<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1998
REGISTRATION NO. 333-66153
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C>
UNION BANKSHARES, LTD. UNION BANKSHARES CAPITAL TRUST I
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
</TABLE>
<TABLE>
<S> <C>
DELAWARE DELAWARE
(State or jurisdiction of incorporation or organization) (State or jurisdiction of incorporation or organization)
84-0986148 APPLIED FOR
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
1825 LAWRENCE STREET, SUITE 444 1825 LAWRENCE STREET, SUITE 444
DENVER, COLORADO 80202 DENVER, COLORADO 80202
(303) 298-5352 (303) 298-5352
(Address and telephone number of principal executive (Address and telephone number of principal executive
offices) offices)
</TABLE>
<TABLE>
<S> <C> <C>
Copies to:
CHARLES R. HARRISON RONALD R. LEVINE, II, ESQ. ROBERT J. AHRENHOLZ, ESQ.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER DAVIS, GRAHAM & STUBBS LLP KUTAK ROCK
1825 LAWRENCE STREET, SUITE 444 370 SEVENTEENTH STREET, SUITE 4700 717 SEVENTEENTH STREET, SUITE 2900
DENVER, COLORADO 80202 DENVER, COLORADO 80202 DENVER, COLORADO 80202
(303) 298-5352 (303) 892-9400 (303) 297-2400
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [ ]
If the registrant elects to deliver its latest annual report to securityholders,
or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this
Form, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED
AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED(1) REGISTERED PER UNIT(1) PRICE
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<S> <C> <C> <C>
Cumulative Preferred Securities of Union Bankshares
Capital Trust I.............................. 1,447,368 $7.60 $10,999,996(4)
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Junior Subordinated Debentures of Union Bankshares,
Ltd.......................................... (2) -- --
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Guarantee of Union Bankshares, Ltd. with respect to
the Cumulative Preferred Securities(3)....... (3) -- --
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Total Registration Fee......................... -- -- --
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<CAPTION>
- ----------------------------------------------------- -------------------
- ----------------------------------------------------- -------------------
MAXIMUM
AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED(1) REGISTRATION FEE
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<S> <C>
Cumulative Preferred Securities of Union Bankshares
Capital Trust I.............................. $3,228(4)
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Junior Subordinated Debentures of Union Bankshares,
Ltd.......................................... --
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Guarantee of Union Bankshares, Ltd. with respect to
the Cumulative Preferred Securities(3)....... --
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Total Registration Fee......................... $3,228(4)
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(a).
(2) The % Junior Subordinated Debentures (the "Junior Subordinated
Debentures") will be purchased by Union Bankshares Capital Trust I ("Union
Capital") with the proceeds of the sale of the % Cumulative Preferred
Securities (the "Preferred Securities"). The Junior Subordinated Debentures
may later be distributed for no additional consideration to the holders of
the Preferred Securities upon Union Capital's dissolution and the
distribution of its assets.
(3) This Registration Statement is deemed to cover the Junior Subordinated
Debentures of Union Bankshares, Ltd. (the "Company"), the rights of holders
of the Junior Subordinated Debentures of the Company under the Indenture,
the rights of holders of the Preferred Securities under the Trust Agreement,
the Guarantee, the Expense Agreement entered into by the Company and certain
backup undertakings as described herein which, taken together, fully,
irrevocably and unconditionally guarantee all of the respective obligations
of Union Capital under the Preferred Securities. No separate consideration
will be received for the Guarantee, the Expense Agreement or such backup
undertakings.
(4) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION, DATED DECEMBER 9, 1998
1,315,790 Trust Preferred Securities
UNION BANKSHARES CAPITAL TRUST I
% Cumulative Trust Preferred Securities
(Liquidation Amount $7.60 per Trust Preferred Security)
guaranteed as described in this prospectus by
UNION BANKSHARES, LTD.
Union Bankshares Capital Trust I, a Delaware statutory business trust is
offering the % Cumulative Trust Preferred Securities. The Preferred
Securities represent undivided beneficial interests in the assets of Union
Bankshares Capital Trust I. Union Bankshares, Ltd. will be the owner of all of
the beneficial interests represented by common securities of Union Bankshares
Capital Trust I and will guarantee all of Union Bankshares Capital Trust I's
obligations under the Preferred Securities as described in this prospectus.
Union Bankshares, Ltd. intends to include the Preferred Securities for listing
on the NASDAQ National Market under the trading symbol "UBSCP."
YOU SHOULD CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 12 BEFORE INVESTING IN
THE PREFERRED SECURITIES.
These securities are not savings accounts or deposits and are not insured by the
Federal Deposit Insurance Corporation or any other governmental agency.
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering
Price.............. $ $10,000,004
Maximum Underwriting
Discount........... $ $
Proceeds to Union
Bankshares Capital
Trust I............ $ $
</TABLE>
The underwriters may purchase up to 131,578 additional Preferred Securities from
Union Bankshares Capital Trust I under certain circumstances.
The underwriters are offering the Preferred Securities subject to certain
conditions. The underwriters expect to deliver the Preferred Securities on or
about , 1998.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BIGELOW & COMPANY INVESTMENT BANKERS
BARINGTON CAPITAL GROUP
The date of this prospectus is , 1998
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Selected Consolidated Financial Data........................ 10
Risk Factors................................................ 12
Safe Harbor Statement Under the Private Securities
Litigation
Reform Act of 1995........................................ 24
Use of Proceeds............................................. 25
Accounting Treatment........................................ 25
Capitalization.............................................. 26
Ratio of Earnings to Fixed Charges.......................... 27
Pro Forma Consolidated Financial Statements................. 28
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 35
Business.................................................... 52
Management.................................................. 68
Information Concerning Lakewood State Bank.................. 70
Description of the Preferred Securities..................... 84
Description of the Junior Subordinated Debentures........... 96
Book-Entry Issuance......................................... 108
Description of Guarantee.................................... 111
Relationship Among the Preferred Securities, the Junior
Subordinated Debentures and the Guarantee................. 114
Certain Federal Income Tax Consequences..................... 116
ERISA Considerations........................................ 121
Underwriting................................................ 121
Legal Matters............................................... 123
Experts..................................................... 123
Incorporation of Certain Documents by Reference............. 123
Available Information....................................... 124
Index to Financial Statements............................... F-1
</TABLE>
2
<PAGE> 4
PROSPECTUS SUMMARY
This summary provides an overview of selected information contained elsewhere in
this prospectus and does not contain all the information you should consider.
Therefore, you should also read the more detailed information set forth in this
prospectus, the financial statements of the company and the other information
that is incorporated by reference in this prospectus.
THE COMPANY
OVERVIEW
Union Bankshares, Ltd. is an independent bank holding company which owns Union
Bank & Trust, a state chartered commercial bank located in Denver, Colorado. The
bank, acquired by the company in 1985, and its predecessors have been operating
since 1917. The bank attracts FDIC-insured deposits, and focuses on providing
relationship banking based on personal attention and professional service. Most
of the bank's customers are small and medium-sized businesses and individuals
located in the Denver area. The bank follows conservative underwriting standards
and emphasizes asset quality and capital preservation. As a result, the bank has
largely avoided excessive loan losses. The bank's ratios of nonperforming assets
to capital and to total assets were .13% and .01%, respectively, at December 31,
1997. At September 30, 1998, the company had consolidated total assets of $249.4
million, net loans of $125.6 million, deposits of $217.1 million and
shareholders equity of $19.9 million. Additionally, the company's Tier I and
total risk-based capital ratios were 11.72% and 12.97%, respectively.
On August 27, 1998, the company announced the planned acquisition of Lakewood
State Bank, a state chartered bank located in Lakewood, Colorado. Lakewood State
Bank focuses on account relationships that are similar to those of the bank. At
September 30, 1998, Lakewood State Bank had total assets of $44.9 million, net
loans of $23.6 million, deposits of $40.3 million and shareholders equity of
$4.3 million. Additionally, Lakewood State Bank's Tier I and total risk-based
capital ratios were 16.1% and 17.3%, respectively.
The company continues to seek to take advantage of the opportunities in the
Colorado banking market which have resulted from the relaxation of regulatory
limitations on branch banking. In addition, recent bank acquisition activity has
led to lapses in coverage of different customer needs and reduction in customer
services, as well as disruption of existing account relationships. The company
believes that this continues to afford the bank an opportunity for internal
growth through attracting new customers and quality personnel with existing
customer relationships.
The company's strategy for growth has been to develop startup branches around
the Denver metropolitan area. In July 1994, the bank opened its first branch in
the Lakeside area of metropolitan Denver. The branch has been well received by
the community and has attracted over $22.7 million in deposits to date. In March
1995, the bank opened its second branch in the University Hills area of
metropolitan Denver, and in December 1995, the bank opened its third branch in
the Lakewood area of metropolitan Denver. The University Hills and Lakewood
branches have also been well received by their respective communities and have
attracted over $18.4 million and $15.0 million in deposits to date,
3
<PAGE> 5
respectively. The recently opened Littleton branch has attracted over $6.3
million of deposits, and a Golden branch opened in October 1998. The bank plans
to operate Lakewood State Bank as a stand-alone branch. The company continues to
analyze opportunities to open additional branches in the metropolitan Denver
area.
As a result of this strategy, the company has enjoyed substantial growth in its
asset base, revenues and net income. The company's total assets increased from
approximately $167.2 million at December 31, 1995, to $249.4 million at
September 30, 1998. The company's net interest income increased from $8.2
million for the year ended December 31, 1995 to $10.8 million for the twelve
month period ended December 31, 1997. The company's net income increased from
$1.2 million for the year ended December 31, 1995 to $2.1 million for the twelve
month period ended December 31, 1997.
OPERATING STRATEGY
The company's strategy as an independent, one-bank holding company has been
carried out through the operations of the bank and, since 1994, its branches.
The bank emphasizes local relationship banking for small and medium-sized
businesses and individuals. The bank's operating strategies include:
- Personal Attention and Professional Service
- Maintaining Asset Quality
- Asset/Liability Management
- - Personal Attention and Professional Service. The bank's customer-oriented
strategy is to provide customers with personal attention and professional
service. The bank involves all employees in developing and carrying out its
customer service program. The bank's executive management team believes that by
providing employees an open opportunity to communicate their ideas to
management, and, if appropriate, implementing them, it can refine and improve
the operation of the bank.
- - Maintaining Asset Quality. The bank has emphasized asset quality through its
conservative lending policy rooted in relationship banking. The bank generally
is not a transaction-by-transaction lender, preferring instead to develop a full
banking relationship with its loan customers. This philosophy has resulted in
generally low loan losses and low ratios of nonperforming assets to total
assets. See "Business -- Nonperforming Assets."
- - Asset/Liability Management. The bank maintains an asset/liability management
policy to manage the risk/return relationships between capital adequacy, market
risk, liquidity and interest rate risk. A primary goal of this policy is to
protect the bank's asset and liability portfolio from undue interest rate risk.
Exposure to interest rate risk arises from volatile interest rates and
differences in the maturities of the bank's assets (i.e. loans and securities)
and its liabilities (i.e. deposits). The bank attempts to control the exposure
of its earnings to changing interest rates by generally maintaining a position
within a narrow range around an "earnings neutral position," which is defined as
the mix of assets and liabilities that generate a net interest margin that is
least affected by interest rate changes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Asset/Liability
Management."
4
<PAGE> 6
GROWTH STRATEGY
On August 27, 1998 the company announced that it had reached an agreement to
acquire Lakewood State Bank. The company believes that Lakewood State Bank's
operating philosophy is consistent with that of Union Bank & Trust, and that the
combined bank, with approximately $300 million in pro forma total assets, will
be able to operate effectively in the Denver marketplace. The acquisition is
structured as a cash-for-stock merger in which the shareholders of Lakewood
State Bank will receive a total of $8.35 million in cash, Lakewood State Bank
will be merged into the bank and its separate corporate existence will cease.
Thereafter, the bank will continue Lakewood State Bank's operations in the same
fashion as the company's other branches. The acquisition of Lakewood State Bank
is referred to in this prospectus as the "Lakewood Acquisition."
The company is focused on growth of the bank as an independent entity. The bank
has adopted an aggressive internal growth strategy through establishing
full-service branches to serve the small and medium-sized businesses in each
location. The bank's five existing full-service branches provide complete
banking services in each location and are headed by a branch president with
responsibility and authority to service the banking and lending needs of the
local business. This structure compliments the bank's philosophy of customer-to-
staff-to-management direction so that the bank responds to customer input rather
than the customer being asked to respond to the bank without having the
opportunity to give input.
Management intends to continue to recruit additional high-quality personnel and
enhance its internal management systems. Management believes that such personnel
and systems are necessary if the company is to achieve its growth strategy
without compromising its customer-oriented approach to banking and its
commitment to maximize asset quality. Further, the recent consolidation in the
Colorado banking industry has resulted in the availability of a large number of
quality personnel with long-standing customer relationships. We cannot
guarantee, however, that we will achieve our growth objectives.
The company's principal executive office is located at 1825 Lawrence Street,
Suite 444, Denver, Colorado 80202, and its telephone number is (303) 298-5352.
UNION BANKSHARES CAPITAL TRUST I
Union Bankshares Capital Trust I is a statutory business trust created under
Delaware law on October 14, 1998. The trust's business and affairs will be
conducted by the Property Trustee, the Delaware Trustee and three individual
Administrative Trustees who are officers of the company. The trust was created
for the exclusive purpose of offering the Preferred Securities and engaging in
the other transactions discussed in this prospectus. All of the common
securities of the trust are owned by the company. See "Description of the
Preferred Securities -- Subordination of Common Securities of the Trust Held by
the Company." The trust will have a term of 30 years, but may dissolve earlier
as provided in the trust agreement.
Union Bankshares Capital Trust I's principal executive office is located at 1825
Lawrence Street, Suite 444, Denver, Colorado 80202, and its telephone number is
(303) 298-5352.
5
<PAGE> 7
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE "RISK FACTORS" SET OUT IMMEDIATELY FOLLOWING
THIS SUMMARY.
THE OFFERING
Preferred Securities issuer..... Union Bankshares Capital Trust I
Securities offered.............. 1,315,790 Preferred Securities. The
Preferred Securities represent undivided
beneficial interests in the trust's assets,
which will consist solely of the Junior
Subordinated Debentures and payments
thereunder and rights under an expense
agreement.
Distributions................... The distributions payable on each Preferred
Security will be fixed at a rate per annum
of % of the Liquidation Amount of
$7.60 per Preferred Security, will be
cumulative, will accrue from the date of
issuance of the Preferred Securities, and
will be payable quarterly in arrears on the
15th day of March, June, September and
December of each year that the Preferred
Securities are outstanding, commencing on
March 15, 1999 (subject to possible deferral
as described below). The amount of each
distribution due with respect to the
Preferred Securities will include amounts
accrued through the date the distribution
payment is due. See "Description of the
Preferred Securities -- Distributions."
Extension Periods............... So long as no default has occurred and is
continuing, the company will have the right,
at any time, to defer payments of interest
on the Junior Subordinated Debentures for a
period not exceeding 20 consecutive quarters
with respect to each deferral period (each
an "Extension Period"). No Extension Period
may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. If interest
payments are deferred, distributions on the
Preferred Securities will also be deferred
and the company will generally not be
permitted to declare or pay any cash
distributions with respect to the company's
capital stock or debt securities that rank
equally with or junior to the Junior
Subordinated Debentures. During an Extension
Period, distributions will continue to
accrue with income on the deferred
distributions compounding quarterly at the
rate of %. Because interest would
continue to accrue and
6
<PAGE> 8
compound on the Junior Subordinated
Debentures, to the extent permitted by
applicable law, holders of the Preferred
Securities would be required to accrue
income for United States federal income tax
purposes. This means that you would have
income from the Preferred Securities for
United States federal income tax purposes
but that you would not receive any cash with
which to pay any tax that may be due on that
income. See "Description of the Junior
Subordinated Debentures -- Option to Extend
Interest Payment Period," "Certain Federal
Income Tax Consequences -- Interest Income
and Original Issue Discount" and "Risk
Factors -- Option to Extend Interest Payment
Period; Tax Consequences; Market Price
Consequences."
Maturity........................ The Junior Subordinated Debentures will
mature on , 2028, which date may be
accelerated (such date, as it may be
accelerated, the "Stated Maturity") to a
date not earlier than , 2003 if certain
conditions are met (including the company
having received prior approval of the
Federal Reserve to do so if then required).
Redemption...................... You may be required to sell your Preferred
Securities to the trust if the Junior
Subordinated Securities are prepaid. In this
case, the trust will buy your Preferred
Securities at a redemption price equal to
the aggregate Liquidation Amount of the
Preferred Securities, plus accumulated and
unpaid distributions on the Preferred
Securities to the date of redemption.
Subject to Federal Reserve approval, if then
required under applicable capital guidelines
or policies of the Federal Reserve, the
company may redeem the Junior Subordinated
Debentures prior to maturity (i) on or after
, 2003, in whole at any time or in part
from time to time, or (ii) at any time, in
whole (but not in part), upon the occurrence
and during the continuance of a Tax Event,
an Investment Company Event or a Capital
Treatment Event, in each case at a
redemption price equal to 100% of the
principal amount of the Junior Subordinated
Debentures so redeemed, plus any accrued but
unpaid interest to the date fixed for
redemption. See "Description of the
Preferred Securities -- Redemption" and
"Description of the Junior Subordinated
Debentures -- Redemption."
7
<PAGE> 9
Distribution of Junior
Subordinated Debentures......... The company has the right at any time to
dissolve the trust and, after satisfaction
of the liabilities of creditors of the trust
as provided by applicable law, cause the
Junior Subordinated Debentures to be
distributed to holders of Preferred
Securities in liquidation of the trust, if
the company has received prior approval of
the Federal Reserve to do so if then
required. See "Description of the Preferred
Securities -- Distribution of Junior
Subordinated Debentures."
Guarantee....................... The company will provide a guarantee on a
subordinated basis of payments by the trust
of distributions and certain other amounts
due on the Preferred Securities, to the
extent the trust has sufficient funds. If
the trust has insufficient funds to pay
distributions on the Preferred Securities
(i.e., if the company has failed to make
required payments under the Junior
Subordinated Debentures), a holder of the
Preferred Securities would be entitled to
institute a legal proceeding directly
against the company to enforce such holder's
rights under the Guarantee. See "Risk
Factors -- Limitations on Direct Actions
Against the Company and on Rights Under the
Guarantee" and "Description of the Junior
Subordinated Debentures -- Debenture Events
of Default," "-- Enforcement of Certain
Rights of Holders of Preferred Securities,"
"Description of Guarantee."
Ranking......................... The Preferred Securities will rank equally
with, and payments thereon will be made pro
rata, with the Common Securities of the
trust held by the company, except as
described under "Description of the
Preferred Securities -- Subordination of
Common Securities of the Trust Held by the
Company." The company's obligations under
the Guarantee, the Junior Subordinated
Debentures and other documents described in
this prospectus are unsecured and rank
subordinate and junior in right of payment
to all current and future Senior and
Subordinated Debt of the company. At
September 30, 1998, the aggregate
outstanding Senior and Subordinated Debt of
the company, on an unconsolidated basis, was
$1.0 million. In addition, all existing and
future liabilities of the company's
subsidiaries, including the bank, will rank
prior to all obligations of the company
relating to the securities described in this
8
<PAGE> 10
prospectus. The company may cause additional
preferred securities to be issued by trusts
similar to Union Bankshares Capital Trust I
in the future, and there is no limit on the
amount of such securities that may be
issued. In this event, the company's
obligations under the junior subordinated
debentures to be issued to such other trusts
and the company's guarantees of the payments
by such trusts will rank equally with the
company's obligations under the Junior
Subordinated Debentures and the Guarantee.
Voting Rights................... The holders of the Preferred Securities will
generally have limited voting rights
relating only to the modification of the
Preferred Securities, the dissolution,
winding-up or termination of the trust and
certain other matters described herein. See
"Description of the Preferred
Securities -- Voting Rights; Amendment of
the Trust Agreement."
Proposed NASDAQ Symbol.......... UBSCP
Use of Proceeds................. The proceeds to the trust from the sale of
the Preferred Securities offered by this
prospectus will be used by the trust to
purchase the Junior Subordinated Debentures
of the company. The company, in turn,
intends to contribute $7 million of the net
proceeds to the capital of the bank to
finance the acquisition of Lakewood State
Bank, and with the remainder of the proceeds
to be used for general corporate purposes,
which may include, without limitation,
establishment of future bank branch
locations, possible future acquisitions and
additional capital contributions to the
bank. The company expects approximately $5.8
million of the Preferred Securities to
qualify as Tier 1 capital under the capital
guidelines of the Federal Reserve subject to
regulatory limitations. See "Use of
Proceeds."
9
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------- ------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Interest income............. $ 13,079 $ 11,688 $ 15,960 $ 13,526 $ 12,091 $ 9,549 $ 7,738
Interest expense............ 4,516 3,737 5,118 4,212 3,845 2,659 2,627
Net interest income......... 8,563 7,951 10,842 9,314 8,246 6,890 5,111
Provision for loan losses... 243 270 360 285 120 195 170
Other income................ 715 700 958 1,037 610 413 1,275
Other expenses.............. 7,547 6,242 8,453 7,616 7,213 5,817 4,897
Income tax expense.......... 240 628 851 540 297 248 201
Net income before
extraordinary items....... 1,248 1,511 2,136 1,910 1,226 1,043 1,118
Extraordinary items......... -- -- -- 337 -- -- --
Net income.................. 1,248 1,511 2,136 1,573 1,226 1,043 1,118
BALANCE SHEET
Total Assets................ 249,398 208,389 221,505 183,186 167,232 145,772 132,878
Loans....................... 127,929 122,792 122,784 100,732 81,312 65,199 57,957
Allowance for loan losses... 2,304 2,034 2,125 1,754 1,448 1,071 1,006
Investment securities
available for sale........ 58,515 32,240 37,180 39,904 51,232 33,100 42,664
Investment securities held
to maturity............... 25,786 30,317 27,929 24,634 18,416 34,219 23,013
Nonperforming assets(1)..... 52 129 23 14 192 1,025 560
Deposits.................... 217,063 176,900 190,076 156,409 140,175 126,201 113,094
Shareholders' equity........ 19,859 17,565 18,222 16,032 14,912 12,055 12,339
PER COMMON SHARE
Net income per share
(basic)(3)................ $ 0.53 $ 0.65 $ 0.92 $ 0.68 $ 0.53 $ 0.44 $ 0.52
Net income per share
(diluted)(3).............. $ 0.47 $ 0.60 $ 0.84 $ 0.65 $ 0.47 $ 0.41 $ 0.47
Tangible book value per
share (basic)(3).......... $ 7.40 $ 6.40 $ 6.69 $ 5.89 $ 5.10 $ 3.62 $ 4.08
Tangible book value per
share (diluted)(3)........ $ 6.58 $ 5.91 $ 6.12 $ 5.42 $ 3.51 $ 2.50 $ 2.90
KEY RATIOS:
Net interest margin(2)...... 5.77% 6.30% 6.25% 6.29% 6.35% 6.03% 4.99%
Net interest spread(2)...... 4.68% 5.20% 5.14% 5.29% 5.33% 5.24% 4.17%
Return on average assets
(annualized).............. 0.73% 1.05% 1.08% 0.91% 0.80% 0.76% 0.91%
Return on average common
equity (annualized)....... 8.79% 12.16% 12.68% 10.44% 9.28% 8.49% 10.23%
Shareholders' equity to
total assets.............. 7.96% 8.41% 8.22% 8.75% 8.92% 8.27% 9.29%
Tier 1 risk-based capital... 11.72% 10.34% 9.91% 10.12% 9.88% 10.35% 11.14%
Total risk-based capital.... 12.97% 11.61% 11.18% 11.37% 11.15% 11.58% 12.39%
Nonperforming assets to
total assets.............. 0.02% 0.06% 0.01% 0.01% 0.12% 0.70% 0.42%
Nonperforming loans to total
loans..................... 0.04% 0.11% 0.02% 0.01% 0.24% 1.57% 0.97%
Allowance for loan losses to
total loans............... 1.80% 1.66% 1.73% 1.74% 1.78% 1.64% 1.74%
Allowance for loan losses to
nonperforming loans....... 4,430.77% 1,576.74% 9,239.13% 12,528.57% 754.17% 104.49% 179.64%
</TABLE>
- ---------------
(1) Includes loans 90 days or more delinquent and still accruing interest,
nonaccrual loans and restructured loans.
(2) On a tax equivalent basis.
(3) Earnings per share and tangible book value per share recalculated in prior
years to reflect the 2 for 1 stock dividend in 1998.
10
<PAGE> 12
UNION BANK & TRUST BRANCH LOCATIONS
[MAP]
11
<PAGE> 13
RISK FACTORS
You should consider, among other things, the following risk factors in
connection with a decision to purchase the Preferred Securities.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
Ranking of the Company's Obligations Under the Junior Subordinated Debentures
and the Guarantee. The ability of the trust to make the required payments on the
Preferred Securities depends completely upon the company making required
payments on the Junior Subordinated Debentures. The company's obligations under
the Guarantee, the Junior Subordinated Debentures and other documents described
in this prospectus are unsecured and rank lower in right of payment to all
current and future Senior and Subordinated Debt of the company. At September 30,
1998, the aggregate outstanding Senior and Subordinated Debt of the company was
$1.0 million. The company and its subsidiaries may incur an unlimited amount of
additional debt under the Indenture, the Guarantee and the Trust Agreement. The
company may also issue additional junior subordinated debentures in connection
with future offerings of Preferred Securities, and any such additional
debentures would rank equally with the Junior Subordinated Debentures.
All existing and future liabilities of the company's subsidiaries, including the
bank, will rank prior to all obligations of the company relating to the
securities described in this prospectus. At September 30, 1998, the bank had
total liabilities of $228.8 million. The right of the company to participate in
any distribution of assets of any subsidiary upon such subsidiary's liquidation
or reorganization or otherwise (and thus the ability of holders of the Preferred
Securities to benefit indirectly from such distribution) is subject to the prior
claims of creditors of that subsidiary, except to the extent that the company
may itself be recognized as a creditor of that subsidiary. Accordingly, holders
of the Preferred Securities should look only to the assets of the company, and
not to the assets of its subsidiaries, for principal and interest payments on
the Junior Subordinated Debentures. See "Description of the Junior Subordinated
Debentures -- Subordination" and "Description of Guarantee -- Status of the
Guarantee."
Dependence on Dividends from Subsidiary Bank. As a holding company, with the
substantial majority of its assets represented by its ownership of the bank, the
company's ability to pay interest on the Junior Subordinated Debentures to the
trust (and consequently the trust's ability to pay Distributions on the
Preferred Securities and the company's ability to pay its obligations on the
Guarantee) depends primarily upon the cash dividends the company receives from
the bank. The bank's ability to pay dividends to the company depends on several
factors including the following:
- - regulatory limitations imposed by the various regulatory agencies with
authority over the bank, generally based on current and retained earnings;
- - regulatory restrictions if such dividends would impair the capital of the
bank; and
- - the profitability and financial condition of the bank and its capital
expenditures and other cash flow requirements
We cannot give any assurance that the bank will be able to pay dividends at past
levels, or at all, in the future.
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<PAGE> 14
Option to Extend Interest Payment Period; Tax Consequences; Market Price
Consequences. If no Debenture Event of Default (as defined herein) has occurred
and is continuing, we have the right under the Indenture to defer the payment of
interest on the Junior Subordinated Debentures at any time for a period of not
more than 20 consecutive quarters with respect to each Extension Period,
provided that we cannot defer the payment of interest beyond the Stated Maturity
of the Junior Subordinated Debentures. If we defer payment of interest on the
Junior Subordinated Debentures, then the trust will also defer quarterly
Distributions on the Preferred Securities (and the amount of Distributions to
which holders of the Preferred Securities are entitled will accumulate
additional amounts at the rate of % per year compounded quarterly, from the
relevant payment date for such Distributions, if permitted by applicable law)
during any such Extension Period. During any such Extension Period, the company
will not be permitted to make certain payments or distributions with respect to
the company's capital stock (including dividends on or redemptions of common or
preferred stock which may be issued in the future) and the company will not be
permitted to make certain payments with respect to any debt securities of the
company that rank equally with or junior in interest to the Junior Subordinated
Debentures; however, the company may (a) pay dividends or distributions in
common stock of the company, (b) redeem rights or take certain other actions
under a stockholders' rights plan, if any, (c) make payments under the Guarantee
or (d) make purchases of common stock related to the issuance of common stock or
rights under any future benefit plans for the company's directors, officers or
employees. Further, during an Extension Period, we would have the ability to
continue to make payments on Senior and Subordinated Debt. Before the
termination of any Extension Period, we may further extend such Extension Period
if such extension does not cause such Extension Period to exceed 20 consecutive
quarters or to extend beyond the Stated Maturity. Following termination of any
Extension Period and the payment of all interest then accrued and unpaid
(together with interest thereon at the annual rate of %, compounded
quarterly, if permitted by applicable law), we may elect to begin a new
Extension Period subject to the above requirements. There is no limitation on
the number of times that we may elect to begin an Extension Period. See
"Description of the Preferred Securities -- Distributions" and "Description of
the Junior Subordinated Debentures -- Option to Extend Interest Payment Period."
The company believes the likelihood of it exercising its option to defer
payments of interest is remote. Consequently, the Junior Subordinated Debentures
will be treated as issued without "original issue discount" ("OID") for United
States federal income tax purposes, and each beneficial owner of the Preferred
Securities will be treated as owning an undivided beneficial interest in the
Junior Subordinated Debentures. Therefore, holders of Preferred Securities will
include interest in taxable income under their own methods of accounting (i.e.,
cash or accrual). If the company exercises its right to defer payments of
interest or if the Internal Revenue Service successfully took the position that
the exercise of such right was not remote at the time of issuance of the Junior
Subordinated Debentures, OID would arise, and the holders of Preferred
Securities would be required to include their pro rata share of OID in gross
income as it accrues for United States federal income tax purposes before
receiving cash. See "Certain Federal Income Tax Consequences -- Interest Income
and Original Issue Discount." We do not currently intend to exercise our right
to defer payments of interest by extending the interest payment period on the
Junior Subordinated Debentures. However, if we do elect to exercise our right to
defer payments of interest in the future, the market price of the Preferred
Securities is
13
<PAGE> 15
likely to be adversely affected. Therefore, if you dispose of your Preferred
Securities during an Extension Period, you might not receive the same return on
your investment than if you continued to hold the Preferred Securities. In
addition, the mere existence of the company's right to defer payments of
interest on the Junior Subordinated Debentures may cause the market price of the
Preferred Securities to be more volatile than the market prices of other
securities on which OID accrues that are not subject to such deferrals.
Tax Event Redemption, Investment Company Act Redemption or Capital Treatment
Event Redemption. If a Tax Event, an Investment Company Event or a Capital
Treatment Event (whether occurring before or after , 2003) occurs and
is continuing, the company may redeem the Junior Subordinated Debentures in
whole (but not in part) at a price equal to 100% of the principal amount plus
accrued but unpaid interest to the date fixed for redemption within 90 days
following the occurrence of such Tax Event, Investment Company Event or Capital
Treatment Event and therefore cause a mandatory redemption of the Trust
Securities. The company may not exercise such right without receiving prior
approval of the Federal Reserve to do so if then required under applicable
guidelines or policies of the Federal Reserve. See "Description of the Preferred
Securities -- Redemption."
A "Tax Event" will occur if counsel experienced in such matters delivers an
opinion to the company and the trust to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any of its
political subdivisions or taxing authorities, 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
pronouncement or decision is announced on or after the original issuance of the
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, subject to
United States federal income tax with respect to income received or accrued on
the Junior Subordinated Debentures, (ii) any portion of the interest payable by
the company on the Junior Subordinated Debentures is not, or within 90 days of
such opinion, will not be, deductible by the company for United States federal
income tax purposes, or (iii) the trust is, or will be within 90 days of the
date of the opinion, subject to more than a de minimis amount of other taxes,
duties or other governmental charges. See "-- Possible Tax Law Changes Affecting
the Preferred Securities" below for a discussion of certain legislative
proposals that, if adopted, could give rise to a Tax Event, which may permit the
company to cause a redemption of the Junior Subordinated Debentures (and
therefore a redemption by the trust of the Preferred Securities) prior to
, 2003.
An "Investment Company Event" will occur if counsel experienced in such matters
delivers an opinion to the company and the trust to the effect that, as a result
of any change in law or regulation or a change in interpretation or application
of law or regulation by any relevant governmental authority, which change
becomes effective on or after the original issuance of the Preferred Securities,
the trust is or will be considered an "investment company" that is required to
be registered under the Investment Company Act.
A "Capital Treatment Event" will occur if the company reasonably determines
that, as a result of any amendment to, or change (including any proposed change)
in, the laws or regulations applying to the company, or as a result of any
official or administrative
14
<PAGE> 16
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such proposed change,
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk of impairment of the company's ability to treat the Preferred
Securities (or any substantial portion thereof) as "Tier 1 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.
Possible Tax Law Changes Affecting the Preferred Securities. In both 1996 and
1997 legislation was proposed that would, if enacted, have adversely affected
the tax treatment of the Preferred Securities by limiting the ability of the
company to deduct interest paid on the Junior Subordinated Debentures. On March
19, 1996, President Clinton proposed certain tax law changes (the "1996 Proposed
Legislation") that would, among other things, generally deny corporate issuers a
deduction for interest in respect of certain debt obligations having a maximum
term in excess of 20 years and not shown as indebtedness on the issuer's
applicable consolidated balance sheet. Neither the 1996 Proposed Legislation nor
other similar legislation was enacted during the 104th Congress. On February 6,
1997, President Clinton proposed in the administration's fiscal year 1998 budget
certain tax law changes (the "Administration's 1997 Tax Proposals") that would,
among other things, generally deny corporate issuers a deduction for interest or
OID in respect of certain debt obligations having a maximum term in excess of 15
years and not shown as indebtedness on the issuer's applicable consolidated
balance sheet. Neither the Administration's 1997 Tax Proposals nor similar
legislation was enacted by the 105th Congress. Nevertheless, we cannot give any
assurance that other legislation enacted in the future will not limit the
ability of the company to deduct the interest payable on the Junior Subordinated
Debentures or otherwise give rise to a Tax Event. Therefore, we cannot give any
assurance that a Tax Event will not occur. A Tax Event would permit the company,
upon approval of the Federal Reserve if then required, to cause a redemption of
the Preferred Securities before, as well as after , 2003. See
"Description of the Preferred Securities -- Redemption," "Description of Junior
Subordinated Debentures -- Redemption," and "Certain Federal Income Tax
Consequences."
Possible Distribution of Junior Subordinated Debentures to Holders of Preferred
Securities. The company may at any time dissolve the trust, and after
satisfaction of the liabilities of creditors of the trust as provided by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the Preferred Securities in liquidation of the trust, subject to
the receipt of any required prior approval of the Federal Reserve. Because
holders of the Preferred Securities may receive Junior Subordinated Debentures
upon liquidation of the trust and because Distributions are otherwise limited to
payments on the Junior Subordinated Debentures, prospective purchasers of the
Preferred Securities are also making an investment decision with regard to the
Junior Subordinated Debentures and should carefully review all the information
regarding the Junior Subordinated Debentures contained in this prospectus. See
"Description of the Preferred Securities -- Liquidation Distribution upon
Termination" and "Description of the Junior Subordinated Debentures."
If the Junior Subordinated Debentures are distributed to the holders of
Preferred Securities upon the liquidation of the trust, the company will use its
best efforts to list the Junior Subordinated Debentures on the NASDAQ or such
stock exchanges, if any, on which the Preferred Securities are then listed.
15
<PAGE> 17
Limitations on Direct Actions Against the Company and on Rights Under the
Guarantee. Under the Guarantee, the company guarantees the payment of
Distributions by the trust and payments on liquidation of or redemption of the
Preferred Securities (subordinate to the right to payment of Senior and
Subordinated Debt of the company) to the extent of funds held by the trust. If
the trust does not have sufficient funds to pay Distributions on the Preferred
Securities when due (i.e., if the company has failed to make required payments
under the Junior Subordinated Debentures), a holder of the Preferred Securities
would be able to make a claim directly against the company to collect payment of
the principal of or interest on such Junior Subordinated Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Preferred
Securities of such holder. Except as described in this prospectus, holders of
the Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Junior Subordinated Debentures or assert
directly any other rights in respect of the Junior Subordinated Debentures
unless the Junior Subordinated Debentures have been distributed to such holders.
Under the Guarantee, American Securities Transfer & Trust, Inc. will act as
indenture trustee (the "Guarantee Trustee"). The holders of at least a majority
in aggregate Liquidation Amount of the Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust power conferred upon the Guarantee Trustee under the
Guarantee Agreement. Any holder of the Preferred Securities may institute a
legal proceeding directly against the company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the trust, the
Guarantee Trustee or any other person or entity. The Trust Agreement provides
that each holder of the Preferred Securities agrees to the provisions of the
Guarantee Agreement and the Indenture. See "Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights of Holders of Preferred Securities"
and "-- Debenture Events of Default" and "Description of Guarantee."
Under the Guarantee the company has agreed to pay, to the extent not paid by the
trust:
- any accumulated and unpaid Distributions required to be paid on the
Preferred Securities, to the extent that the trust has funds available
therefor at such time,
- the Redemption Price (as defined herein) with respect to any Preferred
Securities called for redemption, to the extent that the trust has funds
available therefor at such time, and
- upon a voluntary or involuntary dissolution, winding-up or liquidation of
the trust (other than in connection with the distribution of Junior
Subordinated Debentures to the holders of Preferred Securities or a
redemption of all of the Preferred Securities), the lesser of (a) the
amount of the Liquidation Distribution (as defined herein), to the extent
the trust has funds available therefor at such time, and (b) the amount
of assets of the trust remaining available for distribution to holders of
the Preferred Securities in liquidation of the trust.
If the company fails to pay amounts payable under the Junior Subordinated
Debentures, the trust would be unable to pay Distributions or amounts payable on
redemption of the Preferred Securities or otherwise, and, therefore, holders of
Preferred Securities would not be able to rely upon the Guarantee for such
amounts. If, however, a Debenture Event of
16
<PAGE> 18
Default has occurred and is continuing and such event is a result of the failure
of the company to pay interest on or principal of the Junior Subordinated
Debentures when due, then a holder of Preferred Securities may make a claim
directly against the company for enforcement of payment to such holder of the
principal of or interest on such Junior Subordinated Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Preferred
Securities of such holder (a "Direct Action"). The exercise by the company of
its right to defer the payment of interest on the Junior Subordinated Debentures
does not constitute a Debenture Event of Default. In connection with such Direct
Action, the company will have a right of set-off under the Indenture to the
extent of any payment made by the company to such holder of Preferred Securities
in the Direct Action. Except as described herein, holders of Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of the Junior Subordinated Debentures or assert directly any other
rights in respect of the Junior Subordinated Debentures. See "Description of the
Junior Subordinated Debentures -- Enforcement of Certain Rights by Holders of
Preferred Securities," "-- Debenture Events of Default" and "Description of the
Guarantee."
Limited Covenants. The covenants in the Indenture are limited, and there are no
covenants relating to the company in the Trust Agreement. The Indenture and the
Trust Agreement do not protect holders of Junior Subordinated Debentures or
Preferred Securities in the event of a material adverse change in the company's
financial condition or results of operations. The Indenture and the Trust
Agreement permit the company or any subsidiary to incur unlimited additional
indebtedness. Therefore, you should not consider the provisions of these
governing instruments a significant factor in evaluating whether the company
will be able to comply with its obligations under the Junior Subordinated
Debentures or the Guarantee.
Limited Voting Rights. Holders of the Preferred Securities will generally have
limited voting rights relating only to the modification of the Preferred
Securities and certain other matters described in this prospectus. If (i) there
is a Debenture Event of Default (as defined herein) with respect to the Junior
Subordinated Debentures (see "Description of the Junior Subordinated
Debentures -- Debenture Events of Default"), (ii) the Property Trustee fails to
pay any Distribution on the Preferred Securities for 30 days (subject to
deferral of Distributions as provided under "Description of the Preferred
Securities -- Distributions"), (iii) the Property Trustee fails to pay the
redemption price on the Preferred Securities when due upon redemption, (iv) the
Property Trustee fails to observe a covenant in the Trust Agreement for the
Preferred Securities for 60 days after receiving a Notice of Default, or (v) the
Property Trustee is declared bankrupt or insolvent and not replaced by the
company within 60 days, the holders of a majority of the outstanding Preferred
Securities will be able to remove the Property Trustee and the Indenture Trustee
(but not the Administrative Trustees who may only be removed by the company as
holder of the Common Securities). See "Description of the Preferred
Securities -- Removal of Trustees" and "-- Voting Rights; Amendment of the Trust
Agreement."
Trading Characteristics of the Preferred Securities. The Preferred Securities
may trade at a price that does not reflect fully the value of accrued but unpaid
interest with respect to the underlying Junior Subordinated Debentures. A holder
who uses the accrual method of accounting for tax purposes (and a cash method
holder, if the Junior Subordinated Debentures are deemed to have been issued
with OID) and who disposes of its Preferred
17
<PAGE> 19
Securities between record dates for payments of Distributions on such securities
will be required to include accrued but unpaid interest on the Junior
Subordinated Debentures through the date of disposition in income as ordinary
income (i.e., interest or, possibly, OID), and to add such amount to its
adjusted tax basis in its share of the underlying Junior Subordinated Debentures
deemed disposed of. If the selling price is less than the holder's adjusted tax
basis (which will include all accrued but unpaid interest), a holder will
recognize a capital loss. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States federal income tax
purposes. See "Certain Federal Income Tax Considerations -- Interest Income and
Original Issue Discount" and "-- Sales or Redemption of Preferred Securities."
Absence of Existing Public Market; Market Prices. There is no existing market
for the Preferred Securities. The trust intends to apply for listing for the
Preferred Securities on the NASDAQ National Market System ("NASDAQ"). We cannot
make any assurance that a listing of the Preferred Securities will be available
on NASDAQ or, if available, that an active and liquid trading market for the
Preferred Securities will develop or continue. Although the representative of
the underwriters has informed the trust and the company that the underwriters
intend to make a market in the Preferred Securities, the underwriters are not
obligated to do so and any such market making activity may be terminated at any
time without notice to the holders of the Preferred Securities. Future trading
prices of the Preferred Securities will 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. We cannot make
any assurances as to the market prices for the Preferred Securities or the
Junior Subordinated Debentures that may be distributed in exchange for the
Preferred Securities if the company exercises its right to terminate the trust.
Accordingly, the Preferred Securities that an investor may purchase, or the
Junior Subordinated Debentures that a holder of the Preferred Securities may
receive in liquidation of the trust, may decline in value from the price that
the investor paid to purchase the Preferred Securities.
Shortening of Stated Maturity of Junior Subordinated Debentures. The company has
the right, at any time, to shorten the maturity of the Junior Subordinated
Debentures to a date not earlier than , 2003. If the company does
exercise this right, all of the senior debt of the company would be entitled to
receive full payment before any payments are made resulting from the accelerated
maturity. The company may not exercise this right if it does not first receive
prior approval of the Federal Reserve if such approval is then required under
applicable capital guidelines or policies of the Federal Reserve. See
"Description of the Junior Subordinated Debentures -- General."
Redemption; Exchange of Preferred Securities for Junior Subordinated
Debentures. The company has the right at any time to dissolve the trust and
cause the Junior Subordinated Debentures, after satisfaction of liabilities to
creditors of the trust, to be distributed to the holders of the Preferred
Securities in exchange for the Preferred Securities in liquidation of the trust.
The company may not exercise this right if it does not first receive prior
approval of the Federal Reserve if such approval is then required under
applicable capital guidelines or policies of the Federal Reserve. The company
will have the right, in certain circumstances, to redeem the Junior Subordinated
Debentures in whole or in part, instead of a distribution of the Junior
Subordinated Debentures by the trust, in which event the trust will redeem the
Preferred Securities on a pro rata basis to the same extent as the
18
<PAGE> 20
Junior Subordinated Debentures are redeemed by the company. Any such
distribution or redemption prior to the Stated Maturity will be subject to prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. See "Description of the Preferred
Securities -- Redemption."
Under current United States federal income tax law, a distribution of Junior
Subordinated Debentures upon the dissolution of the trust would not be a taxable
event to holders of the Preferred Securities. If, however, the trust is
characterized as an association taxable as a corporation at the time of the
dissolution of the trust, the distribution of the Junior Subordinated Debentures
may constitute a taxable event to holders of Preferred Securities. Moreover, if
a Tax Event occurs, a dissolution of the trust in which holders of the Preferred
Securities receive cash may be a taxable event to such holders. See "Certain
Federal Income Tax Consequences."
Possible Adverse Effect on Market Prices. The company cannot make any assurance
as to the market prices for the Preferred Securities or the Junior Subordinated
Debentures that may be distributed in exchange for Preferred Securities if the
company terminates the trust. Accordingly, the Preferred Securities or the
Junior Subordinated Debentures may trade at a discount from the price that
investors paid to purchase the Preferred Securities offered by this prospectus.
Because holders of Preferred Securities may receive Junior Subordinated
Debentures in liquidation of the trust and because Distributions are otherwise
limited to payments on the Junior Subordinated Debentures, prospective
purchasers of the Preferred Securities are also making an investment decision
with regard to the Junior Subordinated Debentures and should carefully review
all the information regarding the Junior Subordinated Debentures contained in
this prospectus. See "Description of the Junior Subordinated Debentures."
Preferred Securities Are Not Insured. The Preferred Securities are not insured
by the Bank Insurance Fund (the "BIF") or the Savings Association Insurance Fund
(the "SAIF") of the Federal Deposit Insurance Corporation (the "FDIC"), by the
Depositors Insurance Fund ("DIF") of the Mutual Savings Central Fund, Inc., or
by any other governmental agency.
Book-Entry System; No Physical Certificates. Since transactions in the Preferred
Securities generally can be effected only through The Depository Trust Company
(the "Depositary") or its participants or indirect participants, the ability of
a holder to pledge, or to otherwise act with respect to, the Preferred
Securities to persons or entities that do not participate in the Depositary's
system may be limited due to the lack of a physical certificate for the
Preferred Securities. In addition, under a book-entry format, holders may
experience delays in their receipt of payments since distributions will be made
by the trustee, or a paying agent on behalf of the trustee, to Cede & Co., as
nominee for the Depositary. Also, the issuance of Preferred Securities in
book-entry form may reduce their liquidity in any secondary trading market that
may develop because investors may be unwilling to purchase securities where they
can not obtain delivery of physical certificates.
RISK FACTORS RELATING TO THE COMPANY
Economic Conditions and Impact of Interest Rates. The company's profitability,
like that of most similar financial institutions, depends largely on the bank's
net interest income, which is the difference between its interest income on
interest-earning assets, such as loans
19
<PAGE> 21
and investments, and its interest expense on interest-bearing liabilities, such
as deposits and borrowings. Accordingly, the company's results of operations and
financial condition are largely dependent on movements in market interest rates
and its ability to manage its assets in response to such movements. The
difference between the amount of the total interest-earning assets and
interest-bearing liabilities which reprice within a given time period could have
a negative effect on the bank's net interest income depending on whether such
difference was positive or negative and whether interest rates are rising or
falling.
Increases in interest rates may reduce demand for loans and, thus, the amount of
loan and commitment fees earned by the bank. In addition, fluctuations in
interest rates may also result in disintermediation, which is the flow of funds
away from depository institutions into direct investments which pay a higher
rate of return, and may affect the value of the company's investment securities
and other interest earning assets. Because the bank's assets consist of a
substantial number of loans with interest rates which change in accordance with
changes in prevailing market rates, if interest rates rise sharply, many of the
bank's borrowers would be required to make higher interest payments on their
loans. Therefore, increases in interest rates may cause the bank to experience
an increase in delinquent loans and defaults to the extent that borrowers are
unable to meet their increased debt servicing obligations. In addition, the bank
has a substantial portfolio of fixed-rate loans that may be prepaid without
significant penalty, so that customers might prepay or refinance them in a
period of declining interest rates. That would alter the bank's asset-liability
gap position and ultimately reduce the rates earned on those assets, as cash
flows from loan repayments would be re-invested at lower rates.
Results of operations for financial institutions, including the company, may be
materially and adversely affected by changes in prevailing economic conditions,
including declines in real estate values, rapid changes in interest rates and
the monetary and fiscal policies of the federal government. The profitability of
the company depends in part on the spread between the interest rates earned on
assets and the interest rates paid on deposits and other interest-bearing
liabilities. Although management believes that the maturities of the company's
assets are moderately balanced in relation to maturities of liabilities
("asset/liability management"), asset/liability management involves estimates as
to how changes in the general level of interest rates will impact the yields
earned on assets and the rates paid on liabilities. A decrease in interest rate
spreads would have a negative effect on the net interest income and
profitability of the company, and we cannot give any assurance that this spread
will not decrease. Although economic conditions in the Denver metropolitan area
have been generally stronger than those in many other regions of the country, we
cannot give any assurance that such conditions will continue to prevail.
Moreover, substantially all of the loans of the company are to businesses and
individuals in the Denver area, and any decline in the economy of this market
area could have an adverse impact on the company. We cannot give any assurance
that positive trends or developments discussed in this prospectus will continue
or that negative trends or developments will not have a material adverse effect
on the company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Growth and Acquisition Risks. The company has pursued and intends to continue to
pursue an internal growth strategy, the success of which will depend primarily
on generating an increasing level of loans and deposits at acceptable risk
levels and terms
20
<PAGE> 22
without proportionate increases in noninterest expenses. The company intends to
use a significant portion of the net proceeds from the sale by the company of
the Junior Subordinated Debentures to support growth, including the acquisition
of Lakewood State Bank. The company has grown by the establishment of new
branches, and intends to consider new branching opportunities in the future. The
company cannot give any assurance that it will be successful in continuing its
internal growth strategy. Although the company does not have any discussions or
negotiations underway relating to acquisitions other than the acquisition of
Lakewood State Bank, the company in the future intends to review and solicit
acquisition opportunities and, at any given time, may attempt to acquire
financial institutions. The company may not be successful in identifying
acquisition candidates, integrating acquired institutions or preventing loss of
deposits at acquired institutions. Competition for acquisitions in the company's
market area is highly competitive, and the company may not be able to acquire
institutions on terms beneficial to the company. Furthermore, the level of
success of the company's growth strategy will depend on maintaining sufficient
regulatory capital levels and on continued favorable economic conditions in the
Denver area.
Competitive Banking Environment. The banking business in Colorado is highly
competitive. The company competes for loans and deposits with other local,
regional and national commercial banks, savings banks, savings and loan
associations, finance companies, money market funds, brokerage houses, credit
unions and nonfinancial institutions, many of which have substantially greater
financial resources than the company. Interstate banking is permitted in
Colorado. As a result, management believes that the company may experience
greater competition in its market area.
Allowance for Loan Losses. Inability of borrowers to repay loans can erode
earnings and capital of banks. Like all banks, the company maintains an
allowance for loan losses to provide for loan defaults and nonperformance. The
allowance is based on prior experience with loan losses, as well as an
evaluation of the risks in the current portfolio, and is maintained at a level
considered adequate by management to absorb anticipated losses. The amount of
future losses is susceptible to changes in economic, operating and other
conditions, including changes in interest rates, that may be beyond management's
control, and such losses may exceed current estimates. At December 31, 1997 the
company had nonperforming loans of $23,000 and an allowance for loan losses of
$2,125,000 or 1.73% of total loans and 9,239.13% of nonperforming loans. At
September 30, 1998, the company had nonperforming loans of $52,000 and an
allowance for loan losses of $2,304,000 or 1.80% of total loans and 4,430.77% of
nonperforming loans. We cannot give any assurance that the company's allowance
for loan losses will be adequate to cover actual losses. Future provisions for
loan losses could materially and adversely affect results of operations of the
company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The bank has established an allowance for loan losses in accordance with
generally accepted accounting principles. The company believes that the
allowance is adequate. Nevertheless, future additions to the allowance in the
form of the provision for loan losses may be necessary due to changes in
economic conditions and growth of the bank's loan portfolio. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the bank's allowance for loan losses. An increase in the
bank's provision for loan losses would negatively affect the company's earnings.
21
<PAGE> 23
Lending Risks -- Credit Quality. A central focus of the company's and the bank's
strategy is the continued development and growth of a diversified loan
portfolio, with emphasis on commercial business lending to small- and
medium-sized businesses. Certain risks are inherent in the lending function,
including a borrower's inability to pay, insufficient collateral coverage and
changes in interest rates. Repayment risk on commercial loans is significantly
affected by changing economic conditions in a particular geographical area,
business or industry which could impair future operating performance. Risks
associated with general business loans include changes in general economic
conditions which may affect the borrower's ability to repay as well as
underlying collateral values. Installment and other consumer loans are also
subject to repayment risk.
Dependence on Key Personnel. The company depends on the continued services of
Charles R. Harrison, Chairman of the Board and Chief Executive Officer of the
company, Herman J. Zueck, the bank's Chairman of the Board and Chief Executive
Officer and President of the company and Bruce E. Hall, Vice President of the
company. The company has employment agreements with Messrs. Harrison, Zueck and
Hall. The loss of the services of Mr. Harrison, Mr. Zueck or Mr. Hall, or of
certain other key personnel, could adversely affect the company. The company is
the beneficiary of key-person life insurance on the lives of each of Messrs.
Harrison, Zueck and Hall. The company's anticipated growth and expansion into
areas and activities requiring additional expertise are expected to place
increased demands on the company's resources. These demands are expected to
require the addition of new management personnel and the development of
additional expertise by existing management personnel. The failure to acquire
such services or to develop such expertise could have a material adverse effect
on the company's future growth. See "Management."
Control by Officers and Directors as a Group; Anti-takeover Effect. Our officers
and directors own beneficially approximately 52.02% of the outstanding shares of
Common Stock. This percentage includes the shares of Common Stock held in the
company's 401(k) plan over which certain officers of the company have voting
control as trustees of the 401(k) plan. As a result, they alone may elect by
simple majority the Board of Directors. This may impede the efforts of a third
party to acquire control of the company or to change the Board of Directors of
the company.
Government Regulation and Recent Legislation. The company and the bank are
subject to extensive federal and state legislation, regulation and supervision
which is intended primarily to protect depositors and the Bank Insurance Fund,
rather than investors. Recently enacted, proposed and future legislation and
regulations designed to strengthen the banking industry have had and may have a
significant impact on the banking industry. Although some of the legislative and
regulatory changes may benefit the company and the bank, others may increase
their costs of doing business or otherwise adversely affect them and create
competitive advantages for non-bank competitors. For a discussion of the
government regulatory environment applicable to the bank and the company, see
the information under "Business" in the company's Form 10-KSB for the year ended
December 31, 1997, incorporated in this prospectus by reference.
The financial institutions industry is subject to significant regulation which
has materially affected the financial institutions industry in the past and will
do so in the future. Such regulations, which affect the company on a daily
basis, may be changed at any time, and the interpretation of the relevant law
and regulations are also subject to change by the
22
<PAGE> 24
authorities who examine the company and the bank and interpret those laws and
regulations. We cannot make any assurance that any present or future changes in
the laws or regulations or in their interpretation will not adversely and
materially affect the company.
Economic Conditions and Monetary Policies. Conditions beyond the company's
control may have a significant impact on the company's operations and its net
interest income from one period to another. Examples of such conditions could
include:
- - prevailing economic conditions both nationally and in the Denver metropolitan
market;
- - the strength of credit demands by customers;
- - fiscal and debt management policies of the federal government, including
changes in tax laws;
- - the Federal Reserve's monetary policy, including the percentage of deposits
that must be held in the form of non-earning cash reserves;
- - the introduction and growth of new investment instruments and transaction
accounts by non-bank financial competitors; and
- - changes in rules and regulations governing the payment of interest on deposit
accounts.
Potential Liability for Undercapitalized Subsidiary Bank. Under federal law, a
bank holding company may be required to guarantee a capital plan filed by an
undercapitalized bank or thrift subsidiary with its primary regulator. If the
subsidiary defaults under the plan, the holding company may be required to
contribute to the capital of the subsidiary bank an amount equal to the lesser
of 5% of the bank's assets at the time it became undercapitalized or the amount
necessary to bring the bank into compliance with applicable capital standards.
It is, therefore, possible that the company would be required to contribute
capital to the bank or any other bank it may acquire in the event that the bank
or such other bank becomes undercapitalized.
Year 2000 Compliance. Some of the company's computer programs are written using
two digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognizes a date using "00"
as the year 1900 rather than 2000. This could cause a system failure or
miscalculation causing disruption of operation including, among other things, a
temporary inability to process transactions, pay invoices or engage in similar,
normal business activities.
The company has adopted a Year 2000 Project Management Plan in recognition of
the potential problems that all computer systems may have when the date January
1, 2000 arrives. As part of the implementation of this plan, the company is
currently conducting an assessment to determine whether it will have to modify
or replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total Year
2000 project is not estimated to have a material impact on the company's
financial position or the results of its operations and consists entirely of
installation of software upgrades provided by third party vendors or
modification of existing programs. These costs will be expensed as incurred. As
of September 30, 1998, approximately $300,000 in expenses had been incurred in
connection with the implementation of the company's year 2000 plan.
23
<PAGE> 25
The company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the company is
vulnerable to those third parties' failure to remediate their own Year 2000
issue. The company's total Year 2000 project cost and estimates for completion
include the estimated costs and time associated with the impact of a third
party's Year 2000 issue and are based on presently available information.
However, we cannot guarantee that the systems of other companies on which the
company's systems rely will be timely converted, or that a failure to convert by
another company, or a conversion that is incompatible with the company's
systems, would not have a material adverse effect on the company.
The company will utilize both internal and external resources to reprogram, or
replace and test the software for Year 2000 modifications. The Year 2000 Project
Management Plan is estimated to be completed by December 31, 1998, which is
prior to any anticipated impact on its operating systems. The company believes
that with modifications to existing software, the Year 2000 issue will not pose
any significant operations problems for its computer system nor is the Year 2000
issue expected to have any significant impact on the operations of the company.
The costs of the project and the date on which the company believes it will
complete the Year 2000 modifications are based on management's best estimates
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, the ability to locate and
correct all relevant computer codes and similar uncertainties. Therefore, the
company cannot give any assurance that these estimates will be achieved and
actual results could differ materially from those anticipated.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Statements which are not historical facts contained or incorporated by reference
in this document are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ from projected results.
Factors that could cause actual results to differ materially include, among
others: management's ability to integrate the operations of Lakewood State Bank,
continued success of the bank's branching strategy, general economic conditions,
economic conditions in the Denver metropolitan area, the monetary policy of the
Federal Reserve Board, changes in interest rates, inflation, competition in the
banking business, changes in the state and federal regulatory regime applicable
to the company's and the bank's operations, the results of financing efforts and
other risk factors detailed in the company's filings with the Securities and
Exchange Commission.
Information included and incorporated by reference in this prospectus includes
"forward looking statements," which can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"believe," "estimate," or "continue," or the negative thereof or other
variations thereon or comparable terminology. The statements in "risk factors"
and other statements and disclaimers in the prospectus constitute cautionary
statements identifying important factors, including certain risks and
uncertainties, with respect to such forward-looking statements that could cause
actual results to differ materially from those reflected in such forward-looking
statements.
24
<PAGE> 26
USE OF PROCEEDS
All of the proceeds from the sale of Preferred Securities will be invested by
Union Bankshares Capital Trust I in the Junior Subordinated Debentures of the
company. The net proceeds to the company from the sale of the Junior
Subordinated Debentures are estimated to be approximately $9 million (net of
estimated underwriting commissions and offering expenses) assuming the
over-allotment option of the underwriters is not exercised. See "Underwriting."
The company intends to use approximately $7 million of the net proceeds to
finance the bank's acquisition of Lakewood State Bank, with the remainder to be
used for general corporate purposes, which may include, without limitation,
establishment of future bank branch locations, possible future acquisitions and
additional capital contributions to the bank. Any additional net proceeds
received by the company in connection with the underwriters' exercise of their
over-allotment option will be used by the company for general corporate
purposes. Although the company does not have any discussions or negotiations
underway relating to acquisitions other than the acquisition of Lakewood State
Bank, the company in the future intends to review and solicit acquisition
opportunities and, at any given time, may attempt to acquire financial
institutions. Pending their application, the net proceeds may be invested in
short-term, marketable, investment grade interest-bearing securities.
The company is required by the Federal Reserve to maintain certain levels of
capital for bank regulatory purposes. On October 21, 1996, the Federal Reserve
announced that certain qualifying amounts of securities having the
characteristics of the Preferred Securities could be included as Tier 1 capital
for bank holding companies subject to certain limitations. See "Capitalization."
Such Tier 1 capital treatment, together with the company's ability to deduct,
for federal income tax purposes, interest payable on the Junior Subordinated
Debentures, would provide the company with a cost-effective means of obtaining
capital for bank regulatory purposes.
ACCOUNTING TREATMENT
For financial reporting purposes, Union Bankshares Capital Trust I will be
treated as a subsidiary of the company and, accordingly, the accounts of the
trust will be included in the consolidated financial statements of the company.
The Preferred Securities will be presented as a separate line item in the
consolidated balance sheets of the company under the caption "Cumulative Trust
Preferred Securities," and appropriate disclosures about the Preferred
Securities, the Guarantee and the Junior Subordinated Debentures will be
included in the notes to consolidated financial statements. For financial
reporting purposes, the company will record Distributions payable on the
Preferred Securities as interest expense in the consolidated statements of
operations.
Future reports of the company filed under the Exchange Act of 1934, as amended
(the "Exchange Act") will include a footnote to the financial statements stating
that (i) the trust is wholly-owned, (ii) the sole assets of the trust are the
Junior Subordinated Debentures (specifying the principal amount, interest rate
and maturity date of such Junior Subordinated Debentures), and (iii) the
obligations of the company described herein, in the aggregate, constitute a full
and unconditional guarantee on a subordinated basis by the company of the
obligations of the trust under the Preferred Securities. It is expected that the
trust will not be required to provide separate reports under the Exchange Act.
25
<PAGE> 27
CAPITALIZATION
The following table sets forth the consolidated borrowings and capitalization of
the company at September 30, 1998 and as adjusted to give effect to the issuance
of the Preferred Securities by the trust in this offering (the "Offering") and
the use of net proceeds therefrom as described in "Use of Proceeds" and assumes
that the underwriters' over-allotment option was not exercised.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Borrowings:
Total borrowings........................................ $11,000 $11,000
======= =======
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely Junior
Subordinated Debentures(1).............................. $ 0 $10,000
======= =======
Shareholders' equity:
Common Stock, $.001 par value; 10 million shares
authorized(2); 2,340,514 shares issued and
outstanding.......................................... 1 1
Additional paid-in capital.............................. 9,610 9,610
Retained earnings....................................... 9,632 9,632
Unrealized appreciation on securities available for
sale, net of income tax effect....................... 616 616
------- -------
Total shareholders' equity...................... $19,859 $19,859
======= =======
Consolidated regulatory capital ratios:
Total capital to risk-weighted assets................... 12.97% 16.37%
Tier 1 capital to risk-weighted assets(3)............... 11.72% 17.62%
Tier 1 capital to tangible assets(3).................... 6.74% 9.41%
</TABLE>
- -------------------------
(1) The subsidiary trust is Union Bankshares Capital Trust I, a wholly-owned
subsidiary of the company that will hold, as its sole asset, approximately
$10.3 million principal amount of Junior Subordinated Debentures, of which
$10 million will be purchased with the proceeds of the % Preferred
Securities issued by the trust. The remaining $300,000 of Junior
Subordinated Debentures will be purchased with the proceeds of the Common
Securities issued by the trust. The company will own all of the Common
Securities. See "Description of the Junior Subordinated Debentures" and
"Description of the Preferred Securities." The Junior Subordinated
Debentures will mature on , 2028, which date may be shortened to a
date not earlier than , 2003 if certain conditions are met. The
Preferred Securities are subject to mandatory redemption upon repayment of
the Junior Subordinated Debentures at maturity or their earlier redemption
in an amount equal to the amount of Junior Subordinated Debentures maturing
or being redeemed at a redemption price equal to the aggregate Liquidation
Amount of the Preferred Securities, plus accumulated and unpaid
distributions thereon to the date of redemption. See
26
<PAGE> 28
"Description of the Preferred Securities -- Redemption" and "Description of
the Junior Subordinated Debentures -- Redemption."
(2) Effective May 27, 1998 the company increased its authorized capital stock to
10 million shares of Common Stock and 500,000 shares of Preferred Stock. The
increase was made to enable the company to consummate a two-for-one split of
its Common Stock in the form of a share-for-share stock dividend and to
provide for possible future capital needs of the company. There is no
pending or planned transaction which would require the issuance of any of
the newly authorized stock. The increase in capital was not part of a plan
by the company's management to adopt a series of anti-takeover measures over
a period of time.
(3) The Preferred Securities have been structured to qualify as Tier 1 capital.
However, they cannot be used to constitute more than 25% of the company's
total Tier 1 capital. As adjusted for this offering, the company's Tier 1
capital as of September 30, 1998 would have been $23.1 million, of which
$5.8 million would have been attributable to the Preferred Securities. Any
future increases in other elements of the company's Tier 1 capital,
including retained earnings, should permit the company to include greater
portions of the Preferred Securities proceeds in Tier 1 capital.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges (as defined below) for the company, the
bank, Lakewood State Bank and on a Pro forma Consolidated basis is detailed
below:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Union Bankshares, Ltd.
Including interest on deposits................... 1.33x 1.58x
Excluding interest on deposits................... 3.55x 4.00x
Union Bank & Trust Company
Including interest on deposits................... 1.52x 1.83x
Excluding interest on deposits................... 5.85x 6.56x
Lakewood State Bank
Including interest on deposits................... 1.72x 1.80x
Excluding interest on deposits................... N/A N/A
Union Bankshares, Ltd. Pro forma
Including interest on deposits................... 1.20x 1.37x
Excluding interest on deposits................... 2.00x 2.42x
</TABLE>
N/A -- Lakewood State Bank has no fixed charges other than interest on deposits.
For purposes of computing these ratios, earnings represent income before income
taxes plus fixed charges. Fixed charges including interest on deposits include,
interest on deposits, other interest expense and amortization of debt issuance
cost. Fixed charges excluding interest on deposits, include other interest
expense, and amortization of debt issuance cost.
27
<PAGE> 29
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements and
explanatory notes are presented to show the impact on the historical financial
position and results of operation of the Company of the consummation of the
pending acquisition of Lakewood State Bank. The Lakewood Acquisition will be
accounted for under the purchase method of accounting. See "Prospectus
Summary -- The Company -- Growth Strategy."
The unaudited pro forma consolidated balance sheet assumes that the Lakewood
Acquisition was consummated on September 30, 1998. The unaudited pro forma
consolidated statements of income reflect the consolidation of the results of
operations of the company and Lakewood State Bank for the year ended December
31, 1997, and the nine months ended September 30, 1998, as if the Lakewood
Acquisition had occurred on January 1, 1997.
The unaudited historical financial statement data as of September 30, 1998 and
for the period then ended of both the company and Lakewood State Bank have been
prepared on the same basis as the historical information derived from audited
financial statements. In the opinion of the companies' respective managements,
these financials reflect all adjustments necessary for a fair presentation of
the financial position and results of operations for such periods.
The unaudited pro forma consolidated financial statements do not take into
account the effect of the possible exercise of the underwriters' option to
purchase additional Preferred Securities. For a description of this option see
"Underwriting."
Management believes that the assumptions made in the preparation of these pro
forma consolidated financial statements provide a reasonable basis for
presenting the significant effects of the Lakewood Acquisition as contemplated
and that the pro forma adjustments give appropriate effect to these assumptions.
The unaudited pro forma information does not incorporate any benefits from cost
savings or transaction and integration costs that may occur.
