Commissioner, declare dividends in any one calendar year in
excess of its net profits in the current year combined with retained net
profits of the preceding two years, less any required transfers to surplus or
a fund for the retirement of any preferred stock. In addition, there are
restrictions under the Company's debt instruments which may limit the amount
of the Banks' dividends in certain circumstances.
The bank regulatory agencies also have authority to prohibit the Banks
from engaging in activities that, in their respective opinions, constitute
unsafe or unsound practices in conducting their business. It is possible,
depending upon the financial condition of the Bank in question and other
factors, that the bank regulatory agencies could assert that the payment of
dividends or other payments might, under some circumstances, be an unsafe or
unsound practice. Further, the bank regulatory agencies have established
guidelines with respect to the maintenance of appropriate levels of capital
by banks or bank holding companies under their jurisdiction. Compliance with
the standards set forth in such guidelines and the restrictions that are or
may be imposed under the prompt corrective action provisions of federal law
could limit the amount of dividends which the Banks or FIBS may pay. See
"Prompt Corrective Action and Other Enforcement Mechanisms" and "Capital
Standards" herein for a discussion of these additional restrictions on
capital distributions.
A large portion of FIBS's revenues, including funds available for the
payment of interest on the indebtedness of the Company, dividends and
operating expenses are, and will continue to be, dividends paid by the Banks.
The Banks are also subject to certain restrictions imposed by federal
law on any extensions of credit to, or the issuance of a guarantee or letter
of credit on behalf of, FIBS or any affiliate of FIBS, the purchase of or
investments in stock or other securities thereof, the taking of such
securities as collateral for loans and the purchase of assets of FIBS or the
Banks. Such restrictions prevent FIBS and the Banks from borrowing from the
Banks unless the loans are secured by marketable obligations or other
acceptable collateral of designated amounts. Further, such secured loans and
investments by the Banks to or in FIBS are limited to 10% of the respective
Bank's capital stock and surplus (as defined by federal regulations) and such
secured loans and investments are limited, in the aggregate, to 20% of the
respective Bank's capital stock and surplus (as defined by federal
regulations). Additional restrictions on transactions may be imposed on the
Banks by state or federal regulations including under the prompt corrective
action provisions of federal law. See "Prompt Corrective Action and Other
Enforcement Mechanisms" herein.
COMMON LIABILITY
Under federal law, a depository institution insured by the FDIC can be
held liable for any loss incurred by, or reasonably expected to be incurred
by, the FDIC in connection with the default of a commonly controlled
FDIC-insured depository institution or any assistance provided by the FDIC to
a commonly controlled FDIC-insured institution in danger of default. These
provisions can have the effect of making one Bank responsible for
FDIC-insured losses at another Bank.
-8-
<PAGE>
EFFECT OF GOVERNMENT POLICIES AND LEGISLATION
Banking is a business that depends on interest rate differentials. In
general, the difference between the interest rate paid by the Banks on their
deposits and borrowings and the interest rate received by the Banks on loans
extended to their customers and on investment securities comprises a major
portion of the Banks' earnings. These rates are highly sensitive to many
factors that are beyond the control of the Banks. Accordingly, the earnings
and potential growth of the Banks are subject to the influence of domestic
and foreign economic conditions, including inflation, recession and
unemployment.
The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory agencies, particularly the
Federal Reserve. The Federal Reserve implements national monetary policies
(with objectives such as curbing inflation and combating recession) by its
open-market operations in United States government securities, by adjusting
the required level of reserves for financial institutions subject to the
Federal Reserve's reserve requirements and by varying the discount rates
applicable to borrowings by depository institutions. The actions of the
Federal Reserve in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates charged on loans and
paid on deposits. The nature and impact of any future changes in monetary
policies cannot be predicted.
From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial service providers. Proposals to change the laws and regulations
governing the operations and taxation of banks, bank holding companies and
other financial service providers are frequently made in Congress, in the
Montana and Wyoming legislatures and before various bank regulatory and other
professional agencies. The likelihood of any major legislative changes and
the impact such changes might have on FIBS or the Banks are impossible to
predict.
CAPITAL STANDARDS
The Federal Reserve and the FDIC have adopted risk-based minimum capital
guidelines intended to provide a measure of capital that reflects the degree
of risk associated with a banking organization's operations for transactions
reported on the balance sheet as both assets and transactions, such as
letters of credit and recourse arrangements. Under these guidelines, nominal
dollar amounts of assets and credit equivalent amounts of off-balance sheet
items are multiplied by one of several risk adjustment percentages, which
range from 0% for assets with low credit risk, such as certain U.S. Treasury
securities, to 100% for assets with high credit risk, such as commercial
loans.
A banking organization's risk-based capital ratios are obtained by
dividing its qualifying capital by its total risk-adjusted assets. The
regulators measure risk-adjusted assets, which include off-balance sheet
items, against both total qualifying capital (the sum of Tier 1 capital and
limited amounts of Tier 2 capital (both as defined herein)) and Tier 1
capital. The Company's "Tier 1 capital" consists of: (i) common stockholders'
equity and retained earnings; (ii) noncumulative perpetual preferred stock,
if any; (iii) mandatorily redeemable preferred securities of subsidiary
trust, if any; and (iv) minority interests in certain subsidiaries, less
goodwill. The Company's "Tier 2 capital" consists of: (i) a limited amount
of allowance for loan losses ("ALL"); and (ii) term subordinated debt. The
inclusion of elements of Tier 2 capital is subject to certain other
requirements and limitations of the federal banking agencies. The federal
banking agencies require a minimum ratio of qualifying total capital to
risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to
risk-adjusted assets of 4%.
Federally supervised banks are currently required to report deferred tax
assets in accordance with SFAS No. 109. The federal banking agencies issued
final rules governing banks and bank holding companies, which became
effective April 1, 1995 and which limit the amount of deferred tax assets
that are allowable in computing an institution's regulatory capital. Deferred
tax assets that can be realized for taxes paid in prior carryback years and
from future reversals of existing taxable temporary differences are generally
not limited. Deferred tax assets that can only be realized through future
taxable earnings are limited for regulatory capital purposes to the lesser of
(i) the amount that can be realized within one year of the quarter-end report
date, based on projected taxable income for that year or (ii) 10% of Tier 1
capital. The amount of any deferred tax in excess of this limit would be
excluded from Tier 1 capital and total assets and regulatory capital
calculations.
-9-
<PAGE>
In addition to the risked-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital
to total assets, referred to as the "leverage ratio." For a banking
organization rated in the highest of the five categories used by regulators
to rate banking organizations, the minimum leverage ratio of Tier 1 capital
to total assets must be at least 5%. See "Prompt Corrective Action and Other
Enforcement Mechanisms." In addition to the uniform risk-based capital
guidelines and leverage ratios that apply across the industry, the regulators
have the discretion to set individual minimum capital requirements for
specific institutions at rates significantly above the minimum guidelines and
ratios. FIBS and the Banks are all rated as Well Capitalized (as defined
below).
In June 1996, the federal banking agencies adopted a joint agency policy
statement to provide guidance on managing interest rate risk. These agencies
indicated that the adequacy and effectiveness of a bank's interest rate risk
management process and the level of its interest rate exposures are critical
factors in the agencies' evaluation of the bank's capital adequacy. A bank
with material weaknesses in its risk management process or high levels of
exposure relative to its capital will be directed by the agencies to take
corrective action. Such actions will include recommendations or directions to
raise additional capital, strengthen management expertise, improve management
information and measurement systems, reduce levels of exposure, or some
combination thereof depending upon the individual institution's
circumstances. This policy statement augments the August 1995 regulations
adopted by the federal banking agencies which addressed risk-based capital
standards for interest rate risk.
Future changes in regulations or practices could further reduce the
amount of capital recognized for purposes of capital adequacy. Such a change
could affect the ability of the Banks to grow and could restrict the amount
of profits, if any, available for the payment of dividends. For information
concerning the capital ratios of FIBS, see Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Financial Condition-Capital Resources."
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS
Federal law requires each federal banking agency to take prompt
corrective action to resolve problems of insured depository institutions,
including, without limitation, those institutions which fall below one or
more prescribed minimum capital ratios. In accordance with federal law, each
federal banking agency has promulgated regulations defining five categories
in which an insured depository institution will be placed, based on the level
of its capital ratios. The five categories are "Well Capitalized,"
"Adequately Capitalized," "Undercapitalized," "Significantly
Undercapitalized" and "Critically Undercapitalized." An insured depository
institution will be classified in the following categories based, in part, on
the capital measures indicated below:
<TABLE>
<S> <C>
WELL CAPITALIZED ADEQUATELY CAPITALIZED
Total risk-based capital of at least 10%, Total risk-based capital of at least 8%,
Tier 1 risk-based capital of 6%; and Tier 1 risk-based capital of 4%; and
Leverage ratio of 5% Leverage ratio of 4%
UNDERCAPITALIZED SIGNIFICANTLY UNDERCAPITALIZED
Total risk-based capital less than 8%, Total risk-based capital less than 6%,
Tier 1 risk-based capital less than 4%; or Tier 1 risk-based capital less than 3%; or
Leverage ratio less than 4% Leverage ratio less than 3%
CRITICALLY UNDERCAPITALIZED
Tangible equity to total assets less than 2%
</TABLE>
An institution classified as Well Capitalized, Adequately Capitalized or
Undercapitalized may be treated as though it were in the next lower capital
category if the appropriate federal banking agency, after notice and
opportunity for hearing, determines that an unsafe or unsound condition or an
unsafe or unsound practice warrants such treatment. At each successive lower
capital category, an insured depository institution is subject to more
restrictions. The federal banking agencies, however, may not treat a
Significantly Undercapitalized institution as Critically Undercapitalized
unless its capital ratio actually warrants such treatment.
-10-
<PAGE>
Insured depository institutions are prohibited from paying management
fees to any controlling persons or, with certain limited exceptions, making
capital distributions if after such transaction the institution would be
Undercapitalized. If an insured depository institution is Undercapitalized,
it will be closely monitored by the appropriate federal banking agency,
subject to asset growth restrictions and required to obtain prior regulatory
approval for acquisitions, branching and engaging in new lines of business.
Any Undercapitalized depository institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency within 45 days
after receiving or being deemed to have received notice, that the institution
is Undercapitalized. The appropriate federal banking agency cannot accept a
capital plan unless, among other things, it determines that the plan: (i)
specifies: (a) the steps the institution will take to become Adequately
Capitalized; (b) the levels of capital to be attained during each year in
which the plan will be in effect; (c) how the institution will comply with
the applicable restrictions or requirements then in effect of the Federal
Deposit Insurance Corporation Improvement Act of 1991, as amended ("FDICIA");
and (d) the types and levels of activities in which the institution will
engage; (ii) is based on realistic assumptions and is likely to succeed in
restoring the depository institution's capital; and (iii) would not
appreciably increase the risk (including credit risk, interest-rate risk and
other types of risk) to which the institution is exposed. In addition, each
company controlling an Undercapitalized depository institution must guarantee
that the institution will comply with the capital plan until the depository
institution has been Adequately Capitalized on average during each of four
consecutive calendar quarters and must otherwise provide appropriate
assurances of performance. The aggregate liability of such guarantee is
limited to the lesser of (i) an amount equal to 5% of the depository
institution's total assets at the time the institution became
Undercapitalized or (ii) the amount which is necessary to bring the
institution into compliance with all capital standards applicable to such
institution as of the time the institution fails to comply with its capital
restoration plan. Finally, the appropriate federal banking agency may impose
any of the additional restrictions or sanctions that it may impose on
Significantly Undercapitalized institutions if it determines that such action
will further the purpose of the prompt correction action provisions.
An insured depository institution that is Significantly
Undercapitalized, or is Undercapitalized and fails to submit, or in a
material respect to implement, an acceptable capital restoration plan, is
subject to additional restrictions and sanctions. These include, among other
things: (i) a forced sale of voting shares to raise capital or, if grounds
exist for appointment of a receiver or conservator, a forced merger; (ii)
restrictions on transactions with affiliates; (iii) further limitations on
interest rates paid on deposits; (iv) further restrictions on growth or
required shrinkage; (v) modification or termination of specified activities;
(vi) replacement of directors or senior executive officers; (vii)
prohibitions on the receipt of deposits from correspondent institutions;
(viii) restrictions on capital distributions by the holding companies of such
institutions; (ix) required divestiture of subsidiaries by the institution;
or (x) other restrictions as determined by the appropriate federal banking
agency. Although the appropriate federal banking agency has discretion to
determine which of the foregoing restrictions or sanctions it will seek to
impose, it is required to: (i) force a sale of shares or obligations of the
bank, or require the bank to be acquired by or combine with another
institution; (ii) impose restrictions on affiliate transactions and (iii)
impose restrictions on rates paid on deposits, unless it determines that such
actions would not further the purpose of the prompt corrective action
provisions. In addition, without the prior written approval of the
appropriate federal banking agency, a Significantly Undercapitalized
institution may not pay any bonus to its senior executive officers or provide
compensation to any of them at a rate that exceeds such officer's average
rate of base compensation during the 12 calendar months preceding the month
in which the institution became Undercapitalized.
Further restrictions and sanctions are required to be imposed on insured
depository institutions that are Critically Undercapitalized. For example, a
Critically Undercapitalized institution generally would be prohibited from
engaging in any material transaction other than in the ordinary course of
business without prior regulatory approval and could not, with certain
exceptions, make any payment of principal or interest on its subordinated
debt beginning 60 days after becoming Critically Undercapitalized. Most
importantly, however, except under limited circumstances, the appropriate
federal banking agency, not later than 90 days after an insured depository
institution becomes Critically Undercapitalized, is required to appoint a
conservator or receiver for the institution. The board of directors of an
insured depository institution would not be liable to the institution's
stockholders or creditors for consenting in good faith to the appointment of
a receiver or conservator or to an acquisition or merger as required by the
regulator.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices
in conducting their businesses or for violations of any law, rule, regulation
or any condition imposed in writing by the agency or any written agreement
with the agency. See "Potential Enforcement Actions" herein.
-11-
<PAGE>
SAFETY AND SOUNDNESS STANDARDS
Effective July 1995, the federal banking agencies adopted final
guidelines establishing standards for safety and soundness, as required by
the FDICIA. These standards are designed to identify potential safety and
soundness concerns and ensure that action is taken to address those concerns
before they pose a risk to the deposit insurance funds. The standards relate
to (i) internal controls, information systems and internal audit systems;
(ii) loan documentation; (iii) credit underwriting; (iv) asset growth; (v)
earnings; and (vi) compensation, fees and benefits. If a federal banking
agency determines that an institution fails to meet any of these standards,
the agency may require the institution to submit to the agency an acceptable
plan to achieve compliance with the standard. If the institution fails to
submit an acceptable plan within the time allowed by the agency or fails in
any material respect to implement an accepted plan, the agency must, by
order, require the institution to correct the deficiency. Effective October
1, 1996, the federal banking agencies promulgated safety and soundness
regulations and accompanying interagency compliance guidelines on asset
quality and earnings standards. These new guidelines provide six standards
for establishing and maintaining a system to identify problem assets and
prevent those assets from deteriorating. The institution should: (i) conduct
periodic asset quality reviews to identify problem assets; (ii) estimate the
inherent losses in those assets and establish reserves that are sufficient to
absorb estimated losses; (iii) compare problem asset totals to capital; (iv)
take appropriate corrective action to resolve problem assets; (v) consider
the size and potential risks of material asset concentrations; and (vi)
provide periodic asset reports with adequate information for management and
the board of directors to assess the level of asset risk. These guidelines
also set forth standards for evaluating and monitoring earnings and for
ensuring that earnings are sufficient for the maintenance of adequate capital
and reserves. If an institution fails to comply with a safety and soundness
standard, the appropriate federal banking agency may require the institution
to submit a compliance plan. Failure to submit a compliance plan or to
implement an accepted plan may result in enforcement action.
In December 1993, the federal banking agencies issued an interagency
policy statement on the ALL which, among other things, established certain
benchmark ratios of loan loss reserves to classified assets. The benchmark
set forth by such policy statement is the sum of (a) assets classified loss;
(b) 50% of assets classified doubtful; (c) 15% of assets classified
substandard; and (d) estimated credit losses on other assets over the
upcoming 12 months. This amount is neither a "floor" nor a "safe harbor"
level for an institution's ALL.
PREMIUMS FOR DEPOSIT INSURANCE
The FDIC has adopted final regulations implementing a risk-based premium
system required by federal law, which establishes an assessment rate schedule
ranging from nothing to 27 cents per $100 of deposits applicable to members
of the Bank Insurance Fund ("BIF"). To determine the risk-based assessment
for each institution, the FDIC will categorize an institution as Well
Capitalized, Adequately Capitalized or Undercapitalized using the same
standards used by the FDIC for its prompt corrective action regulations. For
purposes of assessing FDIC premiums, an Undercapitalized institution will
generally be one that does not meet either a Well Capitalized or an
Adequately Capitalized standard. The FDIC will also assign each institution
to one of three subgroups based upon reviews by the institution's primary
federal or state regulator, statistical analyses of financial statements and
other information relevant to evaluating the risk posed by the institution.
The three supervisory categories are: financially sound with only a few minor
weaknesses ("Group A"), demonstrates weaknesses that could result in
significant deterioration ("Group B") and poses a substantial probability of
loss ("Group C").
The BIF assessment rates are set forth below for institutions based on
their risk-based assessment categorization:
Assessment Rates Effective January 1, 1998*
<TABLE>
<CAPTION>
Group A Group B Group C
---------------------------------------------------
<S> <C> <C> <C>
Well Capitalized 0 3 17
Adequately Capitalized 3 10 24
Undercapitalized 10 24 27
</TABLE>
* Assessment figures are expressed in terms of cents per $100 of deposits.
-12-
<PAGE>
The 1996 Budget Act required banks to share in part of the interest
payments on the Financing Corporation ("FICO") bonds which were issued to
help fund the federal government costs associated with the savings and loan
crisis of the late 1980s. Effective January 1, 1998, for FICO payments,
BIF-insured institutions, like the Banks, pay 0.64 cents per $100 in domestic
deposits. Full pro rata sharing of FICO interest payments takes effect on
January 1, 2000.
INTERSTATE BANKING AND BRANCHING
Under the Banking and Branching Act, a bank holding company may obtain
approval under the BHCA to acquire an existing bank located in another state
without regard to state law. A bank holding company is not permitted to make
such an acquisition if, upon consummation of the acquisition, it would
control (a) more than 10% of the total amount of deposits of insured
depository institutions in the United States or (b) 30% or more of the
deposits in the state in which the bank is located. A state may limit the
percentage of total deposits that may be held in that state by any one bank
or bank holding company if application of such limitation does not
discriminate against out-of-state banks or bank holding companies. An
out-of-state bank holding company may not acquire a state bank in existence
for less than a minimum length of time that may be prescribed by state law,
except that a state may not impose more than a five-year age requirement.
The Banking and Branching Act also permits, beginning as of June 1,
1997, mergers of insured banks located in different states and conversion of
the branches of the acquired bank into branches of the resulting bank. Each
state may permit such combinations earlier than June 1, 1997 and may adopt
legislation to prohibit interstate mergers after that date in that state or
in other states by that state's banks. The same concentration limits
discussed in the preceding paragraph also apply to such mergers. The Banking
and Branching Act also permits a national or state bank to establish branches
in a state other than its home state if permitted by the laws of that state,
subject to the same requirements and conditions as for a merger transaction.
On March 20, 1997, the State of Montana enacted legislation which
authorizes de novo branching within the state by banks chartered under the
laws of the State of Montana. In the same legislation, Montana elected to
"opt out" of full interstate branching available under the Banking and
Branching Act, thereby precluding interstate branching in Montana until
October 1, 2001. Nevertheless, after the foregoing prohibition expires,
competition in the Company's market areas could increase significantly.
COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS
The Banks are subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of its local communities, including low and moderate income
neighborhoods. In addition to substantial penalties and corrective measures
that may be required for a violation of certain fair lending laws, the
federal banking agencies may take compliance with such laws and CRA into
account when regulating and supervising other activities.
In May 1995, the federal banking agencies issued final regulations which
change the manner in which they measure a bank's compliance with its CRA
obligations. The final regulations adopt a performance-based evaluation
system which bases CRA ratings on an institution's actual lending, service
and investment performance, rather than on the extent to which the
institution conducts needs assessments, documents community outreach
activities or complies with other procedural requirements.
In March 1994, the federal Interagency Task Force on Fair Lending issued
a policy statement on discrimination in lending. The policy statement
describes the three methods that federal agencies will use to prove
discrimination: overt evidence of discrimination, evidence of disparate
treatment and evidence of disparate impact.
In connection with its assessment of CRA performance, the appropriate
bank regulatory agency assigns a rating of "outstanding," "satisfactory,"
"needs to improve" or "substantial noncompliance." Based on an examination
conducted during 1997, FIB Montana and FIB Wyoming were both rated
"satisfactory."
-13-
<PAGE>
POTENTIAL ENFORCEMENT ACTIONS
Commercial banking organizations, such as the Banks and their
institution-affiliated parties, which includes FIBS, may be subject to
potential enforcement actions by the Federal Reserve and the FDIC for unsafe
or unsound practices in conducting their businesses or for violations of any
law, rule, regulation or any condition imposed in writing by the agency or
any written agreement with the agency. Enforcement actions may include the
imposition of a conservator or receiver, the issuance of a cease-and-desist
order that can be judicially enforced, the termination of insurance of
deposits (in the case of the Banks), the imposition of civil money penalties,
the issuance of directives to increase capital, the issuance of formal and
informal agreements, the issuance of removal and prohibition orders against
institution affiliated parties and the imposition of restrictions and
sanctions under the prompt corrective action provisions of the FDICIA.
Additionally, a bank holding company's inability to serve as a source of
strength to its subsidiary banking organizations could serve as an additional
basis for a regulatory action against such bank holding company. Neither FIBS
nor the Banks has been subject to any such enforcement actions.
NON-BANK SUBSIDIARY
During the fourth quarter 1997, the Company formed FIB Capital, a
statutory business trust incorporated under Delaware law, with an initial
capitalization of $1.2 million. FIB Capital was formed for the exclusive
purpose of issuing $40 million of mandatorily redeemable trust preferred
securities ("trust preferred securities") and using the proceeds to purchase
junior subordinated debentures ("subordinated debentures") issued by FIBS.
The Company used proceeds from the issuance of the subordinated debentures to
redeem the noncumulative perpetual preferred stock and to reduce revolving
term debt. See also "Notes to Consolidated Financial Statements -
Mandatorily Redeemable Preferred Securities of Subsidiary Trust" of the
financial statements included in Part IV, Item 14.
RISK FACTORS
ABILITY OF THE COMPANY TO EXECUTE ITS BUSINESS STRATEGY
The financial performance and profitability of the Company will depend
on its ability to execute its business strategy and manage its possible
future growth. Although the Company believes that it has substantially
integrated the recently acquired banks into the Company's operations, there
can be no assurance that unforeseen issues relating to the assimilation or
prior operations of these banks, including the emergence of any material
undisclosed liabilities, will not materially adversely affect the Company. In
addition, any future acquisitions or other possible future growth may present
operating and other problems that could have a material adverse effect on the
Company's business, financial condition and results of operations. The
Company's financial performance will also depend on the Company's ability to
maintain profitable operations through implementation of its strategic
vision. Moreover, the Company's future performance is subject to a number of
factors beyond its control, including pending and future federal and state
banking legislation, regulatory changes, unforeseen litigation outcomes,
inflation, lending and deposit rate changes, interest rate fluctuations,
increased competition and economic conditions. Accordingly, there can be no
assurance that the Company will be able to continue the growth or maintain
the level of profitability it has recently experienced.
INTEREST RATE RISK
Banking companies' earnings depend largely on the relationship between
the yield on earning assets, primarily loans and investments, and the cost of
funds, primarily deposits and borrowings. This relationship, known as the
interest rate spread, is subject to fluctuation and is affected by economic
and competitive factors which influence interest rates, the volume and mix of
interest-earning assets and interest-bearing liabilities and the level of
non-performing assets. Fluctuations in interest rates affect the demand of
customers for the Company's products and services. The Company is subject to
interest rate risk to the degree that its interest-bearing liabilities
reprice or mature more slowly or more rapidly or on a different basis than
its interest-earning assets. Significant fluctuations in interest rates could
have a material adverse effect on the Company's business, financial condition
and results of operations.
-14-
<PAGE>
ECONOMIC CONDITIONS; LIMITED GEOGRAPHIC DIVERSIFICATION
The Company's operations are located in Montana and Wyoming. As a result
of the geographic concentration of its operations, the Company's results
depend largely upon economic conditions in these areas. The Company believes
the primary industries in Montana and Wyoming include agriculture, energy,
mining, timber processing, tourism, government services, education and
medical services. A deterioration in economic conditions in the Company's
market areas could adversely impact the quality of the Company's loan
portfolio and the demand for its products and services, and accordingly,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
GOVERNMENT REGULATION AND MONETARY POLICY
The Company and the banking industry are subject to extensive regulation
and supervision under federal and state laws and regulations. The
restrictions imposed by such laws and regulations limit the manner in which
the Company conducts its banking business, undertakes new investments and
activities and obtains financing. This regulation is designed primarily for
the protection of the deposit insurance funds and consumers and not to
benefit holders of the Company's securities. Financial institution regulation
has been the subject of significant legislation in recent years and may be
the subject of further significant legislation in the future, none of which
is in the control of the Company. Significant new laws or changes in, or
repeals of, existing laws could have a material adverse effect on the
Company's business, financial condition and results of operations. Further,
federal monetary policy, particularly as implemented through the Federal
Reserve System, significantly affects credit conditions for the Company, and
any unfavorable change in these conditions could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Regulation and Supervision."
COMPETITION
The banking and financial services business in both Montana and Wyoming
is highly competitive. The increasingly competitive environment is a result
primarily of changes in regulation, changes in technology and product
delivery systems and the accelerating pace of consolidation among financial
services providers. The Banks compete for loans, deposits and customers for
financial services with other commercial banks, savings and loan
associations, securities and brokerage companies, mortgage companies,
insurance companies, finance companies, money market funds, credit unions and
other nonbank financial services providers. Several of these competitors are
much larger in total assets and capitalization, have greater access to
capital markets and offer a broader array of financial services than the
Banks. Moreover, the Riegal-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Banking and Branching Act") has increased competition in
the Banks' markets, particularly from larger, multi-state banks. There can be
no assurance that the Company will be able to compete effectively in its
markets. Furthermore, developments increasing the nature or level of
competition could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Competition" and
"Regulation and Supervision."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent on the management
skills of its existing executive officers and directors, many of whom have
held officer and director positions with the Company for many years. The loss
or unavailability of any of its key executives, including Homer A. Scott,
Jr., Chairman of the Board, Thomas W. Scott, President and Chief Executive
Officer or Terrill R. Moore, Senior Vice President, Chief Financial Officer
and Secretary, could have a material adverse effect on the Company's
business, financial condition and results of operations. See Part III, Item
10, "Directors and Executive Officers of Registrant."
CONTROL BY AFFILIATES
The directors and executive officers of the Company beneficially own
approximately 67.3% of the outstanding common stock of the Company. Many of
these directors and executive officers are members of the Scott family, which
collectively owns approximately 82.3% of the outstanding common stock. By
virtue of such ownership, these affiliates are able to control the election
of directors and the determination of the Company's business, including
transactions involving any merger, share exchange, sale of assets outside the
ordinary course of business and dissolution.
-15-
<PAGE>
ASSET QUALITY
A significant source of risk for the Company arises from the possibility
that losses will be sustained by the Banks because borrowers, guarantors and
related parties may fail to perform in accordance with the terms of their loans.
The Company has adopted underwriting and credit monitoring procedures and credit
policies, including the establishment and review of the ALL, that management
believes are appropriate to mitigate this risk by assessing the likelihood of
nonperformance, tracking loan performance and diversifying the Company's credit
portfolio. Such policies and procedures, however, may not prevent unexpected
losses that could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business-Lending
Activities."
LACK OF TRADING MARKET; MARKET PRICES
The common stock of FIBS is not actively traded, and there is no
established trading market for the stock. There is only one class of common
stock, with 92.8% of the shares subject to contractual transfer restrictions set
forth in shareholder agreements and 7.2% held by 13 shareholders without such
restrictions. FIBS has the right of first refusal to purchase the restricted
stock at the minority appraised value per share based upon the most recent
quarterly appraisal available to FIBS less dividends paid. All stock not
subject to such restrictions may be sold at a price per share that is acceptable
to the shareholder. No trades of unrestricted stock within the past three years
are known to FIBS. FIBS has no obligation to purchase unrestricted stock, but
has historically purchased such stock in order to reduce the amount of its stock
not subject to transfer restrictions.
The appraised minority value of the FIBS common stock represents the
estimated fair market valuation of a minority block of such stock, taking into
account adjustments for the lack of marketability of the stock and other
factors. This value does not represent an actual trading price between a
willing buyer and seller of the FIBS common stock in an informed, arm's-length
transaction. As such, the appraised minority value is only an estimate as of a
specific date, and there can be no assurance that such appraisal is an
indication of the actual value holders of the FIBS common stock may realize with
respect to shares held by them. Moreover, the estimated fair market value of
the FIBS common stock may be materially different at any date other than the
valuation dates indicated above.
FIBS has no obligation, by contract, policy or otherwise to purchase stock
from any shareholder desiring to sell, or to create any market for the stock.
Historically, it has been the practice of FIBS to repurchase common stock to
maintain a shareholder base with restrictions on sale or transfer of the stock.
In the last three calendar years (1995-1997) FIBS has redeemed a total of 94,752
shares of common stock, all of which was restricted by the shareholder
agreements. FIBS has redeemed the stock at the price determined in accordance
with the shareholder agreements. FIBS has no present intention to change its
historical practice for redemption of stock, but no assurances can be provided
that FIBS will not change or end its practice of redeeming stock. Furthermore,
FIBS redemptions of stock are subject to corporate law and regulatory
restrictions which could prevent stock redemptions.
There is a limited public market for the trust preferred securities.
Future trading prices of the trust preferred securities depend on many factors
including, among other things, prevailing interest rates, the operating results
and financial condition of the Company and the market for similar securities.
As a result of the existence of FIBS's right to defer interest payments on or,
subject to prior approval of the Federal Reserve if then required under
applicable capital guidelines or policies of the Federal Reserve, shorten the
stated maturity of the subordinated debentures, the market price of the trust
preferred securities may be more volatile than the market prices of subordinated
debentures that are not subject to such optional deferrals or reduction in
maturity. There can be no assurance as to the market prices for the trust
preferred securities or the subordinated debentures that may be distributed in
exchange for the trust preferred securities if the Company exercises its right
to dissolve FIB Capital.
-16-
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document including, without
limitation, statements containing the words "believes," "anticipates,"
"expects," and words of similar import, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions in those areas in which the Company operates; demographic changes;
competition; fluctuations in interest rates; changes in business strategy or
development plans; changes in governmental regulation; credit quality; the
availability of capital to fund the expected expansion of the Company's
business; and other factors referenced in this document, including, without
limitation, under the captions "Risk Factors" and Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Given these uncertainties, shareholders, trust security holders and prospective
investors are cautioned not to place undue reliance on such forward-looking
statements. The Company disclaims any obligation to update any such factors or
to publicly announce the results of any revisions to any of the forward-looking
statements contained herein to reflect future events or developments.
ITEM 2. PROPERTIES
The Company is the anchor tenant in a commercial building in which the
Company's principal executive offices are located in Billings, Montana. The
building is owned by a joint venture partnership in which FIB Montana is one of
the two partners, owning a 50% interest in the partnership. The Company and FIB
Montana lease space for operations in the building. The Company also leases
buildings in which five branches are located. All other branches are located in
Company-owned facilities. The Company believes its leased and owned facilities
are adequate for its present needs and anticipated future growth.
See also "Notes to Consolidated Financial Statements - Premises and
Equipment" and "Notes to Consolidated Financial Statements - Commitments and
Contingencies" included in Part IV, Item 14.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Company is named or threatened to be
named a as defendant in various lawsuits. In the opinion of management,
following consultation with legal counsel, the pending lawsuits are without
merit or, in the event the plaintiff prevails, the ultimate liability or
disposition thereof will not have a material adverse effect on the Company's
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART 11
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
DESCRIPTION OF FIBS CAPITAL STOCK
The authorized capital stock of FIBS consists of 20,000,000 shares of
common stock without par value, of which 8,030,799 shares were outstanding as of
December 31, 1997, and 100,000 shares of preferred stock without par value, none
of which were outstanding as of December 31, 1997.
COMMON STOCK
Each share of the common stock is entitled to one vote in the election of
directors and in all other matters submitted to a vote of stockholders.
Accordingly, holders of a majority of the shares of common stock entitled to
vote in any election of directors may elect all of the directors standing for
election if they choose to do so, subject to the rights of the holders of the
preferred stock. Voting for directors is noncumulative.
-17-
<PAGE>
Subject to the preferential rights of any preferred stock that may at the
time be outstanding, each share of common stock has an equal and ratable right
to receive dividends when, if and as declared by the Board of Directors out of
assets legally available therefor. In the event of a liquidation, dissolution
or winding up of the Company, the holders of common stock will be entitled to
share equally and ratably in the assets available for distribution after
payments to creditors and to the holders of any preferred stock that may at the
time be outstanding. Holders of common stock have no conversion rights or
pre-emptive or other rights to subscribe for any additional shares of common
stock or for other securities. All outstanding common stock is fully paid and
non-assessable.
The common stock of FIBS is not actively traded, and there is no
established trading market for the stock. There is only one class of common
stock, with 92.8% of the shares subject to contractual transfer restrictions set
forth in shareholder agreements and 7.2% held by 13 shareholders without such
restrictions. FIBS has the right of first refusal to purchase the restricted
stock at the minority appraised value per share based on the most recent
quarterly appraisal available to FIBS less dividends paid. All stock not
subject to such restrictions may be sold at a price per share that is acceptable
to the shareholder.
Quarter-end minority appraisal values for the past two years, determined by
Alex Sheshunoff & Co. Investment Banking are as follows:
<TABLE>
<CAPTION>
Appraised
Valuation As Of(1) Minority Value(2)
------------------ -----------------
<S> <C>
December 31, 1995 $18.75
March 31, 1996 19.38
June 30, 1996 19.88
September 30, 1996 20.25
December 31, 1996 21.50
March 31, 1997 21.50
June 30, 1997 23.75
September 30, 1997 25.00
December 31, 1997 29.00
</TABLE>
(1) Sales of stock between dates at which updated valuations are received
are adjusted for cash dividends paid.
(2) Prior to dividends.
As of December 31, 1997, options for 123,204 shares of the FIBS common
stock were outstanding at various exercise prices, ranging from $4.56 to $20.05.
The aggregate cash proceeds to be received by FIBS upon exercise of all options
outstanding at December 31, 1997 would be $1,568.9, or a weighted average
exercise price of $12.73 per share.
The book value per share of FIBS common stock as of December 31, 1997 was
$18.14. The appraised minority value as of December 31, 1997 was $29.00. The
appraised minority value of the FIBS common stock represents the estimated fair
market valuation of a minority block of such stock, taking into account
adjustments for the lack of marketability of the stock and other factors. This
value does not represent an actual trading price between a willing buyer and
seller of the FIBS common stock in an informed, arm's-length transaction. As
such, the appraised minority value is only an estimate as of a specific date,
and there can be no assurance that such appraisal is an indication of the actual
value holders of the FIBS common stock may realize with respect to shares held
by them. Moreover, the estimated fair market value of the FIBS common stock may
be materially different at any date other than the valuation dates indicated
above.
Resale of FIBS stock may be restricted pursuant to the Securities Act of
1933 and applicable state securities laws. In addition, most shares of FIBS
stock are subject to one of two shareholders' agreements. Members of the Scott
family, as majority shareholders of FIBS, are subject to a shareholder's
agreement ("Scott Agreement"). The Scott family, under the Scott Agreement, has
agreed to limit the transfer of shares owned by members of the Scott family to
family members or charities, or with FIBS's approval, to the Company's officers,
directors, advisory directors, or to the Savings Plan.
-18-
<PAGE>
Shareholders of the Company who are not Scott family members, with the
exception of 13 shareholders who own an aggregate of 580,284 shares of
unrestricted stock, are subject to a shareholder's agreement ("Shareholder's
Agreement"). The Shareholder's Agreement grants FIBS the option to purchase the
stock in any of the following events: 1) the shareholder's intention to sell the
stock, 2) the shareholder's death, 3) transfer of the stock by operation of law,
4) termination of the shareholder's status as a director, officer or employee of
the Company, and 5) total disability of the shareholder. Stock subject to the
Shareholder's Agreement may not be sold or transferred by the shareholder
without triggering FIBS's option to acquire the stock in accordance with the
terms of the Shareholder's Agreement. In addition, the Shareholder's Agreement
allows FIBS to repurchase any of the FIBS stock acquired by the shareholder
after January 1, 1994 if FIBS determines that the number of shares owned by the
shareholder is excessive in view of a number of factors including but not
limited to (a) the relative contribution of the shareholder to the economic
performance of the Company, (b) the effort being put forth by the shareholder,
and (c) the level of responsibility of the shareholder.
Purchases of FIBS common stock made through FIBS's Savings Plan are not
restricted by the Shareholder's Agreement, due to requirements of ERISA and the
Internal Revenue Code. However, since the Savings Plan does not allow
distributions "in kind," any distributions from an employee's account in the
Savings Plan will allow, and may require, the Savings Plan trustee to sell the
FIBS stock. While FIBS has no obligation to repurchase the stock, it is
possible that FIBS will repurchase FIBS stock sold out of the Savings Plan.
Any such repurchases would be upon terms set by the Savings Plan trustee and
accepted by FIBS.
There are 400 record shareholders of FIBS as of December 31, 1997,
including the Company's Savings Plan as trustee for shares held on behalf of 586
individual participants in the plan. 221 individuals in the Savings Plan also
own shares of FIBS stock outside of the Plan. The Plan is administered by the
Trust Department of FIB Montana, which votes the shares based on the
instructions of each participant. In the event the participant does not provide
the Trustee with instructions, the Trustee will vote those shares in accordance
with voting instructions received from a majority of the participants in the
Plan.
DIVIDENDS
It is the policy of FIBS to pay a dividend to all common shareholders
quarterly. Dividends are declared and paid in the month following the calendar
quarter and the amount has historically been determined based upon a percentage
of net income for the calendar quarter immediately preceding the dividend
payment date. Effective with the dividend for the fourth quarter of 1995 paid
in January 1996, the dividend has been 30% of quarterly net income. The Board
of Directors of FIBS has no current intention to change its dividend policy, but
no assurance can be given that the Board may not, in the future, change or
eliminate the payment of dividends.
Historical quarterly dividends for 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
Month
Declared Amount Total Cash
Quarter and Paid Per Share Dividend
---------------- ------------ --------- -----------
<S> <C> <C> <C>
1st quarter 1996 April 1996 $ .21 $ 1,572,131
2nd quarter 1996 July 1996 .19 1,505,941
3rd quarter 1996 October 1996 .20 1,564,878
4th quarter 1996 January 1997 .22 1,721,584
1st quarter 1997 April 1997 .25 1,934,003
2nd quarter 1997 July 1997 .25 1,991,274
3rd quarter 1997 October 1997 .26 2,089,967
4th quarter 1997 January 1998 .22 1,765,154
</TABLE>
Lower quarterly net income during the fourth quarter 1997 resulted in a
decrease in dividends paid for that period. Fourth quarter charges against net
income consisted primarily of a non-recurring charge related to the
establishment of reserves toward prepayments of indirect dealer loans and
additional severance accruals.
-19-
<PAGE>
DIVIDEND RESTRICTIONS
The holders of common stock will be entitled to dividends when, as and if
declared by FIBS's Board of Directors out of funds legally available therefor.
Under the Company's revolving term loan, the Company is prohibited from
declaring or paying any dividends to common stockholders in excess of 33% of net
income for the immediately preceding year. The Company has also agreed that the
Banks will maintain ratios of tangible primary capital to tangible primary
assets not less than the ratios required by regulators or applicable law or
regulation, and that the Banks will at all times maintain capital at adequately
capitalized levels. The loan restrictions limit the funds available for the
payment of dividends from the Banks to FIBS and from FIBS to its stockholders.
Under Montana banking law, FIB Montana may not declare dividends in excess
of its net undivided earnings (as defined) less any required transfers to
surplus and may not declare a dividend larger than the previous two years' net
earnings unless prior notice is given to the Montana Commissioner of Banking and
Financial Institutions. As a Federal Reserve member bank, FIB Montana may not,
without the consent of the Federal Reserve, declare dividends in a calendar year
which, when aggregated with prior dividends in that calendar year, exceed the
calendar year net profits of FIB Montana together with retained earnings for the
prior two calendar years. Under Wyoming banking law, FIB Wyoming may not
declare dividends without meeting surplus fund requirements and may not, without
the approval of the Wyoming Banking Commissioner, declare dividends in any one
calendar year in excess of its net profits (as defined) in the current year
combined with retained net profits of the preceding two years, less any required
transfers to surplus or to a fund for the retirement of any preferred stock.
In addition, federal regulatory agencies (e.g., the FDIC and Federal
Reserve) have authority to prohibit a bank under their supervision from engaging
in practices which, in the opinion of the particular federal regulatory agency,
are unsafe or unsound or constitute violations of applicable law. For example,
depending upon the financial condition of a bank in question and other factors,
the appropriate federal regulatory agency could determine that the payment of
dividends might under some circumstances constitute an unsafe and unsound
practice. Moreover, each federal regulatory agency has established guidelines
for the maintenance of appropriate levels of capital for a bank under its
supervision. Compliance with the standards set forth in such guidelines could
limit the amount of dividends which FIBS or any of the Banks could pay. See
Part I, Item 1, "Regulation and Supervision."
PREFERRED STOCK
The authorized capital stock of FIBS includes 100,000 shares of preferred
stock. FIBS's Board of Directors is authorized, without approval of the holders
of Common Stock, to provide for the issuance of preferred stock from time to
time in one or more series in such number and with such designations,
preferences, powers and other special rights as may be stated in the resolution
or resolutions providing for such preferred stock. FIBS's Board of Directors
may cause FIBS to issue preferred stock with voting, conversion and other rights
that could adversely affect the holders of the common stock or make it more
difficult to effect a change of control of the Company.
In the event of any dissolution, liquidation or winding up of the affairs
of FIBS, before any distribution or payment may be made to the holders of common
stock, the holders of preferred stock would be entitled to be paid in full with
the respective amounts fixed by FIBS's Board of Directors in the resolution or
resolutions authorizing the issuance of such series, together with a sum equal
to the accrued and unpaid dividends thereon to the date fixed for such
distribution or payment. After payment in full of the amount which the holders
of preferred stock are entitled to receive, the remaining assets of FIBS would
be distributed ratably to the holders of the common stock. If the assets
available are not sufficient to pay in full the amount so payable to the holders
of all outstanding preferred stock, the holders of all series of such shares
would share ratably in any distribution of assets in proportion to the full
amounts to which they would otherwise be respectively entitled. The
consolidation or merger of FIBS into or with any other corporation or
corporations would not be deemed a liquidation, dissolution, or winding up of
the affairs of FIBS.
SALES OF UNREGISTERED SECURITIES
During 1997, the Company issued 12,232 unregistered shares of its common
stock to nine employees exercising stock options. Exercise prices ranged from
$4.56 to $20.05 with an average exercise price of $5.83. These sales were made
pursuant to the exemption from registration under Section 4(2) of the Securities
Act of 1933. For additional information regarding stock options, see "Notes to
Consolidated Financial Statements - Employee Benefit Plans" included in Part IV,
Item 14.
-20-
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's consolidated financial position as of December 31, 1997, and 1996 and
its results of operations for the fiscal years ended December 31, 1997, 1996,
and 1995, has been derived from the consolidated financial statements of the
Company included in Part IV, Item 14, which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. This data should be read
in conjunction with Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and such consolidated financial
statements, including the notes thereto.
FIVE YEAR SUMMARY
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income $ 165,808 117,925 98,970 80,230 77,154
Interest expense 72,663 50,019 41,946 28,451 27,078
- --------------------------------------------------------------------------------------------------------------------------
Net interest income 93,145 67,906 57,024 51,779 50,076
Provision for loan losses 4,240 3,844 1,629 1,344 1,345
Net interest income after provision for
loan losses 88,905 64,062 55,395 50,4354 48,731
Other operating income 26,846 23,927 18,764 16,3871 15,724
Other operating expenses 74,166 53,395 45,978 41,227 39,686
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes 41,585 34,594 28,181 25,595 24,769
Income tax expense 15,730 13,351 10,844 9,861 9,321
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 25,855 21,243 17,337 15,734 15,448
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 24,401 20,818 17,337 15,734 15,448
Basic earnings per common share 3.07 2.65 2.22 2.01 1.96
Diluted earnings per common share(1) 3.05 2.64 2.21 2.00 1.96
Dividends per common share 0.98 0.78 0.48 0.40 0.34
Weighted average common shares
outstanding 7,987,921 7,881,024 7,843,644 7,850,188 7,891,160
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
OPERATING RATIOS:
Return on average assets 1.22% 1.41 1.39 1.44 1.50
Return on average common stockholders' equity 18.12% 17.84 16.98 17.64 19.97
Average stockholders' equity to average assets 7.17% 8.08 8.20 8.15 7.52
Net interest margin 5.00% 5.15 5.19 5.34 5.51
Net interest spread 4.32% 4.47 4.45 4.76 4.98
Common stock dividend payout ratio(2) 32.13% 29.17 21.72 20.00 17.35
Ratio of earnings to fixed charges(3):
Excluding interest on deposits 4.94x 8.74x 9.50x 12.34x 30.66x
Including interest on deposits 1.55x 1.68x 1.66x 1.87x 1.91x
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
-21-
<PAGE>
FIVE YEAR SUMMARY (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
As of December 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $2,234,764 2,063,837 1,351,215 1,134,105 1,097,469
Loans 1,470,414 1,375,479 870,378 751,518 667,385
Allowance for loan losses 28,180 27,797 15,171 13,726 13,373
Investment securities 425,603 403,571 258,737 251,745 249,754
Deposits 1,805,006 1,679,424 1,099,069 939,857 936,793
Long-term debt 31,526 64,667 15,867 5,449 6,853
Mandatorily redeemable preferred securities of
subsidiary trust 40,000 - - - -
Stockholders' equity 145,667 146,061 109,366 95,272 84,163
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
ASSET QUALITY RATIOS:
Nonperforming assets to total loans
and OREO(4) 1.15% 1.20 0.97 0.94 1.44
Allowance for loan losses to total loans 1.92% 2.02 1.74 1.83 2.00
Allowance for loan losses to
nonperforming loans(5) 181.99% 185.10 213.74 259.62 205.49
Net charge-offs to average loans 0.27% 0.17 0.13 0.14 0.15
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
REGULATORY CAPITAL RATIOS:
Tier 1 risk-based capital 9.67% 7.35 10.40 11.32 10.96
Total risk-based capital 12.19% 9.98 11.65 12.58 12.22
Leverage ratio 6.94% 5.28 7.28 8.12 7.28
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Diluted earnings per common share represent the amount of earnings
available to each share of common stock outstanding during the period and
to each share that would have been outstanding assuming the issuance of
common shares for all dilutive potential common shares outstanding during
the period pursuant to Statement of Financial Accounting Standards ("SFAS")
No. 128.
(2) Dividends per common share divided by net income per common share.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
represents income before income taxes and fixed charges. Fixed charges
represent interest expense and preferred stock dividends. Deposits include
interest-bearing deposits and repurchase agreements. Without including
preferred stock dividends in fixed charges and excluding interest on
deposits, the ratio of earnings to fixed charges for the years ended
December 31, 1997 and 1996 were 5.87x and 9.91x, respectively. Without
including preferred stock dividends in fixed charges and including interest
on deposits, the ratio of earnings to fixed charges for the years ended
December 31, 1997 and 1996 were 1.57x and 1.68x, respectively.
(4) For purposes of computing the ratio of non-performing assets to total loans
and other real estate owned ("OREO"), non-performing assets include
non-accrual loans, loans past due 90 days or more and still accruing,
restructured debt and other real estate owned.
(5) For purposes of computing the ratio of allowance for loan losses to
non-performing loans, non-performing loans include non-accrual loans, loans
past due 90 days or more and still accruing and restructured debt.
-22-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis is intended to provide greater
details of the results of operations and financial condition of the Company.
The following discussion should be read in conjunction with the information
under Part II, Item 6, "Selected Consolidated Financial Data" and the
Company's consolidated financial statements, including the notes thereto, and
other financial data appearing elsewhere in this document. Certain
statements included in the following discussion constitute "forward-looking
statements" which involve various risks and uncertainties. The Company's
actual results may differ significantly from those anticipated in such
forward-looking statements. Factors that might cause such a difference
include, without limitation, the ability of the Company to execute its
business strategy, interest rate risk, economic conditions, government
regulation, competition and asset quality. For additional information
concerning these and other factors, see Part I, Item 1, "Business - Risk
Factors."
The Company, through the Banks, operates 32 banking offices in 23
communities throughout Montana and Wyoming. The Company's income is derived
primarily from the net interest income and other operating income. Net
interest income consists of the excess of interest income, received primarily
on customer loans and investment securities, over interest expense, paid
principally on customer deposits and indebtedness. Other operating income
primarily includes service charges on deposit accounts, data processing fees
and income from fiduciary activities.
The Company has continued to increase earnings during the periods
reported herein while expanding its operations. A majority of the Company's
growth in recent years has resulted from acquisitions of other banks. In
October 1996, the Company acquired First Interstate Bank of Montana, N.A. and
First Interstate Bank of Wyoming, N.A., which collectively included six
branch banks (the "FIBNA Banks"). In December 1996, the Company acquired
Mountain Bank of Whitefish ("FIB Whitefish"), which included two branch
locations. Immediately prior to the acquisitions, the FIBNA Banks had assets
of $553.2 million and deposits of $423.9 million, and FIB Whitefish had
assets of $66.9 million and deposits of $54.4 million. Prior to the
acquisition, the FIBNA Banks were operated as branch locations without
independent administrative support, data processing and other required
services. In connection with the acquisition, the Company increased its
staffing at both the holding company and branch levels to provide the
administrative, data processing and other operational support to facilitate
integration and operation of such banks.
The acquisitions of the FIBNA Banks and FIB Whitefish (collectively, the
"Acquired Banks") were accounted for under the purchase method of accounting.
Amortization of goodwill resulting from the acquisitions totaled
approximately $1.8 million in 1997. The Company believes that the Acquired
Banks have been substantially integrated into the Company's operations.
RESULTS OF OPERATIONS
The Company's increased earnings and expansion of operations have been
effected through a successful combination of acquisitions and internal
growth. The internal growth experienced by the Company is reflected by an
increased volume of customer loans and deposits, without giving effect to
such acquisitions. The Company's internal growth has largely been
accomplished through its effective offering and promotion of competitively
priced products and services. Net income increased 21.7% to $25.9 million in
1997 from $21.2 million in 1996. This increase resulted from internal growth
and earnings provided by the Acquired Banks. Net income increased 22.5% to
$21.2 million in 1996 from $17.3 million in 1995, due principally to internal
growth.
Net income during the fourth quarter 1997 decreased 17.1% from the third
quarter. This decrease resulted from fourth quarter charges including a
non-recurring charge related to the establishment of reserves toward
prepayment of indirect dealer loans and additional severance accruals.
NET INTEREST INCOME
Net interest income is the largest source of the Company's operating
income. As discussed above, net interest income is derived from interest,
dividends and fees received from interest-earning assets, less interest
expense incurred on interest-bearing liabilities. Interest earning assets
primarily include loans and investment securities. Interest-bearing
liabilities primarily include deposits and various forms of indebtedness.
- 23 -
<PAGE>
Net interest income increased 37.2% to $93.1 million from $67.9 million
in 1996. This increase resulted primarily from the incremental net interest
income provided by the Acquired Banks. Net interest income increased 19.1%
to $67.9 million in 1996 from $57.0 million in 1995. This increase resulted
primarily from the Acquired Banks and from a higher volume of loans due to
internal growth.
The following table presents, for the periods indicated, condensed
average balance sheet information for the Company, together with interest
income and yields earned on average interest-earning assets, and interest
expense and rates paid on average interest-bearing liabilities. Average
balances are averaged daily balances.
AVERAGE BALANCE SHEETS, YIELDS AND RATES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
----------------------------------------------------------------------------------
1997 1996 1995
--------------------------- --------------------------- --------------------------
Average Average Average Average Average Average
(DOLLARS IN THOUSANDS) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1) $1,441,800 140,299 9.73% $1,014,901 100,039 9.86% $ 837,288 83,735 10.00%
U.S. and agencies securities 345,771 20,481 5.92 244,314 13,951 5.71 199,750 11,278 5.65
Federal funds sold 39,936 2,210 5.53 25,462 1,342 5.27 36,665 2,095 5.71
Other securities 23,302 1,467 6.30 21,868 1,392 6.37 13,904 864 6.21
Tax exempt securities(2) 21,253 1,737 8.17 19,100 1,575 8.25 15,704 1,230 7.83
Interest-bearing deposits
in banks 7,491 448 5.98 6,555 376 5.74 6,276 372 5.93
- -------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,879,553 166,642 8.87 1,332,200 118,675 8.91 1,109,587 99,574 8.97
Noninterest-earning assets 235,941 173,888 134,912
- -------------------------------------------------------------------------------------------------------------------------
Total assets $2,115,494 $1,506,088 $1,244,499
=========================================================================================================================
INTEREST-BEARING LIABILITIES AND TRUST PREFERRED SECURITIES:
Demand deposits $ 304,511 6,369 2.09% $ 210,153 4,489 2.14% $ 171,933 4,248 2.47%
Savings deposits 417,352 16,021 3.84 301,003 11,305 3.76 264,198 9,917 3.75
Time deposits 626,925 35,739 5.70 464,712 26,328 5.67 380,117 21,733 5.72
Borrowings(3) 184,605 8,846 4.79 126,135 5,869 4.65 97,799 4,866 4.98
Long-term debt 56,197 5,165 9.19 23,760 2,028 8.54 13,147 1,182 8.99
Mandatorily redeemable
preferred securities
of subsidiary trust 5,808 523 9.00 - - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities
and trust preferred securities 1,595,398 72,663 4.55 1,125,763 50,019 4.44 927,194 41,946 4.52
- -------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 345,372 242,117 203,258
Other noninterest-bearing
liabilities 22,994 16,487 11,961
Stockholders' equity 151,730 121,721 102,086
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $2,115,494 $1,506,088 $1,244,499
=========================================================================================================================
Net interest income $93,979 $68,656 $57,628
Interest rate spread 4.32% 4.47% 4.45%
Contribution of interest free funds 0.68 0.68 0.74
Net yield on interest-earning assets(4) 5.00 5.15 5.19
Less FTE adjustments 834 750 604
- -------------------------------------------------------------------------------------------------------------------------
Net interest income per consolidated
statements of income $93,145 $67,906 $57,024
=========================================================================================================================
</TABLE>
(1) Average loan balances include nonaccrual loans. Loan fees included in
interest income were $6.1 million, $5.0 million and $4.1 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
(2) Interest income and average rates for tax exempt securities are presented
on a fully-taxable equivalent basis.