The pro forma consolidated financial statements are not necessarily indicative
of the consolidated financial position or results of future operations of the
combined entity or of the actual results that would have been achieved had the
Lakewood Acquisition been consummated as of the date indicated above.
28
<PAGE> 30
PRO FORMA FINANCIAL SUMMARY
The following unaudited information summarizes financial information of the
company and Lakewood State Bank as if the Lakewood Acquisition had been
effective during the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Pro forma net income................................. $1,003 $1,803
Pro forma net income per share (basic)............... 0.43 0.78
Pro forma return on average equity (annualized)...... 7.02% 10.52%
Pro forma return on average assets (annualized)...... 0.48% 0.74%
</TABLE>
29
<PAGE> 31
UNION BANKSHARES, LTD.
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS -- UNAUDITED)
<TABLE>
<CAPTION>
LAKEWOOD COMBINED PRO FORMA PRO FORMA
COMPANY STATE BANK ENTITY ADJUSTMENTS CONSOLIDATED
-------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks................................... $ 17,140 $ 1,873 $19,013 $ -- $ 19,013
Federal funds sold........................................ 11,000 4,960 15,960 650 16,610
-------- ------- -------- ------- --------
Total Cash and Cash Equivalents.................... 28,140 6,833 34,973 650 35,623
-------- ------- -------- ------- --------
Held-to-maturity securities............................... 25,786 11,988 37,774 -- 37,774
Available-for-sale securities............................. 58,515 -- 58,515 -- 58,515
Other investments......................................... 970 -- 970 -- 970
-------- ------- -------- ------- --------
Total Investment Securities........................ 85,271 11,988 97,259 -- 97,259
-------- ------- -------- ------- --------
Loans, net of allowance for loan losses................... 125,625 23,626 149,251 -- 149,251
Mortgage loans held-for-sale.............................. 2,504 -- 2,504 -- 2,504
Excess of cost over fair value of net assets acquired, net
of amortization......................................... 2,551 -- 2,551 4,093 6,644
Premises and equipment, net............................... 2,030 1,945 3,975 -- 3,975
Accrued interest receivable............................... 1,636 322 1,958 -- 1,958
Other assets.............................................. 1,641 177 1,818 1,000 2,818
-------- ------- -------- ------- --------
TOTAL ASSETS....................................... $249,398 $44,891 $294,289 $ 5,743 $300,032
======== ======= ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand.................................................. $ 67,038 $10,351 $77,390 $ -- $ 77,390
NOW..................................................... 18,009 5,084 23,093 -- 23,093
Money Market............................................ 61,245 3,936 65,181 -- 65,181
Savings................................................. 11,836 7,240 19,076 -- 19,076
Time.................................................... 58,935 13,673 72,607 -- 72,607
-------- ------- -------- ------- --------
Total Deposits..................................... 217,063 40,284 257,347 -- 257,347
Notes Payable............................................. 11,000 -- 11,000 -- 11,000
Federal funds purchased................................... -- -- -- -- --
Cumulative trust preferred securities..................... -- -- -- 10,000 10,000
Accrued interest payable.................................. 252 242 494 -- 494
Other liabilities......................................... 1,224 108 1,332 -- 1,332
-------- ------- -------- ------- --------
Total Liabilities.................................. 229,539 40,634 270,173 10,000 280,173
-------- ------- -------- ------- --------
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value; authorized 500,000
shares; issued and outstanding -0- shares............... -- -- -- -- --
Common stock, $.001 par value; authorized 10,000,000
shares; issued and outstanding 2,340,514 shares......... 1 1,000 1,001 (1,000) 1
Additional paid-in-capital................................ 9,610 1,455 11,065 (1,455) 9,610
Unrealized appreciation on available for-sale securities,
net of income taxes of 322,000.......................... 616 -- 616 -- 616
Retained earnings......................................... 9,632 1,802 11,434 (1,802) 9,632
-------- ------- -------- ------- --------
Total Stockholders' Equity......................... 19,859 4,257 24,116 (4,257) 19,859
-------- ------- -------- ------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $249,398 $44,891 $294,289 $ 5,743 $300,032
======== ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
consolidating financial statements.
30
<PAGE> 32
UNION BANKSHARES, LTD.
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA -- UNAUDITED)
<TABLE>
<CAPTION>
LAKEWOOD
STATE COMBINED PRO FORMA PRO FORMA
COMPANY BANK ENTITY ADJUSTMENTS CONSOLIDATED
---------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans........................... $ 9,385 $1,781 $11,166 $ -- $ 11,166
Interest on investment securities:
U.S. governmental agencies and corporations........ 2,312 392 2,704 -- 2,704
States and other political sub-divisions........... 895 4 899 -- 899
Interest on federal funds sold and interest-bearing
deposits in other banks............................ 487 219 706 24 730
---------- ------ ------- ------ ----------
Total interest income......................... 13,079 2,396 15,475 24 15,499
INTEREST EXPENSE
Deposits............................................. 3,932 861 4,793 -- 4,793
Federal funds purchased.............................. 2 -- 2 -- 2
Notes payable........................................ 582 -- 582 -- 582
Cumulative trust preferred securities................ -- -- -- 637 637
---------- ------ ------- ------ ----------
Total interest expense........................ 4,516 861 5,377 637 6,014
---------- ------ ------- ------ ----------
NET INTEREST INCOME.................................... 8,563 1,535 10,098 (613) 9,485
PROVISION FOR LOAN LOSSES.............................. 243 -- 243 -- 243
---------- ------ ------- ------ ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.... 8,320 1,535 9,855 (613) 9,242
---------- ------ ------- ------ ----------
NONINTEREST INCOME
Service charges...................................... 292 185 477 -- 477
Gain on sale of available-for-sale securities, net... 25 -- 25 -- 25
Other................................................ 398 100 498 -- 498
---------- ------ ------- ------ ----------
Total noninterest income...................... 715 285 1,000 -- 1,000
---------- ------ ------- ------ ----------
NONINTEREST EXPENSE
Salaries and employee benefits....................... 4,009 615 4,624 -- 4,624
Amortization of excess of cost over fair value of net
assets acquired.................................... 170 -- 170 205 375
Occupancy and equipment.............................. 1,095 223 1,318 -- 1,318
Other operating expenses............................. 2,273 358 2,631 75 2,706
---------- ------ ------- ------ ----------
Total noninterest expense..................... 7,547 1,196 8,743 280 9,023
---------- ------ ------- ------ ----------
INCOME BEFORE INCOME TAXES............................. 1,488 624 2,112 (893) 1,219
INCOME TAXES........................................... 240 -- 240 (24) 216
---------- ------ ------- ------ ----------
NET INCOME............................................. $ 1,248 $ 624 $ 1,872 $ (869) $ 1,003
========== ====== ======= ====== ==========
EARNINGS PER SHARE
BASIC
Net income per share............................... $ 0.53 $ 0.43
Weighted average number of common shares
outstanding...................................... 2,338,446 2,338,446
========== ==========
DILUTED
Net income per share............................... $ 0.47 $ 0.38
Weighted average number of common shares
outstanding...................................... 2,630,620 2,630,620
========== ==========
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
consolidating financial statements.
31
<PAGE> 33
UNION BANKSHARES, LTD.
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA -- UNAUDITED)
<TABLE>
<CAPTION>
LAKEWOOD COMBINED PRO FORMA PRO FORMA
COMPANY STATE BANK ENTITY ADJUSTMENTS CONSOLIDATED
---------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans......................... $ 11,448 $2,644 $14,092 $ -- $ 14,092
Interest on investment securities:
U.S. governmental agencies and corporations...... 2,893 326 3,219 -- 3,219
States and other political sub-divisions......... 1,393 6 1,399 -- 1,399
Interest on federal funds sold and interest-bearing
deposits in other banks.......................... 226 105 331 33 364
---------- ------ ------- ------- ----------
Total interest income....................... 15,960 3,081 19,041 33 19,074
---------- ------ ------- ------- ----------
INTEREST EXPENSE
Deposits........................................... 4,121 1,020 5,141 -- 5,141
Federal funds purchased............................ 110 1 111 -- 111
Notes payable...................................... 887 -- 887 -- 887
Cumulative trust preferred securities.............. -- -- -- 850 850
---------- ------ ------- ------- ----------
Total interest expense...................... 5,118 1,021 6,139 850 6,989
---------- ------ ------- ------- ----------
NET INTEREST INCOME.................................. 10,842 2,060 12,902 (817) 12,085
PROVISION FOR LOAN LOSSES............................ 360 -- 360 -- 360
---------- ------ ------- ------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES............................................. 10,482 2,060 12,542 (817) 11,725
---------- ------ ------- ------- ----------
NONINTEREST INCOME
Service charges.................................... 371 279 650 -- 650
Gain on sale of available-for-sale securities,
net.............................................. 101 -- 101 -- 101
Other.............................................. 486 124 610 -- 610
---------- ------ ------- ------- ----------
Total noninterest income.................... 958 403 1,361 -- 1,361
---------- ------ ------- ------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits..................... 4,477 808 5,285 -- 5,285
Amortization of excess of cost over fair value of
net assets acquired.............................. 226 -- 226 273 499
Occupancy and equipment............................ 1,232 307 1,539 -- 1,539
Other operating expenses........................... 2,518 527 3,045 100 3,145
---------- ------ ------- ------- ----------
Total noninterest expense................... 8,453 1,642 10,095 373 10,468
---------- ------ ------- ------- ----------
INCOME BEFORE INCOME TAXES........................... 2,987 821 3,808 (1,190) 2,618
INCOME TAXES......................................... 851 (240) 611 204 815
---------- ------ ------- ------- ----------
NET INCOME........................................... $ 2,136 $1,061 $ 3,197 $(1,394) $ 1,803
========== ====== ======= ======= ==========
EARNINGS PER SHARE
BASIC
Net income....................................... $ 0.92 $ 0.78
Weighted average number of common shares
outstanding.................................... $2,317,056 $2,317,056
========== ==========
DILUTED
Net income....................................... $ 0.84 $ 0.71
Weighted average number of common shares
outstanding.................................... $2,534,904 $2,534,904
========== ==========
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
consolidating financial statements.
32
<PAGE> 34
UNION BANKSHARES, LTD.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On August 27, 1998, the bank entered into a definitive agreement to acquire by
merger all of the issued and outstanding stock of Lakewood State Bank. The
acquisition will be consummated through the payment of $8,350,000 in cash. The
transaction will be financed with approximately $10,000,000 in long-term debt
raised by the company through the offering of the Preferred Securities. The
company will contribute $7,000,000 to the bank and will use an estimated
$1,000,000 for debt issue costs and will invest the balance in short term
investments. The bank will use the $7,000,00 contributed by the company plus
$1,350,000 of short term investments to fund the Lakewood Acquisition. The
additional amounts raised provide capital for future growth. See "Prospectus
Summary -- The Company -- Growth Strategy" and "Use of Proceeds."
1. The pro forma consolidated balance sheet of the company and Lakewood
State Bank as of September 30, 1998 has been prepared in accordance with
the following assumptions:
a. The pending Lakewood Acquisition occurs on September 30, 1998.
b. The pending Lakewood Acquisition is accounted for utilizing the
purchase method of accounting and, accordingly, the net assets of
Lakewood State Bank are adjusted to their fair value. The components
of the transaction assumed in the consolidated balance sheet are
outlined as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
------------
<S> <C>
Cash paid for Lakewood Acquisition.......................... $8,350
Less: Fair value of net assets of Lakewood State Bank....... 4,257
------
Excess of cost over fair value of net assets acquired....... $4,093
======
</TABLE>
c. The company will incur $10,000,000 in long-term debt, comprised of
the proceeds of the Preferred Securities offered by the company, with
interest rates at 8.5% per annum. The additional $1,650,000 raised
but not used in the purchase will be invested in short-term
securities and used to pay for debt issue costs. See "Use of
Proceeds" and "Capitalization." The debt issue costs are estimated to
be $1,000,000.
Management believes that historical book value of the net assets of
Lakewood State Bank approximates fair value.
33
<PAGE> 35
UNION BANKSHARES, LTD.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. The pro forma consolidated income statements have been prepared in
accordance with the following assumptions:
a. The pending Lakewood Acquisition occurred at January 1, 1997 and is
accounted for utilizing the purchase method of accounting.
Accordingly, the operations of Lakewood State Bank are included in
the pro forma results of operations from January 1, 1997 forward.
b. Adjustments to reflect amortization of the purchase accounting
adjustments, increase in interest income on $650,000 in federal funds
sold and interest expense on $10,000,000 in long-term debt, the
amortization of debt issue costs of $1,000,000 over ten years and the
related income tax effects as well as any tax adjustments to reflect
Lakewood State Bank income subject to C-corporation tax rates in the
pro forma condensed income statements are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Increase in interest income for increase in
federal funds sold........................ $ 24 $ 33
Increase in interest on borrowed funds...... (637) (850)
Increase in other expenses for amortization
of excess of cost over fair value of net
assets acquired........................... (205) (273)
Increase in other expense for amortization
of debt issue costs (ten years)........... (75) (100)
Increase in tax expense due to reflect
Lakewood State Bank as a C-Corporation
taxpayer.................................. (233) (546)
Decrease in applicable income taxes based on
adjustments above......................... 257 342
----- -------
Reduction in net income................... $(869) $(1,394)
===== =======
</TABLE>
The assumed interest rate on federal funds sold is 5.00%.
The assumed interest rate on the long-term debt is 8.50% on $10,000,000 and the
estimated issuance costs of $1,000,000 is amortized over the estimated term of
the related debt, ten years.
The excess of cost over fair value of net assets acquired is amortized using the
straight-line method over fifteen years.
34
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The company's Consolidated Financial Statements show its financial condition and
information on a consolidated basis. The bank is the only operating unit of the
company. The differences between the company's financial condition and results
of operations and those of the bank have historically consisted primarily of the
$10 million loan obtained by the company upon the acquisition of the bank (the
"Acquisition Loan"), the $6.9 million in 8.3% convertible notes due 2003 (the
"Convertible Notes") issued as part of the company's initial public offering in
1993 and principal and interest payments thereon, the $4.0 million loan obtained
in March 1996 in connection with the redemption of the remaining Convertible
Notes outstanding, and the amortization of the values assigned to the bank's
core deposits and goodwill in the acquisition of the bank. In 1993, the company
began amortizing the remaining goodwill relating to the acquisition at the rate
of approximately $226,000 per year through 2009. Following the Lakewood
Acquisition the company's financial condition and results of operations will
differ from those of the bank as a result of the issuance of the Junior
Subordinated Debentures of the company and the expenses related to the Offering.
On March 1, 1996, the company called the Convertible Notes for redemption. The
redemption on April 1, 1996 caused the company to accelerate the amortization of
the debt issuance costs which were being amortized over a ten-year period. On
March 31, 1996, there was a write-off of the $473,000 balance of the debt
issuance costs and the $65,000 call premium. The after-tax effect of this
transaction was a $337,000 non-cash charge to income in the first quarter of
1996. This is reported as an extraordinary item in the company's financial
statements.
The company has opened five branches since July 1994. As expected, all five
branches have all experienced greater expenses than income during the early
stages of operations. As the deposit and loan balances have grown, however, the
monthly net losses have become smaller. During the last quarter of 1996 and all
of 1997, each of the first three branches had an excess of income over direct
costs. The company expects the new fourth branch, and the recently opened Golden
branch, to have similar performance.
On August 27, 1998, the company announced the planned merger of Lakewood State
Bank ("Lakewood"), a state chartered bank located in Lakewood, Colorado, into
the bank. The company believes that Lakewood's operating philosophy is
consistent with the bank's, and that the combined bank, will be able to operate
effectively in the Denver marketplace. The Lakewood Acquisition is structured as
a cash-for-stock merger in which Lakewood's shareholders will receive a total of
$8.35 million in cash, Lakewood will be merged into the bank and Lakewood's
separate corporate existence will cease. Thereafter, it is expected that
Lakewood's operations will be operated in the same fashion as the bank's other
branches.
The company expects that the Lakewood Acquisition will initially add
approximately $40 million in total assets, resulting in the company having
approximately $300 million in total assets. Management believes that this higher
level of total assets will enhance the bank's competitive position in the Denver
metropolitan banking community. As a result of
35
<PAGE> 37
the Lakewood Acquisition and the Offering, the company will be required to
amortize approximately $4,093,000 of goodwill over 15 years at approximately
$273,000 per year, will have increased interest expense by $850,000 per year and
will have incurred approximately $1,000,000 in offering costs.
NET INTEREST INCOME
For most financial institutions, the primary component of earnings is net
interest income. Net interest income is the difference between interest income,
principally from loan and investment securities portfolios, and interest
expense, principally on customer deposits and borrowings. Changes in net
interest income result from changes in volume, spread and margin. Volume refers
to the average dollar level of interest-earning assets and interest-bearing
liabilities. Spread refers to the difference between the average yield on
interest-earning assets and the average cost of interest-bearing liabilities.
Margin refers to net interest income divided by average interest-earning assets
and is influenced by the level and relative mix of interest-earning assets and
interest-bearing liabilities. During the fiscal years ended December 31, 1997,
1996 and 1995, average interest-earning assets were $181.5 million, $157.5
million, and $137.9 million, respectively. During these same periods, net
interest margin, computed on a full tax equivalent basis, was 6.25%, 6.29% and
6.35%, respectively. See "-- Results of Operations." It is expected that the
Lakewood Acquisition will initially add approximately $40 million in
interest-earning assets and that the company's net interest margin will not be
materially affected.
The following tables set forth for the periods indicated information with regard
to average balances of assets and liabilities, as well as the total dollar
amounts of interest income from interest-earning assets and interest expense on
interest-bearing liabilities, resultant yields or costs, net interest income,
net interest spread, net interest margin and the ratio of average
interest-earning assets to average interest-bearing liabilities. Net interest
income is computed on a full tax equivalent basis to reflect the effect of tax
exempt income earned on municipal obligations in the investment securities
portfolio. Full tax equivalent interest income on tax exempt securities is the
amount of income that would have to be earned on taxable securities to yield the
same after tax return. A 34% tax rate was used.
36
<PAGE> 38
ASSETS
<TABLE>
<CAPTION>
PERIOD ENDED
-------------------------------------------------------------------
YTD SEPTEMBER 30, 1998 YTD SEPTEMBER 30, 1997
-------------------------------- --------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED YIELD OR AVERAGE EARNED YIELD OR
BALANCE(1) OR PAID COST BALANCE(1) OR PAID COST
---------- -------- -------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial........................ $ 89,711 $ 6,635 9.89% $ 77,716 $ 5,918 10.18%
Real estate -- mortgage........... 5,013 360 9.60 4,812 343 9.53
Mortgage loans held for sale...... -- -- -- 16 1 8.36
Real estate -- construction....... 11,168 1,009 12.08 7,665 762 13.29
Consumer loans.................... 19,775 1,381 9.34 20,070 1,405 9.36
-------- ------- ------ -------- ------- ------
Total loans..................... 125,667 9,385 9.98 110,279 8,429 10.22
Reserve for loan loss............... (2,210) (1,888)
Securities:
U.S. government................... 17,209 785 6.10 17,879 907 6.78
Municipal -- tax exempt........... 20,979 1,353 8.64 17,356 1,130 8.70
Municipal -- taxable.............. 2,669 123 6.16 5,905 304 6.88
Mortgage backed................... 29,915 1,350 6.03 22,619 1,222 7.22
Other securities.................. 950 54 7.60 853 -- --
-------- ------- ------ -------- ------- ------
Total securities................ 71,722 3,665 6.84 64,612 3,563 7.37
Interest bearing deposits in other
banks............................. -- -- -- -- -- --
Federal funds sold.................. 11,555 487 5.60 1,963 80 5.45
-------- ------- ------ -------- ------- ------
Total interest-earning assets... 208,944 13,537 8.66 176,854 12,072 9.13
Non interest-earning assets:
Excess of investment in subsidiary
over net assets acquired........ 2,644 2,870
Other assets...................... 18,821 14,535
-------- --------
Total non interest-bearing
assets........................ 21,465 17,405
-------- --------
Total assets.................... $228,199 $192,371
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Interest bearing demand
accounts........................ $ 80,633 $ 1,751 2.90% $ 70,092 $ 1,505 2.87%
Certificates of deposit........... 47,810 1,959 5.48 30,992 1,247 5.38
Savings accounts.................. 11,535 222 2.57 10,821 212 2.62
-------- ------- ------ -------- ------- ------
Total interest bearing
accounts...................... 139,978 3,932 3.76 111,905 2,964 3.54
Federal funds purchased............. 42 2 6.37 2,563 108 5.63
Notes payable....................... 11,593 582 6.71 12,852 666 6.93
-------- ------- ------ -------- ------- ------
Total interest bearing
liabilities................... 151,613 4,516 3.98 127,320 3,738 3.93
Noninterest bearing demand
accounts........................ 56,510 47,724
-------- --------
Total deposits and interest
bearing liabilities........... 208,123 175,044
Other noninterest-bearing
liabilities....................... 646 1,072
-------- --------
Total liabilities............... 208,769 176,116
Redeemable preferred stock.......... -- --
Shareholders' equity................ 18,937 16,255
-------- --------
Total liabilities and
shareholders' equity.......... $227,706 $192,371
======== ========
Net interest income................. $ 9,022 $ 8,334
======= =======
Net interest spread................. 4.68% 5.20%
====== ======
Net interest margin................. 5.77% 6.30%
====== ======
Ratio of average interest-earning
assets to average total deposits
and interest bearing
liabilities....................... 100.39% 101.03%
====== ======
Net income -- current quarter
Return on assets (current quarter
annualized)..................... 0.73% 1.03%
Return on equity (current quarter
annualized)..................... 8.79% 12.16%
Ratio of average equity to average
assets............................ 8.32% 8.45%
<CAPTION>
CHANGE IN CHANGE IN
CHANGE IN INTEREST AVERAGE
AVERAGE EARNED YIELD OR
BALANCE OR PAID COST
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans:
Commercial........................ $11,995 $ 717 (0.29)%
Real estate -- mortgage........... 201 17 0.07
Mortgage loans held for sale...... (16) (1) --
Real estate -- construction....... 3,503 247 (1.21)
Consumer loans.................... (295) (24) (0.02)
------- ------ -----
Total loans..................... 15,388 956 (0.24)
Reserve for loan loss............... (322)
Securities:
U.S. government................... (670) (122) (0.68)
Municipal -- tax exempt........... 3,623 223 (0.06)
Municipal -- taxable.............. (3,236) (181) (0.72)
Mortgage backed................... 7,296 128 (1.19)
Other securities.................. 97 54 7.60
------- ------ -----
Total securities................ 7,110 102 (0.53)
Interest bearing deposits in other
banks............................. -- -- --
Federal funds sold.................. 9,592 407 0.15
------- ------ -----
Total interest-earning assets... 32,090 1,465 (0.47)
Non interest-earning assets:
Excess of investment in subsidiary
over net assets acquired........ (226)
Other assets...................... 4,286
-------
Total non interest-bearing
assets........................ 4,060
-------
Total assets.................... $35,828
=======
LIABILITIES AND SHAREHOLDERS'
LI EQUITY
Liabilities:
Interest bearing demand
accounts........................ $10,541 $ 246 0.03%
Certificates of deposit........... 16,818 712 0.10
Savings accounts.................. 714 10 (0.05)
------- ------ -----
Total interest bearing
accounts...................... 28,073 968 0.22
Federal funds purchased............. (2,521) (106) 0.74
Notes payable....................... (1,259) (84) (0.22)
------- ------ -----
Total interest bearing
liabilities................... 24,293 778 0.05
Noninterest bearing demand
accounts........................ 8,786
-------
Total deposits and interest
bearing liabilities........... 33,079
Other noninterest-bearing
liabilities....................... (426)
-------
Total liabilities............... 32,653
Redeemable preferred stock.......... --
Shareholders' equity................ 2,682
-------
Total liabilities and
shareholders' equity.......... $35,335
=======
Net interest income................. $ 687
======
Net interest spread................. (0.52)%
=====
Net interest margin................. (0.53)%
=====
Ratio of average interest-earning
assets to average total deposits
and interest bearing
liabilities....................... (0.64)%
=====
Net income -- current quarter
Return on assets (current quarter
annualized).....................
Return on equity (current quarter
annualized).....................
Ratio of average equity to average
assets............................
</TABLE>
- -------------------------
(1) Average balances are based on daily averages and include nonaccrual loans.
Loan fees are included in interest income as follows: 1997 -- $602,000;
1996 -- $589,000; 1995 -- $474,000.
37
<PAGE> 39
The following table illustrates the changes in the company's net interest income
due to changes in volume and changes in interest rate on a full tax equivalent
basis. Changes attributable to the combined effect of volume and interest rate
have been allocated proportionately to the change due to volume and the change
due to interest rate.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
VS.
NINE MONTHS ENDED
SEPTEMBER 30, 1997
INCREASE (DECREASE)
IN NET INTEREST INCOME
DUE TO CHANGES IN
----------------------
VOLUME RATE TOTAL
------ ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INTEREST EARNING ASSETS
Loans:
Commercial loans..................................... $ 913 $(196) $ 717
Real estate mortgage................................. 14 3 17
Mortgage loans held for sale......................... (1) -- (1)
Real estate construction............................. 348 (101) 247
Consumer loans....................................... (21) (3) (24)
------ ----- -----
Total loans.................................. 1,253 (297) 956
------ ----- -----
Securities:
U.S. government securities........................... (34) (88) (122)
Municipal tax exempt................................. 233 (10) 223
Municipal taxable.................................... (167) (14) (181)
Mortgage backed...................................... 394 (266) 128
Other securities..................................... -- 54 54
------ ----- -----
Total securities............................. 426 (324) 102
------ ----- -----
Interest bearing deposits at other banks............... -- -- --
Federal funds sold..................................... 394 13 407
------ ----- -----
Total interest-earning assets................ 2,073 (608) 1,465
------ ----- -----
INTEREST BEARING LIABILITIES
Deposits:
Interest bearing demand deposits..................... $ 226 $ 20 $ 246
Certificates of deposit.............................. 677 35 712
Savings deposits..................................... 14 (4) 10
------ ----- -----
Total interest-bearing accounts.............. 917 51 968
Federal funds purchased................................ (106) -- (106)
Notes payable.......................................... (65) (19) (84)
------ ----- -----
Total interest-bearing liabilities........... 746 32 778
------ ----- -----
Total increase (decrease) in net interest
income.................................... $1,327 $(640) $ 687
====== ===== =====
</TABLE>
MARKET RISK MANAGEMENT
Market risk arises from changes in interest rates. The company has risk
management policies to monitor and limit exposure to market risk as discussed
below. See "-- Asset/ Liability Management." Disclosures about the fair value of
financial instruments, which reflect changes in market prices and rates, can be
found in Note 18 of Notes to Consolidated Financial Statements.
38
<PAGE> 40
ASSET/LIABILITY MANAGEMENT
The company's results of operations depend substantially on its net interest
income. Like most financial institutions, the company's interest income and cost
of funds are affected by general economic conditions and by competition in the
marketplace.
The function of asset/liability management is to manage the risk/return
relationships between capital adequacy, market risk, liquidity and interest rate
risk. To manage these relationships, the bank uses the following items: equity,
free capital, debt/capital, liquidity, volatile liability coverage, portfolio
maturities, maturing assets and maturing liabilities. In addition, in reviewing
the needs of the bank with regard to proper management of its asset/liability
program, the company's management has projected its needs into the future,
taking into consideration historical periods of high loan demand, low deposit
balances, projected loan increases (due to increased demand through marketing),
and interest rate changes (as projected by consulting economists). The bank's
Asset and Liability Management Committee is responsible for establishing
procedures that enable the company to achieve its goals while adhering to
prudent banking practices and existing loan and investment policies.
The excess of the bank's interest-earning assets over its interest-bearing
liabilities have generally been invested in securities when suitable lending
opportunities have not been sufficient to use such excess funds. The bank's
securities portfolio plays an important part in the overall asset/liability
management program and is a major contributor to the company's financial
results. The primary objectives in the overall management of the securities
portfolio are safety, liquidity, yield, interest rate risk and pledging for
public deposits.
The securities designated as available for sale generally are more liquid and
have a shorter term than those designated as held to maturity. In connection
with the preparation of its Consolidated Financial Statements, the company has
designated securities with a cost of $37,180,000 and $58,515,000 as available
for sale as of December 31, 1997 and September 30, 1998, respectively. These
securities are to be available for sale to assist management in providing an
adequate asset/liability and liquidity management program for the bank.
Securities designated as held to maturity typically have less liquidity and also
have less call protection than those held for sale.
A critical element of the company's asset/liability management program is
management of exposure to interest rate risk. Exposure to interest rate risk
arises from volatile interest rates and changes in the balance sheet mix. The
bank's policy is to control the exposure of its earnings to changing interest
rates by generally maintaining a position within a narrow range around an
"earnings neutral position," which is defined as the mix of assets and
liabilities that generate a net interest margin that is least affected by
interest rate changes. The bank uses a measurement tool known as dollar duration
to help its efforts to achieve an earnings neutral position. Dollar duration
measures the percentage of loss or gain that the portfolio would sustain with a
100 basis point parallel shift in applicable interest rates.
In order to control interest rate risk in a rising interest rate environment, or
when management believes there is a significant risk of rising interest rates,
management's philosophy is generally to reduce the dollar duration of the
investment portfolio in order to achieve a more asset sensitive position,
thereby allowing quicker repricings and maximizing net interest margin.
Conversely, in a declining interest rate environment, management's
39
<PAGE> 41
philosophy is to increase the dollar duration of the investment portfolio,
thereby becoming more liability sensitive. Management would ideally take steps
to increase dollar duration at the time of a peak in interest rates or during
the stabilization period prior to the anticipated decline of rates. This
strategy, if successful, provides that rates on the investments are locked in at
higher levels and enhances the effect on net interest margin. The bank decreases
the dollar duration of its investment portfolio by taking steps to increase the
coupon rate and decrease the average life (the period for which a security is
actually held as opposed to its stated maturity) of the securities held in the
portfolio. The bank increases the dollar duration of its investment portfolio by
taking steps to decrease the coupon rate and increase the average life of the
securities held in the portfolio.
As of December 31, 1997, the dollar duration of the investment portfolio was
3.20 compared to 4.00 at December 31, 1996. The decrease in dollar duration
during 1997 reflects management's decision to replace investments which matured
with investments that had similar yields, but shorter maturities due to stable
interest rates in 1997. As of September 30, 1998, the dollar duration of the
investment portfolio was 3.20.
During 1998, the gross yield on the investment portfolio has decreased from
7.44% to 6.84%. This decrease is due to replacing matured investments with new
investments at current market yields which are lower than the matured
investments, and an increase in the total portfolio, with the new investments at
the lower current market yields. The company may also engage in hedging
transactions to control interest rate risk. The effect of these efforts in any
given period may be to negatively impact reported net non-interest income and
the interest earned on the securities.
Although analysis of interest rate gap (the difference between the repricing of
interest-earning assets and interest-bearing liabilities during a given period
of time) is one standard tool for the measurement of exposure to interest rate
risk, the company believes that because interest rate gap analysis does not
address all factors that can affect earnings performance, such as early
withdrawal of time deposits and prepayment of loans, it should not be used as
the primary indicator of exposure to interest rate risk and the related
volatility of net interest income in a changing interest rate environment.
Interest rate gap analysis is primarily a measure of liquidity based upon the
amount of change in principal amounts of assets and liabilities outstanding, as
opposed to a measure of changes in the overall net interest margin. The company
believes that since interest rate risk is caused by a combination of (i)
differing volumes of re-pricing assets and liabilities (i.e. gaps), (ii)
variability of interest rate changes (i.e. multiples) and (iii) variability of
occurrence of rate changes for various classes of assets and liabilities (i.e.
lags), that its system of measuring the effect of each of these factors is a
preferable tool for management of interest rate risk.
The bank has contracted with a consulting firm to assist it with economic
outlook, interest rate forecasting, asset/liability management and purchase
and/or sale of securities. This firm does not have discretionary authority to
act on behalf of the company.
40
<PAGE> 42
The following table sets forth the estimated maturity or repricing, and the
resulting interest rate gap, of the company's interest-earning assets and
interest-bearing liabilities at December 31, 1997. The amounts in the table are
derived from internal data from the company. The amounts are based upon
regulatory reporting formats and, therefore, may not be consistent with
financial information appearing elsewhere in this Registration Statement that
has been prepared in accordance with generally accepted accounting principles.
The amounts could be significantly affected by external factors such as changes
in prepayment assumptions, early withdrawals of deposits and competition.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------------------------------------
ESTIMATED MATURITY OR REPRICING
-----------------------------------------------------------------
LESS THAN THREE MONTHS ONE YEAR TO OVER
THREE MONTHS TO ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------------ ------------ ----------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed rate loans.............. $ 3,526 $ 7,810 $15,735 $ 3,479 $ 30,550
Floating rate loans........... 83,512 1,972 7,892 6,507 99,883
Investment securities......... 3,230 18,318 24,859 37,894 84,301
FHLB stock.................... 970 -- -- -- 970
Federal funds sold............ 11,000 -- -- -- 11,000
-------- -------- ------- ------- --------
Total interest-earning
assets............. 102,238 28,100 48,486 47,880 226,704
-------- -------- ------- ------- --------
Interest-bearing liabilities:
Interest-bearing demand
deposits................... 18,009 -- -- -- 18,009
Money market deposits......... 61,245 -- -- -- 61,245
Certificates of deposit under
$100,000................... 6,205 12,051 4,228 2,946 25,430
Certificates of deposit over
$100,000................... 17,263 9,512 4,206 2,524 33,505
Savings deposits.............. 11,836 -- -- -- 11,836
Notes payable................. -- 1,000 10,000 -- 11,000
Federal funds purchased....... -- -- -- -- --
-------- -------- ------- ------- --------
Total interest-bearing
liabilities........ 114,558 22,563 18,434 5,470 161,025
-------- -------- ------- ------- --------
Interest rate gap............... $(12,320) $ 5,537 $30,052 $42,410 $ 65,679
======== ======== ======= ======= ========
Cumulative interest rate gap.... $(12,320) $ (6,783) $23,269 $65,679
======== ======== ======= =======
Cumulative interest rate gap to
total assets.................. (4.93)% (2.72)% (9.33)% 26.34%
======== ======== ======= =======
Total consolidated assets....... $249,398
========
</TABLE>
41
<PAGE> 43
The following table presents at the date indicated (i) the aggregate loans by
maturity in each major category of the company's loan portfolio and (ii) the
aggregate amounts of variable and fixed rate loans that mature after one year.
Actual maturities may differ from the contractual maturities shown below as a
result of renewals and prepayments. Management estimates that approximately $14
million of loans maturing during the year ending December 31, 1998 will actually
be paid off in cash during that period.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
----------------------------------------------
LESS THAN ONE TO OVER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
--------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial loans..................... $69,524 $14,744 $8,503 $ 92,771
Real estate -- construction loan..... 12,684 -- -- 12,684
Real estate -- mortgage loans........ 2,578 349 696 3,623
Consumer loans....................... 10,803 7,251 797 18,851
------- ------- ------ --------
Total...................... $95,589 $22,344 $9,996 $127,929
======= ======= ====== ========
Fixed rate loans..................... $14,451 $3,478
Floating rate loans.................. 7,893 6,518
------- ------
Total...................... $22,344 $9,996
======= ======
</TABLE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Overview: The company reported net income of $1,248,000 for the nine months
ended September 30, 1998, a decrease of 17.4% from net income of $1,511,000 for
the first nine months of 1997. Earnings were positively impacted in the first
nine months of 1998 by an increase in net interest income of $612,000, a $27,000
decrease in provision for loan loss and a $388,000 decrease in income tax
expense. These improvements were offset by a $66,000 decrease in gain on sale of
securities available for sale and a $1,305,000 increase in noninterest expense
for the nine months ended September 30, 1998. Net income per share (diluted) was
$.47 for the nine months ended September 30, 1998, compared to $.60 per share
for the 1997 period. Return on average assets and average equity were .73% and
8.79%, respectively, for the nine months ended September 30, 1998, compared to
1.05% and 12.18%, respectively, for the first nine months of 1997.
During the first nine months of 1998, the company's deposits increased $27.0
million, mainly in interest bearing accounts. During the same period, the
company's total loans increased $5.1 million, and the company's securities
portfolio and federal funds sold increased $18.8 million. This combination of
changes in the earning asset mix, along with market pressure to price loans
lower and deposits higher, resulted in a lower net interest margin.
In addition, the company's long term debt decreased $1.0 million as a result of
a partial prepayment of the company's loan with NationsBank.
Interest Income: Interest income increased $1,391,000, or 11.9%, to $13,079,000
for the period ended September 30, 1998 from $11,688,000 for the comparable 1997
period, primarily as a result of higher loan balances and interest on federal
funds sold during the
42
<PAGE> 44
period. The company's net yield on interest earning assets on a fully tax
equivalent basis was 8.66% for the first nine months of 1998, which reflects a
decrease of 47 basis points (each basis point equals 1/100th of 1%) from the
comparable 1997 period. The average yield on loans decreased from 10.22% in the
1997 period to 9.98% in the 1998 period, and the average yield on securities
held by the company decreased from 7.37% in the 1997 period to 6.84% in the 1998
period. Interest income on loans, federal funds sold and securities was
$956,000, $407,000 and $28,000 greater in the 1998 period, respectively.
Interest Expense: Interest expense increased $779,000, or 20.8%, to $4,516,000
for the nine months ended September 30, 1998 from $3,737,000 for the nine months
ended September 30, 1997. This increase is primarily due to the change in the
mix in interest bearing and noninterest bearing deposit accounts in the 1998
period compared to those in the 1997 period. Average rates paid on interest
bearing deposits increased 22 basis points to 3.76% in the first nine months of
1998 from 3.54% in the first nine months of 1997. Interest bearing deposits
increased to $150.0 million from $123.2 million in the year earlier period.
Net Interest Income: Net interest income before provision for loan loss was
$8,563,000 for the nine months ended September 30, 1998, an increase of
$612,000, or 7.7%, over the first nine months of 1997. Net interest margin
decreased 53 basis points from 6.30% in the 1997 period to 5.77% in the 1998
period. The increase in net interest income is primarily due to a $956,000
increase in interest income on loans and a $407,000 increase in interest income
on federal funds sold, partially offset by a $779,000 increase in interest
expense. The company's average cost of funds for the nine months ended September
30, 1998 was 5 basis points higher than the comparable 1997 period. The
company's average yield on interest earning assets decreased 47 basis points in
the 1998 period compared to the 1997 period, from 9.13% to 8.66%.
Noninterest Income: Noninterest income increased $15,000 for the nine months
ended September 30, 1998 to $715,000 from $700,000 for the nine months ended
September 30, 1997.
Noninterest Expense: Noninterest expense increased $1,305,000, or 20.9%, for the
first nine months of 1998 to $7,547,000 compared to $6,242,000 in the first nine
months of 1997. This increase is primarily the result of (i) increases in
salaries and benefits relating primarily to annual merit increases, staffing
expenses for the new branches, and additional staffing expenses for data
processing in respect of the Year 2000 situation; (ii) increases in occupancy
and equipment relating to the new branches; and (iii) increases in other
noninterest expenses due to increases in marketing expenses and other expenses
relating to opening two new branches in 1998.
Income Tax Expense: Income tax expense decreased $388,000, or 61.8%, for the
first nine months of 1998. This decrease is primarily the result of (i) a
decrease in pretax earnings and (ii) a tax credit recorded in 1998 in connection
with options exercised during 1997 and the stock acquired was sold within twelve
months.
PROVISION FOR LOAN LOSS
The company charged $243,000 to Provision for Loan Loss in the first nine months
of 1998 and $270,000 for the same period in 1997. The ratio of loan loss reserve
to total loans
43
<PAGE> 45
was 1.80% at September 30, 1998 and 1.66% at September 30, 1997. The company
sets its loan loss reserve at a level considered adequate to provide for
anticipated loan losses based on management's assessment of various factors
affecting the loan portfolio. These factors include a review of problem loans,
business conditions, loan loss experience and an overall evaluation of the
quality of the collateral, holding and disposal costs and costs of capital.
Provision for loan loss is a direct charge against income and is determined by
management based on the adequacy of the loan loss reserve.
ASSET QUALITY
The company's lending activities are guided by its Statement of Lending Policies
and Procedures. These policies are annually reviewed and approved by the Bank's
Board of Directors. The bank employs an internal auditor to monitor its internal
supervision and audits of its lending operation, and the company supplements
these internal procedures with independent examinations performed by
professional consultants and auditors. The company monitors concentrations of
loans by collateral, purpose and industry. The company has no significant
exposure to highly leveraged transactions and has no foreign credits in its loan
portfolio.
Total nonperforming assets were $52,000 and $23,000 at September 30, 1998 and
December 31, 1997, respectively. Other Real Estate Owned (OREO) was $0 at both
September 30, 1998 and December 31, 1997. At September 30, 1998, securities held
to maturity were $25.8 million, or 30.2% of the total portfolio, and securities
available for sale totaled $58.5 million, or 68.6% of the total portfolio. Other
securities (investment in FHLB stock) totaled $1.0 million, or 1.2% of the total
portfolio. Securities available for sale are those securities which may be sold
in response to changes in interest rates, changes in the company's short term
liquidity needs or changes in prepayment risk, and are stated at the lower of
cost or estimated market value. At September 30, 1998, the market value of
investments available for sale exceeded carrying value by approximately
$938,000.
Securities held to maturity are considered longer term assets which are normally
held until maturity and are carried at amortized cost. The market value of
securities designated as held to maturity exceeded carrying value by
approximately $931,000 at September 30, 1998. U.S. government securities make up
$13.8 million, or 16.2% of the investment portfolio, mortgage backed securities
make up $45.7 million, or 53.6% of the investment portfolio, obligations of
states and political subdivisions (municipal securities) comprise $24.8 million,
or 29.1% of the investment portfolio, and other investments make up $1.0
million, or 1.1% of the investment portfolio at September 30, 1998.
As noted in the company's Form 10-KSB for the year ended December 31, 1997,
management has generally sought to control the exposure of the company's
securities portfolio to rising interest rates by maintaining a position within a
narrow range around an "earnings neutral position" (i.e. the mix of assets and
liabilities that generate a net interest margin that is least affected by
interest rate changes). The company uses a measurement tool known as dollar
duration to help maintain an earnings neutral position. As of September 30,
1998, the dollar duration of the investment portfolio was 3.20 compared to 3.20
at December 31, 1997. This lack of change in dollar duration resulted from the
partial replacement of securities which were sold, matured or called during the
first nine months of 1998 with securities with the same or lower yields but with
longer maturities. The company may also engage in hedging transactions to
control interest rate risk. The effect of
44
<PAGE> 46
these efforts in any given period may be to negatively impact reported net
noninterest income and the interest earned on the securities.
CAPITAL RESOURCES
The company's capital adequacy is a direct measurement of the overall financial
strength of the company and its ability to absorb adverse market conditions. In
addition, the capital position of the company provides a mechanism to promote
public confidence in the company and the bank.
The company's total stockholders' equity increased $1.7 million to $19.9 million
at September 30, 1998 from $18.2 million at December 31, 1997. This increase in
stockholders' equity was due to the retention of earnings in the current year
and the exercise of options to purchase 6,500 shares of common stock, plus the
net effect of FAS 115 which requires financial institutions to mark their
available for sale securities portfolio to market.
The Federal Reserve Board and FDIC guidelines require a minimum of a 4% Tier 1
core capital to risk-weighted assets ratio and an 8% total qualifying capital to
risk-weighted assets ratio. Due to the company's high level of capital and the
level of risk in its current asset mix, the company's risk based capital ratios
exceed the regulatory minimum ratios. The company's Tier 1 core capital to risk
weighted assets was 11.72% at September 30, 1998, and its total qualifying
capital to risk weighted assets was 12.97%. As of September 30, 1998, the bank
also exceeded the minimum regulatory risk based capital ratios.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Overview. Net income increased $563,000 for 1997 to $2,136,000 from $1,573,000,
primarily as a result of a $1,528,000 increase in net interest income. The
positive change in net interest income was partially offset by a decrease in
gain on sale of securities of $61,000 and an $837,000 increase in noninterest
expense. Return on average assets and return on average equity were 1.08% and
12.68%, respectively, for 1997, compared to .91% and 10.44%, respectively, for
1996.
Interest Income. Interest income increased $2,434,000 to $15,960,000 for 1997
from $13,526,000 for 1996. In 1997, interest income from loans increased
$2,044,000, interest income on securities increased $341,000 and interest income
on federal funds sold increased $49,000. This increase in interest income from
loans was primarily due to the increase in the size of the loan portfolio, as
the interest rates were relatively stable in 1997, compared to 1996.
Interest Expense. Interest expense increased $906,000 to $5,118,000 for 1997
from $4,212,000 in 1996. Interest expense on interest-bearing deposits increased
$385,000, interest expense on federal funds purchased increased $19,000, and
interest expense on the notes payable increased $502,000 in 1997. The increase
in interest expense on interest-bearing deposits was primarily due to greater
deposit volume in 1997 as the rates paid on interest-bearing deposits was
relatively unchanged between 1996 and 1997. The increase in interest expense on
the notes payable was due to the $10.0 million increase in notes payable to the
FHLB, offset by the $1.5 million reduction of the NationsBank note.
45
<PAGE> 47
Net Interest Income. Net interest income increased $1,528,000 to $10,842,000 for
1997 from $9,314,000 for 1996. During 1997, average loans outstanding increased
$21,457,000, average securities owned increased $1,666,000 and the net interest
spread decreased from 5.29% for 1996 to 5.14% for 1997. The increase in net
interest income resulted primarily from the bank's ability to increase the
percentage of its assets employed in its loan portfolio.
Noninterest Income. Noninterest income decreased $79,000 to $958,000 for 1997
from $1,037,000 for 1996. This decrease is primarily due to a $61,000 decrease
in gains on sale of investment securities.
Noninterest Expense. Noninterest expense increased $837,000 to $8,453,000 for
1997 from $7,616,000 for 1996. This increase is a net result of the following
factors: (i) salary/benefit expense increased $483,000, primarily due to
increased staffing (at the bank and the three branches) and yearly salary
increases; and (ii) other operating expenses increased $345,000, primarily as a
result of an $56,000 increase in advertising and marketing expense, a $157,000
increase in legal fees, primarily due to expenses on a problem credit, and the
absence of a $100,000 accrual reversal of a 1995 claim made against the company,
which was settled favorably in February, 1996.
Extraordinary Item. On March 1, 1996, the company called the Convertible Notes
for redemption. The redemption on April 1, 1996 caused the company to accelerate
the amortization of the debt issuance costs which were being amortized over a
ten-year period. On March 31, 1996, there was a write-off of the $473,000
balance of the debt issuance costs and the $65,000 call premium. The after-tax
effect of this transaction was a $337,000 non-cash charge to income in the first
quarter of 1996.
PROVISION FOR LOAN LOSSES
The company's provisions for loan losses in the years ended December 31, 1997,
1996 and 1995 were $360,000, $285,000, and $120,000, respectively. See
"Business -- Analysis of Allowance for Loan Losses."
INCOME TAXES
The company's income tax expense for the years ended December 31, 1997, 1996 and
1995 was $851,000, $339,000 (which is net of the $201,000 tax effect of the
extraordinary item), and $297,000, respectively. The company's effective tax
rate typically differs from the expected 34% enacted tax rate due to interest
income received on tax-exempt securities, which is partially offset by the
amortization of excess of investment in subsidiary over net assets acquired.
LIQUIDITY AND SOURCES OF FUNDS
The company's primary sources of funds are customer deposits, sales and
maturities of investment securities and loan repayments. These funds are used to
make loans, to acquire investment securities and other assets and to fund
continuing operations. During the year ended December 31, 1997, deposits
increased to $190,076,000 from $156,409,000 and $140,175,000 at December 31,
1996 and 1995, respectively. Deposits increased to $217,063,000 at September 30,
1998. None of the deposits at September 30, 1998 or
46
<PAGE> 48
December 31, 1997, 1996 or 1995 were brokered deposits. Management believes that
the increases in deposits in 1996, 1997 and 1998 were the result of (i) recent
bank acquisition activity in Colorado which has improved the bank's
opportunities to attract new business from customers in its small and
medium-sized business focus area; (ii) continued success of the bank's Officer
Call Program; (iii) referrals from existing customers, and (iv) the successful
opening of the bank's branches and the resulting increase in new customers at
each branch. See "Business -- Operating Strategy" and "-- Growth Strategy." The
company expects deposits to increase by up to $40,283,000 upon consummation of
the Lakewood Merger. At December 31, 1997, net loans were $120,659,000 compared
to $98,978,000 and $79,864,000 at December 31, 1996 and 1995, respectively. Net
loans increased to $125,625,000 at September 30, 1998, and are expected to
increase by approximately $23,625,000 upon consummation of the Lakewood
Acquisition. The company's Acquisition Loan was renewed on January 1, 1993, and
was paid off on March 17, 1993 with the proceeds from the sale of Convertible
Notes in the Offering. The Convertible Notes required semi-annual interest only
payments, with no principal due until maturity at March 17, 2003. On March 1,
1996, the company exercised the optional redemption provision of the Convertible
Notes. On the redemption date, April 1, 1996, the company paid 101% of the
principal amount of each Convertible Note redeemed, plus accrued and unpaid
interest. Prior to 5:00 p.m. on the redemption date holders of the Convertible
Notes had the right to convert the Convertible Notes into the company's common
stock at a rate of 78.68 shares for each $1,000 principal amount of Convertible
Notes (a conversion price of $12.71 per share). There were $6,512,000 in
principal amount of Convertible Notes outstanding and all except $26,000 were
tendered for redemption. The company entered into a loan agreement (the "Loan
Agreement") with NationsBank, formerly Boatmen's First National Bank of Kansas
City ("NationsBank"), to borrow up to $4,000,000 to fund the redemption. The
remainder of the funds needed to pay off the Convertible Notes was taken from
the investments which the company held in its available for sale portfolio.
The company's total assets increased 12.6% to $249.4 million at September 30,
1998 from $221.5 million at December 31, 1997. During the nine months ended
September 30, 1998 deposits increased $27.0 million to $217.1 million at
September 30, 1998 from $190.1 million at December 31, 1997. None of the
company's deposits at September 30, 1998 were brokered deposits.
The Loan Agreement with NationsBank provides for interest on outstanding amounts
to be payable at NationsBank's corporate base rate, which was 8.50% at September
30, 1998. The Loan Agreement provides for a one-year term loan which is
renewable by the company unless the company's credit standing is unsatisfactory
based on the criteria set forth below. The Loan Agreement contains a twelve-year
amortization schedule, with interest only for the first two years, assuming
renewal of the loan in accordance with its terms.
Annual renewal of the loan is based on the compliance by the bank with the
following criteria:
1. Capital Ratio of not less than 6.25%;
2. Return on Average Assets of not below 1.00%;
3. Loan Loss Reserve/Total Loans Ratio of not below 1.00%;
47
<PAGE> 49
4. Non-Performing Loans/Total Loans Ratio of not greater than 2.00%;
5. Debt Service Coverage Ratio of not less than 2:1; and
6. Absence of regulatory dividend restrictions.
In the event the bank does not meet any of these criteria calculated as of
December 31 of each year and based on its financial statements, the company will
have 90 days from the delivery of the financial statements to cure the
situation.
The loan is secured by the pledge of all of the shares of capital stock of the
bank, and contains standard representations, warranties and covenants.
At December 31, 1997, the company met all of the above criteria, and the loan
was renewed for another one year term.
At September 30, 1998, the company had $1.0 million outstanding under this loan
agreement after making a $200,000 principal payment during the third quarter of
1998. The company intends to continue to pay down this loan as liquidity allows.
The company has also entered into a revolving line of credit with NationsBank in
an amount not to exceed $3,000,000. Any monies advanced under this line would be
used solely for capital needs of the company or to purchase the stock of banks
or bank holding companies. This line of credit is available for one year only,
with renewals to be negotiated each year. If any principal is advanced on this
line, the terms of the repayment would also be negotiated depending upon the use
of proceeds. Interest on amounts outstanding under this revolving line of
credit, if any, is due quarterly. At March 31, 1998, this line of credit was
also renewed for an additional one year term.
In early 1998, the bank borrowed $10 million from the FHLB in the form of two $5
million loans. The purpose of securing these loans was primarily to provide
liquidity and allow the bank to limit its capital exposure relative to
securities held in the Available for Sale portfolio. The first $5 million
enabled management to reduce its current daily purchase of federal funds from
approximately $8 million to $3 million. With the remaining $5 million, the bank
purchased approximately $5 million in short-term U.S. Government securities,
which were placed in the Available for Sale portfolio. This allowed the bank to
transfer approximately $5 million in long-term GNMA mortgage pool securities
with relatively high coupon yields to Held to Maturity, which limits the bank's
capital exposure should interest rates increase. The loans are structured as
follows: $5 million at 6.34%, maturing January 14, 1999; and $5 million at
6.50%, maturing January 14, 2000. These loans cannot be prepaid without a
prepayment penalty. Interest on these notes is due monthly. The company expects
that maturities of securities held in the Available for Sale portfolio will be
adequate to fund repayment of these loans.
Management anticipates that the company will continue to rely primarily on
customer deposits, sales and maturities of investment securities, loan sales and
loan repayments, as well as retained earnings to provide liquidity. These funds
are used to make loans, to acquire investment securities and other assets and to
fund continuing operations. The company believes that its customer deposits will
continue to provide a strong source of liquidity because of the high percentage
of core deposits, many of which are held as compensating balances under
long-standing loan relationships. As a secondary source of
48
<PAGE> 50
funds, management uses federal funds and its membership in the FHLB. See
"Business -- Sources of Funds."
CAPITAL RESOURCES
The company's total stockholders' equity increased to $19,859,000 at September
30, 1998 from $18,222,000 at December 31, 1997. This increase is a result of an
increase in retained earnings of $1,248,000 relating to 1998 net income, $26,000
relating to the exercise of stock options, and an increase in unrealized gains
on investment securities available for sale of $363,000, due to the adoption of
FAS 115 on January 1, 1995, as discussed below at "-- New Accounting
Principles." At September 30, 1998, stockholders' equity was 8.0% of total
assets, compared to 8.2% of total assets at December 31, 1997. Management
presently intends to retain earnings, if any, to support growth. Accordingly,
the company does not intend to pay cash dividends on its Common Stock in the
foreseeable future.
Federal Reserve Board and FDIC guidelines call for a 4% Tier 1 capital to
risk-weighted assets ratio, 8% total capital to risk-weighted assets ratio, and
a 5% leverage ratio. For a further discussion of the guidelines applicable to
the bank and the company, see the information under "Business" in the company's
Form 10-KSB for the year ended December 31, 1997, incorporated in this
prospectus by reference. The company and the bank currently exceed the
applicable regulatory capital requirements. The company intends to contribute
$7.0 million of the net proceeds of the offering to the bank to enhance its
regulatory capital levels to support continued asset growth. The following table
sets forth the company's and the bank's capital ratios at September 30, 1998.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Company
Tier 1 Capital..................................... $ 16,692
Total Capital...................................... 18,472
Risk-Weighted Assets............................... 142,421
Tier 1 Capital to Risk-Weighted Assets............. 11.72%
Total Capital to Risk-Weighted Assets.............. 12.97%
Leverage Ratio..................................... 6.74%
Bank
Tier 1 Capital..................................... $ 14,542
Total Capital...................................... 16,315
Risk-Weighted Assets............................... 141,823
Tier 1 Capital to Risk-Weighted Assets............. 10.25%
Total Capital to Risk-Weighted Assets.............. 11.50%
Leverage Ratio..................................... 5.94%
</TABLE>
As of September 30, 1998 the bank has incurred capital expenditures of
approximately $350,000 in connection with updating its internal operating
systems and expenditures of approximately $425,000 for the Littleton branch.
Bank management is anticipating 1998 expenditures of approximately $400,000 for
the new branch in Golden. Also, the bank
49
<PAGE> 51
expects the total cost of the Lakewood State Bank acquisition, including
transaction expenses, to be approximately $1 million.
Management expects that the current capital levels, together with internally
generated funds, will be sufficient to support the company's operations for the
foreseeable future. However, depending upon the nature and scale of the
company's acquisition opportunities, the company may be required to obtain
additional capital resources through borrowing or the issuance of additional
securities. The company's ability to incur additional indebtedness may be
limited by government regulations and the terms of the NationsBank Loan
Agreement. For a discussion of the government regulations applicable to the bank
and the company, see the information under "Business" in the company's Form
10-KSB for the year ended December 31, 1997, incorporated by reference in this
prospectus.
EFFECTS OF INFLATION AND CHANGING PRICES
The primary impact of inflation on the company's operations is increased
operating costs. Unlike most industrial companies, virtually all of the assets
and liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Although interest rates do not necessarily move in the same direction or to the
same extent as the prices of goods and services, increases in inflation
generally have resulted in increased interest rates. The effects of inflation,
however, can magnify the growth of assets in the banking industry. If
significant, this would require that equity capital increase at a faster rate
than would otherwise be necessary.
IMPACT OF YEAR 2000
Some of the company's computer programs are written using two digits rather than
four to define the applicable year. As a result, those computer programs have
time-sensitive software that recognizes a date using "00" as the year 1900
rather than 2000. This could cause a system failure or miscalculation causing
disruption of operation including, among other things, a temporary inability to
process transactions, pay invoices or engage in similar, normal business
activities.
The company has adopted a Year 2000 Project Management Plan in recognition of
the potential problems that all computer systems may have when the date January
1, 2000 arrives. As part of the implementation of this plan, the company is
currently conducting an assessment to determine whether it will have to modify
or replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total Year
2000 project is not estimated to have a material impact on the company's
financial position or the results of its operations and consists entirely of
installation of software upgrades provided by third party vendors or
modification of existing programs. The company estimates that its total Year
2000 project cost will be approximately $500,000. These costs will be expensed
as incurred and approximately $300,000 has been incurred as of September 30,
1998.
The company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the company is
vulnerable to those third parties' failure to remediate their own Year 2000
issue. The company's total Year 2000 project cost and estimates for completion
include the estimated costs and time associated
50
<PAGE> 52
with the impact of a third party's Year 2000 issue and are based on presently
available information. However, there can be no guarantee that the systems of
other companies on which the company's systems rely will be timely converted, or
that a failure to convert by another company, or a conversion that is
incompatible with the company's systems, would not have a material adverse
effect on the company.
The company will utilize both internal and external resources to reprogram, or
replace and test the software for Year 2000 modifications. The Year 2000 Project
Management Plan is estimated to be completed by December 31, 1998, which is
prior to any anticipated impact on its operating systems. The company believes
that with modifications to existing software, the Year 2000 issue will not pose
any significant operations problems for its computer system nor is the Year 2000
issue expected to have any significant impact on the operations of the company.
The costs of the project and the date on which the company believes it will
complete the Year 2000 modifications are based on management's best estimates
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, the ability to locate and
correct all relevant computer codes and similar uncertainties. Therefore, there
can be no assurance that these estimates will be achieved and actual results
could differ materially from those anticipated.
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board recently adopted Statement No. 131
(Statement No. 131) "Disclosures about Segments of an Enterprise and Related
Information." Statement No. 131, which became effective for periods beginning
after December 15, 1997, requires that business enterprises report information
about operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. Management believes that Statement No. 131 will have no
significant impact on the company's financial statements.
The Financial Accounting Standards Board recently issued Statement No. 133
(Statement No. 133) "Accounting for Derivative Instruments and Hedging
Activities." Statement No. 133, which becomes effective for periods beginning
after June 15, 1999, and requires that business enterprises recognize all
derivatives either as assets or liabilities in the financial statements and
record those instruments at fair value. Changes in fair value of these
derivatives is recognized in the statement of income or comprehensive income in
the period of change. Management believes that Statement No. 133 will have no
significant impact on the company's financial statements.
51
<PAGE> 53
BUSINESS
OVERVIEW
Union Bankshares, Ltd. is an independent bank holding company whose predecessor
was incorporated as a Colorado corporation in 1984. The company was
reincorporated in Delaware in 1992. The company's principal asset is the common
stock of Union Bank & Trust, a state chartered commercial bank located in
Denver, Colorado. The operations of the bank and its predecessors date back to
1917. The company acquired the bank in 1985. The bank attracts FDIC-insured
deposits, and focuses on providing relationship banking based on personal
attention and professional service to small and medium-sized businesses and
individuals. This operating strategy has resulted in sustained growth in the
bank's asset and deposit base and loan portfolio, with strong operating results.
The bank has maintained its emphasis on asset quality and capital preservation
by following conservative loan underwriting standards that have allowed it to
avoid excessive loan losses. The bank's ratios of nonperforming assets to
capital and to total assets were .13% and .01%, respectively, at December 31,
1997 and .34% and .02%, respectively at September 30, 1998.
The company continues to seek to take advantage of the opportunities in the
Colorado banking market which have resulted from the relaxation of historical
regulatory limitations on branch banking. In addition, recent acquisition
activity in the industry has led to lapses in coverage of different customer
needs and reduction in customer services, as well as disruption of existing
account relationships. The company believes that this continues to afford the
bank an opportunity for internal growth through attracting new customers and
quality personnel with existing customer relationships.
The company's strategy for growth (see "-- Growth Strategy") is based primarily
on developing startup branches that are strategically located around the Denver
metropolitan area to serve the bank's focus market of small and medium-sized
businesses and individuals. The company views the acquisition of Lakewood State
Bank as an opportunistic enhancement of its branching strategy. The company has
opened five branches, the first in the Lakeside area in July 1994, the second in
the University Hills area in March 1995, the third in the Lakewood area in
December 1995, the fourth in the Littleton area in May 1998 and the fifth in the
Golden area in October 1998. Each of these is a full service branch, having the
appearance of a stand alone bank. The bank intends to operate Lakewood as a
stand alone branch following its acquisition. The company continues to analyze
opportunities to open additional full-service branches in the metropolitan
Denver area, subject to identification of an appropriate market and branch
location, negotiation of an acceptable lease and approval of the various
regulatory bodies and branching restrictions under Colorado law. For a
discussion of the government regulations and restrictions applicable to the bank
and the company, see the information under "Business" in the company's Form
10-KSB for the year ended December 31, 1997, incorporated by reference in this
prospectus.
See "Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995" for a discussion of matters regarding forward-looking statements in this
Registration Statement.
52
<PAGE> 54
OPERATING STRATEGY
The company's strategy as an independent, one-bank holding company has been
carried out through the operations of the bank and, since 1994, its branches.
The bank, since its acquisition by the company in 1985, has emphasized local
relationship banking for the small and medium-sized business and individuals.
The bank's operating strategies include:
- - Personal Attention and Professional Service
- - Maintaining Asset Quality
- - Asset/Liability Management
The company's branching efforts are structured to continue to build on the three
strategies outlined above. The company has located its branches in areas that
produce a similar customer base to that of the bank, has encouraged community
participation at each branch, has developed transparent communication and data
delivery systems, and has retained employees familiar with both the company's
operating philosophies and the community's needs.
Personal Attention and Professional Service. The bank's customer-oriented
strategy is one of providing customers with personal attention and professional
service by involving all employees in developing and carrying out the customer
service program. The bank's executive management team believes that by providing
all employees an open opportunity to communicate their ideas to management, and,
if appropriate, implementing them, it can refine and improve the operation of
the bank. This employee involvement has led to two successful customer service
efforts: the "Officer Call" program and the "Customer Compliment and Service
Improvement" program. Under the bank's Officer Call Program, which was
implemented in 1986, lending officers call on existing customers and prospects
on a regular basis. At these meetings, the officers seek to develop a better
understanding of the business issues faced by the customer, and can discuss
services which the bank can provide to help them address their needs. In the
Customer Compliment and Service Improvement program, the bank, by including
requests in mailings of monthly statements, and direct mail pieces, solicits
customer feedback on the bank's customer service performance. Customers are
provided with a bank officer's name and phone number to ease the contact
process, and are encouraged to speak (or write) freely with respect to both
positive and negative aspects of the bank's service. The bank also surveys new
customers (or existing customers who have opened additional accounts) to check
on the level of service they received, and, secondarily, to solicit information
that might help the bank cross-sell additional services. During each of the past
three years, the bank contracted with an independent consultant to facilitate
three focus groups of approximately twenty business customers each. The purpose
of the groups was to receive input from the bank's customer base pertaining to
the bank's future direction as an organization, present level of service and
products, and customers' ideas and philosophies of serving small and medium-
sized businesses. In 1997, the bank held its third Customer Business Fair, at
which approximately 62 Union Bank & Trust customers elected to display their
goods and services. Over 400 other Union Bank & Trust customers attended the
Fair to view the exhibits. The bank held a Speakers' Conference in October 1998
in place of the Customer Business Fair and attracted more attendees to this new
event.
Management believes that its policy of employee involvement, which it refers to
as its "staff to management" philosophy, has resulted in the relatively low
turnover experienced
53
<PAGE> 55
by the bank at all levels of employment. Management believes that this enables
the bank to provide continuity of service by the same staff members, leading to
long-term customer relationships, high quality service and quick response to
customer needs. The bank also emphasizes continuing education and training
through formal in-house training programs and outside accredited programs.
Maintaining Asset Quality. The bank has emphasized asset quality through its
conservative lending policy rooted in relationship banking. The bank generally
is not a transaction-by-transaction lender, preferring instead to develop a full
banking relationship with its loan customers. This philosophy has led to
generally positive loan loss experience and low ratios of nonperforming assets
to total assets. See "-- Nonperforming Assets."
Asset/Liability Management. The bank's asset/liability management policy is
designed to manage the risk/return relationships between capital adequacy,
market risk, liquidity and interest rate risk. A substantial component of this
policy is to protect the bank's portfolio from undue interest rate risk.
Exposure to interest rate risk arises from volatile interest rates and changes
in the bank's balance sheet mix. The bank's policy is to control the exposure of
its earnings to changing interest rates by generally maintaining a position
within a narrow range around an "earnings neutral position," which is defined as
the mix of assets and liabilities that generate a net interest margin that is
least affected by interest rate changes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Asset/Liability
Management."
GROWTH STRATEGY
On August 27, 1998 the company announced that it had reached an agreement to
acquire Lakewood State Bank. The company believes that Lakewood's operating
philosophy is consistent with the bank's, and that the combined bank, with over
$300 million in pro forma total assets, will be able to operate effectively in
the Denver marketplace. The acquisition is structured as a cash-for-stock merger
in which the Lakewood shareholders will receive a total of $8.35 million in
cash, Lakewood will be merged into the bank and its separate corporate existence
will cease. Thereafter, Lakewood's operations will continue on in the same
fashion as the company's other branches.
The company is focused on growth as an independent entity and has adopted an
aggressive internal growth strategy through establishing full-service branches
in locations in the Denver metropolitan area that will reach the small and
medium-sized businesses in each location. The bank's five existing full-service
branches are structured to provide complete banking services in each location
and are headed by a branch president with responsibility and authority to
service the banking and lending needs of the local business. This structure
compliments the bank's philosophy of customer-to-staff-to-management direction
so that the bank responds to customer input rather than the customer being asked
to respond to the bank without having the opportunity to give input.
In July 1994, the bank opened its first branch in the Lakeside area of
metropolitan Denver. The branch has been well-received by the community and has
attracted over $22.7 million in deposits to date. In March 1995, the bank opened
its second branch in the University Hills area of metropolitan Denver, and in
December 1995, the bank opened its third branch in the Lakewood area of
metropolitan Denver. The University Hills and Lakewood branches have also been
well-received by their respective communities and have
54
<PAGE> 56
attracted over $18.4 million and $15.0 million in deposits to date,
respectively. The recently opened Littleton branch has attracted over $6.3 of
deposits, and the Golden branch was opened in October 1998. The bank also plans
to operate Lakewood as a stand-alone branch. Concentrating on branching has
generally allowed the bank to continue to expand its customer base at a lower
cost compared to acquisitions and to conserve capital for attractive acquisition
opportunities.
To accommodate the company's anticipated growth, management intends to continue
to recruit additional high-quality personnel and enhance its internal management
systems. Management believes that such personnel and systems are necessary if
the company is to achieve its growth strategy without compromising its
customer-oriented approach to banking and its commitment to maximize asset
quality. Further, the recent consolidation in the Colorado banking industry has
resulted in the availability of a large number of quality personnel with
long-standing customer relationships. There can be no assurance, however, that
the company will achieve its growth objectives.
ECONOMIC ENVIRONMENT IN MARKET AREAS SERVED
The company's principal market for loans and deposits is the greater Denver
metropolitan area. The bank has benefitted from the recent strength in the
metropolitan Denver economy. The metropolitan Denver economy's strength is
believed to reflect its diversification from its prior dependence on the oil and
gas industry, with strong contributions from the manufacturing,
telecommunications and government sectors. Total employment, retail sales and
home sales have all been healthy in recent years, while apartment vacancy and
commercial office vacancy rates have generally declined.
As with the metropolitan Denver economy, the Colorado economy has become more
diversified over the past decade. An increase in tourism and international
trade, together with growth in small manufacturing and high technology
industries, has broadened the economic base of Colorado. Although the company
anticipates continued economic growth in metropolitan Denver and in Colorado,
there can be no assurance that growth will continue at or near the rates
recently experienced.
LENDING ACTIVITIES
General. The bank provides a range of commercial and retail lending services,
including, but not limited to, commercial business loans, commercial and
residential real estate construction loans, commercial and residential real
estate mortgage loans, loan participations, consumer loans, revolving lines of
credit, and letters of credit. Currently, the primary focus of the bank is on
commercial business lending to small and medium-sized businesses. The bank
places a strong emphasis on asset quality, and maintains conservative
underwriting standards. The bank monitors the concentration of its loan
portfolio in an effort to avoid over-allocating its funds available for lending
to any particular industry sector.
The bank is not normally a transaction lender and generally requires a full
banking relationship with its commercial customers. The bank seeks to
continually develop and maintain its strong community orientation by, among
other things, considering the interests of its existing and potential customers
in the Denver community. In particular, primary consideration is given to
customers with interests in the bank's and branches' surrounding
55
<PAGE> 57
communities, including the areas located within a five-mile radius of the bank's
main location and a three-mile radius of the branch locations.
The bank's loan officers have an average of over twenty years lending experience
and are committed to the lending profession. The loan officer staff includes
three past presidents of the Rocky Mountain Chapter of Robert Morris Associates
(the national organization of bank credit officers).
Loan Portfolio Composition. The following table sets forth the composition of
the company's loan portfolio by type of loan, aggregate dollar amount and
percentage of total loans at the date indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
------------------
AMOUNT PERCENT
-------- -------
<S> <C> <C>
Commercial loans............................................ $ 92,771 73.8%
Real estate -- construction loans........................... 12,684 10.1
Real estate -- mortgage loans............................... 3,623 2.9
Consumer loans.............................................. 18,851 15.0
-------- ------
Total............................................. 127,929 101.8
Less allowance for loan losses.............................. (2,304) (1.8)
-------- ------
Loan receivable, net........................................ $125,625 100.0%
======== ======
</TABLE>
Commercial Loans. Commercial lending is the bank's primary focus and the
strength of its lending activity. The bank's areas of emphasis include, but are
not limited to, loans to building contractors, wholesalers, manufacturers,
business services companies and energy-related businesses. The bank provides a
wide range of commercial business loans, including lines of credit for working
capital purposes and term loans for the acquisition of equipment and other
purposes. Collateral for these loans generally includes accounts receivable,
inventory, equipment and real estate. Where warranted by the overall financial
condition of the borrower, loans may be made on an unsecured basis. Terms of
commercial business loans generally range from one to five years. The majority
of the bank's commercial business loans have floating interest rates. Commercial
loans outstanding were $92.8 million at September 30, 1998 compared to $87.9
million at December 31, 1997 and $70.6 million at December 31, 1996. Many of the
bank's commercial loans are extended to small business customers. These clients
are composed of a variety of manufacturers, wholesalers, retailers, commercial
contractors and service companies. The primary repayment risk is the failure of
the business due to economic or financial factors. In most cases the bank has
taken security and receives personal guarantees to help assure an alternative
source of repayment.
Real Estate Construction Loans. The bank originates financing to builders who
have demonstrated a favorable record of performance for the construction of
pre-sold homes as well as homes built without a specific buyer on a selective
basis.
The bank generally provides commercial construction financing when the borrower
has received a binding commitment for permanent financing from either the bank
or another lender. The bank uses this service to solicit new customers and to
maintain existing relationships. A variety of risks are present in construction
loans, including the failure of the contractor to complete the work and the
borrower's inability to pay. The bank carefully
56
<PAGE> 58
monitors construction draws and inspects each property frequently to insure the
work is being completed as specified. In addition, construction loans generally
are made where a conservative loan-to-value ratio exists. These loans are
frequently backed by personal guarantees and other collateral that provide an
alternative source of repayment. The bank further attempts to limit its risk
through adherence to conservative underwriting procedures and by using
state-certified appraisers. The bank's real estate construction loans
outstanding were $12.7 million at September 30, 1998 compared to $9.6 million at
December 31, 1997, and $5.8 million at December 31, 1996. This increase results
from an increased marketing effort by the bank to solicit loans from established
residential builders in the metropolitan Denver area.
Real Estate Mortgage Loans. The bank generally restricts its commercial real
estate lending activity to owner-occupied properties or to investor properties
that are owned by customers with which the bank has a complete banking
relationship. Therefore, many loans classified as commercial real estate loans
could be characterized as ordinary commercial loans which are secured by real
estate.
Commercial real estate loans are generally made at floating rates and for
maturities ranging from five to fifteen years. The bank's underwriting standards
generally require that the loan-to-value ratio not exceed 75% of appraised value
or cost, whichever is lower. Management does not believe that the bank's
existing commercial real estate loan portfolio represents a material risk of
loan losses.
The bank can originate SBA real estate loans on owner occupied properties where
the maturities may be up to twenty five years, and the loan-to-value ratio may
reach 90% of appraised value or cost, whichever is lower. These loans are
guaranteed from 75% to 80% of the amount of the loan by the federal government.
The primary risks of real estate mortgage loans include the borrower's inability
to pay and deterioration in the value of the real estate that is being held as
collateral. The bank also originates residential mortgage loans on a limited
basis as a service to its customers. On those loans that are extended, the bank
attempts to have conservative loan-to-value ratios, personal guarantees, a
strong history of debt servicing capability, fully amortizing terms over twenty
years or less and alternative collateral if necessary.
From time to time, the bank purchases loans from a locally owned mortgage
company until the mortgage company sells the loans in the secondary mortgage
market. The loans are then sold back to the mortgage company. Initially, the
bank receives interest during its holding period of prime plus .50%. All
origination fees and interest on the loan in excess of the rate payable to the
bank are retained by the mortgage company. If the mortgage is not sold within
specified periods, the bank is entitled to receive all of the interest paid on
the mortgage from inception and may be entitled to receive all or a portion of
the origination fees. The mortgage company provides loan servicing during the
period that the mortgage is held by the bank. During the nine months ended
September 30, 1998 and years ended December 31, 1997, 1996, and 1995, the bank
earned interest income on such loans of $83,000, $59,000, $6,000, and $5,000,
respectively. During the nine months ended September 30, 1998 and years ended
December 31, 1997, 1996, and 1995, the bank purchased loans in the amounts of
$26,476,000, $5,762,000, $4,106,000, and $2,450,000 and sold loans in the
amounts of $25,225,000, $4,509,000, $4,106,000 and $2,450,000. All loans sold
back to the mortgage company are without recourse to the bank.
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<PAGE> 59
These loans carry the same risks as any other real estate mortgage loan.
However, in most cases, the bank bears these risks for only a short period. As a
general matter, the loans are presold and remain in the bank's portfolio for an
average of less than 30 days. The bank has not, to date, retained any of these
loans. Mr. Zueck, the Chairman of the Board of the bank and President and a
director of the company, is a director and Treasurer of the mortgage company.
Consumer Lending. The bank provides a full range of consumer loans. The primary
risk of consumer lending relates to the personal circumstances of the borrower.
The bank provides as a service to its business customers and their employees the
choice of dealing with the same loan officer for consumer and business matters.
This service has been well received by new business customers and their
employees who, in dealing with large holding company banks, have frequently had
to deal with a variety of different officers for different types of
transactions. Consumer loans outstanding were $18.9 million, $20.9 million,
$18.9 million and $13.8 million at September 30, 1998, December 31, 1997, 1996
and 1995, respectively. The increases resulted from the strong growth of the
consumer markets at the branches. The branches have a higher ratio of consumer
loans to commercial loans than the main bank has historically experienced.
Management expects that this will continue in the future.
Commitments and Contingent Liabilities. In the ordinary course of business, the
bank enters into various types of transactions that include commitments to
extend credit as described in Note 10 of Notes to Consolidated Financial
Statements. The bank applies the same credit standards to these commitments as
it uses in all its lending activities and has included these commitments in its
lending risk evaluations. The bank's exposure to credit loss under commitments
to extend credit is represented by the amount of these commitments. It is
management's policy not to commit to extend credit at below market interest
rates.
Credit Authority and Loan Limits. All loans, credit lines, and letters of credit
are subject to the same approval procedures and amount limitations. These
limitations apply to the total outstanding indebtedness of the borrower to the
bank, including the indebtedness of any guarantor. All individual or aggregate
credits in excess of $100,000 must be preapproved by the bank's Loan Committee,
with certain limited exceptions. The bank allows certain senior loan officers
the flexibility, based on their experience and the individual loan customer they
are working with, to advance, without preapproval, up to $50,000 per request,
with a limit of $100,000 per twelve-month period, to that customer, even if that
customer's aggregate credits are over the $100,000 limit prior to the request.
Any advance made under these conditions are then required to be ratified at the
next regularly-scheduled Loan Committee meeting. The Loan Committee consists of
the bank's Chairman of the Board, Herman J. Zueck, its President, Jerrold B.
Evans, its Executive Vice President of Lending, one branch president, and the
outside directors of the bank. A quorum of the committee is a minimum of four
directors.
Under federal law, permissible loans to one borrower by the bank are generally
limited to 15% of its unimpaired capital, surplus, undivided profits and loan
loss reserve ($2.3 million at December 31, 1997). The bank utilizes a guidepost
"house limit" on loans to any borrower of $1,500,000, which has occasionally
been exceeded. The bank sells loan participations to accommodate borrowers whose
financing needs exceed the bank's lending
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<PAGE> 60
limits. Total loan participations sold as of September 30, 1998, December 31,
1997 and 1996 were $3,079,000, $2,927,000 and $3,073,000, respectively.
Loan Policy. The bank's lending activities are guided by its Statement of
Lending Policies and Procedures. These policies are reviewed annually and
approved by the bank's Board of Directors. The bank supplements its internal
supervision and audits of its lending operations with independent examinations
performed by professional, experienced consultants and auditors.
NONPERFORMING ASSETS
The company's nonperforming assets consist of nonaccrual loans, restructured
loans, past due loans and other real estate owned ("OREO"). In 1995, the company
adopted the Statement of Financial Accounting Standards No. 114, "Accounting by
Creditor for Impairment of a Loan." The adoption of this statement, which
generally requires impaired loans to be measured at the present value of
expected future cash flows or as a practical expedient at the observable market
price or fair value of collateral, had no material effect on the company's
financial statements or the comparability between years in the table below. The
following table sets forth information with respect to these assets at the date
indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
Past due 90 days or more.................................... $ 14
Nonaccrual loans............................................ 38
Restructured loans.......................................... --
--------
Total nonperforming loans................................... 52
Other real estate owned..................................... --
--------
Total nonperforming assets........................ $ 52
========
Ratio of total nonperforming assets to total assets......... 0.02%
Ratio of total nonperforming assets to total loans.......... 0.04%
Ratio of allowance for loan losses to total nonperforming
loans..................................................... 4,430.77%
</TABLE>
Past Due, Nonaccrual and Impaired Loans. The company's financial statements are
prepared on the accrual basis of accounting, including the recognition of
interest income on its loan portfolio, unless a loan is placed on a nonaccrual
basis. Loans are placed on nonaccrual when there are serious doubts about the
collectibility of principal or interest. Amounts received on nonaccrual loans
generally are applied first to principal and then to interest only if all
principal has been collected or principal collection is assured. The company's
policy is to place a loan on nonaccrual status when the loan becomes past due
for 90 days or more, unless the loan is well secured, is in the process of being
collected and the bank's Loan Committee has approved maintaining the loan on an
accrual basis, which in practice is rarely done. At September 30, 1998 the
company had $52,000 of loans accounted for on a non-accrual basis compared to
$23,000, $14,000 and $110,000 at December 31, 1997, 1996 and 1995, respectively.
Restructured loans are those for which concessions, including the reduction of
interest rates below a rate otherwise available to that borrower or the deferral
of interest or principal, have been granted due to the borrower's weakened
financial condition. Interest
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<PAGE> 61
on restructured loans is accrued at the restructured rates when it is
anticipated that no loss of original principal will occur. The company had no
restructured loans at September 30, 1998, December 31, 1997, 1996 and 1995.
Impaired loans, which include non-accrual loans noted above and potential
problem loans, where known information about possible credit problems causes
management to doubt the ability of such borrowers to comply with contractual
repayment terms total $2,794,000, $73,000 and $124,000 at September 30, 1998,
December 31, 1997 and 1996, respectively. Approximately $2,000,000 of the
$2,794,000 of impaired loans was attributable to two loans. Management believes
that both of these loans will be fully repaid although not in technical
compliance with the contractual terms under which such loans were originally
made. An allowance for loan loss of $424,000, $19,000 and $24,000 relates to
impaired loans at September 30, 1998, December 31, 1997 and 1996, respectively.
Interest of $196,000, $8,000 and $12,000 was recognized on average impaired
loans of $1,356,000, $98,000 and $166,000 for the nine month period ending
September 30, 1998, and for 1997 and 1996, respectively.
Other Real Estate Owned. OREO property is carried at the lower of its fair
market value less selling costs or the principal balance of the foreclosed loan
plus costs of foreclosure and improvements made to such OREO by the bank. At
September 30, 1998, December 31, 1997, 1996 and 1995, the company had no OREO.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's recognition of the risks
of extending credit and its evaluation of the quality of the loan portfolio. The
allowance is maintained at a level considered adequate to provide for
anticipated loan losses based on management's assessment of various factors
affecting the loan portfolio, including a review of problem loans, business
conditions and loss experience and an overall evaluation of the quality of the
underlying collateral, holding and disposal costs and costs of capital. The
allowance is increased by provisions charged to operations and reduced by loans
charged off, net of recoveries. Allowances are provided for individual loans
where ultimate collection is considered questionable by management after
reviewing the current status of loans that are contractually past due and
considering the net realizable value of the security and of the loan guarantees,
if applicable.
Management believes that the company's allowance for loan losses is adequate to
cover anticipated losses and is in accordance with generally accepted accounting
principles. There can be no assurance, however, that management will not
determine to increase the allowance for loan losses or that regulators, when
reviewing the bank's loan portfolio in the future, will not request the bank to
increase such allowance, either of which could adversely affect the company's
earnings. Further, there can be no assurance that the company's actual loan
losses will not exceed its allowance.
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<PAGE> 62
The following table sets forth information regarding changes in the company's
allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------------
1998 1997 1996 1995
------------- -------- ------- -------
<S> <C> <C> <C> <C>
Balance of allowance for loan
losses at beginning of
period......................... $ 2,125 $ 1,754 $ 1,448 $ 1,071
Charge-offs:
Commercial loans............... 60 13 17 93
Real estate -- construction
loans....................... 13 -- -- --
Real estate -- mortgage
loans....................... -- -- -- --
Consumer loans................. 2 11 12 13
-------- -------- ------- -------
Total charge-offs................ 75 24 29 106
-------- -------- ------- -------
Recoveries:
Commercial loans............... 5 35 50 360
Real estate -- construction
loans....................... -- -- -- --
Real estate -- mortgage
loans....................... -- -- -- --
Consumer loans................. 6 -- -- 3
-------- -------- ------- -------
Total recoveries................. 11 35 50 363
-------- -------- ------- -------
Net charge-offs (recoveries)..... 64 (11) (21) (257)
-------- -------- ------- -------
Provision for loan loss.......... 243 360 285 120
-------- -------- ------- -------
Balance of allowance for loan
losses at beginning of
period......................... $ 2,304 $ 2,125 $ 1,754 $ 1,448
======== ======== ======= =======
Ratio of net charge-offs
(recoveries) to average
loans.......................... 0.05% (0.01)% (0.23)% 0.35%
Average loans outstanding
during the period........... $125,667 $113,043 $91,586 $74,260
</TABLE>
The following table sets forth the allowance for loan losses by loan category,
based upon management's assessment of the risk associated with such categories,
at the date indicated and summarizes the percentage of gross loans in each
category to total gross loans.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------
LOANS IN
CATEGORY AS A
PERCENTAGE
AMOUNT OF OF TOTAL
ALLOWANCE LOANS
--------- -------------
<S> <C> <C>
Commercial loans....................................... $1,639 71.1%
Real estate -- construction loans...................... 224 9.7
Real estate -- mortgage loans.......................... 108 4.7
Consumer loans......................................... 333 14.5
------ -----
Total........................................ $2,304 100.0%
====== =====
</TABLE>
INVESTMENT ACTIVITIES
The company maintains a securities portfolio comprised primarily of U.S.
government securities, municipal securities and other investment securities. The
company manages its investment portfolio to (i) maximize safety and soundness,
(ii) provide adequate liquidity,
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<PAGE> 63
(iii) maximize rate of return within the constraints of applicable liquidity
requirements (with liquidity taking precedence over return) and (iv) complement
asset/liability management policies. The bank's Asset and Liability Management
Committee, which is made up of the bank's Chairman of the Board and Chief
Executive Officer, its President, its Executive Vice President and Chief
Operations Officer, its Executive Vice President of Lending, its Senior Vice
President of Finance, its Senior Vice President of Information Systems, and the
Branch Presidents, oversees the bank's investment portfolio with the assistance
of an outside consultant. The bank uses a measurement known as dollar duration
to analyze its exposure to interest rate risk. Dollar duration measures the
percentage loss or gain that the portfolio will sustain with each 100 basis
point parallel shift in interest rates. In 1996, the bank modestly increased the
dollar duration of its portfolio as interest rates remained relatively steady,
and the investments which matured were replaced with new investments with
similar yields, but longer maturities. In 1997, the bank decreased the dollar
duration of its portfolio as interest rates remained relatively steady, and the
investments which matured were replaced with new investments with similar yield,
but shorter maturities. The shorter maturities of these new investments also
provide more potential liquidity for the bank to use in funding its growing loan
portfolio. To date in 1998, the dollar duration is approximately the same as at
year end 1997. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Asset/Liability Management."
The table below provides the amortized cost and fair value of the company's
investment securities at each of the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------- -------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Held to Maturity:
U.S. government agencies and
corporations...................... $19,848 $20,315 $21,989 $22,371
Obligations of states and political
subdivisions...................... 5,938 6,402 5,940 6,310
------- ------- ------- -------
25,786 26,717 27,929 28,681
------- ------- ------- -------
Available for Sale:
U.S. government agencies and
corporations...................... 36,412 36,573 12,804 12,781
U.S. Treasury securities............. 3,002 3,049 6,027 6,070
Obligations of states and political
subdivisions...................... 18,163 18,893 16,981 17,330
CMO/REMIC............................ -- -- -- --
Commercial paper..................... -- -- 999 999
------- ------- ------- -------
57,577 58,515 36,811 37,180
------- ------- ------- -------
Total........................ $83,363 $85,232 $64,740 $65,861
======= ======= ======= =======
</TABLE>
62
<PAGE> 64
The following tables provide the carrying values, maturities and weighted
average yields of the company's securities portfolio at the date indicated.
HELD-TO-MATURITY SECURITIES
UNION BANK & TRUST
SECURITIES HELD TO MATURITY
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
DUE AFTER FIVE
DUE AFTER ONE YEARS DUE AFTER
DUE IN ONE YEAR THROUGH THROUGH TEN
YEAR OR LESS FIVE YEARS TEN YEARS YEARS TOTAL
------------ ------------- -------------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities:
Balance................... $ -- $ -- $ -- $ -- $ --
Weighted average yield.... -- % -- % -- % -- % -- %
U.S. Government Agency
Securities:
Balance................... $ -- $ -- $ 366 $ -- $ 366
Weighted average yield.... -- % -- % 7.35% -- % 7.35%
Mortgaged Back Pools(2):
Balance................... $ 835 $7,119 $1,923 $ 9,605 $19,482
Weighted average yield.... 8.46% 7.66% 7.96% 7.78% 7.78%
Municipal Securities --
Nontaxable(3):
Balance................... $ -- $ 349 $1,804 $ 3,785 $ 5,938
Weighted average yield.... -- % 7.15% 5.94% 5.79% 5.92%
Municipal
Securities -- Taxable:
Balance................... $ -- $ -- $ -- $ -- $ --
Weighted average yield.... -- % -- % -- % -- % -- %
Total:
Balance................... $ 835 $7,468 $4,093 $13,390 $25,786
Weighted average yield.... 8.46% 7.64% 7.01% 7.22% 7.35%
</TABLE>
- -------------------------
(1) Based on contractual maturities and, therefore, do not reflect principal
amortization.
(2) Government guaranteed mortgage pools, such as FHLMC, FNMA, and GNMA, which
act as pass-through entities for income on mortgages from debtors through
the Agency pools to investors.
(3) Yields have not been calculated on a full tax-equivalent basis.
63
<PAGE> 65
AVAILABLE-FOR-SALE SECURITIES
UNION BANK & TRUST
SECURITIES AVAILABLE FOR SALE
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
DUE AFTER FIVE
DUE AFTER ONE YEARS DUE AFTER
DUE IN ONE YEAR THROUGH THROUGH TEN
YEAR OR LESS FIVE YEARS TEN YEARS YEARS TOTAL
------------ ------------- -------------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities:
Balance................... $1,001 $2,048 $ -- $ -- $ 3,049
Weighted average yield.... 5.50% 6.25% -- % -- % 6.10%
U.S. Government Agency
Securities:
Balance................... $2,685 $1,031 $ 6,692 $ -- $10,408
Weighted average yield.... 5.56% 7.01% 6.88% -- % 6.59%
Mortgaged Back Pools(2):
Balance................... $ -- $ -- $ 3,233 $22,949 $26,182
Weighted average yield.... -- % -- % 7.13% 7.64% 7.61%
Municipal Securities --
Nontaxable(3):
Balance................... $ 717 $4,598 $ 6,627 $ 4,607 $16,549
Weighted average yield.... 5.53% 5.14% 6.01% 5.83% 5.93%
Municipal
Securities -- Taxable:
Balance................... $ 46 $2,095 $ -- $ 186 $ 2,327
Weighted average yield.... 7.00% 7.05% -- % 7.87% 7.27%
Federal Home Loan Bank
Stock --
Balance................... $ 970 $ -- $ -- $ -- $ 970
Weighted average yield.... 6.50% -- % -- % -- % 6.50%
Total:
Balance................... $5,419 $9,772 $16,552 $27,742 $59,485
Weighted average yield.... 5.73% 5.98% 6.58% 7.34% 6.86%
</TABLE>
- -------------------------
(1) Based on contractual maturities and, therefore, do not reflect principal
amortization.
(2) Government guaranteed mortgage pools, such as FHLMC, FNMA, and GNMA, which
act as pass-through entities for income on mortgages from debtors through
the Agency pools to investors.
(3) Yields have not been calculated on a full tax-equivalent basis.
The company invests in tax-exempt securities to help control taxable income.
Interest paid on tax-exempt securities is non-taxable for ordinary income tax
purposes and partially taxable for alternative minimum tax purposes. Management
attempts to balance its investments in tax-exempt securities in order to
maximize the tax benefits from these investments. The company modestly decreased
the size of its tax-exempt portfolio in 1996, maintained the same level of its
investment in 1997, and modestly increased the level of investment in 1998 in
order to accomplish these goals.
64
<PAGE> 66
TRUST DEPARTMENT ACTIVITIES
Although the bank maintains a trust department for individuals and corporate
entities, it currently is engaging in a minimal level of trust activities,
consisting primarily of acting as an escrow agent.
SOURCES OF FUNDS
General. The bank's primary source of funds has historically been customer
deposits. Scheduled loan repayments are a relatively stable source of funds,
while deposit inflows and unscheduled loan prepayments, which are influenced by
general interest rate levels, interest rates available on other investments,
competition, economic conditions and other factors, are not. Although the bank's
deposit balances have shown historical growth, such balances may be influenced
by changes in the banking industry. Borrowings may be used on a short-term basis
to compensate for reductions in other sources of funds (such as deposit inflows
at less than projected levels). Borrowings may also be used on a longer term
basis to match the maturity or repricing intervals of assets. In 1994, the bank
became a member of the Federal Home Loan Bank of Topeka (the "FHLB"). The bank
purchased $373,900 of dividend-bearing stock in the FHLB. In 1995, 1996 and 1997
the bank increased its holdings of FHLB dividend-bearing stock to $409,000,
$494,000, and $916,000, respectively. The FHLB provides the bank with access to
a collateralized credit line of approximately $19.0 million, as well as a source
to sell excess federal funds.
On January 14, 1997, the bank borrowed $10 million from the FHLB in the form of
two $5 million loans. The purpose of securing these loans was primarily to
provide liquidity and allow the bank to limit its capital exposure relative to
the Available for Sale portfolio. The first $5,000,000 enabled management to
reduce its current daily purchase of Federal Funds from approximately $8,000,000
to $3,000,000. With the remaining $5,000,000, the bank purchased approximately
$5,000,000 in short-term U.S. Government securities, which were placed in the
Available for Sale portfolio. This allowed the bank to transfer approximately
$5,000,000 in long-term GMNA mortgage pool securities with relatively high
coupon yields to Held to Maturity, which limits the bank's capital exposure
should interest rates increase. The loans are structured as follows: $5,000,000
at 6.34%, maturing January 14, 1999; and $5,000,000 at 6.50%, maturing January
14, 2000. The loans cannot be prepaid without a prepayment penalty. Interest on
these notes is due monthly. The company expects that maturities of securities
held in the Available for Sale portfolio will be adequate to fund repayment of
these loans.
Deposit Activities. The bank offers a variety of accounts for depositors
designed to attract both short-term and long-term deposits. These accounts
include certificates of deposit, savings accounts, money market accounts,
checking and negotiable order of withdrawal accounts and individual retirement
accounts. These accounts generally earn interest at rates established by
management based on competitive market factors and management's desire to
increase or decrease certain types or maturities of deposits. The bank has not
sought brokered deposits and does not currently intend to do so in the future.
The bank had no brokered deposits at December 31, 1997 or at September 30, 1998.
65
<PAGE> 67
The following table presents the average balances outstanding for each major
category of deposits and weighted average interest rates paid for
interest-bearing deposits for the period indicated.
<TABLE>
<CAPTION>
PERIOD ENDING
SEPTEMBER 30, 1998
-----------------------
WEIGHTED
AVERAGE
AVERAGE INTEREST
BALANCE RATE
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest-bearing demand deposits........................... $ 80,633 2.90%
Certificates of deposit.................................... 47,810 5.48
Savings accounts........................................... 11,535 2.57
Noninterest-bearing demand deposits........................ 56,510 N/A
-------- ---
Total............................................ $196,488 3.76%
======== ===
</TABLE>
The following table shows the amount and maturity of certificates of deposit
that had balances of more than $100,000 at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1998 1997 1996
------------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Certificates of Deposit over $100,000 with
remaining maturity:
Less than three months....................... $17,264 $10,289 $ 4,615
Three to six months.......................... 5,295 3,156 2,074
Over six months to one year.................. 4,216 2,513 3,065
Over one year................................ 6,730 4,011 2,177
------- ------- -------
Total................................ $33,505 $19,969 $11,931
======= ======= =======
</TABLE>
COMPETITION
The banking business in the greater Denver metropolitan area is highly
competitive. The company competes for loans and deposits with other commercial
banks, credit unions, thrifts, mortgage bankers and other institutions with
respect to the scope and type of services offered, interest rates paid on
deposits and pricing of loans, among other things. Many of these competitors
have substantially greater resources than the company. In addition, by virtue of
their larger capital bases or affiliation with larger multi-bank holding
companies, some of the banks with which the bank competes have substantially
larger lending limits than the bank, and perform other functions for their
customers which the bank can offer only through correspondents. The company also
faces significant competition for investors' funds from sellers of short-term
money market securities and other corporate and government securities.
The company competes for loans principally through the range and quality of the
services it provides, interest rates and loan fees. The company believes its
personal service philosophy in conjunction with its staff of experienced loan
officers enables it to compete favorably with other financial institutions in
its focus market of small and medium-sized
66
<PAGE> 68
businesses. The company actively solicits deposit-related clients and competes
for deposits by offering customers personal attention and professional service.
Competition has intensified as a result of changes in Colorado banking laws that
permit (i) unlimited branching (only limited statewide branching of
Colorado-domiciled financial institutions was permitted until January 1, 1997),
and (ii) out-of-state holding companies to acquire Colorado-based financial
institutions, provided that the laws of the state in which the out-of-state
institutions conduct their principal operations similarly permit Colorado-based
institutions to acquire financial institutions domiciled in their states. During
the past several years, substantial consolidation among financial institutions
in Colorado has occurred. Management believes that this consolidation led to
substantial account disruption for small and medium-sized businesses which are
below the focus threshold for larger banks and which have had their lending
relationships at such banks severed. Management further believes that this may
lead customers in the company's market area to seek a relationship with smaller,
service-oriented institutions such as the bank.
EMPLOYEES
At September 30, 1998, the company had approximately 111 full-time equivalent
employees. It is expected that the acquisition of Lakewood State Bank will add
approximately 24 full-time equivalent employees. In order to effectuate its
"staff to management" philosophy, the company has placed a high priority on
staff development. This development involves extensive training (including
customer service training) and selective hiring. New hires are selected on the
basis of both technical skills and customer service capabilities. Emphasis is
placed upon hiring and retaining additional key officers in areas such as
lending, administration and finance. None of the company's employees are covered
by a collective bargaining agreement with the company and management believes
that its relationship with its employees as a group is good.
UNION BANKSHARES CAPITAL TRUST I
Union Bankshares Capital Trust I is a statutory business trust created under
Delaware law on October 14, 1998. The trust's business and affairs will be
conducted by the Property Trustee, the Delaware Trustee and three individual
Administrative Trustees who are officers of the company. The trust was created
for the exclusive purpose of offering the Preferred Securities and engaging in
the other transactions discussed in this prospectus. All of the common
securities of the trust are owned by the company. See "Description of the
Preferred Securities -- Subordination of Common Securities of the Trust Held by
the Company." The trust will have a term of 30 years, but may dissolve earlier
as provided in the trust agreement.
No separate financial statements of Union Bankshares Capital Trust I have been
included herein. The company and the trust do not consider that such financial
statements would be material to holders of the Preferred Securities because the
trust is a newly formed special purpose entity, has no operating history or
independent operations and is not engaged in and does not propose to engage in
any activity other than holding as trust assets the Junior Subordinated
Debentures of the company and issuing the Preferred Securities. See "Prospectus
Summary -- Union Bankshares Capital Trust I," "Description of the Preferred
Securities," "Description of the Junior Subordinated Debentures" and
"Description of Guarantee."
67
<PAGE> 69
MANAGEMENT
INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS
Information regarding the executive officers and the members of the Board of
Directors of the company is set forth below:
<TABLE>
<CAPTION>
TERM AS
DIRECTOR
DIRECTOR EXPIRES
NAME AND AGE OF DIRECTOR SINCE IN POSITION
------------------------ -------- ---------- --------
<S> <C> <C> <C>
Charles R. Harrison, 51........ 1985 2001 Chairman of the Board of
Directors and Chief Executive
Officer
Herman J. Zueck, 57............ 1985 2000 President and Director of the
company; Chairman of the Board
of Directors and Chief
Executive Officer of Union Bank
& Trust
Bruce E. Hall, 46.............. 1989 1999 Vice President, Treasurer,
Secretary and Director
Jerrold B. Evans, 54........... 1994 2000 President of Union Bank & Trust
and Director
Wayne T. Biddle, 73............ 1993 2000 Director
Ralph D. Johnson, 70........... 1993 1999 Director
Harold R. Logan, Jr., 53....... 1998 2001 Director
Richard C. Saunders, 57........ 1993 2001 Director
</TABLE>
- -------------------------
Charles R. Harrison has been Chairman of the Board of Directors and Chief
Executive Officer of the company since its founding in 1985, and was President
of the company from its founding until December 1994. Mr. Harrison served as
Chairman of the Board of Directors and Chief Executive Officer of American
Securities Transfer Incorporated, a Denver-based securities transfer agent from
1979 until its sale in 1998. Mr. Harrison was Senior Vice President, Cashier and
a Director of Arvada State Bank, Arvada, Colorado, from August 1976 until
February 1979. At the same time, Mr. Harrison served as the President of the
Colorado chapter of the American Institute of Banking. From 1969 until 1976, Mr.
Harrison served in roles of increasing responsibility, including Vice President
and Cashier, at Jefferson Bank & Trust in Lakewood, Colorado.
Herman J. Zueck has been a Vice President, Executive Vice President or the
President of the company and the Chairman of the Board of Directors and Chief
Executive Officer of the bank since 1985. From 1982 to 1985, Mr. Zueck was
Chairman of the Board of Directors, Chief Executive Officer and President of
Affiliated Littleton National Bank in Littleton, Colorado, a subsidiary of
Affiliated Bankshares of Colorado, Inc. ("Affiliated"). Prior to that time, Mr.
Zueck served in officer positions of increasing seniority at two other
Affiliated bank subsidiaries, Affiliated Denver National Bank and Affiliated
Lakeside National Bank. Mr. Zueck has over 33 years of banking industry
experience.
68
<PAGE> 70
Bruce E. Hall has been Vice President, Treasurer, Secretary and a Director of
the company since 1989. Mr. Hall was Vice President, Chief Financial Officer,
Secretary and Treasurer of American Securities Transfer from 1981 until its sale
in 1998, and conducts an accounting tax consulting practice in Denver, Colorado.
Mr. Hall is a certified public accountant.
Jerrold B. Evans has been President of the bank and senior loan officer since
January 1989, and was its Executive Vice President and senior loan officer from
June 1986 until December 1988. He was elected to the Board of Directors of the
company at the 1994 Annual Meeting of Stockholders. Mr. Evans has served on the
bank's Board of Directors since 1987 and its Loan Committee since 1986. From
1980 to 1986, Mr. Evans was Senior Vice President and senior loan officer for
the First National Bank of Englewood, Englewood, Colorado, a subsidiary of
Affiliated. From 1972 until 1980, Mr. Evans had served First National Bank of
Englewood in a variety of officer positions of increasing responsibility. Mr.
Evans has over 22 years of banking industry experience, and is a past President
of the Rocky Mountain Chapter of Robert Morris Associates, a banking industry
association.
Wayne T. Biddle has been a Director of the company since 1993 and a director of
the bank since 1978. He also was a director and Vice Chairman of Caza Drilling
Co., a Denver-based contract drilling and exploration company from 1987 to 1994.
In addition, Mr. Biddle served as a director of Associated Natural Gas, Inc., a
Denver-based company, from 1983 until 1994. Currently, Mr. Biddle owns 51% of
Taurus, Ltd., a Denver-based investment company.
Ralph D. Johnson has been a Director of the company since 1993 and a director of
the bank since 1970. Mr. Johnson was chief executive officer of Johnson Storage
& Moving, a Denver-based moving company, from 1960 until his retirement in
September 1995. Mr. Johnson is also a member of the Colorado Bar Association.
Harold R. Logan, Jr. has been a Director of the company since 1998, was a member
of the Advisory Board of the company since 1996 and is occupied as Executive
Vice President, Chief Financial Officer and Director of TransMontaigne Oil
Company, a publicly-held holding company engaged in the marketing and
distribution of petroleum products. From 1987 to 1995, Mr. Logan was Senior Vice
President of Finance and a Director of Associated Natural Gas Corporation. Mr.
Logan is also a member of numerous other trade and educational associations.
Richard C. Saunders has been a Director of the company since 1993 and a director
of the bank since 1982. Mr. Saunders has been a majority partner of Saunders
Construction, a Denver-based commercial building contractor, since 1972. Mr.
Saunders has over 37 years of building and construction industry experience.
69
<PAGE> 71
INFORMATION CONCERNING LAKEWOOD STATE BANK
The following information has been provided to the company by Lakewood State
Bank for inclusion in this prospectus and has not been independently verified by
the company, the trust or the underwriters.
LENDING ACTIVITIES
Lakewood State Bank provides a range of commercial and retail lending services
including, but not limited to, construction, home improvement, new and used car,
real estate, letters of credit, lines of credit, and small business loans.
Currently, the primary focus of Lakewood is on serving small to medium-sized
businesses and individuals. Credit quality is emphasized and controlled through
conservative underwriting standards. Lakewood monitors the concentration of its
loan portfolio in an effort to avoid any concentration in a particular industry;
however, real estate lending comprises 51.7% and 52.4% of loans as of September
30, 1998 and December 30, 1997, respectively.
Lakewood seeks full Banking relationships with its commercial customers. The
emphasis of lending is to serve the needs of the community in which Lakewood is
located. The primary customers are located within a two mile radius of Lakewood.
Lakewood officers average 20 years of lending experience and are active in the
community.
LOAN PORTFOLIO COMPOSITION
The following table sets for the compositions of Lakewood's loan portfolio by
the type of loan at the date indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
SEPTEMBER 30, 1998 1997 1996
------------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial loans........... $ 4,496 19.0% $ 5,194 21.4% $ 5,462 21.2%
Real estate -- Construction
loans.................... 3,790 16.1% 2,376 9.8% 2,321 9.0%
Real estate -- mortgage
loans.................... 8,622 36.5% 10,511 43.4% 12,615 49.0%
Consumer loans............. 7,086 30.0% 6,532 27.0% 5,778 22.4%
------- -------- ------- ------- ------- -------
Total loans...... 23,994 101.6% 24,613 101.6% 26,176 101.6%
Less: unearned loan fees... (31) (0.1)% (27) (0.1)% (38) (0.2)%
------- -------- ------- ------- ------- -------
Total loans...... 23,963 101.5% 24,586 101.5% 26,138 101.4%
Less: allowance for
possible loan losses..... (337) (1.5)% (364) (1.5)% (372) (1.4)%
------- -------- ------- ------- ------- -------
Net loans........ $23,626 100.0% $24,222 100.0% $25,766 100.0%
------- -------- ------- ------- ------- -------
------- -------- ------- ------- ------- -------
</TABLE>
COMMERCIAL LOANS
Commercial Loans. Commercial lending is Lakewood's primary focus and the
strength of its lending activity. Lakewood's areas of emphasis include, but are
not limited to, loans to building contractors, wholesalers, manufacturers, and
business services companies. Lakewood provides a wide range of commercial
business loans, including lines of credit for working capital purposes and term
loans for the acquisition of equipment and other purposes. Collateral for these
loans generally includes accounts receivable, inventory, equipment and real
estate. Where warranted by the overall financial condition of the
70
<PAGE> 72
borrower, loans may be made on an unsecured basis. Terms of commercial business
loans generally range from one to five years. The majority of Lakewood's
commercial business loans have floating interest rates. Commercial loans
outstanding were $4.5 at September 30, 1998, and $5.2 million at December 31,
1997, compared to $5.5 million at December 31, 1996. Many of Lakewood's
commercial loans are extended to small business customers. These clients are
composed of a variety of manufacturers, wholesalers, retailers, commercial
contractors and service companies. The primary repayment risk is the failure of
the business due to economic or financial factors. In most cases Lakewood has
taken security and receives personal guarantees to help assure an alternative
source of repayment.
REAL ESTATE -- CONSTRUCTION
Real Estate Construction Loans. Lakewood originates financing to builders who
have demonstrated a favorable record of performance for the construction of
pre-sold homes as well as homes built without a specific buyer on a selective
basis.
Lakewood generally provides commercial construction financing when the borrower
has received a binding commitment for permanent financing from either Lakewood
or another lender, except for speculative construction loans. Lakewood uses this
service to solicit new customers and to maintain existing relationships. A
variety of risks are present in construction loans, including the failure of the
contractor to complete the work and the borrower's inability to pay. Lakewood
carefully monitors construction draws and inspects each property frequently to
insure the work is being completed as specified. In addition, construction loans
generally are made where a conservative loan-to-value ratio exists. These loans
are frequently backed by personal guarantees and other collateral that provide
an alternative source of repayment. Lakewood further attempts to limit its risk
through adherence to conservative underwriting procedures and by using only
state-certified appraisers. Lakewood's real estate construction loans
outstanding were $3.8 at September 30, 1998, and $2.4 million at December 31,
1997, compared to $2.3 million at December 31, 1996. This increase results from
an increased marketing effort by Lakewood to solicit loans from established
residential builders in the metropolitan Denver area.
REAL ESTATE -- OTHER
Real Estate Mortgage Loans. Lakewood generally restricts its commercial real
estate lending activity to owner-occupied properties or to investor properties
that are owned by customers with which Lakewood has a complete Banking
relationship. Therefore, many loans classified as commercial real estate loans
could be characterized as ordinary commercial loans which are secured by real
estate.
Commercial real estate loans are generally made at floating rates and for
maturities ranging from five to ten years. Lakewood's underwriting standards
generally require that the loan-to-value ratio not exceed 80% of appraised value
or cost, whichever is lower. Management does not believe that Lakewood's
existing commercial real estate loan portfolio represents a material risk of
loan losses.
Lakewood can originate SBA real estate loans on owner occupied properties where
the maturities may be up to twenty-five years, and the loan-to-value ratio may
reach 90% of appraised value or cost, whichever is lower. These loans are
guaranteed from 75% to 80% of the amount of the loan by the federal government.
71
<PAGE> 73
The primary risks of real estate mortgage loans include the borrower's inability
to pay and deterioration in the value of the real estate that is being held as
collateral. Lakewood also originates residential mortgage loans on a limited
basis as a service to its customers. On those loans that are extended, Lakewood
attempts to have conservative loan-to-value ratios, personal guarantees, a
strong history of debt servicing capability, fully amortizing terms over twenty
years or less and alternative collateral if necessary.
INSTALLMENT LOANS
Consumer Lending. Lakewood provides a full range of consumer loans. The primary
risk of consumer lending relates to the personal circumstances of the borrower.
Lakewood provides as a service to its business customers and their employees the
choice of dealing with the same loan officer for consumer and business matters.
This service has been well received by new business customers and their
employees who, in dealing with banks owned by large holding companies, have
frequently had to deal with a variety of different officers for different types
of transactions. Consumer loans outstanding were $7.1 million at September 30,
1998, $6.5 million at December 31, 1997 compared to and $5.8 million at December
31, 1996.
NONPERFORMING ASSETS
Lakewood's nonperforming assets consist of nonaccrual loans, restructured loans,
past due loans and other real estate owned (OREO). Lakewood accounts for loans
in accordance with Financial Accounting Standard No. 114, "Accounting by
Creditors for Impairment of Loans". The adoption of this pronouncement, which
requires impaired loans to be measured at the present value of expected future
cash flows or as a practical expedient at the observable market price or fair
value of collateral, had no material effect on Lakewood's financial statements.
The following table sets forth information with respect to these assets at the
date indicated:
The table below reflects Lakewood's nonperforming assets and past due loans.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------
1998 1997 1996
------------- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans.................................... $ 48 $ 31 $ --
Loans past due 90 days or more (principal or
interest payments)................................ -- -- --
Restructured........................................ -- -- --
---- ---- ----
Total nonperforming loans................. 48 31 --
Other nonperforming assets
Total foreclosed assets held-for-sale............. 158 158 169
Other nonperforming assets........................ -- -- --
---- ---- ----
Total other nonperforming assets.......... 158 158 169
---- ---- ----
Total nonperforming assets................ $206 $189 $169
==== ==== ====
</TABLE>
72
<PAGE> 74
Approximately $2,000 of interest income would have been recorded for the period
ended December 31, 1997, if the nonaccrual loans had been accruing interest
according to the original items.
PAST DUES, NONACCRUAL AND IMPAIRED LOANS
Past Due, Nonaccrual, and Impaired Loans. Lakewood's financial statements are
prepared on the accrual basis of accounting, including the recognition of
interest income on its loan portfolio, unless a loan is placed on a nonaccrual
basis. Loans are placed on nonaccrual when there are serious doubts about the
collectibility of principal or interest. Amounts received on nonaccrual loans
generally are applied first to principal and then to interest only if all
principal has been collected or principal collection is assured. Lakewood's
policy is to place a loan on nonaccrual status when the loan becomes past due
for 90 days or more, unless the loan is well secured, is in the process of being
collected and Lakewood's Loan Committee has approved maintaining the loan on an
accrual basis, which in practice is rarely done. At September 30, 1998 and
December 31, 1997, Lakewood had $48,000 and $31,000 loans accounted for on a
nonaccrual basis.
Restructured loans are those for which concessions, including the reduction of
interest rates below a rate otherwise available to that borrower or the deferral
of interest or principal, have been granted due to the borrower's weakened
financial condition. Interest on restructured loans is accrued at the
restructured rates when it is anticipated that no loss on original principal
will occur. Lakewood had no restructured loans at September 30, 1998 and
December 31, 1997.
Impaired loans, which include non-accrual loans noted above and potential
problem loans, where known information about possible credit problems causes
management to doubt the ability of such borrowers to comply with contractual
repayment terms total $48,000, $31,000, and $-0- at September 30, 1998, and
December 31, 1997 and 1996, respectively. An allowance for loan loss of $8,000,
$5,000, and $-0-, relates to impaired loans at September 30, 1998, and December
31, 1997 and 1996, respectively. No interest was recognized on average impaired
loans of $39,000, $31,000, and $-0-, respectively.
Other Real Estate Owned. OREO property is carried at the lower of its fair
market value less selling costs or the principal balance on the foreclosed loan
plus costs of foreclosure and improvements made to such OREO by Lakewood. At
September 30, 1998, and at December 31, 1997 Lakewood had one OREO carried in
the amount of $158,000.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's recognition of the risks
of extending credit and its evaluation of the quality of the loan portfolio. The
allowance is maintained at a level considered adequate to provide for
anticipated loan losses based on management's assessment of various factors
affecting the loan portfolio, including a review of problem loans, business
conditions, and loss experience and an overall evaluation of the quality of the
underlying collateral, holding, and disposal costs and costs of capital. The
allowance is increased by provisions charged to operations and reduced by loans
charged off, net of recoveries. Allowances are provided for individual loans
where ultimate collection is considered questionable by management after
reviewing the current status of
73
<PAGE> 75
loans that are contractually past due and considering the net realizable value
of the security and of the loan guarantees, if applicable.
Management believes that Lakewood's allowance for loan losses is adequate to
cover anticipated losses and is in accordance with generally accepted accounting
principles. There can be no assurance, however, that management will not
determine to increase the allowance for loan losses or that regulators, when
reviewing Lakewood's loan portfolio in the future, will not request Lakewood to
increase such allowance, either of which could adversely affect Lakewood's
earnings. Further, there can be no assurance that Lakewood's actual loan losses
will not exceed its allowance.
The following table sets forth information regarding changes in Lakewood's
allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, -------------------
1998 1997 1996
------------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average total loans............................. $23,991 $ 26,414 $21,579
======= ========= =======
Total loans at the end of the period............ $23,962 $ 24,586 $26,138
======= ========= =======
Allowance at beginning of year.................. $ 364 $ 372 $ 290
Charge-offs:
Commercial loans.............................. 10 8 5
Consumer loans................................ 26 33 13
------- --------- -------
Total charge-off loans................ 36 41 18
Recoveries:
Commercial loans.............................. 1 28 93
Consumer loans................................ 8 5 7
------- --------- -------
Total recoveries...................... 9 33 100
------- --------- -------
Net charge-offs (recoveries).................... 27 8 (82)
------- --------- -------
Provisions for loan losses...................... -- -- --
------- --------- -------
Balance of allowance for loan losses at end of
period........................................ $ 337 $ 364 $ 372
======= ========= =======
Ratio of net charge-offs (recoveries) to average
loans......................................... 0.11% 0.03% (0.38)%
Allowance to total loans at end of period....... 1.41% 1.48% 1.42%
Allowance to nonperforming loans................ 702.08% 1174.19% N/A
</TABLE>
74
<PAGE> 76
The following table sets forth the allowance for loan losses by loan category,
based upon management's assessment of the risk associated with such categories,
at the dates indicated and summarizes the percentage of gross loans in each
category to total gross loans.
LAKEWOOD STATE BANK ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
FOR THE PERIOD ENDING
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------- --------------------------------------
ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF
1998 LOANS 1997 LOANS 1996 LOANS
--------- ----- --------- ----- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial loans............ $ 63 18.8% $ 77 21.1% $ 78 20.9%
Real estate -- construction
loans..................... 53 15.8% 35 9.7% 33 8.9%
Real estate -- mortgage
loans..................... 121 35.9% 155 42.7% 179 48.1%
Consumer loans.............. 100 29.5% 97 26.5% 82 22.1%
---- ----- ---- ----- ---- -----
Total............. $337 100.0% $364 100.0% $372 100.0%
==== ===== ==== ===== ==== =====
</TABLE>
INVESTMENT ACTIVITIES
Lakewood maintains a securities portfolio comprised primarily of U.S. government
securities, municipal securities and other investment securities. Lakewood
manages its investment portfolio to (i) maximize safety and soundness, (ii)
provide adequate liquidity, (iii) maximize rate of return within the constraints
of applicable liquidity requirements (with liquidity taking precedence over
return) and (iv) complement asset/liability management policies. Lakewood's
Asset and Liability Management Committee, which is made up of Lakewood's
Chairman of the Board and Chief Executive Officer, its Executive Vice President,
and Chief Operations Officer, and one member of the Board of Directors, oversees
Lakewood's investment portfolio with the assistance of an outside consultant.
Lakewood uses a measurement known as dollar duration to analyze its exposure to
interest rate risk. Dollar duration measures the percentage loss or gain that
the portfolio will sustain with each 100 basis point parallel shift in interest
rates.
75
<PAGE> 77
The table below provides the amortized cost and fair value of Lakewood's
investment securities at each of the dates indicated. All of Lakewood's
investment securities have been classified as held-to-maturity securities for
the periods presented.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
SEPTEMBER 30, 1998 1997 1996
---------------------- ---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
--------- ---------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Held to Maturity:
U.S. government agencies
and corporations..... $10,225 $10,289 $6,224 $6,206 $3,821 $3,818
U.S. Treasury
securities........... 1,612 1,623 814 814 2,725 2,722
Obligations of state and
political
subdivisions......... 151 152 151 151 251 250
------- ------- ------ ------ ------ ------
$11,988 $12,064 $7,189 $7,171 $6,797 $6,790
======= ======= ====== ====== ====== ======
</TABLE>
At December 31, 1997, there were no securities held by Lakewood which (other
than U.S. government securities) made up more than ten percent of stockholders'
equity.
The following reflects the carrying values, maturities and weighted average
yields of Lakewood's security portfolio at the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------------------------------
DUE AFTER
DUE IN DUE AFTER ONE FIVE YEARS
ONE YEAR YEAR THROUGH THROUGH DUE AFTER
OR LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL
-------- ------------- ---------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Held to Maturity:
U.S. government agencies and
corporations
Balance.................. $ 4,768 $ 5,457 $ -- $ -- $10,225
Weighted average yield... 5.63% 5.64% 0.00% 0.00% 5.64%
U.S. Treasury securities
Balance.................. $ 1,205 $ 407 $ -- $ -- $ 1,612
Weighted average yield... 5.43% 5.75% 0.00% 0.00% 5.51%
Obligations of state and
political subdivisions
Balance.................. $ 100 $ 51 $ -- $ -- $ 151
Weighted average yield... 6.21% 6.51% 0.00% 0.00% 6.31%
Other
Balance.................. $ -- $ -- $ -- $ -- $ --
Weighted average yield... 0.00% 0.00% 0.00% 0.00% 0.00%
------- ------- ------- ------- -------
Total
Balance.................. $ 6,073 $ 5,915 $ -- $ -- $11,988
Weighted average yield... 5.60% 5.66% 0.00% 0.00% 5.63%
</TABLE>
76
<PAGE> 78
SOURCES OF FUNDS
General. Lakewood's primary source of funds has historically been customer
deposits. Scheduled loan repayments are a relatively stable source of funds,
while deposits inflows and unscheduled loan prepayments, which are influenced by
general interest rate levels, interest rates available on other investments,
competition, economic conditions and other factors, are not. Although Lakewood's
deposit balances have shown historical growth, such balances may be influenced
by changes in the Banking industry. Borrowings may be used on a short-term basis
to compensate for reductions in other sources of funds (such as deposit inflows
at less than projected levels). Borrowings may also be used on a longer term
basis to match the maturity of repricing intervals of assets.
Deposit Activities. Lakewood offers a variety of accounts for depositors
designed to attract both short-term and long-term deposits. These accounts
include certificates of deposit, savings accounts, money market accounts,
checking and negotiable order of withdrawal accounts and individual retirement
accounts. These accounts generally earn interest at rates established by
management based on competitive market factors and management's desire to
increase or decrease certain types or maturities of deposits.
The following table presents the average balance of each major category of
deposits and the weighted average interest paid for interest-bearing deposits
for the period indicated.
LAKEWOOD STATE BANK
DEPOSIT COMPOSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
SEPTEMBER 30, 1998 1997 1996
--------------------------- --------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing
demand............. $ 8,948,000 2.26% $ 8,064,000 2.41% $ 7,725,000 2.27%
Savings.............. 6,667,000 2.76% 5,542,000 2.94% 5,546,000 2.74%
Certificates less
than $100,000...... 10,741,000 6.23% 10,000,000 5.99% 6,275,000 5.64%
Certificates greater
than $100,000...... 1,873,000 4.98% 1,075,000 5.95% 958,000 5.11%
Non-interest bearing
demand deposits.... 10,134,000 n/a 9,008,000 n/a 8,722,000 n/a
----------- ----- ----------- ----- ----------- -----
Total
deposits... $38,363,000 4.07% $33,689,000 4.13% $28,926,000 3.56%
=========== ===== =========== ===== =========== =====
</TABLE>
77
<PAGE> 79
The following table sets forth the amount and maturity of certificates of
deposit that had balances of more than $100,000 at September 30, 1998.
Remaining maturity:
<TABLE>
<S> <C>
Less than three months...................................... $ 449,000
Three months up to one year................................. 1,216,000
One year and over........................................... 614,000
----------
Total............................................. $2,279,000
==========
</TABLE>
78
<PAGE> 80
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF LAKEWOOD STATE BANK
The following tables set forth for the periods indicated information with regard
to average balances of assets and liabilities, as well as the dollar amounts of
interest income from interest-earning assets and interest expense of
interest-bearing liabilities, resultant yields or costs, net interest income,
net interest spread, net interest margin and the ratio of average
interest-earning assets to interest-bearing liabilities. Net interest income is
computed on a full tax equivalent basis to reflect the effect of tax exempt
income earned on municipal obligations in the investment securities portfolio.
Full tax equivalent interest income on tax exempt securities is the amount of
income that would have been earned on taxable securities to yield the same after
tax return. A 34% tax rate was used.
79
<PAGE> 81
LAKEWOOD STATE BANK
AVERAGE BALANCE, NET INTEREST INCOME AND EXPENSE, AND AVERAGE YIELDS AND RATES
ON TAX EQUIVALENT BASIS
The following table sets forth the average balances, net income and expense and
average yields and rates for Lakewood's earning assets and interest-bearing
liabilities for the periods indicated on a tax-equivalent basis assuming a 34%
tax rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1997 1996
---------------------------------- ----------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED YIELD AVERAGE EARNED YIELD
BALANCE OR PAID OR COST BALANCE OR PAID OR COST
----------- ---------- ------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets
Investment securities:
Taxable............................................ $ 6,012,000 $ 327,000 5.44% $ 6,339,000 $ 330,000 5.21%
Tax exempt (tax equivalent)........................ 218,000 8,000 3.67% 333,000 17,000 5.10%
Funds sold and interest-bearing deposits............. 1,935,000 105,000 5.43% 1,465,000 77,000 5.26%
Loans................................................ 26,414,000 2,644,000 10.01% 21,579,000 2,210,000 10.24%
Allowance for loan losses............................ (389,000) (363,000)
----------- ---------- ----- ----------- ---------- -----
Total interest-earning assets.................. $34,190,000 $3,084,000 9.02% $29,353,000 $2,634,000 8.97%
=========== ========== ===== =========== ========== =====
Interest-bearing Liabilities
Interest-bearing deposits
Demand, interest-bearing........................... $ 8,064,000 $ 194,000 2.41% $ 7,725,000 $ 175,000 2.27%
Savings............................................ 5,542,000 163,000 2.94% 5,546,000 152,000 2.74%
Certificates of deposit
Under $100,000................................... 10,000,000 599,000 5.99% 6,275,000 354,000 5.64%
$100,000 and over................................ 1,075,000 64,000 5.95% 958,000 49,000 5.11%
----------- ---------- ----- ----------- ---------- -----
Total interest-bearing deposits................ 24,681,000 1,020,000 4.13% 20,504,000 730,000 3,56%
Advances from the FHLB and fed funds purch........... 24,000 1,000 4.17% 245,000 14,000 5.71%
Notes payable........................................ -- --
----------- ---------- ----- ----------- ---------- -----
Total interest-bearing liabilities............. $24,705,000 $1,021,000 4.13% $20,749,000 $ 744,000 3.59%
=========== ========== ===== =========== ========== =====
Net interest income (tax equivalent)........... $2,063,000 $1,890,000
========== ==========
Net interest margin.................................. 6.03% 6.44%
Net interest spread.................................. 4.89% 5.38%
Ratio of average interest-bearing liabilities to
average interest-earning assets...................... 72.26% 70.69%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995
----------------------------------
INTEREST AVERAGE
AVERAGE EARNED YIELD
BALANCE OR PAID OR COST
----------- ---------- -------
<S> <C> <C> <C>
Interest Earning Assets
Investment securities:
Taxable................................................. $ 6,077,000 $ 303,000 4.99%
Tax exempt (tax equivalent)............................. 135,000 11,000 8.14%
Funds sold and interest-bearing deposits.................. 1,087,000 62,000 5.70%
Loans..................................................... 18,700,000 1,825,000 9.76%
Allowance for loan losses................................. (368,000)
----------- ---------- ----
Total interest-earning assets....................... $25,631,000 $2,201,000 8.59%
=========== ========== ====
Interest-bearing Liabilities
Interest-bearing deposits
Demand, interest-bearing................................ $ 7,710,000 $ 169,000 2.19%
Savings................................................. 5,612,000 151,000 2.69%
Certificates of deposit
Under $100,000........................................ 4,289,000 232,000 5.41%
$100,000 and over..................................... 540,000 20,000 3.70%
----------- ---------- ----
Total interest-bearing deposits..................... 18,151,000 572,000 3.15%
Advances from the FHLB and fed funds purch................ 1,000 -- 0.00%
Notes payable
----------- ---------- ----
Total interest-bearing liabilities.................. $18,152,000 $ 572,000 3.15%
=========== ========== ====
Net interest income (tax equivalent)................ $1,629,000
==========
Net interest margin....................................... 6.36%
Net interest spread....................................... 5.44%
Ratio of average interest-bearing liabilities to average
interest-earning assets................................... 70.82%
</TABLE>
- -------------------------
(1) Loans are net of any unearned discount. Nonaccrual loans are included in
average loans outstanding. Loan fees are included in interest income as
follows for the years ended December 31, 1997, $232,000; 1996, $250,000;
1995, $89,000.
(2) Net interest margin is net interest income divided by average total earning
assets.
80
<PAGE> 82
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
1998 1997
---------------------------------- ----------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED YIELD AVERAGE EARNED YIELD
BALANCE OR PAID OR COST BALANCE OR PAID OR COST
----------- ---------- ------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets
Investment securities:
Taxable.......................... $ 9,371,000 $ 392,000 5.58% $ 5,945,000 $ 241,000 5.41%
Tax exempt (tax equivalent)...... 151,000 6,000 5.30% 240,000 6,000 3.33%
Funds sold and interest-bearing
deposits......................... 5,421,000 219,000 5.39% 984,000 40,000 5.42%
Loans.............................. 23,991,000 1,781,000 9.90% 26,765,000 1,996,000 9.94%
Allowance for loan losses.......... (355,000)
----------- ---------- ----- ----------- ---------- -----
Total interest-earning
assets..................... $38,579,000 $2,398,000 8.29% $33,934,000 $2,283,000 8.97%
=========== ========== ===== =========== ========== =====
Interest-bearing Liabilities
Interest-bearing deposits
Demand, interest-bearing......... $ 8,948,000 $ 152,000 2.26% $ 7,975,000 $ 143,000 2.39%
Savings.......................... 6,667,000 137,000 2.76% 5,470,000 119,000 2.90%
Certificates of deposit
Under $100,000................. 10,741,000 502,000 6.23% 9,762,000 440,000 6.01%
$100,000 and over.............. 1,873,000 70,000 4.98% 1,076,000 45,000 5.58%
----------- ---------- ----- ----------- ---------- -----
Total interest-bearing
deposits................... 28,229,000 861,000 4.07% 24,283,000 747,000 4.10%
Advances from the FHLB and fed
funds purch...................... -- -- 32,000 1,000
Notes payable...................... -- -- --
----------- ---------- ----- ----------- ---------- -----
Total interest-bearing
liabilities................ $28,229,000 $ 861,000 4.07% $24,315,000 $ 748,000 4.10%
=========== ========== ===== =========== ========== =====
Net interest income (tax
equivalent)................ $1,537,000 $1,535,000
========== ==========
Net interest margin................ 5.31% 6.03%
Net interest spread................ 4.22% 4.87%
Ratio of average interest-bearing
liabilities to average
interest-earning assets............ 73.17% 71.65%
</TABLE>
- -------------------------
(1) Yields are annualized
(2) Loans are net of any unearned discount. Nonaccrual loans are included in
average loans outstanding. Loan fees are included in interest income as
follows for the nine months ended September 30, 1998, $146,000 -- (196,000
annualized); 1997, $169,000 -- (226,000 annualized).
(3) Net interest margin is net interest income divided by average total earning
assets (on an annualized basis).
81
<PAGE> 83
The following table illustrates the changes in Lakewood's net interest income
due to changes in volume and changes in interest rates on a full tax equivalent
basis. Changes attributable to the combined effect of volume and rate have been
allocated proportionately to the change due to volume and change due to rate.
LAKEWOOD STATE BANK
RATE VOLUME VARIANCE
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------------------- ----------------------------------
1998 COMPARED TO 1997 1997 COMPARED TO 1996
----------------------------------- ----------------------------------
INCREASE (DECREASE) IN NET INCOME INCREASE (DECREASE) IN NET INCOME
DUE TO CHANGE IN DUE TO CHANGE IN
----------------------------------- ----------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets
Investment securities:
Taxable................. $ 139,000 $ 12,000 $ 151,000 $(17,000) $ 14,000 $ (3,000)
Tax exempt (tax
equivalent)........... (2,000) 2,000 -- (6,000) (3,000) (9,000)
Funds sold and interest-
bearing deposits........ 180,000 (1,000) 179,000 25,000 3,000 28,000
Loans..................... (207,000) (8,000) (215,000) 495,000 (61,000) 434,000
--------- -------- --------- -------- --------- --------
Total
interest-earning
assets............ 110,000 5,000 115,000 497,000 (47,000) 450,000
--------- -------- --------- -------- --------- --------
Interest-bearing Liabilities
Interest-bearing deposits
Demand,
interest-bearing...... 17,000 (8,000) 9,000 8,000 11,000 19,000
Savings................. 26,000 (8,000) 18,000 -- 11,000 11,000
Certificates of deposit
Under $100,000........ 44,000 18,000 62,000 210,000 35,000 245,000
$100,000 and over..... 33,000 (8,000) 25,000 6,000 9,000 15,000
Advances from the FHLB and
fed funds purch......... (1,000) -- (1,000) (13,000) -- (13,000)
Notes payable............. -- -- -- -- -- --
--------- -------- --------- -------- --------- --------
Total
interest-bearing
liabilities....... 119,000 (6,000) 113,000 211,000 66,000 277,000
--------- -------- --------- -------- --------- --------
Net interest income
(tax
equivalent)....... $ (9,000) $ 11,000 $ 2,000 $286,000 $(113,000) $173,000
========= ======== ========= ======== ========= ========
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 COMPARED TO 1995
-----------------------------------
INCREASE (DECREASE) IN NET INCOME
DUE TO CHANGE IN
-----------------------------------
VOLUME RATE TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Interest Earning Assets
Investment securities:
Taxable................. $ 13,000 $ 14,000 $ 27,000
Tax exempt (tax
equivalent)........... 21,000 (15,000) 6,000
Funds sold and interest-
bearing deposits........ 22,000 (7,000) 15,000
Loans..................... 281,000 104,000 385,000
-------- -------- --------
Total
interest-earning
assets............ 337,000 96,000 433,000
-------- -------- --------
Interest-bearing Liabilities
Interest-bearing deposits
Demand,
interest-bearing...... -- 6,000 6,000
Savings................. (2,000) 3,000 1,000
Certificates of deposit
Under $100,000........ 107,000 15,000 122,000
$100,000 and over..... 15,000 14,000 29,000
Advances from the FHLB and
fed funds purch......... -- 14,000 14,000
Notes payable............. -- -- --
-------- -------- --------
Total
interest-bearing
liabilities....... 120,000 52,000 172,000
-------- -------- --------
Net interest income
(tax
equivalent)....... $217,000 $ 44,000 $261,000
======== ======== ========
</TABLE>
82
<PAGE> 84
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------------------
LESS THAN ONE TO OVER FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
--------- ---------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and Real estate loans........ $ 6,802 $ 4,868 $1,449 $13,119
Real estate -- construction loans....... 3,658 -- 131 3,789
Consumer loans.......................... 1,212 5,154 719 7,085
------- ------- ------ -------
Total......................... $11,672 $10,022 $2,299 $23,993
======= ======= ====== =======
Fixed rate loans........................ $ 9,851 $2,299
Floating rate loans..................... 171 --
------- ------
Total......................... $10,022 $2,299
======= ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------
LESS THAN ONE TO OVER FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
--------- ---------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and Real estate loans........ $ 8,155 $ 5,708 $1,842 $15,705
Real estate -- construction loans....... 2,336 -- 40 2,376
Consumer loans.......................... 848 5,149 535 6,532
------- ------- ------ -------
Total......................... $11,339 $10,857 $2,417 $24,613
======= ======= ====== =======
Fixed rate loans........................ $10,710 $2,417
Floating rate loans..................... 147 --
------- ------
Total......................... $10,857 $2,417
======= ======
</TABLE>
83
<PAGE> 85
DESCRIPTION OF THE PREFERRED SECURITIES
DEFINITIONS OF MATERIAL AGREEMENTS
For purposes of this Prospectus:
- the "Indenture" means the Subordinated Indenture dated as of
, 1998, as amended and supplemented from time to time, between the
company and American Securities Transfer & Trust, Inc., as trustee (the
"Indenture Trustee"), under which the Junior Subordinated Debentures will
be issued,
- the "Trust Agreement" means the Amended and Restated Trust Agreement,
under which the Preferred Securities and the Common Securities will be
issued, dated as of , 1998, as amended and supplemented from
time to time, among the company, as depositor, Wilmington Trust Company,
as Delaware trustee, American Securities Transfer & Trust, Inc. as
"Property Trustee", and the Administrative Trustees named therein and the
holders, from time to time, of the Preferred Securities,
- the "Guarantee" means the Guarantee Agreement relating to the guarantee
between the company and American Securities Transfer & Trust, Inc., as
trustee (the "Guarantee Trustee") on behalf of the holders, and
- the "Expense Agreement" means the Expense Agreement between the company
and Union Capital.