(3) Includes interest on Federal funds purchased, securities sold under
repurchase agreements and other borrowed funds. Excludes long-term debt.
(4) Net yield on interest-earning assets during the period equals (i) the
difference between interest income on interest-earning assets and the
interest expense on interest-bearing liabilities and trust preferred
securities, divided by (ii) average interest-earning assets for the period.
- 24 -
<PAGE>
The most significant impact on the Company's net interest income between
periods is derived from the interaction of changes in the volume of and rates
earned or paid on interest-earning assets and interest-bearing liabilities. The
volume of loans, investment securities and other interest-earning assets,
compared to the volume of interest-bearing deposits and indebtedness, combined
with the spread, produces the changes in the net interest income between
periods.
The table below sets forth, for the periods indicated, a summary of the
changes in interest income and interest expense resulting from estimated changes
in average asset and liability balances (volume) and estimated changes in
average interest rates (rate). Changes which are not due solely to volume or
rate have been allocated to these categories based on the respective percent
changes in average volume and average rate as they compare to each other.
ANALYSIS OF INTEREST CHANGES DUE TO VOLUME AND RATES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Year ended December 31, 1997 December 31, 1996 December 31, 1995
compared with compared with compared with
December 31, 1996 December 31, 1995 December 31, 1994
favorable (unfavorable) favorable (unfavorable) favorable (unfavorable)
------------------------ ------------------------ ------------------------
Volume Rate Net Volume Rate Net Volume Rate Net
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans(1) $41,541 (1,281) 40,260 17,761 (1,457) 16,304 12,291 5,509 17,800
U.S. and agencies 6,010 520 6,530 2,518 155 2,673 (993) 418 (575)
Federal funds sold 801 67 868 (640) (113) (753) 369 533 902
Other securities 90 (15) 75 495 33 528 96 (158) (62)
Tax exempt securities(1) 176 (14) 162 65 280 345 115 593 708
Interest-bearing deposits
in banks 56 16 72 17 (13) 4 127 95 222
- -------------------------------------------------------------------------------------------------------------------
Total 48,674 (707) 47,967 20,216 (1,115) 19,101 12,005 6,990 18,995
- -------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES AND TRUST PREFERRED SECURITIES:
Demand deposits 1,974 (94) 1,880 944 (703) 241 184 577 761
Savings deposits 4,466 250 4,716 1,469 (81) 1,388 (23) 1,869 1,846
Time deposits 9,247 164 9,411 4,647 (52) 4,595 3,320 4,725 8,045
Borrowings(2) 2,802 175 2,977 1,318 (315) 1,003 1,267 908 2,175
Long-term debt 2,981 156 3,137 906 (60) 846 625 43 668
Mandatorily redeemable preferred
securities of subsidiary
trust 523 - 523 - - - - - -
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 21,993 651 22,644 9,284 (1,211) 8,073 5,373 8,122 13,495
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
interest income $26,681 (1,358) 25,323 10,932 96 11,028 6,632 (1,132) 5,500
===================================================================================================================
</TABLE>
(1) Interest income and average rates for tax exempt loans and securities are
presented on a fully-taxable equivalent basis.
(2) Includes interest on Federal funds purchased, securities sold under
repurchase agreements and other borrowed funds.
Interest income increased 40.6% to $165.8 million in 1997 from $117.9
million in 1996. This increase was due primarily to the significant increase
in loans, principally due to the Acquired Banks. The yield on average
interest-earning assets during 1997 was 8.87% compared to 8.91% during 1996.
In 1996, interest income increased 19.2% to $117.9 million from $99.0
million in 1995. This increase resulted primarily from the Acquired Banks,
offset by a slight decrease of six basis points in the yield on average
interest-earning assets from 8.97% in 1995 to 8.91% in 1996.
Customer loan fees, included in interest income, increased 22.0% to $6.1
million in 1997 from $5.0 million in 1996 due to loan fees generated by the
Acquired Banks. Loan fees increased 23.5% to $5.0 million in 1996 from $4.1
million in 1995. The most significant increases from 1995 to 1996 were in
commercial, consumer and real estate loan fees.
- 25 -
<PAGE>
Interest expense increased 45.3% to $72.7 million during 1997 from $50.0
million in 1996. This increase was due primarily to the customer deposits and
indebtedness incurred in connection with the Acquired Banks. The rate on
average interest-bearing liabilities and trust preferred securities of 4.55%
in 1997 increased 11 basis points from 4.44% in 1996.
Interest expense increased 19.2% to $50.0 million in 1996 from $41.9
million in 1995. The increase resulted primarily from the customer deposits
and indebtedness incurred with respect to the Acquired Banks, offset in part
by a slight decrease of eight basis points in the rate on average
interest-bearing liabilities from 4.52% in 1995 to 4.44% in 1996.
PROVISION FOR LOAN LOSSES
The provision for loan losses creates an allowance for future loan
losses. The loan loss provision for each year is dependent on many factors,
including loan growth, net charge-offs, changes in the composition of the
loan portfolio, delinquencies, management's assessment of the quality of the
loan portfolio, the value of the underlying collateral on problem loans and
the general economic conditions in the Company's markets. The Company
performs a quarterly assessment of the risk inherent in its loan portfolio,
as well as a detailed review of each asset determined to have identified
weaknesses. Based on this analysis, which includes reviewing historical loss
trends, current economic conditions, industry concentrations and specific
reviews of assets classified with identified weaknesses, the Company makes
provisions for potential loan losses. Specific allocations are made for loans
where the probability of a loss can be defined and reasonably determined,
while the balance of the provisions for loan losses are based on historical
data, delinquency trends, economic conditions in the Company's markets and
industry averages. Annual fluctuation in the provision for loan losses result
from management's assessment of the adequacy of the allowance for loan
losses, and ultimate loan losses may vary from current estimates.
The provision for loan losses increased 10.3% to $4.2 million in 1997 from
$3.8 million in 1996. The increase resulted from higher loan volumes resulting
from the 1996 acquisitions.
The provision for loan losses increased 136.0% to $3.8 million in 1996
from $1.6 million in 1995. Of the increase, approximately $500,000 was
associated with the Acquired Banks. The remaining increase of $1.7 million
was due principally to higher loan volumes and an increase in non-performing
and classified assets. Non-performing loans, comprised of non-accrual loans
and accruing loans past due 90 days or more and restructured loans, increased
only slightly to 1.1% of loans outstanding at December 31, 1996 from 0.8% at
December 31, 1995.
OTHER OPERATING INCOME
The principal sources of other operating income include service charges
on deposit accounts, data processing fees, income from fiduciary activities,
comprised principally of fees earned on trust assets, and other service
charges, commissions and fees. Other operating income increased 12.2% to
$26.8 million in 1997 from $23.9 million in 1996. This increase was
attributable primarily to income provided by the Acquired Banks. Without
giving effect to the Acquired Banks, operating income from each of the four
principal categories except other service charges showed increases in 1997
over 1996. These increases, however, were partially offset by one-time
accounting adjustments, primarily with respect to data processing fees, made
in January 1996. Increases in other operating income from 1996 to 1997 and
from 1995 to 1996 were a function of changes in each of the principal
categories, as discussed below.
Service charges on deposit accounts increased 27.1% to $9.9 million in
1997 from $7.8 million in 1996 and 18.7% to $7.8 million in 1996 from $6.5
million in 1995. Of these increases, approximately $740,000 in 1997 and
$563,000 in 1996 were attributable to the Acquired Banks, with the remainder
resulting primarily from increased overdraft fees.
As discussed above, increases in operating income from data processing
services for 1997 compared to the 1996 were mostly offset as a result of
non-recurring accounting adjustments of $300,000 made in January 1996. The
Company serviced 630 locations in its ATM network at December 31, 1997
compared to 477 locations at December 31, 1996. Data processing fees
increased 18.2% to $7.3 million in 1996 from $6.2 million in 1995 due
primarily to a greater number of data processing customers using the
Company's ATM network and a corresponding increase in transaction volumes.
Since 1995, the Company's network expanded from 216 ATM locations at December
31, 1994 to 343 locations at year-end 1995, 477 locations at year-end 1996,
and to 630 locations at year-end 1997. Although continued expansion of the
Company's ATM network and increases in data processing fees are expected to
continue, the Company does not expect to continue the rate of growth
experienced in 1995, 1996 and 1997. There were no increases in basic charges
for data processing services in 1997, 1996 or 1995.
- 26 -
<PAGE>
Revenues from fiduciary activities increased 29.2% to $4.1 million in
1997 from $3.2 million in 1996 and 20.7% to $3.2 million in 1996 from $2.6
million in 1995. Of these increases, approximately $889,000 in 1997 and
$243,000 in 1996 were attributable to trust services provided by the Acquired
Banks, with the remainder resulting from increases in the value of assets
under trust management.
In addition to the principal categories discussed above, other income
decreased 41.3% to $1.7 million in 1997 from $2.8 million in 1996 and
increased 217.0% to $2.8 million in 1996 from $888,000 in 1995. The increase
in 1996 and decrease in 1997 was primarily attributable to the sale of
certain merchant credit card processing assets at a gain of $1.4 million in
1996. The sale included alignment with a third-party credit card processing
provider that has enhanced the Company's ability to compete in this highly
specialized area.
OTHER OPERATING EXPENSES
Other operating expenses increased 38.8% to $74.1 million in 1997 from
$53.4 in 1996. This increase resulted primarily from both direct and indirect
expenses attributable to the Acquired Banks. Direct expenses totaled
approximately $16.1 million in 1997. A significant portion of the remaining
increase was due to various indirect expenses associated with the Company's
need to increase its data processing support and other operational services
to the FIBNA Banks which had been previously operated as dependent branch
offices prior to their acquisition by the Company. The increases in
administrative personnel and other resources to provide such support and
services were necessary to facilitate integration of such banks into the
Company's operations. In addition, goodwill associated with the acquisition
of the Acquired Banks resulted in increased amortization expense of
approximately $1.8 million in 1997.
In 1996, other operating expenses increased 16.1% to $53.4 million from
$46.0 million in 1995. Of this increase, approximately $6.3 million was
attributable to direct and indirect expenses resulting from the Acquired
Banks and acquisitions in 1995.
Increases in salaries, wages and benefits from 1996 to 1997 and from
1995 to 1996 were due primarily to the direct and indirect expense
attributable to the bank acquisitions, as discussed above. The indirect
expenses were related particularly to the Company's data processing division
and bank operation centers. The remainder of the increases in salaries, wages
and benefits during these periods were principally inflationary in nature.
Given the Company's increasing data processing and transaction volumes,
together with the expansion of its ATM network, employee and related
compensation expenses are expected to continue to increase, but at a slower
rate than has been experienced over the periods presented.
Occupancy and furniture and equipment expenses have increased over the
periods primarily as a result of the additional facilities associated with
the bank acquisitions, the expansion of the ATM network and additional
equipment used in the data processing division. Furthermore, these expenses
have increased due to higher depreciation, maintenance and other costs
related to the foregoing items and various other computer hardware and
software, including upgrades, used in the Company's operations.
FDIC deposit insurance premiums increased to $206,000 in 1997 from
$5,000 in 1996. This increase resulted from an increase in FDIC FICO bond
assessment effective January 1, 1997. The significant decreases in premiums
from 1995 to 1996 were due to a substantial FDIC rate reduction in 1996. The
FDIC rates reflect the Company's "well-capitalized" rating by the FDIC.
OREO losses, including provisions for losses on OREO, are included net
of any gains on sales of OREO. Variations in net OREO expense during the
periods resulted principally from fluctuations in such gains. These gains
are anticipated to decline as the number and value of OREO properties
decrease. OREO expense is directly related to prevailing economic conditions,
and such expense could increase significantly should an unfavorable shift
occur in the economic conditions of the Company's markets.
Other expenses primarily include advertising and public relations costs,
legal, audit and other professional fees, and office supply, postage and
telephone expenses. Other expenses increased in 1997 over 1996 as a result of
the direct and indirect costs associated with the Acquired Banks. Exclusive
of these costs, during 1997 compared to 1996, other expenses increased (i)
approximately $484,000 due principally to consulting fees associated with
revision of the Company's employee job evaluation system and accruals for
financial planning activities, and (ii) approximately $319,000 due to
additional accruals for the increased value of stock appreciation rights
resulting from a 23% increase in the appraised value of the Company's Common
Stock during 1997. The increases in other expenses from 1995 to 1997 were due
primarily to the direct and indirect costs related to the Acquired Banks and
bank acquisitions in 1995.
- 27 -
<PAGE>
INCOME TAX EXPENSE
The Company's effective federal tax rate was 33.3%, 33.3%, and 33.1% for
the years ended December 31, 1997, 1996 and 1995, respectively. State income
tax applies only to pretax earnings of entities operating within Montana. The
Company's effective state tax rate was 4.5%, 5.3%, and 5.4% for years ended
December 31, 1997, 1996 and 1995, respectively. Pretax earnings subject to
Montana state income tax decreased to approximately 57% of consolidated
pretax earnings in 1997 from approximately 67% of consolidated pretax
earnings in 1996 resulting in a lower effective state tax rate.
FINANCIAL CONDITION
Total assets increased 8.3% to $2,235 million as of December 31, 1997
from $2,064 million as of December 31, 1996. This increase resulted primarily
from internal growth in the Company's loan portfolio funded by increases in
repurchase agreements and deposits. Total assets increased 52.7% to $2,064
million as of December 31, 1996 from $1,351.2 million as of December 31,
1995. This increase was due principally to the significant increases in loans
and investment securities provided by the bank acquisitions in 1995, funded
by growth in deposits and increases in indebtedness.
LOANS
Total loans increased 6.9% to $1,470 million as of December 31, 1997
from $1,375 million as of December 31, 1996. As shown below, all categories
of loans except real estate loans showed increases in volumes during this
period due to continued strong economic conditions in the Company's markets
and internal growth resulting from the Company's marketing activities. The
growth in loans during 1997 was slightly lower than the growth rate during
1996 due primarily to a slowing in the growth of consumer and real estate
loans.
As of December 31, 1996, total loans increased 58.0% to $1,375 million
from $870 million as of December 31, 1995. This increase was attributable to
the growth in the loan portfolio provided by the Acquired Banks, and to a
lesser extent, internal growth which reflected continued favorable economic
conditions.
The Company's loan portfolio consists of a mix of commercial, consumer,
real estate, agricultural and other loans, including fixed and variable rate
loans. Fluctuations in the loan portfolio are directly related to the
economies of the communities served by the Company. Thus, the Company's
borrowers could be adversely impacted by a downturn in these sectors of the
economy which could have a material adverse effect on the borrowers'
abilities to repay their loans.
The following tables present the composition of the Company's loan
portfolio as of the dates indicated:
LOANS OUTSTANDING
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
As of December 31,
----------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1997 Percent 1996 Percent 1995 Percent 1994 Percent 1993 Percent
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOANS
Commercial $ 526,355 35.8% $ 471,458 34.3% $311,982 35.9% $262,290 34.9% $241,535 36.2%
Consumer 505,741 34.4 484,865 35.3 300,711 34.5 277,367 36.9 245,493 36.8
Real estate 268,463 18.3 274,141 19.9 142,097 16.3 112,251 14.9 92,906 13.9
Agricultural 164,046 11.1 143,572 10.4 113,827 13.1 98,194 13.1 85,059 12.7
Other loans 5,809 0.4 1,443 0.1 1,761 0.2 1,416 0.2 2,392 0.4
- -----------------------------------------------------------------------------------------------------------------------
Total loans 1,470,414 100.0% 1,375,479 100.0% 870,378 100.0% 751,518 100.0% 667,385 100.0%
- -----------------------------------------------------------------------------------------------------------------------
Less allowance for
loan losses 28,180 27,797 15,171 13,726 13,373
- -----------------------------------------------------------------------------------------------------------------------
Net loans $1,442,234 $1,347,682 $855,207 $737,792 $654,012
=======================================================================================================================
Ratio of allowance
to total loans 1.92% 2.02% 1.74% 1.83% 2.00%
=======================================================================================================================
</TABLE>
- 28 -
<PAGE>
The following table presents the maturity distribution of the Company's
loan portfolio and the sensitivity of the loans to changes in interest rates
as of December 31, 1997:
<TABLE>
<CAPTION>
MATURITIES AND INTEREST RATE SENSITIVITIES
- ----------------------------------------------------------------------------------
Within One Year to After
(DOLLARS IN THOUSANDS) One Year Five Years Five Years Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 223,359 220,691 82,305 526,355
Consumer 160,404 305,741 39,596 505,741
Real estate 83,425 92,519 92,519 268,463
Agriculture 108,746 41,380 13,920 164,046
Other loans 5,809 - - 5,809
- ----------------------------------------------------------------------------------
$ 581,743 660,331 228,340 1,470,414
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Loans at fixed interest rates $ 270,256 502,627 131,562 904,445
Loans at variable interest rates 301,806 157,704 96,778 556,288
Nonaccrual loans 9,681 - - 9,681
- ----------------------------------------------------------------------------------
$ 581,743 660,331 228,340 1,470,414
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
</TABLE>
For additional information concerning the Company's loan portfolio and
its credit administration policies, see Part I, Item 1, "Business-Lending
Activities."
INVESTMENT SECURITIES
The Company's investment portfolio is managed to result in the highest
yield while meeting the Company's liquidity needs and utilizing pledging
requirements for deposits of state and political subdivisions and securities
sold under repurchase agreements. The portfolio is comprised of U.S. Treasury
securities, U.S. government agency securities, tax exempt securities,
corporate securities, other mortgage-backed securities, and other equity
securities. Federal funds sold are additional investments which are not
classified as investment securities. Investment securities classified as
available-for-sale are recorded at fair market value, while investment
securities classified as held-to-maturity are recorded at cost. Unrealized
gains or losses, net of the deferred tax effect, are reported as increases or
decreases in stockholders' equity for available-for-sale securities.
Investment securities increased 5.5% to $426 million as of December 31,
1997 from $404 million as of December 31, 1996 as a result of growth in
funding sources exceeding loan growth. Investment securities increased 56.0%
to $404 million as of December 31, 1996 from $259 million as of December 31,
1995. This increase resulted from the substantial investment securities held
by the Acquired Banks at the time of acquisition. As of December 31, 1997,
there were no concentrations of investments greater than 10% of the Company's
stockholders' equity in any individual security issuer, other than the U.S.
Treasury and U.S. Government agencies.
The following table sets forth the book value, percentage of total
investment securities and average yield for the Company's investment
securities as of December 31, 1997.
<TABLE>
<CAPTION>
SECURITIES MATURITIES AND YIELD
- ----------------------------------------------------------------------------------
% of Total
Book Investment Average
(DOLLARS IN THOUSANDS) Value Securities Yield(1)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY SECURITIES
Maturing within one year $ 83,148 19.5% 5.59%
Maturing in one to five years 154,595 36.3 6.03
Maturing in five to ten years 7,554 1.8 6.08
- ----------------------------------------------------------------------------------
245,297
Mark-to-market adjustments on
securities available-for-sale 594
- ----------------------------------------------------------------------------------
Total 245,891 57.8 5.88
- ----------------------------------------------------------------------------------
</TABLE>
-29-
<PAGE>
<TABLE>
<CAPTION>
SECURITIES MATURITIES AND YIELD (CONTINUED)
- ----------------------------------------------------------------------------------
% of Total
Book Investment Average
(DOLLARS IN THOUSANDS) Value Securities Yield(1)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES
Maturing within one year $ 24,943 5.9 6.40
Maturing in one to five years 59,253 13.9 6.21
- ----------------------------------------------------------------------------------
84,196
Mark-to-market adjustments on
securities available-for-sale 17
- ----------------------------------------------------------------------------------
Total 84,213 19.8 6.26
- ----------------------------------------------------------------------------------
TAX EXEMPT SECURITIES
Maturing within one year 4,459 1.0 7.88
Maturing in one to five years 12,240 2.9 7.94
Maturing in five to ten years 7,024 1.7 8.41
Maturing after ten years 1,401 0.3 8.36
- ----------------------------------------------------------------------------------
25,124
Mark-to-market adjustments on
securities available-for-sale 315
- ----------------------------------------------------------------------------------
Total 25,439 6.0 8.08
- ----------------------------------------------------------------------------------
CORPORATE SECURITIES
Maturing within one year 5,756 1.4% 5.68%
Maturing in one to five years 4,835 1.1 6.24
- ----------------------------------------------------------------------------------
10,591
Mark-to-market adjustments on
securities available-for-sale 5
- ----------------------------------------------------------------------------------
Total 10,596 2.5 5.93
- ----------------------------------------------------------------------------------
OTHER MORTGAGE-BACKED SECURITIES
Maturing within one year 14,339 3.4 6.91
Maturing in one to five years 25,225 5.9 6.87
Maturing in one to five years 2,386 0.6 7.12
Maturing after ten years 7,835 1.8 6.79
- ----------------------------------------------------------------------------------
49,785
Mark-to-market adjustments on
securities available-for-sale 284
- ----------------------------------------------------------------------------------
Total 50,069 11.7 6.88
- ----------------------------------------------------------------------------------
Equity securities with no stated maturity 9,136 2.2
Mark-to-market adjustments on
securities available-for-sale 259
- ----------------------------------------------------------------------------------
Total 9,395 2.2
- ----------------------------------------------------------------------------------
Total $425,603 100.0 6.07
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
</TABLE>
(1) Average yields have been calculated on a fully-taxable basis.
For additional information concerning investment securities, see "Notes
to Consolidated Financial Statements - Investment Securities" included in
Part IV, Item 14.
DEPOSITS
The Company emphasizes developing total client relationships with its
customers in order to increase its core deposit base, which is the Company's
primary funding source. The Company's deposits consist primarily of the
following interest bearing accounts: demand deposits, savings accounts, IRAs
and time deposits (CDs). For additional information concerning the Company's
deposits, including its use of repurchase agreements, as discussed below, see
Part I, Item 1, "Business-Deposits."
-30-
<PAGE>
Deposits increased 7.5% to $1,805 million as of December 31, 1997, as
compared to $1,679 million as of December 31, 1996 due to internal growth in
1997. Deposits increased 52.8% to $1,679 million as of December 31, 1996
from $1,099 million as of December 31, 1995. This increase resulted
principally from the deposits of the Acquired Banks combined with internal
growth. For additional information concerning customer deposits as of
December 31, 1997 and 1996, see "Notes to Consolidated Financial Statements -
Deposits" included in Part IV, Item 14.
OTHER BORROWINGS
In addition to deposits, the Company also uses repurchase agreements
with commercial depositors as significant sources of funding and, on a
seasonal basis, federal funds purchased.
The following table sets forth certain information regarding these two
sources of funding as of the dates indicated:
<TABLE>
<CAPTION>
As of and for the years ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal funds purchased:
Balance at period end $ 4,025 13,450 3,125
Average balance 28,651 18,687 16,596
Maximum amount outstanding at any month-end 83,185 56,700 27,670
Average interest rate:
During the year 5.46% 5.58 6.07
At period end 5.95% 5.61 5.50
Securities sold under repurchase agreements:
Balance at period end 176,350 129,137 104,898
Average balance 141,825 101,046 75,252
Maximum amount outstanding at any month-end 176,350 129,137 104,898
Average interest rate:
During the year 4.69% 4.46 4.73
At period end 4.61% 4.42 4.85
</TABLE>
NON-PERFORMING AND CLASSIFIED ASSETS
Federal regulations require that each financial institution classify its
assets on a regular basis. Management generally places loans on non-accrual
when they become 90 days past due, unless they are well secured and in the
process of collection. When a loan is placed on non-accrual status, any
interest previously accrued but not collected is reversed from income. Loans
are charged off when management determines that collection has become
unlikely. Restructured loans are those where the Company has granted a
concession on the interest paid or original repayment terms due to financial
difficulties of the borrower. OREO consists of real property acquired through
foreclosure on the related collateral underlying defaulted loans.
The following table sets forth information regarding non-performing
assets as of the dates indicated:
<TABLE>
<CAPTION>
As of December 31, 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-performing loans:
Nonaccrual loans $ 9,681 6,822 3,632 3,134 3,629
Accruing loans past due 90 days or more 4,883 6,432 1,711 534 1,353
Restructured loans 928 1,763 1,755 1,619 1,526
- -----------------------------------------------------------------------------------------------
Total non-performing loans 15,492 15,017 7,098 5,287 6,508
OREO 1,362 1,546 1,349 1,803 3,132
- -----------------------------------------------------------------------------------------------
Total non-performing assets 16,854 16,563 8,447 7,090 9,640
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Non-performing assets to total loans and OREO 1.15% 1.20% 0.97% 0.94% 1.44%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
-31-
<PAGE>
Non-performing loans increased 3.2% to $15 million as of December 31,
1997 as compared to $15 million as of December 31, 1996 due to slight
deteriorations in all market sectors. Non-performing loans increased 111.6%
to $15 million at December 31, 1996 from $7 million at December 31, 1995.
The increase was due to the non-performing loans held by the Acquired Banks,
an increase in the loan portfolio and a slight deterioration in the
agricultural and consumer market sector. Approximately $763,000, $405,000,
$318,000, $296,000 and $440,000 of gross interest income would have been
accrued if all loans on non-accrual had been current in accordance with their
original terms for the years ended December 31, 1997, 1996, 1995, 1994 and
1993, respectively.
The Company records OREO at the lower of carrying value or fair value
less estimated costs to sell. Estimated losses that result from the ongoing
periodic valuation of these properties are charged to earnings with a
provision for losses on foreclosed property in the period in which they are
identified.
The Company reviews and classifies its loans on a regular basis
according to three classifications: "Substandard," "Doubtful" and "Loss."
Substandard loans are inadequately protected by the current sound worth and
paying capacity of the obligor or of the collateral pledged. Doubtful loans
have the weaknesses of substandard loans with the additional characteristic
that the weaknesses make collection or liquidation in full, on the basis of
currently existing facts, conditions and values, highly questionable and
improbable. Loans classified as Loss loans are considered uncollectible and
of such little value that their continuance as bankable assets is not
warranted.
The following table sets forth classified loans as of the dates
indicated.
<TABLE>
<CAPTION>
As of December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Substandard $ 34,161 19,994 12,936
Doubtful 2,468 2,321 1,522
Loss 2,584 2,264 2,229
- ----------------------------------------------------------------------------------------
Total $ 39,213 24,579 16,687
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Classified loans to total loans 2.67% 1.79% 1.92%
Allowance for loan losses to classified loans 71.86% 113.09% 90.92%
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
Loans classified as substandard increased 70.9% to $34,161 as of
December 31, 1997. Approximately $9 million of the increase is the result of
downgrading the loans of two agricultural borrowers and three commercial
borrowers. The remaining increase is principally due to increases in loan
volume, combined with a slight deterioration of the credit quality of
consumer loans, which are generally classified as substandard upon becoming
90 days past due.
With the exception of these classified loans, management is not aware of
any loans as of December 31, 1997 where the known credit problems of the
borrowers would cause management to have serious doubts as to the ability of
such borrowers to comply with their present loan repayment terms and which
would result in such loans being included in the non-performing asset table
above at some future date. Management cannot, however, predict the extent to
which economic conditions in the Company's market areas may worsen or the
full impact such conditions may have on the Company's loan portfolio.
Accordingly, there can be no assurances that other loans will not become 90
days or more past due, be placed on non-accrual status or become restructured
loans or OREO in the future.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for
loan losses based on management's evaluation of risk inherent in its loan
portfolio and economic conditions in the Company's market areas. See
"Provision for Loan Losses" herein. The allowance is increased by provisions
charged against earnings and reduced by net loan charge-offs. Consumer loans
are generally charged off when they become 120 days past due. Other loans,
or portions thereof, are charged off when they become 180 days past due
unless they are well-secured and in the process of collection. Recoveries
are generally recorded only when cash payments are received.
-32-
<PAGE>
The following table sets forth information concerning the Company's allowance
for loan losses as of the dates and for the years indicated.
<TABLE>
<CAPTION>
As of and for the years ended December 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance as of January 1 $ 27,797 15,171 13,726 13,373 12,965
Beginning allowance of acquired banks - 10,553 917 - -
Commercial 1,132 1,127 393 398 777
Consumer 5,607 2,384 1,679 1,425 1,035
Real estate 141 27 20 53 20
Agricultural 71 220 25 4 20
- ------------------------------------------------------------------------------------------------------------------
Total charge-offs 6,951 3,758 2,117 1,880 1,852
Recoveries:
Commercial 732 850 252 299 353
Consumer 1,816 974 557 472 455
Real estate 246 9 119 36 7
Agricultural 300 154 88 82 100
- ------------------------------------------------------------------------------------------------------------------
Total recoveries 3,094 1,987 1,016 889 915
- ------------------------------------------------------------------------------------------------------------------
Net charge-offs 3,857 1,771 1,101 991 937
Provision for loan losses 4,240 3,844 1,629 1,344 1,345
- ------------------------------------------------------------------------------------------------------------------
Balance at end of period $ 28,180 27,797 15,171 13,726 13,373
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Period end loans 1,470,414 1,375,479 870,378 751,518 667,385
Average loans 1,441,800 1,014,901 837,288 705,690 641,411
Net charge-offs to average loans 0.27% 0.17% 0.13% 0.14% 0.15%
Allowance to period end loans 1.92% 2.02% 1.74% 1.83% 2.00%
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
For the year ended December 31, 1997, net charge-offs were $4 million
and the provision for loan losses was $4 million. These two line items show
increases from prior comparative periods due to the expanded loan portfolio
resulting primarily from the Acquired Banks. As of December 31, 1997, the
allowance for loan losses was $28.2 million, representing an increase of
$383,000 from the allowance as of December 31, 1996. Net charge-offs to
average loans were 0.27% in 1997. The increase from prior periods is due
primarily to consumer loans. The allowance to period end loans was 1.92% as
of December 31, 1997.
Management considers changes in the size and character of the loan
portfolio, changes in non-performing and past due loans, historical loan loss
experience, and the existing and prospective economic conditions when
determining the adequacy of the allowance for loan losses. Although
management believes that the allowance for loan losses is adequate to provide
for both potential losses and estimated inherent losses in the portfolio,
future provisions will be subject to continuing evaluations of the inherent
risk in the portfolio and if the economy declines or asset quality
deteriorates, material additional provisions could be required.
-33-
<PAGE>
The following table provides a summary of the allocation of the
allowance for loan losses for specific loan categories as of the dates
indicated. The allocations presented should not be interpreted as an
indication that charges to the allowance for loan losses will be incurred in
these amounts or proportions, or that the portion of the allowance allocated
to each loan category represents the total amount available for future losses
that may occur within these categories. The unallocated portion of the
allowance for loan losses and the total allowance is applicable to the entire
loan portfolio.
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- ------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
As of December 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
Allocated % Of Allocated % Of Allocated % Of Allocated % Of Allocated % Of
Reserves Loans Reserves Loans Reserves Loans Reserves Loans Reserves Loans
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 870 35.8% $ 594 34.3% $ 789 35.9% $ 791 34.9% $ 896 36.2%
Consumer 1,383 34.4 1,280 35.3 1,118 34.5 1,154 36.9 1,007 36.8
Real estate - 18.3 - 19.9 - 16.3 3 14.9 23 13.9
Agricultural 331 11.1 390 10.4 322 13.1 280 13.1 230 12.7
Other loans - 0.4 - 0.1 - 0.2 - 0.2 - 0.4
- ------------------------------------------------------------------------------------------------------------------
Total allocated 2,584 2,264 2,229 2,228 2,156
Unallocated 25,596 25,533 12,942 11,498 11,217
- ------------------------------------------------------------------------------------------------------------------
Totals $ 28,180 100.0% $ 27,797 100.0% $ 15,171 100.0% $ 13,726 100.0% $ 13,373 100.0%
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
LIQUIDITY AND CASH FLOW
The objective of liquidity management is to maintain the Company's
ability to meet the day-to-day cash flow requirements of its customers who
either wish to withdraw funds or require funds to meet their credit needs.
The Company must manage its liquidity position to meet the needs of its
customers, while maintaining an appropriate balance between assets and
liabilities to meet the return on investment objectives of its stockholders.
The Company monitors the sources and uses of funds on a daily basis to
maintain an acceptable liquidity position, principally through deposit
receipts and repayments; loan originations, extensions and repayments; and
management of investment securities.
Net cash provided by operating activities, primarily representing net
income, totaled $44 million for 1997, $29 million for 1996 and $28 million
for 1995. Net cash used for investing activities totaled $155 million for
1997, $105 million for 1996 and $79 million for 1995. The funds used for
investing activities primarily represent increases in loans and investments
in connection with acquisitions and internal growth for each year reported.
The primary financing activities of the Company are deposits, borrowings
and capital. The Company's current liquidity position is also supported by
the management of its investment portfolio, which provides a structured flow
of maturing and reinvestable funds that could be converted to cash, should
the need arise. Maturing balances in the Company's loan portfolio also
provides options for cash flow management. The ability to redeploy these
funds is an important source of immediate to long-term liquidity. Additional
sources of liquidity include Federal funds lines, other borrowings and access
to the capital markets.
As a holding company, FIBS is a corporation separate and apart from the
Banks, and therefore, provides for its own liquidity. Substantially all of
FIBS's revenues are obtained from management fees, dividends declared and
paid by the Banks and net revenues of the data processing division. As of
December 31, 1997, the Banks had approximately $16 million available to be
paid as dividends to FIBS. There are statutory and regulatory provisions that
could limit the ability of the Banks to pay dividends to FIBS. See Part I,
Item 1, "Business-Regulation and Supervision." Management of FIBS believes
that such restrictions will not have an impact on the ability of FIBS to meet
its ongoing cash obligations. As of December 31, 1997, the Company did not
have any material commitments for capital expenditures.
-34-
<PAGE>
In connection with the acquisition of the FIB Banks, the Company
obtained a revolving term loan and issued subordinated notes and shares of
noncumulative perpetual preferred stock. The revolving term loan bears
interest at variable rates (7.44% weighted average rate as of December 31,
1997) and was issued by a syndicate of banks led by First Security Bank, N.A.
The loan expires in December 2003, and is secured by all of the outstanding
capital stock of the Banks. The available borrowing amount under the loan is
reduced by $2 million on a semi-annual basis. The loan contains various
restrictions dealing with, among other things, minimum capital ratios, the
sale or issuance of capital stock and the maximum amount of dividends. As of
December 31, 1997, the amount outstanding under the revolving term loan was
$7 million, with an additional $19 million in borrowing capacity available
thereunder. The subordinated notes are held by an institutional investor,
bear interest at 7.5% per annum, are unsecured and mature in increasing
annual payments during the period from October 2002 to October 2006. For
additional information concerning the revolving term loan and the
subordinated notes, see "Notes to Consolidated Financial Statements - Long
Term Debt" included in Part IV, Item 14.
The noncumulative perpetual preferred stock was redeemed on November 7,
1997 with a portion of the proceeds from issuance of trust preferred
securities by FIB Capital. The trust preferred securities are unsecured,
bear interest at a rate of 8.625%, and mature on December 1, 2027. Interest
distributions are payable quarterly, however, the Company may defer interest
payments at any time for a period not exceeding 20 consecutive quarters. The
trust preferred securities may be redeemed prior to maturity at the Company's
option on or after December 1, 2002 or at any time in the event of
unfavorable changes in tax laws or regulations in an amount equal to their
liquidation amount plus accumulated and unpaid distributions to the date of
redemption. The Company has guaranteed the payment of distributions and
payments for redemption or liquidation of the trust preferred securities to
the extent of funds held by FIB Capital. The remaining proceeds from the
issuance of trust preferred securities were used to reduce the Company's
revolving term loan. For additional information concerning the trust
preferred securities see "Notes to Consolidated Financial Statements -
Mandatorily Redeemable Preferred Securities of Subsidiary Trust" included in
Part IV, Item 14.
CAPITAL RESOURCES
Stockholders' equity decreased 0.3% to $146 million as of December 31,
1997. This decrease resulted primarily from the redemption of $20 million of
noncumulative perpetual preferred stock which was partially offset by an
increase in retained earnings. Stockholders' equity increased 33.6% to $146
million as of December 31, 1996 from $109 million as of December 31, 1995.
This increase was due primarily to the issuance of the noncumulative
perpetual preferred stock, together with retained earnings. Stockholders'
equity is influenced primarily by earnings, dividends and, to a lesser
extent, sales and redemptions of common stock involving employees of the
Company. For the years ended December 31, 1997, 1996 and 1995, the Company
paid aggregate cash dividends to stockholders of $9 million, $6 million and
$4 million, respectively.
Pursuant to FDICIA, the Federal Reserve and the FDIC have adopted
regulations setting forth a five-tier system for measuring the capital
adequacy of the financial institutions they supervise. At December 31, 1997,
each of the Banks had levels of capital which met or exceeded the
well-capitalized guidelines. For additional information concerning the
capital levels of the Company, see "Notes to Consolidated Financial
Statements - Regulatory Matters" contained in Part IV, Item 14.
INTEREST RATE RISK MANAGEMENT
The Company's primary earnings source is the net interest margin, which
is affected by changes in the level of interest rates, the relationship
between rates, the impact of interest rate fluctuations on asset prepayments,
and the mix of interest-bearing assets and liabilities.
-35-
<PAGE>
The ability to optimize the net interest margin is largely dependent
upon the achievement of an interest rate spread which can be managed during
fluctuations of interest rates. Interest sensitivity is a measure of the
extent to which net interest income will be affected by market interest rates
over a period of time. Interest rate sensitivity is related to the
difference between amounts of interest earning assets and interest bearing
liabilities which either reprice or mature within a given period of time.
The difference is known as interest rate sensitivity gap. The following
table shows interest rate sensitivity gaps for different intervals as of
December 31, 1997:
<TABLE>
<CAPTION>
Three Three One
Months Months Year to After
(DOLLARS IN THOUSANDS) or Less to One Year Five Years Five Years Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans(1) $ 615,124 182,139 532,256 131,214 1,460,733
Investment securities 73,982 133,301 184,696 33,624 425,603
Interest-bearing deposits in bank 34,447 - - - 34,447
Federal funds sold 58,675 - - - 58,675
- ---------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 782,228 315,440 716,952 164,838 1,979,458
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES AND TRUST
PREFERRED SECURITIES:
Interest-bearing demand accounts(2) $ 25,255 75,765 213,165 - 314,185
Savings deposits(2) 307,933 29,870 93,643 - 431,446
Time deposits, $100 or more 50,866 71,060 41,717 - 163,643
Other time deposits 132,408 203,318 187,481 469 523,676
Federal funds purchased 4,025 - - - 4,025
Securities sold under repurchase
agreements 176,350 - - - 176,350
Other borrowed funds 11,591 - - - 11,591
Long-term debt 342 6,847 4,304 20,033 31,526
Mandatorily redeemable preferred
securities of subsidiary trust - - - 40,000 40,000
- ---------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities
and trust preferred securities $ 708,770 386,860 540,310 60,502 1,696,442
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Rate gap 73,458 (71,420) 176,642 104,336 283,016
Cumulative rate gap 73,458 2,038 178,680 283,016
Cumulative rate gap as a percentage of
total interest-earning assets 3.71% 0.10% 9.03% 14.30%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Assumptions used:
(1) Does not include nonaccrual loans of $9,681.
(2) Historical analysis shows that these deposit categories, while
technically subject to immediate withdrawal, actually display
sensitivity characteristics that generally fall within one and five
years. The allocation presented is based on that historical
analysis.
As noted in footnote 2 above, interest-bearing demand accounts and
savings deposits are allocated based on historical analysis of their interest
sensitivity characteristics although they are technically subject to
immediate withdrawal. If these deposits were included in the three month or
less category, the above table would reflect a negative three month gap of
$339 million, a negative cumulative one year gap of $305 million and a
positive cumulative one to five year gap of $179 million.
-36-
<PAGE>
The balance sheet structure is primarily short-term in nature with most
assets and liabilities repricing or maturing in less than five years.
Management monitors the sensitivity of net interest margin by utilizing
income simulation models and traditional gap analysis. The income simulation
model involves a degree of estimation based on certain assumptions management
believes to be reasonable including estimated cash flows, prepayments,
repricing characteristics, actual maturities, deposit growth and retention,
and the relative sensitivity of assets and liabilities to change in market
interest rates. The relative sensitivity is important to consider since the
Company's deposit base is not subject to the same degree of interest
sensitivity as its assets. The Company attempts to maintain a mix of
interest earning assets and deposits such that no more than 5% of the net
interest margin will be at risk should interest rates vary one percent.
However, there can be no assurance as to the actual effect changes in
interest rates will have on the Company's net interest margin.
In evaluating exposure to interest rate risk, management does not view
the gap amounts in the following table as presenting an unusually high risk
potential. However, no assurances can be given that the Company is not at
risk in the event of rate increases or decreases.
YEAR 2000
In 1997, the Company completed the evaluation phase of its Year 2000
project to ensure business is not interrupted by the change in the
millennium. The project calls for either system modification to, or
replacement of, existing business system applications. Upon completion of the
project, all systems including microsystems, payment systems, ATM software
and mainframe systems, will be Year 2000 compliant. The Company anticipates
that substantially all of the remaining work under this project, including
testing of critical systems, will be initially completed by the end of 1998.
The cost of the Year 2000 project was not material to the Company's 1997
earnings and is not expected to be material to the Company's 1998 earnings or
thereafter. Such costs will be expensed as incurred. Unanticipated problems
or difficulties, however, could significantly increase the Company's
estimated expenditures for the Year 2000 project.
The Company has provided its business customers, suppliers and vendors
with information regarding the Company's progress on Year 2000 issues and has
requested similar information in return. The Company continues to bear some
risk related to the Year 2000 issue and could be adversely affected if other
entities not affiliated with the Company do not appropriately address their
own Year 2000 compliance issues.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities." This statement provides accounting
and reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities. The provisions of SFAS No. 125 apply to
transactions occurring after December 31, 1996. This adoption has not had a
material effect on the consolidated financial position or results of
operations of the Company.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share."
This statement simplifies the standards for computing earnings per share
("EPS") and replaces the presentation of primary and fully diluted EPS with a
presentation of basic and fully diluted EPS on the face of the income
statement for all entities with complex capital structures. The provisions of
SFAS No. 128 apply to financial statements issued for periods ending after
December 15, 1997. Adoption did not have a material effect on the reported
EPS of the Company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. This statement
requires that all items required to be recognized under accounting standards
as components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Management expects that adoption will not
have a material effect on the consolidated financial position or results of
operations of the Company.
-37-
<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." This statement requires public
business enterprises to disclose selected information about operating
segments including segment income, revenues and asset data. Operating
segments, as defined in SFAS No. 131, would include those components for
which financial information is available and evaluated regularly by the chief
operating decision maker in assessing performance and making resource
allocation determinations for operating components such as those which
contribute ten percent or more of combined revenue, income or assets. SFAS
No. 131 is effective for financial statements for periods beginning after
December 31, 1997. Management expects that adoption will not have a material
impact on the Company's consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The business of the Company and the composition of its balance sheet
consists of investments in interest-earning assets (primarily loans and
investment securities) which are primarily funded by interest-bearing
liabilities (deposits and indebtedness). Such financial instruments have
varying levels of sensitivity to changes in market interest rates. Interest
rate risk results when, due to different maturity dates and repricing
intervals, interest rate indices for interest-earning assets decrease
relative to interest-bearing liabilities, thereby creating a risk of
decreased net earnings and cash flow.
The following table provides information about the Company's market
sensitive financial instruments, categorized by maturity and the instruments'
fair values at December 31, 1997. The table constitutes a "forward-looking
statement." The Company's major market risk exposure is changing interest
rates. For a description of the Company's policies with respect to managing
risks associated with changing interest rates, see Part I, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operation-Financial Condition-Interest Rate Risk Management."
Although the Company characterizes some of its interest-sensitive assets
as securities available-for-sale, such securities are not purchased with a
view to sell in the near term. Rather, such securities may be sold in
response to or in anticipation of changes in interest rates and resulting
prepayment risk. Thus, all interest-sensitive assets described below are
non-trading. See "Notes to Consolidated Financial Statements-Summary of
Significant Accounting Policies" included in Part IV, Item 14.
<TABLE>
<CAPTION>
Expected Maturity/Principal Repayment
-------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1999 2000 2001 2002 Thereafter
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-SENSITIVE ASSETS:
Cash and short-term investments $ 229,147 -- -- -- -- --
Net loans 572,477 221,485 173,478 129,847 116,771 217,010
Securities available-for-sale 41,720 12,284 50,877 20,856 33,552 29,361
Securities held-to-maturity 90,606 56,067 32,356 36,723 14,601 7,769
- ------------------------------------------------------------------------------------------------------------------------------
INTEREST-SENSITIVE LIABILITIES AND TRUST PREFERRED SECURITIES:
Total deposits excluding time deposits 553,856 194,257 194,257 175,317 -- --
Time deposits 463,907 160,633 49,381 11,416 10,193 474
Federal funds purchased 4,025 -- -- -- -- --
Securities sold under repurchase
agreements 176,350 -- -- -- -- --
Other borrowed funds 11,591 -- -- -- -- --
Long-term debt 489 667 135 51 4,151 26,033
Mandatorily redeemable preferred
securities of subsidiary trust -- -- -- -- -- 43,600
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The expected maturities of securities are based upon contractual
maturities adjusted for projected prepayments of principal and assumes no
reinvestment of proceeds. The prepayment projections are based on the
Company's historical experience and do not take into account any allowance
for loan losses. The actual maturities of these instruments could vary
substantially if future prepayments differ from the Company's historical
experience. All other financial instruments are stated at contractual
maturities.
-38-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of FIBS and subsidiaries
are contained elsewhere herein [see Item 14(a)1]:
Report of KPMG Peat Marwick LLP, Independent Auditors
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Income - Years Ended December 31, 1997, 1996
and 1995
Consolidated Statements of Stockholders' Equity - Years Ended December
31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - Years Ended December 31, 1997,
1996 and 1995
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth information concerning each of the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Homer A. Scott, Jr. 63 Chairman of the Board
James R. Scott 48 Vice Chairman of the Board
Thomas W. Scott 54 President, Chief Executive Officer and Director
Terrill R. Moore 45 Senior Vice President, Chief Financial Officer
and Secretary
William G. Wilson 58 Senior Vice President
Edward Garding 48 Senior Vice President
Dan S. Scott 66 Director
Randy Scott 44 Director
Susan Scott Heyneman 59 Past Director
John M. Heyneman 30 Director
Joel Long 57 Director
James Haugh 60 Director
</TABLE>
HOMER A. SCOTT, JR. has been a director of FIBS since 1971 and the
Chairman of the Board since 1988. Mr. Scott has served as a director of
Montana-Dakota Utilities Resources Group, Inc. since 1983. Mr. Scott is the
brother of James R. Scott, Thomas W. Scott, Dan S. Scott and Susan Scott
Heyneman.
JAMES R. SCOTT has been a director of FIBS since 1971 and the Vice
Chairman of the Board since January 1990. Currently, Mr. Scott is also
President of the First Interstate Bank Foundation. Mr. Scott is the brother
of Homer A. Scott, Jr., Thomas W. Scott, Dan S. Scott and Susan Scott
Heyneman.
THOMAS W. SCOTT has been a director of FIBS since 1971 and has served as
President and Chief Executive Officer of FIBS since 1978. Mr. Scott is the
brother of Homer A. Scott, Jr., James R. Scott, Dan S. Scott and Susan Scott
Heyneman.
TERRILL R. MOORE has been a Senior Vice President, the Chief Financial
Officer and Secretary of FIBS since November 1989, and served in various
finance and accounting positions within the Company since April 1979. Mr.
Moore was formerly a manager with KPMG Peat Marwick LLP.
WILLIAM G. WILSON has been a Senior Vice President of FIBS since 1983.
He was also Chief Financial Officer of FIBS until November 1989.
-39-
<PAGE>
EDWARD GARDING has been a Senior Vice President of FIBS since September
1996, and served in various management positions within the Company since
1971.
DAN S. SCOTT has been a director of FIBS since 1971. Mr. Scott has
served as President and General Manager of Padlock Ranch Co. since 1970. Mr.
Scott is the brother of Homer A. Scott, Jr., James R. Scott, Thomas W. Scott
and Susan Scott Heyneman.
RANDY SCOTT has been a director of FIBS since August 1993. Mr. Scott was
a trust officer of FIB Montana's trust division from 1991 until 1996. In
total, Mr. Scott was employed by the Company for nineteen years. Mr. Scott is
the son of Dan S. Scott.
SUSAN SCOTT HEYNEMAN has been a director of FIBS since March 1994. Ms.
Heyneman served previously as a director of FIBS, having resigned in 1989 due
to pursue personal interests. With her husband, Ms. Heyneman has been a
co-owner of the Bench Ranch for more than five years. Ms. Heyneman is the
sister of Homer A. Scott, Jr., James R. Scott, Thomas W. Scott and Dan S.
Scott. Ms. Heyneman resigned as director effective March 19, 1998.
JOHN M. HEYNEMAN became a director of the Company on March 19, 1998.
Mr. Heyneman is currently pursuing his graduate degree at Montana State
University. Prior to beginning his graduate work, Mr. Heyneman was an
international manufacturer's representative for petroleum processing
equipment. Mr. Heyneman is the son of Susan Scott Heyneman and the nephew of
Homer A. Scott, Jr., James R. Scott, Thomas W. Scott and Dan S. Scott.
JOEL LONG has been a director of FIBS since May 1996. Mr. Long has been
the owner and Chairman of the Board of JTL Group, Inc., a construction firm
doing business in Montana and Wyoming, since 1990.
JAMES HAUGH became a director of the Company in November 1997. Mr.
Haugh formed American Capital LLC, a financial consulting firm, in October
1994 and has operated this firm since its inception. Prior to forming
American Capital LLC, Mr. Haugh was a partner in the accounting firm of KPMG
Peat Marwick LLP.
BOARD COMMITTEE
The Company's compensation committee is comprised of Homer A. Scott,
Jr., James R. Scott, Dan S. Scott, James Haugh and Joel Long.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
("EXCHANGE ACT")
Because the Company does not have a class of equity securities
registered under the Exchange Act, officers, directors and shareholders
owning more than 10% of the common stock are not required to file any reports
pursuant to Section 16 of the Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth data concerning the compensation received
by the Chief Executive Officer of FIBS and four other executive officers of
FIBS as of December 31, 1997, whose salary and bonus for the year ended
December 31, 1997, exceeded $100,000 in the aggregate. In all cases, payment
was for services in all capacities of the Company and its subsidiaries:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Other -------------
Name and Annual Options/ All Other
Principal Position Year Salary Bonus Compensation(1) SARS (#) Compensation(2)
- ------------------ ---- --------- --------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Thomas W. Scott 1997 $ 216,000 $ 125,000 $ 7,200 $ -- $ 23,698
President & CEO 1996 206,000 75,000 7,200 -- 23,002
1995 200,000 63,000 7,200 -- 17,697
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Other -------------
Name and Annual Options/ All Other
Principal Position Year Salary Bonus Compensation(1) SARS (#) Compensation(2)
- ------------------ ---- --------- --------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
William H. Ruegamer 1997 $ 167,115 $ 55,000 $ -- $ 1600/1600 $ 18,507
Executive Vice 1996 190,000 66,500 199 1400/1400 21,583
President & COO(3) 1995 184,000 58,000 699 1400/1400 18,602
William G. Wilson 1997 $ 105,500 $ 31,500 $ 7,200 $ 800/800 $ 13,304
Senior Vice 1996 102,000 39,580 7,200 600/600 12,544
President 1995 99,000 27,720 7,200 800/800 12,597
Edward Garding (4) 1997 $ 129,000 $ 38,700 $ 7,200 $ 1200/1200 $ 15,606
Senior Vice 1996 106,730 30,000 20,860 800/800 12,431
President 1995 NA NA NA NA NA
Terrill R. Moore 1997 $ 100,862 $ 40,000 $ 7,200 $ 1200/1200 $ 12,836
Senior Vice 1996 86,684 35,184 7,200 800/800 12,740
President & CFO 1995 80,800 22,624 7,200 800/800 11,462
</TABLE>
(1) Other annual compensation principally relates to an auto allowance or
the value of personal usage of a Company-owned vehicle.
(2) All other compensation includes (i) premiums paid by the Company on
health and life insurance policies, (ii) contributions by the Company to
the Company's noncontributory qualified profit sharing plan and (iii)
contributions by the Company to the Company's contributory qualified
employee savings plan, qualified under Section 401(k) of the Internal
Revenue Code of 1986, as amended (the "Code"). For the fiscal year
ending December 31, 1997, premiums on health and life insurance on
behalf of Thomas W. Scott, William H. Ruegamer, William G. Wilson,
Edward Garding and Terrill R. Moore were $2,984 for each, respectively.
For the fiscal year ending December 31, 1997, contributions to the
Company's profit sharing plan on behalf of Thomas W. Scott, William H.
Ruegamer, William G. Wilson, Edward Garding and Terrill R. Moore were
$10,329, $7,167, $5,045, $6,172 and $4,809, respectively. For the fiscal
year ending December 31, 1997, contributions to the Company's employee
savings plan on behalf of Thomas W. Scott, William H. Ruegamer, William
G. Wilson, Edward Garding and Terrill R. Moore were $10,385, $8,356,
$5,275, $6,450 and $5,043, respectively.
(3) Mr. Ruegamer resigned from all positions with the Company effective
October 31, 1997. The "Salary," "Bonus" and "Other Annual Compensation"
amounts for 1997 include amounts earned through October 31, 1997.
(4) Not an executive officer of FIBS prior to 1996. Included in "Other
Annual Compensation" for 1996 was an amount of $13,660 for
reimbursement of moving and related expenses.
-41-
<PAGE>
OPTION/SAR GRANTS TABLE
The following table provides information concerning grants of options to
purchase FIBS common stock, no par value (the "Common Stock"), and related
stock appreciation rights ("SARs") made during the year ended December 31,
1997, to the persons named in the Summary Compensation Table.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at
----------------------------- Assumed Annual
% of Total Rates of Stock
Options/SARs Price Appreciation
Options/ Granted to Exercise for Option Term
SARS Employees in Price Expiration --------------------
Name Granted (#) Fiscal Year ($/sh) Date 5% ($) 10% ($)
---- ------------ ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Thomas W. Scott -- -- $ -- -- $ -- $ --
William H. Ruegamer 1,600/1,600 8.16% 20.05 1/16/07 40,350 102,255
William G. Wilson 800/800 4.08% 20.05 1/16/07 20,175 51,127
Edward Garding 1,200/1,200 6.12% 20.05 1/16/07 30,262 76,691
Terrill R. Moore 1,200/1,200 6.12% 20.05 1/16/07 30,262 76,691
</TABLE>
The following table indicates the number and value of the stock options
and SARs exercised in 1997 and the number and value of unexercised stock
options and SARs as of December 31, 1997. All stock options and SARs are
currently exercisable.
AGGREGATED OPTION/SAR EXERCISED IN 1997 AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Shares Unexercised In-The-Money
Acquired Value Options and SARS at Options and SARS at
Name on Exercise Realized December 31, 1997 December 31, 1997
---- ----------- -------- ------------------- --------------------
<S> <C> <C> <C> <C>
Thomas W. Scott -- $ -- -- $ --
William H. Ruegamer 2,304 53,533 10,784/7,892 184,628
William G. Wilson -- -- 6,000/4,300 102,305
Edward Garding 1,384 32,157 7,956/5,578 143,074
Terrill R. Moore 1,384 32,157 7,292/5,246 124,763
</TABLE>
TERMINATION OF EMPLOYMENT ARRANGEMENT
On August 25, 1997, the Company entered into an agreement with William
H. Ruegamer (the "Resignation Agreement"), pursuant to which Mr. Ruegamer and
the Company agreed that Mr. Ruegamer resign from his employment with the
Company effective October 31, 1997. Under the Resignation Agreement, Mr.
Ruegamer agreed to release the Company from any potential claims, and the
Company agreed to provide Mr. Ruegamer (i) a 1997 performance bonus of
$55,000, (ii) the sum of $250,000, payable in 24 equal monthly installments,
(iii) health and dental insurance for Mr. Ruegamer and his spouse until
October 31, 2001 (unless Mr. Ruegamer obtains other employment prior to that
time), and (iv) a term life insurance policy in the amount of $500,000 to be
funded by the Company for a period of 10 years. In consideration of Mr.
Ruegamer agreeing not to compete for a period of two years, the Company also
agreed (i) to extend the period in which the Company could repurchase any
Common Stock owned by Mr. Ruegamer, (ii) to extend the exercise period of
stock options and SARs held by Mr. Ruegamer, and (iii) to provide a lump-sum
payment of $250,000 to Mr. Ruegamer on November 1, 1999.
-42-
<PAGE>
SURVIVOR INCOME BENEFIT
The Company has entered into survivor income agreements (the "Survivor
Agreements") with certain executive employees. Under the Survivor Agreements,
designated beneficiaries are entitled to receive a survivor income benefit if
the executive dies before otherwise terminating employment with the Company.
Pursuant to the Survivor Agreements and addenda thereto, the Survivor
Agreement may convert to a split dollar insurance agreement subject to a 10
year vesting schedule. The Company has entered into this type of Survivor
Agreement with Terrill R. Moore, William G. Wilson and Edward Garding.
STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN
The Company has a Stock Option and Stock Appreciation Rights Plan (the
"Plan") for key senior officers of the Company. The Plan provides for the
granting of stock options which are non-qualified under the Code and SARs in
tandem with such options. Each option granted under the Plan may be exercised
within a period of ten years from the date of grant.
COMPENSATION OF DIRECTORS
Directors who are members of the Scott family or who are executive
officers of the Company ("Inside Directors") are compensated for their
services in the form of a salary and bonus, as determined by the Compensation
Committee of the Board of Directors from time to time. Of the directors not
named in the Summary Compensation Table above, Homer A. Scott, Jr. was paid a
salary of $99,000 in each of 1997, 1996 and 1995. He was also paid a bonus
of $20,000 in 1997, $15,000 in 1996 and $4,000 in 1995. James R. Scott was
paid a salary of $102,250 in each of 1997, 1996 and 1995 and a bonus of
$20,000 in 1997, $15,000 in 1996 and $10,000 in 1995. Dan S. Scott was paid a
salary of $39,000 in each of 1997, 1996 and 1995 and a bonus of $20,000 in
1997, $15,000 in 1996 and $15,000 in 1995. Randy Scott was paid a salary of
$18,050 in 1997 and 1996. Non-Inside Directors, presently consisting of Joel
Long and James Haugh, receive a $400 monthly retainer, $500 per board meeting
attended and $250 for each committee meeting attended.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Homer A. Scott, Jr., James R. Scott, Dan S. Scott, James Haugh, and Joel
Long serve on the Compensation Committee of the Board of Directors. With the
exception of Joel Long and James Haugh, all committee members were officers
or employees receiving compensation from FIBS for services rendered. Homer A.
Scott, Jr. and James R. Scott were formerly officers of FIBS.
INDEMNIFICATION
Officers and directors of FIBS are entitled to indemnification under the
Montana Business Corporation Act and pursuant to a Resolution of the Board of
Directors dated January 12, 1987. A summary of the indemnification provision
in such resolution follows:
Pursuant to a resolution of the Board of Directors dated January
12, 1987, and under the authority of Section 35-1-414 of the
Montana Business Corporation Act, the Company shall indemnify each
director and officer of the Company (including former officers and
directors) and each agent of the Company serving as a director or
officer of a Bank, serving at the specific direction or request of
the Company (but only to the extent that such director, officer or
agent is not indemnified by the Bank or by insurance provided by
the Company), against judgments, penalties, fines, settlements and
reasonable expenses actually and reasonably paid by such director,
officer or agent by reason of the fact that he or she is or was a
director or officer of the Company or such Bank, to the extent
provided by and subject to the limitations of the Montana Business
Corporation Act.
-43-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 31, 1997 with
respect to the beneficial ownership of the Common Stock for (i) each person
who is known by the Company to own beneficially more than 5% of the Common
Stock, (ii) each of the Company's directors, (iii) each of the executive
officers named in the Summary Compensation Table, and (iv) all directors and
executive officers as a group. Unless otherwise indicated in the notes to the
table, all shares shown in the following table are owned both of record and
beneficially and each of the following parties has sole voting and investment
power with respect to such shares.
<TABLE>
<CAPTION>
Number of Percent
Shares Beneficially
Beneficial Owner(1) Beneficially Owned Owned
------------------- ------------------ ------------
<S> <C> <C>
James R. Scott(2) 1,351,316 16.83%
439 Grandview Blvd.
Billings, Montana 59102
Randy Scott(3) 1,156,193 14.40%
521 Freedom Avenue
Billings, Montana 59105
Homer Scott, Jr.(4) 1,052,628 13.11%
122 Scott Drive
Sheridan, Wyoming 82801
Thomas W. Scott 773,788 9.64%
P.O. Box 30876
Billings, Montana 59107
Susan Scott Heyneman(5) 569,876 7.10%
P.O. Box 285
Fishtail, Montana 59028
FIB Montana(6) 494,864 6.16%
P.O. Box 30918
Billings, Montana 59116
Dan S. Scott(7) 381,068 4.75%
William H. Ruegamer(8) 40,696 0.51%
William G. Wilson(8) 31,528 0.39%
Edward Garding(8) 21,644 0.27%
Terrill R. Moore(8) 16,164 0.20%
Joel Long 4,940 0.06%
James Haugh 4,940 0.06%
All directors and executive officers as a group
(12 persons)(8) 67.30%
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to the securities owned. Shares of Common
Stock subject to options currently exercisable or exercisable within 60
days of December 31, 1997, are deemed outstanding for purposes of
computing the percentage of the person or entity holding such securities
but are not deemed outstanding for purposes of computing the percentage
of any other person or entity.
(2) Includes 560,068 shares owned beneficially as managing partner of J.S.
Investments Limited Partnership, 24,988 shares as trustee for John
M. Heyneman, Jr. and 24,988 shares as trustee for Thomas Scott Heyneman.
(3) Includes 1,119,792 shares owned beneficially as managing partner of
Nbar5 Limited Partnership.
-44-
<PAGE>
(4) Includes 88,816 shares owned beneficially as trustee for Riki Rae Scott
Davidson, 75,276 shares as trustee for Risa Kae Scott Brown and 88,824
shares as trustee for Rae Ann Scott Morse.
(5) Includes 323,060 shares owned beneficially as general partner of Towanda
Investments, Limited Partnership.
(6) Includes 230,360 shares owned beneficially as trustee for Jonathan R.
Scott, 229,304 shares as trustee for Julie Anne Scott and 35,200 shares
as trustee for James F. Heyneman.
(7) Includes 48,960 shares owned beneficially as managing partner of Nbar5
A, 41,452 shares as managing partner of Nbar5 O, 37,700 shares as
managing partner of Nbar5 K, 33,944 shares as managing partner of Nbar5
S and 33,944 shares as managing partner of Nbar5 T.
(8) Includes options to purchase 10,784 shares, 6,000 shares 7,956 shares
7,292 shares held by William H. Ruegamer, William G. Wilson, Edward
Garding and Terrill R. Moore, respectively.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has had, and expects to have in the future, banking
transactions in the ordinary course of business with related parties,
including business with directors, officers, stockholders and their
associates, on the same terms, including interest rates and collateral on
loans, as those prevailing at the same time for comparable transactions with
unrelated persons and that did not involve more than a normal risk of
collectibility or present other unfavorable features. To the extent that
such transactions consisted of extensions of credit to Company executive
officers and directors and to certain members of the Scott family, such
extensions of credit were made in the ordinary course of business, were made
on substantially the same terms, including interest rates and collateral on
loans, as those prevailing at the same time for comparable transactions with
unrelated persons and did not involve more than a normal risk of
collectibility or present other unfavorable features. Loans to FIBS's
executive officers, directors and their related interests represented
approximately 7.0% of the Company's stockholders' equity as of December 31,
1997. Loans to executive officers, directors and related interests of
officers and directors of FIBS and the Banks represented approximately 10.5%
of the Company's stockholders' equity as of December 31, 1997.
In July 1997, 78,072 shares of common stock were sold by the Company to
certain officers, directors, director nominees and employees. The total cash
price was $1.66 million.
In October 1997, 87,236 shares of common stock were sold by the Company
to 403 individual participants in the Company's 401(k) Savings Plan. The
total cash price was $2.05 million.
From time to time the Company repurchases shares of common stock from
stockholders of the Company pursuant to stockholder repurchase agreements and
otherwise at the then appraised value thereof. In addition, the Company may
redeem shares of common stock from the Company's 401(k) Savings Plan on a
quarterly basis in accordance with the investment elections of the plan's
participants or in connection with distributions under the plan. For the year
ended December 31, 1997, the Company redeemed shares of common stock from the
Company's 401(k) Savings Plan in the amount of $137,437.
The Company is the anchor tenant in a commercial building in which the
Company's principal executive offices are located in Billings, Montana. The
building is owned by a joint venture partnership in which FIB Montana is one
of the two partners, owning a 50% interest in the partnership. The other 50%
interest in the partnership is owned by a company in which Joel Long, a
director of the Company, owns beneficially an equity interest of
approximately 33%. Indebtedness of the partnership ($10.4 million as of
December 31, 1997) is recourse to the partners and guaranteed by the Company.
The Company paid rent to the partnership of $814,000 in 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Following are the Company's audited consolidated financial statements.
-45-
<PAGE>
INDEPENDENT AUDITORS' REPORT
KPMG Peat Marwick LLP
The Board of Directors and Stockholders
First Interstate BancSystem, Inc.:
We have audited the accompanying consolidated balance sheets of First
Interstate BancSystem, Inc. and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997. 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 First
Interstate BancSystem, Inc. and subsidiaries as of December 31, 1997 and
1996, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Billings, Montana
February 6, 1998
-46-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
December 31, 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 136,025 160,962
Federal funds sold 58,675 4,945
Interest-bearing deposits in banks 34,447 6,545
Investment securities:
Available-for-sale 188,650 124,502
Held-to-maturity 236,953 279,069
- -------------------------------------------------------------------------------------------------------
425,603 403,571
- -------------------------------------------------------------------------------------------------------
Loans 1,470,414 1,375,479
Less allowance for loan losses 28,180 27,797
- -------------------------------------------------------------------------------------------------------
Net loans 1,442,234 1,347,682
- -------------------------------------------------------------------------------------------------------
Premises and equipment, net 61,274 58,183
Accrued interest receivable 22,046 19,573
Goodwill, net of accumulated amortization of $8,486
in 1997 and $5,901 in 1996 31,801 37,958
Other real estate owned, net 1,362 1,546
Deferred tax asset 5,946 4,921
Other assets 15,351 17,951
- -------------------------------------------------------------------------------------------------------
$ 2,234,764 2,063,837
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 372,056 385,371
Interest bearing 1,432,950 1,294,053
- -------------------------------------------------------------------------------------------------------
Total deposits 1,805,006 1,679,424
- -------------------------------------------------------------------------------------------------------
Federal funds purchased 4,025 13,450
Securities sold under repurchase agreements 176,350 129,137
Accounts payable and accrued expenses 20,599 18,027
Other borrowed funds 11,591 13,071
Long-term debt 31,526 64,667
- -------------------------------------------------------------------------------------------------------
Total liabilities 2,049,097 1,917,776
- -------------------------------------------------------------------------------------------------------
Mandatorily redeemable preferred securities of subsidiary trust 40,000 -
Stockholders' equity:
Non-voting noncumulative 8.53% preferred stock without par value;
authorized 100,000 shares, none and 20,000 shares issued and
outstanding as of December 31, 1997 and 1996, respectively - 20,000
Common stock without par value; authorized 20,000,000 shares;
issued and outstanding 8,030,799 shares and 7,913,072 shares
as of December 31, 1997 and 1996, respectively 11,490 8,941
Retained earnings 133,277 116,613
Unrealized holding gain on investment securities
available-for-sale, net 900 507
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 145,667 146,061
- -------------------------------------------------------------------------------------------------------
$ 2,234,764 2,063,837
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Book value per common share $ 18.14 15.93
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-47-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 140,083 99,882 83,577
Interest and dividends on investment securities:
Taxable 21,958 15,343 12,147
Exempt from Federal taxes 1,109 982 783
Interest on deposits with banks 448 376 368
Interest on Federal funds sold 2,210 1,342 2,095
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 165,808 117,925 98,970
- ---------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 58,129 42,122 35,898
Interest on Federal funds purchased 1,499 1,043 1,008
Interest on securities sold under repurchase agreements 6,474 4,508 3,560
Interest on other borrowed funds 873 318 298
Interest on long-term debt 5,165 2,028 1,182
Interest on mandatorily redeemable preferred securities
of subsidiary trust 523 - -
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense 72,663 50,019 41,946
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 93,145 67,906 57,024
Provision for loan losses 4,240 3,844 1,629
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 88,905 64,062 55,395
Other operating income:
Income from fiduciary activities 4,083 3,161 2,619
Service charges on deposit accounts 9,855 7,752 6,532
Data processing 7,380 7,324 6,196
Other service charges, commissions, and fees 3,787 2,857 2,535
Investment securities gains (losses), net 89 18 (6)
Other income 1,652 2,815 888
- ---------------------------------------------------------------------------------------------------------------------
Total other operating income 26,846 23,927 18,764
- ---------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and wages 29,448 21,789 18,917
Employee benefits 8,097 5,742 4,777
Occupancy, net 6,077 4,505 3,916
Furniture and equipment 7,721 6,249 5,244
Other real estate income, net (465) (214) (586)
FDIC insurance 206 5 1,127
Goodwill amortization expense 2,585 1,019 442
Other expenses 20,497 14,300 12,141
- ---------------------------------------------------------------------------------------------------------------------
Total other operating expenses 74,166 53,395 45,978
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 41,585 34,594 28,181
Income tax expense 15,730 13,351 10,844
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 25,855 21,243 17,337
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders $ 24,401 20,818 17,337
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Basic earnings per common share $ 3.07 2.65 2.22
Diluted earnings per common share 3.05 2.64 2.21
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-48-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Unrealized Total
Preferred Common Retained holding gains stockholders'
stock stock earnings (losses), net equity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ - 7,531 88,677 (936) 95,272
Common stock transactions:
75,524 shares retired - (1,197) - - (1,197)
26,908 shares issued - 358 - - 358
Cash dividends declared
($0.48 per common share) - - (3,733) - (3,733)
Increase in unrealized gains
on available-for-sale
investment securities, net - - - 1,329 1,329
Net income - - 17,337 - 17,337
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 - 6,692 102,281 393 109,366
Preferred stock issuance:
20,000 shares issued 20,000 - - - 20,000
Preferred stock issuance costs - - (458) - (458)
Common stock transactions:
65,808 shares retired - (1,229) - - (1,229)
187,840 shares issued - 3,478 - - 3,478
Cash dividends declared:
Common ($0.78 per share) - - (6,028) - (6,028)
Preferred (8.53%) - - (425) - (425)
Increase in unrealized gains
on available-for-sale
investment securities, net - - - 114 114
Net income - - 21,243 - 21,243
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 20,000 8,941 116,613 507 146,061
Preferred stock retirement:
20,000 shares retired (20,000) - - - (20,000)
Common stock transactions:
60,169 shares retired - (1,322) - - 3,871
177,896 shares issued - 3,871 - - (1,322)
Cash dividends declared:
Common ($0.98 per share) - - (7,737) - (7,737)
Preferred (8.53%) - - (1,454) - (1,454)
Increase in unrealized gains
on available-for-sale
investment securities, net - - - 393 393
Net income - - 25,855 - 25,855
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ - 11,490 133,277 900 145,667
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-49-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 25,855 21,243 17,337
Adjustments to reconcile net income to net cash
provided by operating activities:
Provisions for loan and other real estate losses 4,236 3,823 1,601
Depreciation and amortization 8,549 5,584 4,272
Net premium amortization (discount accretion)
on investment securities (1,049) 591 1,111
Loss (gain) on sale of investments, net (89) (18) 6
Gain on sale of other real estate owned (595) (335) (527)
Gain on sale of premises and equipment (9) (2) -
Provision for deferred income taxes (1,306) (528) 129
Increase in interest receivable (2,473) (507) (1,828)
Decrease (increase) in other assets 5,198 (1,697) 2,069
Increase in accounts payable and accrued expenses 6,144 394 3,553
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 44,461 28,548 27,723
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net change in interest-bearing deposits (27,902) 16,495 (22,012)
Purchases of investment securities:
Held-to-maturity (412,855) (200,361) (88,857)
Available-for-sale (133,043) (63,477) (12,254)
Proceeds from maturities and paydowns of investment securities:
Held-to-maturity 456,069 150,313 116,267
Available-for-sale 38,401 62,460 12,901
Sales of investment securities:
Available-for-sale 31,208 5,523 -
Extensions of credit to customers, net of repayments (101,673) (98,142) (70,149)
Recoveries on loans charged-off 3,094 1,987 1,016
Proceeds from sale of other real estate owned 2,130 1,121 1,236
Acquisitions of subsidiaries, net (1,726) 24,840 (10,465)
Capital distribution from (contribution to) joint venture (275) 150 (2,100)
Capital expenditures, net (8,880) (6,324) (4,675)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (155,452) (105,415) (79,092)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 125,582 56,674 76,354
Net increase (decrease) in federal funds and repurchase agreements 37,788 (15,938) 29,148
Repayments of other borrowed funds, net (1,480) (871) (1,594)
Borrowings of long-term debt 5,750 66,939 13,484
Repayment of long-term debt (38,891) (22,410) (3,066)
Proceeds of issuance of mandatorily redeemable preferred
securities of subsidiary trust 40,000 - -
Debt issuance costs (2,323) - -
Proceeds from issuance of common stock 3,871 3,478 358
Proceeds from issuance of preferred stock, net of issuance costs - 19,542 -
Payments to retire common stock (1,322) (1,229) (1,197)
Payments to retire preferred stock (20,000) - -
Dividends paid on common stock (7,737) (6,028) (3,733)
Dividends paid on preferred stock (1,454) (425) -
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 139,784 99,732 109,754
- ------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 28,793 22,865 58,385
Cash and cash equivalents at beginning of year 165,907 143,042 84,657
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 194,700 165,907 143,042
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 70,484 48,334 38,944
Cash paid during the year for taxes 17,830 12,805 9,845
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Noncash Investing and Financing Activities - The Company transferred loans of
$1,347, $668 and $227 to other real estate owned in 1997, 1996 and 1995,
respectively.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-50-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. The Company, through the branch offices of its banking
subsidiaries, provides a full range of banking services to individual
and corporate customers throughout the states of Montana and Wyoming.
The Company is subject to competition from other financial institutions
and financial service providers, and is also subject to the regulations
of various government agencies and undergoes periodic examinations by
those regulatory authorities.
During 1997, the Company merged its six banking subsidiaries into two
resultant bank subsidiaries, First Interstate Bank in Montana and First
Interstate Bank in Wyoming.
Effective October 7, 1997, First Interstate BancSystem of Montana, Inc.
changed its name to First Interstate BancSystem, Inc.
The following is a summary of significant accounting policies utilized
by the Company:
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of First Interstate BancSystem, Inc. (Parent
Company) and its operating subsidiaries: First Interstate Bank in
Montana ("FIB Montana"), First Interstate Bank in Wyoming ("FIB
Wyoming"), Commerce Financial, Inc. and FIB Capital Trust. All material
intercompany transactions have been eliminated in consolidation.
BASIS OF PRESENTATION. The financial statements have been prepared in
conformity with generally accepted accounting principles. In preparing
the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
as of the date of the balance sheet and revenues and expenses for the
period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance for
loan losses and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for loan losses and real estate owned,
management obtains independent appraisals for significant properties.
Management believes that the allowances for losses on loans and real
estate owned are adequate. In addition, various regulatory agencies, as
an integral part of their examination process, periodically review the
allowances for losses on loans and real estate owned. While management
uses available information to recognize losses on loans and real estate
owned, future additions to the allowances may be necessary based on
changes in economic conditions which may affect the borrowers' ability
to pay or regulatory requirements.
In addition to purchasing and selling Federal funds for their own
account, the Company purchases and sells Federal funds as an agent.
These and other assets held in an agency or fiduciary capacity are not
assets of the Company and, accordingly, are not included in the
accompanying consolidated financial statements.
CASH AND CASH EQUIVALENTS. For purposes of reporting cash flows, cash
and cash equivalents include cash on hand, amounts due from banks and
federal funds sold for one day periods.
At December 31, 1997 the Company was required to have aggregate reserves
in the form of cash on hand and deposits with the Federal Reserve Bank
of approximately $7,247. Also, an additional $16,000 compensating
balance was maintained with the Federal Reserve Bank to mitigate the
payment of service charges for check clearing services.
-51-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
INVESTMENT SECURITIES. Securities that the Company has the positive intent
and ability to hold to maturity are classified as held-to-maturity and
carried at amortized cost. Subordinated debentures that may be sold in
response to or in anticipation of changes in interest rates and
resulting prepayment risk, or other factors, and marketable equity
securities, are classified as available-for-sale and carried at fair
value. The unrealized gains and losses on these securities are
reported, net of applicable taxes, as a separate component of
stockholders' equity. Debt and equity securities that are purchased and
held principally for the purpose of selling them in the near term are
classified as trading account assets and reported at fair value. The
Company carried no trading account assets during 1997, 1996 or 1995.
Management determines the appropriate classification of securities at
the time of purchase and at each reporting date management reassesses
the appropriateness of the classification.
The amortized cost of subordinated debentures classified as
held-to-maturity or available-for-sale is adjusted for amortization of
premiums over the estimated average life of the security, accretion of
discounts to maturity, or in the case of mortgage-backed securities,
over the estimated life of the security. Such amortization and
accretion is included in interest income with interest and dividends.
Realized gains and losses, and declines in value judged to be
other-than-temporary, are included in investment securities gains
(losses). The cost of securities sold is based on the specific
identification method.
LOANS. Loans are reported at the principal amount outstanding.
Interest is calculated by using the simple interest method on the daily
balance of the principal amount outstanding.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is
discontinued either when reasonable doubt exists as to the full, timely
collection of interest or principal or when a loan becomes contractually
past due by ninety days or more with respect to interest or principal
unless such past due loan is well secured and in the process of
collection. When a loan is placed on nonaccrual status, interest
previously accrued but not collected is reversed against current period
interest income. Interest accruals are resumed on such loans only when
they are brought fully current with respect to interest and principal
and when, in the judgement of management, the loans are estimated to be
fully collectible as to both principal and interest.
Renegotiated loans are those loans on which concessions in terms have
been granted because of a borrower's financial difficulty.
Significant loan origination fees and prepaid interest, net of related
costs, are recognized over the expected lives of the related loans as an
adjustment of yield.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses which is charged to expense. Loans
are charged against the allowance for loan losses when management
believes that the collectibility of the principal is unlikely or, with
respect to consumer installment loans, according to an established
delinquency schedule. The allowance balance is an amount that
management believes will be adequate to absorb losses inherent in
existing loans, leases and commitments to extend credit, based on
evaluations of the collectibility and prior loss experience of loans,
leases and commitments to extend credit. The evaluations take into
consideration such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, loan concentrations, specific
problem loans, leases and commitments, and current and anticipated
economic conditions that may affect the borrowers' ability to pay.
-52-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company may also establish a reserve for losses on specific loans
which are deemed to be impaired. Groups of small balance homogeneous
basis loans (generally consumer loans) are evaluated for impairment
collectively. A loan is considered impaired when, based upon current
information and events, it is probable that the Company will be unable
to collect, on a timely basis, all principal and interest according to
the contractual terms of the loan's original agreement. When a specific
loan is determined to be impaired, the allowance for loan losses is
increased through a charge to expense for the amount of the impairment.
The amount of the impairment is measured using cash flows discounted at
the loan's effective interest rate, except when it is determined that
the sole source of repayment for the loan is the operation or
liquidation of the underlying collateral. In such cases, the current
value of the collateral, reduced by anticipated selling costs, will be
used to measure impairment instead of discounted cash flows. The
Company's impaired loans are those non-consumer loans which are
non-accrual or a troubled debt restructuring. Interest income is
recognized on impaired loans only to the extent that cash payments are
received. The Company's existing policies for evaluating the adequacy
of the allowance for loan losses and policies for discontinuing the
accrual of interest on loans are used to establish the basis for
determining whether a loan is impaired.
GOODWILL. Goodwill consists of the excess purchase price over the fair
value of net assets from acquisitions ("excess purchase price") and the
intangible value of depositor relationships resulting from deposit
liabilities assumed in acquisitions ("core deposit intangibles").
Excess purchase price is being amortized using the straight-line method
over periods of primarily 15 to 25 years. Core deposit intangibles are
amortized using an accelerated method based on an estimated runoff of
the related deposits, not exceeding 10 years.
OTHER INTANGIBLES. Purchased mortgage servicing rights ("MSR")
represent the value of purchased rights to service mortgage loans. The
MSR are amortized over the period of estimated net servicing income not
expected to exceed 12 years. MSR are evaluated for impairment based on
the MSR current fair value. MSR of $781 and $1,052 as of December 31,
1997 and 1996, respectively, are included in other assets.
PREMISES AND EQUIPMENT. Buildings, furniture and equipment are stated
at cost less accumulated depreciation. Depreciation is provided over
estimated useful lives of 5 to 50 years for buildings and improvements
and 3 to 15 years for furniture and equipment using straight-line
methods. Leasehold improvements are amortized using straight-line
methods over the shorter of the estimated useful lives of the
improvements or the terms of the related leases. Consolidated
depreciation expense was $5,964 in 1997, $4,182 in 1996 and $3,541 in
1995.
LONG-LIVED ASSETS. Long-lived assets and certain identifiable
intangibles (e.g. premises, Goodwill, core deposit intangibles) are
reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. An
asset is deemed impaired if the sum of the expected future cash flows is
less than the carrying amount of the asset. The amount of the
impairment loss, if any, is based on the assets' fair value, which may
be estimated by discounting the expected future cash flows. There were
no impairment losses recognized during 1997 or 1996.
OTHER REAL ESTATE OWNED. Real estate acquired in satisfaction of loans
is carried at the lower of the recorded investment in the property at
the date of foreclosure or its current fair value less selling cost
("Net Realizable Value"). The value of the underlying loan is written
down to the fair market value of the real estate acquired by a charge to
the allowance for loan losses, if necessary, at the date of foreclosure.
A provision to the real estate owned valuation allowance is charged
against other real estate expense for any current or subsequent
write-downs to Net Realizable Value. Operating expenses of such
properties, net of related income, and gains on sales are included in
other real estate expenses.
-53-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES. In June 1996, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996 and is to be applied
prospectively. This Statement provides accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are
secured borrowings.
SFAS No. 125 generally requires the Company to recognize as separate
assets the rights to service mortgage loans for others, whether the
servicing rights are acquired through purchases or loan originations.
Servicing rights are initially recorded at fair value based on market
quotes and are amortized in proportion to and over the period of
estimated net servicing income. Servicing rights are subsequently
evaluated for impairment by stratifying the servicing assets based on
risk characteristics including loan type, note rate, and loan term.
Adoption of the statement did not have a material impact on the
financial condition or results of operations of the Company. The
Company capitalized mortgage servicing rights of $238 on loans sold with
servicing retained in 1997. There were no impairment losses recognized
in 1997.
INCOME FROM FIDUCIARY ACTIVITIES. Consistent with industry practice,
income for trust services is recognized on the basis of cash received.
However, use of this method in lieu of accrual basis accounting does not
materially affect reported earnings.
INCOME TAXES. The Parent Company and its subsidiaries have elected to
be included in a consolidated Federal income tax return. For state
income tax purposes, the combined taxable income of the Parent Company
and its subsidiaries is apportioned between the states in which
operations take place. Federal and state income taxes attributable to
the subsidiaries, computed on a separate return basis, are paid to or
received from the Parent Company.
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
PER SHARE DATA. The Company adopted SFAS No. 128, "Earnings Per Share,"
as of January 1, 1997. SFAS No. 128 revises the manner in which
earnings per share (EPS) is calculated by replacing the presentation of
primary EPS and fully diluted EPS with a presentation of basic EPS and
diluted EPS. All periods presented have been restated to conform with
SFAS No. 128. The Company also adopted SFAS No. 129, "Disclosures of
Information About Capital Structure." This statement was issued in
connection with SFAS No. 128 and lists required disclosures about
capital structure that had been included in a number of previously
existing separate statements and opinions.
Basic earnings per common share is calculated by dividing net income
less preferred stock dividends by the weighted average number of common
shares outstanding during the period. Diluted earnings per common share
is calculated by dividing net income less preferred stock dividends by
the weighted average number of common shares and potential common stock
outstanding during the period. Book value per common share is
calculated by dividing total stockholders' equity less preferred stock
by the number of common shares outstanding at the end of the year.
On October 7, 1997, the Company effected a four-for-one split of the
Parent Company's existing common stock. All share and per share data
presented have been restated to give effect to the stock split.
-54-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STOCK-BASED COMPENSATION. The Company measures compensation costs for
stock-based employee compensation plans using the intrinsic value-based
method of accounting in accordance with Accounting Principles Board
No. 25.
YEAR 2000. In 1997, the Company established an overall plan to address
the Year 2000 issues as they affect financial reporting. Year 2000
issues involve the use of only two digits to identify a year in a date
field, potentially causing application failures or erroneous results at
the Year 2000. Upon development of the overall plan, the Company began
modifying its computer systems to be Year 2000 compliant by the end of
1998. Management does not expect costs related to the modification
project to be material. Such costs will be expensed as incurred.
RECLASSIFICATIONS. Certain reclassifications have been made to the 1996
and 1995 amounts to conform to the 1997 presentation.
(2) REGULATORY MATTERS
The Company is subject to the regulatory capital requirements
administered by the Federal Reserve Bank. Failure to meet minimum
capital requirements can initiate certain mandatory and possible
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company must meet specific
capital guidelines that involve quantitative measures of the Company's
assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. Capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and ratios of
total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital
to average assets, as defined in the regulations. As of December 31,
1997, the Company exceeded all capital adequacy requirements to which is
was subject.
As of December 31, 1997, the most recent notification from the Federal
Reserve Bank categorized the Company as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized the Company must maintain minimum total risk-based,
Tier 1 risk-based, and leverage ratios as set forth in the table. There
are no conditions or events since that notification that management
believes have changed the institution's category.
The Company's actual capital amounts and ratios as of December 31, 1997
and 1996 are presented in the following table:
<TABLE>
<CAPTION>
Adequately Well
Actual Capitalized Capitalized
----------------------- ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1997:
Total risk-based capital:
Consolidated $ 192,839 12.2% $ 126,516 8.0% $ 158,145 10.0%
FIB Montana 131,374 12.4 84,603 8.0 105,754 10.0
FIB Wyoming 64,231 12.4 41,421 8.0 51,777 10.0
Tier 1 risk-based capital:
Consolidated 152,967 9.7 63,258 4.0 94,887 6.0
FIB Montana 118,113 11.2 42,302 4.0 63,452 6.0
FIB Wyoming 57,696 11.1 20,711 4.0 31,066 6.0
Leverage capital ratio:
Consolidated 152,967 6.9 88,207 4.0 110,259 5.0
FIB Montana 118,113 8.1 58,423 4.0 73,028 5.0
FIB Wyoming 57,696 7.8 29,565 4.0 36,956 5.0
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-55-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Adequately Well
Actual Capitalized Capitalized
----------------------- ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1996:
Total risk-based capital:
Consolidated $ 145,782 10.0% $ 116,898 8.0% $ 146,123 10.0%
FIB Montana 124,102 12.2 81,437 8.0 101,796 10.0
FIB Wyoming 59,786 13.2 36,228 8.0 45,285 10.0
Tier 1 risk-based capital:
Consolidated 107,399 7.4 58,449 4.0 87,674 6.0
FIB Montana 109,690 11.0 40,718 4.0 61,077 6.0
FIB Wyoming 54,040 11.9 18,114 4.0 27,171 6.0
Leverage capital ratio:
Consolidated 107,399 5.3 81,382 4.0 101,728 5.0
FIB Montana 109,690 8.0 55,930 4.0 69,913 5.0
FIB Wyoming 54,040 7.8 27,764 4.0 34,705 5.0
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) INVESTMENT SECURITIES
The amortized cost and approximate market values of investment securities
are summarized as follows:
AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
December 31, 1997 cost gains losses value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 63,869 594 - 64,463
Obligations of U.S. Government agencies 56,304 76 (59) 56,321
States, county and municipal securities 7,479 315 - 7,794
Corporate securities 4,331 5 - 4,336
Other mortgage-backed securities 46,057 321 (37) 46,341
Other securities 9,136 259 - 9,395
-----------------------------------------------------------------------------------------------------------
Total $ 187,176 1,570 (96) 188,650
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
</TABLE>
HELD-TO-MATURITY
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
December 31, 1997 cost gains losses value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 181,428 1,019 (128) 182,319
Obligations of U.S. Government agencies 27,892 117 (34) 27,975
States, county and municipal securities 17,645 174 (2) 17,817
Corporate securities 6,260 - (6) 6,254
Other mortgage-backed securities 3,728 29 - 3,757
-----------------------------------------------------------------------------------------------------------
Total $ 236,953 1,339 (170) 238,122
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
</TABLE>
Gross gains of $89 and no gross losses were realized on the sale of
available-for-sale securities in 1997.
-56-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
December 31, 1996 cost gains losses value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 45,272 153 - 45,425
Obligations of U.S. Government agencies 54,919 340 (114) 55,145
States, county and municipal securities 7,717 295 (2) 8,010
Corporate securities 2,484 7 (5) 2,486
Other mortgage-backed securities 3,703 16 (10) 3,709
Other securities 9,607 120 - 9,727
-----------------------------------------------------------------------------------------------------------
Total $ 123,702 931 (131) 124,502
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
</TABLE>
HELD-TO-MATURITY
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
December 31, 1996 cost gains losses value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 169,196 445 (731) 168,910
Obligations of U.S. Government agencies 89,600 158 (179) 89,579
States, county and municipal securities 11,793 152 (12) 11,933
Corporate securities 8,480 1 (27) 8,454
-----------------------------------------------------------------------------------------------------------
Total $ 279,069 756 (949) 278,876
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
</TABLE>
Gross gains of $18 and no gross losses were realized on the sale of
available-for-sale securities in 1996.
Gross gains of $6 and gross losses of $12 were realized on the sale of
available-for-sale securities in 1995.
Maturities of investment securities by contractual maturity at December
31, 1997 are shown below. Maturities of securities do not reflect rate
repricing opportunities present in many adjustable rate mortgage-backed
and corporate securities. Maturities of mortgage-backed securities have
been adjusted to reflect expected shorter maturities based upon early
prepayments of principal.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
December 31,1997 Available-for-Sale Held-to-Maturity
------------------------------------------------------------------------------------------------------
Amortized Estimated Amortized Estimated
cost market value cost market value
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Within one year $ 42,018 42,122 90,627 90,653
After one but within five years 117,439 118,326 138,709 139,786
After five years but within ten years 11,270 11,444 5,694 5,744
After ten years 7,313 7,363 1,923 1,939
------------------------------------------------------------------------------------------------------
Total 178,040 179,255 236,953 238,122
------------------------------------------------------------------------------------------------------
Other 9,136 9,395 - -
------------------------------------------------------------------------------------------------------
Total $ 187,176 188,650 236,953 238,122
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
</TABLE>
There are no significant concentrations of investments at December 31, 1997
(greater than 10 percent of stockholders' equity) in any individual
security issuer, except for U.S. Government or agency-backed securities.
-57-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
At December 31, 1997 and 1996, $14,097 and $18,148, respectively, of
variable rate securities are included in investment securities.
Investment securities with amortized cost of $333,920 and $251,709 at
December 31, 1997 and 1996, respectively, were pledged to secure public
deposits, securities sold under repurchase agreements and for other
purposes required or permitted by law. The approximate market value of
securities pledged at December 31, 1997 and 1996 was $335,500 and
$252,070, respectively. All securities sold under repurchase agreements
are with customers and generally mature on the next banking day. The
Company retains possession of the underlying securities sold under
repurchase agreements.
(4) LOANS
Major categories and balances of loans included in the loan portfolios are
as follows:
<TABLE>
<CAPTION>
December 31, 1997 1996
---------------------------------------------------------------
<S> <C> <C>
Agricultural (1) $ 164,046 143,572
Commercial (2) 526,355 471,458
Real estate 268,463 274,141
Consumer (3) 505,741 484,865
Other loans, including overdrafts 5,809 1,443
---------------------------------------------------------------
Total loans $ 1,470,414 1,375,479
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
(1) Includes loans to agricultural customers secured by real estate of
$56,397 and $52,689 at December 31, 1997 and 1996, respectively.
(2) Includes loans secured by commercial real estate properties of
$264,842 and $198,570 at December 31, 1997 and 1996, respectively.
(3) Includes loans secured by second mortgages on real estate of
$93,510 and $74,607 at December 31, 1997 and 1996, respectively.
At December 31, 1997, the Company had no concentrations of loans which
exceeded 10% of total loans other than the categories disclosed above.
The Company has no loans or loan commitments to highly leveraged
companies.
Nonaccrual loans amounted to $9,681 and $6,822 at December 31, 1997 and
1996, respectively. If interest on nonaccrual loans had been accrued,
such income would have approximated $763 and $405, respectively. Loans
contractually past due ninety days or more aggregating $4,883 on
December 31, 1997 and $6,432 on December 31, 1996 were on accrual
status. Such loans are deemed adequately secured and in the process of
collection.
Included in the nonaccrual loans at December 31, 1997 and 1996 are
$1,909 and $5,122, respectively, of loans which are considered impaired.
Of this amount, an impairment allowance of $676 and $436, respectively,
is included in the Company's allowance for loan losses. The average
recorded investment in impaired loans for the years ended December 31,
1997, 1996 and 1995 was approximately $7,580, $3,870 and $3,080,
respectively. If interest on impaired loans had been accrued, the
amount of interest income on impaired loans during 1997, 1996 and 1995
would have been approximately $706, $357 and $283, respectively.
-58-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Also included in total loans at December 31, 1997 and 1996 are loans
with a carrying value of $928 and $1,763, respectively, the terms of
which have been modified in troubled debt restructurings. Restructured
debt includes nonaccrual loans of $2 at December 31, 1997. There were
no nonaccrual loans included in restructured debt at December 31, 1996.
The interest income recognized on restructured loans approximated
$122, $158 and $161 during the years ended December 31, 1997, 1996 and
1995, respectively. At December 31, 1997, there were no commitments to
lend additional funds to borrowers whose existing loans have been
restructured or are classified as nonaccrual.
Most of the Company's business activity is with customers within the
states of Montana and Wyoming. Loans where the customers or related
collateral are out of the Company's trade area are not significant and
management's anticipated credit losses arising from these transactions
compare favorably with the Company's credit loss experience on its loan
portfolio as a whole.
Certain executive officers and directors of the Company and certain
corporations and individuals related to such persons, incurred
indebtedness in the form of loans, as customers, of $15,329 at December
31, 1997 and $12,174 at December 31, 1996 (including outstanding loans
of new executive officers and directors in 1997). During 1997, new
loans and advances on existing loans of $11,613 were funded and
repayments totaled $8,458. These loans were made on substantially the
same terms, including interest rates and collateral, as those
prevailing at the time for comparable risk of collectibility.
(5) ALLOWANCE FOR LOAN LOSSES
A summary of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Year ending December 31, 1997 1996 1995
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 27,797 15,171 13,726
Allowance of acquired banks - 10,553 917
Provision charged to operating expense 4,240 3,844 1,629
Less loans charged-off (6,951) (3,758) (2,117)
Add back recoveries of loans previously charged-off 3,094 1,987 1,016
------------------------------------------------------------------------------------------------
Balance at end of year $ 28,180 27,797 15,171
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
(6) PREMISES AND EQUIPMENT
Premises and equipment and related accumulated depreciation are as
follows:
<TABLE>
<CAPTION>
December 31, 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C>
Land $ 9,639 8,350
Buildings and improvements 56,443 53,609
Furniture and equipment 24,253 24,689
-------------------------------------------------------------------------------
90,335 86,648
Less accumulated depreciation 29,061 28,465
-------------------------------------------------------------------------------
Premises and equipment, net $ 61,274 58,183
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
The Parent Company and a branch office lease premises from an
affiliated partnership (see note 13).
-59-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(7) OTHER REAL ESTATE OWNED
Other real estate owned (OREO) consists of the following:
<TABLE>
<CAPTION>
December 31, 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C>
Other real estate $ 1,824 2,057
Less allowance for OREO losses 462 511
-------------------------------------------------------------------------------
$ 1,362 1,546
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
A summary of transactions in the allowance for OREO losses follows:
<TABLE>
<CAPTION>
Year ending December 31, 1997 1996 1995
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 511 554 1,048
Provision (reversal) during the year (4) (21) (28)
Property writedowns (45) (16) (449)
Losses on sales - (6) (17)
------------------------------------------------------------------------------------------------
Balance at end of year $ 462 511 554
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
(8) CASH SURRENDER VALUE OF LIFE INSURANCE
The Company maintains key-executive life insurance policies on certain
principal shareholders. Under the key-executive insurance, the Company
receives the cash surrender value if the policy is terminated, or
receives all benefits payable upon the death of the insured. The
aggregate face amount of key-executive insurance policies was $7,000 at
December 31, 1997. Cash surrender values are recorded net of
outstanding policy loans, since the Company has no current plans for
repayment. Outstanding policy loans at December 31, 1997 and 1996 are
$2,621 and $2,540, respectively. The net cash surrender value of
key-executive insurance policies included in other assets is $400 and
$278 at December 31, 1997 and 1996, respectively.
During 1994, the Company provided insurance contracts for certain key
officers. The net cash surrender value of these contracts is $1,525
and $1,365 at December 31, 1997 and 1996, respectively, and is included
in other assets. Upon retirement, the officers have the option of
entering into a split-dollar contract with the Company providing
insurance coverage for the difference between the Company's cash
surrender value and the face amount of the policy. The Company
currently accrues the earned portion of the post-employment benefit.
(9) DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C>
Noninterest bearing demand $ 372,056 385,371
Interest bearing:
Demand 314,185 316,964
Savings 431,446 396,845
Time, $100 and over 163,643 122,242
Time, other 523,676 458,002
-------------------------------------------------------------------------------
Total interest bearing 1,432,950 1,294,053
-------------------------------------------------------------------------------
$ 1,805,006 1,679,424
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
-60-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Maturities of time deposits at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Time, $100
and Over Total Time
-----------------------------------------------------------------------
<S> <C> <C>
1998 $ 121,588 458,119
1999 34,024 158,629
2000 5,541 48,765
2001 1,790 11,273
2002 700 10,066
Thereafter - 467
-----------------------------------------------------------------------
$ 163,643 687,319
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
Interest expense on time deposits of $100 or more was $7,778, $5,514
and $4,581 for the years ended December 31, 1997, 1996 and 1995,
respectively.
(10) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Year ending December 31, 1997 1996 1995
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 15,006 12,004 9,194
State 2,030 1,875 1,521
------------------------------------------------------------------------------------------------
17,036 13,879 10,715
------------------------------------------------------------------------------------------------
Deferred:
Federal (1,140) (492) 134
State (166) (36) (5)
------------------------------------------------------------------------------------------------
(1,306) (528) 129
------------------------------------------------------------------------------------------------
$ 15,730 13,351 10,844
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
Total income tax expense differs from the amount computed by applying
the Federal income tax rate of 35 percent in 1997, 1996 and 1995 to
income before income taxes as a result of the following:
<TABLE>
<CAPTION>
Year ending December 31, 1997 1996 1995
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at the statutory tax rate $ 14,555 12,108 9,863
Increase (decrease) in tax resulting from:
Tax-exempt income (520) (472) (374)
State income tax, net of Federal income tax benefit 1,211 1,190 985
Amortization of nondeductible Goodwill 311 318 289
Other, net 173 207 81
------------------------------------------------------------------------------------------------
$ 15,730 13,351 10,844
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
-61-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The tax effects of temporary differences between the financial
statement carrying amounts and tax bases of assets and liabilities that
give rise to significant portions of the net deferred tax asset relate
to the following:
<TABLE>
<CAPTION>
December 31, 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Loans, principally due to allowance for
loan losses $ 9,296 8,712
Other real estate owned, principally due to
differences in bases 283 118
Employee benefits 1,374 828
Other 275 45
-------------------------------------------------------------------------------
Net deferred tax assets 11,228 9,703
-------------------------------------------------------------------------------
Deferred tax liabilities:
Fixed assets, principally differences in bases
and depreciation (928) (926)
Investment in joint venture partnership,
principally due to differences in
depreciation of partnership assets (1,025) (904)
Prepaid amounts (273) (138)
Investment securities, principally differences
in bases (550) (370)
Investment securities available-for-sale (574) (293)
Goodwill (1,896) (2,151)
Other (36) -
-------------------------------------------------------------------------------
Net deferred tax liabilities (5,282) (4,782)
-------------------------------------------------------------------------------
Net deferred tax asset $ 5,946 4,921
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the existence of,
or generation of, taxable income in the periods which those temporary
differences are deductible. Management considers the scheduled
reversal of deferred tax liabilities, taxes paid in carryback years,
projected future taxable income, and tax planning strategies in making
this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the
deferred tax assets are deductible, at December 31, 1997 management
continues to believe it is more likely than not that the Company will
realize the benefits of these deductible differences.
The Company had current income taxes receivable of $286 at December 31,
1997 and current income taxes payable of $508 at December 31, 1996.
-62-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(11) LONG-TERM DEBT AND OTHER BORROWED FUNDS
A summary of long-term debt follows:
<TABLE>
<CAPTION>
December 31, 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C>
Parent Company:
Revolving term loan due December 31, 2003 at
variable interest rates (7.44% weighted
average rate at December 31, 1997) $ 6,700 39,200
7.50% subordinated notes, unsecured, interest
payable semi-annually, due in increasing
annual principal payments beginning
October 1, 2002 in the amount of $3,400
with final maturity on October 1, 2006 20,000 20,000
Various unsecured notes payable to former
stockholders at various rates of 5.80% to
8.50% due in annual installments aggregating
$486, plus interest, through March 1999 710 1,196
Subsidiaries:
Various notes payable to Federal Home Loan
Bank of Seattle, interest due monthly at
various rates and maturities (weighted
average rate of 6.53% at December 31, 1997) 4,116 4,271
-------------------------------------------------------------------------------
$ 31,526 64,667
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
Maturities of long-term debt for the years ending December 31 follow:
<TABLE>
<S> <C>
1998 $ 489
1999 667
2000 135
2001 51
2002 4,151
Thereafter 26,033
-------------------------------------------------------------------------------
$ 31,526
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
The proceeds from issuance of the revolving term note, subordinated
notes and preferred stock (see note 15) were utilized to fund
acquisitions (see note 20).
In connection with its borrowings, the Company has agreed to certain
restrictions dealing with, among other things, minimum capital ratios,
the sale or issuance of capital stock and the maximum amount of
dividends.
The Company has a revolving term loan with its primary lender in the
amount of $6,700 at December 31, 1997. The available borrowing amount
at December 31, 1997 of $19.3 million is reduced by $2,000 on a
semi-annual basis. The revolving facility requires an annual
commitment fee of 0.15% on the unadvanced amount. The Company may
elect at various dates either prime or a Eurodollar rate which varies
depending on the Company's capital ratios. The term note payable is
secured by 100% of the outstanding capital stock of the Company's bank
subsidiaries.
The notes payable to Federal Home Loan Bank of Seattle (FHLB) are
secured by FHLB stock, unencumbered residential real estate mortgages
and certain mortgage-backed securities.
-63-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following is a summary of other borrowed funds, all of which mature
within one year:
<TABLE>
<CAPTION>
December 31, 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C>
Interest bearing demand notes issued to the United
States Treasury, secured by investment
securities (5.16% weighted average rate at
December 31, 1997) $ 11,591 11,071
5.45% interest bearing demand note issued to
Federal Home Loan Bank of Seattle paid in 1997 - 2,000
-------------------------------------------------------------------------------
$ 11,591 13,071
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
The Company has Federal funds lines of credit with third parties
amounting to $135,000, subject to funds availability. These lines are
subject to cancellation without notice. The Company also has been
approved for participation in the Federal Home Loan Bank Cash
Management Advance Program for borrowings up to approximately $98,687.
(12) EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLAN. The Company has a noncontributory profit sharing
plan. To be eligible for the profit sharing plan, an employee must
complete one year of employment and 1,000 hours or more of service.
Quarterly contributions are determined by the Company's Board of
Directors, but are not to exceed, on an individual basis, the lesser of
25% of compensation or $30. Contributions to this plan were $1,022,
$839 and $685 in 1997, 1996 and 1995, respectively.
SAVINGS PLAN. In addition, the Company has a contributory employee
savings plan. Eligibility requirements for this plan are the same as
those for the profit sharing plan as discussed in the preceding
paragraph. Employee participation in the plan is at the option of the
employee. The Company contributes $1.25 for each $1.00 of employee
contributions up to 4% of the participating employee's compensation.
The recorded expense related to this plan was $1,030 in 1997, $814 in
1996 and $703 in 1995.
STOCK OPTION PLAN. The Company has a Nonqualified Stock Option and
Stock Appreciation Rights Plan for senior officers of the Company. All
options and stock appreciation rights ("SAR's") granted have an
exercise price of book value of the Company prior to 1993 and appraised
value thereafter. Each option granted under the Plan can be
immediately exercised up to ten years from the date of grant. SAR's
are granted and exercised in tandem with options. The stock issued in
conjunction with the exercise of options is subject to a shareholder
agreement (see note 15). The consolidated expense related to this plan
was $514 in 1997, $72 in 1996 and $170 in 1995.
Information with respect to the Company's stock options and SAR's are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
Year ended December 31, Options SAR's Options SAR's Options SAR's
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 115,836 78,320 116,752 79,236 120,464 82,140
Granted 19,600 19,600 16,600 16,600 16,500 16,500
Exercised (12,232) (6,468) (17,516) (17,516) (20,212) (19,404)
--------------------------------------------------------------------------------------------
Outstanding, end of year 123,204 91,452 115,836 78,320 116,752 79,236
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>
-64-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Information with respect to the weighted-average stock option exercise
prices are as follows:
<TABLE>
<CAPTION>
Year ending December 31, 1997 1996 1995
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Granted during year $ 20.05 $ 17.86 $ 15.80
Exercised during year 5.83 4.95 5.68
Outstanding, end of year 12.73 9.67 8.89
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
Stratification and additional detail regarding the exercisable options
outstanding at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Exercise Number Weighted-average Weighted-average
price range outstanding remaining life exercise price
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$4.56 - $ 7.61 39,704 2.56 years $ 6.45
$11.40 - $20.05 83,500 7.28 years 15.72
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
The Company has elected to continue to measure compensation costs as
prescribed by APB Opinion No. 25 and, accordingly, does not recognize
compensation expense on the options granted where the exercise price is
equal to appraisal value at the date of grant. SFAS No. 123 requires
the Company to disclose pro forma information reflecting net income and
earnings per share had the Company elected to record compensation
expense based on the fair value method described in SFAS No. 123. The
fair value of the options was estimated at the grant date using a
Black-Scholes option pricing model. Option valuation models require the
input of highly subjective assumptions. Because the Company's common
stock and stock options have characteristics significantly different
from listed securities and traded options, and because changes in the
subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
stock options.