The Preferred Securities and the Common Securities will be issued pursuant to
the terms of the Trust Agreement, which will be qualified as an indenture under
the Trust Indenture Act. Initially, Wilmington Trust Company will be the
Delaware Trustee and American Securities Transfer & Trust, Inc. will be the
Property Trustee and will act as trustee for the purpose of complying with the
Trust Indenture Act. This summary is not complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Trust
Agreement, including certain definitions therein, and the Trust Indenture Act.
However, management believes that all material terms of the Preferred Securities
in the Trust Agreement are set forth in the Summary. The form of the Trust
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
GENERAL
The Administrative Trustees on behalf of Union Bankshares Capital Trust I will
issue the Preferred Securities and the Common Securities (collectively, the
"Trust Securities"). The Preferred Securities will represent preferred undivided
beneficial interests in the assets of the trust and the holders thereof will be
entitled to a preference in respect of certain distributions by the trust and
amounts payable on redemption or liquidation over the Common Securities of the
trust (which will be held by the company), as well as other benefits as
described in the Trust Agreement. Otherwise, the Preferred Securities will
generally rank pari passu, and payments will be made thereon pro rata, with the
Common Securities of the trust.
The Property Trustee will hold the Junior Subordinated Debentures in trust for
the benefit of the holders of the Trust Securities. The Company's Guarantee (the
"Guarantee") will be subordinated and will not guarantee payment of
Distributions (as defined below) or amounts payable on redemption of the
Preferred Securities if the trust does not have funds available to make such
payments. See "Description of Guarantee."
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If the company does not make required payments on the Junior Subordinated
Debentures held by the trust, the trust will be unable to pay Distributions on
the Preferred Securities. In such event, a holder of the Preferred Securities
may make a claim directly against the company to enforce payment of such
Distributions to such holder.
DISTRIBUTIONS
Payment of Distributions. The trust will make distributions on the Preferred
Securities at the annual rate of % of the stated Liquidation Amount of
$7.60 ("Distributions"), payable quarterly in arrears on the 15th day of March,
June, September and December in each year, commencing March 15, 1999 to the
holders of the Preferred Securities on the relevant record dates (each date on
which Distributions are payable in accordance with the foregoing, a
"Distribution Date"). The amount of each Distribution due with respect to the
Preferred Securities will include amounts accrued through the date the
Distribution is due. Distributions will accumulate from the date of original
issuance.
The amount of Distributions payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. In the event that any date on which
Distributions are payable on the Preferred Securities is not a Business Day,
payment of the Distribution payable on such date will generally be made on the
next Business Day (and without any interest or other payment in respect to any
such delay). "Business Day" means any day other than a Saturday or a Sunday, or
a day on which banking institutions in the State of Colorado are authorized or
required by law or executive order to remain closed or a day on which the
corporate trust office of the Property Trustee or the Indenture Trustee is
closed for business.
The sole source of the funds of the trust available for distribution to holders
of its Preferred Securities will be payments by the company under the Junior
Subordinated Debentures. See "Description of the Junior Subordinated
Debentures." The company has guaranteed the payment of Distributions (to the
extent the trust has funds available to make such Distributions). See
"Description of Guarantee."
Extension Period. Except during a Debenture Event of Default, the company may
defer the payment of interest on the Junior Subordinated Debentures at any time
or from time to time for a period not exceeding 20 consecutive quarters with
respect to each such period (each, an "Extension Period"). No Extension Period
may extend beyond the Stated Maturity of the Junior Subordinated Debentures. If
the company elects to defer, then quarterly Distributions on the Preferred
Securities will be deferred by the trust during any such Extension Period.
Distributions to which holders of Preferred Securities are entitled will
accumulate additional amounts thereon at the rate per annum of % thereof,
compounded quarterly from the relevant Distribution Date, to the extent
permitted under applicable law. The term "Distributions" as used herein shall
include any such additional accumulated amounts. During any such Extension
Period, the company generally may not:
- declare or pay any cash dividends or distributions on, or use cash to
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
- make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the company that rank pari
passu with or junior in interest to the Junior Subordinated Debentures 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 with or junior in
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interest to the Junior Subordinated Debentures. Prior to the termination of any
such Extension Period, the company may further extend such Extension Period up
to a maximum of 20 consecutive quarters or the Stated Maturity, whichever occurs
earlier.
Upon the termination of any Extension Period and the payment of all amounts then
due, and subject to the foregoing limitations, the company may elect to begin a
new Extension Period, without any limitation on the number of times that the
company may elect to begin an Extension Period.
The company has no current intention of exercising its right to defer payments
of interest by extending the interest payment period on the Junior Subordinated
Debentures.
REDEMPTION
Mandatory Redemption of Preferred Securities. Upon any partial or complete
repayment or redemption of any Junior Subordinated Debentures, the proceeds from
such repayment or redemption shall be applied by the Property Trustee to redeem
a Like Amount (as defined below) of the Trust Securities. This redemption shall
be made upon not less than 30 nor more than 60 days' notice of a date of
redemption (the "Redemption Date"), at the Redemption Price (as defined below).
See "Description of the Junior Subordinated Debentures -- Redemption." In a
partial redemption of the Junior Subordinated Debentures, the Trust Securities
shall be redeemed pro rata.
Optional Redemption of Junior Subordinated Debentures. The company may redeem
the Junior Subordinated Debentures:
- on or after , 2003, in whole or in part by paying the accrued
and unpaid interest on the Junior Subordinated Debentures so redeemed to
the date fixed for redemption, plus 100% of the principal amount thereof;
or
- at any time, in whole (but not in part), upon the occurrence of a Tax
Event, an Investment Company Event or a Capital Treatment Event by paying
the accrued and unpaid interest on the Junior Subordinated Debentures so
redeemed to the date fixed for redemption, plus 100% of the principal
amount thereof. See "Description of the Junior Subordinated
Debentures -- Redemption."
Tax Event Redemption, Investment Company Event Redemption, Capital Treatment
Event Redemption or Distribution of Junior Subordinated Debentures. If a Tax
Event, an Investment Company Event or a Capital Treatment Event shall occur and
be continuing, the company has the right to redeem the Junior Subordinated
Debentures in whole (but not in part) and thereby cause a mandatory redemption
of the Trust Securities in whole (but not in part) at the Redemption Price (as
defined below) within 90 days following the occurrence of such Tax Event,
Investment Company Event or Capital Treatment Event. This redemption is subject
to receipt of prior approval by the Federal Reserve if then required under
applicable capital guidelines or policies of the Federal Reserve.
DEFINITIONS
"Additional Sums" means the additional amounts as may be necessary to be paid by
the company with respect to the Junior Subordinated Debentures in order that the
amount of Distributions then due and payable by the trust on the outstanding
Trust Securities of the trust shall not be reduced as a result of any additional
taxes, duties and other governmental charges to which the trust has become
subject.
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"Like Amount" means (i) with respect to a redemption of Trust Securities, Trust
Securities having a Liquidation Amount (as defined below) equal to that portion
of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Preferred Securities based upon the relative
Liquidation Amounts of such classes and the proceeds of which will be used to
pay the Redemption Price of such Trust Securities, and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of the trust, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of each holder to whom such Junior Subordinated Debentures are
distributed.
"Liquidation Amount" means the stated amount of $7.60 per Trust Security.
"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, allocated on a pro rata basis (based on Liquidation Amounts)
among the holders of the Trust Securities.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
The company may at any time elect to dissolve the trust and, after satisfaction
of the liabilities of creditors of the trust as provided by applicable law,
cause the Junior Subordinated Debentures to be distributed to the holders of
Trust Securities in liquidation of the trust. After the liquidation date (i)
such Preferred Securities will no longer be deemed to be outstanding, (ii) the
Depositary or its nominee, as the record holder of the Preferred Securities,
will receive a registered global certificate or certificates representing the
Junior Subordinated Debentures to be delivered upon such distribution and (iii)
any certificates representing Preferred Securities not held by the Depositary or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the Liquidation Amount of such Preferred
Securities, and bearing accrued and unpaid interest in an amount equal to the
accrued and unpaid Distributions on the Preferred Securities until such
certificates are presented to the Administrative Trustees or their agent for
transfer or reissuance.
REDEMPTION PROCEDURES
Preferred Securities redeemed on any Redemption Date will be redeemed at the
Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Preferred
Securities will be made and the Redemption Price will be payable on each
Redemption Date only to the extent that the trust has funds on hand available
for the payment of such Redemption Price. See "-- Subordination of Common
Securities of the Trust Held by the Company" and "Description of Guarantee."
Notice of any redemption will be mailed at least 30 days but not more than 60
days before the Redemption Date to each holder of Trust Securities at such
holder's registered address.
Unless there is a payment default, Distributions will stop accruing on those
Preferred Securities called for redemption on the date they are called for
redemption.
If the trust gives a notice of redemption in respect of the Preferred
Securities, then, by 10:00 a.m., Mountain time, on the Redemption Date, the
Property Trustee will pay the Redemption Price to the Depositary, as the record
holder of the Preferred Securities, and
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the Depositary thereafter will credit the Redemption Price to the Participants
for whom it holds the Preferred Securities. See "Book-Entry Issuance." If such
Preferred Securities are no longer in book-entry form, the Property Trustee, to
the extent funds are available, will deposit with the paying agent sufficient
funds to pay the aggregate Redemption Price and will instruct such paying agent
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 will be payable to the holders of
such Preferred Securities on the relevant record dates for the related
Distribution Dates.
If notice of redemption shall have been given and funds deposited as required,
then upon the date of such deposit, all rights of the holders of the Preferred
Securities will cease, unless there is a payment default, except the right of
the holders of the Preferred Securities to receive the applicable Redemption
Price, without interest, and such Preferred Securities will cease to be
outstanding. In the event that payment of the Redemption Price in respect of
Preferred Securities called for redemption is improperly withheld or refused and
not paid either by the trust or by the company pursuant to the Guarantee,
Distributions on such Preferred Securities will continue to accrue at the then
applicable rate, until the Redemption Price is actually paid. See "Description
of Guarantee."
Subject to applicable law (including, without limitation, United States federal
securities law), the company may purchase outstanding Preferred Securities by
tender, in the open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any distribution
of Junior Subordinated Debentures to holders of Preferred Securities will be
made to the applicable record holders on the relevant record date, which date
will be one Business Day prior to the relevant Redemption Date or Liquidation
Date, as applicable; provided, however, that in the event that any Preferred
Securities are not in book-entry form, the relevant record date for such
Preferred Securities will be a date at least 15 days prior to the Redemption
Date or Liquidation Date, as applicable. In the case of a liquidation, the
record date will be no more than 45 days before the Liquidation Date.
If less than all of the Trust Securities are to be redeemed on a Redemption
Date, then the aggregate Redemption Price for such Trust Securities to be
redeemed will be allocated pro rata to the Preferred Securities and Common
Securities based upon the relative Liquidation Amounts of such classes. The
particular Preferred Securities to be redeemed will be selected by the Property
Trustee from the outstanding Preferred Securities not previously called for
redemption, by such method as the Property Trustee shall deem fair and
appropriate. The Property Trustee shall promptly notify the Trust Securities
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.
SUBORDINATION OF COMMON SECURITIES OF THE TRUST HELD BY THE COMPANY
Payment of Distributions on, and the Redemption Price of, the Preferred
Securities and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Amounts of the Preferred Securities and Common Securities.
However, if on any Distribution Date or Redemption Date a Debenture Event of
Default shall have occurred and be continuing, no payment of any Distribution
on, or applicable Redemption Price of, any of the Common Securities, and no
other payment on account of the redemption, liquidation or other acquisition of
the Common Securities, shall be made unless payment
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in full in cash of all amounts owing on the outstanding Preferred Securities
shall have been made or provided for.
In the case of any Event of Default under the Trust Agreement resulting from a
Debenture Event of Default, the company as holder of the Common Securities will
be deemed to have waived any right to act with respect to any such Event of
Default until the effects of all such Events of Default have been cured, waived
or otherwise eliminated. Until that time, the Property Trustee shall act solely
on behalf of the holders of the Preferred Securities.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The company will have the right at any time to dissolve the trust and, after
satisfaction of the liabilities of the creditors of the trust as provided by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the Preferred Securities. Such right is subject to the company
having received prior approval of the Federal Reserve if then required. See
"-- Distribution of Junior Subordinated Debentures" above.
In addition, pursuant to the Trust Agreement, the trust shall automatically
dissolve upon expiration of its term and shall earlier dissolve on the first to
occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
company; (ii) delivery by the company of written direction to the Property
Trustee to dissolve the trust (which direction is optional and wholly within the
discretion of the company); (iii) redemption of all of the Preferred Securities
as described under "-- Redemption;" and (iv) the entry of an order for the
dissolution of the trust by a court of competent jurisdiction.
If an early dissolution occurs as described in clause (i), (ii) or (iv) above or
upon the expiration of the term of the trust, 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 the holders of such Trust Securities a Like
Amount of the Junior Subordinated Debentures, unless such distribution is
determined by the Property Trustee not to be practical. In that event such
holders will be entitled to receive out of the assets of the trust available for
distribution to holders, after satisfaction of liabilities to creditors of the
trust as provided by applicable law, an amount equal to, in the case of holders
of Preferred Securities, the aggregate of the Liquidation Amount of $7.60 per
Trust Security plus accrued and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"). If such Liquidation
Distribution can be paid only in part because the trust has insufficient assets
available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by the trust on the Preferred Securities will be paid
on a pro rata basis. The holder(s) of the Common Securities will be entitled to
receive distributions upon any such liquidation pro rata with the holders of the
Preferred Securities, except that if a Debenture Event of Default has occurred
and is continuing, the Preferred Securities will have a priority over the Common
Securities.
Under current United States federal income tax law and interpretations and
assuming, as expected, Union Bankshares Capital Trust I is treated as a grantor
trust, a distribution of the Junior Subordinated Debentures should not be a
taxable event to holders of the Preferred Securities. Should there be a change
in law, a change in legal interpretation, a Tax Event or other circumstances,
however, the distribution could be a taxable event to holders of the Preferred
Securities. See "Certain Federal Income Tax Consequences."
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If the company elects to liquidate the trust and thereby causes the Junior
Subordinated Debentures to be distributed to holders of the Preferred Securities
in liquidation of the trust, the company will continue to have the right to
shorten the maturity of such Junior Subordinated Debentures, subject to certain
conditions. See "Description of the Junior Subordinated Debentures -- General."
EVENTS OF DEFAULT; NOTICE
The following events constitute an "Event of Default" (an "Event of Default")
with respect to the Preferred Securities and Common Securities:
(i) the occurrence of a Debenture Event of Default under the Indenture (see
"Description of Junior Subordinated Debentures -- Debenture Events of
Default"); or
(ii) 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
(iii) default by the trust in the payment of any Redemption Price of any
Trust Security when it becomes due and payable; or
(iv) material default in the performance, or breach, of any covenant or
warranty of the Property Trustee in the Trust Agreement (other than a
default or breach in the performance of a covenant or warranty which is
addressed in clause (ii) or (iii) above), and continuation of such default
or breach, for a period of 60 days after there has been given, to the
Property Trustee by the holders of at least 25% in aggregate Liquidation
Amount of the outstanding Preferred Securities, a written notice specifying
such default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the company to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any uncured or unwaived Event
of Default actually known to the Property Trustee, the Property Trustee will
transmit notice of such Event of Default to the holders of the Preferred
Securities, the Administrative Trustees and the company. The company and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether they are in compliance with all the conditions and
covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Preferred
Securities will have a preference over the Common Securities upon dissolution of
the trust as described above. See "-- Liquidation Distribution upon
Dissolution." Upon a Debenture Event of Default, unless the principal of all the
Junior Subordinated Debentures has already become due and payable, either the
Property Trustee or the holders of not less than 25% in aggregate principal
amount of the Junior Subordinated Debentures then outstanding may declare all of
the Junior Subordinated Debentures to be due and payable immediately by giving
notice in writing to the company (and to the Property Trustee, if notice is
given by holders of the Junior Subordinated Debentures). If the Property Trustee
or the holders of the Junior Subordinated Debentures fail to declare the
principal of all of the Junior Subordinated Debentures due and payable upon a
Debenture Event of Default, the holders of at least 25% in Liquidation Amount of
the Preferred Securities then outstanding will have the right to declare the
Junior Subordinated Debentures immediately due and payable. In either event,
payment of principal and interest on the Junior
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Subordinated Debentures will remain subordinated to the extent provided in the
Indenture. In addition, holders of the Preferred Securities have the right in
certain circumstances to bring a Direct Action (as defined below). See
"Description of the Junior Subordinated Debentures -- Enforcement of Certain
Rights by Holders of Preferred Securities."
REMOVAL OF TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing, any
Trustee may be removed at any time by the holder of the Common Securities. If a
Debenture Event of Default has occurred and is continuing, the Property Trustee
and the Delaware Trustee may be removed at such time by the holders of a
majority in Liquidation Amount of the outstanding Preferred Securities. In no
event will the holders of the Preferred Securities have the right to vote to
appoint, remove or replace the Administrative Trustees. The company as the
holder of the Common Securities has the sole power to remove the Administrative
Trustee. No resignation or removal of a Trustee and no appointment of a
successor trustee will be effective until the acceptance of appointment by the
successor trustee.
CO-TRUSTEES AND SEPARATE PROPERTY 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 Trust Property may at the time
be located, the company, as the holder of the Common Securities, and the
Administrative Trustees will have power to appoint one or more persons either to
act as a co-trustee, jointly with the Property Trustee, of all or any part of
such Trust Property, or to act as separate trustee of any such property, in
either case with such powers as may be provided in the instrument of
appointment, and to vest in such person or persons in such capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of the Trust Agreement. In case a Debenture Event of Default has
occurred and is continuing, the Property Trustee alone will have power to make
such appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any Person (as defined in the Trust Agreement) into which the Property Trustee,
the Delaware Trustee or any Administrative Trustee that is not a natural person
may be merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Trustee
will be a party, or any person succeeding to all or substantially all the
corporate trust business of such Trustee, shall be the successor of such Trustee
under the Trust Agreement, provided such corporation shall be otherwise
qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The trust may, at the request of the company, with the consent of the
Administrative Trustees and without the consent of the holders of the Preferred
Securities, merge with or into, consolidate, amalgamate, convert into 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:
- 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
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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,
- the company expressly appoints a trustee of such successor entity
possessing the same powers and duties as the Property Trustee as the
holder of the Junior Subordinated Debentures,
- any such transaction does not adversely affect the rights, preferences
and privileges of the holders of the Preferred Securities (including any
Successor Securities) in any material respect,
- such successor entity has a purpose substantially identical to that of
the trust,
- the Successor Securities will be listed or traded on any national
securities exchange or other organization on which the Preferred
Securities may then be listed,
- prior to such a transaction, the company has received an opinion from
independent counsel to the trust experienced in such matters to the
effect that (a) such transaction 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 any such transaction, neither the trust nor such successor
entity will be required to register as an investment company under the
Investment Company Act and
- the company or any permitted successor or designee 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 and enters into an agreement
substantially similar to the Expense Agreement.
Notwithstanding the foregoing, the trust shall not, except with the consent of
holders of 100% in Liquidation Amount of the Preferred Securities, enter into
any such transaction, or permit any other entity to consolidate, amalgamate,
convert into, merge with or into, or replace it if such transaction, would cause
the trust or the successor entity to be classified as other than a grantor trust
for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of Guarantee -- Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Preferred Securities will have no voting rights. The Trust
Agreement may be amended from time to time by the company, the Property Trustee
and the Administrative Trustees, without the consent of the holders of the Trust
Securities, (i) to cure any ambiguity, correct or supplement any provisions in
the Trust Agreement that may be inconsistent with any other provision, or to
make any other provisions with respect to matters or questions arising under the
Trust Agreement, which shall not be inconsistent with the other provisions of
the Trust Agreement, or (ii) to modify, eliminate or add to any provisions of
the Trust Agreement to such extent as will 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
Investment Company Act. The Trust Agreement may be amended by the Trustees and
the company (i) with the consent of holders representing not less than a
majority of the aggregate Liquidation Amount of the
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outstanding Trust Securities, and (ii) upon 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 as an "investment company" under
the Investment Company Act, provided that without the consent of each holder of
Trust Securities, the Trust Agreement may not be amended to (i) change the
amount or timing of any Distribution on the Trust Securities or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the Trust Securities as of a specified date or (ii) restrict the right of a
holder of Trust Securities to institute suit for the enforcement of any such
payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Property Trustee,
the Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Indenture Trustee, or executing any
trust or power conferred on the Property Trustee with respect to the Junior
Subordinated Debentures, (ii) waive any past default that is waivable under the
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of all the Junior Subordinated Debentures shall be due and payable or
(iv) consent to any amendment, modification or termination of the Indenture or
the Junior Subordinated Debentures, where such consent shall be required,
without, in each case, obtaining the prior approval of the holders of a majority
in aggregate Liquidation Amount of all outstanding Preferred Securities;
provided, however, that where a consent under the Indenture would require the
consent of each holder of Junior Subordinated Debentures affected thereby, no
such consent may be given by the Property Trustee without the prior consent of
each holder of the Preferred Securities. The Trustees shall not revoke any
action previously authorized or approved by a vote of the holders of the
Preferred Securities except by subsequent vote of the holders of the Preferred
Securities. The Property Trustee will notify each holder of the Preferred
Securities of any notice of default with respect to the Junior Subordinated
Debentures. In addition to obtaining the foregoing approvals of such holders of
the Preferred Securities, prior to taking any of the foregoing actions, the
Trustees shall obtain an opinion of counsel experienced in such matters to the
effect that the trust will not be classified as an association taxable as a
corporation for United States federal income tax purposes on account of such
action.
Any required approval of holders of the Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of the Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be given
to each holder of record of the Preferred Securities in the manner set forth in
the Trust Agreement.
No vote or consent of the holders of the Preferred Securities will be required
for the trust to redeem and cancel the Preferred Securities in accordance with
the Trust Agreement.
Notwithstanding that holders of the Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities that are owned by the company, the Trustees or any affiliate of the
company or any Trustees, shall, for purposes of such vote or consent, be treated
as if they were not outstanding.
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GLOBAL PREFERRED SECURITIES
The Preferred Securities will be represented by one or more global certificates
registered in the name of the Depositary or its nominee ("Global Preferred
Security"). Beneficial interests in the Preferred Securities will be shown on,
and transfers thereof will be effected only through, records maintained by
participants in the Depositary. Except in limited circumstances as described in
the Indenture, Preferred Securities in certificated form will not be issued in
exchange for the global certificates. See "Book-Entry Issuance."
Payments on Preferred Securities represented by a global security will be made
to the Depositary, as the depositary for the Preferred Securities. In the event
the Preferred Securities are issued in definitive form, Distributions will be
payable, the transfer of the Preferred Securities will be registrable, and
Preferred Securities will be exchangeable for Preferred Securities of other
denominations of a like aggregate Liquidation Amount, at the corporate office of
the Property Trustee, or at the offices of any paying agent or transfer agent
appointed by the Administrative Trustees, provided that payment of any
Distribution may be made at the option of the Administrative Trustees by check
mailed to the address of the persons entitled thereto or by wire transfer. In
addition, if the Preferred Securities are issued in certificated form, the
record dates for payment of Distributions will be the first day of the month in
which the relevant Distribution Date occurs. For a description of the terms of
the depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "Book-Entry Issuance."
Upon the issuance of a Global Preferred Security, and the deposit of such Global
Preferred Security with or on behalf of the Depositary, the Depositary or its
nominee will credit, on its book-entry registration and transfer system, the
respective aggregate Liquidation Amounts of the individual Preferred Securities
represented by such Global Preferred Security to persons that have accounts with
such Depositary ("Participants"). Such accounts shall be designated by the
dealers, underwriters or agents with respect to such Preferred Securities.
Ownership of beneficial interests in a Global Preferred Security will be limited
to Participants or persons that may hold interests through Participants.
Ownership of beneficial interests in such Global Preferred Security will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the Depositary or its nominee (with respect to interests
of Participants) and the records of Participants (with respect to interests of
persons who hold through Participants). The laws of some states require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Preferred Security.
So long as the Depositary for a Global Preferred Security, or its nominee, is
the registered owner of such Global Preferred Security, such Depositary or such
nominee, as the case may be, will be considered the sole owner or holder of the
Preferred Securities represented by such Global Preferred Security for all
purposes under the Trust Agreement governing such Preferred Securities. Except
as provided below, owners of beneficial interests in a Global Preferred Security
will not be entitled to have any of the individual Preferred Securities
represented by such Global Preferred Security registered in their names, will
not receive or be entitled to receive physical delivery of any such Preferred
Securities in definitive form and will not be considered the owners or holders
thereof under the Trust Agreement.
None of the company, the Property Trustee, any Paying Agent, or the Securities
Registrar (defined below) for such Preferred Securities will be responsible or
liable for any aspect of
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the records relating to or payments made on account of beneficial ownership
interests of the Global Preferred Security representing such Preferred
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The company expects that the Depositary for Preferred Securities or its nominee,
upon receipt of any payment of the Liquidation Amount or Distributions in
respect of a permanent Global Preferred Security, immediately will credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the aggregate Liquidation Amount of such
Global Preferred Security as shown on the records of such Depositary or its
nominee. The company also expects that payments by Participants to owners of
beneficial interests in such Global Preferred Security held through such
Participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." Such payments will be the responsibility of
such Participants.
If the Depositary for the Preferred Securities is at any time unwilling, unable
or ineligible to continue as depositary and a successor depositary is not
appointed by the company within 90 days, the trust will issue individual
Preferred Securities in exchange for the Global Preferred Security. In addition,
the trust may generally determine not to have any Preferred Securities
represented by one or more Global Preferred Securities. In such event, the trust
will issue individual Preferred Securities in exchange for the Global Preferred
Security or Securities representing the Preferred Securities. Further, if the
trust so specifies with respect to the Preferred Securities, an owner of a
beneficial interest in a Global Preferred Security representing Preferred
Securities may, on terms acceptable to the company, the Property Trustee and the
Depositary for such Global Preferred Security, receive individual Preferred
Securities in exchange for such beneficial interests, subject to any limitations
described herein. In any such instance, an owner of a beneficial interest in a
Global Preferred Security will be entitled to physical delivery of individual
Preferred Securities represented by such Global Preferred Security equal in
Liquidation Amount to such beneficial interest and to have such Preferred
Securities registered in its name. Individual Preferred Securities so issued
will be issued in denominations, unless otherwise specified by the trust, of
$7.60 and integral multiples thereof.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities will be made to the Depositary,
which will credit the relevant accounts at the Depositary on the applicable
Distribution Dates or, if any of the Preferred Securities are not held by the
Depositary, such payments will be made by check mailed to the address of the
holder entitled thereto as such address will appear on the Register. The paying
agent (the "Paying Agent") will initially be the Property Trustee and any
co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees and the company. The Paying Agent will be permitted to
resign as Paying Agent upon 30 days' written notice to the Property Trustee and
the company. In the event that the Property Trustee shall no longer be the
Paying Agent, the Administrative Trustees will appoint a successor (which shall
be a bank or trust company acceptable to the Administrative Trustees and the
company) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the Preferred
Securities. Registration of transfers of the Preferred Securities will be
effected without charge by or on behalf of the trust, but upon payment of any
tax or other governmental charges that
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may be imposed in connection with any transfer or exchange. The trust will not
be required to register or cause to be registered the transfer of the Preferred
Securities after such Preferred Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the continuance
of an Event of Default, undertakes to perform only such duties as are
specifically set forth in the Trust Agreement and, after such Event of Default,
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. If no Event of
Default has occurred and is continuing and the Property Trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the Trust Agreement or is unsure of the application of any provision of the
Trust Agreement, and the matter is not one on which holders of the Preferred
Securities are entitled under the Trust Agreement to vote, then the Property
Trustee shall take such action as is directed by the company and if not so
directed, shall take such action as it deems advisable and in the best interests
of the holders of the Trust Securities and will have no liability except for its
own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the affairs
of and to operate the trust in such a way that the trust will not be deemed to
be an "investment company" required to be registered under the Investment
Company Act or classified as an association taxable as a corporation for United
States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the company for United States
federal income tax purposes. In this regard, the company and the Administrative
Trustees are authorized to take any action, not inconsistent with applicable
law, the certificate of trust of the trust or the Trust Agreement, that the
company and the Administrative Trustees determine in their discretion to be
necessary or desirable for such purposes, as long as such action does not
materially adversely affect the interests of the holders of the related
Preferred Securities. Holders of the Preferred Securities have no preemptive or
similar rights.
The trust may not borrow money or issue debt or mortgage or pledge any of its
assets.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures will be issued under the Subordinated
Indenture, dated as of , 1998 (the "Indenture"), between the company
and American Securities Transfer & Trust, Inc., as trustee (the "Indenture
Trustee"). The following summary of the terms and provisions of the Junior
Subordinated Debentures and the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Indenture,
which has been filed as an exhibit to the Registration Statement of which this
prospectus forms a part, and to the Trust Indenture Act. The Indenture is
qualified under the Trust Indenture Act. Whenever particular defined terms of
the Indenture are referred to herein, such defined terms are incorporated herein
or therein by reference.
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Concurrently with the issuance of the Preferred Securities, the trust will
invest the proceeds thereof, together with the consideration paid by the company
for the Common Securities, in Junior Subordinated Debentures issued by the
company. The Junior Subordinated Debentures will be issued as unsecured debt
under the Indenture.
GENERAL
The Junior Subordinated Debentures will bear interest at the annual rate of
% of the principal amount thereof, payable quarterly in arrears on the 15th
day of March, June, September and December of each year or, if any such date is
not a Business Day, on the next succeeding Business Day (each, an "Interest
Payment Date"), commencing March 15, 1999, to the person in whose name each
Junior Subordinated Debenture is registered, subject to certain exceptions, at
the close of business on the Business Day next preceding such Interest Payment
Date. However, if either the (i) Junior Subordinated Debentures are held by the
Property Trustee and the Preferred Securities are no longer in book-entry only
form or (ii) the Junior Subordinated Debentures are not represented by a Global
Subordinated Debenture (as defined herein), the record date for such payment
shall be the first day of the month in which such payment is made. The amount of
each interest payment due with respect to the Junior Subordinated Debentures
will include amounts accrued through the Interest Payment Date. It is
anticipated that, until the liquidation, if any, of the trust, each Junior
Subordinated Debenture will be held in the name of the Property Trustee in trust
for the benefit of the holders of the Preferred Securities. The amount of
interest payable for any period will be computed on the basis of a 360-day year
of twelve 30-day months. In the event that any date on which interest is payable
on the Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next Business Day (and without
any interest or other payment in respect of any such delay), except that, if
such Business Day is in the next succeeding calendar year, such payment shall be
made on the immediately preceding Business Day, in each case with the same force
and effect as if made on the date such payment was originally payable. Accrued
interest that is not paid on the applicable Interest Payment Date will bear
additional interest on the amount thereof (to the extent permitted by law) at
the rate per annum of % thereof, compounded quarterly. The term "interest"
as used herein shall include quarterly interest payments, interest on quarterly
interest payments not paid on the applicable Interest Payment Date and
Additional Sums (as defined below), as applicable.
The Junior Subordinated Debentures will mature on , 2028 (such date,
as it may be shortened as hereinafter described, the "Stated Maturity"). Such
date may be shortened once at any time by the company to any date not earlier
than , 2003, subject to the company having received prior approval
of the Federal Reserve if then required under applicable capital guidelines or
policies of the Federal Reserve. In the event that the company elects to shorten
the Stated Maturity of the Junior Subordinated Debentures, it will give notice
to the registered holders of the Junior Subordinated Debentures, the Property
Trustee and the Indenture Trustee of such shortening no less than 90 days prior
to the effectiveness thereof. The Property Trustee must give notice to the
holders of the Trust Securities of the shortening of the Stated Maturity.
The Junior Subordinated Debentures will be unsecured and will rank junior and be
subordinate in right of payment to all Senior and Subordinated Debt of the
company. Because the company is a holding company, the right of the company to
participate in any distribution of assets of any subsidiaries, including the
bank, upon any such subsidiaries'
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liquidation or reorganization or otherwise (and thus the ability of holders of
the Preferred Securities to benefit indirectly from such distribution), is
subject to the prior claims of creditors of that subsidiary, except to the
extent that the company may itself be recognized as a creditor of that
subsidiary. Accordingly, the Junior Subordinated Debentures will be effectively
subordinated to all existing and future liabilities of the company's
subsidiaries, and holders of Junior Subordinated Debentures should look only to
the assets of the company for payments on the Junior Subordinated Debentures.
The Indenture does not limit the incurrence or issuance of other secured or
unsecured debt of the company, including Senior and Subordinated Debt, whether
under the Indenture or any existing or other indenture that the company may
enter into in the future or otherwise. See "-- Subordination" below.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing, the
company has the right under the Indenture at any time during the term of the
Junior Subordinated Debentures to defer the payment of interest at any time or
from time to time for a period not exceeding 20 consecutive quarters (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 %, compounded quarterly, to the extent permitted by
applicable law). During an Extension Period, interest will continue to accrue
and holders of Junior Subordinated Debentures will be required to accrue
interest income for United States federal income tax purposes. See "Certain
Federal Income Tax Consequences."
During any such Extension Period, the company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the company's capital stock or (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the company (including other Junior
Subordinated Debentures) that rank pari passu with or junior in interest to the
Junior Subordinated Debentures 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 with or junior in interest to the
Junior Subordinated Debentures (other than (a) dividends or distributions in
common stock of the company, (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 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 exceed 20
consecutive quarters or extend beyond the Stated Maturity. Upon the termination
of any such Extension Period and the payment of all amounts 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 must give the
Property Trustee, the Administrative Trustees and the Indenture Trustee notice
of its election of any Extension Period at least one Business Day prior to the
earlier of (i) the date the Distributions on the Preferred Securities would have
been payable except for the election to begin or extend such
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Extension Period or (ii) the date the Administrative Trustees are required to
give notice to the holders of the Preferred Securities of the record date or the
date such Distributions are payable, but in any event not less than one Business
Day prior to such record date. The Indenture Trustee shall give notice of the
company's election to begin or extend a new Extension Period the holders of the
Preferred Securities. There is no limitation on the number of times that the
company may elect to begin an Extension Period.
ADDITIONAL SUMS
If the trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the company will pay as
additional amounts on the Junior Subordinated Debentures such amounts
("Additional Sums") as shall be required so that the Distributions payable by
the trust shall not be reduced as a result of any such additional taxes, duties
or other governmental charges.
REDEMPTION
Subject to the company having received prior approval of the Federal Reserve, if
then required under applicable capital guidelines or policies of the Federal
Reserve, the Junior Subordinated Debentures are redeemable prior to maturity at
the option of the company (i) on or after , 2003, in whole at any
time or in part from time to time, or (ii) at any time in whole (but not in
part), upon the occurrence and during the continuance of a Tax Event, an
Investment company Event or a Capital Treatment Event, in each case at a
redemption price equal to the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption, plus 100%
of the principal amount thereof.
Notice of any redemption will be mailed at least 30 days but not more than 60
days before the Redemption Date to each holder of Junior Subordinated Debentures
to be redeemed at such holder's registered address. Unless the company defaults
in payment of the Redemption Price, on and after the Redemption Date interest
ceases to accrue on such Junior Subordinated Debentures or portions thereof
called for redemption.
The Junior Subordinated Debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Preferred Securities -- Liquidation
Distribution upon Dissolution," under certain circumstances involving the
dissolution of the trust, the Junior Subordinated Debentures may be distributed
to the holders of the Preferred Securities and Common Securities in liquidation
of the trust after satisfaction of liabilities to creditors of the trust as
provided by applicable law. If distributed to holders of the Preferred
Securities in liquidation, the Junior Subordinated Debentures will initially be
issued in the form of one or more global securities and the Depositary, or any
successor depositary for the Preferred Securities, will act as depositary for
the Junior Subordinated Debentures. It is anticipated that the depositary
arrangements for the Junior Subordinated Debentures would be substantially
identical to those in effect for the Preferred Securities. If the Junior
Subordinated Debentures are distributed to the holders of Preferred Securities
upon the liquidation of the trust, there can be no assurance as to the market
price of any Junior Subordinated Debentures that may be distributed to the
holders of Preferred Securities.
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RESTRICTIONS ON CERTAIN PAYMENTS
If at any time (i) there shall have occurred any event of which the company has
actual knowledge that (a) with the giving of notice or the lapse of time, or
both, would constitute a Debenture Event of Default and (b) in respect of which
the company shall not have taken reasonable steps to cure, or (ii) the company
shall have given notice of its election of an Extension Period as provided in
the Indenture with respect to the Junior Subordinated Debentures and shall not
have rescinded such notice, or such Extension Period, or any extension thereof,
shall be continuing, or (iii) while the Junior Subordinated Debentures are held
by the trust, the company shall be in default with respect to its payment of any
obligation under the Guarantee, then the company will not (1) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the company's capital stock or (2)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the company (including other Junior
Subordinated Debt) that rank pari passu with or junior in interest to the Junior
Subordinated Debentures 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 equal to or junior in interest to the Junior
Subordinated Debentures (other than (a) dividends or distributions in common
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
rights under any of the company's benefit plans for its directors, officers or
employees).
SUBORDINATION
The Indenture, provides that any Junior Subordinated Debentures will be
subordinate and junior in right of payment to all Senior and Subordinated Debt
of the company. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the company, the holders of Senior and Subordinated
Debt will first be entitled to receive payment in full of principal of (and
premium, if any) and interest, if any, on such Senior and Subordinated Debt
before the holders of Junior Subordinated Debentures will be entitled to receive
or retain any payment in respect of the principal of or interest, if any, on the
Junior Subordinated Debentures.
In the event of the acceleration of the maturity of any Junior Subordinated
Debentures, the holders of all Senior and Subordinated Debt outstanding at the
time of such acceleration will first be entitled to receive payment in full of
all amounts due thereon (including any amounts due upon acceleration) before the
holders of Junior Subordinated Debentures will be entitled to receive or retain
any payment in respect of the principal of or interest, if any, on the Junior
Subordinated Debentures; provided, however, that holders of Subordinated Debt
shall not be entitled to receive payment of any such amounts to the extent that
such Subordinated Debt is by its terms subordinated to trade creditors.
No payments on account of principal or interest, if any, in respect of the
Junior Subordinated Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior and Subordinated Debt
or an event of
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default with respect to any Senior and Subordinated Debt resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
"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:
- every obligation of such person for money borrowed;
- 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;
- every reimbursement obligation of such person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account
of such person;
- 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);
- every capital lease obligation of such person; and
- every obligation of the type referred to in the five foregoing clauses 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,
directly or indirectly, as obligor or otherwise.
"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, whether incurred on or prior to the date of the 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 Junior Subordinated Debentures or to other
Debt which ranks equal with, or subordinated to, the Junior Subordinated
Debentures; provided, however, that Senior and Subordinated Debt shall not be
deemed to include:
- any Debt of the company which when incurred and without respect to any
election under section 1111(b) of the United States Bankruptcy Code of
1978, as amended, was without recourse to the company;
- any Debt of the company to any of its subsidiaries;
- any Debt to any employee of the company;
- any Debt which by its terms is subordinated to trade accounts payable or
accrued liabilities arising in the ordinary course of business to the
extent that payments made to the holders of such Debt by the holders of
the Junior Subordinated Debentures as a result of the subordination
provisions of the Indenture would be greater than they otherwise would
have been as a result of any obligation of such holders to pay amounts
over to the obligees on such trade accounts payable or accrued
liabilities arising in the ordinary course of business as a result of
subordination provisions to which such Debt is subject;
- the Guarantee; and
- any other debt securities issued pursuant to the Indenture.
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The Indenture does not limit the amount of additional Senior and Subordinated
Debt that may be incurred by the company. The company expects from time to time
to incur additional indebtedness constituting Senior and Subordinated Debt.
DENOMINATIONS, REGISTRATION AND TRANSFER
Under certain circumstances involving the dissolution of the trust, Junior
Subordinated Debentures will be represented by global certificates registered in
the name of the Depositary or its nominee ("Global Subordinated Debenture").
Beneficial interests in the Junior Subordinated Debentures will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depositary. Except as described below, Junior Subordinated Debentures in
certificated form will not be issued in exchange for the global certificates.
See "Book-Entry Issuance."
Unless and until a Global Subordinated Debenture is exchanged in whole or in
part for the individual Junior Subordinated Debentures represented thereby, it
may not be transferred except as a whole by the Depositary for such Global
Subordinated Debenture to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by the
Depositary or any nominee to a successor Depositary or any nominee of such
successor.
A global security shall be exchangeable for Junior Subordinated Debentures
registered in the names of persons other than the Depositary or its nominee only
if (i) the Depositary notifies the company that it is unwilling or unable to
continue as a depositary for such global security and no successor depositary
shall have been appointed, or if at any time the Depositary ceases 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 such depositary, (ii) the company in
its sole discretion determines that such global security shall be so
exchangeable or (iii) there shall have occurred and be continuing an Event of
Default under the Indenture with respect to such global security. Any global
security that is exchangeable pursuant to the preceding sentence shall be
exchangeable for definitive certificates registered in such names as the
Depositary shall direct. It is expected that such instructions will be based
upon directions received by the Depositary from its Participants with respect to
ownership of beneficial interests in such global security. In the event that
Junior Subordinated Debentures are issued in definitive form, such Junior
Subordinated Debentures will be in denominations of $7.60 and integral multiples
thereof and may be transferred or exchanged at the offices described below.
Payments on Junior Subordinated Debentures represented by a global security will
be made to the Depositary, as the depositary for the Junior Subordinated
Debentures. In the event Junior Subordinated Debentures are issued in definitive
form, principal and interest will be payable, the transfer of the Junior
Subordinated Debentures will be registrable, and Junior Subordinated Debentures
will be exchangeable for Junior Subordinated Debentures of other denominations
of a like aggregate principal amount, at the corporate office of the Indenture
Trustee, or at the offices of any paying agent or transfer agent appointed by
the company, provided that payment of interest may be made at the option of the
company by check mailed to the address of the persons entitled thereto or by
wire transfer. In addition, if the Junior Subordinated Debentures are issued in
certificated form, the record dates for payment of interest will be the first
day of the month in which such payment is to be made. For a description of the
Depositary and the terms of the depositary arrangements
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relating to payments, transfers, voting rights, redemptions and other notices
and other matters, see "Book-Entry Issuance."
The company will appoint the Indenture Trustee as securities registrar under the
Indenture (the "Securities Registrar"). Junior Subordinated Debentures may be
presented for exchange as provided above, and may be presented for registration
of transfer (with the form of transfer endorsed thereon, or a satisfactory
written instrument of transfer, duly executed), at the office of the Securities
Registrar. The company may at any time rescind the designation of any such
registrar or approve a change in the location through which any such registrar
acts, provided that the company maintains a registrar in the place of payment.
The company may at any time designate additional registrars with respect to the
Junior Subordinated Debentures.
In the event of any redemption, neither the company nor the Indenture Trustee
shall be required to (i) issue, register the transfer of or exchange Junior
Subordinated Debentures during a period beginning at the opening of business 15
days before the day of selection for redemption of Junior Subordinated
Debentures and ending at the close of business on the day of mailing of the
relevant notice of redemption or (ii) transfer or exchange any Junior
Subordinated Debentures so selected for redemption, except, in the case of any
Junior Subordinated Debentures being redeemed in part, any portion thereof not
to be redeemed.
GLOBAL SUBORDINATED DEBENTURE
As described above under "-- Distribution Upon Liquidation," under certain
circumstances, the Junior Subordinated Debentures may be distributed to the
holders of the Preferred Securities and Common Securities upon the liquidation
of the trust. In such case, the Junior Subordinated Debentures will be
represented by the Global Subordinated Debenture, with beneficial interests and
transfers being reflected only on the books of the Depositary. The Global
Subordinated Debenture will be exchangeable for individual Junior Subordinated
Debentures, in certificated form, registered in the names of persons other than
the Depositary, only in certain circumstances as described above under
"-- Denominations, Registration and Transfer."
Upon the issuance of the Global Subordinated Debenture, and the deposit of such
Global Subordinated Debenture with or on behalf of the Depositary, the
Depositary for such Global Subordinated Debenture or its nominee will credit, on
its book-entry registration and transfer system, the respective principal
amounts of the individual Junior Subordinated Debentures represented by such
Global Subordinated Debenture to Participants. Ownership of beneficial interests
in a Global Subordinated Debenture will be limited to Participants or persons
that may hold interests through Participants. Ownership of beneficial interests
in such Global Subordinated Debenture will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the applicable
Depositary or its nominee (with respect to interests of Participants) and the
records of Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Subordinated Debenture.
So long as the Depositary for a Global Subordinated Debenture, or its nominee,
is the registered owner of such Global Subordinated Debenture, such Depositary
or such nominee, as the case may be, will be considered the sole owner or holder
of the Junior Subordinated Debentures represented by such Global Subordinated
Debenture for all
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purposes under the Indenture governing such Junior Subordinated Debentures.
Except as provided below, owners of beneficial interests in a Global
Subordinated Debenture will not be entitled to have any of the individual Junior
Subordinated Debentures represented by such Global Subordinated Debenture
registered in their names, will not receive or be entitled to receive physical
delivery of any such Junior Subordinated Debentures in definitive form and will
not be considered the owners or holders thereof under the Indenture.
Payments of principal of and interest on individual Junior Subordinated
Debentures, including payments in respect of any redemption, represented by a
Global Subordinated Debenture registered in the name of the Depositary or its
nominee will be made to the Depositary or its nominee, as the case may be, as
the registered owner of the Global Subordinated Debenture representing such
Junior Subordinated Debentures. The Depositary or its nominee, as the case may
be, will in turn make payments to Participants in proportion to the respective
principal amounts of the individual Junior Subordinated Debentures credited to
their accounts. None of the company, the Indenture Trustee, any Paying Agent, or
the Securities Registrar for such Junior Subordinated Debentures will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Global
Subordinated Debenture representing such Junior Subordinated Debentures or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The company expects that the Depositary or its nominee, upon receipt of any
payment of principal or interest in respect of the Global Subordinated Debenture
representing the Junior Subordinated Debentures, immediately will credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the principal amount of the Global
Subordinated Debenture as shown on the records of such Depositary or its
nominee. The company also expects that payments by Participants to owners of
beneficial interests in such Global Subordinated Debenture held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." Such payments will be the responsibility of
such Participants.
If the Depositary is at any time unwilling, unable or ineligible to continue as
depositary and a successor depositary is not appointed by the company within 90
days, the company will issue individual Junior Subordinated Debentures in
exchange for the Global Subordinated Debenture. In addition, the company may at
any time and in its sole discretion, determine not to have the Junior
Subordinated Debentures represented by one or more Global Subordinated
Debentures and, in such event, will issue individual Junior Subordinated
Debentures in exchange for the Global Subordinated Debenture. Further, if the
company so specifies with respect to the Junior Subordinated Debentures, an
owner of a beneficial interest in a Global Subordinated Debenture representing
the Junior Subordinated Debentures may, on terms acceptable to the company, the
Indenture Trustee and the Depositary for such Global Subordinated Debenture,
receive individual Junior Subordinated Debentures in exchange for such
beneficial interests. In any such instance, an owner of a beneficial interest in
a Global Subordinated Debenture will be entitled to physical delivery of
individual Junior Subordinated Debentures equal in principal amount to such
beneficial interest and to have such Junior Subordinated Debentures registered
in its name. Individual Junior Subordinated Debentures so issued will be issued
in
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denominations, unless otherwise specified by the company, of $7.60 and integral
multiples thereof.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the Junior Subordinated Debentures
will be made at the office of the Indenture Trustee, except that at the option
of the company payment of any interest may be made (i) except in the case of a
Global Subordinated Debenture, 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 as specified
in the securities register, provided that proper transfer instructions have been
received by the regular record date. Payment of any interest on Junior
Subordinated Debentures will be made to the person in whose name such Junior
Subordinated Debenture is registered at the close of business on the regular
record date for such interest. The company may at any time designate additional
Paying Agents or rescind the designation of any Paying Agent; however, the
company will at all times be required to maintain a Paying Agent in each place
of payment for the Junior Subordinated Debentures.
Any moneys deposited with the Indenture Trustee or any Paying Agent, or then
held by the company in trust, for the payment of the principal of or interest on
the Junior Subordinated Debentures and remaining unclaimed for two years after
such principal or interest has become due and payable shall, at the request of
the company, be repaid to the company and the holder of such Junior Subordinated
Debenture shall thereafter look, as a general unsecured creditor, only to the
company for payment thereof.
MODIFICATION OF INDENTURE
From time to time the company and the Indenture Trustee may, without the consent
of the holders of the Junior Subordinated Debentures, amend, waive or supplement
the Indenture for specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies (provided that any such action does not
materially adversely affect the interests of the holders of the Junior
Subordinated Debentures or the Preferred Securities so long as they remain
outstanding) and qualifying, or maintaining the qualification of, the Indenture
under the Trust Indenture Act. The Indenture contains provisions permitting the
company and the Indenture Trustee, with the consent of the holders of not less
than a majority in principal amount of the outstanding Junior Subordinated
Debentures, to modify the Indenture in a manner affecting the rights of the
holders of the Junior Subordinated Debentures; provided, that, no such
modification may, without the consent of the holder of each outstanding
Subordinated Debenture, (i) change the Stated Maturity of the Junior
Subordinated Debentures or extend the time of payment of interest thereon
(except as described under "-- General" and "-- Option to Extend Interest
Payment Period"), or reduce the principal amount thereof or the rate of interest
thereon, or (ii) reduce the percentage of principal amount of Junior
Subordinated Debentures, the holders of which are required to consent to any
such modification of the Indenture, provided that so long as any of the
Preferred Securities remain outstanding, no such modification may be made that
adversely affects the holders of such Preferred Securities in any material
respect, and no termination of the Indenture may occur, and no waiver of any
Debenture Event of Default or compliance with any covenant under the Indenture
may be effective, without the prior consent of the holders of at least a
majority of the aggregate Liquidation Amount of the Preferred Securities unless
and until the principal of the Junior Subordinated
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Debentures and all accrued and unpaid interest thereon have been paid in full
and certain other conditions are satisfied.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described events
with respect to the Junior Subordinated Debentures that has occurred and is
continuing constitutes a "Debenture Event of Default" with respect to the Junior
Subordinated Debentures:
- failure for 30 days to pay any interest on the Junior Subordinated
Debentures, when due (subject to the deferral of any due date in the case
of an Extension Period); or
- failure to pay any principal on the Junior Subordinated Debentures when
due whether at maturity, upon redemption by declaration or otherwise; or
- failure by the company to observe or perform in any material respect
certain other covenants contained in the Indenture for 90 days after
written notice to the company from the Indenture Trustee or to the company
and the Indenture Trustee by the holders of at least 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures;
- certain events in bankruptcy, insolvency or reorganization of the
company, including the voluntary commencement of bankruptcy proceedings,
entry of an order for relief against the company in a bankruptcy
proceeding, appointment of a custodian over substantially all of the
company's property, a general assignment for the benefit of creditors, or a
court order for liquidation of the company; or
- in the event Junior Subordinated Debentures are issued to the trust or a
trustee of the trust in connection with the issuance of the Trust
Securities by the trust, if the trust shall have voluntarily or
involuntarily dissolved, wound up its business or otherwise terminated its
existence, except in connection with (i) the distribution of Junior
Subordinated Debentures to the holders in liquidation of their interests in
the trust; (ii) the redemption of all of the outstanding Trust Securities;
or (iii) certain mergers, consolidations or amalgamations, each as
permitted by the Trust Agreement.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct any proceeding for any
remedy available to the Indenture Trustee. The Indenture Trustee or the holders
of not less than 25% in aggregate outstanding principal amount of the Junior
Subordinated Debentures may declare the principal due and payable immediately
upon a Debenture Event of Default. The holders of a majority in aggregate
outstanding principal amount of the Junior Subordinated Debentures may annul
such declaration and waive the default if the default (other than the
non-payment of the principal of the Junior Subordinated Debentures which has
become due solely by such acceleration) 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 Indenture Trustee. If the holders of
the Junior Subordinated Debentures fail to annul such declaration and waive such
default, the holders of a majority in aggregate Liquidation Amount of the
Preferred Securities would have such right. In case a Debenture Event of Default
shall occur and be continuing, the Property Trustee may declare the principal of
and the interest on such Junior Subordinated Debentures, and any other amounts
payable under the Indenture, to be due and payable and to enforce its other
rights as a creditor with respect to such Junior Subordinated Debentures.
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The company is required to file annually with the Indenture Trustee a
certificate as to whether the company is in compliance with its obligations
under the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default for failure to pay interest or principal on the
Junior Subordinate Debentures has occurred and is continuing, a holder of
Preferred Securities may institute a legal proceeding directly against the
company for enforcement of payment to such holder of the principal of or
interest on such Junior Subordinated Debentures having a principal amount equal
to the aggregate Liquidation Amount of the Preferred Securities of such holder
("Direct Action"). If the right to bring a Direct Action is removed, the trust
may become subject to the reporting obligations under the Exchange Act. The
company shall have the right under the Indenture to set-off any payment made to
such holder of Preferred Securities by the company in connection with a Direct
Action.
The holders of the Preferred Securities would not be able to exercise directly
any remedies other than those set forth in the preceding paragraph available to
the holders of the Junior Subordinated Debentures unless there shall have been
an Event of Default under the Trust Agreement. See "Description of the Preferred
Securities -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the company shall not consolidate with, convert into
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, convert into or merge into the company or convey, transfer or
lease its properties and assets substantially as an entirety to the company,
unless (i) in case the company consolidates with, converts into or merges into
another Person or conveys or transfers its properties and assets substantially
as an entirety to any Person, the successor Person is organized under the laws
of the United States or any state or the District of Columbia, and such
successor Person expressly assumes the company's obligations on the Junior
Subordinated Debentures issued under the Indenture; (ii) immediately after
giving effect thereto, no Debenture Event of Default, and no event which, after
notice or lapse of time or both, would become a Debenture Event of Default,
shall have occurred and be continuing; and (iii) certain other conditions as
prescribed in the Indenture are met.
The provisions of the Indenture do not afford holders of the Junior Subordinated
Debentures protection in the event of a highly leveraged or other transaction
involving the company that may adversely affect holders of the Junior
Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior Subordinated
Debentures not previously delivered to the Indenture Trustee for cancellation
(i) have become due and payable or (ii) will become due and payable at their
Stated Maturity within one year, and the company deposits or causes to be
deposited with the Indenture Trustee, in trust, funds for the purpose and in an
amount in the currency or currencies in which the Junior Subordinated Debentures
are payable sufficient to pay and discharge the entire indebtedness on the
Junior Subordinated Debentures not previously delivered to the Indenture Trustee
for cancellation, for the principal and interest to the date of the deposit or
to the Stated Maturity, as the case may be, then the Indenture will cease to be
of further effect (except as to the company's obligations to pay all other sums
due pursuant
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to the Indenture and to provide the officers' certificates and opinions of
counsel described therein), and the company will be deemed to have satisfied and
discharged the Indenture.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of Colorado.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Indenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Indenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Indenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
COVENANTS OF THE COMPANY
The company will covenant in the Indenture, as to the Junior Subordinated
Debentures, that if and so long as (i) the trust is the holder of all such
Junior Subordinated Debentures, (ii) a Tax Event in respect of the trust has
occurred and is continuing and (iii) the company has elected, and has not
revoked such election, to pay Additional Sums (as defined under "Description of
the Preferred Securities -- Definitions") in respect of the Preferred
Securities, the company will pay to the trust such Additional Sums. The company
will also covenant, as to the Junior Subordinated Debentures, (i) to maintain
directly or indirectly 100% ownership of the Common Securities of the trust to
which Junior Subordinated Debentures have been issued, provided that certain
successors which are permitted pursuant to the Indenture may succeed to the
company's ownership of the Common Securities, (ii) not to voluntarily dissolve,
wind up or liquidate the trust, except upon prior approval of the Federal
Reserve if then so required under applicable capital guidelines or policies of
the Federal Reserve, and except (a) in connection with a distribution of Junior
Subordinated Debentures to the holders of the Preferred Securities in
liquidation of the trust or (b) in connection with certain mergers,
consolidations, 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 as an association taxable as a corporation for United States federal income
tax purposes.
BOOK-ENTRY ISSUANCE
The Depositary will act as securities depositary for all of the Preferred
Securities and, if there is a dissolution of the trust account, the Junior
Subordinated Debentures. The Preferred Securities and the Junior Subordinated
Debentures will be issued only as fully-registered securities registered in the
name of Cede & Co. (the Depositary's nominee). One or more fully-registered
global certificates will be issued for the Preferred Securities and the Junior
Subordinated Debentures and will be deposited with the Depositary.
The Depositary is a limited purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
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Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary holds securities that its Participants deposit with the Depositary.
The Depositary also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. "Direct
Participants" include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. The Depositary is owned
by a number of its Direct Participants and by the New York Stock Exchange, Inc.,
the American Stock Exchange and the National Association of Securities Dealers,
Inc. Access to the Depositary system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain custodial relationships with Direct Participants, either directly or
indirectly ("Indirect Participants"). The rules applicable to the Depositary and
its Participants are on file with the Securities and Exchange Commission.
Purchases of Preferred Securities or Junior Subordinated Debentures within the
Depositary system must be made by or through Direct Participants, which will
receive a credit for the Preferred Securities or Junior Subordinated Debentures
on the Depositary's records. The ownership interest of each actual purchaser of
each Preferred Security and each Junior Subordinated Debenture ("Beneficial
Owner") is in turn to be recorded on the Direct and Indirect Participants'
records. Beneficial Owners will not receive written confirmation from the
Depositary of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Preferred Securities or Junior
Subordinated Debentures. Transfers of ownership interests in the Preferred
Securities or Junior Subordinated Debentures are to be accomplished by entries
made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in Preferred Securities or Junior Subordinated Debentures, except in
the event that use of the book-entry system for the or Junior Subordinated
Debentures is discontinued.
The Depositary has no knowledge of the actual Beneficial Owners of the Preferred
Securities or Junior Subordinated Debentures; the Depositary's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities or Junior Subordinated Debentures are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of the
Preferred Securities or Junior Subordinated Debentures. If less than all of the
Preferred Securities or the Junior Subordinated Debentures are being redeemed,
the Depositary will determine by
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lot or pro rata the amount of the Preferred Securities of each Direct
Participant to be redeemed.
Although voting with respect to the Preferred Securities or the Junior
Subordinated Debentures is limited to the holders of record of the Preferred
Securities or the Junior Subordinated Debentures, in those instances in which a
vote is required, neither the Depositary nor Cede & Co. will itself consent or
vote with respect to Preferred Securities or Junior Subordinated Debentures.
Under its usual procedures, the Depositary would mail an omnibus proxy (the
"Omnibus Proxy") to the relevant Trustee as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts such Preferred Securities or Junior
Subordinated Debentures are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
Distribution payments on the Preferred Securities or the Junior Subordinated
Debentures will be made by the relevant Trustee to the Depositary. The
Depositary's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on the
Depositary's records unless the Depositary has reason to believe that it will
not receive payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices and will be the responsibility of such Participant and not of the
Depositary, the relevant Trustee, the trust or the company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of Distributions to the Depositary is the responsibility of the relevant
Trustee, disbursement of such payments to Direct Participants is the
responsibility of the Depositary, and disbursements of such payments to the
Beneficial Owners is the responsibility of Direct and Indirect Participants.
The Depositary may discontinue providing its services as securities depositary
with respect to any of the Preferred Securities or the Junior Subordinated
Debentures at any time by giving reasonable notice to the relevant Trustee and
the company. In the event that a successor securities depositary is not
obtained, definitive Preferred Securities or Subordinated Debenture certificates
representing such Preferred Securities or Junior Subordinated Debentures are
required to be printed and delivered. The company, at its option, may decide to
discontinue use of the system of book-entry transfers through the Depositary (or
a successor depositary). After a Debenture Event of Default, the holders of a
majority in liquidation preference of Preferred Securities or aggregate
principal amount of Junior Subordinated Debentures may determine to discontinue
the system of book-entry transfers through the Depositary. In any such event,
definitive certificates for such Preferred Securities or Junior Subordinated
Debentures will be printed and delivered.
The Depositary's management is aware that some computer applications, systems,
and the like for processing data ("Systems") that are dependent upon calendar
dates, including dates before, on, and after January 1, 2000, may encounter
"Year 2000 problems." The Depositary has informed its participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries and settlement of trades with the
Depositary, continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, the Depositary's plan includes a testing phase, which is expected
to be completed within appropriate time frames.
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However, the Depositary's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third-party vendors from whom the Depositary licenses
software and hardware, and third-party vendors on whom the Depositary relies for
information or the provision of services, including telecommunication and
electrical utility service providers, among others. The Depositary has informed
the Industry that it is contacting (and will continue to contact) third-party
vendors from whom the Depositary acquires services to: (i) impress upon them the
importance of such services being Year 2000 compliant and (ii) determine the
extent of their efforts for Year 2000 remediation (and, as appropriate, testing)
of their services. In addition, the Depositary is in the process of developing
such contingency plans as it deems appropriate.
According to the Depositary, the foregoing information with respect to the
Depositary has been provided to the Industry for informational purposes only and
is not intended to serve as a representation, warranty or contract modification
of any kind.
The information in this section concerning the Depositary and the Depositary's
book-entry system has been obtained from sources that the trust and the company
believe to be accurate, but the trust and the company assume no responsibility
for the accuracy thereof. Neither the trust nor the company has any
responsibility for the performance by the Depositary or its Participants of
their respective obligations as described herein or under the rules and
procedures governing their respective operations.
DESCRIPTION OF GUARANTEE
The Preferred Securities Guarantee Agreement (the "Guarantee") will be executed
and delivered by the company concurrently with the issuance of the Preferred
Securities for the benefit of the holders of the Preferred Securities. American
Securities Transfer & Trust, Inc. will act as trustee under the Guarantee (the
"Guarantee Trustee") for the purposes of compliance with the Trust Indenture
Act, and the Guarantee will be qualified under the Trust Indenture Act. The
following summary of certain provisions of the Guarantee does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
of the provisions of the Guarantee, including the definitions therein of certain
terms, and the Trust Indenture Act. The form of the Guarantee has been filed as
an exhibit to the Registration Statement of which this Prospectus forms a part.
The Guarantee Trustee will hold the Guarantee for the benefit of the holders of
the Preferred Securities.
GENERAL
The Guarantee will be an irrevocable guarantee on a subordinated basis of all of
the trust's obligations under the Preferred Securities. It will apply only to
the extent that Union Capital has funds sufficient to make such payments, and is
not a guarantee of collection.
The company will irrevocably agree to pay in full on a subordinated basis, to
the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Preferred Securities, as and when due, regardless of any defense,
right of set-off or counterclaim that the trust may have or assert other than
the defense of payment. The following payments with respect to the Preferred
Securities, to the extent not paid by or on behalf of the trust (the "Guarantee
Payments"), are covered by the Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on the Preferred Securities, (ii) the
Redemption Price with respect to any Preferred Securities called for redemption,
and (iii) upon a voluntary or involuntary dissolution, winding up or liquidation
of the trust (unless the
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Junior Subordinated Debentures are distributed to holders of the Preferred
Securities), the lesser of (a) the Liquidation Distribution and (b) the amount
of assets of the trust remaining available for distribution to holders of
Preferred Securities. The company's obligation to make a Guarantee Payment may
be satisfied by direct payment of the required amounts by the company to the
holders of the Preferred Securities or by causing the trust to pay such amounts
to such holders.
If the company does not make interest payments on the Junior Subordinated
Debentures held by the trust, the trust will not have funds legally available to
pay Distributions on the Preferred Securities. The Guarantee will rank
subordinate and junior in right of payment to all Senior and Subordinated Debt
of the company. See "-- Status of the Guarantee" below. Because the company is a
holding company, the right of the company to participate in any distribution of
assets of any subsidiary upon such subsidiary's liquidation or reorganization or
otherwise, is subject to the prior claims of creditors of that subsidiary,
except to the extent the company may itself be recognized as a creditor of that
subsidiary. Accordingly, the company's obligations under the Guarantee will be
effectively subordinated to all existing and future liabilities of the company's
subsidiaries, and claimants should look only to the assets of the company for
payments thereunder. Except as otherwise described herein, the Guarantee does
not limit the incurrence or issuance of other secured or unsecured debt of the
company, including Senior and Subordinated Debt whether under the Indenture, any
other indenture that the company may enter into in the future, or otherwise.
The company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement, taken
together, guaranteed on a subordinated basis all of the trust's obligations
under the Preferred Securities. No single document standing alone or operating
in conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a guarantee on a subordinated basis of all of the trust's
obligations under the Preferred Securities. See "Relationship Among the
Preferred Securities, the Junior Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee is unsecured and ranks subordinate and junior in right of payment
to all Senior and Subordinated Debt in the same manner as the Junior
Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection. The
guaranteed party may institute a legal proceeding directly against the company
to enforce its rights under the Guarantee without first instituting a legal
proceeding against any other person or entity. The Guarantee will be held for
the benefit of the holders of the Preferred Securities. The Guarantee will not
be discharged except by payment of the Guarantee Payments in full to the extent
not paid by the trust or upon distribution to the holders of the Preferred
Securities of the Junior Subordinated Debentures to the holders of the Preferred
Securities. The Guarantee does not place a limitation on the amount of
additional Senior and Subordinated Debt that may be incurred by the company. The
company expects from time to time to incur additional indebtedness constituting
Senior and Subordinated Debt.
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AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect the
rights of holders of the Preferred Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of such
outstanding Preferred Securities. See "Description of the Preferred
Securities -- Voting Rights; Amendment of Trust Agreement." All guarantees and
agreements contained in the Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of the company and shall inure to the
benefit of the holders of the Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Preferred Securities have the right to direct any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee.
Any holder of the Preferred Securities may institute a legal proceeding directly
against the company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the trust, the Guarantee Trustee or any
other person or entity.
The company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether the company is in compliance with all the
conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after
default with respect to the Guarantee, must exercise the same degree of care and
skill as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the Guarantee Trustee is under no obligation
to exercise any of the powers vested in it by the Guarantee at the request of
any holder of the Preferred Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of the Preferred Securities, upon full payment
of the amounts payable upon liquidation of the trust or upon distribution of
Junior Subordinated Debentures to the holders of the Preferred Securities. The
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the Preferred Securities must restore payment
of any sums paid under the Preferred Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws of
the State of Colorado.
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THE EXPENSE AGREEMENT
Pursuant to the Agreement as to Expenses and Liabilities entered into by the
company and the trust (the "Expense Agreement"), the company will irrevocably
and unconditionally guarantee to each person or entity to whom the trust becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
the trust, other than obligations of the trust to pay to the holders of the
Preferred Securities or other similar interests in the trust of the amounts due
such holders pursuant to the terms of the Preferred Securities or such other
similar interests, as the case may be.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities are
irrevocably guaranteed by the company as and to the extent set forth under
"Description of Guarantee." Taken together, the company's obligations under the
Junior Subordinated Debentures, the Indenture, the Trust Agreement, the Expense
Agreement and the Guarantee provide, in the aggregate, a guarantee on a
subordinated basis, to the extent described herein, of payments of Distributions
and other amounts due on the Preferred Securities (to the extent Union
Bankshares Capital Trust I has funds available for the payment of such
Distributions). No single document standing alone or operating in conjunction
with fewer than all of the other documents constitutes such guarantee. It is
only the combined operation of those documents that has the effect of providing
a guarantee on a subordinated basis of the trust's obligations under the
Preferred Securities. If and to the extent that the company does not make
payments on the Junior Subordinated Debentures, the trust will not pay
Distributions or other amounts due on the Preferred Securities. The Guarantee
does not cover payment of Distributions when the trust does not have sufficient
funds to pay such Distributions. In such event, the remedy of a holder of the
Preferred Securities is to institute a legal proceeding directly against the
company for enforcement of payment of such Distributions to such holder. The
obligations of the company under the Guarantee are subordinate and junior in
right of payment to all Senior and Subordinated Debt.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Preferred Securities, primarily
because:
- - the aggregate principal amount of the Junior Subordinated Debentures will be
equal to the sum of the aggregate Liquidation Amount of the Preferred
Securities and Common Securities;
- - the interest rate and interest and other payment dates on the Junior
Subordinated Debentures will match the Distribution rate and Distribution and
other payment dates for the Preferred Securities;
- - the company shall pay for all and any costs, expenses and liabilities of the
trust except the trust's obligations to holders of Preferred Securities; and
- - the Trust Agreement further provides that the trust will not engage in any
activity that is not consistent with the limited purposes of the trust.