The following weighted-average assumptions were used in the valuation
model: risk-free interest rates of 6.58%, 5.65% and 7.78% in 1997, 1996
and 1995, respectively; dividend yield of 4.03%, 2.50% and 2.67% in
1997, 1996 and 1995, respectively; and expected life of options of 10
years in 1997, 1996 and 1995.
Pro forma disclosures, listed below, include options granted in 1997,
1996 and 1995 and are not likely to be representative of the pro forma
disclosures for future years. The estimated fair value of the options
is expensed in the year granted as all options are vested upon grant.
<TABLE>
<CAPTION>
Year ending December 31, 1997 1996 1995
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income as reported $ 25,855 21,243 17,337
Pro forma net income 25,692 21,102 17,211
Net income applicable to common stock as reported 24,401 20,818 17,337
Pro forma net income applicable to common stock 24,238 20,677 17,211
Basic earnings per common share as reported 3.07 2.65 2.22
Pro forma basic earnings per common share 3.05 2.63 2.20
Diluted earnings per common share as reported 3.05 2.64 2.21
Pro forma diluted earnings per common share 3.03 2.62 2.19
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
-65-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(13) COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is involved in various
claims and litigation. In the opinion of management, following
consultation with legal counsel, the ultimate liability or disposition
thereof will not have a material adverse effect on the consolidated
financial condition, results of operations or liquidity.
During 1997, the Company purchased a 50% ownership interest in a Cessna
aircraft. The investment is accounted for using the equity method.
The Company is jointly and severally liable for aircraft indebtedness
of $1,259 as of December 31, 1997. Usage charges and overhaul accruals
expensed in 1997 totaled $104.
The Parent Company and the Billings office of First Interstate Bank in
Montana ("FIB Montana") are the anchor tenants in a building owned by a
joint venture partnership in which FIB Montana is one of the two
partners, and has a 50% partnership interest. The investment in the
partnership is accounted for using the equity method. Indebtedness of
the partnership in the amount of $10,405 at December 31, 1997 is
recourse to the partners. Total rents paid to the partnership were
$814 in 1997 and 1996 and $711 in 1995.
The Company also leases certain premises and equipment from third
parties under operating leases. Total rental expense to third parties
was $1,204 in 1997, $1,019 in 1996 and $1,425 in 1995.
The total future minimum rental commitments required under operating
leases that have initial or remaining noncancelable lease terms in
excess of one year at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Third
parties Partnership Total
------------------------------------------------------------------------
<S> <C> <C> <C>
For the year ending December 31:
1998 $ 407 814 1,221
1999 408 814 1,222
2000 307 814 1,121
2001 255 814 1,070
2002 221 814 1,035
Thereafter 1,495 2,240 3,734
------------------------------------------------------------------------
$ 3,093 6,310 9,403
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
In September 1983, the Company entered into a franchise agreement
("Franchise Agreement") with First Interstate Bancorp ("First
Interstate"), a Los Angeles based bank holding company which was
acquired by Wells Fargo and Company April 1, 1996. Under the Franchise
Agreement, the Company was First Interstate's exclusive licensee in the
states of Montana and Wyoming. On May 24, 1996, the Company entered
into a trademark license agreement granting the Company and its
subsidiaries an exclusive, nontransferable license to use the "First
Interstate" name and logo in the states of Montana, Wyoming, North
Dakota, South Dakota and Nebraska and the franchise agreement was
terminated.
(14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
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 and standby letters of credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk
in excess of amounts recorded in the consolidated balance sheet.
-66-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Standby letters of credit and financial guarantees written are
conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. Most commitments extend
less than two years. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. The Company holds various collateral
supporting those commitments for which collateral is deemed necessary.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
commitment contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future
cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained is based on management's credit evaluation of the customer.
Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment, and income-producing commercial
properties.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. Generally, all standby letters of credit
and commitments to extend credit are subject to annual renewal. At
December 31, 1997, stand-by letters of credit in the amount of $20,692,
were outstanding. Commitments to extend credit to existing and new
borrowers approximated $297,767 at December 31, 1997, which includes
$30,513 on unused credit card lines.
(15) CAPITAL STOCK
On September 26, 1996 ("Issuance Date"), the Company issued 20,000
shares of no par noncumulative perpetual preferred stock ("Preferred
Stock") at a price of $1,000 per share. The holders of Preferred Stock
were entitled to receive dividends in cash at the rate of $85.30 per
share. On November 7, 1997, the Preferred Stock was redeemed at a
price of $1,000 per share plus accrued but unpaid dividends of $178.
In conjunction with the redemption the Company recorded a $500
prepayment penalty.
At December 31, 1997 nearly all shares of common stock held by
shareholders are subject to shareholder's agreements (Agreements).
Under the Agreements, the Company has a right of first refusal to
repurchase shares from the shareholder at minority interest appraised
value in the event of a proposed sale of shares to a third party,
death, disability or termination of employment. Additional shares
purchased by officers, directors and employees after 1993 are also
subject to repurchase at the Company's discretion.
(16) MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST
FIB Capital Trust ("Trust"), a wholly-owned statutory business trust,
was formed on October 1, 1997 with an initial capitalization of $1.2
million. The Trust was formed for the exclusive purpose of issuing
Capital Trust Preferred Securities ("trust preferred securities") and
using the proceeds to purchase Junior Subordinated Debentures
("subordinated debentures") issued by the Company. The sole assets of
the Trust are the subordinated debentures.
On November 7, 1997, the Trust issued $40,000 of trust preferred
securities bearing a cumulative fixed interest rate of 8.625% and
maturing on December 1, 2027. Interest distributions are payable
quarterly beginning December 31, 1997. The trust preferred securities
are subject to mandatory redemption upon repayment of the subordinated
debentures at their stated maturity date or their earlier redemption in
an amount equal to their liquidation amount plus accumulated and unpaid
distributions to the date of redemption. The Company guaranteed the
payment of distributions and payments for redemption or liquidation of
the trust preferred securities to the extent of funds held by the
Trust. The obligations of the Company under the subordinated
debentures together with the guarantee and other back-up obligations,
in the aggregate, constitute a full and unconditional guarantee by the
Company of the obligations of the Trust under the trust preferred
securities.
-67-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Also on November 7, 1997, the Company issued $41,237 in subordinated
debentures, the proceeds of which were used to redeem $20,000 of
Preferred Stock and paydown revolving term debt.
The subordinated debentures are unsecured, bear interest at a rate of
8.625% per annum and mature on December 1, 2027. Interest is payable
quarterly beginning December 31, 1997. The Company may defer the
payment of interest at any time from time to time for a period not
exceeding 20 consecutive quarters provided that deferral period does
not extend past the stated maturity. During any such deferral period,
distributions on the trust preferred securities will also be deferred
and the Company's ability to pay dividends on its common shares will be
restricted.
Subject to approval by the Federal Reserve Bank, the trust preferred
securities may be redeemed prior to maturity at the Company's option on
or after December 1, 2002. The trust preferred securities may also be
redeemed at any time in whole (but not in part) in the event of
unfavorable changes in laws or regulations that result in (1) FIB
Capital becoming subject to federal income tax on income received on
the subordinated debentures, (2) interest payable by FIBS on the
subordinated debentures becoming non-deductible for federal tax
purposes, (3) the requirement for FIB Capital to register under the
Investment Company Act of 1940, as amended, or (4) loss of the ability
to treat the trust preferred securities as "Tier 1 capital" under the
Federal Reserve capital adequacy guidelines.
The trust preferred securities qualify as Tier 1 capital for regulatory
capital purposes. Issuance costs consisting primarily of underwriting
discounts and professional fees of approximately $2,323 have been
capitalized and are being amortized through maturity to interest
expense using the straight-line method.
(17) CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Following is condensed financial information of First Interstate
BancSystem, Inc.:
<TABLE>
<CAPTION>
December 31, 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C>
CONDENSED BALANCE SHEETS:
Cash and cash equivalents $ 3,208 2,905
Investment in subsidiaries, at equity:
First Interstate Bank in Montana 136,349 133,443
First Interstate Bank in Wyoming 69,820 68,105
Non-bank subsidiary - Commerce Financial, Inc. 481 408
Non-bank subsidiary - FIB Capital Trust 1,237 -
----------------------------------------------------------------------------------
Total investment in subsidiaries, at equity 207,887 201,956
Goodwill, net of accumulated amortization 2,339 2,633
Other assets 6,478 4,068
----------------------------------------------------------------------------------
$ 219,912 211,562
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Other liabilities $ 5,580 5,105
Long-term debt 68,665 60,396
----------------------------------------------------------------------------------
74,245 65,501
Stockholders' equity 145,667 146,061
----------------------------------------------------------------------------------
$ 219,912 211,562
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
</TABLE>
-68-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONDENSED STATEMENTS OF INCOME:
Dividends from subsidiary banks $ 25,857 19,529 10,993
Interest on note receivable from non-bank
subsidiary 5 15 32
Other interest income 70 143 30
Other income, primarily management fees
from subsidiaries 2,340 1,788 1,508
--------------------------------------------------------------------------------------------------
Total income 28,272 21,475 12,563
--------------------------------------------------------------------------------------------------
Salaries and benefits 3,262 2,627 2,370
Interest expense 4,861 1,919 1,010
Other operating expenses, net 3,406 2,612 1,835
--------------------------------------------------------------------------------------------------
Total expenses 11,529 7,158 5,215
--------------------------------------------------------------------------------------------------
Data Division income, net of operating expenses 2,411 1,990 1,667
--------------------------------------------------------------------------------------------------
Earnings before income tax benefits 19,154 16,307 9,015
Income tax benefit 2,401 979 565
--------------------------------------------------------------------------------------------------
Income before undistributed earnings
of subsidiaries 21,555 17,286 9,580
--------------------------------------------------------------------------------------------------
Undistributed earnings of subsidiaries 4,300 3,957 7,757
--------------------------------------------------------------------------------------------------
Net income $ 25,855 21,243 17,337
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS:
Cash flows from operating activities:
Net income $ 25,855 21,243 17,337
Adjustments to reconcile net income to cash
provided by operating activities:
Undistributed earnings of subsidiaries (4,300) (3,957) (7,757)
Depreciation and amortization 303 311 312
Provision for deferred income taxes (532) 11 348
Deposit on bank acquisition - - 250
Other, net 1,119 802 967
--------------------------------------------------------------------------------------------------
Net cash provided by operating activities 22,445 18,410 11,457
--------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net decrease in advances to non-bank subsidiary 96 133 154
Purchase of investments (293) - -
Maturities of investments - - 7,500
Decrease (increase) in premises and equipment 6 (2) (1,095)
Capitalization of de novo subsidiary - (2,000) -
Capitalization of non-bank subsidiary (1,237) - -
Acquisitions of subsidiaries, net - (80,393) (17,478)
--------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,428) (82,262) (10,919)
--------------------------------------------------------------------------------------------------
</TABLE>
-69-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED):
Cash flows from financing activities:
Borrowings of long-term debt $ 46,987 66,939 8,484
Repayments of long-term debt (38,736) (17,410) (3,066)
Debt issuance costs, net (2,323) - -
Dividends paid on common stock (7,737) (6,028) (3,733)
Payments to retire common stock (1,322) (1,229) (1,197)
Payments to retire preferred stock (20,000) - -
Issuance of common stock 3,871 3,478 358
Proceeds from issuance of preferred stock,
net of issuance costs - 19,542 -
Dividends paid on preferred stock (1,454) (425) -
--------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (20,714) 64,867 846
--------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 303 1,015 1,384
Cash and cash equivalents, beginning of year 2,905 1,890 506
--------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 3,208 2,905 1,890
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
</TABLE>
(18) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the entire
holdings of a particular instrument. Because no market exists for a
significant portion of the financial instruments, fair value estimates
are based on judgments regarding comparable market interest rates,
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
For financial instruments bearing a variable interest rate, it is
presumed that recorded book values are reasonable estimates of fair
value. The methods and significant assumptions used to estimate fair
values for the various financial instruments are set forth below.
FINANCIAL ASSETS. Due to the liquid and/or short-term nature of
cash, cash equivalents and interest-bearing deposits in bank,
carrying value of these instruments approximates market value.
Fair values of investment securities are based on quoted market
prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using quoted market prices for
similar securities. Fair value of fixed rate loans is calculated
by discounting scheduled cash flows adjusted for prepayment
estimates using discount rates based on secondary market sources,
if available, or based on estimated market discount rates that
reflect the credit and interest rate risk inherent in the loan
category. The fair value of adjustable rate loans approximates
the carrying value of these instruments due to the frequent
repricing, provided there have been no changes in credit quality
since origination.
-70-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
FINANCIAL LIABILITIES AND TRUST SECURITIES. The fair value of
demand deposits, savings accounts, federal funds purchased and
securities sold under repurchase agreements is the amount payable
on demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using external market rates
currently offered for deposits with similar remaining maturities.
The term note payable and revolving term loan bear interest at a
floating market rate and, as such, the carrying amounts are
deemed to reflect fair value. The carrying value of the interest
bearing demand notes to the United States Treasury is deemed an
approximation of fair value due to the frequent repayment and
repricing at market rates. The book value of the subordinated
notes approximates fair value estimated by discounting future
cash flows using current rates for advances with similar
characteristics. Fair value of the mandatorily redeemable
preferred securities of subsidiary trust is based on quoted
market price.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT. It
is not practicable to estimate the fair value of commitments to
extend credit because information necessary to support fair value
estimations is not readily available.
A summary of the estimated fair values of financial instruments follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
As of December 31, Amount Fair Value Amount Fair Value
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 229,147 229,147 172,452 172,452
Securities available-for-sale 188,650 188,650 124,502 124,502
Securities held-to-maturity 236,953 238,122 279,069 278,876
Net loans 1,442,234 1,431,068 1,347,682 1,344,336
--------------------------------------------------------------------------------------------------------------
Total financial assets $2,096,984 2,086,987 1,923,705 1,920,166
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Financial liabilities and trust preferred securities:
Total deposits, excluding time deposits $1,117,687 1,117,687 1,099,180 1,099,180
Time deposits 687,319 696,004 580,244 587,718
Federal funds purchased 4,025 4,025 13,450 13,450
Securities sold under repurchase agreements 176,350 176,350 129,137 129,137
Other borrowed funds 11,591 11,591 13,071 13,071
Long-term debt 31,526 31,526 64,667 64,667
Mandatorily redeemable preferred securities
of subsidiary trust 40,000 43,600 - -
--------------------------------------------------------------------------------------------------------------
Total financial liabilities and
trust preferred securities $2,068,498 2,080,783 1,899,749 1,907,223
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>
-71-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(19) EARNINGS PER SHARE
Following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for the periods indicated:
<TABLE>
<CAPTION>
Weighted-Average
Income Shares Per Share
For the years ended December 31, (Numerator) (Denominator) Amount
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997:
Net income $25,855
Less preferred stock dividends (1,454)
--------------------------------------------------------------------------------------------------
Basic EPS:
Income available to common stockholders 24,401 7,946,092 3.07
Effect of Dilutive Securities: Options - 41,829
--------------------------------------------------------------------------------------------------
Diluted EPS:
Income available to common stockholders
and assumed conversions $24,401 7,987,921 3.05
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
1996:
Net income $21,243
Less preferred stock dividends (425)
--------------------------------------------------------------------------------------------------
Basic EPS:
Income available to common stockholders 20,818 7,847,668 2.65
Effect of Dilutive Securities: Options - 33,356
--------------------------------------------------------------------------------------------------
Diluted EPS:
Income available to common stockholders
and assumed conversions $20,818 7,881,024 2.64
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
1995:
Net income $17,337
Less preferred stock dividends -
--------------------------------------------------------------------------------------------------
Basic EPS:
Income available to common stockholders 17,337 7,815,612 2.22
Effect of Dilutive Securities: Options - 28,032
--------------------------------------------------------------------------------------------------
Diluted EPS:
Income available to common stockholders
and assumed conversions $17,337 7,843,644 2.21
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
</TABLE>
-72-
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(20) ACQUISITIONS AND EXPANSION
FIRST CITIZENS BANK OF BOZEMAN. On January 3, 1995, the Company
acquired all of the outstanding ownership of Citizens BancShares, Inc.
and its bank subsidiary, First Citizens Bank of Bozeman (collectively
"CBI"). The transaction was accounted for as a purchase and,
accordingly, the consolidated statement of income for the year ended
December 31, 1995 includes CBI's results of operations since the date
of the purchase. CBI was merged with First Interstate Bank of Commerce
of Montana in 1995.
FIRST NATIONAL PARK BANK. On May 19, 1995, the Company acquired all of
the outstanding ownership of First Park County Bancshares, Inc. and its
bank subsidiary, First National Park Bank (collectively "FPCBI"). The
transaction was accounted for as a purchase and, accordingly, the
consolidated statement of income for the year ended December 31, 1995
includes FPCBI's results of operations since the date of the purchase.
FPCBI was merged with First Interstate Bank of Commerce of Montana in
1995.
FIRST INTERSTATE BANK, FSB. In November 1995, the Company filed an
application with the Office of Thrift Supervision for permission to
form a de novo savings bank in Hamilton, Montana. Upon approval, the
Company capitalized the savings bank at $2,000 and opened the bank on
December 12, 1996. Effective December 22, 1997, the savings bank was
combined with and became a branch of First Interstate Bank in Montana.
FIRST INTERSTATE BANK OF MONTANA, N.A. AND FIRST INTERSTATE BANK OF
WYOMING, N.A. On October 1, 1996, the Company acquired all of the
outstanding ownership of First Interstate Bank of Montana, N.A.
(FIBNA-MT) and First Interstate Bank of Wyoming, N.A. (FIBNA-WY). The
transaction was accounted for as a purchase and, accordingly, the
consolidated statement of income for the year ended December 31, 1996
includes FIBNA-MT's and FIBNA-WY's results of operations since the date
of purchase. During June 1997, FIBNA-MT merged with First Interstate
Bank in Montana and FIBNA-WY merged with First Interstate Bank in
Wyoming.
MOUNTAIN BANK OF WHITEFISH. On December 18, 1996, the Company acquired
all of the outstanding ownership of Mountain Bank of Whitefish
(FIB-Whitefish). The transaction was accounted for as a purchase and,
accordingly, the consolidated statement of income for the year ended
December 31, 1996 includes FIB-Whitefish's results of operations since
the date of purchase. During June 1997, FIB-Whitefish merged with First
Interstate Bank in Montana.
MOUNTAIN FINANCIAL. On February 5, 1997, First Interstate Bank in
Montana purchased the assets of Mountain Financial, a loan production
office in Eureka, Montana. The total cash purchase price of the assets
aggregated $1,726, of which $166 was for premises and equipment and the
remaining $1,560 was for loans acquired. Mountain Financial
subsequently became a branch of First Interstate Bank in Montana.
During June 1997, the Company finalized its allocation of purchase
price related to the 1996 acquisitions of FIBNA-MT, FIBNA-WY and
FIB-Whitefish. Changes in preliminary estimates of the fair value of
loans, other assets and other liabilities resulted in a $3,572 decrease
in goodwill.
-73-
<PAGE>
(a) 2. Financial statement schedules
All other schedules to the consolidated financial statements of the
Registrant are omitted since the required information is either not
applicable, deemed immaterial, or is shown in the respective
financial statements or in notes thereto.
(a) 3. Exhibits
<TABLE>
<C> <S>
3.1(1) Restated Articles of Incorporation dated February 27, 1986
3.2(2) Articles of Amendment to Restated Articles of Incorporation
dated September 26, 1996
3.3(2) Articles of Amendment to Restated Articles of Incorporation
dated September 26, 1996
3.4(6) Articles of Amendment to Restated Articles of Incorporation
dated October 7, 1997
3.5(3) Bylaws of First Interstate BancSystem, Inc.
4.1(4) Specimen of common stock certificate of First Interstate
BancSystem, Inc.
4.2(1) Stockholder's Agreement for non-Scott family members
4.3 Junior Subordinated Indenture dated November 7, 1997
entered into between First Interstate and Wilmington
Trust Company, as Indenture Trustee
4.4(6) Certificate of Trust of FIB Capital Trust dated as of
October 1, 1997
4.5(6) Trust Agreement of FIB Capital dated as of October 1, 1997
4.6 Amended and Restated Trust Agreement of FIB Capital Trust
4.7 Trust Preferred Certificate of FIB Capital Trust (included
as an exhibit to Exhibit 4.6)
4.8 Common Securities Certificate of FIB Capital Trust (included
as an exhibit to Exhibit 4.6)
4.9 Guarantee Agreement between First Interstate BancSystem,
Inc. and Wilmington Trust Company
4.10 Agreement as to Expenses and Liabilities (included as an
exhibit to Exhibit 4.6)
10.1(2) Loan Agreement dated October 1, 1996, between First
Interstate BancSystem, Inc., as borrower, and First
Security Bank, N.A., Colorado National Bank, N.A. and
Wells Fargo Bank, N.A.
10.2(2) Note Purchase Agreement dated August 30, 1996, between
First Interstate BancSystem, Inc. and the Montana Board
of Investments
10.3(1) Lease Agreement Between Billings 401 Joint Venture and
First Interstate Bank Montana and addendum thereto
10.4(5) + Savings and Profit Sharing Plan for Employees of First
Interstate BancSystem, Inc., as amended December 31, 1994
10.5(3) + Amendment to the Savings and Profit Sharing Plan for
Employees of First Interstate BancSystem, Inc. adopted
September 21, 1995
10.6(3) + First Amendment to Savings and Profit Sharing Plan for
Employees of First Interstate BancSystem, Inc. dated
December 20, 1995
10.7(3) + Second Amendment to Savings and Profit Sharing Plan for
Employees of First Interstate BancSystem, Inc. dated
July 18, 1996
10.8(3) + Third Amendment to Savings and Profit Sharing Plan for
Employees of First Interstate BancSystem, Inc. dated
September 19, 1996
10.9(3) + Fourth Amendment to Savings and Profit Sharing Plan for
Employees of First Interstate BancSystem, Inc. dated
January 16, 1997
10.10(6) + Fifth Amendment to Savings and Profit Sharing Plan for
Employees of First Interstate BancSystem, Inc. dated
September 18, 1997
10.11(1) + Stock Option and Stock Appreciation Rights Plan of First
Interstate BancSystem, Inc., as amended
10.12(1) First Interstate BancSystem, Inc. Stockholders'
Agreements with Scott family members
10.13(5) Amendment to First Interstate BancSystem, Inc.
Stockholder's Agreement with Scott family members dated
September 7, 1995
10.14(5) Credit Agreement between Billings 401 Joint Venture and
Colorado National Bank dated as of September 26, 1995
10.15(3) Trademark License Agreement between Wells Fargo &
Company and First Interstate BancSystem, Inc.
10.16+(6) Resignation Agreement between First Interstate BancSystem, Inc.
and William H. Ruegamer
</TABLE>
<PAGE>
<TABLE>
<C> <S>
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of First Interstate BancSystem, Inc.
27.1 Financial Data Schedule as of December 31, 1997
27.2 Financial Data Schedule (Restated) for First, Second and Third
Quarters 1997
27.3 Financial Data Schedule (Restated) as of December 31, 1996 and for
Second and Third Quarters 1996
</TABLE>
+ Management contract or compensatory plan.
(1) Incorporated by reference to the Registrant's Registration
Statement on Form S-1, No. 333-84540.
(2) Incorporated by reference to the Registrant's Form 8-K dated
October 1, 1996.
(3) Incorporated by reference to the Registrant's Registration
Statement on Form S-1, No. 333-25633.
(4) Incorporated by reference to the Registrant's Registration
Statement on Form S-1, No. 333-3250.
(5) Incorporated by reference to the Post-Effective Amendment No. 2
to the Registrant's Registration Statement on Form S-1, No.
33-84540.
(6) Incorporated by reference to the Registrant's Registration
Statement on Form S-1, No. 333-37847.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1997.
(c) Exhibits
See Item 14(a)3 above.
(d) Financial Statements Schedules
See Item 14(a)2 above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Billings, State of Montana.
FIRST INTERSTATE BANCSYSTEM, INC.
By /s/ THOMAS W. SCOTT MARCH 23, 1998
----------------------------------- -------------
Thomas W. Scott Date
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the dates indicated.
By: /s/ HOMER A. SCOTT, JR. MARCH 23, 1998
- ----------------------------------- ---------------
Homer A. Scott, Jr. Date
Chairman
By: /s/ DAN S. SCOTT MARCH 23, 1998
- ----------------------------------- ---------------
Dan S. Scott Date
Director
By: /s/ JAMES R. SCOTT* MARCH 23, 1998
- ----------------------------------- ---------------
James R. Scott, Vice Chairman Date
of the Board
By: /s/ RANDALL I. SCOTT MARCH 23, 1998
- ----------------------------------- ---------------
Randall I. Scott, Director Date
By: /s/ JOHN M. HEYNEMAN MARCH 23, 1998
- ----------------------------------- ---------------
John M. Heyneman, Director Date
By: /s/ JOEL LONG MARCH 23, 1998
- ----------------------------------- ---------------
Joel Long, Director Date
By: /s/ JAMES HAUGH MARCH 23, 1998
- ----------------------------------- ---------------
James Haugh, Director Date
By: /s/ THOMAS W. SCOTT MARCH 23, 1998
- ----------------------------------- ---------------
Thomas W. Scott Date
President, Chief Executive
Officer and Director
(Principal executive officer)
By: /s/ TERRILL R. MOORE MARCH 23, 1998
- ----------------------------------- ---------------
Terrill R. Moore Date
Senior Vice President,
Chief Executive
Officer and Secretary
(Principal financial and accounting officer)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
The Registrant has not yet provided any annual report to security holders
covering the 1997 fiscal year, nor has any proxy statement, form of proxy or
other proxy soliciting material been sent to any security holder of the
Registrant with respect to the Registrant's 1998 annual meeting of
shareholders. If any such annual report or proxy material is sent to security
holders subsequent to the filing of this Annual Report on Form 10-K, the
Registrant shall furnish copies of such report and material to the Commission
when it is sent to security holders.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<C> <S>
Exhibit No. Description
3.1(1) Restated Articles of Incorporation dated February 27, 1986
3.2(2) Articles of Amendment to Restated Articles of Incorporation dated
September 26, 1996
3.3(2) Articles of Amendment to Restated Articles of Incorporation dated
September 26, 1996
3.4(6) Articles of Amendment to Restated Articles of Incorporation dated
October 7, 1997
3.5(3) Bylaws of First Interstate BancSystem, Inc.
4.1(4) Specimen of common stock certificate of First Interstate
BancSystem, Inc.
4.2(1) Stockholder's Agreement for non-Scott family members
4.3 Junior Subordinated Indenture dated November 7, 1997 entered into
between First Interstate and Wilmington Trust Company, as
Indenture Trustee
4.4(6) Certificate of Trust of FIB Capital Trust dated as of October 1,
1997
4.5(6) Trust Agreement of FIB Capital dated as of October 1, 1997
4.6 Amended and Restated Trust Agreement of FIB Capital Trust
4.7 Trust Preferred Certificate of FIB Capital Trust (included as an
exhibit to Exhibit 4.6)
4.8 Common Securities Certificate of FIB Capital Trust (included as an
exhibit to Exhibit 4.6)
4.9 Guarantee Agreement between First Interstate BancSystem, Inc. and
Wilmington Trust Company
4.10 Agreement as to Expenses and Liabilities (included as an exhibit to
Exhibit 4.6)
10.1(2) Loan Agreement dated October 1, 1996, between First Interstate
BancSystem, Inc., as borrower, and First Security Bank, N.A.,
Colorado National Bank, N.A. and Wells Fargo Bank, N.A.
10.2(2) Note Purchase Agreement dated August 30, 1996, between First
Interstate BancSystem, Inc. and the Montana Board of Investments
10.3(1) Lease Agreement Between Billings 401 Joint Venture and First
Interstate Bank Montana and addendum thereto
10.4(5) + Savings and Profit Sharing Plan for Employees of First Interstate
BancSystem, Inc., as amended December 31, 1994
10.5(3) + Amendment to the Savings and Profit Sharing Plan for Employees of
First Interstate BancSystem, Inc. adopted September 21, 1995
10.6(3) + First Amendment to Savings and Profit Sharing Plan for Employees
of First Interstate BancSystem, Inc. dated December 20, 1995
10.7(3) + Second Amendment to Savings and Profit Sharing Plan for Employees
of First Interstate BancSystem, Inc. dated July 18, 1996
10.8(3) + Third Amendment to Savings and Profit Sharing Plan for Employees
of First Interstate BancSystem, Inc. dated September 19, 1996
10.9(3) + Fourth Amendment to Savings and Profit Sharing Plan for Employees
of First Interstate BancSystem, Inc. dated January 16, 1997
10.10(6) + Fifth Amendment to Savings and Profit Sharing Plan for
Employees of First Interstate BancSystem, Inc. dated
September 18, 1997
10.11(1) + Stock Option and Stock Appreciation Rights Plan of First
Interstate BancSystem, Inc., as amended
10.12(1) First Interstate BancSystem, Inc. Stockholders' Agreements with
Scott family members
10.13(5) Amendment to First Interstate BancSystem, Inc. Stockholder's
Agreement with Scott family members dated September 7, 1995
10.14(5) Credit Agreement between Billings 401 Joint Venture and Colorado
National Bank dated as of September 26, 1995
10.15(3) Trademark License Agreement between Wells Fargo & Company and
First Interstate BancSystem, Inc.
10.16+(6) Resignation Agreement between First Interstate BancSystem, Inc.
and William H. Ruegamer
</TABLE>
<PAGE>
<TABLE>
<C> <S>
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of First Interstate BancSystem, Inc.
27.1 Financial Data Schedule as of December 31, 1997
27.2 Financial Data Schedule (Restated) for First, Second and Third
Quarters 1997
27.3 Financial Data Schedule (Restated) as of December 31, 1996 and for
Second and Third Quarters 1996
</TABLE>
+ Management contract or compensatory plan.
(1) Incorporated by reference to the Registrant's Registration Statement
on Form S-1, No. 333-84540.
(2) Incorporated by reference to the Registrant's Form 8-K dated
October 1, 1996.
(3) Incorporated by reference to the Registrant's Registration Statement
on Form S-1, No. 333-25633.
(4) Incorporated by reference to the Registrant's Registration Statement
on Form S-1, No. 333-3250.
(5) Incorporated by reference to the Post-Effective Amendment No. 2 to
the Registrant's Registration Statement on Form S-1, No. 33-84540.
(6) Incorporated by reference to the Registrant's Registration Statement
on Form S-1, No. 333-37847.
<PAGE>
- -------------------------------------------------------------------------------
JUNIOR SUBORDINATED INDENTURE
BY
FIRST INTERSTATE BANCSYSTEM, INC.,
TO
WILMINGTON TRUST COMPANY,
TRUSTEE
DATED AS OF NOVEMBER 7, 1997
8 5/8% JUNIOR SUBORDINATED DEFERRABLE
INTEREST DEBENTURES
DUE DECEMBER 1, 2027
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Article I Definitions And Other Provisions of General Application . . . . . 1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Compliance Certificate and Opinions . . . . . . . . . . 9
Section 1.3. Forms of Documents Delivered to Trustee . . . . . . . .10
Section 1.4. Acts of Holders . . . . . . . . . . . . . . . . . . . .11
Section 1.5. Notices, Etc . . . . . . . . . . . . . . . . . . . . . .13
Section 1.6. Notice to Holders; Waiver . . . . . . . . . . . . . . .13
Section 1.7. Conflict with Trust Indenture Act . . . . . . . . . . .13
Section 1.8. Effect of Headings and Table of Contents . . . . . . . .14
Section 1.9. Successors and Assigns . . . . . . . . . . . . . . . . .14
Section 1.10. Separability Clause . . . . . . . . . . . . . . . . . .14
Section 1.11. Benefits of Indenture . . . . . . . . . . . . . . . . .14
Section 1.12. Governing Law . . . . . . . . . . . . . . . . . . . . .14
Section 1.13. Non-Business Days . . . . . . . . . . . . . . . . . . .14
Article II Security Forms . . . . . . . . . . . . . . . . . . . . . . . . .15
Section 2.1. Forms Generally . . . . . . . . . . . . . . . . . . . .15
Section 2.2. Form of Face of Security . . . . . . . . . . . . . . . .15
Section 2.3. Form of Reverse of Security . . . . . . . . . . . . . .19
Section 2.4. Additional Provisions Required in Global Security . . .21
Section 2.5. Form of Trustee's Certificate of Authentication . . . .21
Article III The Securities. . . . . . . . . . . . . . . . . . . . . . . . .22
Section 3.1. Title and Terms . . . . . . . . . . . . . . . . . . . .22
Section 3.2. Execution, Authentication, Delivery and Dating . . . . .24
Section 3.3. Temporary Securities . . . . . . . . . . . . . . . . . .25
Section 3.4. Registration, Transfer and Exchange . . . . . . . . . .25
Section 3.5. Mutilated, Destroyed, Lost and Stolen Securities . . . .27
Section 3.6. Payment of Interest; Interest Rights Preserved . . . . .28
Section 3.7. Persons Deemed Owners . . . . . . . . . . . . . . . . .29
Section 3.8. Cancellation . . . . . . . . . . . . . . . . . . . . . .30
Section 3.9. Computation of Interest . . . . . . . . . . . . . . . .30
Section 3.10. Deferrals of Interest Payment Dates . . . . . . . . . .30
Section 3.11. Right of Set-Off . . . . . . . . . . . . . . . . . . . .31
Section 3.12. Agreed Tax Treatment . . . . . . . . . . . . . . . . . .31
Section 3.13. Shortening of Stated Maturity . . . . . . . . . . . . .32
Section 3.14. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . .32
i
<PAGE>
Article IV Satisfaction And Discharge . . . . . . . . . . . . . . . . . . .32
Section 4.1. Satisfaction and Discharge of Indenture . . . . . . . .32
Section 4.2. Application of Trust Money . . . . . . . . . . . . . . .33
Article V Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Section 5.1. Events of Default . . . . . . . . . . . . . . . . . . .33
Section 5.2. Acceleration of Maturity; Rescission and Annulment . . .34
Section 5.3. Collection of Indebtedness and Suits for Enforcement
by Trustee . . . . . . . . . . . . . . . . . . . . . . .36
Section 5.4. Trustee May File Proofs of Claim . . . . . . . . . . . .36
Section 5.5. Trustee May Enforce Claim Without Possession
of Securities . . . . . . . . . . . . . . . . . . . . .37
Section 5.6. Application of Money Collected . . . . . . . . . . . . .37
Section 5.7. Limitation on Suits . . . . . . . . . . . . . . . . . .38
Section 5.8. Unconditional Right of Holders to Receive
Principal, Premium and Interest; Direct Action by
Holders of Trust Preferred Securities . . . . . . . . .39
Section 5.9. Restoration of Rights and Remedies . . . . . . . . . . .39
Section 5.10. Rights and Remedies Cumulative . . . . . . . . . . . . .39
Section 5.11. Delay or Omission Not Waiver . . . . . . . . . . . . . .39
Section 5.12. Control by Holders . . . . . . . . . . . . . . . . . . .40
Section 5.13. Waiver of Past Defaults . . . . . . . . . . . . . . . .40
Section 5.14. Undertaking for Costs . . . . . . . . . . . . . . . . .41
Section 5.15. Waiver of Usury, Stay or Extension Laws . . . . . . . .41
Article VI The Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . .41
Section 6.1. Certain Duties and Responsibilities . . . . . . . . . .41
Section 6.2. Notice of Defaults . . . . . . . . . . . . . . . . . . .42
Section 6.3. Certain Rights of Trustee . . . . . . . . . . . . . . .43
Section 6.4. Not Responsible for Recitals or Issuance of Securities .44
Section 6.5. May Hold Securities . . . . . . . . . . . . . . . . . .44
Section 6.6. Money Held in Trust . . . . . . . . . . . . . . . . . .44
Section 6.7. Compensation and Reimbursement . . . . . . . . . . . . .44
Section 6.8. Disqualification; Conflicting Interests . . . . . . . .45
Section 6.9. Corporate Trustee Required; Eligibility . . . . . . . .45
Section 6.10. Resignation and Removal; Appointment of Successor . . .46
Section 6.11. Acceptance of Appointment by Successor . . . . . . . . .47
Section 6.12. Merger, Conversion, Consolidation or Succession to
Business . . . . . . . . . . . . . . . . . . . . . . . .48
Section 6.13. Preferential Collection of Claims Against Company . . .48
Section 6.14. Appointment of Authenticating Agent . . . . . . . . . .48
Article VII Holders' Lists and Reports by Trustee and Company . . . . . . .50
Section 7.1. Company to Furnish Trustee Names and Addresses
of Holders . . . . . . . . . . . . . . . . . . . . . . .50
ii
<PAGE>
Section 7.2. Preservation of Information, Communications
to Holders . . . . . . . . . . . . . . . . . . . . . . .50
Section 7.3. Reports by Trustee . . . . . . . . . . . . . . . . . . .51
Section 7.4. Reports by Company . . . . . . . . . . . . . . . . . . .51
Article VIII Consolidation, Merger, Conveyance, Transfer or Lease . . . . .52
Section 8.1. Company May Consolidate, Etc . . . . . . . . . . . . . .52
Section 8.2. Successor Corporation Substituted . . . . . . . . . . .52
Article IX Supplemental Indentures. . . . . . . . . . . . . . . . . . . . .53
Section 9.1. Supplemental Indentures Without Consent of Holders . . .53
Section 9.2. Supplemental Indentures with Consent of Holders . . . .54
Section 9.3. Execution of Supplemental Indentures . . . . . . . . . .55
Section 9.4. Effect of Supplemental Indentures . . . . . . . . . . .55
Section 9.5. Conformity with Trust Indenture Act . . . . . . . . . .56
Section 9.6. Reference in Securities to Supplemental Indentures . . .56
Article X Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Section 10.1. Payment of Principal, Premium and Interest . . . . . . .56
Section 10.2. Maintenance of Office or Agency . . . . . . . . . . . .56
Section 10.3. Money for Security Payments to be Held in Trust . . . .57
Section 10.4. Statement as to Compliance . . . . . . . . . . . . . . .58
Section 10.5. Waiver of Certain Covenants . . . . . . . . . . . . . .58
Section 10.6. Additional Sums . . . . . . . . . . . . . . . . . . . .59
Section 10.7. Additional Covenants . . . . . . . . . . . . . . . . . .59
Article XI Redemption of Securities . . . . . . . . . . . . . . . . . . . .60
Section 11.1. Applicability of This Article . . . . . . . . . . . . .60
Section 11.2. Election to Redeem; Notice to Trustee . . . . . . . . .60
Section 11.3. Selection of Securities to be Redeemed . . . . . . . . .61
Section 11.4. Notice of Redemption . . . . . . . . . . . . . . . . . .61
Section 11.5. Deposit of Redemption Price . . . . . . . . . . . . . .62
Section 11.6. Payment of Securities Called for Redemption . . . . . .62
Section 11.7. Right of Redemption of Securities Initially
Issued to the Trust . . . . . . . . . . . . . . . . . .63
Article XII Subordination of Securities . . . . . . . . . . . . . . . . . .63
Section 12.1. Securities Subordinate to Senior and
Subordinated Debt . . . . . . . . . . . . . . . . . . .63
Section 12.2. Payment over of Proceeds upon Dissolution, Etc . . . . .63
Section 12.3. Prior Payment to Senior and Subordinated Debt upon
Acceleration of Securities . . . . . . . . . . . . . . .64
Section 12.4. No Payment When Senior and Subordinated Debt
in Default . . . . . . . . . . . . . . . . . . . . . . .65
Section 12.5. Payment Permitted If No Default . . . . . . . . . . . .66
iii
<PAGE>
Section 12.6. Subrogation to Rights of Holders of Senior and
Subordinated Debt . . . . . . . . . . . . . . . . . . .66
Section 12.7. Provisions Solely to Define Relative Rights . . . . . .66
Section 12.8. Trustee to Effectuate Subordination . . . . . . . . . .67
Section 12.9. No Waiver of Subordination Provisions . . . . . . . . .67
Section 12.10. Notice to Trustee . . . . . . . . . . . . . . . . . . .68
Section 12.11. Reliance on Judicial Order or Certificate of
Liquidating Agent . . . . . . . . . . . . . . . . . . .68
Section 12.12. Trustee Not Fiduciary for Holders of Senior
and Subordinated Debt . . . . . . . . . . . . . . . . .69
Section 12.13. Rights of Trustee as Holder of Senior and
Subordinated Debt; Preservation of Trustee's Rights . .69
Section 12.14. Article Applicable to Paying Agents . . . . . . . . . .69
Section 12.15. Certain Conversions or Exchanges Deemed Payment . . . .69
iv
<PAGE>
ANNEXES
Annex A Guarantee Agreement
Annex B Trust Agreement
Annex C Amended and Restated Trust Agreement
v
<PAGE>
FIRST INTERSTATE BANCSYSTEM, INC.
Reconciliation and tie between the Trust Indenture Act of 1939 (including cross-
references to provisions of Sections 310 to and including 317 which, pursuant to
Section 318(c) of the Trust Indenture Act of 1939, as amended by the Trust
Reform Act of 1990, are a part of and govern the Indenture whether or not
physically contained therein) and the Junior Subordinated Indenture, dated as of
November 7, 1997.
Trust Indenture Indenture
Act Section Section
----------- -------
310 (a) (1), (2) and (5). . . . . . . . . . Not Applicable
(a) (3) . . . . . . . . . . . . . . . . Not Applicable
(a) (4) . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . 6.8;6.10
(c) . . . . . . . . . . . . . . . . . . Not Applicable
311 (b) . . . . . . . . . . . . . . . . . . 7.3(a) (2)
312 (a) . . . . . . . . . . . . . . . . . . 7.1
. . . . . . . . . . . . . . . . . . . . 7.2(a)
(b) . . . . . . . . . . . . . . . . . . 7.2(b)
(c) . . . . . . . . . . . . . . . . . . 7.2(c)
313 (a) . . . . . . . . . . . . . . . . . . 7.3(a)
(b) . . . . . . . . . . . . . . . . . . 7.3(b)
(c) . . . . . . . . . . . . . . . . . . 7.3(a), 7.3(b)
(d) . . . . . . . . . . . . . . . . . . 7.3(c)
314 (a) (1), (2) and (3). . . . . . . . . . 7.4
(a) (4) . . . . . . . . . . . . . . . . 10.5
(b) . . . . . . . . . . . . . . . . . . Not Applicable
(c) (1) . . . . . . . . . . . . . . . . 1.2
(c) (2) . . . . . . . . . . . . . . . . 1.2
(c) (3) . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . 1.2
(f) . . . . . . . . . . . . . . . . . . Not Applicable
vi
<PAGE>
315 (a) . . . . . . . . . . . . . . . . . . 6.1(a)
(b) . . . . . . . . . . . . . . . . . . 6.2
. . . . . . . . . . . . . . . . . . . . 7.3(a) (6)
(c) . . . . . . . . . . . . . . . . . . 6.1(b)
(d) . . . . . . . . . . . . . . . . . . 6.1 (c)
(d) (1) . . . . . . . . . . . . . . . . 6.1(a) (1)
(d) (2) . . . . . . . . . . . . . . . . 6.1(c) (2)
(d) (3) . . . . . . . . . . . . . . . . 6.1(c) (3)
(e) . . . . . . . . . . . . . . . . . . 5.14
316 (a) . . . . . . . . . . . . . . . . . . 1.1
(a) (1) (A) . . . . . . . . . . . . . . 5.12
(a) (1) (B) . . . . . . . . . . . . . . 5.13
(a) (2) . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . 5.8
(c) . . . . . . . . . . . . . . . . . . 1.4(f)
317 (a) (1) . . . . . . . . . . . . . . . . 5.3
(a) (2) . . . . . . . . . . . . . . . . 5.4
(b) . . . . . . . . . . . . . . . . . . 10.3
318 (a) . . . . . . . . . . . . . . . . . . 1.7
______________
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Junior Subordinated Indenture.
vii
<PAGE>
JUNIOR SUBORDINATED INDENTURE
JUNIOR SUBORDINATED INDENTURE, dated as of November 7, 1997, between
FIRST INTERSTATE BANCSYSTEM, INC., a Montana corporation (hereinafter called the
"Company"), having its principal office at 401 North 31st Street, Billings, MT
59101, and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as Trustee
(hereinafter called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its 8 5/8% Junior
Subordinated Deferrable Interest Debentures, due December 1, 2027 (hereinafter
called the "Securities"), as hereinafter provided, which Securities will be
issued to evidence loans made to the Company of the proceeds from the issuance
by FIB Capital Trust (the "Trust"), a business trust formed under the laws of
the State of Delaware, of the Trust Preferred Securities (Liquidation Amount $25
per Trust Preferred Security) (the "Trust Preferred Securities") and common
interests in such Trust (the "Common Securities" and, collectively with the
Trust Preferred Securities, the "Trust Securities"), and to provide the terms
and conditions upon which the Securities are to be authenticated, issued and
delivered.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and 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 thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders of the Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(2) All other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
<PAGE>
(3) All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles,
and the term "generally accepted accounting principles" with respect to any
computation required or permitted hereunder shall mean such accounting
principles which are generally accepted at the date or time of such computation;
provided, that when two or more principles are so generally accepted, it shall
mean that set of principles consistent with those in use by the Company; and
(4) The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"1940 Act" means the Investment Company Act of 1940, as amended.
"Act" when used with respect to any Holder has the meaning specified in
Section 1.4.
"Additional Interest" means the interest, if any, that shall accrue on any
interest on the Securities 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 the sum of any additional taxes, duties and other
governmental charges to which the Trust has become subject from time to time as
a result of a Tax Event.
"Administrative Trustee" means, in respect of the Trust, each Person
identified as an "Administrative Trustee" or an "Administrative Agent" in the
Trust Agreement, solely in such Person's capacity as Administrative Trustee or
an Administrative Agent, as the case may be, of such Trust under such Trust
Agreement and not in such Person's individual capacity, or any successor
administrative trustee or successor administrative agent, as the case may be,
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; provided, however, that the Trust shall not
be deemed to be an Affiliate of the Company. 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.
"Allocable Amounts," when used with respect to any Senior and Subordinated
Debt, means all amounts due or to become due on such Senior and Subordinated
Debt
2
<PAGE>
less, if applicable, any amount which would have been paid to, and retained by,
the holders of such Senior and Subordinated Debt (whether as a result of the
receipt of payments by the holders of such Senior and Subordinated Debt from the
Company or any other obligor thereon or from any holders of, or trustee in
respect of, other indebtedness that is subordinate and junior in right of
payment to such Senior and Subordinated Debt pursuant to any provision of such
indebtedness for the payment over of amounts received on account of such
indebtedness to the holders of such Senior and Subordinated Debt or otherwise)
but for the fact that such Senior and Subordinated Debt is subordinate or junior
in right of payment to (or subject to a requirement that amounts received on
such Senior and Subordinated Debt be paid over to obligees on) trade accounts
payable or accrued liabilities arising in the ordinary course of business.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 6.14 to act on behalf of the Trustee to authenticate the Securities.
"Board of Directors" means either the board of directors of the Company or
any committee of that board duly authorized to act hereunder.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, 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 State of Montana 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 is closed for business.
"Capital Treatment Event" means the reasonable determination by the Company
that, as a result of any amendment to, or change (including any prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such prospective change, pronouncement or decision is announced on or after the
date of issuance of the Trust Preferred Securities, there is more than an
insubstantial risk of impairment of the Company's ability to treat the Trust
Preferred Securities (or any substantial portion thereof) as "Tier I Capital"
(or the then equivalent thereof) for purposes of the capital adequacy guidelines
of the Federal Reserve, 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.
3
<PAGE>
"Common Securities" has the meaning specified in the first recital of this
Indenture.
"Common Stock" means the common stock, without par value, of the Company.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation.
"Company Request" and "Company Order" mean, respectively, the written
request or order signed in the name of the Company by the Chairman of the Board
of Directors, the Vice Chairman of the Board of Directors, its President or a
Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary of the Company, 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.
"Corporation" includes a corporation, association, company, joint-stock
company or business trust.
"Debt" means, with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; (vi) all
indebtedness of such Person whether incurred on or prior to the date of this
Indenture or thereafter incurred, for claims in respect of derivative products,
including interest rate, foreign exchange rate and commodity forward contracts,
options and swaps and similar arrangements; and (vii) every obligation of the
type referred to in clauses (i) through (vi) of another Person and all dividends
of another Person the payment of which, in either case, such Person has
guaranteed or is responsible or liable for, directly or indirectly, as obligor
or otherwise.
"Defaulted Interest" has the meaning specified in Section 3.6.
"Depositary" means, with respect to the Securities issuable or issued in
whole or in part in the form of one or more Global Securities, The Depository
Trust Company of New York (or any successor thereto).
4
<PAGE>
"Discount Security" means any security which 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.
"Distributions," means amounts payable in respect of such Trust Securities
as provided in the Trust Agreement and referred to therein as "Distributions."
"Dollar" or "U.S. $" 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.
"Event of Default" 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.
"Extension Period" has the meaning specified in Section 3.1(d).
"Federal Reserve" has the meaning specified in Section 3.1(f).
"Global Security" means a Security in the form prescribed in Section 2.4
evidencing all or part of the Securities, issued to the Depositary or its
nominee, and registered in the name of such Depositary or its nominee.
"Guarantee" means the guarantee by the Company of Distributions on the
Trust Preferred Securities to the extent provided in the Guarantee Agreement.
"Guarantee Agreement" means the Guarantee Agreement substantially in the
form attached hereto as Annex A, as amended 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.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on such Securities.
"Investment Company Event" means the receipt by the Trust of an Opinion of
Counsel, rendered by a law firm experienced in such matters, to the effect that,
as a result of change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, such Trust is or will be considered an
"investment company" that is required to be registered under the 1940 Act, which
change becomes effective on or after the date of original issuance of the Trust
Preferred Securities.
5
<PAGE>
"Junior Subordinated Payment" has the meaning specified in Section 12.2.
"Maturity" when used with respect to a 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, a Vice Chairman of the Board of Directors, the President or
a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or
an Assistant Secretary of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, and who shall be acceptable to the Trustee.
"Original Issue Date" means the date of issuance specified as such in a
Security.
"Outstanding" means 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
(iii) Securities in substitution for or in lieu of which other
Securities have been authenticated and delivered or which 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 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 which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to such Securities
6
<PAGE>
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. 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, 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 interest on 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 the place or places where the principal of (and
premium, if any) and interest on the Securities are payable pursuant to
Sections 3.1 and 3.11.
"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; and, for the purposes of this definition, any security
authenticated and delivered under Section 3.6 in lieu of a lost, destroyed or
stolen Security shall be deemed to evidence the same debt as the lost, destroyed
or stolen Security.
"Proceeding" has the meaning specified in Section 12.2.
"Property Trustee" means the commercial bank or trust company identified as
the "Property Trustee" in the Trust Agreement, solely in its capacity as
Property Trustee of the 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.
"Redemption Price," when used with respect to any Security to be redeemed,
means an amount equal to the accrued and unpaid interest on the Securities so
redeemed to the Redemption Date, plus 100% of the principal amount thereof.
"Regular Record Date" for the interest payable on any Interest Payment Date
means, (i) in the case of Securities represented by one or more Global
Securities, the Business Day next preceding such Interest Payment Date and
(ii) in the case of
7
<PAGE>
Securities not represented by one or more Global Securities, the date which is
fifteen days next preceding such Interest Payment Date (whether or not a
Business Day).
"Responsible Officer" when used with respect to the Trustee means any
officer of the Trustee assigned by the Trustee from time to time to administer
its corporate trust matters.
"Securities" or "Security" means any securities or security, as the case
may be, authenticated and delivered under this Indenture.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 3.5.
"Senior and Subordinated Debt" means the principal of (and premium, if any)
and interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt of the Company, whether incurred on or prior to the date of this Indenture
or thereafter incurred, unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Securities, provided,
however, that Senior and Subordinated Debt shall not be deemed to include
(a) any Debt of the Company which, when incurred and without respect to any
election under Section 1111(b) of the Bankruptcy Reform Act of 1978, as amended,
was without recourse to the Company, (b) any Debt of the Company to any of its
Subsidiaries, (c) Debt to any employee of the Company and (d) any Securities.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.6.
"Stated Maturity" when used with respect to a Security or any installment
of principal thereof or interest thereon means the date specified pursuant to
the terms of such Security and this Indenture as the date on which the principal
of such Security or such installment of interest is due and payable, in the case
of such principal, as such date may be shortened or extended as provided
pursuant to the terms of such Security and this Indenture.
"Subsidiary" means a corporation 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 which 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.
"Tax Event" means the receipt by the Company and the Trust of an Opinion of
Counsel (as defined in the Trust Agreement) experienced in such matters to the
effect that, as a result of any amendment to, or change (including any announced
prospective
8
<PAGE>
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such prospective change, pronouncement or decision is announced on or after the
date of issuance of the Trust Preferred Securities, there is more than an
insubstantial risk that (i) the Trust is, or will be within 90 days of the date
of such Opinion of Counsel, subject to United States Federal income tax with
respect to income received or accrued on the Securities, (ii) interest payable
by the Company on the Securities is not, or within 90 days of the date 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) the Trust is, or will be
within 90 days of the date of such Opinion of Counsel, subject to more than a de
minimis amount of other taxes, duties or other governmental charges.
"Trust" has the meaning specified in the first recital of this Indenture.
"Trust Agreement" means the Trust Agreement substantially in the form
attached hereto as Annex B, as amended by the form of Amended and Restated Trust
Agreement substantially in the form attached hereto as Annex C, in each case as
amended from time to time.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbb), as amended and as in effect on the date as of this
Indenture, except as provided in Section 9.5.
"Trust Preferred Securities" has the meaning specified in the first recital
of this Indenture.
"Trust Securities" has the meaning specified in the first recital of this
Indenture.
"Vice President" when used with respect to the Company, means any duly
appointed vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
Section 1.2. COMPLIANCE CERTIFICATE AND OPINIONS.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent
(including covenants, compliance with which constitutes a condition precedent),
if any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of
9
<PAGE>
Counsel stating that in the opinion of such counsel all such conditions
precedent (including covenants compliance with which constitute 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 that each individual signing such certificate or opinion
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 contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
Section 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 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.
10
<PAGE>
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
or proxy duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments is or are delivered to the Trustee, and, where it is hereby
expressly required, to the Company. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Holders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
6.1) conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(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 the execution thereof. Where
such execution is by a Person acting in other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
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 proved in any other manner which 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 a Security shall bind every future Holder of
such Security and the Holder of every Security issued upon the transfer thereof
or in exchange therefor or in lieu thereof in respect of anything done or
suffered to be done by the Trustee or the Company in reliance thereon, whether
or not notation of such action is made upon such Security.
(f) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given, made or taken by
Holders of Securities, provided that the Company may not set a record date for,
and the provisions
11
<PAGE>
of this paragraph shall not apply with respect to, the giving or making of any
notice, declaration, request or direction referred to in the next paragraph. If
any record date is set pursuant to this paragraph, the Holders of Outstanding
Securities on such record date, and no other Holders, shall be entitled to take
the relevant action, whether or not such Holders remain Holders after such
record date, provided that no such action shall be effective hereunder unless
taken on or prior to the applicable Expiration Date by Holders of the requisite
principal amount of Outstanding Securities on such record date. Nothing in this
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 canceled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities on the date such
action is taken. Promptly after any record date is set pursuant to this
paragraph, the Company, at its own expense, shall cause notice of such record
date, the proposed action by Holders and the applicable Expiration Date to be
given to the Trustee in writing and to each Holder of Securities in the manner
set forth in Section 1.6.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the
giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.2, (iii) any request to institute
proceedings referred to in Section 5.7(2) or (iv) any direction referred to
in Section 5.12. If any record date is set pursuant to this paragraph, the
Holders of Outstanding Securities on such record date, and no other Holders,
shall be entitled to join in such notice, declaration, request or direction,
whether or not such Holders remain Holders after such record date, provided
that no such action shall be effective hereunder unless taken on or prior to
the applicable Expiration Date by Holders of the requisite principal amount
of Outstanding Securities on such record date. Nothing in this 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 canceled and of no effect), and nothing in
this paragraph shall be construed to render ineffective any action taken by
Holders of the requisite principal amount of Outstanding Securities on the
date such action is taken. Promptly after any record date is set pursuant to
this paragraph, the Trustee, at the Company's expense, shall cause notice of
such record date, the proposed action by Holders and the applicable
Expiration Date to be given to the Company in writing and to each Holder of
Securities in the manner set forth in Section 1.6.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record dates may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day, provided that no such change shall be effective unless notice of
the proposed new Expiration Date is given to the other party hereto in
writing, and to each Holder of Securities in the manner set forth in Section
10.6, on or prior to the existing Expiration Date. If an Expiration
12
<PAGE>
Date is not designated with respect to any record date set pursuant to this
Section, the party hereto which set such record date shall be deemed to have
initially designated the 180th day after such record date as the Expiration Date
with respect thereto, subject to its right to change the Expiration Date as
provided in this 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 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 Trust Preferred Securities or
the Company shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its Corporate Trust
office, or
(2) the Company by the Trustee, any Holder or any holder of Trust
Preferred Securities shall be sufficient for every purpose (except as otherwise
provided in Section 5.1) hereunder if in writing and mailed, first class,
postage prepaid, to the Company, addressed to it at the address of its principal
office specified in the first paragraph of this instrument or at any other
address previously furnished in writing to the Trustee by the Company.
Section 1.6. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first class postage prepaid, to each Holder affected
by such event, at the address of such Holder as it appears in the Securities
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. 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.
13
<PAGE>
Section 1.7. CONFLICT WITH TRUST INDENTURE ACT.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by any of Sections 310 to 317, inclusive, of the Trust Indenture
Act through operation of Section 318(c) thereof, such imposed duties shall
control.
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.
In case 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 and Subordinated Debt, 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 Trust Preferred Securities, any benefit
or any legal or equitable right, remedy or claim under this Indenture.
Section 1.12. GOVERNING LAW.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of Montana, without regard to conflicts of
laws principles thereof provided that the immunities and standard of care of the
Trustee shall be governed by Delaware law.
Section 1.13. NON-BUSINESS DAYS.
In any case where 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) need not be made on such date, but may be made
on the next succeeding Business Day (and no interest shall accrue 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
14
<PAGE>
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)).
ARTICLE II
SECURITY FORMS
Section 2.1. FORMS GENERALLY.
The Securities shall be in substantially the form set forth in this Article
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.
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.
Section 2.2. FORM OF FACE OF SECURITY.
FIRST INTERSTATE BANCSYSTEM, INC.
__% Junior Subordinated Deferrable Interest Debenture due December 1, 2027
Registered No.: _______ Principal Amount: $41,237,000
CUSIP No.:
First Interstate BancSystem, Inc., a corporation organized and existing
under the laws of Montana (hereinafter called the "Company," which term includes
any successor corporation under the Indenture hereinafter referred to), for
value received, hereby promises to pay to ______________, or registered assigns,
the principal sum of $41,237,100 Dollars on December 1, 2027; provided that
the Company may shorten the Stated Maturity of the principal of this Security to
a date not earlier than December 1,
15
<PAGE>
2002. The Company further promises to pay interest on said principal sum
from November ___, 1997, or from the most recent interest payment date (each
such date, an "Interest Payment Date") on which interest has been paid or
duly provided for, quarterly (subject to deferral as set forth herein) in
arrears on the last day of March, June, September and December of each year
commencing December 31, 1997, at the rate of 8 5/8% per annum, until the
principal hereof shall have become due and payable, plus Additional Interest,
if any, until the principal hereof is paid or duly provided for or made
available for payment and on any overdue principal and (without duplication
and to the extent that payment of such interest is enforceable under
applicable law) on any overdue installment of interest at the rate of 8 5/8%
per annum, compounded quarterly. The amount of interest payable for any
period shall be computed on the basis of twelve 30-day months and a 360-day
year. The amount of interest payable for any partial period shall be
computed on the basis of the number of days elapsed in a 360-day year of
twelve 30-day months. In the event that any date on which interest is
payable on this Security is not a Business Day, then a payment of the
interest payable on such date will be made on the next succeeding day which
is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day is in the next calendar
year, such payment shall be made on the immediately preceding Business Day,
in each case with the same force and effect as if made on the date the
payment was originally payable. A "Business Day" shall mean any day other
than a Saturday or Sunday, or a day on which banking institutions in the
State of Montana are authorized or required by law or executive order to
remain closed or on a day on which the Corporate Trust Office of the Property
Trustee or the Indenture Trustee under the Trust Agreement (hereinafter
referred to) for the Trust is closed for business. The interest installment
so payable, and punctually paid or duly provided for, on any Interest Payment
Date will, as provided in the Indenture, be paid to the Person in whose name
this Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest installment,
which shall be the next Business Day preceding such Interest Payment Date
next preceding such Interest Payment Date. Any such interest installment 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 not less than 10 days prior to such Special
Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right at any time during the term of this Security to defer
payment of interest on this Security, at any time or from time to time, for up
to 20 consecutive quarterly interest payment periods with respect to each
deferral period (each an "Extension Period"), (during which Extension Periods
the Company shall have the right to make
16
<PAGE>
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 (together with
Additional Interest thereon to the extent permitted by applicable law));
provided, however, that no Extension Period shall extend beyond the Stated
Maturity of the principal of this Security; provided, further, that during any
such Extension Period, the Company shall not, and shall not permit any
Subsidiary of the Company to, (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of the Company's capital stock (which includes common and preferred stock),
or (ii) make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any debt security of the Company that ranks pari
passu with or junior in interest to this Security, or (iii) make any guarantee
payments with respect to any guarantee by the Company of the debt securities of
any Subsidiaries of the Company (if such guarantee ranks PARI PASSU in all
respects with or junior in interest to this Security (other than (a) dividends
or distributions in capital stock of the Company (which includes common and
preferred stock), (b) any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the issuance of stock under
any such plan in the future or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Guarantee, and (d) purchases of Common
Stock related to the issuance of Common Stock or rights under any of the
Company's benefit plans for its directors, officers or employees or related to
the issuance of common stock (or securities convertible into or exchangeable for
common stock) as consideration in an acquisition transaction)). Prior to the
termination of any such Extension Period, the Company may further extend such
Extension Period, provided that such extension does not cause such Extension
Period to exceed 20 consecutive interest payment periods or to extend beyond the
Stated Maturity. Upon the termination of any such Extension Period and upon the
payment of all amounts then due on any Interest Payment Date, and subject to the
foregoing limitation, the Company may elect to begin a new Extension Period. No
interest shall be due and payable during an Extension Period except at the end
thereof. The Company shall give the Trustee, the Property Trustee and the
Administrative Trustees notice of its election to begin any Extension Period at
least one Business Day prior to the earlier of (i) the date on which
Distributions on the Trust Preferred Securities would be payable except for the
election to begin such Extension Period, or (ii) the date the Administrative
Trustees are required to give notice to the OTC Bulletin Board or other
applicable stock exchange or automated quotation system on which the Trust
Preferred Securities are then listed or quoted or to holders of such Trust
Preferred Securities of the record date or (iii) the date such Distributions are
payable, but in any event not less than one Business Day prior to such record
date. The Trustee shall give notice of the Company's election to begin a new
Extension Period to the holders of the Trust Preferred Securities. There is no
limitation on the number of times that the Company may elect to begin an
Extension Period prior to the Stated Maturity.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Trustee or at the office of
such paying agent or paying agents as the Company may designate from time to
time, maintained for that
17
<PAGE>
purpose in the United States, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company payment of
interest may be made (i) by check mailed to the address of the Person entitled
thereto as such address shall appear in the Securities Register or (ii) by
transfer to an account maintained by the person entitled thereto, in immediately
available funds, at such place and to such account as may be designated by the
Person entitled thereto as specified in the Securities Register.
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, unsecured and will rank junior and subordinate and subject in
right of payments to the prior payment in full of all Senior and Subordinated
Debt, 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 behalf to take such actions as may be necessary or
appropriate to effectuate the subordination so provided and (c) appoints the
Trustee his attorney-in-fact for any and all such purposes. Each Holder hereof,
by his acceptance hereof, waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder of
Senior and Subordinated Debt, 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.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
FIRST INTERSTATE BANCSYSTEM, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest:
- ------------------------------------
[Secretary or Assistant Secretary]
18
<PAGE>
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 under a Junior Subordinated
Indenture, dated as of November 7, 1997 (herein called the "Indenture"),
between the Company and Wilmington 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 Trustee, the Company 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 limited in aggregate principal
amount to $41,237,100.
All terms used in this Security that are defined in the Indenture and in
the Amended and Restated Trust Agreement, dated as of November 7, 1997, (the
"Trust Agreement"), for FIB Capital Trust among the Company, as Depositor, and
the Trustees named therein, shall have the meanings assigned to them in the
Indenture or the Trust Agreement, as the case may be.
The Company may at any time, at its option, on or after December 1, 2002,
and subject to the terms and conditions of Article XI of the Indenture, and
subject to the Company having received prior approval of the Board of Governors
of the Federal Reserve System (the "Federal Reserve") if then required under
applicable capital guidelines or policies of the Federal Reserve redeem this
Security in whole at any time or in part from time to time, without premium or
penalty, at a redemption price equal to the accrued and unpaid interest on the
Security so redeemed to the Redemption Date, plus 100% of the principal amount
thereof.
Upon the occurrence and during the continuation of a Tax Event, Investment
Company Event or Capital Treatment Event, the Company may, at its option, at any
time within 90 days of the occurrence of such Tax Event, Investment Company
Event or Capital Treatment Event redeem this Security, in whole but not in part,
subject to the provisions of Section 11.7 and the other provisions of Article XI
of the Indenture, at a redemption price equal to the accrued and unpaid interest
on the Security so redeemed to the Redemption Date, plus 100% of the principal
amount thereof.
In the event of redemption of this Security in part only, a new Security or
Securities for the portion hereof not redeemed will be issued in the name of the
Holder hereof upon the cancellation hereof.
The Indenture contains provisions for satisfaction and discharge of the
entire indebtedness of this Security 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
19
<PAGE>
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. The
Indenture also contains provisions permitting Holders of specified percentages
in principal amount of the Securities at the time Outstanding, on behalf of the
Holders of all Securities, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Security
shall be conclusive and binding upon such Holder and upon all future Holders of
this Security and of any Security issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, if an Event
of Default occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in principal amount of the Outstanding
Securities may declare the principal amount of all the Securities to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by Holders), provided that, if upon an Event of Default, the Trustee or
the Holders of not less than 25% in principal amount of the Outstanding
Securities fails to declare the principal of all the Securities to be
immediately due and payable, the holders of at least 25% in aggregate
Liquidation Amount of the Trust Preferred Securities then outstanding shall have
such right by a notice in writing to the Company and the Trustee; and upon any
such declaration the principal amount of and the accrued interest (including any
Additional Interest) on all the Securities shall become immediately due and
payable, provided that the payment of principal and interest (including any
Additional Interest) on such Securities shall remain subordinated to the extent
provided in Article XIII of the Indenture.
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 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
setforth, 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
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 his attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
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.
20
<PAGE>
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Securities are issuable only in registered form without coupons in
denominations of minimum denominations of $25 and any integral multiples of $25
in excess thereof. As provided in the Indenture and subject to certain
limitations therein set forth, Securities are exchangeable for a like aggregate
principal amount of Securities of a different authorized denomination, as
requested by the Holder surrendering the same.
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 agree that for United States Federal, state and local
tax purposes it is intended that this Security constitute indebtedness.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MONTANA WITHOUT REGARD TO CONFLICTS OF
LAWS PRINCIPLES THEREOF.
Section 2.4. ADDITIONAL PROVISIONS REQUIRED IN GLOBAL SECURITY.
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."
Section 2.5. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the within mentioned
Indenture.
Dated:
WILMINGTON TRUST COMPANY
as Trustee
By:
--------------------------------
21
<PAGE>
Authorized Officer
ARTICLE III
THE SECURITIES
Section 3.1. TITLE AND TERM.
(a) The Securities shall bear the title " 8 5/8% Junior Subordinated
Deferrable Interest Debentures Due December 1, 2027."
(b) The aggregate principal amount the Securities to be issued under this
Indenture shall be limited to $41,237,100 (except for Securities authenticated
and delivered upon registration of, transfer of, or in exchange for, or in lieu
of, other Securities pursuant to Sections 3.3, 3.4, 3.5, 9.6 or 11.7 of this
Indenture and except for Securities which, pursuant to Section 3.2 of this
Indenture, are deemed never to have been authenticated and delivered
thereunder).
(c) The date on which the principal of the Securities is due and payable
shall be December 1, 2027.
(d) The Securities shall bear interest at the rate of 8 5/8% per annum
(based upon a 360-day year of twelve 30-day months), from and including November
7, 1997, or from and including the most recent Interest Payment Date to which
interest has been paid or duly provided for, as the case may be, payable
quarterly in arrears on the 15th day of March, June, September and December in
each year, commencing December 15, 1997, until the principal thereof is paid or
made available for payment. Each such March 15, June 15, September 15 or
December 15 shall be an "Interest Payment Date" for the Securities, and the
Business Day next preceding an Interest Payment Date shall be the "Regular
Record Date" for the interest payable on such Interest Payment Date. Accrued
interest that is not paid on such applicable Interest Payment Date will bear
additional interest on the amount thereof (to the extent permitted by law) at a
rate per annum of 8 5/8% thereof compounded quarterly.
In addition, so long as no Event of Default with respect to the Securities
has occurred or is continuing, the Company has the right under this Indenture at
any time during the term of such Securities to defer the payment of interest at
any time or from time to time for a period not exceeding 20 consecutive
quarterly periods (each such period an "Extension Period"), provided that no
Extension Period may extend beyond the Stated Maturity. At the end of such
Extension Period, the Company must pay all interest then accrued and unpaid
(together with interest thereon at the annual rate of 8 5/8%, compounded
quarterly, to the extent permitted by applicable law).
(e) Principal of (and premium, if any) and interest on the Securities will
be payable, and, except as provided in Section 3.5 of this Indenture with
respect to a Global Security (as defined below), the transfer of the Securities
will be registrable and
22
<PAGE>
Securities will be exchangeable for Securities bearing identical terms and
provisions at the corporate trust office of Wilmington Trust Company, in the
City of New York, New York.
(f) The Securities will be redeemable in whole at any time and in part
from time to time, at the option of the Company at any time on or after
December 1, 2002, subject to the Company having received prior approval of
the Board of Governors of the Federal Reserve System (the "Federal Reserve"),
at a redemption price equal to the accrued and unpaid interest on the
Securities so redeemed to the date fixed for redemption, plus 100% of the
principal amount thereof.
In addition, upon the occurrence of a Capital Treatment Event, an
Investment Company Event or a Tax Event the Company may, at its option and
subject to receipt of prior approval of the Federal Reserve if then required
under applicable capital guidelines or policies of the Federal Reserve, prepay
the Securities in whole (but not in part) at any time within 90 days of the
occurrence of such Capital Treatment Event, Investment Company Event or Tax
Event, at a redemption price equal to the accrued and unpaid interest on the
Securities so redeemed to the date fixed for redemption, plus 100% of the
principal amount thereof.
(g) The Company shall not be obligated to prepay, repay or purchase any
Securities pursuant to any sinking fund, amortization or analogous provisions or
at the option of the Holder.
(h) The Securities will be issued only in fully registered form and the
authorized minimum denomination of the Securities shall be $25 and any integral
multiple of $25 in excess thereof.
(i) The Securities shall be denominated, and payments of principal of (and
premium, if any) and interest on the Securities will be payable, in United
States dollars.
(j) The Securities shall be subject to the Events of Default specified in
Section 5.1, paragraphs (1) through (5), of this Indenture.
(k) The portion of the principal amount of the Securities which shall be
payable upon declaration of acceleration of maturity thereof shall not be other
than the principal amount thereof, provided, that, if such acceleration is
declared by the Holders of at least 25% in aggregate liquidation amount of the
Trust Preferred Securities then outstanding, then, upon such declaration of
acceleration, the Securities which shall be payable shall be the principal
amount thereof plus accrued interest (including any Additional Interest).
(l) The Securities will be issued in fully registered form, without
coupons. The Securities will not be issued in bearer form.
23
<PAGE>
(m) The amount of payments of principal of and any premium or interest on
the Securities will not be determined with reference to an index.
(n) The Securities shall not be issued in the form of a temporary Global
Security (as defined below).
(o) The Securities will initially be in certificated form registered in
the name of the name of Wilmington Trust Company, as Property Trustee (the
"Certificated Securities"). The Securities may, in the sole discretion of the
Company, be deposited with, and on behalf of, The Depository Trust Company, New
York, New York, as Depositary, and will be represented by a global security (a
"Global Security") registered in the name of a nominee of the Depositary. If,
and so long as the Depositary or its nominee is the registered holder of any
Global Security, the Depositary or its nominee, as the case may be, will be
considered the sole Holder of the Securities represented by such Global Security
for all purposes under the Indenture and the Securities. The Certificated
Securities or the Global Securities, as the case may be, shall bear no legends.
(p) The Trustee shall be Paying Agent.
(q) The Securities will not be convertible into any other securities or
property of the Company.
(r) The Securities are subordinate and subject in right of payment to the
prior payment in full of all amounts then due and payable in respect of all
Senior and Subordinated Debt, as provided in Article VIII.
Section 3.2. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by its President
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 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. In connection with any Company Order for authentication, an
Officers' Certificate and Opinion of Counsel pursuant to Section 1.2 shall not
be required.
24
<PAGE>
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, 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 3.8, 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 3.3. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as evidenced by their execution of such
Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for that purpose without charge to the
Holder. Upon surrender for cancellation of any one or more temporary
Securities, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor one or more definitive Securities of authorized
denominations having the same Original Issue Date and Stated Maturity and having
the same terms as such temporary Securities. Until so exchanged, the temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities.
Section 3.4. REGISTRATION, TRANSFER AND EXCHANGE.
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 of
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.
25
<PAGE>
Upon surrender for registration of transfer of a Security at the office or
agency of the Company designated for that purpose the Company shall execute, and
the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities of any authorized
denominations, of a like aggregate principal amount, of the same Original Issue
Date and Stated Maturity and having the same terms.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations, of a like aggregate principal
amount, of the same Original Issue Date and Stated Maturity and having the same
terms, 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
which 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 Securities Registrar) 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 his
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.
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.
The provisions of Clauses (1), (2), (3) and (4) below shall apply only to
Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated 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.
(2) 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
26
<PAGE>
than the Depositary for such Global Security or a nominee thereof unless
(A) such Depositary (i) has notified the Company that it is unwilling or unable
to continue as Depositary for such Global Security or (ii) has ceased to be a
clearing agency registered under the Exchange Act at a time when the Depositary
is required to be so registered to act as depositary, in each case unless the
Company has approved a successor Depositary within 90 days, (B) there shall have
occurred and be continuing an Event of Default with respect to such Global
Security, (C) the Company in its sole discretion determines that such Global
Security will be so exchangeable or transferable or (D) there shall exist such
circumstances, if any, in addition to or in lieu of the foregoing as have been
specified for this purpose as contemplated by Section 3.1.
(3) Subject to Clause (2) above, any exchange of a Global Security for
other Securities may be made in whole or in part, and all Securities issued in
exchange for a Global Security or any portion thereof shall be registered in
such names as the Depositary for such Global Security shall direct.
(4) 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 Section, Sections 3.3, 3.5, 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.
Neither the Company nor the Trustee shall be required, pursuant to the
provisions of this Section, (a) to issue, transfer or exchange any Security
during a period beginning at the opening of business 15 days before the day of
selection for redemption of Securities pursuant to Article XI and ending at the
close of business on the day of mailing of notice of redemption or (b) to
transfer or exchange any Security so selected for redemption in whole or in
part, except, in the case of any Security to be redeemed in part, any portion
thereof not to be redeemed.
Section 3.5. MUTILATED, DESTROYED, 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 like tenor and
principal amount, having the same Original Issue Date and Stated Maturity, 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
27
<PAGE>
Security of like tenor and principal amount, having the same Original Issue Date
and Stated Maturity as such destroyed, lost or stolen Security, and bearing a
number not contemporaneously outstanding.
In case 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.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section 3.5 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 3.6. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date, shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date, except that, unless otherwise
provided in the Securities, interest payable on the Stated Maturity of the
principal of a Security shall be paid to the Person to whom principal is paid.
The initial payment of interest on any Security which is issued between a
Regular Record Date and the related Interest Payment Date shall be payable as
provided in such Security.
Any interest on any Security which is payable, but is not timely paid or
duly provided for, on any Interest Payment Date (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 (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
28
<PAGE>
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 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 any Securities 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
state of Montana, but such publication shall not be a condition precedent to the
establishment of such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having been mailed
as aforesaid, such Defaulted Interest shall be paid to the Persons in whose
names the Securities (or their respective Predecessor Securities) are registered
on such Special Record Date and shall no longer be payable pursuant to the
following Clause (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 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, such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 3.6, 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, which were carried by such other Security.
Section 3.7. PERSONS DEEMED OWNERS.
The Company, the Trustee and any agent of the Company or the Trustee may
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 3.6) 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.
29
<PAGE>
Section 3.8. CANCELLATION.
All Securities surrendered for payment, redemption, transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee, and any such Securities and Securities surrendered directly to the
Trustee for any such purpose shall be promptly canceled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which 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 3.9. COMPUTATION OF INTEREST.
Interest on the Securities for any period shall be computed on the basis of
a 360-day year of twelve 30-day months and interest on the Securities for any
partial period shall be computed on the basis of the number of days elapsed in a
360-day year of twelve 30-day months.
Section 3.10. DEFERRALS OF INTEREST PAYMENT DATES.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right, at any time during the term of the Securities, from time
to time to defer the payment of interest on such Securities, at any time or from
time to time, for up to 20 consecutive quarterly interest payment periods with
respect to each deferral period (each, an "Extension Period") during which
Extension Periods the Company shall have the right to make partial payments of
interest on any Interest Payment Date. No Extension Period shall end on a date
other than an Interest Payment Date. At the end of any such Extension Period the
Company shall pay all interest then accrued and unpaid on the Securities
(together with Additional Interest thereon, if any, at the rate specified for
the Securities to the extent permitted by applicable law); provided, however,
that no Extension Period shall extend beyond the Stated Maturity of the
principal of the Securities; provided, further, that during any such Extension
Period, the Company shall not, and shall not permit any Subsidiary to,
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock (which includes common and preferred 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 ranks pari passu in all
respects with or junior in interest to the Securities or make any guarantee
payments with respect to any guarantee by the Company of the debt securities of
any Subsidiary of the Company if such guarantee ranks PARI PASSU in all respects
with or junior in interest to the Securities (other than (a) dividends or
distributions in capital stock of the Company (which includes common and
preferred stock), (b) any declaration of a
30
<PAGE>
dividend in connection with the implementation of a stockholders' rights plan,
or the redemption or repurchase of any such rights pursuant thereto,
(c) payments under the Guarantee, and (d) purchases of Common Stock related to
the issuance of Common Stock or rights under any of the Company's benefit plans
for its directors, officers or employees). Prior to the termination of any such
Extension Period, the Company may further extend such Extension Period, provided
that such extension does not cause such Extension Period to extend beyond the
Stated Maturity of the principal of such Securities. Upon termination of any
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 requirements. No interest
shall be due and payable during an Extension Period, except at the end thereof.
The Company shall give the Trustee, the Property Trustee and the Administrative
Trustees notice of its election of any Extension Period (or an extension
thereof) at least one Business Day prior to the earlier of (i) the next
succeeding date on which Distributions on the Trust Preferred Securities would
be payable except for the election to begin or extend such Extension Period or
(ii) the date the Administrative Trustees are required to give notice to the OTC
Bulletin Board or other applicable stock exchange or automated quotation system
on which the Trust Preferred Securities are then listed or quoted or to holders
of such Trust Preferred Securities of the record date or (iii) the date such
Distributions are payable, but in any event not less than one Business Day prior
to such record date. The Trustee shall give notice of the Company's election to
begin a new Extension Period to the holders of the Securities. There is no
limitation on the number of times that the Company may elect to begin an
Extension Period prior to the Stated Maturity.
The Trustee shall promptly give notice of the Company's election to begin
any such Extension Period to the Holders of the Outstanding Securities.
Section 3.11. RIGHT OF SET-OFF.
With respect to the Securities, notwithstanding anything to the contrary in
the Indenture, the Company shall have the right to set-off any payment it is
otherwise required to make thereunder in respect of any Security to the extent
the Company has theretofore made, or is concurrently on the date of such payment
making, a payment under the Guarantee Agreement or under Section 5.8 of the
Indenture.
Section 3.12. 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 constitute indebtedness.
31
<PAGE>
Section 3.13. SHORTENING OF STATED MATURITY.
The Company shall have the right to shorten the Stated Maturity of the
principal of the Securities at any time to any date not earlier than the first
date on which the Company has the right to redeem the Securities.
Section 3.14. 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 notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
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 which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 3.5 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,
32
<PAGE>
and the Company, in the case of Clause (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 are
payable sufficient to pay and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest (including any Additional Interest)
to the date of such deposit (in the case of Securities which 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
(3) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel each stating that all conditions precedent herein provided
for relating to the satisfaction and discharge of this Indenture have been
complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 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.
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 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, 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, including
any Additional Interest in respect thereof, when it becomes due and payable, and
33
<PAGE>
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); or
(2) default in the payment of the principal of (or premium, if any, on)
any Security at its Maturity; or
(3) default in the performance, or breach, in any material respect, of any
covenant or warranty of the Company in this Indenture (other than a covenant or
warranty a default in the performance of which or the breach of which is
elsewhere in this Section 5.1 specifically dealt with), and continuance of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in principal amount of the
Outstanding Securities a written notice specifying such default or breach and
requiring it to be remedied; or
(4) the entry of a decree or order by a court having jurisdiction in the
premises 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
bankruptcy, insolvency, reorganization or other similar law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company 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
(5) the institution by the Company 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 other similar
official) of the Company or of any substantial part of its property, or the
making by it of an assignment for the benefit for creditors, or the admission by
it in writing of its inability to pay its debts generally as they become due and
its willingness to be adjudicated a bankrupt, or the taking of corporate action
by the Company in furtherance of any such action.
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)) occurs and is continuing, then and in every such case
the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal amount of all the Securities to
be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Holders), provided that, if, upon an Event of Default,
the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities fail to declare the principal of all the
34
<PAGE>
Securities to be immediately due and payable, the holders of at least 25% in
aggregate liquidation amount of the Trust Preferred Securities then
outstanding shall have such right by a notice in writing to the Company and
the Trustee; and upon any such declaration such principal amount (or
specified portion thereof) of and the accrued interest (including any
Additional Interest) on all the Securities shall become immediately due and
payable. Payment of principal and interest (including any Additional
Interest) on such Securities shall remain subordinated to the extent provided
in Article XII notwithstanding that such amount shall become immediately due
and payable as herein provided. If an Event of Default specified in Section
5.1(4) or 5.1(5) occurs, the principal amount of all the Securities shall
(or, if the Securities shall automatically, and without any declaration or
other action on the part of the Trustee or any Holder), become immediately
due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities, 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 (including any Additional
Interest) on all Securities,
(B) the principal of (and premium, if any, on) any Securities which have
become due otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Securities, and
(C) 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, other than the non-payment of the principal of
Securities which has become due solely by such acceleration, have been cured or
waived as provided in Section 5.13.
The holders of a majority in aggregate Liquidation Amount (as defined in
the Trust Agreement) of Trust Preferred Securities 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 impair any right
consequent thereon.
35
<PAGE>
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 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 the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders of Securities by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy.
Section 5.4. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors,
(a) the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal (and premium, if any) or
interest (including any Additional Interest)) shall be entitled and empowered,
by intervention in such proceeding or otherwise,
36
<PAGE>
(i) to file and prove a claim for the whole amount of principal
(and premium, if any) and interest (including any Additional Interest) owing
and unpaid in respect to the Securities and to file such other papers or
documents as may be necessary or advisable and to take any and all actions as
are authorized under the Trust Indenture Act in order to have the claims of
the Holders and any predecessor to the Trustee under Section 6.7 allowed in
any such judicial proceedings; and
(ii) in particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such
claims and to distribute the same in accordance with Section 5.6; and
(b) any custodian, receiver, assignee, trustee, liquidator, sequestrator
(or other similar official) in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee 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 or 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, 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 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:
37
<PAGE>
FIRST: To the payment of all amounts due the Trustee and any predecessor
Trustee under Section 6.7;
SECOND: Subject to Article XII, to the payment of the amounts then due and
unpaid upon such Securities for principal (and premium, if any) and interest
(including any Additional Interest), in respect of which or for the benefit of
which such money has been collected, ratably, without preference or priority of
any kind, according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest (including any Additional
Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
Section 5.7. LIMITATION ON SUITS.
No Holder of any Security 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;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(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 principal
amount of the Outstanding Securities;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing itself of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Securities, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all such Holders.
38
<PAGE>
Section 5.8. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND
INTEREST; DIRECT ACTION BY HOLDERS OF TRUST PREFERRED SECURITIES.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right which is absolute and unconditional to receive
payment of the principal of (and premium, if any) and (subject to Section 3.6)
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. Any holder of Trust Preferred Securities 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 Section 3.6) interest
(including any Additional Interest) on the Securities having a principal amount
equal to the aggregate Liquidation Amount (as defined in the Trust Agreement) of
such Trust Preferred Securities held by such holder.
Section 5.9. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee, any Holder or any holder of Trust Preferred Securities 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 Trust
Preferred Securities, then and in every such case the Company, the Trustee, the
Holders and such holder of Trust Preferred Securities shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee, the Holders and the holders of Trust Preferred Securities shall
continue as though no such proceeding had been instituted.
Section 5.10. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided in the last paragraph of Section 3.5, no right
or remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.11. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee, any Holder of any Security or any holder of
any Preferred Security to exercise any right or remedy accruing upon any Event
of Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence therein.
39
<PAGE>
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 Trust Preferred
Securities by Section 5.8 may be exercised from time to time, and as often as
may be deemed expedient, by the Trustee, the Holders or the holders of Trust
Preferred Securities, as the case may be.
Section 5.12. CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the Outstanding Securities
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee provided that:
(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
which 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 principal amount of the
Outstanding Securities and, the holders of Trust Preferred Securities may waive
any past default hereunder and its consequences except a default:
(1) in the payment of the principal of (or premium, if any) or interest
(including any Additional Interest) on any Security, or
(2) in respect of a covenant or provision hereof which under Article IX
cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected.
Any such waiver shall be deemed to be on behalf of the Holders of all the
Securities or, in the case of a waiver by holders of Trust Preferred
Securities, by all holders of Trust Preferred Securities.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
40
<PAGE>
Section 5.14. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities,
or to any suit instituted by any Holder for the enforcement of the payment of
the principal of (or premium, if any) or interest (including any Additional
Interest) on any Security on or after the 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 which by any provisions hereof are
specifically required to be furnished to the Trustee, the
41
<PAGE>
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 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;
(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.
(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 6.1.
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, the Trustee shall transmit
by mail to all Holders of Securities, as their names and addresses appear in the
Securities Register, notice of such default, unless such default shall have been
cured or waived; provided, however, that, except in the case of a default in the
payment of the principal of (or premium, if any) or interest (including any
Additional Interest) on any Security, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in
42
<PAGE>
the interests of the Holders of Securities; and provided, further, that, in the
case of any default of the character specified in Section 5.1(3), no such notice
to Holders of Securities shall be given until at least 30 days after the
occurrence thereof. For the purpose of this Section, the term "default" means
any event which is, or after notice or lapse of time or both would become, an
Event of Default.
Section 6.3. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, Security or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(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 which 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
43
<PAGE>
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.
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.
The Company agrees:
(1) to pay to the Trustee from time to time 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);
(2) 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;
and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense (including the reasonable compensation and the
expenses and disbursements of its agents and counsel) incurred without
negligence or bad faith,
44
<PAGE>
arising out of or in connection with the acceptance or administration of this
trust or the performance of its duties hereunder, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder. This
indemnification shall survive the termination of this Agreement.
To secure the Company's payment obligations in this Section 6.7, the
Company and the Holders agree that the Trustee shall have a lien prior to the
Securities on all money or property held or collected by the Trustee. Such lien
shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(4) or (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 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 301(b).
Section 6.9. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be:
(a) a corporation organized and doing business under the laws of the
United States of America or of any State or Territory or 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) a corporation 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,
subject to supervision or examination by Federal or State authority. If such
corporation publishes reports of condition at least annually, pursuant to law
or to the requirements of the aforesaid supervising or examining authority,
then, for the purposes of this Section 6.9, 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. If at any
time the Trustee shall cease to be eligible in accordance with the provisions
of this
45
<PAGE>
Section 6.9, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article VI. Neither the Company nor any Person
directly or indirectly controlling, controlled by or under common control
with the Company shall serve as Trustee for the Securities issued hereunder.
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 VI shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, 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 all Securities, 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 himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee with respect to all Securities 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,
the Company, by a Board Resolution, shall promptly appoint a successor
Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor
46
<PAGE>
Trustee shall be appointed by Act of the Holders of a majority in principal
amount of the Outstanding Securities 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 and supersede the successor
Trustee appointed by the Company. If no successor Trustee shall have been so
appointed by the Company or the Holders and accepted appointment in the manner
hereinafter provided, any Holder who has been a bona fide Holder of a Security
for at least six months may, subject to Section 5.14, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Securities.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to the Holders of
Securities as their names and addresses appear in the Securities Register. Each
notice shall include the name of the successor Trustee 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, 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, the
Company, the retiring Trustee and each successor Trustee 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, (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 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 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
47
<PAGE>
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 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
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.
(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 6.11, 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 corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article VI, without the execution or filing of any paper or any further act on
the part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the 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 which shall be
authorized to act on behalf of the Trustee to authenticate Securities issued
upon original
48
<PAGE>
issue and upon exchange, registration of transfer or partial redemption thereof
or pursuant to Section 3.5, 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 a corporation organized and doing business
under the laws of the United States of America, or of any State or Territory or
the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section 6.14 the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
an Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.14, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section 6.14.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of an Authenticating Agent shall be the successor
Authenticating Agent hereunder, provided such corporation shall be otherwise
eligible under this Section, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.14, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall give
notice of such appointment in the manner provided in Section 1.6 to all Holders
of Securities. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provision of this Section 6.14.
49
<PAGE>
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section 6.14, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 6.7.
If an appointment is made pursuant to this Section 6.14, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities referred to in the within mentioned
Indenture.
Dated:
WILMINGTON TRUST COMPANY
As Trustee
By:
--------------------------------
As Authenticating Agent
By:
--------------------------------
Authorized Officer
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE 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 January 15 and July 15 in
each year, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of January 1 and July 1 of such year, 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
50
<PAGE>
furnished to the Trustee as provided in Section 7.1 and the names and addresses
of Holders received by the Trustee in its capacity as Securities Registrar. The
Trustee may destroy any list furnished to it as provided in Section 7.1 upon
receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Securities, and the
corresponding rights and privileges of the Trustee, shall be as provided in the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of the
disclosure of information as to the names and addresses of the Holders made
pursuant to the Trust Indenture Act.
Section 7.3. REPORTS BY TRUSTEE.
(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 July 15 in each calendar year,
commencing with the first July 15 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 stock 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 stock exchange.
Section 7.4. REPORTS BY COMPANY.
The Company shall file 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; provided that any
such information, documents or reports required to be filed with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act shall be filed with
the Trustee within 15 days after the same is required to be filed with the
Commission. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall continue to file with the Commission and provide the
Trustee with the annual reports and the information, documents and other
reports which are specified in Sections 13 and 15(d) of the Exchange Act. The
Company also shall comply with the other provisions of Trust Indenture Act
Section 314(a).
51
<PAGE>
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:
(1) in case 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 corporation formed by such consolidation or into
which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a corporation, partnership or trust
organized and existing under the laws of the United States of America or any
State 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
and the performance of every covenant of this Indenture on the part of the
Company to be performed or observed;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing;
(3) such consolidation, merger, conveyance, transfer or lease is permitted
under the Trust Agreement and the Guarantee and does not give rise to any breach
or violation of the Trust Agreement or the Guarantee; and
(4) 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 the Trustee, subject to Section 6.1,
may rely upon such Officers' Certificate and Opinion of Counsel as conclusive
evidence that such transaction complies with this Section 8.1.
Section 8.2. SUCCESSOR CORPORATION 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
52
<PAGE>
corporation formed by such consolidation or into which the Company is merged or
to which such conveyance, transfer or lease is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein; and in the event of any such conveyance, transfer or
lease the Company shall be discharged from all obligations and covenants under
the Indenture and the Securities and may be dissolved and liquidated.
Such successor Person may cause to be signed, and may issue either in its
own name or in the name of the Company, any or all of the Securities issuable
hereunder which 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 which 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 which such successor Person thereafter shall cause to be signed
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 as though all
of such Securities had been issued at the date of the execution hereof.
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 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;
(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;
(3) to add to the covenants of the Company for the benefit of the Holders
of Securities, or to surrender any right or power herein conferred upon the
Company;
53
<PAGE>
(4) to cure any ambiguity, to correct or supplement any provision herein
which 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 (4) shall not
adversely affect the interest of the Holders of Securities in any material
respect or, for so long as any of the Trust Preferred Securities shall remain
outstanding, the holders of such Trust Preferred Securities;
(5) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee 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
(6) 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 principal
amount of the Outstanding Securities, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution, and
the Trustee may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of modifying in any manner the rights
of the Holders of Securities under this Indenture; provided, however, that no
such supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby,
(1) except to the extent permitted by Sections 3.10 or 3.13 with respect
to the deferral of the payment of interest on the Securities or the shortening
of the Stated Maturity of the Securities, 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 reduce any premium payable upon the redemption thereof, or change the
place of payment where, or the coin or currency in which, any Security or
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver (of
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences) provided for in this Indenture, or
(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
54
<PAGE>
Indenture cannot be modified or waived without the consent of the Holder of each
Security affected thereby; or
(4) modify the provisions in Article XII of this Indenture with respect to
the subordination of Outstanding Securities in a manner adverse to the Holders
thereof;
provided, further, that, so long as any of the Trust Preferred Securities
remains outstanding, (i) no such amendment shall be made that adversely affects
the holders of such Trust Preferred Securities in any material respect, and no
termination of this Indenture shall occur, and no waiver of any Event of Default
or compliance with any covenant under this Indenture shall be effective, without
the prior consent of the holders of at least a majority of the aggregate
liquidation preference of such Trust Preferred Securities then outstanding
unless and until the principal (and premium, if any) of the Securities and all
accrued and, subject to Section 3.6, 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
Trust Preferred Securities provided therein without the prior consent of the
holders of each Preferred Security then outstanding unless and until the
principal (and premium, if any) of the Securities and all accrued and (subject
to Section 3.6) unpaid interest (including any Additional Interest) thereon have
been paid in full.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Section 9.3. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing or accepting any supplemental indenture permitted by this
Article or the modifications thereby of Securities previously created by this
Indenture, the Trustee shall be entitled to receive, and (subject to
Section 6.1) shall be fully protected in relying upon, an Officers' Certificate
and an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture, and that all conditions
precedent have been complied with. The Trustee may, but shall not be obligated
to, enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
Section 9.4. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article IX,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
55
<PAGE>
Section 9.5. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article IX shall
conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.6. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article IX may, and shall if required by
the Company, bear a notation in form approved by the Company as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
ARTICLE X
COVENANTS
Section 10.1. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company covenants and agrees that it will duly and punctually pay the
principal of (and premium, if any) and interest on the Securities 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, an office or agency
where Securities may be presented or surrendered for payment and an office or
agency where Securities may be surrendered for transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company initially appoints the Trustee, acting
through its Corporate Trust Office, as its agent for said purposes. The Company
will give prompt written notice to the Trustee of any change in the location of
any such office or agency. If at any time the Company shall fail to maintain
such office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
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 such purposes.
56
<PAGE>
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, it will, on
or before each due date of the principal of (and premium, if any) or interest on
any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal (and premium, if
any) or interest 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. Rocky Mountain time, on each due date of the principal of or
interest on any Securities, deposit with a Paying Agent a sum sufficient to pay
the principal (and premium, if any) or 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, 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 10.3, 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 on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities) in the making of any payment of principal (and
premium, if any) or interest:
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; 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 trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such
57
<PAGE>
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 on any Security and remaining unclaimed for two years after such
principal (and premium, if any) or 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 state of
Montana, 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 calendar year of the Company ending after the date hereof, an Officers'
Certificate covering the preceding calendar year, stating whether or not to the
best knowledge of the signers thereof the Company is in default in the
performance, observance or fulfillment of or compliance with any of the terms,
provisions, covenants and conditions of this Indenture, and if the Company shall
be in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge. For the purpose of this Section 10.4, compliance
shall be determined without regard to any grace period or requirement of notice
provided pursuant to the terms of this Indenture.
Section 10.5. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any covenant
or condition provided pursuant to Sections 3.1, 9.1(3), or 9.1(4), if before or
after the time for such compliance the Holders of at least a majority in
principal amount of the Outstanding Securities shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance with
such covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company in respect of any
such covenant or condition shall remain in full force and effect.
58
<PAGE>
Section 10.6. ADDITIONAL SUMS.
So long as no Event of Default has occurred and is continuing, in the event
that (i) the Trust is the Holder of all of the Outstanding Securities, (ii) a
Tax Event shall have occurred and be continuing and (iii) the Company shall not
have (A) redeemed the Securities pursuant to Section 11.7(b) or (B) terminated
the Trust pursuant to Section 9.2(b) of the Trust Agreement, the Company shall
pay to the Trust (and its permitted successors or assigns under the Trust
Agreement) for so long as the Trust (or its permitted successor or assignee) is
the registered holder of any Securities, such additional amounts as may be
necessary in order that the amount of Distributions (including any Additional
Amounts (as defined in the Trust Agreement)) then due and payable by the Trust
on the Trust Preferred Securities and Common Securities that at any time remain
outstanding in accordance with the terms thereof shall not be reduced as a
result of any 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 3.10 or the
Securities shall not defer the payment of any Additional Sums that may be due
and payable.
Section 10.7. ADDITIONAL COVENANTS.
The Company covenants and agrees with each Holder of Securities that it
shall not, and it shall not permit any Subsidiary of the Company to,
(a) declare or pay any dividends or distributions on, or redeem purchase,
acquire or make a liquidation payment with respect to, any shares of the
Company's capital stock (which includes common and preferred stock), or (b) make
any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Securities or make any guarantee
payments with respect to any guarantee by the Company of debt securities of any
subsidiary of the Company if such guarantee ranks PARI PASSU in all respects
with or junior in interest to the Securities (other than (w) dividends or
distributions in capital stock of the Company (which includes common and
preferred stock), (x) any declaration of a dividend in connection with the
implementation of a rights plan or the redemption or repurchase of any such
rights pursuant thereto, (y) payments under the Guarantee, and (z) purchases of
Common Stock related to the issuance of Common Stock or rights under any of the
Company's benefit plans for its directors, officers or employees or related to
the issuance of Common Stock (or securities convertible into or exchangeable for
common stock) as consideration in an acquisition transaction) if at such time
(i) there shall have occurred any event of which the Company has actual
knowledge that
59
<PAGE>
(A) with the giving of notice or the lapse of time or both, would constitute an
Event of Default and (B) in respect of which the Company shall not have taken
reasonable steps to cure, (ii) the Company shall be in default with respect to
its payment of any obligations under the Guarantee or (iii) the Company shall
have given notice of its election to begin an Extension Period 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 (i) to maintain
directly or indirectly 100% ownership of the Common Securities of the Trust;
provided, however, that any permitted successor of the Company hereunder may
succeed to the Company's ownership of such Common Securities, (ii) not to
voluntarily terminate, wind-up or liquidate the Trust, except (a) in connection
with a distribution of the Securities to the holders of Trust Securities in
liquidation of the 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 Trust to remain classified as a grantor trust and
not an association taxable as a corporation for United States federal income tax
purposes.
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1. APPLICABILITY OF THIS ARTICLE.
Redemption of Securities (whether by operation of a sinking fund or
otherwise) 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. Except as otherwise set forth in the form of
Security, each Security shall be subject to partial redemption only in the
amount of $25 or integral multiples of $25 in excess thereof.
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 of less than all of the Securities and having the same terms, 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 of such date and of the principal amount of Securities to be redeemed.
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.
60
<PAGE>
Section 11.3. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all the Securities are to be redeemed (unless all the
Securities of a specified tenor are to be redeemed or unless such redemption
affects only a single Security), the particular Securities to be redeemed shall
be selected not more than 60 days prior to the Redemption Date by the Trustee,
from the Outstanding Securities not previously called for redemption, by such
method as the Trustee shall deem fair and appropriate and which may provide for
the selection for redemption of a portion of the principal amount of any
Security, provided that the portion of the principal amount of any Security not
redeemed shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security. If less than all the
Securities of a specified tenor are to be redeemed (unless such redemption
affects only a single Security), 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 specified tenor not previously called
for redemption in accordance with the preceding sentence.
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 which has been or is to be redeemed. If the
Company shall so direct, Securities registered in the name of the Company, any
Affiliate or any Subsidiary thereof shall not be included in the Securities
selected for redemption.
Section 11.4. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not later than the thirtieth day, and not earlier than the sixtieth day,
prior to the Redemption Date, to each Holder of Securities to be redeemed, at
the address of such Holder as it appears in the Securities Register.
With respect to Securities to be redeemed, each notice of redemption shall
state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of partial redemption, the respective principal
amounts) of the particular Securities to be redeemed;
(d) that on the Redemption Date, the Redemption Price will become due and
payable upon each such Security or portion thereof, and that interest thereon,
if any, shall cease to accrue on and after said date;
61
<PAGE>
(e) the place or places where such Securities are to be surrendered for
payment of the Redemption Price; and
(f) 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 not be
irrevocable. The notice if mailed in the manner herein provided 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. Rocky Mountain time, on the Redemption Date specified
in the notice of redemption given as provided in Section 11.4, the Company will
deposit with the Trustee or with one or more Paying Agents (or if the Company is
acting as its own Paying Agent, the Company will segregate and hold in trust as
provided in Section 10.3) an amount of money sufficient to pay the Redemption
Price of, and any accrued interest (including Additional Interest) on, all the
Securities which are to be redeemed on that date.
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. 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 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 3.6.
Upon presentation of any Security redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the Holder thereof, at
the expense of the Company, a new Security or Securities, of authorized
denominations, in aggregate principal amount equal to the portion of the
Security not redeemed so presented and having the same Original Issue Date,
Stated Maturity and terms. If a Global Security is so surrendered, such new
Security will also be a new Global Security.
62
<PAGE>
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal of and premium, if any, on such Security
shall, until paid, bear interest from the Redemption Date at the rate prescribed
therefor in the Security.
Section 11.7. RIGHT OF REDEMPTION OF SECURITIES INITIALLY ISSUED TO THE TRUST.
The Company, at its option, may redeem such Securities (i) on or after the
date five years after the Original Issue Date of such Securities, 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, Investment Company Event, or Capital Treatment
Event, at any time within 90 days following the occurrence of such Tax Event,
Investment Company Event or Capital Treatment Event, in whole (but not in part),
in each case at a Redemption Price equal to 100% of the principal amount
thereof.
ARTICLE XII
SUBORDINATION OF SECURITIES
Section 12.1. SECURITIES SUBORDINATE TO SENIOR AND SUBORDINATED DEBT.
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 XII, the payment of the
principal of (and premium, if any) and interest (including any Additional
Interest) on each and all of the Securities are hereby expressly made
subordinate and subject in right of payment to the prior payment in full of all
amounts then due and payable in respect of all Senior and Subordinated Debt.
Section 12.2. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company (each such event, if any, herein
sometimes referred to as a "Proceeding"), then the holders of Senior and
Subordinated Debt shall be entitled to receive payment in full of Allocable
Amounts of such Senior and Subordinated Debt, or provision shall be made for
such payment in cash or cash equivalents or otherwise in a manner satisfactory
to the holders of Senior and Subordinated Debt, before the Holders of the
Securities are entitled to receive or retain any payment or distribution of any
kind or character, whether in cash, property or securities (including any
payment or distribution which may be payable or deliverable by reason of the
payment of any other Debt of the Company subordinated to the payment of the
Securities, such payment or distribution being hereinafter referred to as a
"Junior Subordinated Payment"), on account of principal of (or premium, if any)
or interest (including any Additional Interest) on the Securities or on account
of the purchase or other acquisition of Securities by the Company or any
Subsidiary and to that end the holders of Senior and Subordinated Debt shall be
entitled to receive, for application to the payment thereof,
63
<PAGE>
any payment or distribution of any kind or character, whether in cash, property
or securities, including any Junior Subordinated Payment, which may be payable
or deliverable in respect of the Securities in any such Proceeding.
In the event that, notwithstanding the foregoing provisions of this
Section 12.2, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, including any Junior Subordinated
Payment, before all Allocable Amounts of all Senior and Subordinated Debt are
paid in full or payment thereof is provided for in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of Senior and Subordinated
Debt, and if such fact shall, at or prior to the time of such payment or
distribution, have been made known to the Trustee or, as the case may be, such
Holder, then and in such event such payment or distribution shall be paid over
or delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other Person making payment or
distribution of assets of the Company for application to the payment of all
Allocable Amounts of all Senior and Subordinated Debt remaining unpaid, to the
extent necessary to pay all Allocable Amounts of all Senior and Subordinated
Debt in full, after giving effect to any concurrent payment or distribution to
or for the holders of Senior and Subordinated Debt.
For purposes of this Article XII only, the words "any payment or
distribution of any kind or character, whether in cash, property or securities"
shall not be deemed to include shares of stock of the Company as reorganized or
readjusted, or securities of the Company or any other corporation provided for
by a plan of reorganization or readjustment which securities are subordinated in
right of payment to all then outstanding Senior and Subordinated Debt to
substantially the same extent as the Securities are so subordinated as provided
in this Article XII. The consolidation of the Company with, or the merger of
the Company into, another Person or the liquidation or dissolution of the
Company following the sale of all or substantially all of its properties and
assets as an entirety to another Person upon the terms and conditions set forth
in Article VIII shall not be deemed a Proceeding for the purposes of this
Section 12.2 if the Person formed by such consolidation or into which the
Company is merged or the Person which acquires by sale such properties and
assets as an entirety, as the case may be, shall, as a part of such
consolidation, merger, or sale comply with the conditions set forth in
Article VIII.
Section 12.3. PRIOR PAYMENT TO SENIOR AND SUBORDINATED DEBT UPON ACCELERATION
OF SECURITIES.
In the event that any Securities are declared due and payable before their
Stated Maturity, then and in such event the holders of the Senior and
Subordinated Debt outstanding at the time such Securities so become due and
payable shall be entitled to receive payment in full of all Allocable Amounts
due on or in respect of such Senior and Subordinated Debt (including any amounts
due upon acceleration), or provision shall be made for such payment in cash or
cash equivalents or otherwise in a manner satisfactory
64
<PAGE>
to the holders of Senior and Subordinated Debt, before the Holders of the
Securities are entitled to receive any payment or distribution of any kind or
character, whether in cash, properties or securities (including any Junior
Subordinated Payment) by the Company on account of the principal of (or premium,
if any) or interest (including any Additional Interest) on the Securities or on
account of the purchase or other acquisition of Securities by the Company or any
Subsidiary.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section 12.3, and if such fact shall, at or prior
to the time of such payment, have been made known to the Trustee or, as the case
may be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company.
The provisions of this Section 12.3 shall not apply to any payment with
respect to which Section 12.2 would be applicable.
Section 12.4. NO PAYMENT WHEN SENIOR AND SUBORDINATED DEBT IN DEFAULT.