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Notwithstanding anything to the contrary in the Indenture, the company has the
right to set-off any payment it is otherwise required to make thereunder with
and to the extent the company has theretofore made, or is concurrently on the
date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF THE PREFERRED SECURITIES UNDER THE GUARANTEE
A holder of any the Preferred Securities may institute a legal proceeding
directly against the company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the trust or
any other person or entity.
A default or event of default under any Senior and Subordinated Debt would not
constitute an Event of Default. However, in the event of payment defaults under,
or acceleration of, Senior and Subordinated Debt, the subordination provisions
of the Indenture provide that no payments may be made in respect of the Junior
Subordinated Debentures until such Senior and Subordinated Debt has been paid in
full or any payment default thereunder has been cured or waived. Failure to make
required payments on Junior Subordinated Debentures would constitute an Event of
Default.
LIMITED PURPOSE OF THE TRUST
The Preferred Securities evidence a beneficial interest in Union Bankshares
Capital Trust I, and the trust exists for the sole purpose of issuing the Trust
Securities and investing the proceeds thereof in the Junior Subordinated
Debentures. A principal difference between the rights of a holder of the
Preferred Securities and a holder of a Subordinated Debenture is that a holder
of a Subordinated Debenture is entitled to receive from the company the
principal amount of and interest accrued on Junior Subordinated Debentures held,
while a holder of the Preferred Securities is entitled to receive Distributions
from the trust (or from the company under the Guarantee) if and to the extent
the trust has funds available for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution, winding-up or liquidation of the
trust involving the liquidation of the Junior Subordinated Debentures, the
holders of Preferred Securities will be entitled to receive, out of assets held
by the trust, the Liquidation Distribution in cash. See "Description of the
Preferred Securities -- Liquidation Distribution upon Dissolution." Upon any
voluntary or involuntary liquidation or bankruptcy of the company, the Property
Trustee, as holder of the Junior Subordinated Debentures, would be a
subordinated creditor of the company, subordinated in right of payment to all
Senior and Subordinated Debt as set forth in the Indenture, but entitled to
receive payment in full of principal and interest, before any stockholders of
the company receive payments or distributions. Since the company is the
guarantor under the Guarantee and has agreed to pay for all costs, expenses and
liabilities of the trust (other than the trust's obligations to the holders of
its Preferred Securities), the positions of a holder of the Preferred Securities
and a holder of Junior Subordinated Debentures relative to other creditors and
to stockholders of the company in the event of liquidation or bankruptcy of the
company are expected to be substantially the same.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Davis, Graham & Stubbs LLP, counsel to the company
("Counsel"), the following summary accurately describes the material United
States federal income tax consequences that may be relevant to the purchase,
ownership and disposition of Preferred Securities. Unless otherwise stated, this
summary deals only with Preferred Securities held as capital assets by United
States Persons (defined below) who purchase the Preferred Securities upon
original issuance at the first price at which a substantial amount of Preferred
Securities were sold. As used herein, a "United States Person" means a person
that is (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is subject to United States federal income taxation regardless of its
source, or (iv) any trust if a court within the United States is able to
exercise primary supervision over the administration of such trust and one or
more United States fiduciaries have the authority to control all substantial
decisions of such trust. The tax treatment of holders may vary depending on
their particular situation. This summary does not address all the tax
consequences that may be relevant to a particular holder or to holders who may
be subject to special tax treatment, such as banks, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, foreign investors, persons that
will hold the Preferred Securities as part of a position in a "straddle" or as
part of a "hedging" or other integrated transaction, persons whose functional
currency is not the United States dollar or persons that do not hold the
Preferred Securities as capital assets. In addition, this summary does not
include any description of any alternative minimum tax consequences or the tax
laws of any state, local or foreign government that may be applicable to a
holder of Preferred Securities. This summary is based on the Internal Revenue
Code of 1986, as amended (the "Code"), the Treasury regulations promulgated
thereunder and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change, possibly on a retroactive
basis. Any such change could cause the tax consequences to vary substantially
from the consequences described below, possibly adversely affecting an owner of
Preferred Securities.
The following discussion does not discuss the tax consequences that might be
relevant to persons that are not United States Persons ("non-United States
Persons"). Non-United States Persons should consult their own tax advisors as to
the specific United States federal income tax consequences of the purchase,
ownership and disposition of Preferred Securities.
The authorities on which this summary is based are subject to various
interpretations and the opinions of Counsel are not binding on the Internal
Revenue Service ("Service") or the courts, either of which could take a contrary
position. Moreover, no rulings have been or will be sought from the Service with
respect to the transactions described herein. Accordingly, there can be no
assurance that the Service will not challenge the opinions expressed herein or
that a court would not sustain such a challenge. It is therefore possible that
the federal income tax treatment of the purchase, ownership and disposition of
Preferred Securities may differ from the treatment described below.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN, AND
OTHER TAX
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LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX
LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION OF THE PREFERRED SECURITIES
UPON THE OCCURRENCE OF CERTAIN TAX EVENTS, SEE "DESCRIPTION OF THE PREFERRED
SECURITIES -- REDEMPTION."
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Preferred Securities, Counsel is of the
opinion that, under current law and assuming compliance with the terms of the
Trust Agreement, and based on certain facts and assumptions contained in such
opinion, Union Bankshares Capital Trust I will be classified as a grantor trust
and not as an association taxable as a corporation for United States federal
income tax purposes. As a result, each beneficial owner of the Preferred
Securities (a "Securityholder") will be treated as owning an undivided
beneficial interest in the Junior Subordinated Debentures. Accordingly, each
Securityholder will be required to include in its gross income its pro rata
share of the interest income or OID that is paid or accrued on the Junior
Subordinated Debentures. See "-- Interest Income and Original Issue Discount."
No amount included in income with respect to the Preferred Securities will be
eligible for the dividends received deduction.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The company intends to take the position, based on the advice of Davis, Graham &
Stubbs LLP, that the Junior Subordinated Debentures will be classified for
United States federal income tax purposes as indebtedness of the company under
current law, and, by acceptance of a Preferred Security, each holder covenants
to treat the Junior Subordinated Debentures as indebtedness of the company for
all United States tax purposes and the Preferred Securities as evidence of an
indirect beneficial ownership interest in the Junior Subordinated Debentures. No
assurance can be given, however, that such position of the company will not be
challenged by the Service or, if challenged, that such a challenge will not be
successful. The remainder of this discussion assumes that the Junior
Subordinated Debentures will be classified for United States federal income tax
purposes as indebtedness of the company. See "Risk Factors -- Possible Tax Law
Changes Affecting the Preferred Securities."
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Except as set forth below, stated interest on the Junior Subordinated Debentures
generally will be included in income by a Securityholder at the time such
interest income is paid or accrued in accordance with such Securityholder's
regular method of tax accounting.
The company believes that the Junior Subordinated Debentures will not be
considered to have been issued with OID within the meaning of Section 1273(a) of
the Code since under the applicable Treasury regulations a "remote" contingency
that stated interest will not be timely paid is ignored in determining whether a
debt instrument is issued with OID. The company believes that the likelihood of
exercising its option to defer payments of interest is "remote;" however, the
Treasury regulations provide no guidance with respect to when a contingency is
"remote." If the company's option to defer payments of interest on the Junior
Subordinated Debentures were not treated as remote, the Junior Subordinated
Debentures would be considered issued with OID at original issuance which would,
in general, accrue over the term of the Junior Subordinated Debentures described
below.
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If the company exercises its right to defer payments of interest on the Junior
Subordinated Debentures, the Junior Subordinated Debentures will become OID
instruments, and the amount of OID will be equal to the aggregate of all future
payments of interest on the Junior Subordinated Debentures. In such event, all
Securityholders will be required to accrue the OID on the Junior Subordinated
Debentures on a daily basis during the Extension Period, even though the company
will not pay such interest until the end of the Extension Period, and even
though some Securityholders may use the cash method of tax accounting. Moreover,
thereafter the Junior Subordinated Debentures will be taxed as OID instruments
for as long as they remained outstanding. Thus, even after the end of the
Extension Period, all Securityholders will be required to continue to include
the OID on the Junior Subordinated Debentures in income on a daily economic
accrual basis, regardless of their method of tax accounting and in advance of
receipt of the cash attributable to such interest income. Under the OID economic
accrual rules, a Securityholder will accrue an amount of interest income each
year that approximates the stated interest payments called for under the Junior
Subordinated Debentures, and actual cash payments of interest on the Junior
Subordinated Debentures generally will not be reported separately as taxable
income.
The Treasury regulations described above have not yet been addressed in any
rulings or other definitive interpretations by the Service, and it is possible
that the Service could take a contrary position. If the Service were to assert
successfully that the stated interest on the Junior Subordinated Debentures was
OID regardless of whether the company exercises its right to defer payments of
interest on such debentures, all Securityholders would be required to include
such stated interest in income on a daily economic accrual basis as described
above.
The company does not anticipate that Additional Sums (as defined in the
Indenture) will be paid. However, if Additional Sums are paid, they will be
taxable to the Securityholder as ordinary income (generally as interest income).
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF PREFERRED
SECURITIES
Under current law, a distribution by Union Bankshares Capital Trust I of the
Junior Subordinated Debentures as described under the caption "Description of
the Preferred Securities -- Liquidation and Distribution upon Dissolution" will
be non-taxable and will result in the Securityholder receiving directly its pro
rata share of the Junior Subordinated Debentures previously held indirectly
through the trust, with a holding period and aggregate tax basis equal to the
holding period and aggregate tax basis such Securityholder had in its Preferred
Securities before such distribution. If, however, the liquidation of the trust
were to occur because the trust is subject to United States federal income tax
with respect to income accrued or received on the Junior Subordinated Debentures
as a result of a Tax Event or otherwise, the distribution of Junior Subordinated
Debentures to Securityholders by the trust would be a taxable event to the trust
and each Securityholder, and a Securityholder would recognize gain or loss as if
the Securityholder had sold or exchanged its Preferred Securities for the Junior
Subordinated Debentures it received upon the liquidation of the trust. See
"-- Sales or Redemption of Preferred Securities." A Securityholder would
recognize interest income in respect of Junior Subordinated Debentures received
from the trust in the manner described above under "-- Interest Income and
Original Issue Discount."
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SALES OR REDEMPTION OF PREFERRED SECURITIES
Gain or loss will be recognized by a Securityholder on a sale of Preferred
Securities (including a redemption for cash) in an amount equal to the
difference between the amount realized (which for this purpose, will exclude
amounts attributable to accrued interest or OID not previously included in
income, which amount will be subject to tax as ordinary interest income) and the
Securityholder's adjusted tax basis in the Preferred Securities sold or so
redeemed. A Securityholder's adjusted tax basis will be its initial purchase
price increased by any accrued OID previously included in such Securityholder's
gross income to the date of disposition and decreased by payments (other than
stated interest on the Junior Subordinated Debentures that does not constitute
OID) received on the Preferred Securities. Any gain or loss on the sale,
exchange or retirement of the Preferred Securities generally will be treated as
capital gain or loss. Under recently enacted legislation, an individual U.S.
holder generally will be subject to tax on the net amount of his or her capital
gain realized on the sale, exchange or retirement of the Preferred Securities at
a maximum rate of 20% for Preferred Securities held for more than one year and
at a maximum rate of 39.6% for Preferred Securities held one year or less.
Special rules (and generally lower maximum rates) apply for individuals whose
taxable income is below certain levels. The deductibility of capital losses is
subject to limitations.
Should the company exercise its option to defer any payment of interest on the
Junior Subordinated Debentures, the Preferred Securities may trade at a price
that does not fully reflect the value of accrued but unpaid interest with
respect to the underlying Junior Subordinated Debentures. In the event of such a
deferral, a Securityholder that disposes of its Preferred Securities between
record dates for payments of Distributions (and consequently does not receive a
Distribution from the trust for the period prior to such disposition) will
nevertheless be required to include in income as ordinary income accrued but
unpaid interest on the Junior Subordinated Debentures through the date of
disposition and to add such amount to its adjusted tax basis in its Preferred
Securities disposed of. Such Securityholder will recognize a capital loss on the
disposition of its Preferred Securities to the extent the selling price (which
may not fully reflect the value of accrued but unpaid interest) is less than the
Securityholder's adjusted tax basis in the Preferred Securities (which will
include accrued but unpaid interest that has been taken into account in income).
Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest paid or OID accrued, if any, on the Junior Subordinated
Debentures, beneficial ownership of which is reflected in the Preferred
Securities held of record by United States Persons (other than corporations and
other exempt Securityholders), will be reported to the Service. Generally,
income on the Preferred Securities will be reported to Securityholders on Form
1099, which form should be mailed to Securityholders by January 31 following
each calendar year. "Backup" withholding at a rate of 31% will apply to payments
of interest to non-exempt United States Persons unless the Securityholder
furnishes its taxpayer identification number in the manner prescribed in
applicable Treasury Regulations, certifies that such number is correct,
certifies as to no loss of exemption from backup withholding and meets certain
other conditions. Any amounts withheld from a Securityholder under the backup
withholding rules will be allowed as a refund or a credit against such
Securityholder's United States federal income tax liability, provided the
required information is furnished to the Service. Payment of the proceeds
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from the disposition of Preferred Securities to or through the United States
office of a broker is subject to information reporting and backup withholding
unless the Securityholder or beneficial owner establishes an exemption from
information reporting and backup withholding.
POSSIBLE TAX LAW CHANGES AFFECTING PREFERRED SECURITIES
The company can make no assurance that future legislative proposals or final
legislation will not affect the ability of the company to deduct interest on the
Junior Subordinated Debentures. Such a change could give rise to a Tax Event,
which may permit the company to cause a redemption of the Trust Preferred
Securities. See "Risk Factors -- Possible Tax Law Changes Affecting the
Preferred Securities," "Description of the Preferred Securities -- Redemption"
and "Description of the Junior Subordinated Debentures -- Redemption."
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ERISA CONSIDERATIONS
Many retirement plans are subject to the rules of the Employee Retirement Income
Security Act of 1974 ("ERISA"), and they are also subject to requirements in the
Code. Retirement plans generally may purchase Preferred Securities. When they
do, the fiduciaries for these retirement plans (usually trustees and custodians)
are required to comply with fiduciary duties under ERISA and other requirements
under the Code. Retirement plans can be employer-sponsored plans like pension
plans and profit sharing plans, individual retirement accounts (IRAs), and other
types of plans which defer the receipt of income.
If a retirement plan is sponsored and/or contributed to by a party that is
affiliated in certain ways with the company, the company and/or its affiliate
could be a "party in interest" or a "disqualified person." The rules regarding
these relationships are very complex. They can arise if the company is a
fiduciary to a retirement plan, such as being the trustee or custodian. They can
arise if the company or one of its affiliates provides any services to or for
the retirement plan. There are many other circumstances which can cause the
relationship to exist. When one of these relationships exists, the purchase of
Preferred Securities by the retirement plan is likely to result in a transaction
that is not permitted by ERISA and/or the Code. These transactions are referred
to as "prohibited transactions" or "disqualifying transactions." These could
lead to excise tax penalties and even tax disqualification of a retirement plan.
However, there may be ways to exempt prohibited transactions from the excise tax
penalties and tax disqualification. This may require application to a
governmental agency.
If the company or one of its affiliates is a party in interest or disqualified
person as to a retirement plan, that retirement plan should not acquire
Preferred Securities without first receiving an exemption. Entities like
partnerships and limited liability companies which have a relationship with the
company and/or one of its affiliates and that may be holding assets of
retirement plans also have to address these prohibited transaction issues. All
of these rules are very complicated. Each purchaser which has a relationship of
any kind with the company and/or one of its affiliates should consult with its
own benefits counsel before acquiring Preferred Securities.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") among the company and the underwriters listed on the
table below for whom Bigelow & Company is acting as representative (the
"Representative"), the underwriters have severally agreed to purchase from the
trust an aggregate of 1,315,790 Preferred Securities in the amounts set forth
below opposite their respective names.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF PREFERRED SECURITIES
- ------------ ------------------------------
<S> <C>
Bigelow & Company....................................
Barington Capital Group L.P. ........................
EVEREN Securities, Inc. .............................
Fahnestock & Co. Inc. ...............................
Pacific Crest Securities Inc. .......................
Schneider Securities, Inc. ..........................
----------
Total...................................... 1,315,790
</TABLE>
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<PAGE> 123
The Underwriting Agreement provides that the underwriters' obligations are
subject to conditions precedent and that the underwriters are committed to
purchase all of the Preferred Securities offered hereby if the underwriters
purchase any Preferred Securities.
The underwriters have advised the company and the trust that they propose to
offer the Preferred Securities to the public at the Public Offering Price set
forth on the cover page of this prospectus. After the offering, the Public
Offering Price and other selling terms may be changed by the underwriters.
In view of the fact that all of the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures, the
Underwriting Agreement provides that the company will pay the underwriters as
compensation for arranging the investment therein of such proceeds, up to $
per Preferred Security, depending upon the commission rate applicable to each
particular investor.
The trust has granted the underwriters an option to purchase up to an additional
131,578 Preferred Securities at the Public Offering Price. Such option, which
expires 30 days from the date of this prospectus, may be exercised solely to
cover over-allotments. To the extent that the underwriters exercise this option
to purchase additional Preferred Securities, the trust will issue and sell to
the company additional Common Securities in such aggregate liquidation amount as
is required for the company to continue to hold Common Securities in an
aggregate liquidation amount equal to at least 3% of the total capital of the
trust and the company will issue and sell to the trust Junior Subordinated
Debentures in an aggregate principal amount equal to the total aggregate
liquidation amount of the additional Preferred Securities being purchased
pursuant to the option and the additional Common Securities.
Each of the company and the trust has agreed to indemnify the underwriters and
their controlling persons against certain liabilities, including liabilities
under the Securities Act of 1933, as amended, or to contribute to payments the
underwriters may be required to make in respect thereof.
The underwriters may engage in stabilizing transactions in accordance with
Regulation M under the Exchange Act, as well as passive market making relating
to the Preferred Securities. Stabilizing transactions permit bids and purchases
of the Preferred Securities so long as the stabilizing bids do not exceed a
specified maximum. Such stabilizing transactions may cause the price of the
Preferred Securities to be higher than it would otherwise be in the absence of
such transactions. Such stabilizing transactions, if commenced, may be
discontinued at any time.
The underwriters have advised the trust that they do not intend to confirm any
sales of Preferred Securities to any discretionary accounts. In connection with
the offer and sale of the Preferred Securities, the underwriters will comply
with Rule 2810 under the NASD Conduct Rules, to the extent applicable.
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LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the formation of Union
Bankshares Capital Trust I will be passed upon by Richards, Layton & Finger
P.A., Wilmington, Delaware, special Delaware counsel to the company and the
trust. The validity of the Guarantee and the Junior Subordinated Debentures will
be passed upon for the company by Davis, Graham & Stubbs LLP, Denver, Colorado,
counsel to the company. Certain legal matters in connection with this Offering
will be passed upon for the underwriters by Kutak Rock, Denver, Colorado. Davis,
Graham & Stubbs LLP and Kutak Rock will rely on the opinions of Richards, Layton
& Finger P.A. as to matters of Delaware law. Certain matters relating to United
States federal income tax considerations will be passed upon for the company by
Davis, Graham & Stubbs LLP.
EXPERTS
The Consolidated Financial Statements of the company as of December 31, 1997 and
1996 have been included and incorporated herein by reference in reliance upon
the report of Baird, Kurtz & Dobson, independent certified public accountants,
appearing elsewhere and incorporated herein by reference, given upon their
authority as experts in accounting and auditing.
The Consolidated Financial Statements of the company as of December 31, 1995
have been included and incorporated herein by reference in reliance upon the
report of McGladrey & Pullen, LLP, independent public auditors, appearing
elsewhere and incorporated herein by reference, given upon their authority as
experts in accounting and auditing.
The Financial Statements of Lakewood State Bank as of December 31, 1997 and
1996, have been included herein in reliance upon the report of Fortner, Bayens,
Levkulich and Co., independent certified public accountants, given their
authority as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the company with the Securities and Exchange
Commission are incorporated into this prospectus by reference:
1. The company's Annual Report on Form 10-KSB for the year ended December
31, 1997 as amended by the Amendment to Annual Report on Form 10-KSB/A;
2. The company's Quarterly Reports on Form 10-QSB for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998; and
3. The company's Current Reports on Form 8-K filed with the Commission on
May 28, 1998 and September 2, 1998.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
123
<PAGE> 125
The company will provide without charge to any person to whom this prospectus is
delivered, including any beneficial owner, on the written or oral request of
such person, a copy of any or all of the foregoing documents incorporated by
reference herein (other than exhibits, unless such exhibits are specifically
incorporated by reference in such documents) at no cost to such person. Requests
for such documents should be directed to: Union Bankshares, Ltd., 1825 Lawrence
Street, Suite 444, Denver, Colorado 80202, Attn: Chief Financial Officer
(telephone (303) 298-5352).
As used herein, the terms "prospectus" and "herein" mean this prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this prospectus as to the contents of any
contract or other document referred to herein do not purport to be complete, and
where reference is made to the particular provisions of such contract or other
document, such provisions are qualified in all respects by reference to all of
the provisions of such contract or other document.
AVAILABLE INFORMATION
The company is subject to the informational requirements of the Exchange Act,
and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at the Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices at 7 World
Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. You may
obtain information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. Copies of such material may also be obtained by
mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. If available, such information
also may be accessed through the Commission's electronic data gathering,
analysis and retrieval system ("EDGAR") via electronic means, including the
Commission's home page on the Internet (http://www.sec.gov). The company's
common stock is traded on the Nasdaq National Market. Such reports, proxy
statements and other information concerning the company also may be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington D.C. 20006.
The company has filed with the Commission a Registration Statement on Form S-2
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. This prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules relating thereto as permitted by the rules and regulations of the
Commission. For further information pertaining to the company and the securities
offered hereby, reference is made to the Registration Statement and the exhibits
thereto. Items of information omitted from this prospectus, but contained in the
Registration Statement, may be obtained at prescribed rates or inspected without
charge at the offices of the Commission set forth above. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
124
<PAGE> 126
No separate financial statements of the trust have been included herein. The
company does not consider that such financial statements would be material to
holders of the Preferred Securities because (i) all of the voting securities of
the trust will be owned by the company, a reporting company under the Exchange
Act, (ii) the trust has no independent operations but exists for the sole
purpose of issuing securities representing undivided beneficial interest in the
assets of the trust and investing the proceeds thereof in the Junior
Subordinated Debentures issued by the company, and (iii) the obligations of the
company described herein to provide certain indemnities in respect of and be
responsible for certain costs, expenses, debts and liabilities of the trust
under the Indenture and pursuant to the Trust Agreement, the guarantee issued by
the company with respect to the Preferred Securities, and the Junior
Subordinated Debentures purchased by the trust and the related Indenture, taken
together, constitute, in the belief of the company and the trust, a full and
unconditional guarantee of payments due on the Preferred Securities. See
"Description of the Junior Subordinated Debentures" and "Description of
Guarantee."
The trust is not currently subject to the information reporting requirements of
the Exchange Act. The trust will become subject to such requirements upon the
effectiveness of the Registration Statement, although it intends to seek and
expects to receive relief therefrom from the Commission.
125
<PAGE> 127
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT ACCOUNTANTS' REPORT............................. F-2
INDEPENDENT AUDITOR'S REPORT................................ F-3
CONSOLIDATED FINANCIAL STATEMENTS OF UNION BANKSHARES, LTD.
Balance Sheets............................................ F-4
Statements of Income...................................... F-6
Statements of Comprehensive Income........................ F-8
Statements of Stockholders' Equity........................ F-9
Statements of Cash Flows.................................. F-11
Notes to Financial Statements............................. F-13
INDEPENDENT AUDITORS' REPORT................................ F-37
FINANCIAL STATEMENTS OF LAKEWOOD STATE BANK
Balance Sheets............................................ F-38
Statements of Income...................................... F-39
Statements of Stockholders' Equity........................ F-40
Statements of Cash Flows.................................. F-41
Notes to Financial Statements............................. F-42
</TABLE>
F-1
<PAGE> 128
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Union Bankshares, Ltd.
Denver, Colorado
We have audited the accompanying consolidated balance sheets of UNION
BANKSHARES, LTD. as of December 31, 1997 and 1996, and the related consolidated
statements of income, comprehensive income, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of UNION BANKSHARES,
LTD. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
As described in Note 1, in 1997, the Company retroactively changed its method of
computing earnings per share to adopt the provisions of Financial Accounting
Standards Board Statement No. 128.
/s/ BAIRD, KURTZ & DOBSON
Denver, Colorado
January 16, 1998
F-2
<PAGE> 129
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Union Bankshares, Ltd.
Denver, Colorado
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Union Bankshares, Ltd. and Subsidiary
(collectively, the Company) for the year ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of the Company's operations and
their cash flows for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ McGLADREY & PULLEN, LLP
McGLADREY & PULLEN, LLP
Charlotte, North Carolina
January 23, 1996
F-3
<PAGE> 130
UNION BANKSHARES, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------
1998 1997 1996
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks....................... $ 17,140,000 $ 15,314,000 $ 12,356,000
Federal funds sold............................ 11,000,000 11,400,000 --
------------ ------------ ------------
Total Cash and Cash Equivalents..... 28,140,000 26,714,000 12,356,000
Held-to-maturity securities................... 25,786,000 27,929,000 24,634,000
Available-for-sale securities................. 58,515,000 37,180,000 39,904,000
Other investments............................. 970,000 916,000 494,000
Loans, net.................................... 125,625,000 120,659,000 98,978,000
Mortgage loans held-for-sale.................. 2,504,000 1,253,000 --
Excess of cost over fair value of net assets
acquired, net of amortization............... 2,551,000 2,720,000 2,946,000
Premises and equipment, net................... 2,030,000 1,378,000 1,573,000
Accrued interest receivable................... 1,636,000 1,353,000 1,107,000
Other assets.................................. 1,641,000 1,403,000 1,194,000
------------ ------------ ------------
Total Assets........................ $249,398,000 $221,505,000 $183,186,000
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 131
UNION BANKSHARES, LTD.
CONSOLIDATED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------
1998 1997 1996
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
DEPOSITS:
Demand........................................... $ 67,038,000 $ 57,565,000 $ 48,742,000
NOW.............................................. 18,009,000 18,914,000 15,279,000
Money market..................................... 61,245,000 65,074,000 54,772,000
Savings.......................................... 11,836,000 10,798,000 10,011,000
Time............................................. 58,935,000 37,725,000 27,605,000
------------ ------------ ------------
Total Deposits........................... 217,063,000 190,076,000 156,409,000
Notes payable...................................... 11,000,000 12,000,000 3,500,000
Federal funds purchased............................ -- -- 6,200,000
Accrued interest payable........................... 252,000 187,000 95,000
Other liabilities.................................. 1,224,000 1,020,000 950,000
------------ ------------ ------------
Total Liabilities........................ 229,539,000 203,283,000 167,154,000
------------ ------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; authorized
500,000 shares; issued and outstanding -0-
shares........................................ -- -- --
Common stock, $.001 par value; authorized
10,000,000 shares; issued and outstanding
1997 -- 2,332,014 shares; 1996 -- 2,299,964
shares........................................ 1,000 1,000 1,000
Additional paid-in capital....................... 9,610,000 9,584,000 9,435,000
Unrealized appreciation on available-for-sale
securities, net of applicable income taxes of
$116,000 and $158,000 in 1997 and 1996,
respectively.................................. 616,000 253,000 348,000
Retained earnings................................ 9,632,000 8,384,000 6,248,000
------------ ------------ ------------
Total Stockholders' Equity............... 19,859,000 18,222,000 16,032,000
------------ ------------ ------------
Total Liabilities and Stockholders'
Equity................................ $249,398,000 $221,505,000 $183,186,000
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 132
UNION BANKSHARES, LTD.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------- ---------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on
loans..................... $ 9,385,000 $ 8,429,000 $11,448,000 $ 9,404,000 $ 8,068,000
Interest on investment
securities:
U.S. government agencies
and corporations....... 2,312,000 2,433,000 2,893,000 2,215,000 2,169,000
State and other political
subdivisions........... 895,000 746,000 1,393,000 1,730,000 1,604,000
Interest on federal funds
sold and
interest-bearing
deposits in other
banks.................. 487,000 80,000 226,000 177,000 250,000
----------- ----------- ----------- ----------- -----------
Total interest
income............. 13,079,000 11,688,000 15,960,000 13,526,000 12,091,000
----------- ----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits.................... 3,932,000 2,962,000 4,121,000 3,736,000 3,212,000
Federal funds purchased..... 2,000 108,000 110,000 91,000 90,000
Notes payable............... 582,000 667,000 887,000 385,000 543,000
----------- ----------- ----------- ----------- -----------
Total interest
expense............ 4,516,000 3,737,000 5,118,000 4,212,000 3,845,000
----------- ----------- ----------- ----------- -----------
NET INTEREST INCOME........... 8,563,000 7,951,000 10,842,000 9,314,000 8,246,000
PROVISION FOR LOAN LOSSES..... 243,000 270,000 360,000 285,000 120,000
----------- ----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES... 8,320,000 7,681,000 10,482,000 9,029,000 8,126,000
----------- ----------- ----------- ----------- -----------
NONINTEREST INCOME
Service charges............. 292,000 280,000 371,000 368,000 319,000
Gain (loss) on sale of
available-for-sale
securities, net........... 25,000 91,000 101,000 162,000 (87,000)
Other....................... 398,000 329,000 486,000 507,000 378,000
----------- ----------- ----------- ----------- -----------
Total noninterest
income............. 715,000 700,000 958,000 1,037,000 610,000
----------- ----------- ----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 133
UNION BANKSHARES, LTD.
CONSOLIDATED STATEMENTS OF INCOME, CONTINUED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------- ------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NONINTEREST EXPENSE
Salaries and employee benefits.................. $4,009,000 $3,287,000 $4,477,000 $3,994,000 $3,446,000
Amortization of excess of cost over fair value
of net assets acquired........................ 170,000 170,000 226,000 226,000 226,000
Occupancy and equipment......................... 1,095,000 912,000 1,232,000 1,223,000 1,007,000
Other operating expenses........................ 2,273,000 1,873,000 2,518,000 2,173,000 2,534,000
---------- ---------- ---------- ---------- ----------
Total noninterest expense................ 7,547,000 6,242,000 8,453,000 7,616,000 7,213,000
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
ITEM............................................ 1,488,000 2,139,000 2,987,000 2,450,000 1,523,000
INCOME TAXES...................................... 240,000 628,000 851,000 540,000 297,000
---------- ---------- ---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM.................. 1,248,000 1,511,000 2,136,000 1,910,000 1,226,000
EXTRAORDINARY ITEM
Loss on early extinguishment of debt (net of
applicable income taxes of $201,000).......... -- -- -- 337,000 --
---------- ---------- ---------- ---------- ----------
NET INCOME........................................ $1,248,000 $1,511,000 $2,136,000 $1,573,000 $1,226,000
========== ========== ========== ========== ==========
EARNINGS PER SHARE
BASIC........................................... (RESTATED) (RESTATED)
Income before extraordinary item................ $ .53 $ .65 $ .92 $ .83 $ .53
Extraordinary item, net......................... -- -- -- (.15) --
Net income...................................... .53 .65 .92 .68 .53
Weighted average number of common shares
outstanding................................... 2,338,446 2,312,320 2,317,056 2,298,804 2,300,472
DILUTED
Income before extraordinary item................ $ .47 $ .60 $ .84 $ .79 $ .47
Extraordinary item, net......................... -- -- -- (.14) --
Net income...................................... .47 .60 .84 .65 .47
Weighted average number of common shares
outstanding................................... 2,630,620 2,502,166 2,534,904 2,415,488 3,343,882
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE> 134
UNION BANKSHARES, LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------- ------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET INCOME........................ $1,248,000 $1,511,000 $2,136,000 $1,573,000 $1,226,000
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized appreciation
(depreciation) on
available-for-sale
securities, net of income
taxes of $228,000 and
$181,000 for September 30,
1998 and 1997, respectively
and $-0-, $(214,000) and
$821,000 for December 31,
1997, 1996, and 1995,
respectively................. 383,000 305,000 -- (360,000) 1,380,000
LESS: reclassification adjustment
for realized gain (losses)
included in net income, net of
income taxes of $9,000 and
$34,000 for September 30, 1998
and 1997, respectively and
$38,000, $60,000, and $(32,000)
for December 31, 1997, 1996, and
1995, respectively.............. (16,000) (57,000) (63,000) (102,000) 55,000
Unrealized appreciation on
investment securities
transferred from available-
for-sale to held-to-maturity
including amortization.......... (4,000) 9,000 (32,000) (42,000) 390,000
---------- ---------- ---------- ---------- ----------
COMPREHENSIVE INCOME.............. $1,611,000 1,768,000 $2,041,000 $1,069,000 $3,051,000
========== ========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE> 135
UNION BANKSHARES, LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION)
ADDITIONAL ON AVAILABLE- TREASURY STOCK
PAID-IN FOR-SALE RETAINED --------------------
SHARES AMOUNT CAPITAL SECURITIES EARNINGS SHARES AMOUNT TOTAL
--------- ------ ---------- -------------- ---------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994... 2,356,400 $1,000 $9,706,000 $ (973,000) $3,449,000 (33,000) $(128,000) $12,055,000
Treasury shares purchased,
19,360 at $7.76 per
share.................... -- -- -- -- -- (38,720) (150,000) (150,000)
Treasury shares canceled... (71,720) -- (278,000) -- -- 71,720 278,000 --
Shares issued for stock
option plan.............. 6,660 -- 25,000 -- -- -- -- 25,000
Repurchase of warrants..... -- -- (69,000) -- -- -- -- (69,000)
Net change in unrealized
appreciation of
available-for-sale
securities, net of income
taxes of $711,000........ -- -- -- 1,435,000 -- -- -- 1,435,000
Unrealized appreciation on
investment securities
transferred from
available-for-sale to
held-to-maturity
including amortization... -- -- -- 390,000 -- -- -- 390,000
Net income................. -- -- -- -- 1,226,000 -- -- 1,226,000
--------- ------ ---------- ---------- ---------- -------- --------- -----------
BALANCE, DECEMBER 31, 1995... 2,291,340 $1,000 $9,384,000 $ 852,000 $4,675,000 -- $ -- $14,912,000
Shares issued for stock
option plan.............. 4,540 -- 25,000 -- -- -- -- 25,000
Shares issued upon
conversion and retirement
of notes................. 4,084 -- 26,000 -- -- -- -- 26,000
Net change in unrealized
appreciation of
available-for-sale
securities, net of income
taxes of $238,000........ -- -- -- (462,000) -- -- -- (462,000)
Unrealized appreciation on
investment securities
transferred from
available-for-sale to
held-to-maturity
including amortization... -- -- -- (42,000) -- -- -- (42,000)
Net income................. -- -- -- -- 1,573,000 -- -- 1,573,000
--------- ------ ---------- ---------- ---------- -------- --------- -----------
BALANCE, DECEMBER 31, 1996... 2,299,964 $1,000 $9,435,000 $ 348,000 $6,248,000 -- $ -- $16,032,000
--------- ------ ---------- ---------- ---------- -------- --------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-9
<PAGE> 136
UNION BANKSHARES, LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION)
ADDITIONAL ON AVAILABLE- TREASURY STOCK
PAID-IN FOR-SALE RETAINED -------------------
SHARES AMOUNT CAPITAL SECURITIES EARNINGS SHARES AMOUNT TOTAL
--------- ------ ---------- -------------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996
(brought forward)......... 2,299,964 $1,000 $9,435,000 $348,000 $6,248,000 -- $ -- $16,032,000
Shares issued for stock
option plan............. 32,050 -- 149,000 -- -- -- -- 149,000
Net change in unrealized
appreciation of
available-for-sale
securities, net of
income taxes of
$33,000................. -- -- -- (63,000) -- -- -- (63,000)
Net change in unrealized
appreciation on
investment securities
transferred from
available-for-sale to
held-to-maturity
including
amortization............ -- -- -- (32,000) -- -- -- (32,000)
Net income................ -- -- -- -- 2,136,000 -- -- 2,136,000
--------- ------ ---------- -------- ---------- -------- -------- -----------
BALANCE, DECEMBER 31,
1997...................... 2,332,014 $1,000 $9,584,000 $253,000 $8,384,000 -- $ -- $18,222,000
Shares issued for stock
option plan
(unaudited)............. 8,500 -- 26,000 -- -- -- -- 26,000
Net change in unrealized
appreciation of
available-for-sale
securities, net of
income taxes of $190,000
(unaudited)............. -- -- -- 367,000 -- -- -- 367,000
Net change in unrealized
appreciation on
investment securities
transferred from
available-for-sale to
held-to-maturity
including amortization
(unaudited)............. -- -- -- (4,000) -- -- -- (4,000)
Net income (unaudited).... -- -- -- -- 1,248,000 -- -- 1,248,000
--------- ------ ---------- -------- ---------- -------- -------- -----------
BALANCE, SEPTEMBER 30, 1998
(Unaudited)............... 2,340,514 $1,000 $9,610,000 $616,000 $9,632,000 -- $ -- $19,859,000
========= ====== ========== ======== ========== ======== ======== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-10
<PAGE> 137
UNION BANKSHARES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------------- ------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................... $ 1,248,000 $ 1,511,000 $ 2,136,000 $ 1,573,000 $ 1,226,000
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
(Gain) loss on sale of securities........... (12,000) (91,000) (101,000) (162,000) 87,000
Extraordinary item.......................... -- -- -- 337,000 --
Federal Home Loan Bank stock dividend....... (54,000) (8,000) (53,000) -- --
Accretion of discount on investments........ 231,000 (137,000) (140,000) (2,323,000) (489,000)
Amortization of deferred loan fees, net of
costs..................................... (169,000) 83,000 (955,000) (395,000) (407,000)
Deferred income taxes....................... (134,000) (140,000) (216,000) (125,000) (157,000)
Provision for loan losses................... 243,000 270,000 360,000 285,000 120,000
Depreciation and amortization............... 327,000 307,000 415,000 429,000 476,000
Amortization of excess of cost over fair
value of net assets acquired.............. 169,000 169,000 226,000 226,000 226,000
Changes in:
Mortgage loans held-for-sale................ (1,251,000) (1,736,000) (1,253,000) -- --
Accrued interest receivable................. (283,000) (430,000) (246,000) (22,000) (35,000)
Prepaid expenses and other assets........... (104,000) 5,000 7,000 (83,000) (302,000)
Accrued interest payable.................... 65,000 78,000 92,000 (135,000) 21,000
Other liabilities........................... (2,000) 84,000 103,000 (13,000) 797,000
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities................. 274,000 (35,000) 375,000 (408,000) 1,563,000
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale
securities.................................. $ 19,295,000 $ 8,221,000 $ 8,809,000 $ 8,600,000 $ 3,424,000
Proceeds from maturities of held-to-maturity
securities.................................. 5,236,000 3,305,000 8,652,000 3,473,000 3,438,000
Proceeds from sale of available-for-sale
securities.................................. 2,207,000 12,717,000 13,161,000 34,111,000 32,060,000
Purchase of available-for-sale securities..... (42,343,000) (18,157,000) (24,077,000) (38,731,000) (37,378,000)
Purchase of held-to-maturity securities....... (3,237,000) (4,000,000) (7,003,000) (1,010,000) (900,000)
Purchase of other investments................. -- (369,000) (369,000) (85,000) (35,000)
Net increase in loans......................... (5,040,000) (20,397,000) (21,086,000) (19,004,000) (17,477,000)
Proceeds from sale of student loans........... -- -- -- -- 2,028,000
Proceeds from the sale of foreclosed assets... -- -- -- -- 83,000
Purchases of premises and equipment........... (979,000) (152,000) (220,000) (295,000) (438,000)
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities........................... (24,861,000) (18,832,000) (22,133,000) (12,941,000) (15,195,000)
------------ ------------ ------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-11
<PAGE> 138
UNION BANKSHARES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------- ---------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, money
market, NOW, and savings accounts...... $ 5,778,000 $12,694,000 $23,547,000 $11,665,000 $ 8,903,000
Net increase in time deposits............ 21,209,000 7,797,000 10,120,000 4,569,000 5,071,000
Change in federal funds purchased........ -- (6,200,000) (6,200,000) 2,200,000 4,000,000
Proceeds from issuance of notes
payable................................ -- 10,000,000 10,000,000 4,000,000 --
Principal repayments of notes payable.... (1,000,000) (750,000) (1,500,000) (7,077,000) (180,000)
Proceeds from issuance of common stock... 26,000 112,000 149,000 51,000 25,000
Repurchase of common stock............... -- -- -- -- (150,000)
Repurchase of stock warrants............. -- -- -- -- (69,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities...................... 26,013,000 23,653,000 36,116,000 15,408,000 17,600,000
----------- ----------- ----------- ----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.............................. 1,426,000 4,786,000 14,358,000 2,059,000 3,968,000
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR..................................... 26,714,000 12,356,000 12,356,000 10,297,000 6,329,000
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR..... $28,140,000 $17,142,000 $26,714,000 $12,356,000 $10,297,000
=========== =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-12
<PAGE> 139
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Union Bank and Trust (Bank) is a wholly-owned subsidiary of Union Bankshares,
Ltd. (Bankshares) (collectively referred to as Company). The Bank provides a
full range of banking services to customers, primarily living in the Denver
metropolitan area, through its home office and three branch facilities located
in the Denver area. The Bank is subject to competition from other financial
institutions. The Bank is also subject to the regulation of certain federal and
state agencies and undergoes periodic examinations by those regulatory
authorities.
UNAUDITED INTERIM INFORMATION
Information with respect to September 30, 1998, and the periods ended September
30, 1998 and 1997, is unaudited and not covered by the independent accountants'
reports. In the opinion of management, the unaudited financial statements
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company at September
30, 1998, and the results of operations and cash flows for the periods ended
September 30, 1998 and 1997, in conformity with generally accepted accounting
principles.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowance for loan losses and
the valuation of foreclosed assets held for sale, management obtains independent
appraisals for significant properties.
Management believes that the allowance for loan losses and the valuation of
foreclosed assets held for sale are adequate. While management uses available
information to recognize losses on loans and foreclosed assets held for sale,
changes in economic conditions may necessitate revision of these estimates in
future years. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses and valuation of foreclosed assets held for sale. Such agencies may
require the Bank to recognize additional losses based on their judgments of
information available to them at the time of their examination.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Union Bankshares,
Ltd. and its wholly-owned subsidiary, Union Bank and Trust. All significant
intercompany balances and transactions have been eliminated.
F-13
<PAGE> 140
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with original maturities of three
months or less to be cash equivalents. At December 31, 1997, cash equivalents
consisted of federal funds sold.
Pursuant to normal banking practices, the Bank is required to maintain certain
balances (reserves) with the Federal Reserve Bank. Included in cash and due from
banks in the accompanying consolidated balance sheets are required reserve
balances of approximately $1,525,000 and $883,000 at December 31, 1997 and 1996,
respectively.
As of December 31, 1997, the Company had approximately $6,803,000 on deposit in
one financial institution.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Available-for-sale securities, which include any security for which the Company
has no immediate plan to sell but which may be sold in the future, are carried
at fair value. Realized gains and losses, based on specifically identified
amortized cost of the specific security, are included in other income.
Unrealized gains and losses are recorded, net of related income tax effects, in
stockholders' equity. Premiums and discounts are amortized and accreted,
respectively, to interest income using the level-yield method over the period to
maturity.
Held-to-maturity securities, which included any security for which the Company
has the positive intent and ability to hold until maturity, are carried at
historical cost adjusted for amortization of premiums and accretion of
discounts. Premiums and discounts are amortized and accreted, respectively, to
interest income using the level-yield method over the period to maturity.
Interest and dividends on investments in debt and equity securities are included
in income when earned.
FEE INCOME
Loan origination fees, net of direct origination costs, are recognized as income
using the level-yield method over the term of the loans.
LOANS
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-offs are reported at their outstanding principal
adjusted for any charge-offs, the allowance for loan losses, and any deferred
fees or costs on originated loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions charged to expense and
reduced by loans charged off, net of recoveries. The allowance is maintained at
a level considered adequate to provide for potential loan losses, based on
management's evaluation of the loan portfolio, as well as on prevailing and
anticipated economic conditions and historical losses by loan category. General
allowances have been established, based upon the aforementioned factors, and
allocated to the individual loan categories, including consumer loans
F-14
<PAGE> 141
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
and real estate mortgage loans that are collectively evaluated. Allowances are
accrued on specific loans evaluated for impairment for which the basis of each
loan, including accrued interest, exceeds the discounted amount of expected
future collections of interest and principal or, alternatively, the fair value
for loan collateral using a single risk category method of identification.
A loan is considered impaired when it is probable that the Bank will not receive
all amounts due according the contractual terms of the loan. This includes loans
that are delinquent ninety days or more (nonaccrual loans) and certain other
loans identified by management. Accrual of interest is generally discontinued,
and interest accrued and unpaid is removed, at the time such amounts are
delinquent ninety days. Interest is recognized for nonaccrual loans only upon
receipt, and only after all principal amounts are current according to the terms
of the contract. Loans are charged off when, in the opinion of management, all
or a portion of the principal outstanding is no longer collectible.
MORTGAGE LOANS HELD-FOR-SALE
Mortgage loans held-for-sale are normally sold within 120 days of origination
and are carried at the lower of cost or market. Gains and losses resulting from
sales of mortgage loans are recognized when the respective loans are sold to
investors. Gains and losses are determined by the difference between the selling
price and the carrying amount of the loans sold, net of discounts collected or
paid and considering a normal servicing rate.
PREMISES AND EQUIPMENT
Depreciable assets are stated at cost less accumulated depreciation.
Depreciation is charged to expense using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are capitalized and
amortized using the straight-line method over the terms of the respective leases
or the estimated useful lives of the improvements, whichever is shorter.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
Excess costs of the purchased subsidiary in excess of the fair value of
underlying net tangible assets is amortized on a straight-line basis over an
estimated life of 25 years. The remaining balance is being amortized through
2009 at a rate of approximately $226,000 per year.
FORECLOSED ASSETS HELD FOR SALE
Assets acquired by foreclosure or in settlement of debt and held for sale are
valued at estimated fair value as of the date of foreclosure, and a related
valuation allowance is provided for estimated costs to sell the assets.
Management evaluates the value of foreclosed assets held for sale periodically
and increases the valuation allowance for any subsequent declines in fair value.
Increases in the valuation allowance and gains/losses on sales of foreclosed
assets are included in noninterest expense, net.
DEBT ISSUANCE COSTS
Debt issuance costs associated with the issuance of the 8.3% convertible
subordinated notes were being amortized over the terms of the notes. At December
31, 1995, $490,000
F-15
<PAGE> 142
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
remained to be amortized over future periods and was included in other assets in
the accompanying Consolidated Balance Sheets. Amortization expense related to
these debt issuance costs for the years ended December 31, 1995, approximated
$83,000. The Company redeemed the notes April 1, 1996, and expensed the
remaining unamortized balance of the debt issuance costs in 1996 as an
extraordinary item of $337,000, net of income taxes.
STOCK WARRANTS
The Company issued warrants to the underwriter of the March 1993 public
offering, which permitted the underwriter to purchase up to 44,748 common shares
at a price of $6.15 per share for the period from March 17, 1994 through March
17, 1998. The Company repurchased these warrants in 1995.
INCOME TAXES
Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.
EARNINGS PER COMMON SHARE
During 1997, the Company implemented Financial Accounting Standards Board
Statement No. 128 (Statement No. 128), which amends the method by which earnings
per share are computed and disclosed in the financial statements. The earnings
per share computations for the years ended December 31, 1996 and 1995 have been
retroactively restated to reflect the implementation of Statement No. 128.
Basic earnings per share is computed based on the weighted average number of
common shares outstanding during each period.
Diluted earnings per share is computed assuming exercise of all stock options
having exercise prices less than the average market price of the common stock
using the treasury stock method. The December 31, 1995 calculation was also
based on the assumption that all of the convertible subordinated notes were
converted into common shares at the date of issue.
RESTATEMENT
The financial statements of Union Bankshares, Ltd. as of December 31, 1997 and
1996, and for the years ending December 31, 1997, 1996, and 1995 have been
restated to reflect the two-for-one stock split which was voted on and approved
by stockholders on May 27, 1998. All shares outstanding and per share amounts
have been adjusted to reflect this stock split.
F-16
<PAGE> 143
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES
The amortized cost and approximate fair value of held-to-maturity securities was
as follows at September 30, 1998 and December 31, 1997 and 1996:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1998 (UNAUDITED):
U.S. Government agencies and
corporations................. $19,848,000 $467,000 $ -- $20,315,000
Obligations of state and
political subdivisions....... 5,938,000 464,000 -- 6,402,000
----------- -------- --------- -----------
$25,786,000 $931,000 $ -- $26,717,000
=========== ======== ========= ===========
DECEMBER 31, 1997:
U.S. Government agencies and
corporations................. $21,989,000 $383,000 $ (1,000) $22,371,000
Obligations of state and
political subdivisions....... 5,940,000 370,000 -- 6,310,000
----------- -------- --------- -----------
$27,929,000 $753,000 $ (1,000) $28,681,000
=========== ======== ========= ===========
DECEMBER 31, 1996:
U.S. Government agencies and
corporations................. $18,638,000 $203,000 $(124,000) $18,717,000
Obligations of state and
political subdivisions....... 5,996,000 257,000 -- 6,253,000
----------- -------- --------- -----------
$24,634,000 $460,000 $(124,000) $24,970,000
=========== ======== ========= ===========
</TABLE>
Maturities of held-to-maturity securities at December 31, 1997:
<TABLE>
<CAPTION>
AMORTIZED APPROXIMATE
COST FAIR VALUE
----------- -----------
<S> <C> <C>
One year or less..................................... $ -- $ --
After one year through five years.................... 1,035,000 1,156,000
After five years through ten years................... 4,564,000 4,637,000
After ten years...................................... 3,342,000 3,525,000
Mortgage-backed and other debt securities............ 18,988,000 19,363,000
----------- -----------
$27,929,000 $28,681,000
=========== ===========
</TABLE>
F-17
<PAGE> 144
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The amortized cost and approximate fair value of available-for-sale securities
was as follows at September 30, 1998, and December 31, 1997 and 1996:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1998 (UNAUDITED):
U.S. Government agencies and
corporations.................. $36,412,000 $161,000 $ -- $36,573,000
U.S. Treasury securities........ 3,002,000 47,000 -- 3,049,000
Obligations of state and
political subdivisions........ 18,163,000 743,000 (13,000) 18,893,000
----------- -------- -------- -----------
$57,577,000 $951,000 $(13,000) $58,515,000
=========== ======== ======== ===========
DECEMBER 31, 1997:
U.S. Government agencies and
corporations.................. $12,804,000 $ 7,000 $(30,000) $12,781,000
U.S. Treasury securities........ 6,027,000 43,000 -- 6,070,000
Obligations of state and
political subdivisions........ 16,981,000 388,000 (39,000) 17,330,000
Commercial paper................ 999,000 -- -- 999,000
----------- -------- -------- -----------
$36,811,000 $438,000 $(69,000) $37,180,000
=========== ======== ======== ===========
DECEMBER 31, 1996:
U.S. Government agencies and
corporations.................. $14,282,000 $ 33,000 $(16,000) $14,299,000
U.S. Treasury securities........ 4,070,000 33,000 -- 4,103,000
Obligations of state and
political subdivisions........ 20,384,000 433,000 (18,000) 20,799,000
Commercial paper................ 703,000 -- -- 703,000
----------- -------- -------- -----------
$39,439,000 $499,000 $(34,000) $39,904,000
=========== ======== ======== ===========
</TABLE>
Maturities of available-for-sale securities at December 31, 1997:
<TABLE>
<CAPTION>
AMORTIZED APPROXIMATE
COST FAIR VALUE
----------- -----------
<S> <C> <C>
One year or less..................................... $ 8,085,000 $ 8,106,000
After one year through five years.................... 9,464,000 9,564,000
After five years through ten years................... 11,787,000 11,948,000
Due after ten years.................................. 4,521,000 4,606,000
Mortgage-backed and other debt securities............ 2,954,000 2,956,000
----------- -----------
$36,811,000 $37,180,000
=========== ===========
</TABLE>
The book value of securities pledged as collateral, to secure notes payable,
public deposits, and for other purposes, amounted to $29,008,000 at December 31,
1997, and $15,749,000
F-18
<PAGE> 145
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
at December 31, 1996. The approximate fair value of pledged securities amounted
to $29,725,000 at December 31, 1997, and $16,123,000 at December 31, 1996.
Gross gains of $131,000, $349,000, and $126,000 and gross losses of $46,000,
$187,000, and $213,000 resulting from sales of available-for-sale securities
were realized for 1997, 1996, and 1995, respectively.
The Company redesignated available-for-sale securities with an aggregate
amortized cost of $5,061,000 and $8,830,000 to the held-to-maturity portfolio
during 1997 and 1996, respectively.
The Bank, as a member of the Federal Home Loan Bank (FHLB) system, is required
to maintain an investment in capital stock of the FHLB. As a member, the Bank
has access to a $17,992,000 credit line which is secured by investment
securities. No ready market exists for the FHLB stock, and it has no quoted
market value. Such stock is recorded at cost and reported as other investments.
As discussed in Note 7, the Bank had advances outstanding at December 31, 1997,
of $10,000,000.
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
1998 1997 1996
------------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Commercial............................ $ 92,771,000 $ 87,929,000 $70,631,000
Real estate mortgage.................. 3,623,000 4,297,000 5,489,000
Real estate construction.............. 12,684,000 9,625,000 5,758,000
Consumer.............................. 18,851,000 20,933,000 18,854,000
------------ ------------ -----------
127,929,000 122,784,000 100,732,000
Allowance for loan losses............. (2,304,000) (2,125,000) (1,754,000)
------------ ------------ -----------
Net loans............................. $125,625,000 $120,659,000 $98,978,000
============ ============ ===========
</TABLE>
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------- ------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance, beginning of
year............... $2,125,000 $1,754,000 $1,754,000 $1,448,000 $1,071,000
---------- ---------- ---------- ---------- ----------
Charge offs.......... (75,000) (11,000) (24,000) (29,000) (106,000)
Recoveries........... 11,000 21,000 35,000 50,000 363,000
---------- ---------- ---------- ---------- ----------
Net recoveries....... (64,000) 10,000 11,000 21,000 257,000
Provision charged to
operating
expenses........... 243,000 270,000 360,000 285,000 120,000
---------- ---------- ---------- ---------- ----------
Balance, end of
year............... $2,304,000 $2,034,000 $2,125,000 $1,754,000 $1,448,000
========== ========== ========== ========== ==========
</TABLE>
F-19
<PAGE> 146
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Impaired loans totaled $73,000 and $124,000 at December 31, 1997 and 1996,
respectively. An allowance for loan losses of $19,000 and $24,000 related to
impaired loans at December 31, 1997 and 1996, respectively. At December 31, 1997
and 1996, all impaired loans had allocated allowances.
Interest of $8,000 and $12,000 was recognized on average impaired loans of
$98,000 and $166,000 for 1997 and 1996, respectively. No interest was recognized
on impaired loans on a cash basis during 1997 and 1996.
NOTE 4: PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at cost, at December 31,
were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Leasehold improvements............................... $ 1,485,000 $ 1,467,000
Furniture and equipment.............................. 2,162,000 1,961,000
----------- -----------
3,647,000 3,428,000
Less accumulated depreciation and amortization....... (2,269,000) (1,855,000)
----------- -----------
Net premises and equipment........................... $ 1,378,000 $ 1,573,000
=========== ===========
</TABLE>
NOTE 5: DEPOSITS
Interest bearing deposits in denominations of $100,000 or more were $19,969,000
on December 31, 1997, and $11,931,000 on December 31, 1996.
At December 31, 1997, the scheduled maturities of time deposits were as follows:
<TABLE>
<S> <C>
1998........................................................ $28,704,000
1999........................................................ 2,843,000
2000........................................................ 1,970,000
2001........................................................ 17,000
2002 and thereafter......................................... 4,191,000
-----------
$37,725,000
===========
</TABLE>
NOTE 6: COMMON STOCK AND CONVERTIBLE SUBORDINATED NOTES
On March 17, 1993, the Company issued 1,380,000 shares of common stock and
$6,900,000 of 8.3% convertible subordinated notes (Notes) due April 1, 2003,
through a public offering and simultaneously extinguished the $5,006,000 note
payable to a financial institution and redeemed 200,000 shares of preferred
stock at a price of $5.00 per share plus $13,000 of accumulated dividends.
During the year ended December 31, 1994, the Company repurchased $200,000 face
value of the Notes for $191,000. Additionally, the Company repurchased 94,000
shares of common stock at prices ranging from $3.50 per share to $3.94 per
share. As of December 31, 1994, 61,000 shares were canceled and 33,000 shares
were held in treasury.
During the year ended December 31, 1995, the Company repurchased $188,000 face
value of the Notes for $180,000. Additionally, the Company repurchased 38,720
shares of
F-20
<PAGE> 147
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
common stock at prices ranging from $3.81 per share to $3.94 per share. As of
December 31, 1995, 71,720 shares were canceled by the Company in addition to the
61,000 canceled the previous year and no shares were held in treasury.
On April 1, 1996, the Company redeemed the Notes. Pursuant to the terms of the
Notes, and as a result of the redemption, holders of the Notes were entitled to
receive from the Company the redemption price of 101% of the principal amount of
the Notes plus accrued interest. Alternatively, at the option of the holder, the
Notes were convertible into shares of common stock of the Company at the
conversion rate of 157.36 shares of common stock for each $1,000 principal
amount of Notes redeemed. As a result of the redemption in 1996, the Company
expensed $473,000, the remaining unamortized balance of the debt issuance costs,
and a $65,000 redemption premium. These amounts, net of $201,000 of applicable
income taxes, have been categorized as an extraordinary loss on the consolidated
statement of income.
NOTE 7: NOTES PAYABLE
Notes payable at December 31, 1997 and 1996, consisted of the following
components:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Note payable to financial institution................ $ 2,000,000 $3,500,000
Advances from FHLB................................... 10,000,000 --
----------- ----------
Total notes payable........................ $12,000,000 $3,500,000
=========== ==========
</TABLE>
The note payable to the financial institution is due April 1, 1998, with
interest payable quarterly at the financial institution's base rate (8.5% at
December 31, 1997).
The loan is secured by the pledge of shares of the capital stock of the Bank.
The loan agreement provides for a one-year term which is renewable based on
compliance with covenants stipulated in the loan agreement. These covenants
limit the amount of cash dividends the Company may pay and funded indebtedness
it may assume, guarantee, or otherwise create.
The Bank entered into two $5,000,000 advance agreements with the FHLB on January
21, 1997. One advance has an interest rate of 6.34% and matures January 14,
1999. The other advance has an interest rate of 6.5% and matures January 14,
2000. The advances are secured by pledges of securities as discussed in Note 2.
NOTE 8: INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Taxes currently payable..................... $1,067,000 $ 464,000 $ 454,000
Deferred income taxes....................... (216,000) (125,000) (157,000)
---------- --------- ---------
$ 851,000 $ 339,000 $ 297,000
========== ========= =========
</TABLE>
F-21
<PAGE> 148
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The tax effects of temporary differences related to deferred taxes shown in the
December 31, balance sheets are:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses............................. $ 572,000 $ 437,000
Accrued expenses...................................... 96,000 176,000
Deferred loan fees.................................... 134,000 64,000
Deferred compensation................................. 24,000 11,000
Furniture, equipment, and improvements................ 52,000 --
Other................................................. 9,000 --
--------- ---------
887,000 688,000
--------- ---------
Deferred tax liabilities:
Federal Home Loan Bank Stock.......................... $ (20,000) $ --
Furniture, equipment, and improvements................ -- (16,000)
Unrealized gains on available-for-sale securities..... (116,000) (158,000)
Other................................................. -- (21,000)
--------- ---------
(136,000) (195,000)
--------- ---------
Net deferred tax asset........................ $ 751,000 $ 493,000
========= =========
</TABLE>
A reconciliation of income tax expenses at the statutory rate to the Company's
actual income tax is shown below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Computed at the statutory rate (34%)........ $1,016,000 $ 651,000 $ 518,000
Increase (decrease) in income taxes
resulting from:
Tax-exempt interest....................... (328,000) (406,000) (349,000)
Amortization of excess of investment in
subsidiary over net assets acquired.... 79,000 79,000 79,000
State income taxes, net of federal tax
benefit................................ 17,000 24,000 23,000
Nondeductible interest.................... 30,000 25,000 25,000
Other, net................................ 37,000 (34,000) 1,000
---------- --------- ---------
Income tax expense.......................... $ 851,000 $ 339,000 $ 297,000
========== ========= =========
</TABLE>
F-22
<PAGE> 149
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 9: EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and diluted
earnings per share calculation for income before extraordinary item is shown
below for the years ended December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
1997
Income before extraordinary item.......... $ 2,136,000 2,317,056
Basic earnings per share................ $0.92
=====
Effect of dilutive securities:
Stock options........................... -- 217,848
----------- ---------
Diluted earnings per share................ $ 2,136,000 2,534,904 $0.84
=========== ========= =====
1996
Income before extraordinary item.......... $ 1,910,000 2,298,804
Basic earnings per share................ $0.83
=====
Effect of dilutive securities:
Stock options........................... -- 116,684
----------- ---------
Diluted earnings per share................ $ 1,910,000 2,415,488 $0.79
=========== ========= =====
1995
Income before extraordinary item.......... $ 1,226,000 2,300,472
Basic earnings per share................ $0.53
=====
Effect of dilutive securities:
Stock options........................... 14,366
Convertible subordinated notes.......... 358,459 1,029,044
----------- ---------
Diluted earnings per share................ $ 1,584,459 3,343,882 $0.47
=========== ========= =====
</TABLE>
NOTE 10: COMMITMENTS AND CREDIT RISKS
The Bank grants commercial, residential, and other installment loans to
customers throughout the state.
Lines of credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Lines of credit
generally have fixed expiration dates. Since a portion of the line may expire
without being drawn upon, the total unused lines do not necessarily represent
future cash requirements. Each customer's creditworthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed necessary, is
based on management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, property, plant and
equipment, commercial real estate, and residential real estate. Management uses
the same credit policies in granting lines of credit as it does for on balance
sheet instruments.
F-23
<PAGE> 150
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
At December 31, 1997 and 1996, the Bank had granted unused lines of credit to
borrowers aggregating approximately $45,875,000 and $35,666,000, respectively.
At December 31, 1997, unused lines of credit consisted of approximately
$45,133,000 for commercial lines and $742,000 for open-end consumer lines.
Letters of credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. Those guarantees are primarily
issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
The Bank had total outstanding letters of credit amounting to $948,000 and
$2,127,000 at December 31, 1997 and 1996, respectively, with terms ranging from
15 days to two years.
At December 31, 1997, the Bank had outstanding commitments to originate loans
aggregating approximately $9,468,000. The commitments extended over varying
periods of time with the majority being disbursed within a one-year period.
NOTE 11: OPERATING LEASES
The Bank leases its premises under a noncancelable lease which expires in 2001.
The lease contains a renewal option clause for an additional five-year term and
provides for periodic rental adjustment based on the Consumer Price Index.
The estimated future minimum lease payments under noncancelable operating leases
at December 31, 1997, were as follows:
<TABLE>
<S> <C>
1998........................................................ $ 574,000
1999........................................................ 486,000
2000........................................................ 514,000
2001........................................................ 506,000
2002........................................................ 500,000
Thereafter.................................................. 852,000
----------
Total future minimum lease payment.......................... $3,432,000
==========
</TABLE>
Total rental expense for all operating leases (net of month-to-month sublease
rental income in 1995), including certain cancelable equipment leases, was
$509,000, $458,000, and $362,000 for the years ended December 31, 1997, 1996,
and 1995, respectively.
NOTE 12: EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS
The Company provides a 401(k) profit sharing plan for its employees,
contributing annually to a profit-sharing trust. All employees who are at least
21 years old and who have been employed by the Company for at least one year are
eligible to participate. Total contributions were approximately $195,000,
$174,000, and $146,000 in 1997, 1996, and 1995, respectively. Employees may
contribute from 2% to 15% of their salary, not to exceed $9,500 for 1997 and
1996, respectively, with contributions vested 100%. The Company matches 50% of
the first 6% of the participants' contributions; additional contributions may be
made at the discretion of the Board of Directors. Company
F-24
<PAGE> 151
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
contributions are 20% vested after the participant has completed two years of
service, with 20% incremental increases in vesting for each of the next four
years.
During the year ended December 31, 1994, the Company adopted a Non-Employee
Director Equity Compensation Plan (Compensation Plan) effective January 1, 1995.
The Compensation Plan provides for the initial authorization of 100,000 shares
of common stock. Under the provisions of the Compensation Plan, the directors
are compensated $6,000 annually provided certain performance measures are met.
The directors have the option of accepting the Company's common stock in lieu of
cash compensation. If the director opts for common stock, the number of shares
issued is determined on the first business day of the year. The director has
voting rights on the common stock issued as compensation; however, the common
stock is restricted until the director has met all performance measures. In
January 1997 and 1996, the Company issued 3,750, and 4,540 common shares,
respectively, pursuant to the Compensation Plan at exercise prices of $8.00 and
$5.50, respectively.
The Company adopted the Equity Incentive Plan (Incentive Plan) in December 1992
for certain key employees of the Company. The Incentive Plan provides for the
authorization of 624,000 shares of common stock, plus an additional
authorization of one-half percent of the outstanding shares of common stock as
of each succeeding annual anniversary of the effective date of the Incentive
Plan. Options issued within the Incentive Plan vest in three equal increments on
the date of grant and the first two anniversaries thereof, and expires ten years
after date of grant.
A summary of the status of the Incentive Plan at December 31, and changes during
the year is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of
year............... 429,200 $ 4.42 401,500 $ 4.78 226,500 $ 4.31
Granted.............. 40,600 11.75 27,700 7.63 175,000 5.37
Exercised............ (22,800) 4.16 -- -- -- --
Forfeited............ (3,600) 6.13 -- -- -- --
------- ------ ------- ------ ------- ------
Outstanding, end of
year............... 443,400 $ 5.61 429,200 $ 4.92 401,500 $ 4.78
======= ====== ======= ====== ======= ======
Options exercisable,
end of year........ 407,500 351,400 268,500
</TABLE>
F-25
<PAGE> 152
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following table summarizes information about stock options under the
Incentive Plan outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$4.50 154,000 5 years $ 4.50 154,000 $ 4.50
$4.00 22,500 6 years $ 4.00 22,500 $ 4.00
$3.75 to $3.81 32,000 7 years $ 3.76 32,000 $ 3.76
$5.38 167,800 8 years $ 5.38 167,800 $ 5.38
$7.63 26,500 9 years $ 7.63 17,666 $ 7.63
$11.75 40,600 10 years $11.75 13,534 $11.75
</TABLE>
The Company also adopted a Nonemployee Directors' Stock Option Plan (Directors'
Plan) in December 1992. An aggregate of 22,000 shares of common stock are
reserved for issuance under the Directors' Plan. Nonemployee directors are
automatically granted options to purchase 500 common shares during each fiscal
year following election to the Board. The Board of Directors, or a committee
consisting of such Board members or other persons as may be appointed by the
Board, administer the Directors' Plan. The Directors' Plan is currently
administered by the Board of Directors. Each option under the Directors' Plan
expires five years from the date of grant.