(a) (i) In the event and during the continuation of any default in the
payment of principal of (or premium, if any) or interest on any Senior and
Subordinated Debt, or in the event that any event of default with respect to any
Senior and Subordinated Debt shall have occurred and be continuing and shall
have resulted in such Senior and Subordinated Debt becoming or being declared
due and payable prior to the date on which it would otherwise have become due
and payable, unless and until such event of default shall have been cured or
waived or shall have ceased to exist and such acceleration shall have been
rescinded or annulled, or (ii) in the event any judicial proceeding shall be
pending with respect to any such default in payment or such event or default,
then no payment or distribution of any kind or character, whether in cash,
properties or securities (including any Junior Subordinated Payment) shall be
made by the Company on account of principal of (or premium, if any) or interest
(including any Additional Interest), if any, on the Securities or on account of
the purchase or other acquisition of Securities by the Company or any
Subsidiary, in each case unless and until all Allocable Amounts of such Senior
and Subordinated Debt are paid in full.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section 12.4, and if such fact shall, at or prior
to the time of such payment, have been made known to the Trustee or, as the case
may be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company.
The provisions of this Section 12.4 shall not apply to any payment with respect
to which Section 12.2 would be applicable.
65
<PAGE>
Section 12.5. PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article XII or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Company, at any time except during
the pendency of any Proceeding referred to in Section 12.2 or under the
conditions described in Sections 12.3 and 12.4, from making payments at any time
of principal of (and premium, if any) or interest (including Additional
Interest) on the Securities, or (b) the application by the Trustee of any money
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 XII.
Section 12.6. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR AND SUBORDINATED DEBT.
Subject to the payment in full of all amounts due or to become due on all
Senior and Subordinated Debt, or the provision for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior and
Subordinated Debt, the Holders of the Securities shall be subrogated to the
extent of the payments or distributions made to the holders of such Senior and
Subordinated Debt pursuant to the provisions of this Article XII (equally and
ratably with the holders of all indebtedness of the Company which by its express
terms is subordinated to Senior and Subordinated Debt of the Company to
substantially the same extent as the Securities are subordinated to the Senior
and Subordinated Debt and is entitled to like rights of subrogation by reason of
any payments or distributions made to holders of such Senior and Subordinated
Debt) to the rights of the holders of such Senior and Subordinated Debt to
receive payments and distributions of cash, property and securities applicable
to the Senior and Subordinated Debt until the principal of (and premium, if any)
and interest on the Securities shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of the Senior and
Subordinated Debt 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 XII to the holders of Senior and Subordinated Debt by Holders of the
Securities or the Trustee, shall, as among the Company, its creditors other than
holders of Senior and Subordinated Debt, and the Holders of the Securities, be
deemed to be a payment or distribution by the Company to or on account of the
Senior and Subordinated Debt.
Section 12.7. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Article XII 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 and Subordinated Debt on the other hand.
Nothing contained in this Article XII 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
66
<PAGE>
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 and
Subordinated Debt; or (c) prevent the Trustee or the Holder of any Security from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture including, without limitation, filing and voting claims in any
Proceeding, subject to the rights, if any, under this Article XII of the holders
of Senior and Subordinated Debt to receive cash, property and securities
otherwise payable or deliverable to the Trustee or such Holder.
Section 12.8. 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 XII and appoints the Trustee his or her attorney-in-fact for any and all
such purposes.
Section 12.9. NO WAIVER OF SUBORDINATION PROVISIONS.
No right of any present or future holder of any Senior and Subordinated
Debt 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 and Subordinated Debt may, at any time and from
to time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior and Subordinated Debt, do any one or more of the following: (i) change
the manner, place or terms of payment or extend the time of payment of, or renew
or alter, Senior and Subordinated Debt, or otherwise amend or supplement in any
manner Senior and Subordinated Debt or any instrument evidencing the same or any
agreement under which Senior and Subordinated Debt is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior and Subordinated Debt; (iii) release any Person liable
in any manner for the collection of Senior and Subordinated Debt; and
(iv) exercise or refrain from exercising any rights against the Company and any
other Person.
67
<PAGE>
Section 12.10. NOTICE TO TRUSTEE.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by
the Trustee in respect of the Securities. Notwithstanding the provisions of
this Article XII or any other provision of this Indenture, the Trustee shall not
be charged with knowledge of the existence of any facts which would prohibit the
making of any payment 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 and Subordinated Debt 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 12.10 at least two
Business Days prior to the date upon which by the terms hereof any monies may
become payable for any purpose (including, without limitation, the payment of
the principal of (and premium, if any) 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 which may be received by it
within two Business Days prior to such date.
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
to be a holder of Senior and Subordinated Debt (or a trustee therefor) to
establish that such notice has been given by a holder of Senior and Subordinated
Debt (or a trustee 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 and Subordinated Debt 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 and Subordinated Debt 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 12.11. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.
Upon any payment or distribution of assets of the Company referred to in
this Article XII, 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, 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 and
Subordinated Debt and other indebtedness of the Company, the amount thereof or
68
<PAGE>
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article XII.
Section 12.12. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR AND SUBORDINATED
DEBT.
The Trustee, in its capacity as trustee under this Indenture, shall not be
deemed to owe any fiduciary duty to the holders of Senior and Subordinated Debt
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 and
Subordinated Debt shall be entitled by virtue of this Article or otherwise.
Section 12.13. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR AND SUBORDINATED DEBT;
PRESERVATION OF TRUSTEE'S RIGHTS.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article XII with respect to any Senior and Subordinated Debt
which may at any time be held by it, to the same extent as any other holder of
Senior and Subordinated Debt, and nothing in this Indenture shall deprive the
Trustee of any of its rights as such holder.
Section 12.14. ARTICLE APPLICABLE TO PAYING AGENTS.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article XII 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 XII in addition to or in place of the Trustee.
Section 12.15. CERTAIN CONVERSIONS OR EXCHANGES DEEMED PAYMENT.
For the purposes of this Article XII only, (a) the issuance and delivery of
junior securities upon conversion or exchange of Securities shall not be deemed
to constitute a payment or distribution on account of the principal of (or
premium, if any) or interest (including any Additional Interest) on Securities
or on account of the purchase or other acquisition of Securities, and (b) the
payment, issuance or delivery of cash, property or securities (other than junior
securities) upon conversion or exchange of a Security shall be deemed to
constitute payment on account of the principal of such security. For the
purposes of this Section 12.15, the term "junior securities" means (i) shares of
any stock of any class of the Company and (ii) securities of the Company which
are subordinated in right of payment to all Senior and Subordinated Debt which
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 XII.
* * * *
69
<PAGE>
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 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.
FIRST INTERSTATE BANCSYSTEM, INC.
By: /s/ Thomas W. Scott
--------------------------------
Name: Thomas W. Scott
------------------------------
Title: President & CEO
-----------------------------
Attest: /s/ Terrill R. Moore
--------------------------
Its: Senior Vice President
-----------------------------
WILMINGTON TRUST COMPANY
as Trustee
By: /s/ James P. Lawler
--------------------------------
Name: James P. Lawler
------------------------------
Title: Vice President
-----------------------------
Attest: /s/
--------------------------
Its: Assistant Secretary
-----------------------------
70
<PAGE>
STATE OF MONTANA )
) SS.
COUNTY OF YELLOWSTONE )
On the 7th day of November, 1997 before me personally came Thomas W.
Scott to me known, who, being by me duly sworn, did depose and say that he is
President & CEO of FIRST INTERSTATE BANCSYSTEM, INC., one of the corporations
described in and which executed the foregoing instrument; that he knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; and that he signed his name thereto by authority of the Board
of Directors of said corporation.
[SEAL]
/s/ Amy Weik
-----------------------------------
Notary Public
STATE OF DELAWARE )
) SS.
COUNTY OF )
On the 4th day of November, 1997 before me personally
came James P. Lawler to me known, who, being by me duly sworn, did
depose and say that he is Vice President of WILMINGTON TRUST COMPANY one of
the corporations described in and which executed the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to said instrument
is such corporate seal; and that he signed his name thereto by authority of the
Board of Directors of said corporation.
[SEAL]
/s/ Kathleen A. Pedelini
-----------------------------------
Notary Public
<PAGE>
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
TRUST AGREEMENT
AMONG
FIRST INTERSTATE BANCSYSTEM, INC.,
AS DEPOSITOR,
WILMINGTON TRUST COMPANY,
AS PROPERTY TRUSTEE,
WILMINGTON TRUST COMPANY,
AS DELAWARE TRUSTEE,
AND
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
DATED AS OF NOVEMBER 7, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Article I. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . 2
Article II. Establishment of the Trust . . . . . . . . . . . . . . . . . .10
Section 2.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Section 2.2 Office of the Delaware Trustee; Principal Place of
Business . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Section 2.3 Initial Contribution of Trust Property; Organizational
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Section 2.4 Issuance of the Preferred Securities . . . . . . . . . . .11
Section 2.5 Issuance of the Common Securities; Subscription
and Purchase of Debentures . . . . . . . . . . . . . . . . . .11
Section 2.6 Declaration of Trust . . . . . . . . . . . . . . . . . . .12
Section 2.7 Declaration of Trust . . . . . . . . . . . . . . . . . . .12
Section 2.8 Assets of Trust . . . . . . . . . . . . . . . . . . . . .16
Section 2.9 Title to Trust Property . . . . . . . . . . . . . . . . .16
Article III. Payment Account . . . . . . . . . . . . . . . . . . . . . . .16
Section 3.1 Payment Account . . . . . . . . . . . . . . . . . . . . .16
Article IV. Distributions; Redemption. . . . . . . . . . . . . . . . . . .17
Section 4.1 Distributions . . . . . . . . . . . . . . . . . . . . . .17
Section 4.2 Redemption . . . . . . . . . . . . . . . . . . . . . . . .18
Section 4.3 Subordination of Common Securities . . . . . . . . . . . .20
Section 4.4 Payment Procedures . . . . . . . . . . . . . . . . . . . .21
Section 4.5 Tax Returns and Reports . . . . . . . . . . . . . . . . .21
Section 4.6 Payment of Taxes, Duties, Etc . . . . . . . . . . . . . .21
Section 4.7 Payments under Indenture or Pursuant to Direct Actions . .22
i
<PAGE>
Article V. Trust Securities Certificates . . . . . . . . . . . . . . . . .22
Section 5.1 Initial Ownership . . . . . . . . . . . . . . . . . . . .22
Section 5.2 The Trust Preferred Securities Certificates . . . . . . .22
Section 5.3 Execution and Delivery of Trust Preferred Securities
Certificates . . . . . . . . . . . . . . . . . . . . . . . . .22
Section 5.4 Registration of Transfer and Exchange of Preferred
Securities Certificates . . . . . . . . . . . . . . . . . . . .22
Section 5.5 Mutilated, Destroyed, Lost or Stolen Trust Preferred
Securities Certificates . . . . . . . . . . . . . . . . . . . .23
Section 5.6 Persons Deemed Securityholders . . . . . . . . . . . . . .24
Section 5.7 Access to List of Securityholders' Names and Addresses . .24
Section 5.8 Maintenance of Office or Agency . . . . . . . . . . . . .25
Section 5.9 Appointment of Paying Agent . . . . . . . . . . . . . . .25
Section 5.10 Ownership of Common Securities by Depositor . . . . . . .26
Section 5.11 Book Entry Preferred Securities Certificates; Common
Securities Certificate . . . . . . . . . . . . . . . . . . . .26
Section 5.12 Notices to Clearing Agency . . . . . . . . . . . . . . .27
Section 5.13 Definitive Preferred Securities Certificates . . . . . .27
Section 5.14 Rights of Securityholders . . . . . . . . . . . . . . . .28
Article VI. Acts of Securityholders; Meetings; Voting. . . . . . . . . . .30
Section 6.1 Limitations on Voting Rights . . . . . . . . . . . . . . .30
Section 6.2 Notice of Meetings . . . . . . . . . . . . . . . . . . . .31
Section 6.3 Meetings of Preferred Securityholders . . . . . . . . . .31
Section 6.4 Voting Rights . . . . . . . . . . . . . . . . . . . . . .32
Section 6.5 Proxies, etc . . . . . . . . . . . . . . . . . . . . . . .32
Section 6.6 Securityholder Action by Written Consent . . . . . . . . .32
ii
<PAGE>
Section 6.7 Record Date for Voting and Other Purposes . . . . . . . .32
Section 6.8 Acts of Securityholders . . . . . . . . . . . . . . . . .33
Section 6.9 Inspection of Records . . . . . . . . . . . . . . . . . .34
Article VII. Representations and Warranties. . . . . . . . . . . . . . . .34
Section 7.1 Representations and Warranties of the Property Trustee
and the Delaware Trustee . . . . . . . . . . . . . . . . . . .34
Section 7.2 Representations and Warranties of Depositor . . . . . . .35
Article VIII. The Trustees . . . . . . . . . . . . . . . . . . . . . . . .36
Section 8.1 Certain Duties and Responsibilities . . . . . . . . . . .36
Section 8.2 Certain Notices . . . . . . . . . . . . . . . . . . . . .37
Section 8.3 Certain Rights of Property Trustee . . . . . . . . . . . .38
Section 8.4 Not Responsible for Recitals or Issuance of Securities . .40
Section 8.5 May Hold Securities . . . . . . . . . . . . . . . . . . .40
Section 8.6 Compensation; Indemnity; Fees . . . . . . . . . . . . . .40
Section 8.7 Corporate Property Trustee Required; Eligibility of
Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Section 8.8 Conflicting Interests . . . . . . . . . . . . . . . . . .42
Section 8.9 Co-Trustees and Separate Trustee . . . . . . . . . . . . .42
Section 8.10 Resignation and Removal; Appointment of Successor . . . .44
Section 8.12 Merger, Conversion, Consolidation or Successions to
Business . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Section 8.13 Preferential Collection of Claims Against Depositor or
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Section 8.14 Reports by Property Trustee . . . . . . . . . . . . . . .47
Section 8.15 Reports to the Property Trustee . . . . . . . . . . . . .48
Section 8.16 Evidence of Compliance with Conditions Precedent . . . .48
iii
<PAGE>
Section 8.17 Number of Trustees . . . . . . . . . . . . . . . . . . .48
Section 8.18 Delegation of Power . . . . . . . . . . . . . . . . . . .49
Section 8.19 Voting . . . . . . . . . . . . . . . . . . . . . . . . .49
Article IX. Dissolution, Liquidation and Merger. . . . . . . . . . . . . .49
Section 9.1 Termination Upon Expiration Date . . . . . . . . . . . . .49
Section 9.2 Early Termination . . . . . . . . . . . . . . . . . . . .49
Section 9.3 Termination . . . . . . . . . . . . . . . . . . . . . . .50
Section 9.4 Liquidation . . . . . . . . . . . . . . . . . . . . . . .50
Section 9.5 Mergers, Consolidations, Amalgamations or Replacements
of the Trust . . . . . . . . . . . . . . . . . . . . . . . . .52
Article X. Miscellaneous Provisions. . . . . . . . . . . . . . . . . . . .53
Section 10.1 Limitation of Rights of Securityholders . . . . . . . . .53
Section 10.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . .53
Section 10.3 Separability . . . . . . . . . . . . . . . . . . . . . .54
Section 10.4 Governing Law . . . . . . . . . . . . . . . . . . . . . .54
Section 10.5 Payments Due on Non-Business Day . . . . . . . . . . . .54
Section 10.6 Successors . . . . . . . . . . . . . . . . . . . . . . .55
Section 10.7 Headings . . . . . . . . . . . . . . . . . . . . . . . .55
Section 10.8 Reports, Notices and Demands . . . . . . . . . . . . . .55
Section 10.9 Agreement Not to Petition . . . . . . . . . . . . . . . .56
Section 10.10 Trust Indenture Act; Conflict with Trust
Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . .56
Section 10.11 Acceptance of Terms of Trust Agreement, Guarantee and
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . .56
iv
<PAGE>
EXHIBIT A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
EXHIBIT B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
EXHIBIT C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
EXHIBIT D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
EXHIBIT E. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
v
<PAGE>
FIB CAPITAL TRUST
Certain Sections of This Trust Agreement Relating to
Section 310 through 318 of the
Trust Indenture Act of 1939:
TRUST INDENTURE ACT TRUST AGREEMENT SECTION
SECTION
310(a)(1) 8.7
310(a)(2) 8.7
310(a)(3) 8.7
310(a)(4) 2.7(a)(ii)
310(b) Inapplicable
311(a) 8.13
311(b) 8.13
312(a) 5.7
312(b) 5.7
312(c) 5.7
313(a) 8.14(a)
313(a)(4) 8.14(b)
313(b) 8.14(b)
313(c) 10.8
313(d) 8.14(c)
314(a) 8.15
314(b) Not Applicable
314(c)(1) 8.16
314(c)(2) Not Applicable
314(d) Not Applicable
314(e) 1.1, 8.16
315(a) 8.1(a), 8.3(a)
315(b) 8.2, 10.8
315(c) 8.1(a)
315(d) 8.1, 8.3
315(e) Not Applicable
316(a) Not Applicable
316(a)(1)(A) Not Applicable
316(a)(1)(B) Not Applicable
316(a)(2) Not Applicable
316(b) 5.14
316(c) 6.7
317(a)(1) Not Applicable
317(a)(2) Not Applicable
317(b) 5.9
318(a) 10.10
vi
<PAGE>
Note: This reconciliation and tie sheet shall not, for any purpose, be deemed
to be a part of the Trust Agreement.
vii
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT
THIS AMENDED AND RESTATED TRUST AGREEMENT (this "Trust Agreement"), dated
as of November 7, 1997, among (i) FIRST INTERSTATE BANCSYSTEM, INC., a
Montana corporation (including any successors or assigns, the "Depositor"), (ii)
WILMINGTON TRUST COMPANY, a Delaware banking corporation organized and existing
under the laws of the State of Delaware, 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) WILMINGTON TRUST COMPANY, a
Delaware banking corporation organized and existing under the laws of the State
of Delaware, as Delaware trustee (the "Delaware Trustee"), (iv) Thomas W. Scott,
an individual, William G. Wilson, an individual, and Terrill R. Moore, an
individual, each of whose address is c/o First Interstate BancSystem, Inc. (each
an "Administrative Trustee" and collectively the "Administrative Trustees") (the
Property Trustee, the Delaware Trustee and the Administrative Trustees are
referred to collectively herein as the "Trustees") and (v) the several Holders,
as hereinafter defined.
WITNESSETH
WHEREAS, the Depositor and certain of the trustees have heretofore duly
declared and established a business trust pursuant to the Delaware Business
Trust Act by entering into that certain Trust Agreement, dated as of October 1,
1997 (the "Original Trust Agreement"), and by the execution and filing by those
trustees with the Secretary of State of the State of Delaware of the Certificate
of Trust, filed on October 1, 1997, attached as Exhibit A; and
WHEREAS, the parties hereto desire to amend and restate the Original Trust
Agreement in its entirety as set forth herein to provide for, among other
things, (i) the issuance of the Common Securities by the Trust to the Depositor,
(ii) the issuance and sale of the Preferred Securities by the Trust pursuant to
the Underwriting Agreement; (iii) the acquisition by the Trust from the
Depositor of all of the right, title and interest in the Debentures and (iv) the
appointment of the additional trustees of the Trust;
NOW THEREFORE, in consideration of the agreements and obligations set forth
herein and for other good and valuable consideration, the sufficiency of which
is hereby acknowledged, each party, for the benefit of the other parties and for
the benefit of the Securityholders, hereby amends and restates the Original
Trust Agreement in its entirety and agrees 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) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may be,
of this Trust Agreement; and
(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Act" has the meaning specified in Section 6.8.
"Additional Amount" 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 Debentures
for such period.
"Additional Sums" has the meaning specified in Section 10.6 of the
Indenture.
"Administrative Trustee" means each of the Persons identified as an
"Administrative Trustee" in the preamble to this Trust Agreement solely in such
Person's capacity as Administrative Trustee of the Trust and not in such
Person's individual capacity, or such Administrative Trustee's successor in
interest in such capacity, or any successor trustee appointed as herein
provided.
"Affiliate" 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.
"Bank" has the meaning specified in the preamble to this Trust Agreement.
2
<PAGE>
"Bankruptcy Event" means, with respect to any Person: 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 Bankruptcy 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 90 consecutive days; or
(e) 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 Bankruptcy Law,
or the consent by it to the filing of any such petition or to the appointment of
a receiver, liquidator, assignee, trustee, sequestrator (or similar official) of
such Person or of any substantial part of its property, or the making by it of
an assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due and its willingness
to be adjudicated a bankrupt, or the taking of corporate action by such Person
in furtherance of any such action.
"Bankruptcy Law" means any Federal or state bankruptcy, insolvency,
reorganization or similar law.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Depositor to have been duly adopted by the
Depositor's Board of Directors, or such committee of the Board of Directors or
officers of the Depositor to which authority to act on behalf of the Board of
Directors has been delegated, and to be in full force and effect on the date of
such certification, and delivered to the appropriate Trustees.
"Book-Entry Preferred Securities Certificates" means a beneficial interest
in the Preferred Securities Certificates, ownership and transfers of which shall
be made through book entries by a Clearing Agency as described in Section 5.11.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in the State of Montana 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 Debenture Trustee's
Corporate Trust Office is closed for business.
"Certificate Depository Agreement" means the agreement among the Trust, the
Depositor and The Depository Trust Company, as the initial Clearing Agency,
dated as of the Closing Date, relating to the Trust Securities Certificates,
3
<PAGE>
substantially in the form attached as Exhibit B, as the same may be amended and
supplemented from time to time.
"Certificate of Trust" means the certificate of trust filed with the
Secretary of State of the State of Delaware with respect to the Trust, as
amended or restated from time to time.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act. The Depository Trust Company will
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 date of execution and delivery of this Trust
Agreement.
"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 Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $25 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Common Securities Certificate" means a certificate evidencing ownership of
Common Securities, substantially in the form attached as Exhibit C.
"Corporate Trust Office" means (i) when used with respect to the Property
Trustee, the principal office of the Property Trustee located at Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890, Attention:
Corporate Trust Administration, and (ii) when used with respect to the Debenture
Trustee, the principal office of the Debenture Trustee located at Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890, Attention: James
P. Lawler.
"Debenture Event of Default" means an "Event of Default" as defined in the
Indenture.
4
<PAGE>
"Debenture Redemption Date" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption under the Indenture.
"Debenture Trustee" means Wilmington Trust Company, a Delaware banking
corporation organized under the laws of the State of Delaware and any successor
thereto, as trustee under the Indenture.
"Debentures" means the aggregate principal amount of the Depositor's ___%
Junior Subordinated Deferrable Interest Debentures, issued pursuant to the
Indenture.
"Definitive Preferred Securities Certificates" means either or both (as the
context requires) of (a) Preferred Securities Certificates issued as Book-Entry
Preferred Securities Certificate as provided in Section 5.11(a) and (b)
Preferred Securities Certificates issued in certificated, fully registered form
as provided in Section 5.13.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. C. Section 3801, ET SEQ., as it may be amended from time to time.
"Delaware Trustee" means the Person identified as the "Delaware Trustee" in
the preamble to this Trust Agreement solely in its capacity as Delaware Trustee
and not in its individual capacity, or its successor in interest in such
capacity, or any successor trustee appointed as herein provided.
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
"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 Dissolution 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;
5
<PAGE>
(b) default by the 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 Trust in the payment of any Redemption Price of
any Trust Security when it becomes due and payable;
(d) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Property Trustee in this Trust Agreement
(other than a covenant or warranty a default in the performance or breach of
which is dealt with in clause (b) or (c) above) and continuation of such default
or breach for a period of 60 days after there has been given, by registered or
certified mail, to the defaulting Property Trustee by the Holders of at least
25% in aggregate liquidation preference of the Outstanding Preferred Securities
a written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the Property
Trustee and the failure by the Depositor to appoint a successor Property Trustee
within 60 days thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit D, as amended from time to time.
"Expiration Date" has the meaning specified in Section 9.1.
"Guarantee" means the Guarantee Agreement executed and delivered by the
Depositor and Wilmington Trust Company, as trustee, contemporaneously with the
execution and delivery of this Trust Agreement, for the benefit of the holders
of the Preferred Securities, as amended from time to time.
"Holder" means a Securityholder.
"Indenture" means the Junior Subordinated Indenture, dated as of November
7, 1997, between the Depositor and the Debenture Trustee, as trustee, as
amended or supplemented from time to time.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, adverse claim, hypothecation, assignment,
security interest or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever.
6
<PAGE>
"Like Amount" means (a) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to the principal amount of
Debentures to be contemporaneously redeemed in accordance with the Indenture the
proceeds of which will be used to pay the Redemption Price of such Trust
Securities, and (b) with respect to a distribution of Debentures to Holders of
Trust Securities in connection with a dissolution or liquidation of the Trust,
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the Holder to whom such Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Liquidation Date" means the date on which Debentures are to be distributed
to Holders of Trust Securities in connection with a dissolution and liquidation
of the Trust pursuant to Section 9.4(a).
"Liquidation Distribution" has the meaning specified in Section 9.4(d).
"1940 Act" means the Investment Company Act of 1940, as amended.
"Officers' Certificate" means a certificate signed by the Chairman and
Chief Executive Officer, President or a Vice President, and by the Treasurer, an
Associate Treasurer, an Assistant Treasurer, the Controller, the Secretary or an
Assistant Secretary, of the Depositor, and delivered to the appropriate Trustee.
One of the officers signing an Officers' Certificate given pursuant to Section
8.16 shall be the principal executive, financial or accounting officer of the
Depositor. Any Officers' Certificate delivered with respect to compliance with a
condition or covenant provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Trust, the Property Trustee, the Delaware Trustee or the Depositor, but
not an employee of any thereof, and who shall be reasonably acceptable to the
Property Trustee.
7
<PAGE>
"Original Trust Agreement" has the meaning specified in the recitals to
this Trust Agreement.
"Outstanding," when used with respect to Trust Securities, means, as of the
date of determination, all Trust Securities theretofore executed and delivered
under this Trust Agreement, except:
(e) Trust Securities theretofore canceled by the Property Trustee or
delivered to the Property Trustee for cancellation;
(f) 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 Trust 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
(g) Trust Securities which have been paid or in exchange for or in
lieu of which other Preferred Securities have been executed and delivered
pursuant to Sections 5.4, 5.5, 5.11 and 5.13; provided, however, that in
determining whether the Holders of the requisite Liquidation Amount of the
Outstanding Preferred Securities have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Preferred Securities owned by
the Depositor, any Trustee or any Affiliate of the Depositor or any Trustee
shall be disregarded and deemed not to be Outstanding, except that (a) in
determining whether any Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Preferred Securities that such Trustee knows to be so owned shall be so
disregarded and (b) the foregoing shall not apply at any time when all of the
outstanding Preferred Securities are owned by the Depositor, one or more of the
Trustees and/or any such Affiliate. Preferred Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Administrative Trustees the pledgee's
right so to act with respect to such Preferred Securities and that the pledgee
is not the Depositor or any Affiliate of the Depositor.
"Owner" means each Person who is the beneficial owner of a Book-Entry
Preferred Securities Certificate 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 5.9 and shall initially be the Bank.
"Payment Account" means a segregated non-interest-bearing corporate trust
account maintained by the Property Trustee with the Bank in its trust
8
<PAGE>
department for the benefit of the Securityholders in which all amounts paid in
respect of the Debentures will be held and from which the Property Trustee,
through the Paying Agent, shall make payments to the Securityholders in
accordance with Sections 4.1 and 4.2.
"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Security" means an undivided beneficial interest in the assets
of the Trust, having a Liquidation Amount of $25 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Preferred Securities Certificate" means a certificate evidencing ownership
of Preferred Securities, substantially in the form attached as Exhibit E.
"Property Trustee" means the Person identified as the "Property Trustee" in
the preamble to this Trust Agreement solely in its capacity as Property Trustee
of the Trust and not in its individual capacity, or its successor in interest in
such capacity, or any successor property trustee appointed as herein provided.
"Redemption Date" means, with respect to any Trust Security to be redeemed,
the date fixed for such redemption by or pursuant to this Trust Agreement;
provided that each Debenture Redemption Date and the stated maturity of the
Debentures shall be a Redemption Date for a Like Amount of Trust Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, plus the related amount of the premium, if
any, paid by the Depositor upon the concurrent redemption of a Like Amount of
Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among
the Trust Securities.
"Relevant Trustee" shall have the meaning specified in Section 8.10.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.4.
"Securityholder" means a Person in whose name a Trust Security is
registered in the Securities Register; any such Person shall be a beneficial
owner within the meaning of the Delaware Business Trust Act; provided, however,
that in determining whether the Holders of the requisite amount of Preferred
Securities have voted on any matter provided for in this Trust Agreement, then
for the purpose of any such determination, so long as Definitive Preferred
9
<PAGE>
Securities Certificates have not been issued, the term Securityholders or
Holders as used herein shall refer to the Owners.
"Trust" means the Delaware business trust created and continued hereby and
identified on the cover page to this Trust Agreement.
"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 Trust Agreement and any such modification, amendment or supplement, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this Trust Agreement and any such modification, amendment or supplement,
respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Debentures, (b) any cash on deposit in, or
owing to, the Payment Account and (c) all proceeds and rights in respect of the
foregoing and any other property and assets for the time being held or deemed to
be held by the Property Trustee pursuant to the trusts of this Trust Agreement.
"Trust Security" means any one of the Common Securities or the Preferred
Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Trustees" mean, collectively, the Property Trustee, the Delaware Trustee
and the Administrative Trustees.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
November 7, 1997, among the Trust, the Depositor and the underwriter(s) named
therein.
ARTICLE II.
ESTABLISHMENT OF THE TRUST
Section 2.1 NAME. The Trust continued hereby shall be known as "FIB
Capital Trust," as such name may be modified from time to time by the
Administrative Trustees following written notice to the Holders of Trust
Securities and the other Trustees, in which name the Trustees may conduct the
10
<PAGE>
business of the Trust, make and execute contracts and other instruments on
behalf of the 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 c/o Wilmington
Trust Company, 1100 North Market Street, Wilmington, Delaware 19890, Attention:
Corporate Trust Administrator, or such other address in the State of Delaware as
the Delaware Trustee may designate by written notice to the Securityholders and
the Depositor. The principal executive office of the Trust is c/o First
Interstate BancSystem, Inc., 401 North 31st Street, Billings, MT 59101.
Section 2.3 INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL
EXPENSES. The Trustees acknowledges receipt in trust from the Depositor in
connection with the Original Trust Agreement of the sum of $10, which
constituted the initial Trust Property. The Depositor shall pay organizational
expenses of the Trust as they arise or shall, upon request of any Trustee,
promptly reimburse such Trustee for any such expenses paid by such Trustee. The
Depositor shall make no claim upon the Trust Property for the payment of such
expenses.
Section 2.4 ISSUANCE OF THE PREFERRED SECURITIES. The Depositor and an
Administrative Trustee, on behalf of the Trust and pursuant to the Original
Trust Agreement, shall execute and deliver the Underwriting Agreement.
Contemporaneously with the execution and delivery of this Trust Agreement, an
Administrative Trustee, on behalf of the Trust, shall execute in accordance with
Section 5.2 and deliver to the Underwriter(s) named in the Underwriting
Agreement Preferred Securities Certificates, registered in the name of the
nominee of the initial Clearing Agency, in an aggregate amount of 1,600,000
Preferred Securities having an aggregate Liquidation Amount of $40,000,000,
against receipt of such aggregate purchase price of such Preferred Securities of
$40,000,000, which amount the Administrative Trustee shall promptly deliver to
the Property Trustee.
Section 2.5 ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE
OF DEBENTURES. Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in
accordance with Section 5.2 and deliver to the Depositor Common Securities
Certificates, registered in the name of the Depositor, in an aggregate amount of
49,484 Common Securities having an aggregate Liquidation Amount of $1,237,100
against payment by the Depositor of such amount, which amount such
Administrative Trustee shall promptly deliver to the Property Trustee.
Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust,
shall subscribe to and purchase from the Depositor Debentures, registered in the
name of the Trust and having an aggregate principal amount equal to $41,237,100,
and, in satisfaction of the purchase price for such Debentures, the
11
<PAGE>
Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum
of $41,237,100 (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).
Section 2.6 PURPOSES; DECLARATION OF TRUST. The exclusive purposes and
functions of the Trust are (a) to issue and sell Trust Securities and use the
proceeds from such sale to acquire the Debentures, and (b) to engage in those
activities necessary, advisable or incidental thereto. The Depositor hereby
appoints the Trustees as trustees of the Trust, to have all the rights, powers
and duties to the extent set forth herein, and the Trustees hereby accept such
appointment. The Property Trustee hereby declares that it will hold the Trust
Property in trust upon and subject to the conditions set forth herein for the
benefit of the Trust and the Securityholders. The Administrative Trustees shall
have all rights, powers and duties set forth herein and in accordance with
applicable law with respect to accomplishing the purposes of the Trust. The
Delaware Trustee shall 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 Administrative Trustees set forth herein. The Delaware Trustee
shall be one of the Trustees of the Trust for the sole and limited purpose of
fulfilling the requirements of Section 3807 of the Delaware Business Trust Act.
Section 2.7 DECLARATION OF TRUST; AUTHORITY.
(a) The Trustees shall conduct the affairs of the Trust in accordance
with the terms of this Trust Agreement. Subject to the limitations set forth in
paragraph (b) of this Section and Section 2.6, and in accordance with the
following provisions (i) and (ii), the Trustees shall have the authority to
enter into all transactions and agreements determined by the Trustees to be
appropriate in exercising the authority, express or implied, otherwise granted
to the Trustees under this Trust Agreement, and to perform all acts in
furtherance thereof, including without limitation, the following:
(i) As among the Trustees, each Administrative Trustee, acting
singly or jointly, shall have the power and authority to act on behalf of
the Trust with respect to the following matters:
(A) the issuance and sale of the Trust Securities;
(B) to cause the Trust to enter into, and to execute,
deliver and perform on behalf of the Trust, the Expense Agreement and
the Certificate Depository Agreement and such other agreements as may
be necessary or desirable in connection with the purposes and function
of the Trust;
12
<PAGE>
(C) assisting in the registration of the Preferred
Securities under the Securities Act of 1933, as amended, and under
state securities or blue sky laws, and the qualification of this Trust
Agreement as a trust indenture under the Trust Indenture Act;
(D) assisting in the listing of the Preferred Securities
upon such securities exchange or exchanges as shall be determined by
the Depositor and the registration of the Preferred Securities under
the Exchange Act and the preparation and filing of all periodic and
other reports and other documents pursuant to the foregoing;
(E) the sending of notices (other than notices of default)
and other information regarding the Trust Securities and the
Debentures to the Securityholders in accordance with this Trust
Agreement;
(F) the appointment of a Paying Agent, authenticating agent
and Securities Registrar in accordance with this Trust Agreement;
(G) registering transfer of the Trust Securities in
accordance with this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the
winding up of the affairs of and liquidation of the Trust;
(I) unless otherwise determined by the Depositor, the
Property Trustee or the Administrative Trustees, or as otherwise
required by the Delaware Business Trust Act or the Trust Indenture
Act, to execute on behalf of the Trust (either acting alone or
together with any or all of the Administrative Trustees) any documents
that the Administrative Trustees have the power to execute pursuant to
this Trust Agreement; and
(J) the taking of any action incidental to the foregoing as
the Trustees may from time to time determine is necessary or advisable
to give effect to the terms of this Trust Agreement for the benefit of
the Securityholders (without consideration of the effect of any such
action on any particular Securityholder).
(ii) As among the Trustees, the Property Trustee shall have the
power, duty and authority to act on behalf of the Trust with respect to the
following matters:
13
<PAGE>
(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and any other
payments made in respect of the Debentures in the Payment Account;
(D) the distribution through the Paying Agent of amounts
owed to the Securityholders in respect of the Trust Securities;
(E) the exercise of all of the rights, powers and
privileges of a holder of the Debentures;
(F) the sending of notices of default and other information
regarding the Trust Securities and the Debentures to the
Securityholders in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance
with the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the
winding up of the affairs of and liquidation of the Trust and the
preparation, execution and filing of the certificate of cancellation
with the Secretary of State of the State of Delaware;
(I) after an Event of Default (other than under paragraph
(b), (c), (d) or (e) of the definition of such term if such Event of
Default is by or with respect to the Property Trustee) the taking of
any action incidental to the foregoing as the Property Trustee may
from time to time determine is necessary or advisable to give effect
to the terms of this Trust Agreement and protect and conserve the
Trust Property for the benefit of the Securityholders (without
consideration of the effect of any such action on any particular
Securityholder);
(J) so long as the Property Trustee is the Securities
Registrar, registering transfers of the Trust Securities in accordance
with this Trust Agreement; and
(K) except as otherwise provided in this Section
2.7(a)(ii), the Property Trustee shall have none of the duties,
liabilities, powers or the authority of the Administrative Trustees
set forth in Section 2.7(a)(i).
14
<PAGE>
(b) So long as this Trust Agreement remains in effect, the Trust (or
the Trustees acting on behalf of the Trust) shall not undertake any business,
activities or transaction except as expressly provided herein or contemplated
hereby. In particular, the Trustees shall not (i) acquire any investments or
engage in any activities not authorized by this Trust Agreement, (ii) sell,
assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of
any of the Trust Property or interests therein, including to Securityholders,
except as expressly provided herein, (iii) take any action that would cause the
Trust to fail or cease to qualify as a "grantor trust" for United States Federal
income tax purposes, (iv) incur any indebtedness for borrowed money or issue any
other debt or (v) take or consent to any action that would result in the
placement of a Lien on any of the Trust Property. The Administrative Trustees
shall defend all claims and demands of all Persons at any time claiming any Lien
on any of the Trust Property adverse to the interest of the Trust or the
Securityholders in their capacity as Securityholders.
(c) In connection with the issue and sale of the Preferred
Securities, the Depositor shall have the right and responsibility to assist the
Trust with respect to, or effect on behalf of the Trust, the following (and any
actions taken by the Depositor in furtherance of the following prior to the date
of this Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation and filing by the Trust with the Commission
and the execution on behalf of the Trust of a registration statement on the
appropriate form in relation to the Preferred Securities, including any
amendments thereto;
(ii) the determination of the States in which to take
appropriate action to qualify or register for sale all or part of the
Preferred Securities and the determination of any and all such acts, other
than actions which must be taken by or on behalf of the Trust, and the
advice to the Trustees of actions they must take on behalf of the Trust,
and the preparation for execution and filing of any documents to be
executed and filed by the Trust or on behalf of the Trust, as the Depositor
deems necessary or advisable in order to comply with the applicable laws of
any such States;
(iii) the preparation for filing by the Trust and execution on
behalf of the Trust of an application to the New York Stock Exchange or any
other national stock exchange or the Nasdaq National Market for listing
upon notice of issuance of any Preferred Securities;
(iv) the preparation for filing by the Trust with the Commission
and the execution on behalf of the Trust of a registration statement on
Form 8-A relating to the registration of the Preferred
15
<PAGE>
Securities under Section 12(b) or 12(g) of the Exchange Act, including any
amendments thereto;
(v) the negotiation of the terms of, and the execution and
delivery of, the Underwriting Agreement providing for the sale of the
Preferred Securities; and
(vi) the taking of any other actions necessary or desirable to
carry out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the
Administrative Trustees are authorized and directed to conduct the affairs of
the Trust and to operate the Trust so that the Trust will not be deemed to be an
"investment company" required to be registered under the 1940 Act, or fail to be
classified as a grantor trust for United States Federal income tax purposes and
so that the Debentures will be treated as indebtedness of the Depositor for
United States Federal income tax purposes. In this connection, the Depositor
and the Administrative Trustees are authorized to take any action, not
inconsistent with applicable law, the Certificate of Trust or this Trust
Agreement, that each of the Depositor and any Administrative Trustee determines
in its 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 Preferred Securities.
Section 2.8 ASSETS OF TRUST. The assets of the Trust shall consist 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 Trust and the Securityholders 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 any agent of the
Property Trustee shall have exclusive control and sole right of withdrawal with
respect to the Payment Account for the purpose of making deposits 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 Securityholders and for distribution as herein
provided, including (and subject to) any priority of payments provided for
herein.
16
<PAGE>
(b) The Property Trustee shall deposit in the Payment Account,
promptly upon receipt, all payments of principal of or interest on, and any
other payments or proceeds with respect to, the Debentures. Amounts held in the
Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
ARTICLE IV.
DISTRIBUTIONS; REDEMPTION
Section 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 Debentures. Accordingly:
(i) Distributions on the Trust Securities shall be cumulative,
and will accumulate whether or not there are funds of the Trust available
for the payment of Distributions. Distributions shall accrue from November
7, 1997, and, except in the event (and to the extent) that the Depositor
exercises its right to defer the payment of interest on the Debentures
pursuant to the Indenture, shall be payable quarterly in arrears on March
31, June 30, September 30 and December 31 of each year, commencing on
December 15, 1997. If any date on which a Distribution is otherwise
payable on the Trust Securities is not a Business Day, then the payment of
such Distribution shall be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any
such delay) except that, if such Business Day is in the next succeeding
calendar year, payment of such Distribution shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date (each date on which distributions are
payable in accordance with this Section 4.1(a), a "Distribution Date").
(ii) Assuming payments of interest on the Debentures are made
when due (and before giving effect to Additional Amounts, if applicable),
Distributions on the Trust Securities shall be payable at a rate of ___%
per annum of the Liquidation Amount of the Trust Securities. The amount of
Distributions payable for any full period shall be computed on the basis of
a 360-day year of twelve 30-day months. The amount of Distributions for
any partial period shall be computed on the basis of the number of days
elapsed in a 360-day year of twelve 30-day months. The amount of
Distributions payable for any period shall include the Additional Amounts,
if any.
17
<PAGE>
(iii) 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 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 on the relevant record date, which
shall be one Business Day prior to such Distribution Date; provided, however,
that in the event that the Preferred Securities do not remain in book-
entry-only form, the relevant record date shall be the date 15 days prior to the
relevant Distribution Date.
Section 4.2 REDEMPTION.
(a) On each Debenture Redemption Date and on the stated maturity of
the Debentures, the Trust will be required to redeem, subject to Section 4.3, 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;
(iii) the CUSIP number;
(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; and
(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 accrue on and after said date.
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Debentures. Redemptions of the Trust Securities shall be made and
the Redemption Price shall be payable on each Redemption
18
<PAGE>
Date only to the extent that the Trust has funds then on hand and available in
the Payment Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect
of any Preferred Securities, then, by 12:00 noon, Rocky Mountain time, on the
Redemption Date, subject to Section 4.2(c), with respect to Preferred Securities
held in book-entry form, the Property Trustee will irrevocably deposit with the
Clearing Agency for the Preferred Securities 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 thereof.
With respect to Preferred Securities held in certificated form, the Property
Trustee, subject to Section 4.2(c), will irrevocably deposit with the Paying
Agent funds sufficient to pay the applicable Redemption Price and will give the
Paying Agent irrevocable instructions and authority to pay the Redemption Price
to the Holders thereof upon surrender of their Preferred Securities
Certificates. Notwithstanding the foregoing, Distributions payable on or prior
to the Redemption Date for any Trust Securities called for redemption shall be
payable to the Holders of such Trust Securities as they appear on the Register
for the Trust Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of
Securityholders holding Trust Securities so called for redemption will cease,
except the right of such Securityholders to receive the Redemption Price and any
Distribution payable on or prior to the Redemption Date, but without interest,
and such Securities will cease to be outstanding. In the event that any date on
which any Redemption Price is payable is not a Business Day, then payment of the
Redemption Price payable on such date 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
Trust or by the Depositor pursuant to the Guarantee, Distributions on such Trust
Securities will continue to accrue, at the then applicable rate, from the
Redemption Date originally established by the Trust for such Trust Securities to
the date such Redemption Price is actually paid, in which case the actual
payment date will be the date fixed for redemption for purposes of calculating
the Redemption Price.
(e) Payment of the Redemption Price on the Trust Securities shall be
made to the recordholders thereof as they appear on the Securities Register for
the Trust Securities on the relevant record date, which shall be one Business
Day prior to the relevant Redemption Date; provided, however, that in the event
that the Preferred Securities do not remain in book-entry-only form, the
19
<PAGE>
relevant record date shall be the date fifteen days prior to the relevant
Redemption Date.
(f) 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 Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Common Securities and
the Preferred Securities. The particular Preferred Securities to be redeemed
shall be selected on a pro rata basis (based upon Liquidation Amounts) not more
than 60 days prior to the Redemption Date by the Property Trustee from the
Outstanding Preferred Securities not previously called for redemption, by such
method (including, without limitation, by lot) as the Property Trustee shall
deem fair and appropriate and which may provide for the selection for redemption
of portions (equal to $25 or an integral multiple of $25 in excess thereof) of
the Liquidation Amount of Preferred Securities of a denomination larger than
$25. The Property Trustee shall promptly notify the Security Registrar in
writing of the Preferred Securities selected for redemption and, in the case of
any Preferred Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of this Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of
Preferred Securities shall relate, in the case of any Preferred Securities
redeemed or to be redeemed only in part, to the portion of the Liquidation
Amount of Preferred Securities 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, and the Redemption Price of, the Trust Securities, as
applicable, shall be made, subject to Section 4.2(f), pro rata among the Common
Securities and the Preferred Securities based on the Liquidation Amount of the
Trust Securities; provided, however, that if on any Distribution Date or
Redemption Date any Event of Default resulting from a Debenture Event of Default
shall have occurred and be continuing, no payment of any Distribution (including
Additional Amounts, if applicable) on, or Redemption Price of, any Common
Security, and no other payment on account of the redemption, liquidation or
other acquisition of Common Securities, shall be made unless payment in full in
cash of all accumulated and unpaid Distributions (including Additional Amounts,
if applicable) on all Outstanding Preferred Securities for all Distribution
periods terminating on or prior thereto, or in the case of payment of the
Redemption Price the full amount of such Redemption Price on all Outstanding
Preferred Securities, shall have been made or provided for, and all funds
immediately available to the Property Trustee shall first be applied to the
payment in full in cash of all Distributions (including Additional Amounts, if
applicable) on, or the Redemption Price of, Preferred Securities then due and
payable.
20
<PAGE>
(b) In the case of the occurrence of any Event of Default resulting
from any Debenture Event of Default, the Holder of Common Securities will be
deemed to have waived any right to act with respect to any such Event of Default
under this Trust Agreement until the effect of all such Events of Default with
respect to the Preferred Securities have been cured, waived or otherwise
eliminated. Until any such Event of Default under this Trust Agreement with
respect to the Preferred Securities has been so cured, waived or otherwise
eliminated, the Property Trustee shall act solely on behalf of the Holders of
the Preferred Securities and not the Holder of the Common Securities, and only
the Holders of the Preferred Securities will have the right to direct the
Property Trustee to act on their behalf.
Section 4.4 PAYMENT PROCEDURES. Payments of Distributions (including
Additional Amounts, if applicable) in respect of the Preferred Securities shall
be made by check mailed to the address of the Person entitled thereto as such
address shall appear on the Securities Register or, if the Preferred Securities
are held by a Clearing Agency, such Distributions shall be made to the Clearing
Agency in immediately available funds, which shall credit the relevant Persons'
accounts at such Clearing Agency 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 Common Securityholder.
Section 4.5 TAX RETURNS AND REPORTS. The Administrative Trustees shall
prepare (or cause to be prepared), at the Depositor's expense, and file all
United States Federal, state and local tax and information returns and reports
required to be filed by or in respect of the Trust. In this regard, the
Administrative Trustees shall (a) prepare and file (or cause to be prepared and
filed) the appropriate Internal Revenue Service form required to be filed in
respect of the Trust in each taxable year of the Trust and (b) prepare and
furnish (or cause to be prepared and furnished) to each Securityholder the
appropriate Internal Revenue Service form required to be provided on such form.
The Administrative Trustees shall provide the Depositor and the Property Trustee
with a copy of all such returns and reports promptly after such filing or
furnishing. The Trustees shall comply with United States Federal withholding
and backup withholding tax laws and information reporting requirements with
respect to any payments to Securityholders under the Trust Securities.
Section 4.6 PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST. Upon receipt
under the Debentures of Additional Sums, the Property Trustee shall promptly pay
any taxes, duties or governmental charges of whatsoever nature (other than
withholding taxes) imposed on the Trust by the United States or any other taxing
authority.
21
<PAGE>
Section 4.7 PAYMENTS UNDER INDENTURE OR PURSUANT TO DIRECT ACTIONS. Any
amount payable hereunder to any Holder of Preferred Securities shall be reduced
by the amount of any corresponding payment such Holder (and any Owner with
respect thereto) has directly received pursuant to Section 5.8 of the Indenture
or Section 5.14 of this Trust Agreement.
ARTICLE V.
TRUST SECURITIES CERTIFICATES
Section 5.1 INITIAL OWNERSHIP. Upon the creation of the 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 Trust.
Section 5.2 THE TRUST SECURITIES CERTIFICATES. The Preferred Securities
Certificates shall be issued in minimum denominations of $25 Liquidation Amount
and integral multiples of $25 in excess thereof, and the Common Securities
Certificates shall be issued in denominations of $25 Liquidation Amount and
integral multiples thereof. The Trust Securities Certificates shall be executed
on behalf of the Trust by manual signature of at least one Administrative
Trustee. Trust Securities Certificates bearing the manual signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign on behalf of the Trust, shall be validly issued and entitled
to the benefits of this Trust Agreement, notwithstanding that such individuals
or any of them shall have ceased to be so authorized prior to the delivery of
such Trust Securities Certificates or did not hold such offices at the date of
delivery of such Trust Securities Certificates. A transferee of a Trust
Securities Certificate shall become a Securityholder, and shall be entitled to
the rights and subject to the obligations of a Securityholder hereunder, upon
due registration of such Trust Securities Certificate in such transferee's name
pursuant to Sections 5.4, 5.11 and 5.13.
Section 5.3 EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES. At
the Closing Date, the Administrative Trustees shall cause Trust Securities
Certificates, in an aggregate Liquidation Amount as provided in Section 2.4, to
be executed on behalf of the Trust and delivered to or upon the written order of
the Depositor, signed by its chairman of the board, its president, any executive
vice president or any vice president, treasurer or assistant treasurer or
controller without further corporate action by the Depositor, in authorized
denominations.
Section 5.4 REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED SECURITIES
CERTIFICATES. The Depositor shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 5.8, a register or registers for the
purpose of registering Trust Securities Certificates and transfers and exchanges
of Preferred Securities Certificates (the "Securities Register") in which, the
22
<PAGE>
registrar designated by the Depositor (the "Securities Registrar"), subject to
such reasonable regulations as it may prescribe, shall provide for the
registration of Preferred Securities Certificates and Common Securities
Certificates (subject to Section 5.10 in the case of the Common Securities
Certificates) and registration of transfers and exchanges of Preferred
Securities Certificates as herein provided. The Bank shall be the initial
Securities Registrar.
Upon surrender for registration of transfer of any Preferred Securities
Certificate at the office or agency maintained pursuant to Section 5.8, the
Administrative Trustees or any one of them shall execute and deliver, in the
name of the designated transferee or transferees, one or more new Preferred
Securities Certificates in authorized denominations of a like aggregate
Liquidation Amount dated the date of execution by such Administrative Trustee or
Trustees.
The Securities Registrar shall not be required to register the transfer of
any Preferred Securities that have been called for redemption. At the option of
a Holder, Preferred Securities Certificates may be exchanged for other Preferred
Securities Certificates in authorized denominations of the same class and of a
like aggregate Liquidation Amount upon surrender of the Preferred Securities
Certificates to be exchanged at the office or agency maintained pursuant to
Section 5.8.
Every Preferred Securities Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to an Administrative Trustee and the
Securities Registrar duly executed by the Holder or his attorney duly authorized
in writing. Each Preferred Securities Certificate surrendered for registration
of transfer or exchange shall be canceled and subsequently disposed of by an
Administrative Trustee in accordance with such Person's customary practice. The
Trust shall not be required to (i) issue, register the transfer of or exchange
any Preferred Securities during a period beginning at the opening of business 15
calendar days before the date of mailing of a notice of redemption of any
Preferred Securities called for redemption and ending at the close business on
the day of such mailing or (ii) register the transfer of or exchange any
Preferred Securities so selected for redemption, in whole or in part, except the
unredeemed portion of any such Preferred Securities being redeemed in part.
No service charge shall be made for any registration of transfer or
exchange of Preferred Securities Certificates, but the Securities Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Preferred
Securities Certificates.
Section 5.5 MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES
CERTIFICATES. If (a) any mutilated Trust Securities Certificate shall be
surrendered
23
<PAGE>
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 Administrative Trustees such security or indemnity as may be
required by them to save each of them harmless, then in the absence of notice
that such Trust Securities Certificate shall have been acquired by a bona fide
purchaser, the Administrative Trustees, or any one of them, on behalf of the
Trust shall execute and make available for delivery, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a
new Trust Securities Certificate of like class, tenor and denomination. In
connection with the issuance of any new Trust Securities Certificate under this
Section, the Administrative Trustees or the Securities Registrar may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith. Any duplicate Trust Securities
Certificate issued pursuant to this Section shall constitute conclusive evidence
of an undivided beneficial interest in the assets of the Trust, as if originally
issued, whether or not the lost, stolen or destroyed Trust Securities
Certificate shall be found at any time.
Section 5.6 PERSONS DEEMED SECURITYHOLDERS. The Trustees or the
Securities Registrar shall treat the Person in whose name any Trust Securities
Certificate shall be registered in the Securities Register as the owner of such
Trust Securities Certificate for the purpose of receiving Distributions and for
all other purposes whatsoever, and neither the Trustees nor the Securities
Registrar shall be bound by any notice to the contrary.
Section 5.7 ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES. At
any time when the Property Trustee is not also acting as the Securities
Registrar, the Administrative Trustees or the Depositor shall furnish or cause
to be furnished to the Property Trustee (a) semi-annually on or before January 1
and July 1 in each year, a list, in such form as the Property Trustee may
reasonably require, of the names and addresses of the Securityholders as of the
most recent Record Date and (b) promptly after receipt by any Administrative
Trustee or the Depositor of a request therefor from the Property Trustee, such
other information as the Property Trustee may reasonably require in order to
enable the Property Trustee to discharge its obligations under this Trust
Agreement, in each case to the extent such information is in the possession or
control of the Administrative Trustees or the Depositor and is not identical to
a previously supplied list or has not otherwise been received by the Property
Trustee in its capacity as Securities Registrar. The rights of Securityholders
to communicate with other Security holders with respect to their rights under
this Trust Agreement or under the Trust Securities, and the corresponding rights
of the Trustee shall be as provided in the Trust Indenture Act. Each Holder, by
receiving and holding a Trust Securities Certificate, and each Owner shall be
deemed to have agreed not to hold the Depositor, the Property Trustee or the
Administrative Trustees accountable by
24
<PAGE>
reason of the disclosure of its name and address, regardless of the source from
which such information was derived.
Section 5.8 MAINTENANCE OF OFFICE OR AGENCY. The Administrative Trustees
shall maintain an office or offices or agency or agencies where Preferred
Securities Certificates may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Trustees in respect of the
Trust Securities Certificates may be served. The Administrative Trustees
initially designate the principal corporate trust office of the Property
Trustee, Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, Attention: Corporate Trust Administrator, as the principal corporate
trust office for such purposes. The Administrative Trustees shall give prompt
written notice to the Depositor and to the Securityholders of any change in the
location of the Securities Register or any such office or agency.
Section 5.9 APPOINTMENT OF PAYING AGENT. The Paying Agent shall make
Distributions to Securityholders from the Payment Account and shall report the
amounts of such Distributions to the Property Trustee and the Administrative
Trustees. Any Paying Agent shall have the revocable power to withdraw funds
from the Payment Account for the purpose of making the Distributions referred to
above. The Administrative Trustees may revoke such power and remove the Paying
Agent if such Trustees determine in their sole discretion that the Paying Agent
shall have failed to perform its obligations under this Trust Agreement in any
material respect. The Paying Agent shall initially be the Property Trustee, and
any co-paying agent chosen by the Property Trustee, and acceptable to the
Administrative Trustees and the Depositor. Any Person acting as Paying Agent
shall be permitted to resign as Paying Agent upon 30 days' written notice to the
Administrative Trustees, the Property Trustee and the Depositor. 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 Administrative
Trustees shall appoint a successor that is acceptable to the Property Trustee
and the Depositor to act as Paying Agent (which shall be a bank or trust
company). The Administrative Trustees shall cause such successor Paying Agent
or any additional Paying Agent appointed by the Administrative Trustees to
execute and deliver to the Trustees an instrument in which such successor Paying
Agent or additional Paying Agent shall agree with the Trustees that as Paying
Agent, such successor Paying Agent or additional Paying Agent will hold all
sums, if any, held by it for payment to the Securityholders in trust for the
benefit of the Securityholders entitled thereto until such sums shall be paid to
such Securityholders. The Paying Agent shall return all unclaimed funds to the
Property Trustee and upon removal of a Paying Agent such Paying Agent shall also
return all funds in its possession to the Property Trustee. The provisions of
Sections 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
25
<PAGE>
Agreement to the Paying Agent shall include any co-paying agent unless the
context requires otherwise.
Section 5.10 OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR. At the Closing
Date, the Depositor shall acquire and retain beneficial and record ownership of
the Common Securities. To the fullest extent permitted by law, other than a
transfer in connection with a consolidation or merger of the Depositor into
another Person, 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, any attempted transfer of the Common Securities
shall be void. The Administrative Trustees shall cause each Common Securities
Certificate issued to the Depositor to contain a legend stating "THIS
CERTIFICATE IS NOT TRANSFERABLE EXCEPT AS SET FORTH IN SECTION 5.10 OF THE TRUST
AGREEMENT."
Section 5.11 BOOK ENTRY PREFERRED SECURITIES CERTIFICATES; COMMON
SECURITIES CERTIFICATE.
(a) The Preferred Securities Certificates, upon original issuance,
will be issued in the form of a typewritten Preferred Securities Certificate or
Certificates representing Book-Entry Preferred Securities Certificates, to be
delivered to The Depository Trust Company, the initial Clearing Agency, by, or
on behalf of, the Trust. Such Preferred Securities Certificate or Certificates
shall initially be registered on the Securities Register in the name of Cede &
Co., the nominee of the initial Clearing Agency, and no Owner will receive a
Definitive Preferred Securities Certificate representing such Owner's interest
in such Preferred Securities, except as provided in Section 5.13. Unless and
until Definitive Preferred Securities Certificates have been issued to Owners
pursuant to Section 5.13:
(i) the provisions of this Section 5.11(a) shall be in full
force and effect;
(ii) the Securities Registrar, the Paying Agent and the Trustees
shall be entitled to deal with the Clearing Agency for all purposes of this
Trust Agreement relating to the Book-Entry Preferred Securities
Certificates (including the payment of the Liquidation Amount of and
Distributions on the Preferred Securities evidenced by Book-Entry Preferred
Securities Certificates) the Book-Entry Preferred Securities Certificates
and shall have no obligations to the Owners thereof;
(iii) to the extent that the provisions of this Section 5.11
conflict with any other provisions of this Trust Agreement, the provisions
of this Section 5.11 shall control; and
26
<PAGE>
(iv) the rights of the Owners of the Book-Entry Preferred
Securities Certificates 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 and/or the Clearing Agency
Participants. Pursuant to the Certificate Depository Agreement, unless and
until Definitive Preferred Securities Certificates are issued pursuant to
Section 5.13, the initial Clearing Agency will make book-entry transfers
among the Clearing Agency Participants and receive and transmit payments on
the Preferred Securities to such Clearing Agency Participants. Any Clearing
Agency designated pursuant here to will not be deemed an agent of the
Trustee for any purpose.
(b) 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 5.12 NOTICES TO CLEARING AGENCY. To the extent that a notice or
other communication to the Owners is required under this Trust Agreement, unless
and until Definitive Preferred Securities Certificates shall have been issued to
Owners pursuant to Section 5.13, the Trustees shall give all such notices and
communications specified herein to be given to Owners to the Clearing Agency and
shall have no obligations to the Owners.
Section 5.13 DEFINITIVE PREFERRED SECURITIES CERTIFICATES. If (a) the
Depositor advises the Trustees in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Preferred Securities Certificates, and the Depositor is unable to locate a
qualified successor, (b) the Depositor at its option advises the Trustees in
writing that it elects to terminate the book-entry system through the Clearing
Agency or (c) after the occurrence of a Debenture Event of Default, Owners of
Preferred Securities Certificates representing beneficial interests aggregating
at least a majority of the Liquidation Amount advise the Property Trustee in
writing that the continuation of a book-entry system through the Clearing Agency
is no longer in the best interest of the Owners of Preferred Securities
Certificates, then the Property Trustee shall notify the Clearing Agency and the
Clearing Agency shall notify all Owners of Preferred Securities Certificates and
the other Trustees of the occurrence of any such event and of the availability
of the Definitive Preferred Securities Certificates to Owners of such class or
classes, as applicable, requesting the same. Upon surrender to the Property
Trustee of the typewritten Preferred Securities Certificate or Certificates
representing the Book Entry Preferred Securities Certificates by the Clearing
Agency, accompanied by registration instructions, the Administrative Trustees,
or any one of them, shall execute the Definitive Preferred Securities
Certificates in accordance with the instructions of the Clearing Agency.
Neither the Securities Registrar nor the Trustees shall be liable for any delay
in delivery of such instructions and may
27
<PAGE>
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Preferred Securities Certificates, the Trustees
shall recognize the Holders of the Definitive Preferred Securities Certificates
as Securityholders. The Definitive Preferred Securities Certificates shall be
printed, lithographed or engraved or may be produced in any other manner as is
reasonably acceptable to the Administrative Trustees, as evidenced by the
execution thereof by the Administrative Trustees or any one of them.
Section 5.14 RIGHTS OF SECURITYHOLDERS.
(a) The legal title to the Trust Property is vested exclusively in
the Property Trustee (in its capacity as such) in accordance with Section 2.9,
and the Securityholders shall not have any right or title therein other than the
undivided beneficial interest in the assets of the Trust conferred by their
Trust Securities and they shall have no right to call for any partition or
division of property, profits or rights of the Trust except as described below.
The Trust Securities shall be personal property 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
Securityholders against payment of the purchase price therefor will be fully
paid and nonassessable by the Trust. The Holders of the Trust Securities, in
their capacities as such, shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
(b) For so long as any Preferred Securities remain Outstanding, if,
upon a Debenture Event of Default, the Debenture Trustee fails or the holders of
not less than 25% in principal amount of the outstanding Debentures fail to
declare the principal of all of the Debentures to be immediately due and
payable, the Holders of at least 25% in Liquidation Amount of the Preferred
Securities then Outstanding shall have such right by a notice in writing to the
Depositor and the Debenture Trustee; and upon any such declaration such
principal amount of and the accrued interest on all of the Debentures shall
become immediately due and payable, provided that the payment of principal and
interest on such Debentures shall remain subordinated to the extent provided in
the Indenture.
At any time after such a declaration of acceleration with respect to the
Debentures has been made and before a judgment or decree for payment of the
money due has been obtained by the Debenture Trustee as in the Indenture
provided, the Holders of a majority in Liquidation Amount of the Preferred
Securities, by written notice to the Property Trustee, the Depositor and the
Debenture Trustee, may rescind and annul such declaration and its consequences
if:
28
<PAGE>
(i) the Depositor has paid or deposited with the Debenture
Trustee a sum sufficient to pay
(A) all overdue installments of interest (including any
Additional Interest (as defined in the Indenture)) on all of the
Debentures,
(B) the principal of (and premium, if any, on) any
Debentures which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Debentures,
and
(C) all sums paid or advanced by the Debenture Trustee
under the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Debenture Trustee and the Property
Trustee, their agents and counsel; and
(ii) all Events of Default with respect to the Debentures, other
than the non-payment of the principal of the Debentures which has become
due solely by such acceleration, have been cured or waived as provided in
Section 5.13 of the Indenture.
The Holders of a majority in aggregate Liquidation Amount of the Preferred
Securities may, on behalf of the Holders of all the Preferred Securities, waive
any past default under the Indenture, except a default in the payment of
principal or interest (unless such default has been cured and a sum sufficient
to pay all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee) or a default in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each outstanding Debenture. No
such rescission shall affect any subsequent default or impair any right
consequent thereon.
Upon receipt by the Property Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, by Holders of the Preferred
Securities all or part of which is represented by Book-Entry Preferred
Securities Certificates, a record date shall be established for determining
Holders of Outstanding Preferred Securities entitled to join in such notice,
which record date shall be at the close of business on the day the Property
Trustee receives such notice. The Holders on such record date, or their duly
designated proxies, and only such Persons, shall be entitled to join in such
notice, whether or not such Holders remain Holders after such record date;
provided, that, unless such declaration of acceleration, or rescission and
annulment, as the case may be, shall have become effective by virtue of the
requisite percentage having joined in such notice prior to the day which is 90
days after such record date, such notice of declaration of acceleration, or
rescission and annulment, as the case may be, shall
29
<PAGE>
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 5.14(b).
(c) For so long as any Preferred Securities remain Outstanding, to
the fullest extent permitted by law and subject to the terms of this Trust
Agreement and the Indenture, upon a Debenture Event of Default specified in
Section 5.1(1) or 5.1(2) of the Indenture, any Holder of Preferred Securities
shall have the right to institute a proceeding directly against the Depositor,
pursuant to Section 5.8 of the Indenture, for enforcement of payment to such
Holder of the principal amount of or interest on Debentures having a principal
amount equal to the Liquidation Amount of the Preferred Securities of such
Holder (a "Direct Action"). Except as set forth in Section 5.14(b) and this
Section 5.14(c), the Holders of Preferred Securities shall have no right to
exercise directly any right or remedy available to the holders of, or in respect
of, the Debentures.
ARTICLE VI.
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
Section 6.1 LIMITATIONS ON VOTING RIGHTS.
(a) Except as provided in this Section, in Sections 5.14, 8.10 and
10.2 and in the Indenture and as otherwise required by law, no Holder of
Preferred Securities shall have any right to vote or in any manner otherwise
control the administration, operation and management of the Trust or the
obligations of the parties hereto, nor shall anything herein set forth, or
contained in the terms of the Trust Securities Certificates, be construed so as
to constitute the Securityholders from time to time as partners or members of an
association.
(b) So long as any Debentures are held by the Property Trustee, the
Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing any
trust or power conferred on the Debenture Trustee with respect to such
Debentures, (ii) waive any past default which is waivable under Section 5.13 of
the Indenture, (iii) exercise any right to rescind or annul a declaration that
the principal of all the Debentures shall be due and payable or (iv) consent to
any amendment, modification or termination of the Indenture or the Debentures,
where such consent shall be required, without, in each case, obtaining the prior
approval of the Holders of at least a majority in Liquidation Amount of all
Outstanding Preferred Securities; provided, however, that where a consent under
the Indenture would require the consent of each Holder of Debentures affected
30
<PAGE>
thereby, no such consent shall be given by the Property Trustee without the
prior written consent of each Holder of Preferred Securities. The Trustees
shall not revoke any action previously authorized or approved by a vote of the
Holders of Preferred Securities, except by a subsequent vote of the Holders of
Preferred Securities. The Property Trustee shall notify all Holders of the
Preferred Securities of any notice of default received from the Debenture
Trustee with respect to the Debentures. In addition to obtaining the foregoing
approvals of the Holders of the Preferred Securities, prior to taking any of the
foregoing actions, the Trustees shall, at the expense of the Depositor, obtain
an Opinion of Counsel experienced in such matters to the effect that such action
shall not cause the Trust to fail to be classified as a grantor trust for United
States Federal income tax purposes.
(c) If any proposed amendment to the Trust Agreement provides for, or
the Trustees otherwise propose to effect, (i) any action that would adversely
affect in any material respect the powers, preferences or special rights of the
Preferred Securities, whether by way of amendment to the Trust Agreement or
otherwise, or (ii) the dissolution, winding-up or termination of the Trust,
other than pursuant to the terms of this Trust Agreement, then the Holders of
Outstanding Preferred Securities as a class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of the Holders of at least a majority in Liquidation
Amount of the Outstanding Preferred Securities. Notwithstanding any other
provision of this Trust Agreement, no amendment to this Trust Agreement may be
made if, as a result of such amendment, it would cause the Trust to fail to be
classified as a grantor trust for United States Federal income tax purposes.
Section 6.2 NOTICE OF MEETINGS. Notice of all meetings of the Preferred
Securityholders, stating the time, place and purpose of the meeting, shall be
given by the Property Trustee pursuant to Section 10.8 to each Preferred
Securityholder 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 PREFERRED SECURITYHOLDERS. No annual meeting of
Securityholders is required to be held. The Administrative Trustees, however,
shall call a meeting of Preferred Securityholders to vote on any matter upon the
written request of Holders of record of 25% of the Outstanding Preferred
Securities (based upon their Liquidation Amount) and the Administrative Trustees
or the Property Trustee may, at any time in their discretion, call a meeting of
Preferred Securityholders to vote on any matters as to which Preferred
Securityholders are entitled to vote.
31
<PAGE>
Holders of record of 50% of the Outstanding Preferred Securities (based
upon their Liquidation Amount), present in person or by proxy, shall constitute
a quorum at any meeting of Securityholders.
If a quorum is present at a meeting, an affirmative vote by the Preferred
Securityholders of record present, in person or by proxy, holding more than a
majority of the Preferred Securities (based upon their Liquidation Amount) held
by the Preferred Securityholders of record present, either in person or by
proxy, at such meeting shall constitute the action of the Preferred
Securityholders, unless this Trust Agreement requires a greater number of
affirmative votes.
Section 6.4 VOTING RIGHTS. Securityholders shall be entitled to one vote
for each $25 of Liquidation Amount represented by their Trust Securities in
respect of any matter as to which such Securityholders are entitled to vote.
Section 6.5 PROXIES, ETC. At any meeting of Securityholders, any
Securityholder entitled to vote thereat may vote by proxy, provided that no
proxy shall be voted at any meeting unless it shall have been placed on file
with the Administrative Trustees, or with such other officer or agent of the
Trust as the Administrative Trustees may direct, for verification prior to the
time at which such vote shall be taken. 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 Securityholders 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 Securityholder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger. No
proxy shall be valid more than three years after its date of execution.
Section 6.6 SECURITYHOLDER ACTION BY WRITTEN CONSENT. Any action which
may be taken by Securityholders at a meeting may be taken without a meeting if
Securityholders holding a majority of all Outstanding Trust Securities (based
upon their aggregate Liquidation Amount) entitled to vote in respect of such
action (or such larger proportion thereof as shall be required by any express
provision of this Trust Agreement) shall consent to the action in writing (based
upon their aggregate Liquidation Amount).
Section 6.7 RECORD DATE FOR VOTING AND OTHER PURPOSES For the purposes of
determining the Securityholders who are entitled to notice of and to vote at any
meeting or by written consent, or to participate in any Distribution on the
Trust Securities in respect of which a record date is not otherwise provided
32
<PAGE>
for in this Trust Agreement, or for the purpose of any other action, the
Administrative Trustees may from time to time fix a date, not more than 90 days
prior to the date of any meeting of Securityholders or the payment of a
Distribution or other action, as the case may be, as a record date for the
determination of the identity of the Securityholders of record for such
purposes.
Section 6.8 ACTS OF SECURITYHOLDERS. Any request, demand, authorization,
direction, notice, consent, waiver or other action provided or permitted by this
Trust Agreement to be given, made or taken by Securityholders or Owners may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Securityholders or Owners in person or by an agent duly
appointed in writing; and, except as otherwise expressly provided herein, such
action shall become effective when such instrument or instruments are delivered
to an Administrative Trustee. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Securityholders or Owners 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 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 Trustee receiving the same deems sufficient.
The ownership of Preferred Securities shall be proved by the Securities
Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Securityholder of any Trust Security shall bind every future
Securityholder of the same Trust Security and the Securityholder of every Trust
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
Without limiting the foregoing, a Securityholder entitled hereunder to take
any action hereunder with regard to any particular Trust Security may do so with
33
<PAGE>
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 between the Securityholders and the
Administrative Trustees or among such Securityholders or Trustees with respect
to the authenticity, validity or binding nature of any request, demand,
authorization, direction, consent, waiver or other Act of such Securityholder or
Trustee under this Article VI, then the determination of such matter by the
Property Trustee shall be conclusive with respect to such matter.
Section 6.9 INSPECTION OF RECORDS. Upon reasonable notice to the
Administrative Trustees and the Property Trustee, the records of the Trust shall
be open to inspection by Securityholders during normal business hours for any
purpose reasonably related to such Securityholder's interest as a
Securityholder.
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 Securityholders that:
(a) the Property Trustee is a Delaware banking corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware;
(b) the Property Trustee has full corporate power, authority and
legal right to execute, deliver and perform its obligations under this Trust
Agreement and has taken all necessary action to authorize the execution,
delivery and performance by it of this Trust Agreement;
(c) the Delaware Trustee is a Delaware banking corporation duly
organized, validly existing and in good standing in the State of Delaware;
(d) the Delaware Trustee has full corporate power, authority and
legal right to execute, deliver and perform its obligations under this Trust
Agreement and has taken all necessary action to authorize the execution,
delivery and performance by it of this Trust Agreement;
(e) this Trust Agreement has been duly authorized, executed and
delivered by the Property Trustee and the Delaware Trustee and constitutes the
valid and legally binding agreement of each of the Property Trustee and the
Delaware Trustee enforceable against each of them in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
34
<PAGE>
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
(f) the execution, delivery and performance of this Trust Agreement
has been duly authorized by all necessary corporate or other action on the part
of the Property Trustee and the Delaware Trustee and does not require any
approval of stockholders of the Property Trustee and the Delaware Trustee and
such execution, delivery and performance will not (i) violate the Charter or
By-laws of the Property Trustee or the Delaware Trustee, (ii) violate any
provision of, or constitute, with or without notice or lapse of time, a default
under, or result in the creation or imposition of, any Lien on any properties
included in the Trust Property pursuant to the provisions of, any indenture,
mortgage, credit agreement, license or other agreement or instrument to which
the Property Trustee or the Delaware Trustee is a party or by which it is bound,
or (iii) violate any law, governmental rule or regulation of the United States
or the State of Delaware, as the case may be, governing the banking, trust or
general powers of the Property Trustee or the Delaware Trustee (as appropriate
in context) or any order, judgment or decree applicable to the Property Trustee
or the Delaware Trustee;
(g) neither the authorization, execution or delivery by the Property
Trustee or the Delaware Trustee of this Trust Agreement nor the consummation of
any of the transactions by the Property Trustee or the Delaware Trustee (as
appropriate in context) contemplated herein or therein requires the consent or
approval of, the giving of notice to, the registration with or the taking of any
other action with respect to any governmental authority or agency under any
existing Federal law governing the banking, trust or general powers of the
Property Trustee or the Delaware Trustee, as the case may be, under the laws of
the United States or the State of Delaware; and
(h) there are no proceedings pending or, to the best of each of the
Property Trustee's and the Delaware Trustee's knowledge, threatened against or
affecting the Property Trustee or the Delaware Trustee in any court or before
any governmental authority, agency or arbitration board or tribunal which,
individually or in the aggregate, would materially and adversely affect the
Trust or would question the right, power and authority of the Property Trustee
or the Delaware Trustee, as the case may be, to enter into or perform its
obligations as one of the Trustees under this Trust Agreement.
Section 7.2 REPRESENTATIONS AND WARRANTIES OF DEPOSITOR.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
(a) the Trust Securities Certificates issued at the Closing Date on
behalf of the Trust have been duly authorized and will have been, duly and
35
<PAGE>
validly executed, issued and delivered by the Trustees pursuant to the terms and
provisions of, and in accordance with the requirements of, this Trust Agreement
and the Securityholders 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 Trust (or the Trustees on behalf of the Trust) under the laws of the State
of Delaware or any political subdivision thereof in connection with the
execution, delivery and performance by the Bank, the Property Trustee or the
Delaware Trustee, as the case may be, of this Trust Agreement.
ARTICLE VIII.
THE TRUSTEES
Section 8.1 CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The duties and responsibilities of the Trustees shall be as
provided by this Trust Agreement and, in the case of the Property Trustee, by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Trust Agreement shall require the Trustees 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 Trustees shall be subject to the provisions of this Section.
Nothing in this Trust Agreement shall be construed to release a Trustee from
liability for its own gross negligent action, its own gross negligent failure to
act, or its own willful misconduct. To the extent that, at law or in equity, a
Trustee has duties (including fiduciary duties) and liabilities relating thereto
to the Trust or to the Securityholders, such Trustee shall not be liable to the
Trust or to any Securityholder for such Trustee's good faith reliance on the
provisions of this Trust Agreement. The provisions of this Trust Agreement, to
the extent that they restrict the duties and liabilities of the Trustees
otherwise existing at law or in equity, are agreed by the Depositor and the
Securityholders to replace such other duties and liabilities of the Trustees.
(b) All payments made by the Property Trustee or a Paying Agent in
respect of the Trust Securities shall be made only from the revenue and proceeds
from the Trust Property and only to the extent that there shall be sufficient
revenue or proceeds from the Trust Property to enable the Property Trustee or a
Paying Agent to make payments in accordance with the terms hereof. Each
Securityholder, 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
36
<PAGE>
available for distribution to it as herein provided and that the Trustees are
not personally liable to it for any amount distributable in respect of any Trust
Security or for any other liability in respect of any Trust Security. This
Section 8.1(b) does not limit the liability of the Trustees expressly set forth
elsewhere in this Trust Agreement or, in the case of the Property Trustee, in
the Trust Indenture Act.
(c) No provision of this Trust Agreement shall be construed to
relieve the Property Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(i) the Property Trustee shall not be liable for any error of
judgment made in good faith by an authorized officer of the Property
Trustee, unless it shall be proved that the Property Trustee was negligent
in ascertaining the pertinent facts;
(ii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of not less than a majority in
Liquidation Amount of the Trust Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the Property
Trustee, or exercising any trust or power conferred upon the Property
Trustee under this Trust Agreement;
(iii) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and the
Payment Account shall be to deal with such Property in a similar manner as
the Property Trustee deals with similar property for its own account,
subject to the protections and limitations on liability afforded to the
Property Trustee under this Trust Agreement and the Trust Indenture Act;
(iv) the Property Trustee shall not be liable for any interest
on any money received by it except as it may otherwise agree 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; and
(v) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrative Trustees or the Depositor
with their respective duties under this Trust Agreement, nor shall the
Property Trustee be liable for the default or misconduct of the
Administrative Trustees or the Depositor.
Section 8.2 CERTAIN NOTICES.
37
<PAGE>
(a) Within five Business Days after the occurrence of any Event of
Default actually known to the Property Trustee, the Property Trustee shall
transmit, in the manner and to the extent provided in Section 10.8, notice of
such Event of Default to the Securityholders, the Administrative Trustees and
the Depositor, unless the Event of Default shall have been cured or waived.
For purposes of this Section the term "Event of Default" means any event that
is, or after notice or lapse of time or both would become, and Event of Default.
(b) The Administrative Trustees shall transmit, to the
Securityholders in the manner and to the extent provided in Section 10.8, notice
of the Depositor's election to begin or further extend an Extension Period on
the Debentures (unless such election shall have been revoked) within the time
specified for transmitting such notice to the holders of the Debentures pursuant
to the Indenture as originally executed.
Section 8.3 CERTAIN RIGHTS OF PROPERTY TRUSTEE. Subject to the provisions
of Section 8.1:
(a) the Property Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, Opinion of Counsel,
certificate, written representation of a Holder or transferee, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) if (i) in performing its duties under this Trust Agreement the
Property Trustee is required to decide between alternative courses of action or
(ii) in construing any of the provisions of this Trust Agreement the Property
Trustee finds the same ambiguous or inconsistent with any other provisions
contained herein or (iii) the Property Trustee is unsure of the application of
any provision of this Trust Agreement, then, except as to any matter as to which
the Preferred Securityholders are entitled to vote under the terms of this Trust
Agreement, the Property Trustee shall deliver a notice to the Depositor
requesting written instructions of the Depositor as to the course of action to
be taken and the Property Trustee shall take such action, or refrain from taking
such action, as the Property Trustee shall be instructed in writing to take, or
to refrain from taking, by the Depositor; provided, however, that if the
Property Trustee does not receive such instructions of the Depositor within ten
Business Days after it has delivered such notice, or such reasonably shorter
period of time set forth in such notice (which to the extent practicable shall
not be less than two Business Days), it may, but shall be under no duty to, take
or refrain from taking such action not inconsistent with this Trust Agreement as
it shall deem advisable and in the best interests of the Securityholders, in
which event the Property Trustee shall have no liability except for its own bad
faith, negligence or willful misconduct;
38
<PAGE>
(c) any direction or act of the Depositor or the Administrative
Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by
an Officers' Certificate;
(d) whenever in the administration of this Trust Agreement, the
Property Trustee shall deem it desirable that a matter be established before
undertaking, suffering or omitting any action hereunder, the Property Trustee
(unless other evidence is herein specifically prescribed) may, in the absence of
bad faith on its part, request and rely upon an Officers' Certificate which,
upon receipt of such request, shall be promptly delivered by the Depositor or
the Administrative Trustees;
(e) the Property Trustee shall have no duty to see to any recording,
filing or registration of any instrument (including any financing or
continuation statement or any filing under tax or securities laws) or any
rerecording, refiling or registration thereof;
(f) the Property Trustee may consult with counsel (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, such counsel may be counsel to the Depositor or any of its
Affiliates, and may include any of its employees; the Property Trustee shall
have the right at any time to seek instructions concerning the administration of
this Trust Agreement from any court of competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Securityholders pursuant to this Trust Agreement, unless
such Securityholders shall have offered to the Property Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(h) the Property Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Securityholders, but the
Property Trustee may make such further inquiry or investigation into such facts
or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through its
agents or attorneys, provided that the Property Trustee shall be responsible for
its
39
<PAGE>
own negligence or recklessness with respect to selection of any agent or
attorney appointed by it hereunder;
(j) whenever in the administration of this Trust Agreement the
Property Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder the Property
Trustee (i) may request instructions from the Holders of the Trust Securities
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 protected in acting in accordance with such instructions; and
(k) except as otherwise expressly provided by this Trust Agreement,
the Property Trustee shall not be under any obligation to take any action that
is discretionary under the provisions of this Trust Agreement.
No provision of this Trust Agreement shall be deemed to impose any duty or
obligation on the Property Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any jurisdiction
in which it shall be illegal, or in which the Property Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts, or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Property Trustee shall be
construed to be a duty.
Section 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 Trust, and the Trustees do not assume any
responsibility for their correctness. The Trustees shall not be accountable for
the use or application by the Depositor of the proceeds of the Debentures.
Section 8.5 MAY HOLD SECURITIES. Any Trustee or any other agent of any
Trustee or the Trust, in its individual or any other capacity, may become the
owner or pledgee of Trust Securities and, except as provided in the definition
of the term "Outstanding" in Article I, subject to Sections 8.8 and 8.13, may
otherwise deal with the Trust with the same rights it would have if it were not
a Trustee or such other agent.
Section 8.6 COMPENSATION; INDEMNITY; FEES. The Depositor agrees:
(a) to pay to the 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) as specified in a separate agreement between any of the Trustees
and the Depositor;
40
<PAGE>
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence, bad faith or willfulness;
and
(c) to the fullest extent permitted by applicable law, to indemnify
and hold harmless (i) each Trustee, (ii) any Affiliate of any Trustee, (iii) any
officer, director, shareholder, employee, representative or agent of any
Trustee, and (iv) any employee or agent of the Trust or its Affiliates,
(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 by reason of the creation,
operation or termination of the Trust or any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the 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, bad faith 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 Trustee may claim any lien or charge on any Trust Property as a result
of any amount due pursuant to this Section 8.6.
The Depositor and any 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 Trust, and the 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 Trust, shall not be deemed wrongful or improper. Neither the
Depositor, nor any Trustee, shall be obligated to present any particular
investment or other opportunity to the Trust even if such opportunity is of a
character that, if presented to the Trust, could be taken by the Trust, and the
Depositor or any 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 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.
41
<PAGE>
Section 8.7 CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES.
(a) There shall at all times be a Property Trustee hereunder with
respect to the Trust Securities. The Property Trustee shall be a Person that is
eligible pursuant to the Trust Indenture Act to act as such and has a combined
capital and surplus of at least $50,000,000. If any such Person publishes
reports of condition at least annually, pursuant to law or to the requirements
of its supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such Person shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Property Trustee with respect to the
Trust Securities shall cease to be eligible in accordance with the provisions of
this Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
(b) There shall at all times be one or more Administrative Trustees
hereunder with respect to the Trust Securities. Each Administrative Trustee
shall be either a natural person who is at least 21 years of age or a legal
entity that shall act through one or more persons authorized to bind that
entity.
(c) There shall at all times be a Delaware Trustee with respect to
the Trust Securities. The Delaware Trustee shall either be (i) a natural person
who is at least 21 years of age and a resident of the State of Delaware or (ii)
a legal entity with its principal place of business in the State of Delaware and
that otherwise meets the requirements of applicable Delaware law that shall act
through one or more persons authorized to bind such entity.
Section 8.8 CONFLICTING INTERESTS. 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.
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
Depositor and the Administrative Trustees, by agreed action of the majority of
such Trustees, shall have power to appoint, and upon the written request of the
Administrative Trustees, the Depositor shall for such purpose join with the
Administrative Trustees 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
42
<PAGE>
such powers as may be provided in the instrument of appointment, and to vest in
such Person or Persons in the capacity aforesaid, any property, title, right or
power deemed necessary or desirable, subject to the other provisions of this
Section. If the Depositor does not join in such appointment within 15 days
after the receipt by it of a request so to do, or in case a Debenture Event of
Default has occurred and is continuing, the Property Trustee alone shall have
power to make such appointment. Any co- trustee or separate trustee appointed
pursuant to this Section shall either be (i) a natural person who is at least 21
years of age and a resident of the United States or (ii) a legal entity with its
principal place of business in the United States that shall act through one or
more persons authorized to bind such entity.
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 and delivered and all
rights, powers, duties, and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustees specified hereunder shall be exercised
solely by such Trustees and not by such co-trustee or separate trustee.
(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 or by the Property Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such
co-trustee or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Property
Trustee shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and performed by
such co-trustee or separate trustee.
(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
43
<PAGE>
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.
(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 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, the Relevant Trustee may
resign at any time by giving written notice thereof to the Securityholders. If
the instrument of acceptance by the successor Trustee required by Section 8.11
shall not have been delivered to the Relevant Trustee within 30 days after the
giving of such notice of resignation, the Relevant Trustee may petition, at the
expense of the Trust, any court of competent jurisdiction for the appointment of
a successor Relevant Trustee.
Unless a Debenture Event of Default shall have occurred and be continuing,
any Trustee may be removed at any time by Act of the Common Securityholder. If
a Debenture Event of Default shall have occurred and be continuing, the Property
Trustee or the Delaware Trustee, or both of them, may be removed at such time by
Act of the Holders of a majority in Liquidation Amount of the Preferred
Securities, delivered to the Relevant Trustee (in its individual capacity and on
behalf of the Trust). In no event will the Holders of the Preferred Securities
have the right to vote to appoint, remove or replace the Administrative Trustee.
An Administrative Trustee may be removed by the Common Securityholder at any
time.
If any Trustee shall resign, be removed or become incapable of acting as
Trustee, or if a vacancy shall occur in the office of any Trustee for any cause,
at a time when no Debenture Event of Default shall have occurred and be
continuing, the Common Securityholder, by Act of the Common Securityholder
delivered to the retiring Trustee, shall promptly appoint a successor Trustee or
Trustees, and the retiring Trustee shall comply with the applicable requirements
of Section
44
<PAGE>
8.11. If the Property Trustee or the Delaware Trustee shall resign, be removed
or become incapable of continuing to act as the Property Trustee or the Delaware
Trustee, as the case may be, at a time when a Debenture Event of Default shall
have occurred and be continuing, the Preferred Securityholders, by Act of the
Securityholders of a majority in Liquidation Amount of the Preferred Securities
then Outstanding delivered to the retiring Relevant Trustee, shall promptly
appoint a successor Relevant Trustee or Trustees, and such successor Trustee
shall comply with the applicable requirements of Section 8.11. If an
Administrative Trustee shall resign, be removed or become incapable of acting as
Administrative Trustee, at a time when a Debenture Event of Default shall have
occurred and be continuing, the Common Securityholder by Act of the Common
Securityholder delivered to the Administrative Trustee shall promptly appoint a
successor Administrative Trustee or Administrative Trustees and such successor
Administrative Trustee or Trustees shall comply with the applicable requirements
of Section 8.11. If no successor Relevant Trustee shall have been so appointed
by the Common Securityholder or the Preferred Securityholders and accepted
appointment in the manner required by Section 8.11, any Securityholder who has
been a Securityholder of Trust Securities for at least six months may, on behalf
of himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Relevant Trustee.
The Property Trustee shall give notice of each resignation and each removal
of a Trustee and each appointment of a successor Trustee to all Securityholders
in the manner provided in Section 10.8 and shall give notice to the Depositor.
Each notice shall include the name of the successor Relevant Trustee and the
address of its Corporate Trust Office if it is the Property Trustee.
Notwithstanding the foregoing or any other provision of this Trust Agreement, in
the event any Administrative Trustee or a Delaware Trustee who is a natural
person dies or becomes, in the opinion of the Depositor, incompetent or
incapacitated, the vacancy created by such death, incompetence or incapacity may
be filled by (a) the unanimous act of the remaining Administrative Trustees if
there are at least two of them or (b) otherwise by the Depositor (with the
successor in each case being a Person who satisfies the eligibility requirement
for Administrative Trustees or Delaware Trustee, as the case may be, set forth
in Section 8.7).
Section 8.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. In case of the
appointment hereunder of a successor Trustee such successor Trustee so
appointed shall execute, acknowledge and deliver to the Trust 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 Depositor 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 if the Property Trustee is the resigning
Trustee shall duly assign, transfer and deliver to the successor Trustee all
property and money held by such retiring Property Trustee hereunder.
In case of the appointment hereunder of a successor Relevant Trustee, the
retiring Relevant Trustee and each successor Relevant Trustee with respect to
the Trust Securities shall execute 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 Trust and (b) shall add to or change
any of the provisions of this Trust Agreement as
45
<PAGE>
shall be necessary to provide for or facilitate the administration of the Trust
by more than one Relevant Trustee, it being understood that nothing herein or in
such amendment shall constitute such Relevant Trustees co-trustees 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 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 Trust.
Upon request of any such successor Relevant Trustee, the Trust shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Relevant Trustee all such rights, powers and trusts
referred to in the 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.
Section 8.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSIONS 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 corporation resulting
from any merger, conversion or consolidation to which such Relevant Trustee
shall be a party, or any corporation succeeding to all or substantially all the
corporate trust business of such Relevant Trustee, shall be the successor of
such Relevant Trustee hereunder, provided such corporation shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto.
Section 8.13 PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
similar judicial proceeding relative to the Trust or any other obligor upon the
Trust Securities or the property of the Trust or of such other obligor or their
creditors, the Property Trustee (irrespective of whether any Distributions on
the Trust Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Property Trustee shall
have made any demand on the 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:
46
<PAGE>
(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 moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Property Trustee and, in the event the Property Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Property Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Property Trustee, its agents and counsel, and
any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement adjustment or compensation affecting the Trust
Securities or the rights of any Holder thereof or to authorize the Property
Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 8.14 REPORTS BY PROPERTY TRUSTEE.
(a) Not later than July 15 of each year commencing with July 15,
1998, the Property Trustee shall transmit to all Securityholders 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;
(ii) a statement that the Property Trustee has complied with all
of its obligations under this Trust Agreement during the twelve-month
period (or, in the case of the initial report, the period since the Closing
Date) ending with such December 31 or, if the Property Trustee has not
complied in any material respect with such obligations, a description of
such noncompliance; and
(iii) 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.
47
<PAGE>
(b) In addition the Property Trustee shall transmit to
Securityholders such reports concerning the Property Trustee and its actions
under this Trust Agreement as may be required pursuant to the Trust Indenture
Act at the times and in the manner provided pursuant thereto.
(c) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Property Trustee with each national
stock exchange, the OTC Bulletin Board or such other interdealer quotation
system or self- regulatory organization upon which the Preferred Securities are
listed or traded, with the Commission and with the Depositor.
Section 8.15 REPORTS TO THE PROPERTY TRUSTEE. The Depositor and the
Administrative Trustees on behalf of the Trust shall provide to the Property
Trustee such documents, reports and information as required by Section 314 of
the Trust Indenture Act (if any) and the compliance certificate required by
Section 314(a) of the Trust Indenture Act in the form, in the manner and at the
times required by Section 314 of the Trust Indenture Act.
Section 8.16 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. Each of
the Depositor and the Administrative Trustees on behalf of the Trust shall
provide to the Property Trustee such evidence of compliance with any conditions
precedent, if any, provided for in this Trust Agreement that relate to any of
the matters set forth in Section 314 (c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers'
Certificate.
Section 8.17 NUMBER OF TRUSTEES.
(a) The number of Trustees shall be five (5) provided that the Holder
of all of the Common Securities by written instrument may increase or decrease
the number of Administrative Trustees. The Property Trustee and the Delaware
Trustee may be the same Person.
(b) If a Trustee ceases to hold office for any reason and the number
of Administrative Trustees is not reduced pursuant to Section 8.17(a), or if the
number of Trustees is increased pursuant to Section 8.17(a), a vacancy shall
occur. The vacancy shall be filled with a Trustee appointed in accordance with
Section 8.10.
(c) The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of a Trustee shall not operate
to annul the Trust. Whenever a vacancy in the number of Administrative Trustees
shall occur, until such vacancy is filled by the appointment of an
Administrative Trustee in accordance with Section 8.10, the Administrative
Trustees in office, regardless of their number (and notwithstanding any other
provision of this Agreement), shall have all the powers granted to the
Administrative Trustees and
48
<PAGE>
shall discharge all the duties imposed upon the Administrative Trustees by this
Trust Agreement.
Section 8.18 DELEGATION OF POWER.
(a) Any Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21 his
or her power for the purpose of executing any documents contemplated in Section
2.7(a), including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing; and
(b) The Administrative Trustees shall have power to delegate from
time to time to such of their number or to the Depositor the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Administrative Trustees or otherwise as the Administrative
Trustees may deem expedient, to the extent such delegation is not prohibited by
applicable law or contrary to the provisions of this Trust Agreement, as set
forth herein.
Section 8.19 VOTING. Except as otherwise provided in this Trust
Agreement, the consent or approval of the Administrative Trustees shall require
consent or approval by not less than a majority of the Administrative Trustees,
unless there are only two, in which case both must consent.
ARTICLE IX.
DISSOLUTION, LIQUIDATION AND MERGER
Section 9.1 DISSOLUTION UPON EXPIRATION DATE. Unless dissolved earlier,
the Trust shall automatically dissolve on December 31, 2027 (the "Expiration
Date").
Section 9.2 EARLY DISSOLUTION. The first to occur of any of the following
events is an "Early Dissolution Event" which shall cause a dissolution of the
Depositor:
(a) the occurrence of a Bankruptcy Event in respect of, or the
dissolution or liquidation of, the Depositor;
(b) the written direction to the Property Trustee from the Depositor
at any time to dissolve the Trust and distribute Debentures to Securityholders
in exchange for a Like Amount of the Preferred Securities (which direction is
optional and wholly within the discretion of the Depositor);
(c) the redemption of all of the Preferred Securities in connection
with the redemption of all the Debentures; and
49
<PAGE>
(d) the entry of an order for dissolution of the Trust by a court of
competent jurisdiction.
Section 9.3 TERMINATION. The respective obligations and responsibilities
of the Trustees and the Trust created and continued hereby shall terminate upon
the latest to occur of the following: (a) the distribution by the Property
Trustee to Securityholders upon the liquidation of the Trust pursuant to Section
9.4, or upon the redemption of all of the Trust Securities pursuant to Section
4.2, of all amounts required to be distributed hereunder upon the final payment
of the Trust Securities; (b) the payment of any expenses owed by the Trust; (c)
the discharge of all administrative duties of the Administrative Trustees,
including the performance of any tax reporting obligations with respect to the
Trust or the Securityholders; and (d) the filing of a Certificate of
Cancellation by the Administrative Trustees under the Business Trust Act.
Section 9.4 LIQUIDATION.
(a) If an Early Dissolution Event specified in clause (a), (b) or (d)
of Section 9.2 occurs or upon the Expiration Date, the Trust shall be liquidated
by the Trustees as expeditiously as the Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, to each Securityholder a Like Amount of Debentures,
subject to Section 9.4(d). Notice of liquidation shall be given by the Property
Trustee by first-class mail, postage prepaid mailed not later than 30 nor more
than 60 days prior to the Liquidation Date to each Holder of Trust Securities at
such Holder's address appearing in the Securities Register. All notices of
liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities 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 Debentures; and
(iii) provide such information with respect to the mechanics by
which Holders may exchange Trust Securities Certificates for certificates
representing the Like Amount of the Debentures, or if Section 9.4(d)
applies receive a Liquidation Distribution, as the Administrative Trustees
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 Trust and distribution of the Debentures to
Securityholders, the Administrative Trustees shall establish a record date for
such distribution (which shall be not more than 45 days prior to the Liquidation
Date) and, either itself acting as exchange agent or through the appointment of
a
50
<PAGE>
separate exchange agent, shall establish such procedures as it shall deem
appropriate to effect the distribution of Debentures in exchange for the
Outstanding Trust Securities Certificates.
(c) Except where Section 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) certificates representing a Like Amount of Debentures will be
issued to holders of Trust Securities Certificates, upon surrender of such
certificates to the Administrative Trustees or their agent for exchange, (iii)
the Depositor shall use its best efforts to have the Debentures listed on the
New York Stock Exchange or on such other exchange, interdealer quotation system
or self-regulatory organization as the Preferred Securities are then listed,
(iv) any Trust Securities Certificates not so surrendered for exchange will be
deemed to represent a Like Amount of Debentures, accruing interest at the rate
provided for in the Debentures from the last Distribution Date on which a
Distribution was made on such Trust Securities Certificates until such
certificates are so surrendered (and until such certificates are so surrendered,
no payments of interest or principal will be made to Holders of Debentures
represented by such certificates) and (v) all rights of Securityholders holding
Trust Securities will cease, except the right of such Securityholders to receive
a Like Amount of Debentures upon surrender of Trust Securities Certificates.
(d) In the event that, 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 Debentures in the
manner provided herein is determined by the Property Trustee not to be
practical, the Trust Property shall be liquidated, and the Trust shall be
wound-up or terminated, by the Property Trustee in such manner as the Property
Trustee determines. In such event, Securityholders will be entitled to receive
out of the assets of the Trust available for distribution to Securityholders,
after satisfaction of liabilities to creditors of the Trust as provided by
applicable law, an amount equal to the Liquidation Amount per Trust Security
plus accumulated and unpaid Distributions thereon to the date of payment (such
amount being the "Liquidation Distribution"). If, upon any such winding up or
termination, the Liquidation Distribution can be paid only in part because the
Trust has insufficient assets available to pay in full the aggregate Liquidation
Distribution, then, subject to the next succeeding sentence, the amounts payable
by the Trust on the Trust Securities shall be paid on a pro rata basis (based
upon Liquidation Amounts). The Holder of the Common Securities will be entitled
to receive Liquidation Distributions upon any such winding-up or termination pro
rata (determined as aforesaid) with Holders of Preferred Securities, except
that, if a Debenture Event of Default has occurred and is continuing, Holders of
the Preferred Securities shall have a priority over the Holders of Common
Securities.
51
<PAGE>
Section 9.5 MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF
THE TRUST. The 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 corporation or other body, except
pursuant to this Section 9.5 or, as applicable, Section 9.4. At the request
of the Depositor, with the consent of the Administrative Trustees and without
the consent of the Holders of the Preferred Securities, the Property Trustee
or the Delaware Trustee, the Trust may merge 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, that (i) such successor entity either (a)
expressly assumes all of the obligations of the Trust with respect to the
Preferred Securities or (b) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred Securities
(the "Successor Securities") so long as the Successor Securities rank the
same as the Preferred Securities rank in priority with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii)
the Depositor expressly appoints a trustee of such successor entity
possessing the same powers and duties as the Property Trustee as the holder
of the Debentures, (iii) the Successor Securities are listed or traded, or
any Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Preferred
Securities are then listed or traded, if any, (iv) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not cause the Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (v)
such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not adversely affect the rights, preferences and privileges of
the holders of the Preferred Securities (including any Successor Securities)
in any material respect, (vi) such successor entity has a purpose
substantially identical to that of the Trust, (vii) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Depositor has received an Opinion of Counsel 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 Preferred Securities (including any Successor Securities) in
any material respect, and (b) following such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, neither the Trust
nor such successor entity will be required to register as an investment
company under the 1940 Act and (viii) the Depositor owns all of the common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the Trust shall
not, except with the consent of holders of 100% in Liquidation Amount of the
Preferred 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
52
<PAGE>
would cause the Trust or the successor entity to be classified as other than a
grantor trust for United States Federal income tax purposes.
ARTICLE X.
MISCELLANEOUS PROVISIONS
Section 10.1 LIMITATION OF RIGHTS OF SECURITYHOLDERS. The death,
incapacity, bankruptcy, dissolution or termination of any Person having an
interest, beneficial or otherwise, in Trust Securities shall not operate to
terminate this Trust Agreement or dissolve, terminate or annul the Trust, nor
entitle the legal representatives or heirs of such person or any Securityholder
for such person, to claim an accounting, take any action or bring any proceeding
in any court for a partition or winding up of the arrangements contemplated
hereby, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
Section 10.2 AMENDMENT.
(a) This Trust Agreement may be amended from time to time by the
Property Trustee, the Administrative Trustees and the Depositor, without the
consent of any Securityholders, (i) to cure any ambiguity, correct or supplement
any provision herein which may be inconsistent with any other provision herein,
or to make any other provisions with respect to matters or questions arising
under this Trust Agreement, which shall not be inconsistent with the other
provisions of this Trust Agreement, 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 Trust will be classified for United States Federal income tax
purposes as a grantor trust at all times that any Trust Securities are
outstanding or to ensure that the Trust will not be required to register as an
investment company under the 1940 Act; provided, however, that in the case of
clause (i), such action shall not adversely affect in any material respect the
interests of any Securityholder, and any such amendments of this Trust Agreement
shall become effective when notice thereof is given to the Securityholders.
(b) Except as provided in Section 10.2(c) hereof, any provision of
this Trust Agreement may be amended by the Trustees and the Depositor with (i)
the consent of Trust Securityholders representing not less than a majority
(based upon Liquidation Amounts) of the Trust Securities then Outstanding and
(ii) receipt by the Trustees of an Opinion of Counsel to the effect that such
amendment or the exercise of any power granted to the Trustees in accordance
with such amendment will not affect the Trust's status as a grantor trust for
United States Federal income tax purposes or the Trust's exemption from status
of an investment company under the 1940 Act.
(c) In addition to and notwithstanding any other provision in this
Trust Agreement, without the consent of each affected Securityholder, this
53
<PAGE>
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 Securityholder to institute suit
for the enforcement of any such payment on or after such date; notwithstanding
any other provision herein, without the unanimous consent of the
Securityholders, this paragraph (c) of this Section 10.2 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Trustee shall enter into or consent to any amendment to this Trust Agreement
which would cause the Trust to fail or cease to qualify for the exemption from
status of an investment company under the 1940 Act or fail or cease to be
classified 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, this Trust Agreement may not be amended in
a manner which imposes any additional obligation on the Depositor.
(f) In the event that any amendment to this Trust Agreement is made,
the Administrative Trustees shall promptly provide to the Depositor a copy of
such amendment.
(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.
Section 10.3 SEPARABILITY. In case any provision in this Trust Agreement
or in the Trust Securities Certificates shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Section 10.4 GOVERNING LAW. THIS TRUST AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF EACH OF THE SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH
RESPECT TO THIS TRUST AGREEMENT AND THE TRUST PREFERRED SECURITIES SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE
(WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES).
Section 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
54
<PAGE>
succeeding day that is a Business Day (except as otherwise provided in Sections
4.1(a) and 4.2(d)), with the same force and effect as though made on the date
fixed for such payment, and no interest shall accrue thereon 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 Trust or the
Relevant Trustee, including any successor by operation of law. Except in
connection with a consolidation, merger or sale involving the Depositor that is
permitted under Article Eight 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 which by any provision of this Trust Agreement is required
or permitted to be given or served to or upon any Securityholder or the
Depositor may be given or served in writing by deposit thereof, first-class
postage prepaid, in the United States mail, hand delivery or facsimile
transmission, in each case, addressed, (a) in the case of a Preferred
Securityholder, to such Preferred Securityholder as such Securityholder's name
and address may appear on the Securities Register; and (b) in the case of the
Common Securityholder or the Depositor, to First Interstate BancSystem, Inc.,
401 North 31st Street, Billings, MT 59101, Attention: Terrill R. Moore. Such
notice, demand or other communication to or upon a Securityholder shall be
deemed to have been sufficiently given or made, for all purposes, upon hand
delivery, mailing or transmission.
Any notice, demand or other communication which by any provision of this
Trust Agreement is required or permitted to be given or served to or upon the
Trust, the Property Trustee, the Delaware Trustee or the Administrative Trustees
shall be given in writing addressed (until another address is published by the
Trust) as follows: (a) with respect to the Property Trustee to Wilmington Trust
Company, Rodney Square North, 1100 North Market Street, Wilmington , Delaware
19890, Attention: Corporate Trust Administration; (b) with respect to the
Delaware Trustee, to Wilmington Trust Company, Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890; and (c) with respect to the
Administrative Trustees, to them at the address above for notices to the
Depositor, marked "Attention Administrative Trustees of FIB Capital Trust."
Such notice, demand or other communication to or upon the Trust or the Property
Trustee shall be deemed to have been sufficiently given or made only upon actual
receipt of the writing by the Trust or the Property Trustee.
55
<PAGE>
Section 10.9 AGREEMENT NOT TO PETITION. Each of the Trustees and the
Depositor agree for the benefit of the Securityholders that, until at least one
year and one day after the Trust has been terminated in accordance with Article
IX, they shall not file, or join in the filing of, a petition against the Trust
under any Bankruptcy Laws or otherwise join in the commencement of any
proceeding against the Trust under any Bankruptcy Law. In the event the
Depositor takes action in violation of this Section 10.9, the Property Trustee
agrees, for the benefit of Securityholders, 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 Trust
or the commencement of such action and raise the defense that the Depositor has
agreed in writing not to take such action and should be stopped and precluded
therefrom and such other defenses, if any, as counsel for the Trustee or the
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) This Trust Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Trust Agreement and shall, to
the extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a trustee
for the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with
another provision hereof which is required to be included in this Trust
Agreement by any of the provisions of the Trust Indenture Act, such required
provision shall control. If any provision of this Trust Agreement modifies or
excludes any provision of the Trust Indenture Act which may be so modified or
excluded, the latter provision shall be deemed to apply to this Trust Agreement
as so modified or excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust
Agreement shall not affect the nature of the Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
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 SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY
SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL
ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN
SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND
AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND
THE INDENTURE, AND SHALL
56
<PAGE>
CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT
THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND
EFFECTIVE AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS.
FIRST INTERSTATE BANCSYSTEM, INC.
By: /s/ Terrill R. Moore
--------------------------------
Name: Terrill R. Moore
------------------------------
Title: Senior Vice President
-----------------------------
WILMINGTON TRUST COMPANY,
as Property Trustee
By: /s/ James P. Lawler
--------------------------------
Name: James P. Lawler
------------------------------
Title: Vice President
-----------------------------
WILMINGTON TRUST COMPANY,
as Delaware Trustee
By: /s/ James P. Lawler
--------------------------------
Name: James P. Lawler
------------------------------
Title: Vice President
-----------------------------
/s/ Terrill R. Moore
-----------------------------------
Name: Terrill R. Moore
as Administrative Trustee
/s/ Thomas W. Scott
-----------------------------------
Name: Thomas W. Scott
as Administrative Trustee
57
<PAGE>
/s/ William G. Wilson
-----------------------------------
Name: William G. Wilson
as Administrative Trustee
58
<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST
OF
FIB CAPITAL TRUST
This Certificate of Trust of FIB Capital Trust (the "Trust") dated
_________________,1997, is being duly executed and filed by the undersigned, as
trustees, to form a business trust under the Delaware Business Trust Act (12
Del. C. ((S)) 3801 et seq.).
1. NAME. The name of the business trust being formed hereby is FIB
Capital Trust.