A summary of the status of the Directors' Plan at December 31, and changes
during the year is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year............... 12,500 $5.17 10,000 $4.47 7,500 $ 4.13
Granted................. 2,000 12.07 2,500 8.00 2,500 5.50
Exercised............... (5,500) 4.48 -- -- -- --
Forfeited............... -- -- -- -- -- --
------ ----- ------ ----- ------ ------
Outstanding, end of
year.................. 9,000 $7.14 12,500 $5.17 10,000 $ 4.47
====== ===== ====== ===== ====== ======
Options exercisable, end
of year............... 7,000 10,000 7,500
</TABLE>
F-26
<PAGE> 153
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following table summarizes information about stock options under the
Directors' Plan outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$4.13 1,500 1 years $ 4.13 1,500 $ 4.13
$3.75 1,500 2 years $ 3.75 1,500 $ 3.75
$5.50 1,500 3 years $ 5.50 1,500 $ 5.50
$8.00 2,500 4 years $ 8.00 2,500 $ 8.00
$12.06 2,000 5 years $12.06 -- $12.06
</TABLE>
In May 1996, the Company adopted an "Option Bonus Plan" (Bonus Plan). In 1996,
four of the nine eligible members elected to receive these bonuses in the form
of options. Pursuant to this election, the Company issued 72,802 options in
January 1997, at an exercise price of $7.63. In 1997, two of the twelve eligible
members elected to receive these bonuses in the form of options. Pursuant to
this election, the Company issued 5,784 options in January 1998, at an exercise
price of $11.75. The exercise price on all options is equal to the market price
of the common stock on the date of grant. The option period expires ten years
from the date the options were granted. The options vest and are exercisable six
months after they are granted. The maximum number of shares that may be issued
pursuant to the exercise of these options is 300,000 shares.
A summary of the status of the Bonus Plan at December 31, and changes during the
year is presented below:
<TABLE>
<CAPTION>
1997
-----------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ --------
<S> <C> <C>
Outstanding, beginning of year.............................. 72,802 $ 7.63
Granted..................................................... 5,784 11.75
Exercised................................................... -- --
Forfeited................................................... -- --
------ ------
Outstanding, end of year.................................... 78,586 7.93
------ ------
Options exercisable, end of year............................ 72,802 $ 7.63
====== ======
</TABLE>
F-27
<PAGE> 154
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following table summarizes information about stock options under the Bonus
Plan outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 7.63 72,802 9 years $ 7.63 72,802 $7.63
$11.75 5,784 10 years 11.75 -- --
</TABLE>
The Company applies APB Opinion 25 and related Interpretations in accounting for
its stock option plans, and no compensation cost has been recognized for the
plans. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant dates using Statement of
Financial Accounting Standards No. 123, the Company's net income would have
decreased by approximately $172,000, $323,000, and $105,000 in 1997, 1996, and
1995, respectively. In addition, the Company's basic earnings per share would
have decreased by $.07 per share, $.14 per share, and $.05 per share in 1997,
1996, and 1995, respectively. Diluted earnings per share would have decreased
$.07 per share, $.14 per share, and $.03 per share, respectively.
NOTE 13: OTHER OPERATING EXPENSES
Other operating expenses consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Professional services...................... $ 586,000 $ 618,000 $ 456,000
Credit card................................ 309,000 247,000 228,000
Legal and accounting....................... 271,000 91,000 334,000
Advertising and promotion.................. 200,000 144,000 175,000
Postage and delivery....................... 150,000 114,000 108,000
Software maintenance and amortization...... 140,000 124,000 111,000
Service charges............................ 129,000 140,000 120,000
Supplies................................... 112,000 138,000 177,000
Insurance and bonds........................ 106,000 88,000 89,000
Telephone.................................. 88,000 89,000 65,000
Printing................................... 86,000 93,000 62,000
Travel and entertainment................... 67,000 104,000 73,000
Dues and subscriptions..................... 67,000 76,000 67,000
Deposit insurance.......................... 19,000 2,000 139,000
Amortization, other........................ -- -- 53,000
Amortization of debt issuance costs........ -- 17,000 83,000
Other operating expenses................... 188,000 88,000 194,000
---------- ---------- ----------
$2,518,000 $2,173,000 $2,534,000
========== ========== ==========
</TABLE>
F-28
<PAGE> 155
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 14: TRANSACTIONS WITH RELATED PARTIES
At December 31, 1997 and 1996, the Bank had loans outstanding to shareholders,
executive officers, and directors of the Company and their affiliates, in the
amount of $2,175,000 and $1,680,000, respectively. New loans made to
shareholders, executive officers, and directors of the Company and their
affiliates approximated $716,000 and $916,000, and repayments approximated
$221,000 and $434,000 for the years ended December 31, 1997 and 1996,
respectively.
At September 30, 1998, the Bank had loans outstanding to shareholders, executive
officers, and directors of the Company and their affiliates of $2,403,000. New
loans made to shareholders, executive officers, and directors of the Company and
their affiliates approximated $713,000 and repayments approximated $485,000 for
the nine months ended September 30, 1998.
In management's opinion, such loans and other extensions of credit and deposits
were made in the ordinary course of business and were made on substantially the
same terms (including interest rates and collateral) as those prevailing at the
time of comparable transactions with other persons. Further, in management's
opinion, these loans did not involve more than normal risk of collectibility or
present other unfavorable features.
From time to time, the Bank purchases loans from a locally owned mortgage
company until the mortgage company sells the loans into the secondary mortgage
market. The loans are then sold back to the mortgage company. Initially, the
Bank receives interest during its holding period of prime plus .50%. All
origination fees and interest on the loan in excess of the rate payable to the
Bank are retained by the mortgage company. If the mortgage is not sold within
specified periods, the Bank is entitled to receive all of the interest paid on
the mortgage from inception and may be entitled to receive all or a portion of
the origination fees. The mortgage company provides loan servicing during the
period that the mortgage is held by the Bank. During the years ended December
31, 1997, 1996, and 1995, the Bank earned interest income on such loans of
$59,000, $6,000, and $5,000, respectively. During the nine months ended
September 30, 1998, the Bank earned interest income on such loans of $83,000.
During the years ended December 31, 1997, 1996, and 1995, the Bank purchased
loans in the amounts of $5,762,000, $4,106,000, and $2,450,000 and sold loans in
the amount of $4,509,000, $4,106,000, and $2,450,000, respectively. During the
nine months ended September 30, 1998, the Bank purchased loans in the amount of
$26,476,000, and sold loans in the amount of $25,225,000. All loans sold back to
the mortgage company are without recourse to the Bank. The Chairman of the Board
of the Bank is a director and treasurer of the mortgage company.
NOTE 15: ADDITIONAL CASH FLOW INFORMATION
ADDITIONAL CASH PAYMENT INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Income taxes paid......................... $ 819,000 $ 397,000 $ 383,000
========== ========== ===========
Interest paid............................. $5,012,000 $4,347,000 $ 3,858,000
========== ========== ===========
</TABLE>
F-29
<PAGE> 156
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NON-CASH INVESTING ACTIVITIES
<TABLE>
<S> <C> <C> <C>
Reclassification of securities from
held-to- maturity to available-for-sale
at amortized cost....................... $ -- $ -- $22,377,000
========== ========== ===========
Reclassification of securities from
available-for-sale to held-to-maturity
at fair value........................... $5,092,000 $8,808,000 $10,299,000
========== ========== ===========
</TABLE>
NOTE 16: CONDENSED FINANCIAL INFORMATION -- PARENT COMPANY ONLY
Financial statements of the parent company, Union Bankshares, Ltd., are shown
below and should be read in conjunction with the consolidated financial
statements.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------
1998 1997 1996
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash.................................... $ 642,000 $ 311,000 $ 711,000
Available-for-sale securities........... 2,685,000 3,700,000 3,436,000
Excess of cost over fair value of net
assets acquired, net of
amortization.......................... 2,551,000 2,720,000 2,946,000
Investment in subsidiary................ 15,158,000 13,757,000 12,515,000
Due from subsidiary..................... -- -- 7,000
Accrued interest receivable............. 75,000 40,000 36,000
Income taxes receivable................. -- -- 26,000
Deferred income taxes................... 26,000 26,000 23,000
----------- ----------- -----------
Total Assets.................. $21,137,000 $20,554,000 $19,700,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Note payable.......................... $ 1,000,000 $ 2,000,000 $ 3,500,000
Other liabilities..................... 278,000 332,000 168,000
----------- ----------- -----------
Total Liabilities............. 1,278,000 2,332,000 3,668,000
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common stock.......................... 1,000 1,000 1,000
Additional paid-in capital............ 9,610,000 9,584,000 9,435,000
Unrealized gains on subsidiary's
available-for-sale securities...... 616,000 253,000 348,000
Retained earnings..................... 9,632,000 8,384,000 6,248,000
----------- ----------- -----------
Total Stockholders' Equity.... 19,859,000 18,222,000 16,032,000
----------- ----------- -----------
Total Liabilities and
Stockholders' Equity....... $21,137,000 $20,554,000 $19,700,000
=========== =========== ===========
</TABLE>
F-30
<PAGE> 157
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------- ------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING INCOME
Dividends from subsidiary........... $ 750,000 $1,150,000 $1,600,000 $1,250,000 $1,000,000
Interest income..................... 135,000 154,000 224,000 241,000 343,000
---------- ---------- ---------- ---------- ----------
Total operating income...... 885,000 1,304,000 1,824,000 1,491,000 1,343,000
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Interest............................ 101,000 209,000 268,000 385,000 543,000
Losses on sales of investment
securities....................... -- -- -- -- 6,000
Amortization of excess of investment
in subsidiary over net assets
acquired......................... 170,000 170,000 226,000 226,000 226,000
Salaries and employee benefits...... 382,000 345,000 479,000 354,000 322,000
Occupancy and equipment............. 17,000 13,000 13,000 13,000 14,000
Other............................... 319,000 253,000 305,000 321,000 357,000
---------- ---------- ---------- ---------- ----------
Total operating expenses.... 989,000 990,000 1,291,000 1,299,000 1,468,000
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE EQUITY IN
UNDISTRIBUTED EARNINGS OF
SUBSIDIARY, INCOME TAX BENEFIT, AND
EXTRAORDINARY ITEM.................. (104,000) 314,000 533,000 192,000 (125,000)
EQUITY IN UNDISTRIBUTED EARNINGS OF
SUBSIDIARY.......................... 1,038,000 983,000 1,337,000 1,398,000 989,000
INCOME TAX BENEFIT.................... 314,000 214,000 266,000 320,000 362,000
---------- ---------- ---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM...... 1,248,000 1,511,000 2,136,000 1,910,000 1,226,000
EXTRAORDINARY ITEM
Loss on early extinguishment of debt
(net of applicable income taxes
of $201,000)..................... --........ -- -- 337,000 --
---------- ---------- ---------- ---------- ----------
NET INCOME............................ $1,248,000 $1,511,000 $2,136,000 $1,573,000 $1,226,000
========== ========== ========== ========== ==========
</TABLE>
F-31
<PAGE> 158
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------- ---------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $1,248,000.. $ 1,511,000 $ 2,136,000 $ 1,573,000 $ 1,226,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
(Gains) losses on repurchase of notes payable....... -- -- -- 65,000 (8,000)
Losses on sales of securities....................... -- -- -- -- 6,000
Net amortization of premiums (accretion of
discounts) on investments......................... 1,000 (28,000) (20,000) (99,000) 4,000
Amortization of debt issuance costs................. -- -- -- 490,000 83,000
Amortization of excess of cost over net assets
acquired.......................................... 169,000 169,000 226,000 226,000 226,000
Deferred taxes...................................... -- 1,000 (3,000) (12,000) (11,000)
Change in:
Other assets........................................ -- 26,000 26,000 (26,000) 20,000
Accrued interest receivable......................... (35,000) (26,000) (4,000) 16,000 (20,000)
Due from subsidiary -- 7,000 7,000 41,000 6,000
Equity in undistributed earnings of subsidiary...... (1,038,000) (983,000) (1,337,000) (1,398,000) (989,000)
Other liabilities................................... (54,000) 96,000 164,000 (228,000) 118,000
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities...... 291,000 773,000 1,195,000 648,000 661,000
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities............ (2,686,000) (3,699,000) (3,704,000) (6,351,000) (5,665,000)
Proceeds from sales of available-for-sale
securities.......................................... -- -- -- 4,890,000 4,892,000
Proceeds from maturities of available-for-sale
securities.......................................... 3,700,000 3,460,000 3,460,000 3,830,000 700,000
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities................................... 1,014,000 (239,000) (244,000) 2,369,000 (73,000)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable........................... -- -- -- 4,000,000 --
Principal repayments of notes payable................. (1,000,000) (750,000) (1,500,000) (7,077,000) (180,000)
Proceeds from issuance of common stock................ 26,000 112,000 149,000 51,000 25,000
Repurchase of common stock............................ -- -- -- -- (150,000)
Repurchase of stock warrants.......................... -- -- -- -- (69,000)
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities.......... (974,000) (638,000) (1,351,000) (3,026,000) (374,000)
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 331,000 (104,000) (400,000) (9,000) 214,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............ 311,000 711,000 711,000 720,000 506,000
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR.................. $ 642,000 $ 607,000 $ 311,000 $ 711,000 $ 720,000
=========== =========== =========== =========== ===========
</TABLE>
F-32
<PAGE> 159
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 17: REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weighing, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table following) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to adjusted total assets (as defined). Management believes, as of
December 31, 1997, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1997, the most recent notification from the Federal Deposit
Insurance Corporation (FDIC) categorized the Company and the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Company and the Bank must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the category.
F-33
<PAGE> 160
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company's and the Bank's actual capital amounts and ratios are also
presented in the table. In accordance with FDIC regulations, no amount has been
deducted from capital for interest rate risk.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total risk-based capital (to
risk-weighted assets):
Consolidated......................... $17,208,000 11.2% $12,308,000 8.0% $15,386,000 10.0%
Bank................................. $15,415,000 10.1% $12,216,000 8.0% $15,270,000 10.0%
Tier I risk-based capital (to
risk-weighted assets):
Consolidated......................... $15,249,000 9.9% $ 6,154,000 4.0% $ 9,231,000 6.0%
Bank................................. $13,504,000 8.8% $ 6,108,000 4.0% $ 9,162,000 6.0%
Tier I leverage capital (to adjusted
total assets):
Consolidated......................... $15,249,000 6.9% $ 8,866,000 4.0% $11,083,000 5.0%
Bank................................. $13,504,000 6.6% $ 8,230,000 4.0% $10,287,000 5.0%
As of December 31, 1996:
Total risk-based capital (to
risk-weighted assets):
Consolidated......................... $14,252,000 11.8% $11,402,000 8.0% $12,101,000 10.0%
Bank................................. $13,673,000 11.4% $ 9,618,000 8.0% $12,022,000 10.0%
Tier I risk-based capital (to
risk-weighted assets):
Consolidated......................... $12,700,000 10.5% $ 4,840,000 4.0% $ 7,261,000 6.0%
Bank................................. $12,167,000 10.1% $ 4,809,000 4.0% $ 7,213,000 6.0%
Tier I leverage capital (to adjusted
total assets):
Consolidated......................... $12,700,000 7.0% $ 7,261,000 4.0% $ 9,080,000 5.0%
Bank................................. $12,167,000 6.7% $ 7,292,000 4.0% $ 9,115,000 5.0%
</TABLE>
The Bank is subject to certain restrictions on the amount of dividends that it
may declare without prior regulatory approval. At December 31, 1997,
approximately $3,724,000 of retained earnings were available for dividend
declaration without prior regulatory approval.
NOTE 18: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term instruments, the carrying amount approximates fair value.
F-34
<PAGE> 161
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
INVESTMENT SECURITIES
Fair values for investment securities equal quoted market prices, if available.
If quoted market prices are not available, fair values are estimated based on
quoted market prices of similar securities.
LOANS
The fair value of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities. Loans with similar
characteristics were aggregated for purposes of the calculations. The carrying
amount of accrued interest approximates its fair value.
MORTGAGE LOANS HELD-FOR-SALE
Fair values of mortgage loans held-for-sale is estimated using the quoted market
prices for securities backed by similar loans, adjusted for differences in loan
characteristics.
DEPOSITS
The fair value of demand deposits, savings accounts, NOW accounts, and certain
money market deposits is the amount payable on demand at the reporting date
(i.e., their carrying amount). The fair value of fixed-maturity time deposits is
estimated using a discounted cash flow calculation that applies the rates
currently offered for deposits of similar remaining maturities. The carrying
amount of accrued interest payable approximates its fair value.
NOTES PAYABLE
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
COMMITMENTS TO EXTEND CREDIT AND LETTERS OF CREDIT
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
letters of credit and lines of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate or otherwise settle the
obligations with the counterparties at the reporting date.
The following table presents estimated fair values of the Company's financial
instruments. The fair values of certain of these instruments were calculated by
discounting expected cash flows, which method involves significant judgments by
management and uncertainties. Fair value is the estimated amount at which
financial assets or liabilities could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. Because no
market exists for certain of these financial instruments and because management
does not intend to sell these financial instruments, the Company does
F-35
<PAGE> 162
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
not know whether the fair values shown below represent values at which the
respective financial instruments could be sold individually or in the aggregate.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks...... $15,314,000 $15,314,000 $12,356,000 $12,356,000
Federal funds sold........... 11,400,000 11,400,000 -- --
Available-for-sale
securities................ 37,180,000 37,180,000 39,904,000 39,904,000
Held-to-maturity
securities................ 27,929,000 28,681,000 24,634,000 24,970,000
Other investments............ 916,000 916,000 494,000 494,000
Interest receivable.......... 1,353,000 1,353,000 1,107,000 1,107,000
Loans, net of allowance for
loan losses............... 120,659,000 123,906,000 98,978,000 100,566,000
Mortgage loans
held-for-sale............. 1,253,000 1,253,000 -- --
FINANCIAL LIABILITIES
Deposits..................... 190,076,000 186,829,000 156,409,000 157,049,000
Federal funds purchased...... -- -- 6,200,000 6,200,000
Notes payable................ 12,000,000 12,137,000 3,500,000 3,500,000
Interest payable............. 187,000 187,000 95,000 95,000
UNRECOGNIZED FINANCIAL
INSTRUMENTS
(net of contract amount):
Commitments to extend
credit.................... -- -- -- --
Letters of credit............ -- -- -- --
Lines of credit.............. -- -- -- --
</TABLE>
NOTE 19: FUTURE CHANGES IN ACCOUNTING PRINCIPLE
The Financial Accounting Standards Board recently issued Statement No. 131
(Statement No. 131) "Disclosures about Segments of an Enterprise and Related
Information." Statement No. 131, which is to become effective for periods
beginning after December 15, 1997, and requires that business enterprises report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Management believes that Statement No. 131
will have no significant impact on the Company's financial statements.
The Financial Accounting Standards Board recently issued Statement No. 133
(Statement No. 133) "Accounting for Derivative Instruments and Hedging
Activities." Statement No. 133, which becomes effective for periods beginning
after June 15, 1999, and requires that business enterprises recognized all
derivatives either as assets or liabilities in the financial statements and
record those instruments at fair value. Changes in fair value of these
derivatives are recognized in the statement of income or comprehensive income in
the period of change. Management believes that Statement No. 133 will have no
significant impact on the Company's financial statements.
F-36
<PAGE> 163
INDEPENDENT AUDITORS' REPORT
Board of Directors
Lakewood State Bank
Lakewood, Colorado
We have audited the accompanying balance sheets of Lakewood State Bank (an S
corporation) as of December 31, 1997 and 1996 and the related statements of
income, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lakewood State Bank at December
31, 1997 and 1996 and the results of its operations and cash flows for the years
then ended, in conformity with generally accepted accounting principles.
/s/ Fortner, Bayens, Levkulich and Co.
Denver, Colorado
January 28, 1998
F-37
<PAGE> 164
LAKEWOOD STATE BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------
1998 1997 1996
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks................. $ 1,873,054 $ 1,974,685 $ 1,794,738
Federal funds sold...................... 4,960,000 5,020,000 1,710,000
Securities to be held to maturity....... 11,988,109 7,188,865 6,796,897
Loans................................... 23,962,756 24,585,765 26,138,527
Less allowance for loan losses.......... (336,738) (363,660) (372,196)
----------- ----------- -----------
23,626,018 24,222,105 25,766,331
Bank premises and equipment............. 1,944,997 2,031,654 2,066,324
Accrued interest receivable............. 321,774 196,163 220,561
Real estate acquired by foreclosure..... 158,375 158,375 168,627
Other assets............................ 18,233 14,795 21,930
----------- ----------- -----------
$44,890,560 $40,806,642 $38,545,408
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand, non-interest bearing....... $10,351,062 $ 9,782,566 $10,023,075
Demand, interest bearing........... 9,020,490 8,639,973 7,941,649
Savings............................ 7,239,615 5,925,937 5,311,318
Time, $100,000 and over............ 2,278,863 1,917,320 1,898,307
Other time......................... 11,392,812 10,297,325 8,869,353
----------- ----------- -----------
40,282,842 36,563,121 34,043,702
Accrued interest payable.............. 242,499 140,200 112,080
Income taxes payable.................. 3,952 3,952 252,395
Deferred income tax liability......... 56,558 56,558 321,017
Other liabilities..................... 47,724 34,956 24,358
----------- ----------- -----------
Total liabilities............. 40,633,575 36,798,787 34,753,552
Commitments (note G)
Stockholders' equity
Common stock -- authorized, issued and
outstanding, 100,000 shares of $10
par value.......................... 1,000,000 1,000,000 1,000,000
Capital surplus....................... 1,455,205 1,455,205 1,455,205
Retained earnings..................... 1,801,780 1,552,650 1,336,651
----------- ----------- -----------
4,256,985 4,007,855 3,791,856
----------- ----------- -----------
$44,890,560 $40,806,642 $38,545,408
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE> 165
LAKEWOOD STATE BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- -----------------------
1998 1997 1997 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans...... $1,780,666 $1,995,812 $2,644,190 $2,209,894
Interest on taxable investment
securities................... 391,744 241,315 326,014 329,663
Interest on non-taxable
investment securities........ 4,710 4,743 6,313 13,110
Interest on federal funds
sold......................... 218,652 39,507 104,587 77,348
---------- ---------- ---------- ----------
Total interest income... 2,395,772 2,281,377 3,081,104 2,630,015
Interest expense
Demand deposits................. 152,247 142,747 193,504 174,545
Savings deposits................ 137,385 119,247 162,550 152,315
Time deposits................... 571,212 484,820 664,027 402,997
Interest on federal funds
purchased.................... -- 1,439 1,439 13,668
---------- ---------- ---------- ----------
Total interest
expense.............. 860,844 748,253 1,021,520 743,525
---------- ---------- ---------- ----------
Net interest income............... 1,534,928 1,533,124 2,059,584 1,886,490
Provision to allowance for loan
losses (note C)................. -- -- -- --
---------- ---------- ---------- ----------
Net interest income
after reduction in
allowance for loan
losses............... 1,534,928 1,533,124 2,059,584 1,886,490
Other income
Service charges on deposit
accounts..................... 185,001 214,640 278,775 268,990
Miscellaneous income............ 100,424 97,010 124,200 113,376
---------- ---------- ---------- ----------
Total other income...... 285,425 311,650 402,975 382,366
Other expenses
Salaries and employee
benefits..................... 615,201 579,830 808,079 712,674
Occupancy expenses of
premises..................... 158,019 161,490 203,944 202,312
Furniture and equipment
expense...................... 64,923 72,520 102,554 54,930
Other expenses.................. 358,080 379,970 527,379 444,470
---------- ---------- ---------- ----------
Total other expenses.... 1,196,223 1,193,810 1,641,956 1,414,386
---------- ---------- ---------- ----------
Income before income
taxes................ 624,130 650,964 820,603 854,470
Income tax benefit (expense)
Current income tax.............. -- (16,400) (24,063) (262,362)
Deferred income tax............. -- 253,007 264,459 (23,638)
---------- ---------- ---------- ----------
-- 236,607 240,396 (286,000)
---------- ---------- ---------- ----------
NET INCOME........................ $ 624,130 $ 887,571 $1,060,999 $ 568,470
========== ========== ========== ==========
Earnings per common share......... $ 6.24 $ 8.87 $ 10.61 $ 5.68
========== ========== ========== ==========
Average shares outstanding........ 100,000 100,000 100,000 100,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE> 166
LAKEWOOD STATE BANK
STATEMENT OF STOCKHOLDERS' EQUITY
TWO YEARS ENDED DECEMBER 31, 1997 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
LOSS ON
SECURITIES
AVAILABLE
COMMON CAPITAL RETAINED FOR SALE,
STOCK SURPLUS EARNINGS NET OF TAXES TOTAL
---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... $1,000,000 $1,455,205 $ 868,181 $(429) $3,322,957
Cash dividend
paid -- $1.00 per
share.................. -- -- (100,000) -- (100,000)
Net income for the
1996................... -- -- 568,470 -- 568,470
Change in unrealized loss
on securities available
for sale............... -- -- -- 429 429
---------- ---------- ---------- ----- ----------
Balance at December 31,
1996................... 1,000,000 1,455,205 1,336,651 -- 3,791,856
Cash dividend
paid -- $8.45 per
share.................. -- -- (845,000) -- (845,000)
Net income for the
1997................... -- -- 1,060,999 -- 1,060,999
---------- ---------- ---------- ----- ----------
Balance at December 31,
1997................... 1,000,000 1,455,205 1,552,650 -- 4,007,855
Cash dividend
paid -- $3.75 per
share.................. -- -- (375,000) -- (375,000)
---------- ---------- ---------- ----- ----------
Net income for period.... -- -- 624,130 -- 624,130
---------- ---------- ---------- ----- ----------
Balance at September 30,
1998................... $1,000,000 $1,455,205 $1,801,780 $ -- $4,256,985
========== ========== ========== ===== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-40
<PAGE> 167
LAKEWOOD STATE BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------- -------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating activities
Net income........................... $ 624,130 $ 887,571 $ 1,060,999 $ 568,470
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization...... 143,850 119,970 159,999 118,642
Deferred income taxes.............. -- (253,007) (264,459) 23,638
Writedown on real estate........... -- -- 10,252 --
Changes in deferrals and accruals
Decrease (increase) in interest
receivable.................... (125,611) (35,641) 24,398 (44,366)
Increase in interest payable.... 102,299 94,033 28,120 46,879
Increase (decrease) in income
taxes payable................. -- (252,395) (248,443) 252,395
Other, net...................... 9,330 19,138 17,733 (27,140)
----------- ----------- ----------- -----------
Net cash provided by operating
activities.................. 753,998 579,669 788,599 938,518
Investing activities
Net (increase) decrease in federal
funds sold......................... 60,000 (830,000) (3,310,000) 560,000
Purchase of securities to be held to
maturity........................... (6,025,394) (1,198,958) (3,716,709) (4,319,229)
Proceeds from maturities of
securities to be held to
maturity........................... 1,200,000 2,410,000 3,310,000 3,820,000
Proceeds from maturities of available
for sale securities................ -- -- -- 500,000
Net decrease (increase) in loans..... 596,087 (197,157) 1,544,226 (6,992,808)
Expenditures for equipment and
building improvements.............. (31,043) (73,694) (110,588) (107,208)
----------- ----------- ----------- -----------
Net cash (applied to) provided
by investing activities..... (4,200,350) 110,191 (2,283,071) (6,539,245)
Financing activities
Net increase (decrease) in demand and
savings deposits................... 2,262,691 (687,362) 1,072,434 1,598,190
Net increase in certificates of
deposit............................ 1,457,030 507,790 1,446,985 4,378,971
Cash dividends paid.................. (375,000) (345,000) (845,000) (100,000)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities........ 3,344,721 (524,572) 1,674,419 5,877,161
----------- ----------- ----------- -----------
Net increase in cash and due from
banks................................ (101,631) 165,288 179,947 276,434
Cash and due from banks at beginning of
year................................. 1,974,685 1,794,738 1,794,738 1,518,304
----------- ----------- ----------- -----------
Cash and due from banks at end of
year................................. $ 1,873,054 $ 1,960,026 $ 1,974,685 $ 1,794,738
=========== =========== =========== ===========
Supplemental disclosures of cash flow
information
Cash paid for:
Interest expense................... $ 758,545 $ 654,220 $ 993,400 $ 696,646
Income taxes....................... -- -- 272,506 20,188
</TABLE>
F-41
<PAGE> 168
LAKEWOOD STATE BANK
NOTES TO FINANCIAL STATEMENTS
(ALL FINANCIAL INFORMATION FOR SEPTEMBER 30, 1998
AND 1997 IS UNAUDITED)
NOTE A -- SUMMARY OF ACCOUNTING POLICIES
NATURE OF OPERATIONS
Lakewood State Bank ("the Bank") provides a full range of banking and mortgage
services to individual and corporate customers principally in the Lakewood area.
A majority of the Bank's loans are related to real estate activities. Borrowers'
abilities to honor their loans are dependent upon the continued economic
viability of the area. The Bank is subject to competition from other financial
institutions for loans and deposit accounts. The Bank is also subject to
regulation by certain governmental agencies and undergoes periodic examinations
by those regulatory agencies.
BASIS OF FINANCIAL STATEMENT 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. In
connection with the determination of the allowance for loan losses, management
obtains independent appraisals for significant properties and assesses estimated
future cash flows from borrowers' operations and the liquidation of loan
collateral.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize loan losses, changes in
economic conditions may necessitate revisions in future years. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additional losses based on their judgments about
information available to them at the time of their examination.
INVESTMENT SECURITIES
The Bank revalues securities designated as available for sale at each reporting
period. The unrealized gain or loss, net of tax effect is recorded as an element
of stockholders' equity.
The designation of a security as held to maturity or available for sale is made
at the time of acquisition. The held to maturity classification includes debt
securities that the Bank has the positive intent and ability to hold to maturity
which are carried at amortized cost. The available for sale classification
includes debt and equity securities which are carried at fair value. Unrealized
gains and losses on securities available for sale are included as a separate
component of stockholders' equity, net of tax effect. Gains or losses on sales
of securities are recognized by the specific identification method.
F-42
<PAGE> 169
LAKEWOOD STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(ALL FINANCIAL INFORMATION FOR SEPTEMBER 30, 1998
AND 1997 IS UNAUDITED)
LOANS
Loans are reported at the principal amount outstanding, net of loan fees and the
allowance for loan losses. Interest on loans is calculated by using the simple
interest method on the daily balance of the principal amount outstanding.
Loan fee income, net of direct origination costs, which is equivalent to
interest, is generally recognized in income over the term of the loan.
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. When a loan is placed on nonaccrual
status, all interest previously accrued but not collected is reversed against
current period interest income. Income on such loans is then recognized only to
the extent that cash is received and where the future collection of principal is
probable. Interest accruals are resumed on such loans only when they are brought
fully current with respect to interest and principal and when, in the judgment
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. Interest is generally
accrued on such loans in accordance with the new terms.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained through provisions or reductions for
loan losses charged to expenses. 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 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 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.
For impairment recognized in accordance with Financial Accounting Standards
Board ("FASB") Statement No. 114, Accounting by Creditors for Impairment of a
Loan, the entire change in present value of expected cash flows is reported as
bad debt expense in the same manner in which impairment initially was recognized
or as a reduction in the amount of bad debt expense that otherwise would be
reported.
F-43
<PAGE> 170
LAKEWOOD STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(ALL FINANCIAL INFORMATION FOR SEPTEMBER 30, 1998
AND 1997 IS UNAUDITED)
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives, principally on the straight-line method.
INCOME TAXES
Through 1996, current and deferred income tax assets or liabilities were
recognized subject to certain limitations, for the tax consequences of all
events that have been recognized in the financial statements. The deferred
income tax asset or liability is measured by the provisions of enacted tax laws.
Effective January 1, 1997, the Bank elected to be taxed under the provisions of
Subchapter S and the Internal Revenue Code. Under these provisions, the Bank
does not pay income taxes on its taxable income. Instead, the stockholders are
liable for individual income taxes on their respective share of the Bank.
REAL ESTATE ACQUIRED BY FORECLOSURE
Real estate acquired by foreclosure is recorded by the Bank at the lower of cost
or market. Gain or loss on the sale of real estate owned, if any, is recognized
at the time of the sale.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Bank has defined cash
equivalents as those amounts included in the balance sheet caption "Cash and Due
from Banks".
NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
NEW ACCOUNTING STANDARDS
Effective January 1, 1997, the Bank adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 125,"Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". the adoption
of SFAS No. 125 did not impact the Bank's financial condition or results of
operations.
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 129, "Disclosure of Information About Capital Structure," which codifies
existing disclosure requirements regarding capital structure. SFAS No. 129 did
not have a significant impact on the Bank's current capital structure
disclosures.
F-44
<PAGE> 171
LAKEWOOD STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(ALL FINANCIAL INFORMATION FOR SEPTEMBER 30, 1998
AND 1997 IS UNAUDITED)
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income", (SFAS 130) and Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" (SFAS 131). SFAS 130 requires disclosures of the components
of comprehensive income and the accumulated balance of other comprehensive
income within total stockholders' equity. SFAS 131 requires disclosure of
selected information about operating segments including segment income, revenues
and asset data. Operating segments, as defined in SFAS 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
exceeds 10 percent or more of combined revenue, income, or assets. These
standards are effective for fiscal years beginning after December 15, 1997, and
are not expected to have a material impact on the Bank's financial statements.
The Bank had no items of accumulated comprehensive income at December 31, 1997,
1996 or September 30, 1998.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits", which revises employers'
disclosures about pension and other post retirement benefit plans and suggests
combined formats for presentation of pension and other postretirement benefit
disclosures. It is effective for fiscal years beginning after December 15, 1997.
Restatement of disclosures for earlier periods provided for comparative purposes
is required unless the information is not readily available. This standard is
not expected to have a material impact on the Bank's financial statements.
NOTE B -- INVESTMENT SECURITIES
The Bank had securities with the following carrying value and estimated fair
market values:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Securities to be Held to
Maturity
U.S. Treasury securities..... $ 1,612,097 $10,515 $-- $ 1,622,612
U.S. Agency securities....... 10,225,215 63,843 -- 10,289,058
State and political
subdivision obligations... 150,797 899 -- 151,696
----------- ------- -- -----------
$11,988,109 $75,257 $-- $12,063,366
=========== ======= === ===========
</TABLE>
F-45
<PAGE> 172
LAKEWOOD STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(ALL FINANCIAL INFORMATION FOR SEPTEMBER 30, 1998
AND 1997 IS UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities to be Held to Maturity
U.S. Treasury securities....... $ 814,200 $1,413 $ 1,334 $ 814,279
U.S. Agency securities......... 6,223,740 3,273 21,270 6,205,743
State and political subdivision
obligations................. 150,925 98 101 150,922
---------- ------ ------- ----------
$7,188,865 $4,784 $22,705 $7,170,944
========== ====== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities to be Held to Maturity
U.S. Treasury securities....... $2,724,422 $4,260 $ 7,192 $2,721,490
U.S. Agency securities......... 3,821,413 1,234 4,271 3,818,376
State and political subdivision
obligations................. 251,062 97 972 250,187
---------- ------ ------- ----------
$6,796,897 $5,591 $12,435 $6,790,053
========== ====== ======= ==========
</TABLE>
The amortized cost and estimated market value of securities at December 31, 1997
by contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES TO BE
HELD TO MATURITY
-----------------------
AMORTIZED MARKET
COST VALUE
---------- ----------
<S> <C> <C>
Due in one year or less................................ $3,103,633 $3,101,381
Due after one year through five years.................. 4,034,307 4,018,540
Due after five years through ten years................. 50,925 51,023
Due after ten years.................................... -- --
---------- ----------
$7,188,865 $7,170,944
========== ==========
</TABLE>
Securities included in the accompanying balance sheets at December 31, 1997 and
1996 with a carrying value of $100,000 and $99,967, respectively, are pledged as
collateral for public deposits and for other purposes as required or permitted
by law.
F-46
<PAGE> 173
LAKEWOOD STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(ALL FINANCIAL INFORMATION FOR SEPTEMBER 30, 1998
AND 1997 IS UNAUDITED)
NOTE C -- LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------
1998 1997 1996
------------- ----------- -----------
<S> <C> <C> <C>
Commercial and other.................... $ 4,496,241 $ 5,193,902 $ 5,461,607
Real estate -- construction and
development........................... 3,789,430 2,376,170 2,321,442
Real estate -- other.................... 8,622,005 10,510,598 12,614,516
Consumer................................ 7,084,672 6,530,643 5,778,407
Overdrafts.............................. 1,033 1,352 803
----------- ----------- -----------
23,993,381 24,612,665 26,176,775
Less unearned loan fees................. (30,625) (26,900) (38,248)
----------- ----------- -----------
$23,962,756 $24,585,765 $26,138,527
=========== =========== ===========
</TABLE>
There were no loans transferred to foreclosed real estate in 1997 or 1996.
The Bank had loans having payments delinquent more than sixty days at December
31, 1997 and 1996 of $3,722 and $-0-, respectively.
The accrual of interest had been discontinued on principal balances of loans
totaling $47,694, $30,600, and $-0- at September 30, 1998 and December 31, 1997
and 1996, respectively.
Transactions in the allowance for possible loan losses are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- -------------------
1998 1997 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of year......... $363,660 $372,196 $372,196 $290,210
Recoveries........................... 9,274 29,890 32,649 99,914
Loans charged off.................... (36,196) (19,101) (41,185) (17,928)
-------- -------- -------- --------
Balance at December 31,.............. $336,738 $382,985 $363,660 $372,196
======== ======== ======== ========
</TABLE>
F-47
<PAGE> 174
LAKEWOOD STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(ALL FINANCIAL INFORMATION FOR SEPTEMBER 30, 1998
AND 1997 IS UNAUDITED)
NOTE D -- BANK PREMISES AND EQUIPMENT
At December 31, bank premises and equipment, less accumulated depreciation,
consisted of the following:
<TABLE>
<CAPTION>
1997
--------------------------------------
ACCUMULATED NET
COST DEPRECIATION AMOUNT
---------- ------------ ----------
<S> <C> <C> <C>
Bank premises.............................. $2,612,829 $1,352,701 $1,260,128
Equipment.................................. 669,319 498,193 171,126
Land....................................... 600,400 -- 600,400
---------- ---------- ----------
$3,882,548 $1,850,894 $2,031,654
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------
ACCUMULATED NET
COST DEPRECIATION AMOUNT
---------- ------------ ----------
<S> <C> <C> <C>
Bank premises.............................. $2,586,015 $1,255,577 $1,330,438
Equipment.................................. 585,544 450,058 135,486
Land....................................... 600,400 -- 600,400
---------- ---------- ----------
$3,771,959 $1,705,635 $2,066,324
========== ========== ==========
</TABLE>
NOTE E -- DEPOSITS
At December 31, 1997, the scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<S> <C>
1998........................................................ $ 8,138,935
1999........................................................ 2,616,435
2000........................................................ 414,952
2001........................................................ 327,015
2002........................................................ 528,578
Thereafter.................................................. 188,730
-----------
$12,214,645
===========
</TABLE>
NOTE F -- INCOME TAXES
1997
Effective January 1, 1997, the Bank elected to be taxed under Subchapter S of
the Internal Revenue Code. In accordance with generally accepted accounting
principles, the Bank eliminated all unnecessary deferred tax assets and
liabilities, which resulted in a tax
F-48
<PAGE> 175
LAKEWOOD STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(ALL FINANCIAL INFORMATION FOR SEPTEMBER 30, 1998
AND 1997 IS UNAUDITED)
benefit of $240,396 being recognized in 1997. The remaining deferred tax
liability at December 31, 1997 is attributable to the anticipated tax on the
recapture of the allowance for loan losses for tax purposes.
1996
A deferred tax asset or liability was recognized for the tax consequences of
temporary differences in the recognition of revenue and expense for financial
reporting and tax purposes. Listed below are the components of the net deferred
tax liability as of December 31, 1996:
<TABLE>
<S> <C>
Deferred tax liabilities
Depreciation.............................................. $(447,529)
Deferred tax assets
Allowance for loan losses................................. 44,133
Writedowns of other real estate owned..................... 82,379
---------
Total deferred tax assets......................... 126,512
Valuation allowance......................................... --
---------
Net deferred tax liability........................ $(321,017)
=========
</TABLE>
The effective income tax rate varies from the statutory federal rate because of
several factors, the most significant being tax-exempt income.
NOTE G -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank 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 stand-by letters
of credit.
Those instruments involve, to a varying degree, elements of credit risk in
excess of the amount recognized in the statement of financial position. The
contract amounts of those instruments reflect the extent of involvement the Bank
has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of non-performance by the other
party to the financial instrument for commitments to extend credit and stand-by
letters of credit is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
F-49
<PAGE> 176
LAKEWOOD STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(ALL FINANCIAL INFORMATION FOR SEPTEMBER 30, 1998
AND 1997 IS UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------
1998 1997 1996
------------- ---------- ----------
<S> <C> <C> <C>
Financial instruments whose contract
amounts represent credit risk
Commitments to extend credit............ $4,843,712 $3,025,400 $2,532,500
Stand-by letters of credit.............. 52,425 47,915 45,565
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's credit-worthiness on a
case-by-case basis. The amount of collateral obtained if deemed necessary by the
Bank upon extension of credit is based on management's credit evaluation.
Collateral held varies, but may include accounts receivable, inventory,
property, plant and equipment and income-producing commercial properties.
Stand-by letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
NOTE H -- EMPLOYEE BENEFIT PLANS
The Bank has a profit sharing plan for employees under which it contributes a
portion of its earnings annually. The annual amount contributed by the Bank to
the plan is determined by the Board of Directors and is allocated to each
eligible employee according to individual compensation. Participants vest in
accordance with the provisions of the plan based on years of service completed
to a maximum of 100%. Contributions of $3,000 and $30,000 were made to the plan
in 1997 and 1996, respectively.
In 1996 the Bank established a defined contribution pension plan covering
substantially all employees. The plan allows employees to make salary deferrals
and allows the Bank to make discretionary matching contributions. Salaries and
employee benefits expense includes $10,300 and $10,200 in 1997 and 1996 for this
plan.
NOTE I -- RELATED PARTY TRANSACTIONS
At December 31, 1997 and 1996, the Bank had loans receivable from directors,
officers and principal shareholders (more than ten percent ownership) of the
Bank and their related business interests aggregating approximately $430,000 and
$658,700, respectively.
F-50
<PAGE> 177
LAKEWOOD STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(ALL FINANCIAL INFORMATION FOR SEPTEMBER 30, 1998
AND 1997 IS UNAUDITED)
NOTE J -- REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory -- and possibly additional discretionary -- actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Colorado Division
of Banking categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Bank must maintain minimum total risk-based, Tier I risk-based, Tier I
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.
F-51
<PAGE> 178
LAKEWOOD STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(ALL FINANCIAL INFORMATION FOR SEPTEMBER 30, 1998
AND 1997 IS UNAUDITED)
The Bank's actual capital amounts and ratios are also presented in the following
table:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ -------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ------------ ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total capital (to risk
weighted assets).... $4,372,000 11.4% $3,065,000 8.0% $3,831,000 10.0%
Tier 1 capital (to risk
weighted assets).... 4,008,000 10.5 1,533,000 4.0 2,299,000 6.0
Tier 1 capital (to
average assets)..... 4,008,000 9.9 1,627,000 4.0 2,034,000 5.0
As of December 31, 1996
Total capital (to risk
weighted assets).... $4,055,000 12.7% $2,539,000 8.0% $3,174,000 10.0%
Tier 1 capital (to risk
weighted assets).... 3,682,000 11.6 1,270,000 4.0 1,904,000 6.0
Tier 1 capital (to
average assets)..... 3,682,000 10.9 1,342,000 4.0 1,677,000 5.0
</TABLE>
Capital ratios for the Bank as of September 30, 1998, are as follows:
<TABLE>
<S> <C>
Total capital to risk-weighted assets....................... 17.3%
Tier 1 capital to risk-weighted assets...................... 16.1%
Tier 1 capital to average assets............................ 9.5%
</TABLE>
NOTE K -- SUBSEQUENT EVENT (UNAUDITED)
On August 27, 1998, the Bank entered into an Agreement and Plan of Merger
(Agreement) with Union Bank and Trust Company. Under the Agreement, shareholders
of the Bank will exchange their stock for cash. The Agreement is subject to
approval by certain regulatory authorities. It is anticipated the exchange will
be completed in the fourth quarter of 1998.
F-52
<PAGE> 179
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THE INFORMATION HEREIN OR INCORPORATED BY REFERENCE
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION OF AN OFFER TO BUY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
----------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,315,790 Trust Preferred Securities
UNION BANKSHARES CAPITAL TRUST I
% Cumulative Trust
Preferred Securities
(Liquidation Amount $7.60 Per
Trust Preferred Security)
Guaranteed as Described
in this Prospectus by
UNION BANKSHARES, LTD.
--------------------
PROSPECTUS
--------------------
BIGELOW & COMPANY INVESTMENT BANKERS
BARINGTON CAPITAL GROUP
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 180
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 3,228
NASD fee.................................................... 1,600
NASDAQ listing fees......................................... 35,000
Trustees' fees and expenses................................. 25,000
Legal fees and expenses..................................... 200,000
Blue Sky fees and expenses.................................. --
Accounting fees and expenses................................ 75,000
Printing expenses........................................... 150,000
Miscellaneous expenses...................................... 10,172
--------
Total............................................. $500,000
</TABLE>
All of the above items except the registration fee are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the Delaware General Corporation Law (the "DGCL") allows a
corporation to eliminate the personal liability of a director of a corporation
to the corporation or to any of its stockholders for monetary damage for a
breach of his fiduciary duty as a director, except in the case where the
director breached his duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of a
dividend or approved a stock repurchase in violation of Delaware corporate law
or obtained an improper personal benefit. Article 10 of the company's
Certificate of Incorporation eliminates directors' personal liability in
accordance with such Section 102 of the DGCL.
Section 145 of the Delaware Law authorizes corporations to indemnify directors,
officers and other employees against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement reasonably incurred in
connection with civil, criminal, administrative, or investigative actions, suits
or proceedings to which such persons are parties or threatened to be made a
party by reason of their corporate position (other than actions by or in the
right of the corporation to procure a judgment in its favor -- so called
"derivative suits") if such persons acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. With respect to
derivative suits, Section 145 prescribes a similar standard of care but limits
the available indemnification to expenses (including attorneys' fees) reasonably
incurred in connection with the defense or settlement of such action or suit and
further provides that if the derivative suit results in a judgment that the
person seeking indemnification is liable to the corporation, no such
indemnification is to be made without court approval. Section 145(f) of the DGCL
also specifically permits corporations to provide their officers, directors,
employees and agents with indemnification and advancement of expenses in
addition to those specifically required and/or permitted to be provided pursuant
to other provisions of such Section 145.
II-1
<PAGE> 181
Article 11 of the company's Certificate of Incorporation and Article VI of the
company's Bylaws provides indemnification in accordance with Section 145 of the
DGCL. Under the provisions of Article VI of the company's Bylaws, each person
who was or is made a party to, or is threatened to be made a party to or is
involved in, any action, suit or other legal proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that such
person is or was a director or officer of the company, or is or was performing
services at the company's request for another entity, including service with
respect to employee benefit plans, shall be indemnified to the full extent
permitted by the DGCL as in effect or as it may be amended, against all costs,
liabilities and losses (including attorney's fees) actually and reasonably
incurred by such person in connection with such proceeding. In addition, Article
VI of the Bylaws authorizes the company to provide other permissible
indemnification. Finally, Article VI provides that the company may (and it does)
maintain insurance to protect such persons against any expense or liability,
even if the company would not have the power itself to indemnify such person
against such liability or expense under the DGCL.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement(2)
3.1 -- Certificate of Incorporation of Union Bankshares, Ltd.(3)
3.2 -- Certificate of Amendment to Certificate of Incorporation
of Union Bankshares, Ltd.(2)
3.3 -- Bylaws of Union Bankshares. Ltd.(3)
4.1 -- Form of Subordinated Indenture dated to be entered into
between the Registrant and American Securities Transfer &
Trust, Inc., as Indenture Trustee(2)
4.2 -- Form of Junior Subordinated Debenture (included as an
exhibit to Exhibit 4.1)
4.3 -- Certificate of Trust of Union Bankshares Capital Trust
I(2)
4.4 -- Trust Agreement of Union Bankshares Capital Trust I dated
as of October 14, 1998(2)
4.5 -- Form of Amended and Restated Trust Agreement of Union
Bankshares Capital Trust I(2)
4.6 -- Form of Preferred Security Certificate of Union
Bankshares Capital Trust I (included as an exhibit to
Exhibit 4.5)
4.7 -- Form of Preferred Securities Guarantee Agreement(2)
4.8 -- Form of Agreement as to Expenses and Liabilities(2)
5.1 -- Opinion and Consent of Davis, Graham & Stubbs LLP(2)
5.2 -- Opinion and Consent of Richards, Layton & Finger P.A.(2)
8.1 -- Opinion of Davis, Graham & Stubbs LLP, as to certain
federal income tax matters(2)
10.1 -- Certificate of Incorporation of Union Bank & Trust
Company(3)
10.2 -- Bylaws of Union Bank & Trust Company(3)
</TABLE>
II-2
<PAGE> 182
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.3 -- Lease Agreement, dated July 1, 1994, between Lichtenberg
Corporation of Delaware and the Bank(5)
10.4 -- Form of Employment Agreement(3)
10.5 -- Equity Incentive Plan(3)
10.6 -- Nonemployee Directors' Stock Option Plan(3)
10.7 -- Agreement between Union Bank & Trust and Colorado Bankers
Mortgage, Inc.(3)
10.8 -- Nonemployee Directors Equity Compensation Plan(4)
10.9 -- Amended Shareholders' Agreement(4)
10.10 -- Agreement between Union Bank & Trust and Colorado
National Bank(5)
10.11 -- Loan Agreement between Union Bankshares, Ltd., Union Bank
& Trust and Boatmen's First National Bank of Kansas
City(6)
10.12 -- Line of Credit Agreement between Union Bankshares, Ltd.,
Union Bank & Trust and Boatmen's First National Bank of
Kansas City(7)
10.13 -- Option Bonus Plan(7)
10.14 -- Agreement and Plan of Merger, dated August 27, 1998,
among Union Bank and Trust Company, LSB Acquisition Corp.
and Lakewood State Bank(8)
11.1 -- Statement re Computation of per share earnings -- see
Consolidated Financial Statements
23.1 -- Consent of Baird, Kurtz & Dobson(9)
23.2 -- Consent of McGladrey & Pullen, LLP(9)
23.3 -- Consent of Fortner, Bayens, Levkulich and Co., P.C.(9)
23.4 -- Consent of Davis, Graham & Stubbs LLP (included in
Exhibit 5.1 above)(2)
23.5 -- Consent of Richards, Layton & Finger P.A. (included in
Exhibit 5.2 above)(2)
24.1 -- Power of attorney(9)
25.1 -- Form T-1 Statement of Eligibility of American Securities
Transfer & Trust, Inc. to act as trustee under the
Subordinated Indenture(1)
25.2 -- Form T-1 Statement of Eligibility of American Securities
Transfer & Trust, Inc. to act as trustee under the
Amended and Restated Trust Agreement(1)
25.3 -- Form T-1 Statement of Eligibility of American Securities
Transfer & Trust, Inc. to act as trustee under the
Preferred Securities Guarantee Agreement(1)
</TABLE>
- -------------------------
(1) To be filed by amendment.
(2) Filed herewith.
II-3
<PAGE> 183
(3) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Reg. No. 33-56736) filed with the Commission on January 6, 1993, as
amended.
(4) Incorporated by reference to the Company's Form 10-KSB filed with the
Commission on March 31, 1994.
(5) Incorporated by reference to the Company's Form 10-KSB filed with the
Commission on March 31, 1995.
(6) Incorporated by reference to the Company's Form 8-K filed with the
Commission on March 1, 1996.
(7) Incorporated by reference to the Company's Form 10-KSB filed with the
Commission on March 31, 1997.
(8) Incorporated by reference to the Company's Form 8-K filed with the
Commission on September 2, 1998.
(9) Filed previously on this Registration Statement.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE> 184
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Denver, State of Colorado, on this 9th day of
December, 1998.
UNION BANKSHARES CAPITAL TRUST I
By: /s/ BRUCE E. HALL
--------------------------------------
Bruce E. Hall
Administrative Trustee
UNION BANKSHARES, LTD.
By: /s/ CHARLES R. HARRISON
--------------------------------------
Charles R. Harrison
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CHARLES R. HARRISON Chairman of the Board, December 9, 1998
- --------------------------------------------- Chief Executive Officer
Charles R. Harrison and Director (principal
executive officer)
/s/ BRUCE E. HALL Vice December 9, 1998
- --------------------------------------------- President -- Finance,
Bruce E. Hall Secretary, Treasurer
and a Director
(principal financial
and accounting officer)
/s/ WAYNE T. BIDDLE* Director December 9, 1998
- ---------------------------------------------
Wayne T. Biddle
/s/ JERROLD B. EVANS* Director December 9, 1998
- ---------------------------------------------
Jerrold B. Evans
</TABLE>
II-5
<PAGE> 185
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RALPH D. JOHNSON* Director December 9, 1998
- ---------------------------------------------
Ralph D. Johnson
/s/ HAROLD R. LOGAN, JR.* Director December 9, 1998
- ---------------------------------------------
Harold R. Logan, Jr.
/s/ RICHARD C. SAUNDERS* Director December 9, 1998
- ---------------------------------------------
Richard C. Saunders
/s/ HERMAN J. ZUECK* Director December 9, 1998
- ---------------------------------------------
Herman J. Zueck
*By: /s/ CHARLES R. HARRISON
---------------------------------------
Attorney-in-fact
</TABLE>
II-6
<PAGE> 186
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement(2)
3.1 -- Certificate of Incorporation of Union Bankshares, Ltd.(3)
3.2 -- Certificate of Amendment to Certificate of Incorporation
of Union Bankshares, Ltd.(2)
3.3 -- Bylaws of Union Bankshares. Ltd.(3)
4.1 -- Form of Subordinated Indenture dated to be entered into
between the Registrant and American Securities Transfer &
Trust, Inc., as Indenture Trustee(2)
4.2 -- Form of Junior Subordinated Debenture (included as an
exhibit to Exhibit 4.1)
4.3 -- Certificate of Trust of Union Bankshares Capital Trust
I(2)
4.4 -- Trust Agreement of Union Bankshares Capital Trust I dated
as of October 14, 1998(2)
4.5 -- Form of Amended and Restated Trust Agreement of Union
Bankshares Capital Trust I(2)
4.6 -- Form of Preferred Security Certificate of Union
Bankshares Capital Trust I (included as an exhibit to
Exhibit 4.5)
4.7 -- Form of Preferred Securities Guarantee Agreement(2)
4.8 -- Form of Agreement as to Expenses and Liabilities(2)
5.1 -- Opinion and Consent of Davis, Graham & Stubbs LLP(2)
5.2 -- Opinion and Consent of Richards, Layton & Finger P.A.(2)
8.1 -- Opinion of Davis, Graham & Stubbs LLP, as to certain
federal income tax matters(2)
10.1 -- Certificate of Incorporation of Union Bank & Trust
Company(3)
10.2 -- Bylaws of Union Bank & Trust Company(3)
10.3 -- Lease Agreement, dated July 1, 1994, between Lichtenberg
Corporation of Delaware and the Bank(5)
10.4 -- Form of Employment Agreement(3)
10.5 -- Equity Incentive Plan(3)
10.6 -- Nonemployee Directors' Stock Option Plan(3)
10.7 -- Agreement between Union Bank & Trust and Colorado Bankers
Mortgage, Inc.(3)
10.8 -- Nonemployee Directors Equity Compensation Plan(4)
10.9 -- Amended Shareholders' Agreement(4)
10.10 -- Agreement between Union Bank & Trust and Colorado
National Bank(5)
10.11 -- Loan Agreement between Union Bankshares, Ltd., Union Bank
& Trust and Boatmen's First National Bank of Kansas
City(6)
10.12 -- Line of Credit Agreement between Union Bankshares, Ltd.,
Union Bank & Trust and Boatmen's First National Bank of
Kansas City(7)
10.13 -- Option Bonus Plan(7)
</TABLE>
<PAGE> 187
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.14 -- Agreement and Plan of Merger, dated August 27, 1998,
among Union Bank and Trust Company, LSB Acquisition Corp.
and Lakewood State Bank(8)
11.1 -- Statement re Computation of per share earnings -- see
Consolidated Financial Statements
23.1 -- Consent of Baird, Kurtz & Dobson(9)
23.2 -- Consent of McGladrey & Pullen, LLP(9)
23.3 -- Consent of Fortner, Bayens, Levkulich and Co., P.C.(9)
23.4 -- Consent of Davis, Graham & Stubbs LLP (included in
Exhibit 5.1 above)(2)
23.5 -- Consent of Richards, Layton & Finger P.A. (included in
Exhibit 5.2 above)(2)
24.1 -- Power of attorney(9)
25.1 -- Form T-1 Statement of Eligibility of American Securities
Transfer & Trust, Inc. to act as trustee under the
Subordinated Indenture(1)
25.2 -- Form T-1 Statement of Eligibility of American Securities
Transfer & Trust, Inc. to act as trustee under the
Amended and Restated Trust Agreement(1)
25.3 -- Form T-1 Statement of Eligibility of American Securities
Transfer & Trust, Inc. to act as trustee under the
Preferred Securities Guarantee Agreement(1)
</TABLE>
- -------------------------
(1) To be filed by amendment.
(2) Filed herewith.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Reg. No. 33-56736) filed with the Commission on January 6, 1993, as
amended.
(4) Incorporated by reference to the Company's Form 10-KSB filed with the
Commission on March 31, 1994.
(5) Incorporated by reference to the Company's Form 10-KSB filed with the
Commission on March 31, 1995.
(6) Incorporated by reference to the Company's Form 8-K filed with the
Commission on March 1, 1996.
(7) Incorporated by reference to the Company's Form 10-KSB filed with the
Commission on March 31, 1997.
(8) Incorporated by reference to the Company's Form 8-K filed with the
Commission on September 2, 1998.
(9) Filed previously on this Registration Statement.
<PAGE> 1
1,315,790 Preferred Securities
Union Bankshares Capital Trust I
____% Cumulative Trust Preferred Securities
(Liquidation Amount of $7.60 per Trust Preferred Security)
UNDERWRITING AGREEMENT
Bigelow & Company
As representative of the several
Underwriters named in Schedule A
1401 Seventeenth Street, Suite 1300
Denver, CO 80202
Dear Sirs:
Union Bankshares, Ltd., a Delaware corporation (the "Company") and its
financing subsidiary, Union Bankshares Capital Trust I, a Delaware business
trust (the "Trust," and hereinafter together with the Company, the "Offerors"),
propose that the Trust issue and sell to the several Underwriters named in
Schedule A (the "Underwriters"), (who are acting severally and not jointly)
pursuant to the terms of this Agreement, 1,315,790 shares of the Trust's ____%
Cumulative Trust Preferred Securities, with a liquidation amount of $7.60 per
preferred security (the "Preferred Securities"), to be issued under the Trust
Agreement (as hereinafter defined), the terms of which are more fully described
in the Prospectus (as hereinafter defined). The aforementioned 1,315,790
Preferred Securities to be sold to the Underwriters are herein called the "Firm
Preferred Securities." Solely for the purpose of covering over-allotments in the
sale of the Firm Preferred Securities, the Offerors further propose that the
Trust issue and sell to the Underwriters, at their option, up to an additional
131,578 Preferred Securities (the "Option Preferred Securities") upon exercise
of the over-allotment option granted in Section 1 hereof. The Firm Preferred
Securities and any Option Preferred Securities are herein collectively referred
to as the "Designated Preferred Securities."
The Offerors hereby confirm as follows their agreement with the several
Underwriters in connection with the proposed purchase of the Designated
Preferred Securities.
1. SALE, PURCHASE AND DELIVERY OF PREFERRED SECURITIES;
DESCRIPTION OF PREFERRED SECURITIES.
(a) On the basis of the representations, warranties and
agreements herein contained, and subject to the terms and conditions
herein set forth, the Offerors hereby agree that the Trust shall issue
and sell to the several Underwriters, and the Underwriters agree,
severally and not jointly, to purchase from the Trust, at a purchase
price of $__ per Preferred Security (the "Purchase Price"), the Firm
Preferred Securities each in the amount set forth in Schedule A.
Because the proceeds from the sale of the Preferred Securities will be
used to purchase from the Company its Debentures (as hereinafter
<PAGE> 2
defined and as described in the Prospectus), the Company shall pay to
the Underwriters a commission as described in Section 3 (the "Preferred
Securities Commission").
In addition, on the basis of the representations, warranties
and agreements herein contained and subject to the terms and conditions
herein set forth, the Trust hereby grants to the Underwriters an option
to purchase all or any portion of the 131,578 Option Preferred
Securities, and upon the exercise of such option in accordance with
this Section 1, the Offerors hereby agree that the Trust shall issue
and sell to the Underwriters, and the Underwriters agree to purchase
from the Trust, all or any portion of the Option Preferred Securities
at the same Purchase Price per Preferred Security paid for the Firm
Preferred Securities. Because the proceeds from the sale of the Firm
Preferred Securities will be used to purchase from the Company its
Debentures, the Company shall pay to the Underwriters the Preferred
Securities Commission described in Section 3 for each Option Preferred
Security purchased. The option hereby granted (the "Option") shall
expire 30 days after the date upon which the Registration Statement (as
hereinafter defined) becomes effective and may be exercised only for
the purpose of covering over-allotments which may be made in connection
with the offering and distribution of the Firm Preferred Securities.
The Option may be exercised in whole or in part at any time (but not
more than once) by the Underwriters by giving notice (confirmed in
writing) to the Trust setting forth the number of Option Preferred
Securities as to which the Underwriters are exercising the Option and
the time, date and place for payment and delivery of certificates for
such Option Preferred Securities. Such time and date of payment and
delivery for the Option Preferred Securities (the "Option Closing
Date") shall be determined by the Underwriters, but shall not be
earlier than two nor later than five full business days after the
exercise of such Option, nor in any event prior to the Closing Date (as
hereinafter defined). The Option Closing Date may be the same as the
Closing Date.
Payment of the Purchase Price and the Preferred Securities
Commission and delivery of certificates for the Firm Preferred
Securities shall be made at the offices of Bigelow & Company, as the
representative of the Underwriters (the "Representative"), 1401
Seventeenth Street, Suite 1300, Denver, Colorado, 80202, or such other
place as shall be agreed to by the Underwriters and the Offerors, at
10:00 a.m., Denver time, on December __, 1998, or at such other time
not more than five full business days thereafter as the Offerors and
the Underwriters shall determine (the "Closing Date"). If the
Underwriters exercise the Option to purchase any or all of the Option
Preferred Securities, payment of the Purchase Price and the Preferred
Securities Commission and delivery of certificates for such Option
Preferred Securities shall be made on the Option Closing Date at the
Underwriter's offices, or at such other place as the Offerors and the
Underwriter shall determine. Such payments shall be made to an account
designated or on behalf of by the Trust by wire transfer or certified
or bank cashier's check, in clearing house or similar next day
available funds in the amount of the Purchase Price therefor, against
delivery by or on behalf of the Trust to the Underwriters of
certificates for the Designated Preferred Securities to be purchased by
the Underwriters.
The Agreement contained herein with respect to the timing of
the Closing Date and the Option Closing Date is intended to, and does,
constitute an express agreement, as
2
<PAGE> 3
described in Rule 15c6-1(c) and (d) promulgated under the 1934 Act (as
defined herein), for a settlement date other than four business days
after the date of the contract.
Certificates for Designated Preferred Securities to be
purchased hereunder shall be in book-entry form and registered in the
name of Cede & Co. not later than 12:00 noon, Denver time, two business
days prior to the Closing Date and, if applicable, the Option Closing
Date. Delivery of the Preferred Securities may be made by credit
through full fast transfer to the accounts at The Depository Trust
Company ("DTC") designated by you and if not made by such credit
delivery with will be made to DTC. Certificates for Designated
Preferred Securities to be purchased by or on behalf of the
Underwriters and registered in the name of Cede & Co. shall be made
available by the Offerors to the Underwriters for inspection, checking
and packaging at such office as the Underwriters may designate in
writing not later than 1:00 p.m., Denver time, on the last business day
prior to the Closing Date, and, if applicable, on the last business day
prior to the Option Closing Date.
Time shall be of the essence, and delivery of the certificates
for the Designated Preferred Securities at the time and place specified
pursuant to this Agreement is a further condition of the obligations of
the Underwriters hereunder.
(b) The Offerors propose that the Trust issue the
Designated Preferred Securities pursuant to a Trust Agreement among,
Wilmington Trust Company, as Delaware Trustee, American Securities
Transfer & Trust, Inc., as the Property Trustee, the Administrative
Trustees named therein, (collectively, the "Trustees"), and the
Company, in substantially the form heretofore delivered to the
Underwriters, said Agreement being hereinafter referred to as the
"Trust Agreement." In connection with the issuance of the Designated
Preferred Securities, the Company proposes (i) to issue its Junior
Subordinated Debentures (the "Debentures") pursuant to an Indenture, to
be dated as of December __, 1998, between the Company and American
Securities Transfer & Trust, Inc., as Trustee (the "Indenture") and
(ii) to guarantee certain payments on the Preferred Securities pursuant
to a Preferred Securities Guarantee Agreement between the Company and
American Securities Transfer & Trust, Inc., as Guarantee Trustee (the
"Guarantee"), to the extent described therein.
(c) The Representative hereby represents and warrants to
the Offerors that it has the authority to enter into this Agreement on
behalf of the several Underwriters and that the Underwriters have
indicated their intention to the Representative their willingness to
purchase severally and not jointly Designated Preferred Securities as
provided herein.
2. REPRESENTATIONS AND WARRANTIES.
(a) The Offerors jointly and severally represent and
warrant to, and agree with, the several Underwriters that:
(i) The reports filed with the Securities and
Exchange Commission (the "Commission") by the Company under
the Securities Exchange Act of 1934,
3
<PAGE> 4
as amended (the "1934 Act") and the rules and regulations
thereunder (the "1934 Act Regulations") and incorporated into
the Prospectus by reference, at the time they were filed with
the Commission, complied as to form in all material respects
with the requirements of the 1934 Act and the 1934 Act
Regulations and did not contain an untrue statement of fact or
omit to state any fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(ii) The Offerors have prepared and filed with the
Commission a registration statement on Form S-2 (File Number
333-66153) for the registration of $10,999,997 aggregate
amount of the Designated Preferred Securities, the Guarantee
and Debentures under the Securities Act of 1933, as amended
(the "1933 Act"), including the related preliminary prospectus
subject to completion included therein, and one or more
amendments or supplements to such registration statement may
have been so filed, in each case in conformity with the
requirements of the 1933 Act, the rules and regulations
promulgated thereunder (the "1933 Act Regulations") and the
Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act") and the rules and regulations thereunder. Copies of such
registration statement, including any amendments thereto, each
Preliminary Prospectus (as defined herein) contained therein
and the exhibits, financial statements and schedules to such
registration statement, as finally amended and revised, have
heretofore been delivered by the Offerors to the Underwriters.
After the execution of this Agreement, the Offerors will file
with the Commission (A) if such registration statement, as it
may have been amended, has been declared by the Commission to
be effective under the 1933 Act, a prospectus in the form most
recently included in an amendment to such registration
statement (or, if no such amendment shall have been filed, in
such registration statement), with such changes or insertions
as are required by Rule 430A of the 1933 Act Regulations
("Rule 430A") or permitted by Rule 424(b) of the 1933 Act
Regulations ("Rule 424(b)") and as have been provided to and
not objected to by the Underwriters prior to (or as are agreed
to by the Underwriters subsequent to) the execution of this
Agreement, or (B) if such registration statement, as it may
have been amended, has not been declared by the Commission to
be effective under the 1933 Act, an amendment to such
registration statement, including a form of final prospectus,
necessary to permit such registration statement to become
effective, a copy of which amendment has been furnished to and
not objected to by the Underwriters prior to (or is agreed to
by the Underwriters subsequent to) the execution of this
Agreement. Except as required by applicable law as evidenced
by a written opinion of counsel relating thereto, the Offerors
will not file any amendment to the registration statement or
any amended Preliminary Prospectus or any amendment thereto,
of which the Underwriters have not been previously furnished a
copy or to which the Underwriters or counsel thereto shall
have reasonably objected in writing. As used in this
Agreement, the term "Registration Statement" means such
registration statement, as amended at the time when it was or
is declared effective under the 1933 Act, including (1) all
financial schedules and exhibits thereto, (2) all documents
(or portions thereof) incorporated by reference therein filed
under the 1934 Act, and (3) any information omitted
4
<PAGE> 5
therefrom pursuant to Rule 430A and included in the Prospectus
(as hereinafter defined); the term "Preliminary Prospectus"
means each preliminary prospectus subject to completion filed
with such registration statement or any amendment thereto
including all documents (or portions thereof) incorporated by
reference therein to documents filed under the 1934 Act
(including the preliminary prospectus subject to completion,
if any, included in the Registration Statement and each
prospectus filed pursuant to Rule 424(a) under the 1933 Act);
and the term "Prospectus" means the prospectus first filed
with the Commission pursuant to Rule 424(b)(1) or (4) if no
prospectus is required to be filed pursuant to Rule 424(b)(1)
or (4), the prospectus included in the Registration Statement,
in each case including the financial schedules and all
documents (or portions thereof) incorporated by reference
therein to documents filed under the 1934 Act. The date on
which the Registration Statement becomes effective under the
1933 Act is hereinafter referred to as the "Effective Date."
(iii) The documents incorporated by reference in
the Preliminary Prospectus or Prospectus when they became
effective or were filed with the Commission, as the case may
be, complied in all material respects with the requirements of
the 1934 Act and the 1934 Act Regulations, and when read
together and with the other information in the Preliminary
Prospectus or Prospectus, as the case may be, at the time the
Registration Statement became or becomes effective and at the
Closing Date and any Option Closing Date, did not or will not,
as the case may be, contain an untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not
misleading.
(iv) No order preventing or suspending the use of
any Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) has been issued by the
Commission, nor has the Commission, to the knowledge of the
Offerors, threatened to issue such an order or instituted
proceedings for that purpose. Each Preliminary Prospectus, at
the time of filing thereof, (A) complied in all material
respects with the requirements of the 1933 Act and the 1933
Act Regulations and (B) did not contain an untrue statement of
fact or omit to state any fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
provided, however, that this representation and warranty does
not apply to statements or omissions made in reliance upon and
in conformity with information furnished in writing to the
Offerors by the Underwriters expressly for inclusion in the
Prospectus beneath the heading "Underwriting" and on the cover
page of the Prospectus with respect to price, underwriting
discount and terms of the offering (such information referred
to herein as the "Underwriter Information").
(v) At the Effective Date and at all times
subsequent thereto, up to and including the Closing Date and,
if applicable, the Option Closing Date, the Registration
Statement and any post-effective amendment thereto (A)
complied
5
<PAGE> 6
and will comply with the requirements of the 1933 Act, the
1933 Act Regulations and the Trust Indenture Act (and the
rules and regulations thereunder) and (B) did not and will not
contain an untrue statement of fact or omit to state any fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading. At the Effective Date and at
all times when the Prospectus is required to be delivered in
connection with offers and sales of Designated Preferred
Securities, including, without limitation, the Closing Date
and, if applicable, the Option Closing Date, the Prospectus,
as amended or supplemented, (1) complied and will comply in
all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations and the Trust Indenture Act (and
the rules and regulations thereunder) and (2) did not contain
and will not contain an untrue statement of fact or omit to
state any fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however,
that this representation and warranty does not apply to
Underwriter Information.
(vi) The Company is duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own,
lease and operate its properties and conduct its business as
described in and contemplated by the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) and as currently being
conducted and is duly registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended (the
"BHC Act").
(vii) The Trust has been duly created and is
validly existing as a statutory business trust in good
standing under the Delaware Business Trust Act with the power
and authority (trust and other) to own its property and
conduct its business as described in the Registration
Statement and Prospectus, to issue and sell its common
securities (the "Common Securities") to the Company pursuant
to the Trust Agreement, to issue and sell the Designated
Preferred Securities, to enter into and perform its
obligations under this Agreement and to consummate the
transactions herein contemplated; the Trust has no
subsidiaries and is duly qualified to transact business and is
in good standing in each jurisdiction in which the conduct of
its business or the ownership of its property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have an adverse
effect on the Trust; the Trust has conducted and will conduct
no business other than the transactions contemplated by this
Agreement and described in the Prospectus; the Trust is not a
party to or bound by any agreement or instrument other than
this Agreement, the Trust Agreement and the agreements and
instruments contemplated by the Trust Agreement and described
in the Prospectus; the Trust has no liabilities or obligations
other than those arising out of the transactions contemplated
by this Agreement and the Trust Agreement and described in the
Prospectus; the Trust is not a party to or subject to any
action, suit or proceeding of any nature; the Trust is not,
and at the Closing Date or any Option Closing Date will not
be, to the knowledge of the Offerors,
6
<PAGE> 7
classified as an association taxable as a corporation for
United States federal income tax purposes; and the Trust is,
and as of the Closing Date or any Option Closing Date will be,
treated as a consolidated subsidiary of the Company pursuant
to generally accepted accounting principles.
(viii) The Company has three subsidiaries, Union
Bank & Trust (the "Bank"), the Trust and LSB Acquisition
Corporation ("LSB"). The Bank, the Trust and LSB are
hereinafter collectively referred to as the "Subsidiaries".
The Company does not own or control, directly or indirectly,
more than 5% of any class of equity security of any
corporation, association or other entity other than the
Subsidiaries. The Bank is a state chartered commercial bank,
validly existing and in good standing under the laws of its
jurisdiction of organization. The Bank has full corporate
power and authority to own, lease and operate its properties
and to conduct its business as described in and contemplated
by the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus) and as currently being conducted. The Bank is a
member of the Federal Reserve System, and no proceedings for
the termination or revocation of such membership are pending,
or, to the knowledge of the Company, threatened. The deposit
accounts of the Bank are insured by the Bank Insurance Fund
administered by the Federal Deposit Insurance Corporation (the
"FDIC") up to the maximum amount provided by law, except to
the extent the Prospectus discloses such deposit accounts are
insured by the Savings Association Insurance Fund administered
by the FDIC and to such extent the deposit accounts are so
insured up to the maximum amount provided by law; and no
proceedings for the modification, termination or revocation of
any such insurance are pending or, to the knowledge of the
Offerors, threatened.
(ix) The Company, the Bank and LSB are each duly
qualified to transact business as a foreign corporation and is
in good standing in each other jurisdiction in which it owns
or leases property or conducts its business so as to require
such qualification and in which the failure to so qualify
would, individually or in the aggregate, have an adverse
effect on the financial condition, earnings, business,
prospects or results of operations of the Company and the
Subsidiaries on a consolidated basis. All of the issued and
outstanding shares of capital stock of the Subsidiaries (A)
have been duly authorized and are validly issued, (B) are
fully paid and nonassessable except to the extent such shares
may be deemed assessable under 12 U.S.C. Section 55 or 12
U.S.C. Section 1831o, and (C) except as disclosed in the
Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), are directly owned by the
Company free and clear of any security interest, mortgage,
pledge, lien, encumbrance, restriction upon voting or
transfer, preemptive rights, claim or equity. Except as
disclosed in the Prospectus, there are no outstanding rights,
warrants or options to acquire or instruments convertible into
or exchangeable for any capital stock or equity securities of
the Subsidiaries.
7
<PAGE> 8
(x) The capital stock of the Company and the
equity securities of the Trust conform to the description
thereof contained in the Prospectus or the financial
information included therein (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). The
outstanding shares of capital stock and equity securities of
each Offeror have been duly authorized and validly issued and
are fully paid and nonassessable, and no such shares were
issued in violation of the preemptive or similar rights of any
security holder of an Offeror; no person has any preemptive or
similar right to purchase any shares of capital stock or
equity securities of the Offerors. Except as disclosed in the
Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), there are no outstanding
rights, options or warrants to acquire from the Offerors any
securities of the Offerors other than options issued under the
Company's Equity Incentive Plan, Nonemployee Directors' Stock
Option Plan and Option Bonus Plan, and there are no
outstanding securities convertible into or exchangeable for
any such securities and no restrictions upon the voting or
transfer of any capital stock of the Company or equity
securities of the Trust pursuant to the Company's corporate
charter or bylaws, the Trust Agreement or any agreement or
other instrument to which an Offeror is a party or by which an
Offeror is bound.
(xi) (A) The Trust has all requisite power
and authority to issue, sell and deliver the
Designated Preferred Securities in accordance with
and upon the terms and conditions set forth in this
Agreement, the Trust Agreement, the Registration
Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary
Prospectus). All corporate and trust action required
to be taken by the Offerors for the authorization,
issuance, sale and delivery of the Designated
Preferred Securities in accordance with such terms
and conditions has been validly and sufficiently
taken. The Designated Preferred Securities, when
delivered in accordance with this Agreement, will be
duly and validly issued and outstanding, will be
fully paid and nonassessable undivided beneficial
interests in the assets of the Trust, will be
entitled to the benefits of the Trust Agreement, will
not be issued in violation of or subject to any
preemptive or similar rights, and will conform in all
material respects to the description thereof in the
Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent
Preliminary Prospectus) and the Trust Agreement. None
of the Designated Preferred Securities, immediately
prior to delivery, will be subject to any security
interest, lien, mortgage, pledge, encumbrance,
restriction upon voting or transfer, preemptive
rights, claim, equity or other defect.
(B) The Debentures have been duly and
validly authorized, and, when duly and validly
executed, authenticated and issued as provided in the
Indenture and delivered to the Trust pursuant to the
Trust Agreement, will constitute valid and legally
binding obligations of the Company entitled to the
benefits of the Indenture and will conform in all
material respects to the description thereof
contained in the Prospectus.
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<PAGE> 9
(C) The Guarantee has been duly and
validly authorized, and, when duly and validly
executed and delivered to the guarantee trustee for
the benefit of the Trust, will constitute a valid and
legally binding obligation of the Company and will
conform to the description thereof contained in the
Prospectus.
(D) The Agreement as to Expenses and
Liabilities (the "Expense Agreement") has been duly
and validly authorized, and, when duly and validly
executed and delivered by the Company, will
constitute a valid and legally binding obligation of
the Company and will conform in all material respects
to the description thereof contained in the
Prospectus.
(xii) The Offerors and the Subsidiaries have
complied with all federal, state and local statutes,
regulations, ordinances and rules applicable to the ownership
and operation of their properties or the conduct of their
businesses as described in and contemplated by the
Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus) and as currently being conducted except for such
matters as would not be expected to have a materially adverse
effect thereon.
(xiii) The Offerors and the Subsidiaries have all
governmental and regulatory permits, easements, consents,
licenses, franchises and other authorizations from all
appropriate federal, state, local or other public authorities
("Permits") as are necessary to own and lease their properties
and conduct their businesses in the manner described in and
contemplated by the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and as currently being conducted. All
such Permits are in full force and effect and each of the
Offerors and the Subsidiaries are complying therewith, and no
event has occurred that allows, or after notice or lapse of
time would allow, revocation or termination thereof or will
result in any other impairment of the rights of the holder of
any such Permit, subject in each case to such qualification as
may be adequately disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus). Such Permits contain no restrictions that would
materially impair the ability of the Company or the
Subsidiaries to conduct their businesses in the manner
consistent with their past practices. Neither the Offerors nor
any of the Subsidiaries have received notice or otherwise has
knowledge of any proceeding or action relating to the
revocation or modification of any such Permit.
(xiv) Neither of the Offerors nor any of the
Subsidiaries is in breach or violation of their corporate
charter, bylaws or other governing documents (including
without limitation, the Trust Agreement). Neither of the
Offerors nor any of the Subsidiaries are, and to the knowledge
of the Offerors no other party is, in violation, breach or
default (with or without notice or lapse of time or both) in
the performance or observance of any term, covenant,
agreement, obligation, representation, warranty or condition
contained in (A) any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease, franchise,
license,
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<PAGE> 10
Permit or any other agreement or instrument to which it is a
party or by which it or any of its properties may be bound,
which such breach, violation or default could reasonably be
expected to have a material adverse effect on the Offerors and
the Subsidiaries on a consolidated basis, and to the knowledge
of the Offerors, no other party has asserted that the Offerors
or any of the Subsidiaries is in such violation, breach or
default (provided that the foregoing representations in clause
(A) shall not apply to defaults by borrowers from the Bank),
or (B) except as disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus), any order, decree, judgment, rule or regulation
of any court, arbitrator, government, or governmental agency
or instrumentality, domestic or foreign, having jurisdiction
over the Offerors or the Subsidiaries or any of their
respective properties the breach, violation or default of
which could have an adverse effect on the financial condition,
earnings, business, prospects or results of operations of the
Offerors and the Subsidiaries on a consolidated basis.
(xv) The execution, delivery and performance of
this Agreement and the consummation of the transactions
contemplated by this Agreement, the Trust Agreement, the
Guarantee, the Expense Agreement, the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) do not and will not
conflict with, result in the creation or imposition of any
lien, claim, charge, encumbrance or restriction upon any
property or assets of the Offerors or the Subsidiaries or the
Designated Preferred Securities pursuant to, constitute a
breach or violation of, or constitute a default under, with or
without notice or lapse of time or both, any of the terms,
provisions or conditions of the charter or bylaws of the
Company or the Subsidiaries, the Trust Agreement, the
Guarantee, the Expense Agreement, the Indenture, any contract,
indenture, mortgage, deed of trust, loan or credit agreement,
note, lease, franchise, license, Permit or any other agreement
or instrument to which the Offerors or the Subsidiaries is a
party or by which any of them or any of their respective
properties may be bound or any order, decree, judgment, rule
or regulation of any court, arbitrator, government, or
governmental agency or instrumentality, domestic or foreign,
having jurisdiction over the Offerors or the Subsidiaries or
any of their respective properties which conflict, creation,
imposition, breach, violation or default would have either
singly or in the aggregate an adverse effect on the financial
condition, earnings, business, prospects or results of
operations of the Offerors and the Subsidiaries on a
consolidated basis. No authorization, approval, consent or
order of, or filing, registration or qualification with, any
person (including, without limitation, any court, governmental
body or authority) is required in connection with the
transactions contemplated by this Agreement, the Trust
Agreement, the Indenture, the Guarantee, the Expense
Agreement, the Registration Statement and the Prospectus,
except such as may be required by, and have been obtained
under, the 1933 Act, the Trust Indenture Act, state securities
laws, Interpretations or Rules of the National Association of
Securities Dealers, Inc. ("NASD") in connection with the
purchase and distribution of the Designated Preferred
Securities by the Underwriters, and from the Nasdaq Stock
Market's National Market relating to the listing of the
Designated Preferred Securities.
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<PAGE> 11
(xvi) The Offerors have all requisite corporate
power and authority to enter into this Agreement and this
Agreement has been duly and validly authorized, executed and
delivered by the Offerors and constitutes the legal, valid and
binding agreement of the Offerors, enforceable against the
Offerors in accordance with its terms, except as the
enforcement thereof may be limited by general principles of
equity and by bankruptcy, moratorium, reorganization,
fraudulent conveyance or other laws relating to or affecting
creditors' rights generally and except as any indemnification
or contribution provisions thereof may be limited under
applicable securities laws or public policy. Each of the
Indenture, the Trust Agreement, the Guarantee and the Expense
Agreement has been duly authorized by the Company, and, when
executed and delivered by the Company on the Closing Date,
each of said agreements will constitute a valid and legally
binding obligation of the Company and will be enforceable
against the Company in accordance with its terms, except as
the enforcement thereof may be limited by general principles
of equity and by bankruptcy, moratorium, reorganization,
fraudulent transfer or other laws relating to or affecting
creditors, rights generally and except as any indemnification
or contribution provisions thereof may be limited under
applicable securities laws or public policy. Each of the
Indenture, the Trust Agreement and the Guarantee has been duly
qualified under the Trust Indenture Act and will conform in
all material respects to the description thereof contained in
the Prospectus.
(xvii) The Company and the Subsidiaries have good
and marketable title in fee simple to all real property and
good title to all personal property owned by them, in each
case free and clear of all security interests, liens,
mortgages, pledges, encumbrances, restrictions, claims,
equities and other defects except such as are referred to in
or are incorporated by reference into the Prospectus (or, if
the Prospectus is not in existence, the most recent
Preliminary Prospectus) or such as do not affect the value of
such property in the aggregate and do not interfere with the
use made or proposed to be made of such property; and all of
the leases under which the Company or the Subsidiaries hold
real or personal property are valid, existing and enforceable
leases and in full force and effect and do not interfere with
the use made or proposed to be made of such real or personal
property, and neither the Company nor any of the Subsidiaries
is in default of any of the terms or provisions of any leases.
(xviii) Baird, Kurtz & Dobson, who have certified
certain of the consolidated financial statements of the
Company and the Subsidiaries including the notes thereto,
included in the Registration Statement and Prospectus, are
independent public accountants with respect to the Company and
the Subsidiaries, as required by the 1933 Act and the 1933 Act
Regulations.
(xix) McGladrey & Pullen, LLP, who have certified
certain of the consolidated statements of income of the
Company and the Subsidiaries including the notes thereto,
included in the Registration Statement and Prospectus, are
independent public accountants with respect to the Company and
the Subsidiaries, as required by the 1933 Act and the 1933 Act
Regulations.
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<PAGE> 12
(xx) The consolidated financial statements
including the notes thereto, included in or incorporated by
reference or otherwise in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) with respect to the
Company and the Subsidiaries comply with the 1933 Act and the
1933 Act Regulations and present fairly the consolidated
financial position of the Company and the Subsidiaries as of
the dates indicated and the consolidated results of
operations, cash flows and shareholders' equity of the Company
and the Subsidiaries for the periods specified and have been
prepared in conformity with generally accepted accounting
principles applied on a consistent basis. The selected and
summary consolidated financial data concerning the Offerors
and the Subsidiaries included in the Registration Statement
and the Prospectus (or such Preliminary Prospectus) comply
with the 1933 Act and the 1933 Act Regulations, present fairly
the information set forth therein, and have been compiled on a
basis consistent with that of the consolidated financial
statements of the Offerors and the Subsidiaries in the
Registration Statement and the Prospectus (or such Preliminary
Prospectus). The other financial, statistical and numerical
information with respect to the Company and the Subsidiaries
included in the Registration Statement and the Prospectus (or
such Preliminary Prospectus) comply with the 1933 Act and the
1933 Act Regulations, present fairly the information shown
therein, and to the extent applicable have been compiled on a
basis consistent with the consolidated financial statements of
the Company and the Subsidiaries included in the Registration
Statement and the Prospectus (or such Preliminary Prospectus).
(xxi) The financial statements including the notes
thereto, included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) with respect to Lakewood
State Bank present fairly the financial position of Lakewood
State Bank as of the dates indicated and the results of
operations, cash flows and shareholders' equity of Lakewood
State Bank for the periods specified and have been prepared in
conformity with generally accepted accounting principles
applied on a consistent basis. The selected and summary
financial data concerning Lakewood State Bank included in the
Registration Statement and the Prospectus (or such Preliminary
Prospectus), present fairly the information set forth therein,
and have been compiled on a basis consistent with that of the
financial statements of Lakewood State Bank in the
Registration Statement and the Prospectus (or such Preliminary
Prospectus). The other financial, statistical and numerical
information with respect to Lakewood State Bank included in
the Registration Statement and the Prospectus (or such
Preliminary Prospectus), present fairly the information shown
therein, and to the extent applicable have been compiled on a
basis consistent with the financial statements of Lakewood
State Bank included in the Registration Statement and the
Prospectus (or such Preliminary Prospectus).
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<PAGE> 13
(xxii) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), except as otherwise
stated therein:
(A) neither of the Offerors nor any of
the Subsidiaries have sustained any loss or
interference with its business from fire, explosion,
flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or
governmental action, order or decree which could have
a material adverse effect on the financial condition,
earnings, business, prospects or results of
operations of the Offerors and the Subsidiaries on a
consolidated basis;
(B) there has not been any change in, or
any development which is likely to have a material
adverse effect on, the financial condition, earnings,
business, prospects or results of operations of the
Offerors and the Subsidiaries on a consolidated
basis, whether or not arising in the ordinary course
of business;
(C) neither of the Offerors nor any of the
Subsidiaries have incurred any liabilities or
obligations, direct or contingent, or entered into
any transactions, other than in the ordinary course
of business which could have a material adverse
effect on the financial condition, earnings,
business, prospects or results of operations of the
Offerors and the Subsidiaries on a consolidated
basis;
(D) neither of the Offerors have declared
or paid any dividend and neither of the Offerors nor
any of the Subsidiaries have become delinquent in the
payment of principal or interest on any outstanding
borrowings; and
(E) there has not been any change in the
capital stock (except for the exercise of employee
stock options issued under the Company's Equity
Incentive Plan, Nonemployee Directors' Stock Option
Plan and Option Bonus Plan, and disclosed as
outstanding), equity securities, longterm debt,
obligations under capital leases or, other than in
the ordinary course of business, short-term
borrowings of the Offerors or the Subsidiaries.
(xxiii) Except as set forth in the Registration
Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), no
investigation, action, suit or proceeding is pending or, to
the knowledge of the Offerors, threatened, against or
affecting the Offerors or the Subsidiaries or any of their
respective properties before or by any court or any
regulatory, administrative or governmental official,
commission, board, agency or other authority or body, or any
arbitrator, wherein an unfavorable decision, ruling or finding
could have an adverse effect on the consummation of this
Agreement
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<PAGE> 14
or the transactions contemplated herein or the financial
condition, earnings, business, prospects or results of
operations of the Offerors and the Subsidiaries on a
consolidated basis or which is required to be disclosed in the
Registration Statement or the Prospectus (or such Preliminary
Prospectus) and is not so disclosed.
(xxiv) There are no contracts or other documents
required to be filed as exhibits to the Registration Statement
under the 1933 Act or the 1933 Act Regulations or the Trust
Indenture Act (or any rules or regulations thereunder) which
have not been filed as exhibits or incorporated by reference
to the Registration Statement, or that are required to be
summarized in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) that are
not so summarized.
(xxv) Neither of the Offerors has taken, directly
or indirectly, any action designed to result in or which has
constituted or which might cause or result in stabilization or
manipulation of the price of any security of the Offerors to
facilitate the sale or resale of the Designated Preferred
Securities, and neither of the Offerors is aware of any such
action taken or to be taken by any affiliate of the Offerors.
(xxvi) The Offerors and the Subsidiaries own, or
possess adequate rights to use, all patents, copyrights,
trademarks, service marks, trade names and other rights
necessary to conduct the businesses now conducted by them or
as described in the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus) and
neither the Offerors nor the Subsidiaries have received any
notice of infringement or conflict with asserted rights of
others with respect to any patents, copyrights, trademarks,
service marks, trade names or other rights which, individually
or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse
effect on the financial condition , earnings, business,
prospects or results of operations of the Offerors and the
Subsidiaries on a consolidated basis, and the Offerors do not
know of any basis for any such infringement or conflict.
(xxvii) Except as adequately disclosed in the
Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), no labor dispute
involving the Company or the Subsidiaries exists or, to the
knowledge of the Offerors, is imminent which might be expected
to have a material adverse effect on the financial condition,
earnings, business, prospects or results of operations of the
Offerors and the Subsidiaries on a consolidated basis or which
is required to be disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus). Neither the Company nor any of the Subsidiaries
have received notice of any existing or threatened labor
dispute by the employees of any of its principal suppliers,
customers or contractors which might be expected to have an
adverse effect on the condition (financial or otherwise),
earnings, affairs, business, prospects or results of
operations of the Company and the Subsidiaries on a
consolidated basis.
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<PAGE> 15
(xxviii) The Offerors and the Subsidiaries have
timely and properly prepared and filed all necessary federal,
state, local and foreign tax returns which are required to be
filed and have paid all taxes shown as due thereon and have
paid all other taxes and assessments to the extent that the
same shall have become due, except such as are being contested
in good faith or where the failure to so timely and properly
prepare and file would not have a material adverse effect on
the financial condition, earnings, business, prospects or
results of operations of the Offerors and the Subsidiaries on
a consolidated basis. The Offerors have no knowledge of any
tax deficiency which has been or might be assessed against the
Offerors or the Subsidiaries which, if the subject of an
unfavorable decision, ruling or finding, would have a material
adverse effect on the financial condition, earnings, business,
prospects or results of operations of the Offerors and the
Subsidiaries on a consolidated basis.
(xxix) Each of the contracts, agreements and
instruments described or referred to in the Registration
Statement or the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) and each
contract, agreement and instrument filed as an exhibit to the
Registration Statement is in full force and effect and is the
legal, valid and binding agreement of the Offerors or the
Subsidiaries, enforceable in accordance with its terms, except
as the enforcement thereof may be limited by general
principles of equity and by bankruptcy, moratorium,
reorganization, fraudulent transfer or other laws relating to
or affecting creditors, rights generally. Except as disclosed
in the Prospectus (or such Preliminary Prospectus), to the
knowledge of the Offerors, no other party to any such
agreement is (with or without notice or lapse of time or both)
in breach or default thereunder; provided however, that the
foregoing shall not apply to defaults by borrowers from the
Bank.
(xxx) No relationship, direct or indirect, exists
between or among the Offerors or the Subsidiaries, on the one
hand, and the directors, officers, trustees, shareholders,
customers or suppliers of the Offerors or the Subsidiaries, on
the other hand, which is required to be described in the
Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus) which is not adequately described therein.
(xxxi) No person has the right to request or require
the Offerors or the Subsidiaries to register any securities
for offering and sale under the 1933 Act by reason of the
filing of the Registration Statement with the Commission or
the issuance and sale of the Designated Preferred Securities
except as adequately disclosed in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
(xxxii) The Designated Preferred Securities have been
approved for quotation on the Nasdaq National Market subject
to official notice of issuance.
(xxxiii) Except as described in the Prospectus (or,
if the Prospectus is not in existence, the most recent
Preliminary Prospectus), there are no contractual
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<PAGE> 16
encumbrances or restrictions or legal restrictions on the
ability of the Subsidiaries (A) to pay dividends or make any
other distributions on its capital stock or to pay any
indebtedness owed to the Offerors, (B) to make any loans or
advances to, or investments in, the Offerors or (C) to
transfer any of its property or assets to the Offerors.
(xxxiv) Neither of the Offerors is an "investment
company" or a company "controlled" by an investment company as
such terms are defined in the Investment Company Act of 1940,
as amended (the "Investment Company Act").
(xxxv) Other than due diligence material distributed
to the Underwriters, the Offerors have not distributed and
will not distribute prior to the Closing Date any prospectus
in connection with the offering of the Designated Preferred
Securities, other than a Preliminary Prospectus, the
Prospectus, the Registration Statement and the other materials
permitted by the 1933 Act and the 1933 Act Regulations and
reviewed by the Underwriters.
3. OFFERING BY THE UNDERWRITERS. After the Registration Statement
becomes effective or, if the Registration Statement is already effective, after
this Agreement becomes effective, the Underwriters propose severally and not
jointly to offer the Designated Preferred Securities for sale to the public upon
the terms and conditions set forth in the Prospectus. Each Underwriter may from
time to time thereafter reduce the public offering price and change the other
selling terms, provided that the proceeds to the Trust shall not be reduced as a
result of such reduction or change.
Each Underwriter shall be entitled to a commission from the Company of
$____ per Firm Preferred Security sold by such Underwriter; provided, that each
such Underwriter shall be entitled to a commission of $____ per Firm Preferred
Security sold if sold to an Institutional Investor (as defined below) and a
commission of $____ per Firm Preferred Security sold if sold to investors who
have been identified by the Company in writing to the Underwriters. For purposes
of this Agreement, an "Institutional Investor" shall mean a bank having $250
million or more in assets and an insurance company having $50 million or more in
assets. Each Underwriter shall be entitled to a commission of $____ per Option
Preferred Security sold by such Underwriter.
Each Underwriter may reserve and sell such of the Designated Preferred
Securities purchased by such Underwriter as such Underwriter may elect to
dealers chosen by it (the "Selected Dealers") at the public offering price set
forth in the Prospectus less the applicable Selected Dealers' concessions set
forth therein, for re-offering by Selected Dealers to the public at the public
offering price. The Underwriters may allow, and Selected Dealers may re-allow, a
concession set forth in the Prospectus to certain other brokers and dealers.
4. CERTAIN COVENANTS OF THE OFFERORS. The Offerors jointly and
severally covenant with the several Underwriters as follows:
(a) The Offerors shall use their best efforts to cause the
Registration Statement and any amendments thereto, if not effective at
the time of execution of this
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<PAGE> 17
Agreement, to become effective as promptly as possible. If the
Registration Statement has become or becomes effective pursuant to Rule
430A and information has been omitted therefrom in reliance on Rule
430A, then, the Offerors will prepare and file in accordance with Rule
430A and Rule 424(b) copies of the Prospectus or, if required by Rule
430A, a post-effective amendment to the Registration Statement
(including the Prospectus) containing all information so omitted and
will provide evidence satisfactory to the Underwriters of such timely
filing.
(b) The Offerors shall notify the Underwriters immediately,
and confirm such notice in writing:
(i) when the Registration Statement, or any
post-effective amendment to the Registration Statement, has
become effective, or when the Prospectus or any supplement to
the Prospectus or any amended Prospectus has been filed with
the Commission;
(ii) of the receipt of any comments or requests
from the Commission relating to the Registration Statement and
any 1934 Act documents incorporated by reference therein;
(iii) of any request of the Commission to amend or
supplement the Registration Statement, any Preliminary
Prospectus, the Prospectus or the 1934 Act documents
incorporated therein by reference or for additional
information relating thereto; and
(iv) of the issuance by the Commission or any
state or other regulatory body of any stop order or other
order suspending the effectiveness of the Registration
Statement, preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, or suspending the qualification
of any of the Designated Preferred Securities for offering or
sale in any jurisdiction or the institution or threat of
institution of any proceedings for any of such purposes. The
Offerors shall use their best efforts to prevent the issuance
of any such stop order or of any other such order and if any
such order is issued, to cause such order to be withdrawn or
lifted as soon as possible.
(c) The Offerors shall furnish to the Underwriters, from
time to time without charge, as soon as available, as many copies as
the Underwriters may reasonably request of (i) the registration
statement as originally filed and of all amendments thereto, in
executed form, including exhibits, whether filed before or after the
Registration Statement becomes effective, (ii) all exhibits and
documents incorporated therein or filed therewith, (iii) all consents
and certificates of experts in executed form, (iv) each Preliminary
Prospectus and all amendments and supplements thereto, and (v) the
Prospectus, and all amendments and supplements thereto.
(d) During the time when a prospectus is required to be
delivered under the 1933 Act, the Offerors shall comply with the 1933
Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act
Regulations so as to permit the completion of the
17
<PAGE> 18
distribution of the Preferred Securities as contemplated herein and in
the Trust Agreement and the Prospectus. Except as required by
applicable law as evidenced by a written opinion of counsel relating
thereto, the Offerors shall not file any amendment to the registration
statement as originally filed or to the Registration Statement and
shall not file any amendment thereto or make any amendment or
supplement to any Preliminary Prospectus or to the Prospectus of which
the Underwriters shall not previously have been advised in writing and
provided a copy a reasonable time prior to the proposed filings thereof
or to which the Underwriters or counsel to the Underwriters shall
reasonably object. If it is necessary, in the Underwriters' reasonable
opinion or in the reasonable written opinion of counsel to the
Underwriters to amend or supplement the Registration Statement or the
Prospectus in connection with the distribution of the Designated
Preferred Securities, the Offerors shall forthwith amend or supplement
the Registration Statement or the Prospectus, as the case may be, by
preparing and filing with the Commission and furnishing to the
Underwriters, such number of copies as the Underwriters may reasonably
request of an amendment or amendments of, or a supplement or
supplements to, the Registration Statement or the Prospectus, as the
case may be (in form and substance reasonably satisfactory to the
Underwriters and counsel to the Underwriters). If any event shall occur
as a result of which it is necessary to amend or supplement the
Prospectus to correct an untrue statement of fact or to include any
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if for any
reason it is necessary at any time to amend or supplement the
Prospectus to comply with the 1933 Act and the 1933 Act Regulations,
the Offerors shall, subject to the second sentence of this subsection
(d), forthwith amend or supplement the Prospectus by preparing and
filing with the Commission, and furnishing to the Underwriters, such
number of copies as the Underwriters may reasonably request of an
amendment or amendments of, or a supplement or supplements to, the
Prospectus (in form and substance satisfactory to the Underwriters and
counsel to the Underwriters) so that, as so amended or supplemented,
the Prospectus shall not contain an untrue statement of fact or omit to
state any fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(e) The Offerors shall cooperate with the Underwriters and
counsel to the Underwriters in order to qualify the Designated
Preferred Securities for offering and sale under the securities or blue
sky laws of such jurisdictions as the Underwriters may reasonably
request and shall continue such qualifications in effect so long as may
be advisable for distribution of the Designated Preferred Securities;
provided, however, that the Offerors shall not be required to qualify
to do business as a foreign corporation or file a general consent to
service of process in any jurisdiction in connection with the
foregoing. The Offerors shall file such statements and reports as may
be required by the laws of each jurisdiction in which the Designated
Preferred Securities have been qualified as above. The Offerors will
notify the Underwriters immediately of, and confirm in writing, the
suspension of qualification of the Preferred Securities or threat
thereof in any jurisdiction.
(f) The Offerors shall make generally available to their
security holders in the manner contemplated by Rule 158 of the 1933 Act
Regulations and furnish to the
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<PAGE> 19
Underwriters as soon as practicable, but in any event not later than 16
months after the Effective Date, a consolidated earnings statement of
the Offerors conforming with the requirements of Section 11(a) of the
1933 Act and Rule 158.
(g) The Offerors shall use the proceeds from the sale of
the Designated Preferred Securities to be sold by the Trust hereunder
in the manner specified in the Prospectus under the caption "Use of
Proceeds."
(h) For five years from the Effective Date, the Offerors
shall furnish to the Underwriters copies of all reports and
communications (financial or otherwise) furnished by the Offerors to
the holders of the Designated Preferred Securities as a class, copies
of all reports and financial statements filed with or furnished to the
Commission (other than portions for which confidential treatment has
been obtained from the commission) or with any national securities
exchange or the Nasdaq National Market.
(i) For a period of 180 days from the Effective Date, the
Offerors shall not, directly or indirectly, offer for sale, sell or
agree to sell or otherwise dispose of any Designated Preferred
Securities other than pursuant to this Agreement, any other beneficial
interests in the assets of the Trust or any securities of the Trust or
the Company that are substantially similar to the Preferred Securities,
including any guarantee of such beneficial interests or substantially
similar securities, or securities convertible into or exchangeable for
or that represent the right to receive any such beneficial interest or
substantially similar securities, without the Representative's prior
written consent.
(j) The Offerors shall use their best efforts to cause the
Designated Preferred Securities to become quoted on the Nasdaq National
Market, or in lieu thereof a national securities exchange, and to
remain so quoted for at least five years from the Effective Date or for
such shorter period as may be specified in a written consent of the
Underwriters, provided this shall not prevent the Company from
redeeming the Designated Preferred Securities pursuant to the terms of
the Trust Agreement. If the Designated Preferred Securities are
exchanged for Debentures, the Company will use its best efforts to have
the Debentures promptly listed on the Nasdaq National Market or other
organization on which the Designated Preferred Securities are then
listed, and to have the Debentures promptly registered under Section 12
of the Exchange Act.
(k) The Offerors shall not, for a period of 180 days after
the date hereof, without the Representative's prior written consent,
purchase, redeem or call for redemption, or prepay or give notice of
prepayment (or announce any redemption or call for redemption, or any
repayment or notice of prepayment) of the Offerors' securities;
provided however, that the foregoing shall not prevent an employee from
delivering the Company's securities in payment of the exercise price of
options issued under the Company's Equity Incentive Plan, Nonemployee
Directors' Stock Option Plan or the Option Bonus Plan.
(l) The Offerors shall not take, directly or indirectly,
any action designed to result in or which has constituted or which
might cause or result in stabilization or manipulation of the price of
any security of the Offerors to facilitate the sale or resale of
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the Designated Preferred Securities and the Offerors are not aware of
any such action taken or to be taken by any affiliate of the Offerors.
(m) Prior to the Closing Date, the Offerors will not issue
any press release or other communication directly or indirectly or hold
any press conference with respect to the Offerors, the Subsidiaries or
the offering of the Designated Preferred Securities (the "Offering")
without the Representative's prior written consent, which will not be
unreasonably withheld.
5. PAYMENT OF EXPENSES. Whether or not this Agreement is
terminated or the sale of the Designated Preferred Securities to the
Underwriters is consummated, the Company covenants and agrees that it will pay
or cause to be paid (directly or by reimbursement) all costs and expenses
incident to the performance of the obligations of the Offerors under this
Agreement, including:
(a) the preparation, printing, filing, delivery and
shipping of the initial registration statement, the Preliminary
Prospectus or Prospectuses, the Registration Statement and the
Prospectus and any amendments or supplements thereto, and the printing,
delivery and shipping of this Agreement and any other underwriting
documents (including, without limitation, selected dealers agreements),
the certificates for the Designated Preferred Securities and the
Preliminary and Final Blue Sky Memoranda and any legal investment
surveys and any supplements thereto;
(b) all fees, expenses and disbursements of the Offerors'
counsel and accountants;
(c) all fees and expenses incurred in connection with the
qualification of the Designated Preferred Securities, Debentures and
the Guarantee under the securities or blue sky laws of such
jurisdictions as the Underwriters may request, including all filing
fees and reasonable fees and disbursements of counsel to the
Underwriters in connection therewith, including, without limitation, in
connection with the preparation of the Preliminary and Final Blue Sky
Memoranda and any legal investment surveys and any supplements thereto;
(d) payment to the Representative of its documented
expenses up to $60,000;
(e) all fees and expenses incurred in connection with
filings made with the NASD;
(f) any applicable fees and other expenses incurred in
connection with the listing of the Designated Preferred Securities and,
if applicable, the Guarantee and the Debentures on the Nasdaq National
Market;
(g) the cost of furnishing to the Underwriters copies of
the initial registration statements, any Preliminary Prospectus, the
Registration Statement and the Prospectus and all amendments or
supplements thereto;
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<PAGE> 21
(h) the costs and charges of any transfer agent or
registrar and the fees and disbursements of counsel to any transfer
agent or registrar;
(i) all costs and expenses (including stock transfer taxes)
incurred in connection with the printing, issuance and delivery of the
Designated Preferred Securities to the Underwriters;
(j) all expenses incident to the preparation, execution and
delivery of the Trust Agreement, the Indenture, the Guarantee and the
Expense Agreement; and
(k) all other costs and expenses incident to the
performance of the obligations of the Company hereunder and under the
Trust Agreement that are not otherwise specifically provided for in
this Section 5.
If the sale of Designated Preferred Securities contemplated by this
Agreement is not completed due to a default of this Agreement by the Company
(including a termination pursuant to Section 8(a), (b) or (c)), the Company will
pay the Underwriters their accountable out-of-pocket expenses in connection
herewith or in contemplation of the performance of the Underwriters' obligations
hereunder, including without limitation travel expenses, reasonable fees,
expenses and disbursements of counsel or other out-of-pocket expenses incurred
by the Underwriters in connection with any discussion of the Offering or the
contents of the Registration Statement, any investigation of the Offerors and
the Subsidiaries, or any preparation for the marketing, purchase, sale or
delivery of the Designated Preferred Securities, in each case following
presentation of reasonably detailed invoices therefor.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations
of each of the several Underwriters to purchase and pay for the Firm Preferred
Securities and, following exercise of the Option granted by the Offerors in
Section 1 of this Agreement, the Option Preferred Securities, as set forth in
Schedule A, are subject, in the Underwriters' sole discretion, to the accuracy
of and compliance with the representations and warranties and agreements of the
Offerors herein as of the date hereof and as of the Closing Date (or in the case
of the Option Preferred Securities, if any, as of the Option Closing Date), to
the accuracy of the written statements of the Offerors made pursuant to the
provisions hereof, to the performance by the Offerors of their covenants and
obligations hereunder and to the following additional conditions:
(a) If the Registration Statement or any amendment thereto
filed prior to the Closing Date has not been declared effective prior
to the time of execution hereof, the Registration Statement shall
become effective not later than 10:00 a.m., Denver time, on the first
business day following the time of execution of this Agreement, or at
such later time and date as the Underwriters may agree to in writing.
If required, the Prospectus and any amendment or supplement thereto
shall have been timely filed in accordance with Rule 424(b) and Rule
430A under the 1933 Act and Section 4(a) hereof. No stop order
suspending the effectiveness of the Registration Statement or any
amendment or supplement thereto shall have been issued under the 1933
Act or any applicable state securities laws and no proceedings for that
purpose shall have been instituted or shall be pending, or, to the
knowledge of the Offerors or the Underwriters, shall be contemplated by
the Commission or any state authority. Any request on the part of the
Commission or
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<PAGE> 22
any state authority for additional information (to be included in the
Registration Statement or Prospectus or otherwise) shall have been
disclosed to the Underwriters and complied with to the Underwriters'
reasonable satisfaction and to the reasonable satisfaction of counsel
to the Underwriters.
(b) The Underwriters shall not have advised the Company at
or before the Closing Date (and, if applicable, the Option Closing
Date) that the Registration Statement or any post-effective amendment
thereto, or the Prospectus (including any 1934 Act document
incorporated by reference therein) or any amendment or supplement
thereto, contains an untrue statement of fact which, in the
Underwriters' opinion, is material or omits to state any fact which, in
the Underwriters' opinion, is material and is required to be stated
therein or is necessary to make statements therein (in the case of the
Prospectus or any amendment or supplement thereto, in light of the
circumstances under which they were made) not misleading or, if so
advised, the Company shall have cured such disclosure to the
satisfaction of the Underwriters.
(c) All corporate proceedings and other legal matters
incident to the authorization, form and validity of this Agreement, the
Trust Agreement, and the Designated Preferred Securities, and the
authorization and form of the Registration Statement and Prospectus,
other than financial statements and other financial data, and all other
legal matters relating to this Agreement and the transactions
contemplated hereby or by the Trust Agreement shall be reasonably
satisfactory in all respects to counsel to the Underwriters, and the
Offerors and the Subsidiaries shall have furnished to such counsel all
documents and information relating thereto that they may reasonably
request to enable them to pass upon such matters.
(d) Davis, Graham & Stubbs LLP counsel to the Offerors,
shall have furnished to the Underwriters their opinion, dated the
Closing Date, or the Option Closing Date, as the case may be, in form
and substance reasonably satisfactory to counsel to the Underwriters,
to the effect that:
(i) The Company has been duly incorporated and is
validly existing and in good standing under the laws of the
State of Delaware, and is duly registered as a bank holding
company under the BHC Act. Each of the Subsidiaries is duly
incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization.
Each of the Company and the Subsidiaries has full corporate
and trust power and authority to own or lease its properties
and to conduct its business as such business is described in
the Prospectus and is currently conducted. All outstanding
shares of capital stock of the Subsidiaries have been duly
authorized and validly issued and are fully paid and
nonassessable except to the extent such shares may be deemed
assessable under 12 U.S.C. Section 55 or 12 U.S.C. Section
1831o and, except as disclosed in the Prospectus, there are no
outstanding rights, options or warrants to purchase any such
shares or securities convertible into or exchangeable for any
such shares. The Bank is a member of the Federal Reserve
System, and no proceedings for termination or revocation of
such membership are pending or, to the best knowledge of such
counsel, threatened. The deposit accounts of the Bank are
22
<PAGE> 23
insured by the FDIC up to the maximum amount provided by law,
and no proceedings for the termination or revocation of such
insurance are pending or, to the best knowledge of such
counsel, threatened.
(ii) The capital stock, Debentures and Guarantee
of the Company and the equity securities of the Trust conform
in all material respects to the description thereof contained
in the Prospectus. The capital stock of the Company authorized
and issued as of September 30, 1998 is as set forth under the
caption "Capitalization" in the Prospectus, has been duly
authorized and validly issued, and is fully paid and
nonassessable. The form of certificates to evidence the
Designated Preferred Securities has been approved by or on
behalf of the Trust and is in due and proper form and complies
with all applicable requirements. There are no outstanding
rights, options or warrants to purchase from the Company, no
other outstanding securities convertible into or exchangeable
for, and no commitments, plans or arrangements to issue, any
shares of capital stock of the Company or equity securities of
the Trust, except as described in the Prospectus.
(iii) The Offerors have all requisite corporate
power and authority to issue, sell and deliver the Designated
Preferred Securities and Debentures in accordance with and
upon the terms and conditions set forth in this Agreement, the
Indenture, the Trust Agreement, the Registration Statement and
the Prospectus. All corporate or trust action required to be
taken by the Offerors for the authorization, issuance, sale
and delivery of the Designated Preferred Securities and
Debentures in accordance with such terms and conditions has
been validly and sufficiently taken. All of the Designated
Preferred Securities have been duly and validly authorized
and, when delivered in accordance with this Agreement will be
duly and validly issued, fully paid and nonassessable, and
will conform in all material respects to the description
thereof in the Registration Statement, the Prospectus and the
Trust Agreement. The Designated Preferred Securities have been
approved for quotation on the Nasdaq National Market subject
to official notice of issuance. Other than a stockholders'
agreement among the Company's directors, there are no
preemptive or other rights to subscribe for or to purchase,
and other than as disclosed in the Prospectus no restrictions
upon the voting or transfer of, any shares of capital stock or
equity securities of the Offerors or the Subsidiaries pursuant
to the corporate charter, bylaws or other governing documents
(including without limitation, the Trust Agreement) of the
Offerors or the Subsidiaries, or, to such counsel's knowledge,
any agreement or other instrument to which either Offeror or
any of the Subsidiaries is a party or by which either Offeror
or any of the Subsidiaries may be bound.
(iv) The Offerors have all requisite corporate and
trust power to enter into and perform their obligations under
this Agreement, and this Agreement has been duly and validly
authorized, executed and delivered by the Offerors and
constitutes the legal, valid and binding obligations of the
Offerors enforceable in accordance with its terms, except as
the enforcement hereof or thereof may be
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<PAGE> 24
limited by general principles of equity and by bankruptcy,
insolvency, reorganization, receivership, fraudulent transfer,
moratorium or other laws relating to or affecting creditors,
rights generally, and except as the indemnification and
contribution provisions hereof may be limited under applicable
laws and public policy and certain remedies may not be
available in the case of a non-material breach.
(v) Each of the Indenture, the Trust Agreement
and the Guarantee has been duly qualified under the Trust
Indenture Act, has been duly authorized, executed and
delivered by the Company, and is a valid and legally binding
obligation of the Company enforceable in accordance with its
terms, subject to the effect of bankruptcy, insolvency,
reorganization, receivership, fraudulent transfer, moratorium
or other laws affecting the rights and remedies of creditors
generally and of general principles of equity and public
policy.
(vi) The Debentures have been duly authorized,
executed, authenticated and delivered by the Company, are
entitled to the benefits of the Indenture and are legal, valid
and binding obligations of the Company enforceable against the
Company in accordance with their terms, subject to the effect
of bankruptcy, insolvency, reorganization, receivership,
fraudulent transfer, moratorium and other laws affecting the
rights and remedies of creditors generally and of general
principles of equity and public policy.
(vii) The Expense Agreement has been duly
authorized, executed and delivered by the Company, and is a
valid and legally binding obligation of the Company
enforceable in accordance with its terms, subject to the
effect of bankruptcy, insolvency, reorganization,
receivership, fraudulent transfer, moratorium and other laws
affecting the rights and remedies of creditors generally and
of general principles of equity and public policy.
(viii) To such counsel's knowledge, neither of the
Offerors nor any of the Subsidiaries is in breach or violation
of, or default under, with or without notice or lapse of time
or both, its corporate charter, bylaws or governing document
(including without limitation, the Trust Agreement). The
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this
Agreement, the Indenture, the Guarantee, the Expense Agreement
and the Trust Agreement do not and will not conflict with,
result in the creation or imposition of any lien, claim,
charge, encumbrance or restriction upon any property or assets
of the Offerors or the Subsidiaries or the Designated
Preferred Securities pursuant to, or constitute a breach or
violation of, or constitute a default under, with or without
notice or lapse of time or both, any of the terms, provisions
or conditions of the charter, bylaws or governing document
(including, without limitation, the Trust Agreement) of the
Offerors or the Subsidiaries, or to such counsel's knowledge,
any material contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease, franchise, license or
any other agreement or instrument to which either Offeror or
the Subsidiaries is a party or by which any of them or any of
their respective properties may be bound
24
<PAGE> 25
or any order, decree, judgment, franchise, license, Permit,
rule or regulation of any court, arbitrator, government, or
governmental agency or instrumentality, domestic or foreign,
known to such counsel having jurisdiction over the Offerors or
the Subsidiaries or any of their respective properties. No
authorization, approval, consent or order of, or filing,
registration or qualification with, any person (including,
without limitation, any court, governmental body or authority)
is required under Delaware law in connection with the
transactions contemplated by this Agreement in connection with
the purchase and distribution of the Designated Preferred
Securities by the Underwriters.
(ix) To such counsel's knowledge, holders of
securities of the Offerors either do not have any right that,
if exercised, would require the Offerors to cause such
securities to be included in the Registration Statement or
have waived such right. To such counsel's knowledge, neither
the Offerors nor any of the Subsidiaries is a party to any
agreement or other instrument which grants rights for or
relating to the registration of any securities of the
Offerors.
(x) Except as set forth in the Registration
Statement and the Prospectus, (A) no action, suit or
proceeding at law or in equity is pending or threatened in
writing to which the Offerors or the Subsidiaries is or may be
a party, and (B) no action, suit or proceeding is pending or
threatened in writing against or affecting the Offerors or the
Subsidiaries or any of their properties, before or by any
court or governmental official, commission, board or other
administrative agency, authority or body, or any arbitrator,
wherein an unfavorable decision, ruling or finding could have
a material adverse effect on the consummation of this
Agreement or the issuance and sale of the Designated Preferred
Securities as contemplated herein or the financial condition,
earnings, business, or results of operations of the Offerors
and the Subsidiaries on a consolidated basis or which is
required to be disclosed in the Registration Statement or the
Prospectus and is not so disclosed.
(xi) No authorization, approval, consent or order
of or filing, registration or qualification with, any person
(including, without limitation, any court, governmental body
or authority) is required in connection with the transactions
contemplated by this Agreement, the Trust Agreement, the
Registration Statement and the Prospectus, except such as may
be required by, and have been obtained under, the 1933 Act,
the Trust Indenture Act, state securities laws, or
Interpretations or Rules of the NASD in connection with the
purchase and distribution of the Designated Preferred
Securities by the Underwriters, and from the Nasdaq Stock
Market's National Market relating to the listing of the
Designated Preferred Securities.
(xii) The Registration Statement and the Prospectus
and any amendments or supplements thereto and any documents
incorporated therein by reference (other than the financial
statements or other financial and/or statistical data included
therein or omitted therefrom and Underwriter Information, as
to which such counsel need express no opinion) comply as to
form with the
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requirements of the 1933 Act and the 1933 Act Regulations as
of their respective dates of effectiveness.
(xiii) There are no contracts, agreements, leases or
other documents of a character required to be disclosed in the
Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement that are not so
disclosed or filed.
(xiv) The statements under the captions
"Capitalization," "Description of the Preferred Securities,"
"Description of the Junior Subordinated Debentures,"
"Description of Guarantee," "Relationship Among the Preferred
Securities, the Junior Subordinated Debentures and the
Guarantee," "Certain Federal Income Tax Consequences," "ERISA
Considerations," "Supervision and Regulation," "Bank Holding
Company Regulation" and "Regulatory Capital Requirements" in
the Prospectus or incorporated therein by reference in the
Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997, insofar as such statements constitute
a summary of legal and regulatory matters, documents,
instruments or proceedings referred to therein are accurate
descriptions of the matters summarized therein and fairly
present in all material respects the information called for
with respect to such legal and regulatory matters, documents,
instruments and proceedings, other than financial and
statistical data as to which said counsel expresses no opinion
or belief.
(xv) Such counsel has been advised by the staff of
the Commission that the Registration Statement has become
effective under the 1933 Act; any required filing of the
Prospectus pursuant to Rule 424(b) has been made within the
time period required by Rule 424(b); to such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
a stop order are pending or threatened by the Commission.
(xvi) Except as set forth in the Prospectus, to
such counsel's knowledge, there are no contractual
encumbrances or restrictions, or legal restrictions (excluding
any encumbrances or restrictions of general application to
state banks contained in laws, rules and regulations of
applicable regulatory authorities) on the ability of the
Subsidiaries (A) to pay dividends or make any other
distributions on its capital stock or to pay indebtedness owed
to the Offerors, (B) to make any loans or advances to, or
investments in, the Offerors or (C) to transfer any of its
property or assets to the Offerors.
(xvii) To such counsel's knowledge, (A) the business
and operations of the Offerors and the Subsidiaries comply
with all statutes, ordinances, laws, rules and regulations
applicable thereto, except in those instances where
non-compliance would not materially impair the ability of the
Offerors and the Subsidiaries to conduct their business; and
(B) the Offerors and the Subsidiaries possess and are
operating in compliance with the terms, provisions and
conditions of all Permits and required to conduct their
businesses as described in the Prospectus, except in those
instances where the loss thereof or non-compliance
26
<PAGE> 27
therewith would not have an adverse effect on the condition
(financial or otherwise), earnings, affairs, business,
prospects or results of operations of the Offerors and the
Subsidiaries on a consolidated basis; to the best of such
counsel's knowledge, all such Permits are valid and in full
force and effect, and, to the best of such counsel's
knowledge, no action, suit or proceeding is pending or
threatened which may lead to the revocation, termination,
suspension or non-renewal of any such Permit, except in those
instances where the loss thereof or non-compliance therewith
would not materially impair the ability of the Offerors or the
Subsidiaries to conduct their businesses.
In giving the above opinion, such counsel may state that,
insofar as such opinion involves factual matters, they have relied upon
certificates of officers of the Offerors including, without limitation,
certificates as to the identity of any and all contracts, indentures,
mortgages, deeds of trust, loans or credit agreements, notes, leases,
franchises, licenses or other agreements or instruments, and all
permits, easements, consents, licenses, franchises and government
regulatory authorizations, for purposes of paragraphs (viii), (xiii)
and (xvii) hereof and certificates of public officials. In giving such
opinion, such counsel may rely as to matters of Delaware law upon the
opinion of Richards, Layton and Finger described herein.
Such counsel shall also confirm that, in connection with the
preparation of the Registration Statement and Prospectus, such counsel
has participated in conferences with officers and representatives of
the Offerors and with their independent public accountants and with the
Underwriters and counsel to the Underwriters, at which conferences such
counsel made inquiries of such officers, representatives and
accountants and discussed in detail the contents of the Registration
Statement and Prospectus and the documents incorporated therein by
reference and such counsel has no reason to believe (A) that the
Registration Statement or any amendment thereto (except for the
financial statements and related schedules and financial and
statistical data included therein or omitted therefrom or Underwriter
Information, as to which such counsel need express no opinion), at the
time the Registration Statement or any such amendment became effective,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading or (B) that the Prospectus or any amendment
or supplement thereto or the documents contained therein by reference
(except for the financial statements and related schedules and
financial and statistical data included therein or omitted therefrom or
Underwriter Information, as to which such counsel need express no
opinion), at the time the Registration Statement became effective (or,
if the term "Prospectus" refers to the prospectus first filed pursuant
to Rule 424(b) of the 1933 Act Regulations, at the time the Prospectus
was issued), at the time any such amended or supplemented Prospectus
was issued, at the Closing Date and, if applicable, the Option Closing
Date, contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of
the circumstances under which they were made, or (C) that there is any
amendment to the Registration Statement required to be filed that has
not already been filed.
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(e) Richards, Layton and Finger, special Delaware counsel
to the Offerors, shall have furnished to the Underwriters their signed
opinion, dated as of Closing Date or the Option Closing Date, as the
case may be, in form and substance satisfactory to such counsel, to the
effect that:
(i) The Trust has been duly created and is validly
existing in good standing as a business trust under the
Delaware Business Trust Act and, under the Trust Agreement and
the Delaware Business Trust Act, has the trust power and
authority to conduct its business as described in the
Prospectus.
(ii) The Trust Agreement is a legal, valid and
binding agreement of the Trust and the Trustees, and is
enforceable against the Company, as sponsor, and the Trustees,
in accordance with its terms.
(iii) Under the Trust Agreement and the Delaware
Business Trust Act, the execution and delivery of the
Underwriting Agreement by the Trust, and the performance by
the Trust of its obligations thereunder, have been authorized
by all requisite trust action on the part of the Trust.
(iv) The Designated Preferred Securities have been
duly authorized by the Trust Agreement, and when issued and
sold in accordance with the Trust Agreement, the Designated
Preferred Securities will be, subject to the qualifications
set forth in paragraph (v) below, fully paid and nonassessable
beneficial interest in the assets of the Trust and entitled to
the benefits of the Trust Agreement. The form of certificates
to evidence the Designated Preferred Securities has been
approved by the Trust and is in due and proper form and
complies with all applicable requirements of the Delaware
Business Trust Act.
(v) Holders of Designated Preferred Securities, as
beneficial owners of the Trust, will be entitled to the same
limitation of personal liability extended to shareholders of
private, for-profit corporations organized under the General
Corporation Law of the State of Delaware. Such opinion may
note that the holders of Designated Preferred Securities may
be obligated to make payments as set forth in the Trust
Agreement.
(vi) Under the Delaware Business Trust Act and the
Trust Agreement, the issuance of the Designated Preferred
Securities is not subject to preemptive rights.
(vii) The issuance and sale by the Trust of the
Designated Preferred Securities and the Common Securities, the
execution, delivery and performance by the Trust of this
Agreement, and the consummation of the transactions
contemplated by this Agreement, do not violate (A) the Trust
Agreement, or (B) any applicable Delaware law, rule or
regulation.
Such opinion may state that it is limited to the laws of the
State of Delaware and that the opinion expressed in paragraph (ii)
above is subject to the effect upon the Trust Agreement of (i)
bankruptcy, insolvency, moratorium, receivership, reorganization,
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liquidation, fraudulent conveyance and other similar laws relating to
or affecting the rights and remedies of creditors generally, (ii)
principles of equity, including applicable law relating to fiduciary
duties (regardless of whether considered and applied in a proceeding in
equity or at law), and (iii) the effect of applicable public policy on
the enforceability of provisions relating to indemnification or
contribution.
(f) Kutak Rock, counsel to the Underwriters, shall have
furnished to the Underwriters their opinion, dated the Closing Date or
the Option Closing Date, as the case may be, with respect to the
sufficiency of all corporate procedures and other legal matters
relating to this Agreement, the validity of the Designated Preferred
Securities, the Registration Statement, the Prospectus and such other
related matters as the Underwriters may reasonably request and there
shall have been furnished to such counsel such documents and other
information as they may request to enable them to pass on such matters.
In giving such opinion, Kutak Rock may rely as to matters of fact upon
statements and certifications of officers of the Offerors and of other
appropriate persons and may rely as to matters of law, other than law
of the United States and the State of Colorado, and upon the opinion of
Richards, Layton and Finger described herein.
(g) On the date of this Agreement and on the Closing
Date, the Underwriters shall have received from Baird, Kurtz & Dobson a
letter, dated the date of this Agreement and the Closing Date (and, if
applicable, any Option Closing Date), respectively, in form and
substance satisfactory to the Underwriters, confirming that they are
independent public accountants with respect to the Company and the
Bank, within the meaning of the 1933 Act and the 1933 Act Regulations,
and stating in effect that:
(i) In their opinion, the consolidated financial
statements of the Company and the Bank audited by them and
included in the Registration Statement comply as to form with
the applicable accounting requirements of the 1933 Act and the
1933 Act Regulations.
(ii) On the basis of the procedures specified by
the American Institute of Certified Public Accountants as
described in SAS No. 71, "Interim Financial Information,"
inquiries of officials of the Company and the Bank responsible
for financial and accounting matters, and such other inquiries
and procedures as may be specified in such letter, which
procedures do not constitute an audit in accordance with U.S.
generally accepted auditing standards, nothing came to their
attention that caused them to believe that, if applicable, the
unaudited interim consolidated financial statements of the
Company and its subsidiary included in the Registration
Statement do not comply as to form with the applicable
accounting requirements of the 1933 Act and 1933 Act
Regulations or are not in conformity with U.S. generally
accepted accounting principles applied on a basis
substantially consistent, except as noted in the Registration
Statement, with the basis for the audited consolidated
financial statements of the Company and its subsidiary
included in the Registration Statement.
(iii) On the basis of limited procedures, not
constituting an audit in accordance with U.S. generally
accepted auditing standards, consisting of a
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reading of the unaudited interim financial statements and
other information referred to below, a reading of the latest
available unaudited condensed consolidated financial
statements of the Company and its subsidiary, inspection of
the minute books of the Company and the Bank since the date of
the latest audited financial statements of the Company and its
subsidiary included in the Registration Statement, inquiries
of officials of the Company and the Bank responsible for
financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that:
(A) as of a specified date not more than
five days prior to the date of such letter, there
have been any changes in the consolidated capital
stock, allowance for loan losses, or net loans
receivable of the Company and its subsidiary, any
increase in the consolidated long-term debt, short
term borrowings, obligations under capital leases or
real estate owned of the Company and its subsidiary,
any decreases in consolidated total assets or
shareholders equity of the Company and its
subsidiary, or any changes, decreases or increases in
other items specified by the Underwriters, in each
case as compared with amounts shown in the latest
unaudited interim consolidated statement of financial
condition of the Company and its subsidiary included
in the Registration Statement except in each case for
changes, increases or decreases which the
Registration Statement specifically discloses, have
occurred or may occur or which are described in such
letter; and
(B) for the period from the date of the
latest unaudited interim consolidated financial
statements included in the Registration Statement to
the specified date referred to in clause (iii)(A),
there were any decreases in the consolidated interest
income, net interest income, other operating income
or net income of the Company and its subsidiary or in
the per share amount of net income of the Company and
its subsidiary, any increase in consolidated other
operating expense of the Company and its subsidiary,
or any changes, decreases or increases in any other
items specified by the Underwriters, in each case as
compared with the comparable period of the preceding
year and with any other period of corresponding
length specified by the Underwriters, except in each
case for increases or decreases which the
Registration Statement discloses have occurred or may
occur, or which are described in such letter.
(iv) In addition to the audit referred to in their
report included in the Registration Statement and the limited
procedures, inspection of minute books, inquiries and other
procedures referred to in paragraphs (ii) and (iii) above,
they have carried out certain specified procedures, not
constituting an audit in accordance with U.S. generally
accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the
Underwriters which are derived from the general accounting
records and consolidated financial statements of the Company
and its subsidiary which appear
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<PAGE> 31
in the Registration Statement specified by the Underwriters in
the Registration Statement, and have compared such amounts,
percentages and financial information with the accounting
records and the material derived from such records and
consolidated financial statements of the Company and its
subsidiary have found them to be in agreement.
In the event that the letters to be delivered referred to
above set forth any such changes, decreases or increases as specified
in Clauses (iii)(A) or (iii)(B) above, or any exceptions from such
agreement specified in Clause (iv) above, it shall be a further
condition to the obligations of the Underwriters that the Underwriters
shall have determined, after discussions with officers of the Company
and the Bank responsible for financial and accounting matters, that
such changes, decreases, increases or exceptions as are set forth in
such letters do not (x) reflect an adverse change in the items
specified in Clause (iii)(A) above as compared with the amounts shown
in the latest unaudited consolidated statement of financial condition
of the Company and its subsidiary included in the Registration
Statement, (y) reflect an adverse change in the items specified in
Clause (iii)(B) above as compared with the corresponding periods of the
prior year or other period specified by the Underwriters, or (z)
reflect a material change in items specified in Clause (iv) above from
the amounts shown in the Preliminary Prospectus distributed by the
Underwriters in connection with the offering contemplated hereby or
from the amounts shown in the Prospectus.
(h) On the date of this Agreement and on the Closing Date
(and, if applicable, the Option Closing Date), the Underwriters shall
have received from McGladrey & Pullen, LLP a letter, dated the date of
this Agreement and the Closing Date (and, if applicable, the Option
Closing Date), respectively, in form and substance satisfactory to the
Underwriters, confirming that they are independent public accountants
with respect to the Company and the Bank, within the meaning of the
1933 Act and the 1933 Act Regulations, and stating in effect that in
their opinion, the consolidated financial statements of the Company and
the Bank audited by them and included in the Registration Statement
comply as to form with the applicable accounting requirements of the
1933 Act and the 1933 Act Regulations.
(i) On the date of this Agreement and on the Closing Date
(and, if applicable, on the Option Closing Date), the Underwriters
shall have received from Fortner, Bayens, Levkulich and Co. a letter,
dated the date of this Agreement and the Closing Date (and, if
applicable, on the Option Closing Date), respectively, in form and
substance satisfactory to the Underwriters, confirming that they are
independent public accountants with respect to Lakewood State Bank,
within the meaning of the 1933 Act and the 1933 Act Regulations, and
stating in effect that:
(i) On the basis of the procedures specified by the
American Institute of Certified Public Accountants as
described in SAS No. 71, "Interim Financial Information,"
inquiries of officials of Lakewood State Bank responsible for
financial and accounting matters, and such other inquiries and
procedures as may be specified in such letter, which
procedures do not constitute an audit in accordance with U.S.
generally accepted auditing standards, nothing came to their
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<PAGE> 32
attention that caused them to believe that, if applicable, the
unaudited interim financial statements of Lakewood State Bank
included in the Registration Statement are not in conformity
with U.S. generally accepted accounting principles applied on
a basis substantially consistent, except as noted in the
Registration Statement, with the basis for the audited
financial statements of Lakewood State Bank included in the
Registration Statement.
(ii) On the basis of limited procedures, not
constituting an audit in accordance with U.S. generally
accepted auditing standards, consisting of a reading of the
unaudited interim financial statements and other information
referred to below, a reading of the latest available unaudited
condensed financial statements of Lakewood State Bank,
inspection of the minute books of Lakewood State Bank since
the date of the latest audited financial statements of
Lakewood State Bank included in the Registration Statement,
inquiries of officials of Lakewood State Bank responsible for
financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that:
(A) as of a specified date not more than
five days prior to the date of such letter, there
have been any changes in the capital stock, allowance
for loan losses, or net loans receivable of Lakewood
State Bank, any increase in the consolidated
long-term debt, short term borrowings, obligations
under capital leases or real estate owned of Lakewood
State Bank, any decreases in total assets or
shareholders equity of Lakewood State Bank, or any
changes, decreases or increases in other items
specified by the Underwriters, in each case as
compared with amounts shown in the latest unaudited
interim statement of financial condition of Lakewood
State Bank included in the Registration Statement
except in each case for changes, increases or
decreases which the Registration Statement
specifically discloses, have occurred or may occur or
which are described in such letter; and
(B) for the period from the date of the
latest unaudited interim financial statements
included in the Registration Statement to the
specified date referred to in clause (ii)(A), there
were any decreases in the interest income, net
interest income, other operating income or net income
of Lakewood State Bank or in the per share amount of
net income of Lakewood State Bank, any increase in
consolidated other operating expense of Lakewood
State Bank, or any changes, decreases or increases in
any other items specified by the Underwriters, in
each case as compared with the comparable period of
the preceding year and with any other period of
corresponding length specified by the Underwriters,
except in each case for increases or decreases which
the Registration Statement discloses have occurred or
may occur, or which are described in such letter.