2. DELAWARE TRUSTEE. The name and business address of the trustee of the
Trust in the State of Delaware are Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890, Attention:
Corporate Trust Administrator.
3. EFFECTIVE DATE. This Certificate of Trust shall be effective upon its
filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have
executed this Certificate of Trust as of the date first above written.
WILMINGTON TRUST COMPANY,
as Trustee
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
-----------------------------------
Name: Terrill R. Moore
as Administrative Trustee
59
<PAGE>
EXHIBIT B
The Depository Trust Company,
55 Water Street, 49th Floor,
New York, New York 10041-0099
, 1997
- --------------
Attention:
General Counsel's Office
Re: FIB Capital Trust ___% Cumulative Trust Preferred Securities
Ladies and Gentlemen:
The purpose of this letter is to set forth certain matters relating to the
issuance and deposit with The Depository Trust Company ("DTC") of the FIB
Capital Trust ___% Cumulative Trust Preferred Securities, (the "Trust Preferred
Securities"), of FIB Capital Trust, a Delaware business trust (the "Issuer"),
formed pursuant to an Amended and Restated Trust Agreement between First
Interstate BancSystem, Inc. ("First Interstate BancSystem"), and Wilmington
Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware
Trustee, the Administrative Trustees named therein, and the holders, from time
to time, of undivided beneficial interests in the assets of the Issuer. The
payment of distributions on the Trust Preferred Securities, and payments due
upon liquidation of the Issuer or redemption of the Trust Preferred Securities,
to the extent the Issuer has funds available for the payment thereof are
guaranteed by First Interstate BancSystem to the extent set forth in a Guarantee
Agreement dated November ____, 1997, by First Interstate BancSystem and
Wilmington Trust Company, as guarantee trustee, with respect to the Trust
Preferred Securities. First Interstate BancSystem and the Issuer propose to
sell the Trust Preferred Securities to certain Underwriter(s) (the
"Underwriter(s)") pursuant to an Underwriting Agreement dated November ___, 1997
by and among the Underwriter(s), the Issuer and Depositor and the Underwriter(s)
wish to take delivery of the Trust Preferred Securities through DTC. Wilmington
Trust Company is acting as transfer agent and registrar with respect to the
Trust Preferred Securities (the "Transfer Agent and Registrar").
To induce DTC to accept the Trust Preferred Securities as eligible for
deposit at DTC, and to act in accordance with DTC's rules with respect to the
Trust Preferred Securities, the Issuer, the Transfer Agent and Registrar and DTC
agree among each other as follows:
60
<PAGE>
1. Prior to the closing of the sale of the Trust Preferred Securities to
the Underwriter(s), which is expected to occur on or about November ___, 1997,
there shall be deposited with DTC one or more global certificates (individually
and collectively, the "Global Certificate") registered in the name of DTC's
Trust Preferred Securities nominee, Cede & Co., representing an aggregate of
Trust Preferred Securities and bearing the following legend:
Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to
the Issuer or its agent for registration of transfer, exchange, or
payment, and any certificate issued is registered in the name of Cede
& Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of
DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
2. The Amended and Restated Trust Agreement of the Issuer provides for
the voting by holders of the Trust Preferred Securities under certain limited
circumstances. The Issuer shall establish a record date for such purposes and
shall, to the extent possible, give DTC notice of such record date not less than
15 calendar days in advance of such record date.
3. In the event of a stock split, conversion, recapitalization,
reorganization or any other similar transaction resulting in the cancellation of
all or any part of the Trust Preferred Securities outstanding, the Issuer or the
Transfer Agent and Registrar shall send DTC a notice of such event at least five
business days prior to the effective date of such event.
4. In the event of distribution on, or an offering or issuance of rights
with respect to, the Trust Preferred Securities outstanding, the Issuer or the
Transfer Agent and Registrar shall send DTC a notice specifying: (a) the amount
of and conditions, if any, applicable to the payment of any such distribution or
any such offering or issuance of rights; (b) any applicable expiration or
deadline date, or any date by which any action on the part of the holders of
Trust Preferred Securities is required; and (c) the date any required notice is
to be mailed by or on behalf of the Issuer to holders of Trust Preferred
Securities or published by or on behalf of the Issuer (whether by mail or
publication, the "Publication Date"). Such notice shall be sent to DTC by a
secure means (e.g., legible telecopy, registered or certified mail, overnight
delivery) in a timely manner designed to
61
<PAGE>
assure that such notice is in DTC's possession no later than the close of
business on the business day before the Publication Date. The Issuer or the
Transfer Agent and Registrar will forward such notice either in a separate
secure transmission for each CUSIP number or in a secure transmission of
multiple CUSIP numbers (if applicable) that includes a manifest or list of each
CUSIP number submitted in that transmission. (The party sending such notice
shall have a method to verify subsequently the use of such means and the
timeliness of such notice.) The Publication Date shall be not less than 30
calendar days nor more than 60 calendar days prior to the payment of any such
distribution or any such offering or issuance of rights with respect to the
Trust Preferred Securities. After establishing the amount of payment to be made
on the Trust Preferred Securities, the Issuer or the Transfer Agent and
Registrar will notify DTC's Dividend Department of such payment five business
days prior to payment date. Notices to DTC's Dividend Department by telecopy
shall be sent to (212) 709-1723. Such notices by mail or by any other means
shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
The Issuer or the Transfer Agent and Registrar shall confirm DTC's receipt of
such telecopy by telephoning the Dividend Department at (212) 709-1270.
5. In the event of a redemption by the Issuer of the Trust Preferred
Securities, notice specifying the terms of the redemption and the Publication
Date of such notice shall be sent by the Issuer or the Transfer Agent and
Registrar to DTC not less than 30 calendar days prior to such event by a secure
means in the manner set forth in paragraph 4. Such redemption notice shall be
sent to DTC's Call Notification Department at (516) 227-4164 or (516) 227-4190,
and receipt of such notice shall be confirmed by telephoning (516) 227-4070.
Notice by mail or by any other means shall be sent to:
Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, New York 11530-4719
6. In the event of any invitation to tender the Trust Preferred
Securities, notice specifying the terms of the tender and the Publication Date
of such notice shall be sent by the Issuer or the Transfer Agent and Registrar
to DTC by a secure means and in a timely manner as described in paragraph 4.
Notices to DTC pursuant to this paragraph and notices of other corporate actions
62
<PAGE>
(including mandatory tenders, exchanges and capital changes) shall be sent,
unless notification to another department is expressly provided for herein, by
telecopy to DTC's Reorganization Department at (212) 709-1093 or (212) 709-1094
and receipt of such notice shall be confirmed by telephoning (212) 709-6884, or
by mail or any other means to:
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
7. All notices and payment advices sent to DTC shall contain the CUSIP
number or numbers of the Trust Preferred Securities and the accompanying
designation of the Trust Preferred Securities, which, as of the date of this
letter, is "FIB Capital Trust ___% Cumulative Trust Preferred Securities."
8. Distribution payments or other cash payments with respect to the Trust
Preferred Securities evidenced by the Global Certificate shall be received by
Cede & Co., as nominee of DTC, or its registered assigns in next day funds on
each payment date (or in accordance with existing arrangements between the
Issuer or the Transfer Agent and Registrar and DTC). Such payments shall be
made payable to the order of Cede & Co., and shall be addressed as follows:
NDFS Redemption Department
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
9. DTC may by prior written notice direct the Issuer and the Transfer
Agent and Registrar to use any other telecopy number or address of DTC as the
number or address to which notices or payments may be sent.
10. In the event of a conversion, redemption, or any other similar
transaction (e.g., tender made and accepted in response to the Issuer's or the
Transfer Agent and Registrar's invitation) necessitating a reduction in the
aggregate number of Trust Preferred Securities outstanding evidenced by Global
Certificates, DTC, in its discretion: (a) may request the Issuer or the Transfer
Agent and Registrar to issue and countersign a new Global Certificate; or (b)
may make an appropriate notation on the Global Certificate indicating the date
and amount of such reduction.
11. DTC may discontinue its services as a securities depository with
respect to the Trust Preferred Securities at any time by giving at least 90
days' prior written notice to the Issuer and the Transfer Agent and Registrar
(at which
63
<PAGE>
time DTC will confirm with the Issuer or the Transfer Agent and Registrar the
aggregate number of Trust Preferred Securities deposited with it) and
discharging its responsibilities with respect thereto under applicable law.
Under such circumstances, the Issuer may determine to make alternative
arrangements for book-entry settlement for the Trust Preferred Securities, make
available one or more separate global certificates evidencing Trust Preferred
Securities to any Participant having Trust Preferred Securities credited to its
DTC account, or issue definitive Trust Preferred Securities to the beneficial
holders thereof, and in any such case, DTC agrees to cooperate fully with the
Issuer and the Transfer Agent and Registrar, and to return the Global
Certificate, duly endorsed for transfer as directed by the Issuer or the
Transfer Agent and Registrar, together with any other documents of transfer
reasonably requested by the Issuer or the Transfer Agent and Registrar.
12. In the event that the Issuer determines that beneficial owners of
Trust Preferred Securities shall be able to obtain definitive Trust Preferred
Securities, the Issuer or the Transfer Agent and Registrar shall notify DTC of
the availability of certificates. In such event, the Issuer or the Transfer
Agent and Registrar shall issue, transfer and exchange certificates in
appropriate amounts, as required by DTC and others, and DTC agrees to cooperate
fully with the Issuer and the Transfer Agent and Registrar and to return the
Global Certificate, duly endorsed for transfer as directed by the Issuer or the
Transfer Agent and Registrar, together with any other documents of transfer
reasonably requested by the Issuer or the Transfer Agent and Registrar.
13. This letter may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
Nothing herein shall be deemed to require the Transfer Agent and Registrar
to advance funds on behalf of FIB Capital Trust.
Very truly yours,
FIB CAPITAL TRUST
By:
-------------------------------
Name:
-----------------------------
Title: Administrative Trustee
64
<PAGE>
WILMINGTON TRUST COMPANY, as
Transfer Agent and Registrar
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By:
-------------------------------
Authorized Officer
65
<PAGE>
EXHIBIT C
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT AS SET FORTH
IN SECTION 5.10 OF THE TRUST AGREEMENT
CERTIFICATE NUMBER C-1 NUMBER OF COMMON SECURITIES
CERTIFICATE EVIDENCING COMMON SECURITIES
OF
FIB CAPITAL TRUST
___% COMMON SECURITIES
(LIQUIDATION AMOUNT $25 PER COMMON SECURITY)
FIB Capital Trust, a statutory business trust created under the laws of the
State of Delaware (the "Trust"), hereby certifies that First Interstate
BancSystem, Inc. (the "Holder"), is the registered owner of ( ) common
securities of the Trust representing beneficial interests of the Trust and
designated the ___% Common Securities (liquidation amount $25 per Common
Security) (the "Common Securities"). Except as set forth in Section 5.10 of the
Trust Agreement (as defined below) the Common Securities are not transferable
and any attempted transfer hereof 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
Trust dated as of November 7, 1997, as the same may be amended from time to
time (the "Trust Agreement") including the designation of the terms of the
Common Securities as set forth therein. The Trust will furnish a copy of the
Trust Agreement to the Holder without charge upon written request to the 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.
66
<PAGE>
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has
executed this certificate this _____ day of November,1997.
FIB CAPITAL TRUST
By:
--------------------------------
Name:
------------------------------
Administrative Trustee
67
<PAGE>
EXHIBIT D
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT AS TO EXPENSES AND LIABILITIES (this "Agreement"), dated as of
November ___, 1997, between First Interstate BancSystem, Inc., a Montana
corporation ("FIB"), and FIB Capital Trust, a Delaware business trust (the
"Trust").
WHEREAS, the Trust intends to issue its Common Securities (the "Common
Securities") to and receive Debentures from FIB and to issue and sell ____%
Cumulative Trust Preferred Securities (the "Trust Preferred Securities") with
such powers, preferences and special rights and restrictions as are set forth in
the Amended and Restated Trust Agreement of the Trust dated as of November ___,
1997, as the same may be amended from time to time (the "Trust Agreement");
WHEREAS, FIB will directly or indirectly own all of the Common Securities
of the Trust and will issue the Debentures;
NOW, THEREFORE, in consideration of the purchase by each holder of the
Trust Preferred Securities, which purchase FIB hereby agrees shall benefit FIB
and which purchase FIB acknowledges will be made in reliance upon the execution
and delivery of this Agreement, FIB and Trust hereby agree as follows:
ARTICLE I
AGREEMENT
Section 1.1 GUARANTEE BY FIB. Subject to the terms and conditions hereof,
FIB hereby irrevocably and unconditionally guarantees to each person or entity
to whom the Trust is now or hereafter becomes indebted or liable (the
"Beneficiaries") the full payment, when and as due, of any and all Obligations
(as hereinafter defined) to such Beneficiaries. As used herein, "Obligations"
means any costs, expenses or liabilities of the Trust, other than obligations of
the Trust to pay to holders of any Trust Preferred Securities or other similar
interests in the Trust the amounts due such holders pursuant to the terms of the
Trust Preferred Securities or such other similar interests, as the case may be.
This Agreement is intended to be for the benefit of, and to be enforceable by,
all such Beneficiaries, whether or not such Beneficiaries have received notice
hereof.
Section 1.2 TERM OF AGREEMENT. This Agreement shall terminate and be of
no further force and effect upon the later of (a) the date on which full payment
has been made of all amounts payable to all holders of all the Trust Preferred
Securities (whether upon redemption, liquidation, exchange or otherwise) and (b)
the date on which there are no Beneficiaries remaining; provided, however, that
this Agreement shall continue to be effective or shall be reinstated, as the
case
68
<PAGE>
may be, if at any time any holder of Trust Preferred Securities or any
Beneficiary must restore payment of any sums paid under the Trust Preferred
Securities, under any Obligation, under the Guarantee Agreement dated the date
hereof by FIB and Wilmington Trust Company, a Delaware banking corporation, as
guarantee trustee or under this Agreement for any reason whatsoever. This
Agreement is continuing, irrevocable, unconditional and absolute.
Section 1.3 WAIVER OF NOTICE. FIB hereby waives notice of acceptance of
this Agreement and of any Obligation to which it applies or may apply, and FIB
hereby waives presentment, demand for payment, protest, notice of nonpayment,
notice of dishonor, notice of redemption and all other notices and demands.
Section 1.4 NO IMPAIRMENT. The obligations, covenants, agreements and
duties of FIB under this Agreement shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or any
portion of the Obligations or for the performance of any other obligation under,
arising out of, or in connection with, the obligations;
(b) any failure, omission, delay or lack of diligence on the part of
the Beneficiaries to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Beneficiaries with respect to the Obligations or any
action on the part of the Trust granting indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the benefit
of creditors, reorganization, arrangement, composition or readjustment of debt
of, or other similar proceedings affecting, the Trust or any of the assets of
the Trust.
There shall be no obligation of the Beneficiaries to give notice to, or
obtain the consent of, FIB with respect to the happening of any of the
foregoing.
Section 1.5 ENFORCEMENT. A Beneficiary may enforce this Agreement
directly against FIB and FIB waives any right or remedy to require that any
action be brought against the Trust or any other person or entity before
proceeding against FIB.
Section 1.6 SUBROGATION. FIB shall be subrogated to all (if any) rights
of the Trust in respect of any amounts paid to the Beneficiaries by FIB under
this Agreement; provided, however, that FIB 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
Agreement, if, at
69
<PAGE>
the time of any such payment, any amounts are due and unpaid under this
Agreement.
ARTICLE II
BINDING EFFECT
Section 1.7 BINDING EFFECT. All guarantees and agreements contained in
this Agreement shall bind the successors, assigns, receivers, trustees and
representatives of FIB and shall inure to the benefit of the Beneficiaries.
Section 1.8 AMENDMENT. So long as there remains any Beneficiary or any
Trust Preferred Securities of any series are outstanding, this Agreement shall
not be modified or amended in any manner adverse to such Beneficiary or to the
holders of the Trust Preferred Securities.
Section 1.9 NOTICES. Any notice, request or other communication required
or permitted to be given hereunder shall be given in writing by delivering the
same against receipt therefor by facsimile transmission (confirmed by mail),
telex or by registered or certified mail, addressed as follows (and if so given,
shall be deemed given when mailed or upon receipt of an answer-back, if sent by
telex):
FIB Capital Trust
c/o First Interstate BancSystem, Inc.
401 North 31st Street
Billings, MT 59101
Fax: (406) 255-5350
Attention: Terrill R. Moore
First Interstate BancSystem, Inc.
401 North 31st Street
Billings, MT 59101
Fax: (406) 255-5350
Attention: Terrill R. Moore
Section 1.10 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MONTANA (WITHOUT REGARD
TO CONFLICT OF LAW PRINCIPLES).
70
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed as of the day and year first
above written.
FIRST INTERSTATE BANCSYSTEM, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
FIB CAPITAL TRUST
By:
--------------------------------
Name:
------------------------------
Administrative Trustee
71
<PAGE>
EXHIBIT E
This Preferred Security is a Global Certificate within the meaning of the
Trust Agreement hereinafter referred to and is registered in the name of The
Depository Trust Company (the "Depository") or a nominee of the Depository. This
Preferred Security is exchangeable for Trust Preferred Securities registered in
the name of a person other than the Depository or its nominee only in the
limited circumstances described in the Trust Agreement and no transfer of this
Preferred Security (other than a transfer of this Preferred Security as a whole
by the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository) may be
registered except in limited circumstances.
Unless this Preferred Security is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York) to FIB Capital Trust
or its agent for registration of transfer, exchange or payment, and any
Preferred Security issued is registered in the name of Cede & Co. or such other
name as requested by an authorized representative of The Depository Trust
Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.
CERTIFICATE NUMBER P-___ NUMBER OF TRUST PREFERRED
SECURITIES
CUSIP NO.
CERTIFICATE EVIDENCING TRUST PREFERRED SECURITIES
OF
FIB CAPITAL TRUST
___% CUMULATIVE TRUST PREFERRED SECURITIES,
SERIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
FIB Capital Trust, a statutory business trust created under the laws of the
State of Delaware (the "Trust"), hereby certifies that (the "Holder") is the
registered owner of ( ) Trust Preferred Securities of the Trust representing
an undivided beneficial interest in the assets of the Trust and designated the
FIB Capital Trust ___% Cumulative Trust Preferred Securities, (liquidation
amount
72
<PAGE>
$25 per Preferred Security) (the "Trust Preferred Securities"). The Trust
Preferred Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer as provided in Section 5.4 of the Trust
Agreement (as defined below). The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Trust Preferred
Securities are set forth in, and this certificate and the Trust Preferred
Securities represented hereby are issued and shall in all respects be subject to
the terms and provisions of, the Amended and Restated Trust Agreement of the
Trust dated as of November ___, 1997, as the same may be amended from time to
time (the "Trust Agreement") including the designation of the terms of Trust
Preferred Securities as set forth therein. The Holder is entitled to the
benefits of the Guarantee Agreement entered into by First Interstate BancSystem,
Inc., a Montana corporation, and Wilmington Trust Company, as guarantee trustee,
dated as of November ___, 1997, (the "Guarantee"), to the extent provided
therein. The Trust will furnish a copy of the Trust Agreement and the Guarantee
to the Holder without charge upon written request to the Trust at its principal
place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
In Witness Whereof, one of the Administrative Trustees of the Trust has
executed this certificate this day of November ___, 1997.
FIB CAPITAL TRUST
By:
--------------------------------
Name:
------------------------------
Administrative Trustee
73
<PAGE>
ASSIGNMENT
For Value Received, the undersigned assigns and transfers this Preferred
Security to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee) and irrevocably appoints agent to
transfer this Preferred Security Certificate on the books of the Trust. The
agent may substitute another to act for him or her.
74
<PAGE>
- --------------------------------------------------------------------------------
GUARANTEE AGREEMENT
BETWEEN
FIRST INTERSTATE BANCSYSTEM, INC.,
AS GUARANTOR,
AND
WILMINGTON TRUST COMPANY,
AS TRUSTEE
DATED AS OF NOVEMBER 7, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
Article I. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2
Article II. Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.1 Trust Indenture Act; Application. . . . . . . . . . . . . . 4
Section 2.2 List of Holders . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.3 Reports by the Guarantee Trustee. . . . . . . . . . . . . . 5
Section 2.4 Periodic Reports to the Guarantee Trustee . . . . . . . . . 5
Section 2.5 Evidence of Compliance with Conditions Precedent. . . . . . 5
Section 2.6 Events of Default; Waiver . . . . . . . . . . . . . . . . . 5
Section 2.7 Event of Default; Notice. . . . . . . . . . . . . . . . . . 5
Section 2.8 Conflicting Interests . . . . . . . . . . . . . . . . . . . 6
Article III. Powers, Duties and Rights of the Guarantee Trustee. . . . . . . 6
Section 3.1 Powers and Duties of the Guarantee Trustee. . . . . . . . . 6
Section 3.2 Certain Rights of Guarantee Trustee . . . . . . . . . . . . 7
Section 3.3 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . 9
Article IV. Guarantee Trustee. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.1 Guarantee Trustee: Eligibility . . . . . . . . . . . . . . 9
Section 4.2 Appointment, Removal and Resignation of the
Guarantee Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Article V. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Section 5.1 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.2 Waiver of Notice and Demand . . . . . . . . . . . . . . . . 11
Section 5.3 Obligations Not Affected. . . . . . . . . . . . . . . . . . 11
Section 5.4 Rights of Holders . . . . . . . . . . . . . . . . . . . . . 12
Section 5.5 Guarantee of Payment. . . . . . . . . . . . . . . . . . . . 12
Section 5.6 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.7 Independent Obligations . . . . . . . . . . . . . . . . . . 13
Article VI. Covenants and Subordination. . . . . . . . . . . . . . . . . . . 13
Section 6.1 Subordination . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.2 Pari Passu Guarantees . . . . . . . . . . . . . . . . . . . 13
Article VII. Consolidation, Merger, Conveyance, Transfer or Lease. . . . . . 13
Section 7.1 Guarantor May Consolidate, Etc., Only on Certain Terms. . . 13
Section 7.2 Successor Guarantor Substituted . . . . . . . . . . . . . . 14
Article VIII. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . 14
Article IX. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 15
i
<PAGE>
Section 9.1 Successors and Assigns. . . . . . . . . . . . . . . . . . . 15
Section 9.2 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 9.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 9.4 Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 9.5 Interpretation. . . . . . . . . . . . . . . . . . . . . . . 16
Section 9.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 17
Section 9.7 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 17
ii
<PAGE>
CROSS-REFERENCE TABLE*
Section of Trust Section of
Indenture Act of 1939, as amended Guarantee Agreement
- --------------------------------- -------------------
310(a).. . . . . . . . . . . . . . . . . . . . . . . 4.1(a)
310(b).. . . . . . . . . . . . . . . . . . . . . . . 2.8, 4.1(c)
310(c).. . . . . . . . . . . . . . . . . . . . . . . Inapplicable
311(a).. . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
311(b).. . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
311(c).. . . . . . . . . . . . . . . . . . . . . . . Inapplicable
312(b).. . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
313. . . . . . . . . . . . . . . . . . . . . . . . 2.3
314(a).. . . . . . . . . . . . . . . . . . . . . . . 2.4
314(b).. . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(c).. . . . . . . . . . . . . . . . . . . . . . . 2.5
314(d).. . . . . . . . . . . . . . . . . . . . . . . Inapplicable
316(c).. . . . . . . . . . . . . . . . . . . . . . . 9.2
317(a).. . . . . . . . . . . . . . . . . . . . . . . Inapplicable
317(b).. . . . . . . . . . . . . . . . . . . . . . . Inapplicable
318(a).. . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
318(b).. . . . . . . . . . . . . . . . . . . . . . . 2.1
318(c).. . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
* This Cross-Reference Table does not constitute part of the Guarantee
Agreement and shall not affect the interpretation of any of its terms or
provisions.
iii
<PAGE>
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT dated as of November 7, 1997, is executed and
delivered by FIRST INTERSTATE BANCSYSTEM, INC. a Montana corporation (the
"Guarantor"), having its principal office at 401 North 31st Street, Billings, MT
59101, and WILMINGTON TRUST COMPANY a Delaware banking corporation, as trustee
(the "Guarantee Trustee"), for the benefit of the Holders from time to time of
the Trust Preferred Securities (as defined herein) of FIB Capital Trust, a
Delaware statutory business trust (the "Trust").
WHEREAS, pursuant to a Trust Agreement, dated as of November 7, 1997 (the
"Trust Agreement"), among the Guarantor, as Depositor, Wilmington Trust Company
as Property Trustee, Wilmington Trust Company, as Delaware Trustee, and the
Administrative Trustees named therein and the Holders from time to time of
undivided beneficial interests in the assets of the Trust, the Trust issued
$40,000,000 aggregate Liquidation Amount (as defined in the Trust Agreement) of
its _____% Cumulative Trust Preferred Securities, Liquidation Amount $25 per
Trust Preferred Security (the "Trust Preferred Securities"), representing
preferred undivided beneficial interests in the assets of the Trust and having
the terms set forth in the Trust Agreement;
WHEREAS, the Trust Preferred Securities will be issued by the Trust and the
proceeds thereof, together with the proceeds from the issuance of the Trust's
Common Securities (as defined below), will be used to purchase the Debentures
(as defined in the Trust Agreement) of the Guarantor which was deposited with
Wilmington Trust Company, as Property Trustee under the Trust Agreement, as
assets of the Trust; and
WHEREAS, as an incentive for the Holders to purchase the Trust Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth herein, to pay to the Holders of the Trust Preferred
Securities the Guarantee Payments (as defined herein) and to make certain other
payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of Trust
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Guarantee Agreement and
pursuant to Section 5.1 hereof extends the Guarantee for the benefit of the
Holders from time to time of the Trust Preferred Securities.
<PAGE>
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
or otherwise defined terms used but not otherwise defined herein shall have the
meanings assigned to such terms in the Trust Agreement and the Indenture (as
defined herein), each as in effect on the date hereof.
"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; provided, however, that an Affiliate of the
Guarantor shall not be deemed to be an Affiliate of the Trust. 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.
"Board of Directors" means either the board of directors of the Guarantor
or any committee of that board duly authorized to act hereunder.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Trust.
"Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Guarantee Agreement; provided, however, that,
except with respect to a default in payment of any Guarantee Payments, the
Guarantor shall have received notice of default and shall not have cured such
default within 60 days after receipt of such notice.
"Guarantee" has the meaning set forth in Section 5.1.
"Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Trust Preferred Securities, to the extent not
paid or made by or on behalf of the Trust: (i) any accrued and unpaid
Distributions (as defined in the Trust Agreement) required to be paid on the
Trust Preferred Securities, to the extent the Trust shall have funds on hand
available therefor at such time, (ii) the applicable Redemption Price (as
defined in the Trust Agreement), to the extent the 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 Trust, unless Debentures are
distributed to the Holders, the lesser of (a) the aggregate of the Liquidation
Distribution (as defined in the Trust Agreement) and (b) the amount of assets of
the Trust remaining available for
2
<PAGE>
distribution to Holders of Trust Preferred Securities after satisfaction of
liabilities to creditors of the Trust as required by applicable law.
"Guarantee Trustee" means Wilmington 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.
"Holder" means any holder, as registered on the books and records of the
Trust, of any Trust Preferred Securities; provided, however, that in determining
whether the holders of the requisite percentage of Trust Preferred Securities
have given any request, notice, consent or waiver hereunder, "Holder" shall not
include the Guarantor, the Guarantee Trustee, or any Affiliate of the Guarantor
or the Guarantee Trustee.
"Indenture" means the Junior Subordinated Indenture dated as of November
7, 1997, between the Guarantor and Wilmington Trust Company, as trustee, as
supplemented and amended from time to time.
"List of Holders" has the meaning specified in Section 2.2(a).
"Majority in Liquidation Amount of the Trust Preferred Securities" means,
except as provided by the Trust Indenture Act, a vote by the Holder(s), voting
separately as a class, of more than 50% of the Liquidation Amount of all then
outstanding Trust Preferred Securities issued by the Trust.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman or a Vice Chairman of the Board of Directors of such
Person or the President or a Vice President of such Person, and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
such Person, and delivered to the Guarantee Trustee. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Guarantee Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each 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 officer, such
condition or covenant has been complied with.
3
<PAGE>
"Other Guarantees" mean any guarantees similar to the Guarantee issued,
from time to time, by the Guarantor on behalf of holders of preferred trust
interests issued by one or more business trusts, similar to the Trust.
"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.
"Responsible Officer" means, with respect to the Guarantee Trustee, any
officer of the Corporate Trust Department of the Guarantee Trustee and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of that officer's knowledge of and
familiarity with the particular subject.
"Securities Act" means the Securities Act of 1933, as amended.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
ARTICLE II.
TRUST INDENTURE ACT
Section 2.1 TRUST INDENTURE ACT; APPLICATION.
(a) This Guarantee Agreement is subject to the provisions of the
Trust Indenture Act that are required to be part of this Guarantee Agreement and
shall, to the extent applicable, be governed by such provisions.
(b) If and to the extent that any provision of this Guarantee
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.
Section 2.2 LIST OF HOLDERS.
(a) The Guarantor shall furnish or cause to be furnished to the
Guarantee Trustee (a) semiannually, on or before January 15 and July 15 of each
year, a list, in such form as the Guarantee Trustee may reasonably require, of
the names and addresses of the Holders ("List of Holders") as of a date not more
than 15 days prior to the delivery thereof, and (b) 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 Holders as of a date not more than
15 days prior to the time such list is furnished, in each case to the extent
such information is in the possession or control of the Guarantor and is not
identical to a previously supplied list of Holders or has not otherwise been
4
<PAGE>
received by the Guarantee Trustee in its capacity as such. The Guarantee Trustee
may destroy any List of Holders previously given to it on receipt of a new List
of Holders.
(b) The Guarantee Trustee shall comply with its obligations under
Section 311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act.
Section 2.3 REPORTS BY THE GUARANTEE TRUSTEE.
Not later than July 15 of each year, commencing July 15, 1998, the
Guarantee Trustee shall provide to the Holders such reports as are required by
Section 313 of the Trust Indenture Act, if any, in the form and in the manner
provided by Section 313 of the Trust Indenture Act. The 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, the Securities and
Exchange Commission and the Holders such documents, reports and information, if
any, as required by Section 314 of the Trust Indenture Act and the compliance
certificate required by Section 314 of the Trust Indenture Act, in the form, in
the manner and at the times required by Section 314 of the Trust Indenture Act.
Section 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
The Guarantor shall provide to the Guarantee Trustee, on an annual basis,
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 Trust Preferred
Securities may, by vote, on behalf of the Holders, waive any past Event of
Default and its consequences. Upon such waiver, any such Event of Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Guarantee Agreement, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent therefrom.
Section 2.7 EVENT OF DEFAULT; NOTICE.
(a) The Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders, notices of all Events of Default known to the
Guarantee Trustee, unless such defaults 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
5
<PAGE>
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 the Guarantee Trustee shall have received written
notice, or a Responsible Officer charged with the administration of this
Guarantee Agreement shall have obtained 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.
ARTICLE III.
POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
Section 3.1 POWERS AND DUTIES OF THE GUARANTEE TRUSTEE.
(a) This Guarantee shall be held by the Guarantee Trustee for the
benefit of the Holders, and the Guarantee Trustee shall not transfer this
Guarantee to any Person except to a Holder exercising his or her rights pursuant
to Section 7.1 or to a Successor Guarantee Trustee on acceptance by such
Successor Guarantee Trustee of its appointment to act as Successor Guarantee
Trustee. The right, title and interest of the Guarantee Trustee 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 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 undertake to perform only such duties as are specifically set forth in
this Guarantee Agreement, and no implied covenants shall be read into this
Guarantee Agreement against the Guarantee Trustee. In case 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.
6
<PAGE>
(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, 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; and
(B) in the absence of bad faith on the part of the
Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Guarantee Trustee and conforming
to the requirements of this Guarantee Agreement; but in the case of any such
certificates or opinions that by any provision hereof or of the Trust Indenture
Act are specifically required to be furnished to the Guarantee Trustee, the
Guarantee Trustee shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee Trustee,
unless it shall be proved that the Guarantee Trustee was negligent in
ascertaining the pertinent facts upon which such judgment was made;
(iii) the Guarantee Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in Liquidation Amount
of the Trust Preferred Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee, or
exercising any trust or power conferred upon the Guarantee Trustee under this
Guarantee Agreement; and
(iv) no provision of this Guarantee Agreement shall require the
Guarantee Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if the Guarantee Trustee shall have reasonable
grounds for believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this 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:
7
<PAGE>
(i) The Guarantee Trustee may 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 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 written advice or opinion of such legal counsel with respect to legal
matters shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted to be taken by it hereunder in good faith
and in accordance with such advice or opinion. Such legal counsel may be legal
counsel to the Guarantor or any of its Affiliates and may be one of its
employees. The Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Guarantee Agreement from any
court of competent jurisdiction.
(v) The Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Guarantee Agreement at
the request or direction of any Holder, unless such Holder shall have provided
to the Guarantee Trustee such adequate security and indemnity as would satisfy a
reasonable person in the position of the Guarantee Trustee, against the costs,
expenses (including attorneys' fees and expenses) and liabilities that might be
incurred by it in complying with such request or direction, including such
reasonable advances as may be requested by the Guarantee Trustee; provided that,
nothing contained in this Section 3.2(a)(v) shall be taken to relieve the
Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation
to exercise the rights and powers vested in it by this Guarantee Agreement.
(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
8
<PAGE>
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 misconduct or negligence 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 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 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.
ARTICLE IV.
GUARANTEE TRUSTEE
Section 4.1 GUARANTEE TRUSTEE: ELIGIBILITY.
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of at least
$50,000,000, and shall be a corporation meeting the requirements of Section
310(a) of the Trust Indenture
9
<PAGE>
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 4.1(a)(ii) 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).
(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) Subject to Section 4.2(b), the Guarantee Trustee may be appointed
or removed without cause at any time by the Guarantor.
(b) The Guarantee Trustee shall not be removed until a Successor
Guarantee Trustee has been appointed and has accepted such appointment by
written instrument executed by such Successor Guarantee Trustee and delivered to
the Guarantor.
(c) The Guarantee Trustee appointed hereunder shall hold office until
a Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.
(d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition, at the expense of the Guarantor, any court of
competent jurisdiction for appointment of a Successor Guarantee Trustee. Such
court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Guarantee Trustee.
10
<PAGE>
ARTICLE V.
GUARANTEE
Section 5.1 GUARANTEE.
The Guarantor irrevocably and unconditionally agrees to pay in full on a
subordinated basis to the Holders the Guarantee Payments (without duplication of
amounts theretofore paid by or on behalf of the Trust), as and when due,
regardless of any defense, right of set-off or counterclaim which the Trust may
have or assert other than the defense of payment (the "Guarantee"). The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Trust to pay such amounts to the Holders.
Section 5.2 WAIVER OF NOTICE AND DEMAND.
The Guarantor hereby waives (i) notice of acceptance of the Guarantee and
of any liability to which it applies or may apply, (ii) presentment, (iii)
demand for payment, (iv) any right to require a proceeding first against the
Guarantee Trustee, Trust or any other Person before proceeding against the
Guarantor, (v) protest, (vi) notice of nonpayment, (vii) notice of dishonor,
(viii) notice of redemption and (ix) 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 Trust of any express or implied agreement,
covenant, term or condition relating to the Trust Preferred Securities to be
performed or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any
portion of the Distributions (other than an extension of time for payment of
Distributions that results from the extension of any interest payment period on
the Debentures as provided in the Indenture), Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the Trust Preferred
Securities or the extension of time for the performance of any other obligation
under, arising out of, or in connection with, the Trust Preferred Securities;
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Trust Preferred
Securities, or any action on the part of the Trust granting indulgence or
extension of any kind;
11
<PAGE>
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the benefit
of creditors, reorganization, arrangement, composition or readjustment of debt
of, or other similar proceedings affecting, the Trust or any of the assets of
the Trust;
(e) any invalidity of, or defect or deficiency in, the Trust
Preferred Securities;
(f) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor, 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 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 on behalf of
the Holders; (iii) the Holders of a Majority in Liquidation Amount of the Trust
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of this Guarantee Agreement or exercising any trust or power conferred
upon the Guarantee Trustee under this Guarantee Agreement; and (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 Trust or any other Person.
Section 5.5 GUARANTEE OF PAYMENT.
This Guarantee creates a guarantee of payment and not of collection. This
Guarantee will not be discharged except by payment of the Guarantee Payments in
full (without duplication of amounts theretofore paid by the Trust) or upon
distribution of Debentures to Holders as provided in the Trust Agreement.
Section 5.6 SUBROGATION.
The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Trust in respect of any amounts paid to the Holders by the Guarantor
under this Guarantee Agreement and shall have the right to waive payment by the
Trust pursuant to Section 5.1; 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
12
<PAGE>
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, if,
at the time of any such payment, any amounts are due and unpaid under this
Guarantee. If any amount shall be paid to the Guarantor in violation of the
preceding sentence, the Guarantor agrees to hold such amount in trust for the
Holders and to pay over such amount to the Holders.
Section 5.7 INDEPENDENT OBLIGATIONS.
The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Trust with respect to the Trust Preferred Securities
and that the Guarantor shall be liable as principal and as debtor hereunder to
make Guarantee Payments pursuant to the terms of this Guarantee Agreement
notwithstanding the occurrence of any event referred to in subsections (a)
through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI.
COVENANTS AND SUBORDINATION
Section 6.1 SUBORDINATION.
The obligations of the Guarantor under this Guarantee will constitute
unsecured obligations of the Guarantor and will rank subordinate and junior in
right of payment to all Senior and Subordinated Debt (as defined in the
Indenture) in the same manner as Debentures (as defined in the Trust Agreement).
Section 6.2 PARI PASSU GUARANTEES.
The obligations of the Guarantor under this Guarantee shall rank pari passu
with the obligations of the Guarantor under all Other Guarantees.
ARTICLE VII.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 7.1 GUARANTOR MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Guarantor 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 Guarantor
or convey, transfer or lease its properties and assets substantially as an
entirety to the Guarantor, unless:
(a) in case the Guarantor 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 Person formed by such
consolidation or into which the Guarantor is merged or the Person which acquires
by conveyance or transfer, or which leases, the
13
<PAGE>
properties and assets of the Guarantor substantially as an entirety shall be a
corporation, partnership or trust organized and existing under the laws of the
United States of America or any State or the District of Columbia, and shall
expressly assume the Guarantor's obligations under this Guarantee;
(b) immediately after giving effect thereto, no Event of Default, and
no event which, after notice or lapse of time, or both, would become an Event of
Default, shall have happened and be continuing;
(c) such consolidation, merger, conveyance, transfer or lease is
permitted under the Trust Agreement and the Indenture and does not give rise to
any breach or violation of the Trust Agreement or the Indenture; and
(d) the Guarantor has delivered to the Guarantee Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and assumption of the Guarantor's
obligations under this Guarantee Agreement comply with this Article and that all
conditions precedent herein provided for relating to such transaction have been
complied with; and the Guarantee Trustee, subject to Section 3.1 hereof, may
rely upon such Officers' Certificate and Opinion of Counsel as conclusive
evidence that such transaction complies with this Section 7.1.
Section 7.2 SUCCESSOR GUARANTOR SUBSTITUTED.
Upon any consolidation or merger by the Guarantor with or into any other
Person, or any conveyance, transfer or lease by the Guarantor of its properties
and assets substantially as an entirety to any Person in accordance with Section
7.1, the successor Person formed by such consolidation or into which the
Guarantor 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 Guarantor under this Guarantee Agreement with the same effect as if such
successor Person had been named as the Guarantor herein; and in the event of any
such conveyance, transfer or lease the Guarantor shall be discharged from all
obligations and covenants under this Guarantee Agreement.
ARTICLE VIII.
TERMINATION
Section 8.1 TERMINATION.
This Guarantee Agreement shall terminate and be of no further force and
effect upon the earliest of (i) full payment of the applicable Redemption
Price of all Trust Preferred Securities, (ii) the distribution of Debentures
to the Holders in exchange for all of the Trust Preferred Securities or (iii)
full payment of the amounts payable in accordance with the Trust Agreement
upon liquidation of the Trust. Notwithstanding the foregoing clauses (i)
through (iii), this Guarantee Agreement will continue to be effective or will
be reinstated if it has been terminated pursuant to one of such clauses
14
<PAGE>
(i) through (iii), as the case may be, if at any time any Holder must restore
payment of any sums paid with respect to Trust Preferred Securities or this
Guarantee Agreement.
ARTICLE IX.
MISCELLANEOUS
Section 9.1 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 Trust Preferred
Securities then outstanding. Except in connection with a consolidation, merger
or sale involving the Guarantor that is permitted under Article VII hereof and
Article VIII of the Indenture, the Guarantor shall not assign its obligations
hereunder.
Section 9.2 AMENDMENTS.
Except with respect to any changes which do not adversely affect the rights
of the Holders in any material respect (in which case no vote will be required),
this Guarantee Agreement may not be amended without the prior approval of the
Holders of not less than a Majority in Liquidation Amount of the Trust Preferred
Securities. The provisions of Article VI of the Trust Agreement concerning
meetings of the Holders shall apply to the giving of such approval.
Section 9.3 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 or mailed by first class mail as follows:
(a) if given to the Guarantor, to the address set forth below or such
other address, facsimile number or to the attention of such other Person as the
Guarantor may give notice to the Holders:
First Interstate BancSystem, Inc.
401 North 31st Street
Billings, Montana 59101
Facsimile No.:
Attention:
(b) if given to the Trust, in care of the Guarantee Trustee, at the
Trust's (and the Guarantee Trustee's) address set forth below or such other
address as the Guarantee Trustee on behalf of the Trust may give notice to the
Holders:
FIB Capital Trust
c/o First Interstate BancSystem, Inc.
15
<PAGE>
401 North 31st Street
Billings, Montana 59101
Facsimile No.:
Attention:
with a copy to:
Wilmington Trust Company
1100 North Market
Wilmington, Delaware 19890
Facsimile No.: (302) 651-1000
Attention: Corporate Trust Administration
(c) if given to any Holder, at the address set forth on the books and
records of the Trust.
All notices hereunder shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
Section 9.4 BENEFIT.
This Guarantee is solely for the benefit of the Holders and is not
separately transferable from the Trust Preferred Securities.
Section 9.5 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;
16
<PAGE>
(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 9.6 GOVERNING LAW.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF MONTANA WITHOUT REGARD TO THE
CONFLICT OF LAW PRINCIPLES THEREOF PROVIDED THAT THE IMMUNITIES AND STANDARD OF
CARE OF THE TRUSTEE SHALL BE GOVERNED BY DELAWARE LAW.
Section 9.7 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.
[The Remainder of this Page Intentionally Left Blank.]
17
<PAGE>
THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.
FIRST INTERSTATE BANCSYSTEM, INC.
By: /s/ Terrill R. Moore
-------------------------------------
Name: Terrill R. Moore
-----------------------------------
Title: Senior Vice President
----------------------------------
WILMINGTON TRUST COMPANY,
as Guarantee Trustee
By: /s/ James P. Lawler
-------------------------------------
Name: James P. Lawler
-----------------------------------
Title: Vice President
----------------------------------
18
<PAGE>
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Year ended December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Net income from operations before tax $ 25,855 21,243 17,337 15,734 15,448
Applicable income taxes 15,730 13,351 10,844 9,861 9,321
- ----------------------------------------------------------------------------------------------------
Income before taxes 41,585 34,594 28,181 25,595 24,769
Fixed charges:
Interest expense excluding interest on deposits 8,060 3,389 2,488 1,391 835
Portion of rents representative of interest 472 492 829 866 -
Preferred stock dividends including
pre-tax effect 2,004 589 - - -
Amortization of trust preferred securities
issuance costs 14 - - - -
- ----------------------------------------------------------------------------------------------------
Fixed charges excluding interest on deposits 10,550 4,470 3,317 2,257 835
Interest on deposits 64,603 46,630 39,458 27,060 26,243
- ----------------------------------------------------------------------------------------------------
Fixed charges including interest on deposits $ 75,153 51,100 42,775 29,317 27,078
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Earnings excluding interest on deposits $ 52,135 39,064 31,498 27,852 25,604
Earnings including interest on deposits 116,738 85,694 70,956 54,912 51,847
Fixed charges excluding interest on deposits 10,550 4,470 3,317 2,257 835
Fixed charges including interest on deposits 75,153 51,100 42,775 29,317 27,078
RATIO OF EARNINGS TO FIXED CHARGES:
Excluding interest on deposits 4.94x 8.74x 9.50x 12.34x 30.66x
Including interest on deposits 1.55x 1.68x 1.66x 1.87x 1.91x
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) For purposes of computing the ratio of earnings to fixed charges,
earnings represents income before income taxes and fixed charges. Fixed
charges represent interest expense and preferred stock dividends, which
dividends commenced in October 1996 and concluded in October 1997.
Deposits include interest-bearing deposits and repurchase agreements.
Without including preferred stock dividends in fixed charges and
excluding interest on deposits, the ratio of earnings to fixed charges
for the years ended December 31, 1997 and 1996 were 5.87x and 9.91x,
respectively. Without including preferred stock dividends in fixed
charges and including interest on deposits, the ratio of earnings to
fixed charges for the years ended December 31, 1997 and 1996 were 1.57x
and 1.68x, respectively
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF FIRST INTERSTATE BANCSYSTEM, INC.
<TABLE>
<CAPTION>
State of Incorporation or
Subsidiary Jurisdiction of Organization Business Name
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Interstate Bank(1)
(formerly known as First Interstate Bank of Commerce) Montana First Interstate Bank
First Interstate Bank(2)
(formerly known as First Interstate Bank of Commerce) Wyoming First Interstate Bank
Commerce Financial, Inc. Montana Commerce Financial, Inc.
FIB Capital Trust Delaware FIB Capital Trust
</TABLE>
(1) In June 1997, First Interstate Bank of Montana, N.A. and Mountain Bank
of Whitefish, Montana (doing business as First Interstate Bank), prior
subsidiaries of First Interstate BancSystem, Inc., were merged with and
into this subsidiary. In December 1997, First Interstate Bank, fsb, a
prior subsidiary of First Interstate BancSystem, Inc. was merged with
and into this subsidiary.
(2) In June 1997, First Interstate Bank of Wyoming, N.A., a prior subsidiary
of First Interstate BancSystem, Inc., was merged with and into this
subsidiary.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME INCLUDED AS
EXHIBIT 14 TO THE COMPANY'S FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 136,025
<INT-BEARING-DEPOSITS> 34,447
<FED-FUNDS-SOLD> 58,675
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 188,650
<INVESTMENTS-CARRYING> 236,953
<INVESTMENTS-MARKET> 238,122
<LOANS> 1,470,414
<ALLOWANCE> 28,180
<TOTAL-ASSETS> 2,234,764
<DEPOSITS> 1,805,006
<SHORT-TERM> 191,966
<LIABILITIES-OTHER> 60,599<F1>
<LONG-TERM> 31,526
0
0
<COMMON> 11,490
<OTHER-SE> 134,177
<TOTAL-LIABILITIES-AND-EQUITY> 2,234,764
<INTEREST-LOAN> 140,083
<INTEREST-INVEST> 23,067
<INTEREST-OTHER> 2,658
<INTEREST-TOTAL> 165,808
<INTEREST-DEPOSIT> 58,129
<INTEREST-EXPENSE> 72,663
<INTEREST-INCOME-NET> 93,145
<LOAN-LOSSES> 4,240
<SECURITIES-GAINS> 89
<EXPENSE-OTHER> 74,166
<INCOME-PRETAX> 41,585
<INCOME-PRE-EXTRAORDINARY> 41,585
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,855
<EPS-PRIMARY> 3.07
<EPS-DILUTED> 3.05
<YIELD-ACTUAL> 5.00
<LOANS-NON> 9,681
<LOANS-PAST> 4,883
<LOANS-TROUBLED> 928
<LOANS-PROBLEM> 39,213
<ALLOWANCE-OPEN> 27,797
<CHARGE-OFFS> 6,951
<RECOVERIES> 3,094
<ALLOWANCE-CLOSE> 28,180
<ALLOWANCE-DOMESTIC> 2,584
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 25,596
<FN>
<F1>INCLUDES $40,000 MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUST.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME PREVIOUSLY
FILED ON FORM 10-Q FOR THE PERIODS INDICATED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 131,878 130,362 170,043
<INT-BEARING-DEPOSITS> 2,033 37 42
<FED-FUNDS-SOLD> 27,695 19,275 38,070
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 98,709 83,479 128,590
<INVESTMENTS-CARRYING> 268,097 313,452 256,197
<INVESTMENTS-MARKET> 284,421 312,081 256,949
<LOANS> 1,405,570 1,475,852 1,467,153
<ALLOWANCE> 28,393 28,757 28,456
<TOTAL-ASSETS> 2,061,002 2,131,351 2,169,437
<DEPOSITS> 1,649,456 1,673,035 1,751,492
<SHORT-TERM> 168,359 228,710 182,919
<LIABILITIES-OTHER> 29,339 19,497 20,859
<LONG-TERM> 64,259 56,184 54,081
0 0 0
20,000 20,000 20,000
<COMMON> 8,476 8,350 9,665
<OTHER-SE> 121,113 125,575 130,421
<TOTAL-LIABILITIES-AND-EQUITY> 2,061,002 2,131,351 2,169,437
<INTEREST-LOAN> 33,330 68,233 104,419
<INTEREST-INVEST> 5,594 11,289 17,015
<INTEREST-OTHER> 237 808 1,206
<INTEREST-TOTAL> 39,161 80,330 122,640
<INTEREST-DEPOSIT> 13,387 27,470 42,269
<INTEREST-EXPENSE> 16,392 34,373 52,670
<INTEREST-INCOME-NET> 22,769 45,957 69,970
<LOAN-LOSSES> 1,223 2,281 3,288
<SECURITIES-GAINS> 58 73 72
<EXPENSE-OTHER> 17,703 35,987 54,376
<INCOME-PRETAX> 10,468 21,174 32,414
<INCOME-PRE-EXTRAORDINARY> 6,462 13,094 20,070
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 6,462 13,094 20,070
<EPS-PRIMARY> 0.76<F1> 1.54 2.36
<EPS-DILUTED> 0.76<F2> 1.54 2.35
<YIELD-ACTUAL> 4.62 5.07 5.06
<LOANS-NON> 6,555 7,750 8,993
<LOANS-PAST> 7,756 3,769 11,893
<LOANS-TROUBLED> 380 1,352 1,348
<LOANS-PROBLEM> 61,378 69,421 73,777
<ALLOWANCE-OPEN> 27,797 27,797 27,797
<CHARGE-OFFS> 1,361 2,973 4,949
<RECOVERIES> 734 1,652 2,320
<ALLOWANCE-CLOSE> 28,393 28,757 28,456
<ALLOWANCE-DOMESTIC> 4,087 3,174 2,599
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 24,306 25,583 25,857
<FN>
<F1>RETROACTIVELY RESTATED TO GIVE EFFECT OF 4 FOR 1 STOCK SPLIT OCCURRING IN
OCTOBER 1997.
<F2>RETROACTIVELY RESTATED TO GIVE EFFECT OF 4 FOR 1 STOCK SPLIT OCCURRING IN
OCTOBER 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME PREIOUSLY FILED ON FORMS
10-Q AND 10-K FOR THE PERIODS INDICATED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 89,546 91,620 160,962
<INT-BEARING-DEPOSITS> 1,033 6,035 6,545
<FED-FUNDS-SOLD> 12,960 22,555 4,945
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 67,771 64,583 124,502
<INVESTMENTS-CARRYING> 179,546 171,407 279,069
<INVESTMENTS-MARKET> 177,317 169,820 278,876
<LOANS> 940,248 948,091 1,375,479
<ALLOWANCE> 15,406 15,916 27,797
<TOTAL-ASSETS> 1,350,478 1,364,052 2,063,837
<DEPOSITS> 1,082,487 1,106,807 1,679,424
<SHORT-TERM> 129,315 110,564 155,658
<LIABILITIES-OTHER> 12,895 13,919 18,027
<LONG-TERM> 10,234 10,234 64,667
0 0 0
0 0 20,000
<COMMON> 6,038 9,172 8,941
<OTHER-SE> 109,509 113,356 117,120
<TOTAL-LIABILITIES-AND-EQUITY> 1,350,478 1,364,052 2,063,837
<INTEREST-LOAN> 44,600 68,109 99,882
<INTEREST-INVEST> 7,429 10,859 16,325
<INTEREST-OTHER> 825 1,107 1,718
<INTEREST-TOTAL> 52,854 80,075 117,925
<INTEREST-DEPOSIT> 19,456 29,250 42,122
<INTEREST-EXPENSE> 22,551 33,906 50,019
<INTEREST-INCOME-NET> 30,303 46,169 67,906
<LOAN-LOSSES> 1,152 1,852 3,844
<SECURITIES-GAINS> 2 2 18
<EXPENSE-OTHER> 23,207 35,265 53,395
<INCOME-PRETAX> 16,684 25,133 34,594
<INCOME-PRE-EXTRAORDINARY> 10,270 15,482 21,243
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 10,270 15,482 21,243
<EPS-PRIMARY> 1.32<F1> 1.96 2.65
<EPS-DILUTED> 1.31<F2> 1.96 2.64
<YIELD-ACTUAL> 5.10 5.15 5.15
<LOANS-NON> 3,775 4,596 6,822
<LOANS-PAST> 2,595 3,473 6,432
<LOANS-TROUBLED> 1,689 1,643 1,763
<LOANS-PROBLEM> 8,861 16,990 24,579
<ALLOWANCE-OPEN> 15,171 15,171 15,171
<CHARGE-OFFS> 1,566 2,017 3,758
<RECOVERIES> 649 910 1,987
<ALLOWANCE-CLOSE> 15,406 15,916 27,797
<ALLOWANCE-DOMESTIC> 2,312 2,224 2,264
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 13,094 13,692 25,533
<FN>
<F1>RETROACTIVELY RESTATED TO GIVE EFFECT OF 4 FOR 1 STOCK SPLIT OCCURRING DURING
OCTOBER 1997.
<F2>RETROACTIVELY RESTATED TO GIVE EFFECT OF 4 FOR 1 STOCK SPLIT OCCURRING DURING
OCTOBER 1997.
</FN>
</TABLE>