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<PAGE> 33
(iii) In addition to the audit referred to in their
report included in the Registration Statement and the limited
procedures, inspection of minute books, inquiries and other
procedures referred to in paragraphs (i) and (ii) above, they
have carried out certain specified procedures, not
constituting an audit in accordance with U.S. generally
accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the
Underwriters which are derived from the general accounting
records and financial statements of Lakewood State Bank which
appear in the Registration Statement specified by the
Underwriters in the Registration Statement, and have compared
such amounts, percentages and financial information with the
accounting records and the material derived from such records
and financial statements of Lakewood State Bank have found
them to be in agreement.
In the event that the letters to be delivered referred to
above set forth any such changes, decreases or increases as specified
in Clauses (ii)(A) or (iii)(B) above, or any exceptions from such
agreement specified in Clause (iii) above, it shall be a further
condition to the obligations of the Underwriters that the Underwriters
shall have determined, after discussions with officers of Lakewood
State Bank and of the Company and the Bank responsible for financial
and accounting matters, that such changes, decreases, increases or
exceptions as are set forth in such letters do not (x) reflect an
adverse change in the items specified in Clause (ii)(A) above as
compared with the amounts shown in the latest unaudited statement of
financial condition of Lakewood State Bank included in the Registration
Statement, (y) reflect an adverse change in the items specified in
Clause (ii)(B) above as compared with the corresponding periods of the
prior year or other period specified by the Underwriters, or (z)
reflect a material change in items specified in Clause (iii) above from
the amounts shown in the Preliminary Prospectus distributed by the
Underwriters in connection with the offering contemplated hereby or
from the amounts shown in the Prospectus.
(j) At the Closing Date (and, if applicable, the Option
Closing Date), the Underwriters shall have received certificates of the
chief executive officer and the chief financial and accounting officer
of the Company, which certificates shall be deemed to be made on behalf
of the Company dated as of the Closing Date (and, if applicable, the
Option Closing Date), evidencing satisfaction of the conditions of
Section 6(a) and stating that (i) the representations and warranties of
the Company set forth in Section 2(a) hereof are accurate as of the
Closing Date (and, if applicable, the Option Closing Date), and that
the Offerors have complied in all material respects with all agreements
and satisfied all conditions on their part to be performed or satisfied
at or prior to such Closing Date; (ii) since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any material adverse change in the
financial condition, earnings, business, prospects or results of
operations of the Offerors and the Subsidiaries on a consolidated
basis; (iii) since such dates there has not been any transaction
entered into by the Offerors or the Subsidiaries other than
transactions in the ordinary course of business; and (iv) they have
carefully examined the Registration Statement and the Prospectus as
amended or supplemented and nothing has come to their attention that
would lead them to believe that either the Registration Statement or
the Prospectus, or any amendment or supplement thereto as of their
33
<PAGE> 34
respective effective or issue dates, contained, and the Prospectus as
amended or supplemented at such Closing Date (and, if applicable, the
Option Closing Date), contains any untrue statement of a material fact,
or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The officers,
certificate of the Company shall further state that no stop order
affecting the Registration Statement is in effect or, to their
knowledge, threatened.
(k) At the Closing Date (and, if applicable, the Option
Closing Date), the Underwriters shall have received a certificate of an
authorized representative of the Trust to the effect that to the best
of his or her knowledge based upon an investigation, the
representations and warranties of the Trust in this Agreement are true
and correct as though made on and as of the Closing Date (and, if
applicable, the Option Closing Date); the Trust has complied with all
the agreements and satisfied all the conditions required by this
Agreement to be performed or satisfied by the Trust on or prior to the
Closing Date and since the most recent date as of which information is
given in the Prospectus, except as contemplated by the Prospectus, the
Trust has not incurred any liabilities or obligations, direct or
contingent, or entered into any transactions not in the ordinary course
of business and there has not been any adverse change in the condition
(financial or otherwise) of the Trust.
(l) On the Closing Date, the Underwriters shall have
received duly executed counterparts of the Trust Agreement, the
Guarantee, the Indenture and the Expense Agreement.
(m) The NASD, upon review of the terms of the public
offering of the Preferred Securities, shall not have objected to the
Underwriters' participation in such offering.
(n) Prior to the Closing Date, the Offerors shall have
furnished to the Underwriters and counsel to the Underwriters all such
other documents, certificates and opinions as they have reasonably
requested.
All opinions, certificates, letters and other documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to the Underwriters. Any certificate signed by an officer
of an Offeror and delivered to the Underwriters pursuant hereto shall also be
deemed to be a representation and warranty of such Offeror to the Underwriters
as to the statements made therein. The Offerors shall furnish to the
Underwriters conformed copies of such opinions, certificates, letters and other
documents as the Underwriters may reasonably request.
If any of the conditions referred to in this Section 6 shall not have
been fulfilled when and as required by this Agreement, this Agreement and all of
the several Underwriters' obligations hereunder may be terminated by the
Underwriters on notice to the Company at, or at any time before, the Closing
Date or the Option Closing Date. Any such termination shall be without liability
of the Underwriters to the Offerors.
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7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Offerors agree to jointly and severally indemnify and
hold harmless each of the Underwriters, each of their directors,
officers and agents, and each person, if any, who controls any
Underwriter within the meaning of the 1933 Act and the 1934 Act,
against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation and reasonable attorney
fees and expenses), joint or several, arising out of or based (i) upon
any untrue statement or alleged untrue statement of fact made by the
Company or the Trust contained in the Registration Statement, any
Preliminary Prospectus or the Prospectus, or in any amendment or
supplement thereto, (ii) upon any untrue statement or alleged untrue
statement of fact made by the Company or the Trust upon any blue sky
application or other document executed by the Company or the Trust
specifically for that purpose or based upon written information
furnished by the Company or the Trust filed in any state or other
jurisdiction in order to qualify any of the Designated Preferred
Securities under the securities laws thereof (any such application,
document or information being hereinafter referred to as a "Blue Sky
Application"), (iii) any omission or alleged omission to state a
material fact in the Registration Statement, any Preliminary Prospectus
or the Prospectus, or in any amendment or supplement thereto, or in any
Blue Sky Application required to be stated therein or necessary to make
the statements therein not misleading, and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs
of investigation and attorney fees), arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or the Prospectus, or in any
amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading or (iv) the enforcement of this indemnification provision or
the contribution provisions of Section 7(d); and shall reimburse each
such indemnified party for any reasonable legal or other expenses as
incurred, but in no event less frequently than 30 days after each
invoice is submitted, incurred by them in connection with investigating
or defending against any such loss, claim, damage, liability or action,
notwithstanding the possibility that payments for such expenses might
later be held to be improper, in which case such payments shall be
promptly refunded; provided, however, that the Offerors shall not be
liable in any such case to the extent, but only to the extent, that any
such losses, claims, damages, liabilities and expenses arise out of or
are based upon any untrue statement or omission or allegation thereof
that has been made therein or omitted therefrom in reliance upon and in
conformity the Underwriter Information; provided further, that the
indemnification contained in this paragraph with respect to any
Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or of any person controlling such Underwriter) to the
extent any such losses, claims, damages, liabilities or expenses
results from the fact that such Underwriter sold Designated Preferred
Securities to a person to whom there was not sent or given, at or prior
to the written confirmation of such sale, a copy of the Prospectus (as
amended or supplemented if any amendments or supplements thereto shall
have been furnished to such Underwriter in sufficient time to
distribute same with or prior to the written confirmation of the sale
involved), if required by law, and if such loss, claim, damage,
liability or expense would not have arisen but for the failure to give
or send such person such document. The foregoing indemnity
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<PAGE> 36
agreement is in addition to any liability the Company or the Trust may
otherwise have to any such indemnified party.
(b) Each Underwriter severally agrees to indemnify and hold
harmless each Offeror, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls
an Offeror within the meaning of the 1933 Act, to the same extent as
required by the foregoing indemnity from the Company to the
Underwriters, but only with respect to the Underwriter Information or
information furnished by an Underwriter in a Blue Sky Application and
only for failure to deliver a final prospectus to investors in
accordance with the 1933 Act. The foregoing indemnity agreement is in
addition to any liability which any such Underwriter may otherwise have
to any such indemnified party.
(c) If any action or claim shall be brought or asserted
against any indemnified party or any person controlling an indemnified
party in respect of which indemnity may be sought from the indemnifying
party, such indemnified party or controlling person shall promptly
notify the indemnifying party in writing, and the indemnifying party
shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the indemnified party and the payment of all
expenses; provided, however, that the failure so to notify the
indemnifying party shall not relieve it from any liability which it may
have to an indemnified party otherwise than under such paragraph, and
further, shall only relieve it from liability under such paragraph to
the extent prejudiced thereby. Any indemnified party or any such
controlling person shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such
indemnified party or such controlling person unless (i) the employment
thereof as separate counsel and the payment of such counsel's fees has
been specifically authorized by the indemnifying party in writing, (ii)
the indemnifying party has failed to assume the defense or to employ
counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties)
include both such indemnified party or such controlling person and the
indemnifying party and such indemnified party or such controlling
person shall have been advised in writing by such counsel that the
representation of both parties by the same counsel would be
inappropriate due to the actual or potential differing interests
between them (in which case, if such indemnified party or controlling
person notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not be required to assume the defense of such
action on behalf of such indemnified party or such controlling person)
it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the
same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys at any
time and for all such indemnified party and controlling persons, which
firm shall be designated in writing by the indemnified party and shall
be reasonably acceptable to the indemnifying party. Each indemnified
party and each controlling person, as a condition of such indemnity,
shall use reasonable best efforts to cooperate with the indemnifying
party in the defense of any such action or claim. The indemnifying
party shall not be liable for any settlement of any such action
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<PAGE> 37
effected without its prior written consent, but if there be a final
judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party and any
such controlling person from and against any loss, claim, damage,
liability or expense by reason of such settlement or judgment.
An indemnifying party shall not, without the prior written
consent of each indemnified party, settle, compromise or consent to the
entry of any judgment in any pending or threatened claim, action, suit
or proceeding in respect of which indemnity may be sought hereunder
(whether or not such indemnified party or any person who controls such
indemnified party within the meaning of the 1933 Act is a party to such
claim, action, suit or proceeding), unless such settlement, compromise
or consent includes a release of each such indemnified party reasonably
satisfactory to each such indemnified party and each such controlling
person from all liability arising out of such claim, action, suit or
proceeding or unless the indemnifying party shall confirm in a written
agreement with each indemnified party, that notwithstanding any
federal, state or common law, such settlement, compromise or consent
shall not alter the right of any indemnified party or controlling
person to indemnification or contribution as provided in this
Agreement.
(d) If the indemnification provided for in this Section 7
is legally unavailable or insufficient to hold harmless an indemnified
party under paragraphs (a), (b) or (c) hereof in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or
expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Offerors on the one hand and the
Underwriters on the other from the offering of the Designated Preferred
Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Offerors on the one hand and
the Underwriters on the other in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative benefits received by the Offerors on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering of the Designated Preferred
Securities (before deducting expenses) received by the Offerors bear to
the total underwriting discounts, commissions and compensation received
by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault of the Offerors on the
one hand and of the Underwriters on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of fact or the omission or alleged omission to state a fact
relates to information supplied by the Offerors or by the Underwriters
and the parties, relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission.
The Offerors and each of the Underwriters agree that it would not be
just and equitable if contribution pursuant to this paragraph (d) were
determined by pro rata allocation or by any other method of allocation
that does not take into account the equitable considerations referred
to herein. The amount paid or payable by an indemnified party as a
result of the losses,
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<PAGE> 38
claims, damages, liabilities and expenses referred to in the first
sentence of this paragraph (d) shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of
this paragraph (d), an Underwriter shall not be required to contribute
any amount in excess of the amount by which the total price at which
the Designated Preferred Securities underwritten by such Underwriter
and distributed to the public were offered to the public exceeds the
amount of any damages that such Underwriter has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
For purposes of this paragraph (d), each person who controls
an Underwriter within the meaning of the 1933 Act shall have the same
rights to contribution as the Underwriters, and each person who
controls an Offeror within the meaning of the 1933 Act and the 1934
Act, each officer and trustee of an Offeror who shall have signed the
Registration Statement and each director of an Offeror shall have the
same rights to contribution as the Offerors subject in each case to the
preceding sentence. The obligations of the Offerors under this
paragraph (d) shall be in addition to any liability which the Offerors
may otherwise have and the obligations of the Underwriters under this
paragraph (d) shall be in addition to any liability that the
Underwriters may otherwise have.
(e) The indemnity and contribution agreements contained in
this Section 7 and the representations and warranties of the Offerors
set forth in this Agreement shall remain operative and in full force
and effect, regardless of (i) any investigation made by or on behalf of
the Underwriters or any person controlling an Underwriter or by or on
behalf of the Offerors, or such directors, trustees or officers (or any
person controlling an Offeror), (ii) acceptance of any Designated
Preferred Securities and payment therefor hereunder and (iii) any
termination of this Agreement. A successor of an Underwriter or of an
Offeror, such directors, trustees or officers (or of any person
controlling an Underwriter or an Offeror) shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
(f) The Company agrees to indemnify the Trust against any
and all losses, claims, damages or liabilities that may become due from
the Trust under this Section 7.
8. TERMINATION. The Underwriters shall have the right to
terminate this Agreement at any time at or prior to the Closing Date or, with
respect to the Underwriters' option to purchase the Option Preferred Securities,
at any time at or prior to the Option Closing Date, without liability on the
part of the Underwriters to the Offerors, if:
(a) either Offeror shall have failed, refused, or been
unable to perform any agreement on its part to be performed under this
Agreement, or any of the conditions referred to in Section 6 shall not
have been fulfilled, when and as required by this Agreement;
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(b) the Offerors or any of the Subsidiaries shall have
sustained any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree which in the judgment of the Underwriters impairs in
any material respect the investment quality of the Designated Preferred
Securities;
(c) there has been since the respective dates as of which
information is given in the Registration Statement or the Prospectus,
any adverse change in, or any development which is likely to have an
adverse effect in any material respect on, the financial condition,
earnings, business, prospects or results of operations of the Offerors
and the Subsidiaries on a consolidated basis, whether or not arising in
the ordinary course of business;
(d) there has occurred any outbreak of hostilities or other
calamity or crisis or change in general economic, political or
financial conditions, or internal conditions, the effect of which on
the financial markets of the United States is such as to make it, in
the Underwriters' reasonable judgment, impracticable to market the
Designated Preferred Securities or enforce contracts for the sale of
the Designated Preferred Securities;
(e) trading generally on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market shall have been
suspended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been
required, by any of said exchanges or market system or by the
Commission or any other governmental authority;
(f) a banking moratorium shall have been declared by either
federal or Colorado authorities; or
(g) any action shall have been taken by any government in
respect of its monetary affairs which, in the Underwriters' reasonable
judgment, has an adverse effect on the United States securities
markets.
If this Agreement shall be terminated pursuant to this Section 8, the
Offerors shall not then be under any liability to the Underwriters except as
provided in Sections 5 and 7 hereof.
9. DEFAULT BY UNDERWRITERS. If on the Closing Date or the Option
Closing Date, as the case may be, any Underwriter shall fail to purchase and pay
for the portion of the Firm Preferred Securities, as the case may be, which such
Underwriter has agreed to purchase and pay for on such date otherwise than by
reason of the nonfulfillment of any condition to its obligation to do so
hereunder), you, as Representative of the Underwriters, shall use your best
efforts to procure within 36 hours thereafter one or more of the other
Underwriters, or any others, to purchase such amounts as may be agreed upon, and
upon the terms set forth herein, of the Firm Preferred Securities or Option
Preferred Securities, as the case may be, which the defaulting Underwriter or
Underwriters failed to purchase. If during such 36 hours you, as Representative,
shall not have procured such other Underwriters, or any others, to purchase the
Firm Preferred Securities or Option Preferred Securities, as the case may be,
agreed to be purchased by the defaulting Underwriter or Underwriters, then (a)
if the aggregate number of Preferred Securities
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<PAGE> 40
with respect to which such default shall occur does not exceed 10% of the Firm
Preferred Securities or Option Preferred Securities, as the case may be, which
they are obligated to purchase hereunder, to purchase the Firm Preferred
Securities or Option Preferred Securities, as the case may be, which such
defaulting Underwriter or Underwriters failed to purchase, or (b) if the
aggregate number of Preferred Securities with respect to which such default
shall occur exceeds 10% of the Firm Preferred Securities or Option Preferred
Securities, as the case may be, covered hereby, you as the Representative of the
Underwriters will have the right, by written notice given within the next
36-hour period to the parties to this Agreement, to terminate this Agreement
without liability on the part of the nondefaulting Underwriters or of the
Offerors except for expenses to be borne by the Offerors and the Underwriters as
provided in Section 5 hereof and the indemnity and contribution agreements in
Section 7 hereof. In the event of a default by any Underwriter or Underwriters,
as set forth in this Section 9, the Closing Date or Option Closing Date, as the
case may be, may be postponed for such period, not exceeding seven days, as you,
as Representative, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. EFFECTIVE DATE OF AGREEMENT. If the Registration Statement is
not effective at the time of execution of this Agreement, this Agreement shall
become effective on the Effective Date at the time the Commission declares the
Registration Statement effective. The Company shall immediately notify the
Underwriters when the Registration Statement becomes effective.
If the Registration Statement is effective at the time of execution of
this Agreement, this Agreement shall become effective at the earlier of 11:00
a.m. Denver time, on the first full business day following the day on which this
Agreement is executed, or at such earlier time as the Underwriters shall release
the Designated Preferred Securities for initial public offering. The
Underwriters shall notify the Offerors immediately after it has taken any action
which causes this Agreement to become effective.
Until such time as this Agreement shall have become effective, it may
be terminated by the Offerors, by notifying the Representative, or by the
Underwriters, by notifying either Offeror, except that the provisions of
Sections 5 and 7 shall at all times be effective.
11. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. The representations, warranties, indemnities, agreements and other
statements of the Offerors and their officers and trustees set forth in or made
pursuant to this Agreement and the agreements of the Underwriters contained in
Section 7 hereof shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of the Offerors or controlling persons
of either Offeror, or by or on behalf of the Underwriters or controlling persons
of the Underwriters or any termination or cancellation of this Agreement and
shall survive delivery of and payment for the Designated Preferred Securities.
12. NOTICES. Except as otherwise provided in this Agreement, all
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand, mailed by registered or
certified mail, return receipt requested, or transmitted
40
<PAGE> 41
by any standard form of telecommunication and confirmed. Notices to either
Offeror shall be sent to 1825 Lawrence Street, Suite 444, Denver, Colorado,
80202, Attention: Charles R. Harrison (with a copy to Davis, Graham & Stubbs,
LLP, 370 17th Street, Suite 4700, Denver, Colorado, 80202, Attention: Ronald R.
Levine, II, Esq.); and notices to the Underwriters shall be sent c/o Bigelow &
Company, 1401 Seventeenth Street, Suite 1300, Denver, Colorado, 80202,
Attention: Robert E. Bigelow (with a copy to Kutak Rock, 717 Seventeenth Street,
Suite 2900, Denver, Colorado, 80202, Attention: Robert J. Ahrenholz, Esq.).
13. PARTIES. The Agreement herein set forth is made solely for the
benefit of the Underwriters and the Offerors and, to the extent expressed,
directors, trustees and officers of the Offerors, any person controlling the
Offerors or the Underwriters, and their respective successors and assigns. No
other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser, in
his status as such purchaser, from the Underwriters of the Designated Preferred
Securities.
14. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Colorado, without giving effect to the choice of law or conflicts
of law principles thereof.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and when a counterpart has been executed by each party hereto all
such counterparts taken together shall constitute one and the same Agreement.
41
<PAGE> 42
If the foregoing is in accordance with the Underwriters' understanding
of our agreement, please sign and return to us a counterpart hereof, whereupon
this shall become a binding agreement between the Company, the Trust and the
Underwriters in accordance with its terms.
Very truly yours,
UNION BANKSHARES, LTD.
By
-------------------------------
Name
-------------------------------
Title
-------------------------------
UNION BANKSHARES CAPITAL TRUST I
By
-------------------------------
Name
-------------------------------
Title
-------------------------------
CONFIRMED AND ACCEPTED,
as of ________________________, 1998.
BIGELOW & COMPANY
Acting on behalf of itself and the several
Underwriters named in Schedule A
By
-------------------------------
Name
-------------------------------
Title
-------------------------------
42
<PAGE> 43
SCHEDULE A
UNDERWRITER NUMBER OF PREFERRED SHARES TO
BE PURCHASED
Bigelow & Company
Barington Capital Group, L.P.
EVEREN Securities, Inc.
Fahnestock & Co. Inc.
Pacific Crest Securities Inc.
Schneider Securities, Inc.
TOTAL 1,315,790
A-1
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF INCORPORATION
OF
UNION BANKSHARES, LTD.
Union Bankshares, Ltd., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: The board of directors of the Corporation, by a special meeting
of the board of directors effective January 21, 1998, has adopted the following
resolution proposing and declaring advisable an amendment to the Certificate of
Incorporation of the Corporation:
RESOLVED, that Section 5.1 of Article 5 of the Certificate of
Incorporation of the Corporation be amended by deleting said Section 5.1 of
Article 5 in its entirety, and substituting the following therefor:
"Section 5.1 Authorized Shares. The total number of shares that
the Corporation shall have the authority to issue is ten million, five hundred
thousand (10,500,000) shares, of which ten million (10,000,000) shall be common
stock, each with a par value of $.001, and five hundred thousand (500,000)
shares shall be preferred stock, each with a par value of $.001."
SECOND: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Bruce E. Hall, the Vice President, Secretary and Treasurer of the
Corporation this 27th day of May, 1998.
UNION BANKSHARES, LTD.
a Delaware Corporation
/s/ Bruce E. Hall
----------------------------
By: Bruce E. Hall
Title: Vice President, Secretary and
Treasurer
<PAGE> 1
================================================================================
SUBORDINATED INDENTURE
UNION BANKSHARES, LTD.,
as Issuer
to
AMERICAN SECURITIES TRANSFER & TRUST, INC.,
as Trustee
____% Junior Subordinated Debentures
Dated as of ________________, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
DEFINITIONS...............................................................................1
ARTICLE II
DESCRIPTION, TERMS, CONDITIONS, REGISTRATION AND EXCHANGE
OF THE JUNIOR SUBORDINATED DEBENTURES
Section 2.01. Designation and Principal Amount...........................................8
Section 2.02. Maturity...................................................................8
Section 2.03. Form and Payment...........................................................9
Section 2.04. Global Subordinated Debenture..............................................9
Section 2.05. Interest..................................................................11
Section 2.06. Execution, Authentication, Delivery and Dating............................12
Section 2.07. Registration and Transfer.................................................12
Section 2.08. Mutilated, Destroyed, Lost and Stolen Junior Subordinated Debentures......13
ARTICLE III
REDEMPTION OF JUNIOR SUBORDINATED DEBENTURES
Section 3.01. Redemption................................................................14
Section 3.02. Special Event Redemption..................................................14
Section 3.03. Optional Redemption by Company............................................14
Section 3.04. Notice of Redemption......................................................15
Section 3.05. Payment Upon Redemption...................................................16
Section 3.06. No Sinking Fund...........................................................17
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
Section 4.01. Extension of Interest Payment Period......................................17
Section 4.02. Notice of Extension.......................................................17
Section 4.03. Limitation of Transactions During Extension...............................18
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
Section 5.01. Payment of Principal and Interest.........................................18
</TABLE>
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TABLE OF CONTENTS
(continued)
<TABLE>
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Section 5.02. Maintenance of Agency.....................................................18
Section 5.03. Paying Agents.............................................................19
Section 5.04. Appointment to Fill Vacancy in Office of Trustee..........................20
Section 5.05. Compliance with Consolidation Provisions..................................20
Section 5.06. Restrictions on Certain Payments..........................................20
Section 5.07. Covenants as to the Trust.................................................20
ARTICLE VI
SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND
THE TRUSTEE
Section 6.01. Company to Furnish Trustee Names and Addresses of Securityholders.........21
Section 6.02. Preservation of Information; Communications with Securityholders..........21
Section 6.03. Reports by the Company....................................................21
Section 6.04. Reports by the Trustee....................................................22
ARTICLE VII
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT
Section 7.01. Events of Default.........................................................22
Section 7.02. Collection of Indebtedness and Suits for Enforcement by Trustee...........24
Section 7.03. Application of Moneys Collected...........................................26
Section 7.04. Limitation on Suits.......................................................26
Section 7.05. Rights and Remedies Cumulative; Delay or Omission Not Waiver..............27
Section 7.06. Control by Securityholders................................................27
Section 7.07. Undertaking to Pay Costs..................................................28
ARTICLE VIII
FORM OF JUNIOR SUBORDINATED DEBENTURE AND ORIGINAL ISSUE
Section 8.01. Form of Junior Subordinated Debenture.....................................28
Section 8.02. Original Issue of Junior Subordinated Debentures..........................28
ARTICLE IX
CONCERNING THE TRUSTEE
Section 9.01. Certain Duties and Responsibilities of the Trustee........................28
Section 9.02. Certain Rights of Trustee.................................................30
</TABLE>
ii
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(continued)
<TABLE>
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<S> <C>
Section 9.03. Trustee not Responsible for Recitals or Issuance of the Junior
Subordinated Debentures...................................................31
Section 9.04. May Hold Junior Subordinated Debentures...................................31
Section 9.05. Moneys Held in Trust......................................................31
Section 9.06. Compensation and Reimbursement............................................31
Section 9.07. Reliance on Officers' Certificate.........................................32
Section 9.08. Disqualification; Conflicting Interests...................................32
Section 9.09. Corporate Trustee Required; Eligibility...................................32
Section 9.10. Resignation and Removal; Appointment of Successor.........................32
Section 9.11. Acceptance of Appointment by Successor....................................34
Section 9.12. Merger, Conversion, Consolidation or Succession to Business...............34
Section 9.13. Preferential Collection of Claims Against the Company.....................34
Section 9.14. Appointment of Authenticating Agent.......................................35
ARTICLE X
CONCERNING THE SECURITYHOLDERS
Section 10.01. Evidence of Action by Securityholders.....................................36
Section 10.02. Proof of Execution by Securityholders.....................................37
Section 10.03. Who May be Deemed Owners..................................................37
Section 10.04. Certain Junior Subordinated Debentures Owned by Company Disregarded.......37
Section 10.05. Actions Binding on Future Securityholders.................................38
ARTICLE XI
SUPPLEMENTAL INDENTURES
Section 11.01. Supplemental Indentures Without the Consent of Securityholders............38
Section 11.02. Supplemental Indentures With Consent of Securityholders...................39
Section 11.03. Effect of Supplemental Indentures.........................................39
Section 11.04. Junior Subordinated Debentures Affected by Supplemental Indentures........39
Section 11.05. Execution of Supplemental Indentures......................................40
ARTICLE XII
SUCCESSOR CORPORATION
Section 12.01. Company May Consolidate, Etc..............................................40
Section 12.02. Successor Substituted.....................................................40
Section 12.03. Evidence of Consolidation, Etc., to Trustee...............................41
</TABLE>
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(continued)
<TABLE>
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ARTICLE XIII
SATISFACTION AND DISCHARGE
Section 13.01. Satisfaction and Discharge of Indenture...................................41
Section 13.02. Discharge of Obligations..................................................42
Section 13.03. Deposited Moneys to be Held in Trust......................................42
Section 13.04. Payment of Moneys held by Paying Agents...................................42
Section 13.05. Repayment to Company......................................................42
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
Section 14.01. No Recourse...............................................................42
ARTICLE XV
MISCELLANEOUS PROVISIONS
Section 15.01. Effect on Successors and Assigns..........................................43
Section 15.02. Actions by Successor......................................................43
Section 15.03. Surrender of Company Powers...............................................43
Section 15.04. Notices...................................................................43
Section 15.05. Governing Law.............................................................44
Section 15.06. Treatment of Junior Subordinated Debentures as Debt.......................44
Section 15.07. Compliance Certificates and Opinions......................................44
Section 15.08. Payments on Business Days.................................................44
Section 15.09. Conflict with Trust Indenture Act.........................................44
Section 15.10. Counterparts..............................................................45
Section 15.11. Separability..............................................................45
Section 15.12. Assignment................................................................45
Section 15.13. Acknowledgment of Rights..................................................45
ARTICLE XVI
SUBORDINATION OF JUNIOR SUBORDINATED DEBENTURES
Section 16.01. Agreement to Subordinate..................................................45
Section 16.02. Default on Senior and Subordinated Debt...................................46
Section 16.03. Liquidation; Dissolution; Bankruptcy......................................46
Section 16.04. Subrogation...............................................................47
</TABLE>
iv
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(continued)
<TABLE>
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Page
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Section 16.05. Trustee to Effectuate Subordination.......................................48
Section 16.06. Notice by the Company.....................................................48
Section 16.07. Rights of the Trustee; Holders of Senior and Subordinated Debt............49
Section 16.08. Subordination May Not be Impaired.........................................49
EXHIBIT A FORM OF JUNIOR SUBORDINATED DEBENTURE
</TABLE>
v
<PAGE> 7
UNION BANKSHARES, LTD.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939,
AS AMENDED, AND SUBORDINATED INDENTURE,
DATED AS OF ________________, 1998
<TABLE>
<CAPTION>
TRUST INDENTURE ACT SECTION SUBORDINATED INDENTURE SECTION
<S> <C>
Section 310 15.09
Section 310(b) 9.08
Section 311 15.09
Section 311(a) 9.13
(b) 9.13
Section 312 15.09
Section 312(b) 6.02
Section 313 15.09
Section 313(a) 6.04
(b) 6.04
(c) 6.04
Section 314 15.09
Section 315 15.09
Section 316 15.09
Section 317 15.09
</TABLE>
- ------------------
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Subordinated Indenture.
<PAGE> 8
SUBORDINATED INDENTURE (the "Indenture"), dated as of ________________,
1998, between UNION BANKSHARES, LTD., a Delaware corporation (the "Company") and
AMERICAN SECURITIES TRANSFER & TRUST, INC., a Colorado trust company, as trustee
(the "Trustee");
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the execution and delivery of this Indenture to provide for the
issuance of its securities to be known as its ____% Junior Subordinated
Debentures due ________________ 2028 (hereinafter referred to as the "Junior
Subordinated Debentures"), the form and substance of such Junior Subordinated
Debentures and the terms, provisions and conditions thereof to be set forth as
provided in this Indenture; and
WHEREAS, Union Bankshares Capital Trust I, a Delaware statutory
business trust (the "Trust"), has offered to the public $10,000,004 aggregate
liquidation amount of its ____% Cumulative Preferred Securities (the "Preferred
Securities"), representing undivided beneficial interests in the assets of the
Trust and proposes to invest the proceeds from such offering, together with the
proceeds of the issuance and sale by the Trust to the Company of $_____
aggregate liquidation amount of its ____% Common Securities, in $__________
aggregate principal amount of the Junior Subordinated Debentures; and
WHEREAS, the Company has requested that the Trustee execute and deliver
this Indenture and all requirements necessary to make this Indenture a valid
instrument in accordance with its terms, and to make the Junior Subordinated
Debentures, when executed by the Company and authenticated and delivered by the
Trustee, the valid obligations of the Company; and
WHEREAS, to provide the terms and conditions upon which the Junior
Subordinated Debentures are to be authenticated, issued and delivered, the
Company has duly authorized the execution and delivery of this Indenture; and
WHEREAS, all things necessary to make this Indenture a valid agreement
of the Company, in accordance with its terms, have been done.
NOW, THEREFORE, in consideration of the premises and the purchase of
the Junior Subordinated Debentures by the holders thereof, it is mutually
covenanted and agreed as follows for the equal and ratable benefit of the
holders of Junior Subordinated Debentures:
ARTICLE I
DEFINITIONS
The terms defined in this Section (except as in this Indenture
otherwise expressly provided or unless the context otherwise requires) for all
purposes of this Indenture and of any indenture supplemental hereto shall have
the respective meanings specified in this Section and shall include the plural
as well as the singular. All other terms used in this Indenture that are defined
in the Trust Indenture Act of 1939, as amended, or that are by reference in said
Trust Indenture Act defined in the Securities Act of 1933, as amended (except as
herein otherwise expressly provided or unless the context otherwise requires),
shall have the meanings assigned to
<PAGE> 9
such terms in said Trust Indenture Act and in said Securities Act as in force at
the date of the execution of this Indenture.
"Accelerated Maturity Date" means, if the Company elects to accelerate
the Maturity Date in accordance with Section 2.02, the date selected by the
Company which is prior to the Scheduled Maturity Date, but is after
________________, 2003.
"Additional Sums" shall have the meaning set forth in Section 2.05(c).
"Administrative Trustees" has the meaning set forth in the Trust
Agreement.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person, (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person, (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person, (d) a partnership in which the specified Person is a
general partner, (e) any officer or director of the specified Person, and (f) if
the specified Person is an individual, any entity of which the specified Person
is an officer, director or general partner.
"Authenticating Agent" means an authenticating agent with respect to
the Junior Subordinated Debentures appointed by the Trustee pursuant to Section
9.14.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or any
duly authorized committee of such Board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
"Business Day" means any day other than a day on which federal or state
banking institutions in the State of Colorado are authorized or obligated by
law, executive order or regulation to close or a day on which the Trustee is
closed.
"Capital Treatment Event" means the reasonable determination by the
Company that, as a result of any amendment to, or change (including any proposed
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 proposed change, pronouncement or decision is announced on or after the
date of issuance of the Preferred Securities under the Trust Agreement, there is
more than an insubstantial risk of impairment of the Company's ability to treat
the 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.
2
<PAGE> 10
"Certificate" means a certificate signed by the principal executive
officer, the principal financial officer or the principal accounting officer of
the Company. The Certificate need not comply with the provisions of Section
15.07.
"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 Indenture such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Securities" means undivided beneficial interests in the assets
of the Trust which rank pari passu with Preferred Securities issued by the
Trust; provided, however, that upon the occurrence of an Event of Default, the
rights of holders of Common Securities to payment in respect of Distributions
and payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Preferred Securities.
"Company" means Union Bankshares, Ltd., a corporation duly organized
and existing under the laws of the State of Delaware, and, subject to the
provisions of Article XII, shall also include its successors and assigns.
"Compounded Interest" shall have the meaning set forth in Section 4.01.
"Corporate Trust Office" means the office of the Trustee at which, at
any particular time, its corporate trust business shall be principally
administered, which office at the date hereof is located at 836 Quail Street,
Suite 100, Lakewood, Colorado 80215, Attention: Corporate Trust Administration.
"Coupon Rate" shall have the meaning set forth in Section 2.05(a).
"Custodian" means any receiver, trustee, assignee, liquidator, or
similar official under any Bankruptcy Law.
"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, (a) every
obligation of such Person for money borrowed; (b) 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; (c) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (d) 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); (e) every capital lease obligation of such Person; and (f) every
obligation of the type referred to in clauses (a) through (e) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or for which such Person is responsible or liable,
directly or indirectly, as obligor or otherwise.
"Default" means any event, act or condition that with notice or lapse
of time, or both, would constitute an Event of Default.
"Deferred Interest" shall have the meaning set forth in Section 4.01.
3
<PAGE> 11
"Depositary" means, with respect to Junior Subordinated Debentures
issued as a Global Subordinated Debenture, The Depository Trust Company, New
York, New York, another clearing agency, or any successor registered as a
clearing agency under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or other applicable statute or regulation, which, in each case,
shall be designated by the Company pursuant to either Section 2.01 or 2.04.
"Dissolution Event" means that as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance with
the Trust Agreement and the Junior Subordinated Debentures held by the Property
Trustee are to be distributed to the holders of the Trust Securities issued by
the Trust pro rata in accordance with the Trust Agreement.
"Distributions" shall have the meaning set forth in the Trust
Agreement.
"Event of Default" means any event specified in Section 7.01, continued
for the period of time, if any, therein designated.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 4.01.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"Global Subordinated Debenture" means a Junior Subordinated Debenture
executed by the Company and delivered by the Trustee to the Depositary or
pursuant to the Depositary's instruction, all in accordance with this Indenture,
which shall be registered in the name of the Depositary or its nominee.
"Governmental Obligations" means securities that are (a) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America that, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act of 1933, as amended) as custodian with respect to any such
Governmental Obligation or a specific payment of principal of or interest on any
such Governmental Obligation held by such custodian for the account of the
holder of such depositary receipt; provided, however, that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depositary receipt from any amount received by the
custodian in respect of the Governmental Obligation or the specific payment of
principal of or interest on the Governmental Obligation evidenced by such
depositary receipt.
"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.
"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 in accordance with the terms hereof.
4
<PAGE> 12
"Interest Payment Date," when used with respect to any installment of
interest on the Junior Subordinated Debentures, means the date specified in the
Junior Subordinated Debenture as the fixed date on which an installment of
interest with respect to the Junior Subordinated Debentures is due and payable.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"Investment Company Event" means the receipt by the Company and the
Trust of an Opinion of Counsel experienced in such matters to the effect that,
as a result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in Investment
Company Act Law"), the Trust is or will be considered an "investment company"
that is required to be registered under the Investment Company Act, which Change
in Investment Company Act Law becomes effective on or after the date of original
issuance of the Preferred Securities under the Trust Agreement.
"Junior Subordinated Debentures" means the ____% Junior Subordinated
Debentures due 2028 authenticated and delivered under this Indenture.
"Liquidation Amount" means the stated amount of $7.60 per Trust
Security.
"Maturity Date" shall have the meaning set forth in Section 2.02.
"Non Book-Entry Preferred Securities" shall have the meaning set forth
in Section 2.04(a).
"Officers' Certificate" means a certificate signed by the Chief
Executive Officer, the President or a Vice President and by the Chief Accounting
Officer or the Controller or an Assistant Controller or the Secretary or an
Assistant Secretary of the Company that is delivered to the Trustee in
accordance with the terms hereof. Each such certificate shall include the
statements provided for in Section 15.07, if and to the extent required by the
provisions thereof.
"Opinion of Counsel" means an opinion in writing of legal counsel, who
may be an employee of or counsel for the Company, that is delivered to the
Trustee in accordance with the terms hereof. Each such opinion shall include the
statements provided for in Section 15.07, if and to the extent required by the
provisions thereof.
"Outstanding," when used with reference to Junior Subordinated
Debentures means, subject to the provisions of Section 10.04, as of any
particular time, all Junior Subordinated Debentures theretofore authenticated
and delivered by the Trustee under this Indenture, except (a) Junior
Subordinated Debentures theretofore canceled by the Trustee or any paying agent,
or delivered to the Trustee or any paying agent for cancellation or that have
previously been canceled; (b) Junior Subordinated Debentures or portions thereof
for the payment or redemption of which moneys or Governmental Obligations in the
necessary amount shall have been deposited in trust with the Trustee or with any
paying agent (other than the Company) or shall have been set aside and
segregated in trust by the Company (if the Company shall act as its own paying
agent); provided, however, that if such Junior Subordinated Debentures or
portions of such Junior Subordinated Debentures are to be redeemed prior to the
maturity thereof, notice of
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such redemption shall have been given as provided in Article III, or provision
satisfactory to the Trustee shall have been made for giving such notice; and (c)
Junior Subordinated Debentures in lieu of or in substitution for which other
Junior Subordinated Debentures shall have been authenticated and delivered
pursuant to the terms of Section 2.08.
"Person" means any individual, corporation, partnership, joint venture,
joint-stock company, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Junior Subordinated Debenture" means every previous Junior
Subordinated Debenture evidencing all or a portion of the same debt as that
evidenced by such particular Junior Subordinated Debenture; and, for the
purposes of this definition, any Junior Subordinated Debenture authenticated and
delivered under Section 2.08 in lieu of a lost, destroyed or stolen Junior
Subordinated Debenture shall be deemed to evidence the same debt as the lost,
destroyed or stolen Junior Subordinated Debenture.
"Preferred Securities" means undivided beneficial interests in the
assets of the Trust which rank pari passu with Common Securities issued by the
Trust; provided, however, that upon the occurrence of an Event of Default, the
rights of holders of Common Securities to payment in respect of Distributions
and payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Preferred Securities.
"Preferred Securities Certificate" has the meaning set forth in the
Trust Agreement.
"Preferred Securities Guarantee" means any guarantee that the Company
may enter into with the Property Trustee or other Persons that operates directly
or indirectly for the benefit of holders of Preferred Securities of the Trust.
"Property Trustee" has the meaning set forth in the Trust Agreement.
"Redemption Price" means the amount equal to 100% of the principal
amount of Junior Subordinated Debentures to be redeemed plus any accrued and
unpaid interest thereon to the date of the redemption of such Junior
Subordinated Debentures.
"Responsible Officer" when used with respect to the Trustee means the
Chairman of the Board of Directors, the President, any Vice President, the
Secretary, the Treasurer, any trust officer, any corporate trust officer or any
other officer or assistant officer of the Trustee customarily performing
functions similar to those performed by the Persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of his or her knowledge of and familiarity with the particular subject.
"Scheduled Maturity Date" means ________________, 2028.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 2.07.
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"Securityholder," "Holder," "Registered Holder," or other similar term,
means the Person or Persons in whose name or names particular Junior
Subordinated Debentures shall be registered in the Securities Register.
"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 Junior Subordinated
Debentures or to other Debt which is pari passu with, or subordinated to, the
Junior Subordinated Debentures; 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 United
States Bankruptcy Code of 1978, as amended, was without recourse to the Company,
(b) any Debt of the Company to any of its Subsidiaries, (c) any Debt to any
employee of the Company, (d) any Debt which by its terms is subordinated to any
trade accounts payable or accrued liabilities arising in the ordinary course of
business to the extent that payments made to the holders of such Debt by the
Holders of the Junior Subordinated Debentures as a result of the subordination
provisions of this Indenture would be greater than they otherwise would have
been as a result of any obligation of such holders to pay amounts over to the
obligees on such trade accounts payable or accrued liabilities arising in the
ordinary course of business as a result of subordination provisions to which
such Debt is subject, (e) the Preferred Securities Guarantee, and (f) any other
debt securities issued pursuant to this Indenture.
"Special Event" means a Tax Event, an Investment Company Event or a
Capital Treatment Event.
"Subsidiary" means, with respect to any Person, (a) any corporation at
least a majority of whose outstanding Voting Stock shall at the time be owned,
directly or indirectly, by such Person, or by one or more of its Subsidiaries,
or by such Person and one or more of its Subsidiaries, (b) any general
partnership, joint venture or similar entity, at least a majority of whose
outstanding partnership or similar interests shall at the time be owned by such
Person, or by one or more of its Subsidiaries, or by such Person and one or more
of its Subsidiaries, and (c) any limited partnership of which such Person or any
of its Subsidiaries is a general partner.
"Tax Event" means the receipt by the Company and the Trust of an
Opinion of Counsel experienced in such matters to the effect that, as a result
of any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance of
the Junior Subordinated Debentures there is more than an insubstantial risk that
(a) interest payable by the Company on the Junior Subordinated Debentures is
not, or within 90 days after 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, (b) the Trust is, or will be within 90 days after the date of such
Opinion of Counsel, subject to
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United States federal income tax with respect to income received or accrued on
the Junior Subordinated Debentures, or (c) the Trust is, or will be within 90
days after the date of such Opinion of Counsel, subject to more than a de
minimis amount of other taxes, duties, assessments or other governmental
charges.
"Trust" means Union Bankshares Capital Trust I, a Delaware statutory
business trust created for the purpose of issuing Trust Securities in connection
with the issuance of Junior Subordinated Debentures under this Indenture.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
as of ________________, 1998, of the Trust.
"Trustee" means American Securities Transfer & Trust, Inc. and, subject
to the provisions of Article IX, shall also include its successors and assigns,
and, if at any time there is more than one Person acting in such capacity
hereunder, "Trustee" shall mean each such Person.
"Trust Indenture Act," means the Trust Indenture Act of 1939 as in
force at the date of execution of this Indenture; 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 Securities" means Common Securities and Preferred Securities of
the Trust.
"Voting Stock," as applied to stock of any Person, means shares,
interests, participations or other equivalents in the equity interest (however
designated) in such Person having ordinary voting power for the election of a
majority of the directors (or the equivalent) of such Person, other than shares,
interests, participations or other equivalents having such power only by reason
of the occurrence of a contingency.
ARTICLE II
DESCRIPTION, TERMS, CONDITIONS, REGISTRATION
AND EXCHANGE OF THE JUNIOR SUBORDINATED DEBENTURES
SECTION 2.01. DESIGNATION AND PRINCIPAL AMOUNT. There is hereby
authorized a series of Securities designated the "____% Junior Subordinated
Debentures due 2028," limited in aggregate principal amount to $_______, which
amount shall be as set forth in any written order of the Company for the
authentication and delivery of Junior Subordinated Debentures pursuant to
Section 8.02 of this Indenture.
SECTION 2.02. MATURITY.
(a) The Maturity Date will be either:
(i) the Scheduled Maturity Date; or
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(ii) if the Company elects to accelerate the
Maturity Date to be a date prior to the Scheduled Maturity Date in
accordance with Section 2.02(b), the Accelerated Maturity Date.
(b) The Company may, at any time before the day which is 90
days before the Scheduled Maturity Date, elect to shorten the Maturity
Date only once to the Accelerated Maturity Date, provided that the
Company has received the prior approval of the Federal Reserve if then
required under applicable capital guidelines or policies of the Federal
Reserve, but in no case shall such Accelerated Maturity Date be a date
before ______, 2003.
(c) If the Company elects to accelerate the Maturity Date in
accordance with Section 2.02(b), the Company shall give notice to the
Registered Holders of the Junior Subordinated Debentures, the Property
Trustee and the Trustee of the acceleration of the Maturity Date and
the Accelerated Maturity Date at least 90 days before the Accelerated
Maturity Date.
SECTION 2.03. FORM AND PAYMENT. Except as provided in Section 2.04,
the Junior Subordinated Debentures shall be issued in fully registered
certificated form without interest coupons. Principal and interest on the Junior
Subordinated Debentures issued in certificated form will be payable, the
transfer of such Junior Subordinated Debentures will be registrable and such
Junior Subordinated Debentures will be exchangeable for Junior Subordinated
Debentures bearing identical terms and provisions at the office or agency of the
Trustee; provided, however, that payment of interest may be made at the option
of the Company by check mailed to the Holder at such address as shall appear in
the Securities Register. Notwithstanding the foregoing, so long as the Holder of
any Junior Subordinated Debentures is the Property Trustee, the payment of the
principal of and interest (including Compounded Interest and Additional Sums, if
any) on such Junior Subordinated Debentures held by the Property Trustee will be
made at such place and to such account as may be designated by the Property
Trustee.
SECTION 2.04. GLOBAL SUBORDINATED DEBENTURE.
(a) In connection with a Dissolution Event:
(i) the Junior Subordinated Debentures in certificated
form may be presented to the Trustee by the Property Trustee in
exchange for a Global Subordinated Debenture in an aggregate
principal amount equal to the aggregate principal amount of all
outstanding Junior Subordinated Debentures (a "Global Subordinated
Debenture"), to be registered in the name of the Depositary, or
its nominee, and delivered by the Trustee to the Depositary for
crediting to the accounts of its participants pursuant to the
instructions of the Administrative Trustees. The Company upon any
such presentation shall execute a Global Subordinated Debenture in
such aggregate principal amount and deliver the same to the
Trustee for authentication and delivery in accordance with this
Indenture. Payments on the Junior Subordinated Debentures issued
as a Global Subordinated Debenture will be made to the Depositary;
and
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(ii) if any Preferred Securities are held in non
book-entry certificated form, the Junior Subordinated Debentures
in certificated form may be presented to the Trustee by the
Property Trustee and any Preferred Securities Certificate which
represents Preferred Securities other than Preferred Securities
held by the Depositary or its nominee ("Non Book-Entry Preferred
Securities") will be deemed to represent beneficial interests in
Junior Subordinated Debentures presented to the Trustee by the
Property Trustee having an aggregate principal amount equal to the
aggregate Liquidation Amount of the Non Book-Entry Preferred
Securities until such Preferred Securities Certificates are
presented to the Securities Registrar for transfer or reissuance
at which time such Preferred Securities Certificates will be
canceled and a Junior Subordinated Debenture, registered in the
name of the holder of the Preferred Securities Certificate or the
transferee of the holder of such Preferred Securities Certificate,
as the case may be, with an aggregate principal amount equal to
the aggregate Liquidation Amount of the Preferred Securities
Certificate canceled, will be executed by the Company and
delivered to the Trustee for authentication and delivery in
accordance with this Indenture. On issue of such Junior
Subordinated Debentures, Junior Subordinated Debentures with an
equivalent aggregate principal amount that were presented by the
Property Trustee to the Trustee will be deemed to have been
canceled.
(b) A Global Subordinated Debenture may be transferred, in
whole but not in part, only to another nominee of the Depositary, or to
a successor Depositary selected or approved by the Company or to a
nominee of such successor Depositary.
(c) If at any time the Depositary notifies the Company that
it is unwilling or unable to continue as Depositary or if at any time
the Depositary for such series shall no longer be registered or in good
standing under the Exchange Act or other applicable statute or
regulation, and a successor Depositary for such series is not appointed
by the Company within 90 days after the Company receives such notice or
becomes aware of such condition, as the case may be, the Company will
execute, and the Trustee, upon written notice from the Company, will
authenticate and deliver the Junior Subordinated Debentures in
definitive registered form without coupons, in authorized
denominations, and in an aggregate principal amount equal to the
principal amount of the Global Subordinated Debenture in exchange for
such Global Subordinated Debenture. In addition, the Company may at any
time determine that the Junior Subordinated Debentures shall no longer
be represented by a Global Subordinated Debenture. In such event the
Company will execute, and the Trustee, upon receipt of an Officers'
Certificate evidencing such determination by the Company, will
authenticate and deliver the Junior Subordinated Debentures in
definitive registered form without coupons, in authorized
denominations, and in an aggregate principal amount equal to the
principal amount of the Global Subordinated Debenture in exchange for
such Global Subordinated Debenture. Upon the exchange of the Global
Subordinated Debenture for such Junior Subordinated Debentures in
definitive registered form without coupons, in authorized
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denominations, the Global Subordinated Debenture shall be canceled by
the Trustee. Such Junior Subordinated Debentures in definitive
registered form issued in exchange for the Global Subordinated
Debenture shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the
Trustee. The Trustee shall deliver such Junior Subordinated Debentures
to the Depositary for delivery to the Persons in whose names such
Junior Subordinated Debentures are so registered.
SECTION 2.05. INTEREST.
(a) Each Junior Subordinated Debenture will bear interest at
the rate of ____% per annum (the "Coupon Rate") from the original date
of issuance until the principal thereof becomes due and payable, and on
any overdue principal and (to the extent that payment of such interest
is enforceable under applicable law) on any overdue installment of
interest at the Coupon Rate, compounded quarterly, payable (subject to
the provisions of Article IV) quarterly in arrears on the fifteenth day
of January, April, July and October in each year (each, an "Interest
Payment Date"), commencing on April 15, 1999, to the Person in whose
name such Junior Subordinated Debenture or any Predecessor Junior
Subordinated Debenture is registered at the close of business on the
regular record date for such interest installment, which, in respect of
(i) Junior Subordinated Debentures of which the Property Trustee is the
Holder and the Preferred Securities are in book-entry-only form or (ii)
a Global Subordinated Debenture, shall be the close of business on the
Business Day next preceding that Interest Payment Date. Notwithstanding
the foregoing sentence, if (A) the Junior Subordinated Debentures are
held by the Property Trustee and the Preferred Securities are no longer
in book-entry only form or (B) the Junior Subordinated Debentures are
not represented by a Global Subordinated Debenture, the record date for
such interest installment shall be the first day of the month in which
such payment is to be made. The amount of each interest payment due
with respect to the Junior Subordinated Debentures will include amounts
accrued through the date the interest payment is due.
(b) The amount of interest payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. Except
as provided in the following sentence, the amount of interest payable
for any period shorter than a full quarterly period for which interest
is computed will be computed on the basis of the actual number of days
elapsed in such a quarterly period. In the event that any date on which
interest is payable on the Junior Subordinated Debentures is not a
Business Day, then payment of 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 succeeding calendar year,
such payment shall be made on the immediately preceding Business Day,
in each case with the same force and effect as if made on such date.
(c) If, at any time while the Property Trustee is the Holder
of any Junior Subordinated Debentures, the Trust or the Property
Trustee is required to pay any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes)
imposed by the United States, or any other taxing authority, then, in
any case, the Company will pay as additional interest ("Additional
Sums") on the Junior Subordinated Debentures held by the Property
Trustee such additional amounts as shall be required so that the net
amounts received and retained by the Trust and the Property Trustee
after
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paying such taxes, duties, assessments or other governmental charges
will be equal to the amounts the Trust and the Property Trustee would
have received had no such taxes, duties, assessments or other
government charges been imposed.
SECTION 2.06. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The
Junior Subordinated Debentures shall be executed on behalf of the Company by its
Chief Executive Officer, its President or any Vice President and attested by its
Secretary or Assistant Secretary. The signature of any of these officers on the
Junior Subordinated Debentures may be manual or facsimile.
Junior Subordinated Debentures 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 Junior Subordinated Debentures or did not hold such offices at the date
of such Junior Subordinated Debentures.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Junior Subordinated Debentures executed
by the Company to the Trustee for authentication, together with a Company order
for the authentication and delivery of such Junior Subordinated Debentures. The
Trustee in accordance with such Company order shall authenticate and deliver
such Junior Subordinated Debentures as provided in this Indenture and not
otherwise.
Upon the initial issuance, each Junior Subordinated Debenture shall be
dated ________________, 1998, and thereafter Junior Subordinated Debentures
issued hereunder shall be dated the date of their authentication.
No Junior Subordinated Debenture shall be entitled to any benefit under
this Indenture or be valid or obligatory for any purpose unless there appears on
such Junior Subordinated Debenture a certificate of authentication substantially
in the form provided for herein executed by the Trustee by manual signature, and
such certificate upon any Junior Subordinated Debenture shall be conclusive
evidence, and the only evidence, that such Junior Subordinated Debenture has
been duly authenticated and delivered hereunder and is entitled to the benefits
of this Indenture.
SECTION 2.07. REGISTRATION AND TRANSFER. The Company shall cause to be
kept at the Corporate Trust Office of the Trustee a register (the register
maintained in such office or any other office or agency pursuant to Section 5.02
being herein sometimes referred to as the "Securities Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of the Junior Subordinated Debentures and transfers
of the Junior Subordinated Debentures. The Trustee is hereby appointed
"Securities Registrar" for the purpose of registering the Junior Subordinated
Debentures and transfers of the Junior Subordinated Debentures as herein
provided.
Upon surrender for registration of transfer of any Junior Subordinated
Debenture at an office or agency of the Company designated pursuant to Section
5.02 for such purpose, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the
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designated transferee or transferees, a new Junior Subordinated Debenture of the
authorized denomination.
All Junior Subordinated Debentures issued upon any registration of
transfer of Junior Subordinated Debentures shall be valid obligations of the
Company, evidencing the same debt and entitled to the same benefits under this
Indenture as the Junior Subordinated Debentures surrendered upon such
registration of transfer.
Every Junior Subordinated Debenture presented or surrendered for
registration of transfer shall be duly endorsed for transfer (if so required by
the Company or the Trustee), or shall be accompanied by a written instrument of
transfer in form satisfactory to the Company and the Securities Registrar duly
executed by the Holder thereof or such Holder's attorney duly authorized in
writing.
No service charge shall be made for any registration of transfer of
Junior Subordinated Debentures, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer of Junior Subordinated Debentures.
The Company shall not be required to issue or register the transfer of
any Junior Subordinated Debenture during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Junior Subordinated Debentures selected for redemption pursuant to Article III
and ending at the close of business on the day of such mailing.
SECTION 2.08. MUTILATED, DESTROYED, LOST AND STOLEN JUNIOR
SUBORDINATED DEBENTURES. If any mutilated Junior Subordinated Debenture is
surrendered to the Trustee, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Junior Subordinated
Debenture of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (a) evidence
to their satisfaction of the destruction, loss or theft of any Junior
Subordinated Debenture and (b) 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 Junior Subordinated Debenture 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 Junior Subordinated Debenture, a new Junior Subordinated Debenture of
like tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Junior
Subordinated Debenture has become or is about to become due and payable, the
Company in its discretion may, instead of issuing a new Junior Subordinated
Debenture, pay such Junior Subordinated Debenture.
Upon the issuance of any new Junior Subordinated Debenture 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.
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Every new Junior Subordinated Debenture issued pursuant to this Section
in lieu of any destroyed, lost or stolen Junior Subordinated Debenture shall
constitute an original additional contractual obligation of the Company, whether
or not the destroyed, lost or stolen Junior Subordinated Debenture shall be at
any time enforceable by anyone, and shall be entitled to all of the benefits of
this Indenture.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Junior Subordinated Debentures.
ARTICLE III
REDEMPTION OF JUNIOR SUBORDINATED DEBENTURES
SECTION 3.01. REDEMPTION. Subject to the Company having received prior
approval of the Federal Reserve, if then required under the applicable capital
guidelines or policies of the Federal Reserve, the Company may redeem the Junior
Subordinated Debentures in accordance with this Article III.
SECTION 3.02. SPECIAL EVENT REDEMPTION. Subject to the Company having
received the prior approval of the Federal Reserve, if then required under the
applicable capital guidelines or policies of the Federal Reserve, if a Special
Event has occurred and is continuing, then, notwithstanding Section 3.03, the
Company shall have the right upon not less than 30 days' nor more than 60 days'
notice to the Holders of the Junior Subordinated Debentures to redeem the Junior
Subordinated Debentures, in whole but not in part, for cash within 90 days
following the occurrence of such Special Event (the "90-Day Period") at the
Redemption Price, provided that if at the time there is available to the Company
the opportunity to eliminate, within the 90-Day Period, the Tax Event by taking
some ministerial action ("Ministerial Action"), such as filing a form or making
an election, or pursuing some other similar reasonable measure which has no
adverse effect on the Company, the Trust or the Holders of the Trust Securities
issued by the Trust, the Company shall pursue such Ministerial Action in lieu of
redemption, and, provided, further, that the Company shall have no right to
redeem the Junior Subordinated Debentures while the Trust is pursuing any
Ministerial Action to eliminate the Tax Event. The Redemption Price shall be
paid prior to 2:00 p.m., Denver, Colorado time, on the date of such redemption
or such earlier time as the Company determines, provided that the Company shall
deposit with the Trustee an amount sufficient to pay the Redemption Price by
12:00 noon, Denver, Colorado time, on the date such Redemption Price is to be
paid.
SECTION 3.03. OPTIONAL REDEMPTION BY COMPANY.
(a) Except as otherwise may be specified in this Indenture,
the Company shall have the right to redeem the Junior Subordinated
Debentures, in whole or in part, from time to time, on or after
________________, 2003, at the Redemption Price. Any redemption
pursuant to this Section 3.03 will be made upon not less than 30 days'
nor more than 60 days' notice to the Holders of the Junior Subordinated
Debentures, at the Redemption Price. If the Junior Subordinated
Debentures are only partially redeemed pursuant to this Section 3.03,
the Junior Subordinated Debentures will be redeemed pro
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rata or by lot or by any other method utilized by the Trustee;
provided, that if at the time of redemption the Junior Subordinated
Debentures are registered as a Global Subordinated Debenture, the
Depositary shall determine, in accordance with its procedures, the
principal amount of such Junior Subordinated Debentures held by each
Holder of Junior Subordinated Debentures to be redeemed. The Redemption
Price shall be paid prior to 2:00 p.m., Denver, Colorado time, on the
date of such redemption or at such earlier time as the Company
determines provided that the Company shall deposit with the Trustee an
amount sufficient to pay the Redemption Price by 12:00 noon, Denver,
Colorado time, on the date such Redemption Price is to be paid.
(b) If a partial redemption of the Junior Subordinated
Debentures would result in the delisting of the Preferred Securities
issued by the Trust from the NASDAQ National Market or any national
securities exchange or other organization on which the Preferred
Securities may then be listed, if any, the Company shall not be
permitted to effect such partial redemption and may only redeem the
Junior Subordinated Debentures in whole or in part to such extent as
would not cause such delisting.
SECTION 3.04. NOTICE OF REDEMPTION.
(a) In case the Company shall desire to exercise such right
to redeem all or, as the case may be, a portion of the Junior
Subordinated Debentures in accordance with the right reserved so to do,
the Company shall, or shall cause the Trustee to, give notice of such
redemption to Holders of the Junior Subordinated Debentures to be
redeemed by mailing, first class postage prepaid, a notice of such
redemption not less than 30 days and not more than 60 days before the
date fixed for redemption to such Holders at their last addresses as
they shall appear upon the Securities Register. Any notice that is
mailed in the manner herein provided shall be conclusively presumed to
have been duly given, whether or not the Registered Holder receives the
notice. In any case, failure duly to give such notice to the Holder of
any Junior Subordinated Debenture designated for redemption in whole or
in part, or any defect in the notice, shall not affect the validity of
the proceedings for the redemption of any other Junior Subordinated
Debentures. In the case of any redemption of Junior Subordinated
Debentures prior to the expiration of any restriction on such
redemption provided elsewhere in this Indenture, the Company shall
furnish the Trustee with an Officers' Certificate evidencing compliance
with any such restriction.
Each such notice of redemption shall specify the date fixed for
redemption and the Redemption Price, and shall state that payment of
the Redemption Price of such Junior Subordinated Debentures to be
redeemed will be made at the office or agency of the Company in Denver,
Colorado, upon presentation and surrender of such Junior Subordinated
Debentures, that interest accrued to the date fixed for redemption will
be paid as specified in said notice, that from and after said date
interest will cease to accrue. If less than all the Junior Subordinated
Debentures are to be redeemed, the notice to the Holders of Junior
Subordinated Debentures to be redeemed in whole or in part shall
specify the particular Junior Subordinated Debentures to be so
redeemed. In case any Junior Subordinated Debenture is to be redeemed
in part only, the notice that relates to such Junior Subordinated
Debenture shall state the portion of the principal amount
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thereof to be redeemed, and shall state that on and after the
redemption date, upon surrender of such Junior Subordinated Debenture,
a new Junior Subordinated Debenture or Junior Subordinated Debentures
in principal amount equal to the unredeemed portion thereof shall be
issued to the Holder.
(b) If less than all the Junior Subordinated Debentures are
to be redeemed, the Company shall give the Trustee at least 45 days'
notice in advance of the date fixed for redemption as to the aggregate
principal amount of Junior Subordinated Debentures to be redeemed, and
thereupon the Trustee shall select, by lot or in such other manner as
it shall deem appropriate and fair in its discretion and that may
provide for the selection of a portion or portions (equal to ten U.S.
dollars ($10) or any integral multiple thereof), the Junior
Subordinated Debentures to be redeemed and shall thereafter promptly
notify the Company in writing of the numbers of the Junior Subordinated
Debentures to be redeemed, in whole or in part.
The Company may, if and whenever it shall so elect, by delivery of
instructions signed on its behalf by its Chief Executive Officer, its President
or any Vice President, instruct the Trustee or any paying agent to call all or
any part of the Junior Subordinated Debentures for redemption and to give notice
of redemption in the manner set forth in this Section, such notice to be in the
name of the Company or in the name of the Trustee or the paying agent, as the
Trustee or such paying agent may deem advisable. In any case in which notice of
redemption is to be given by the Trustee or any such paying agent, the Company
shall deliver or cause to be delivered to, or permit to remain with, the Trustee
or such paying agent, as the case may be, such Securities Register, transfer
books or other records, or suitable copies or extracts therefrom, sufficient to
enable the Trustee or such paying agent to give any notice by mail that may be
required under the provisions of this Section.
SECTION 3.05. PAYMENT UPON REDEMPTION.
(a) If the giving of notice of redemption shall have been
completed as above provided, the Junior Subordinated Debentures or
portions of Junior Subordinated Debentures to be redeemed specified in
such notice shall become due and payable on the date and at the place
stated in such notice at the Redemption Price (which includes interest
accrued to the date fixed for redemption) and interest on such Junior
Subordinated Debentures or portions of Junior Subordinated Debentures
shall cease to accrue on and after the date fixed for redemption,
unless the Company shall default in the payment of such Redemption
Price with respect to any such Junior Subordinated Debentures or
portions thereof. On presentation and surrender of such Junior
Subordinated Debentures on or after the date fixed for redemption at
the place of payment specified in the notice, such Junior Subordinated
Debentures shall be paid and redeemed at the Redemption Price (which
includes the interest accrued thereon to the date fixed for redemption)
(but if the date fixed for redemption is an Interest Payment Date, the
interest installment payable on such date shall be payable to the
Registered Holder at the close of business on the applicable record
date pursuant to Section 2.05(a)).
(b) Upon presentation of any Junior Subordinated Debenture
that is to be redeemed in part only, the Company shall execute and the
Trustee shall authenticate and
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the office or agency where the Junior Subordinated Debenture is
presented shall deliver to the Holder thereof, at the expense of the
Company, a new Junior Subordinated Debenture or Junior Subordinated
Debentures of authorized denominations in principal amount equal to the
unredeemed portion of the Junior Subordinated Debenture so presented.
SECTION 3.06. NO SINKING FUND. The Junior Subordinated Debentures are
not entitled to the benefit of any sinking fund.
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.01. EXTENSION OF INTEREST PAYMENT PERIOD. So long as no
Event of Default has occurred and is continuing, the Company shall have the
right, at any time and from time to time during the term of the Junior
Subordinated Debentures, to defer payments of interest by extending the interest
payment period of such Junior Subordinated Debentures for a period not exceeding
20 consecutive quarters (the "Extended Interest Payment Period"), during which
Extended Interest Payment Period no interest shall be due and payable; provided
that no Extended Interest Payment Period may extend beyond the Maturity Date. To
the extent permitted by applicable law, interest, the payment of which has been
deferred because of the extension of the interest payment period pursuant to
this Section 4.01, will bear interest thereon at the Coupon Rate compounded
quarterly for each quarter of the Extended Interest Payment Period ("Compounded
Interest"). At the end of the Extended Interest Payment Period, the Company
shall pay all interest accrued and unpaid on the Junior Subordinated Debentures,
including any Additional Sums and Compounded Interest (together, "Deferred
Interest") that shall be payable to the Holders of the Junior Subordinated
Debentures in whose names the Junior Subordinated Debentures are registered in
the Securities Register on the record date for the Interest Payment Date
coinciding with the end of the Extended Interest Payment Period. Before the
termination of any Extended Interest Payment Period, the Company may further
extend such period, provided that such period together with all such further
extensions thereof shall not exceed 20 consecutive quarters, or extend beyond
the Maturity Date. Upon the termination of any Extended Interest Payment Period
and upon the payment of all Deferred Interest then due, the Company may commence
a new Extended Interest Payment Period, subject to the foregoing requirements.
No interest shall be due and payable during an Extended Interest Payment Period,
except at the end thereof, but the Company may prepay at any time all or any
portion of the interest accrued during an Extended Interest Payment Period.
SECTION 4.02. NOTICE OF EXTENSION.
(a) If the Property Trustee is the only Registered Holder of
the Junior Subordinated Debentures at the time the Company selects an
Extended Interest Payment Period, the Company shall give written notice
to the Administrative Trustees, the Property Trustee and the Trustee of
its selection of such Extended Interest Payment Period one Business Day
before the earlier of (i) the next succeeding date on which
Distributions are payable, or (ii) the date the Trust is required to
give notice of the record date, or the date such Distributions are
payable, to the Preferred Securities holders or to
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the NASDAQ National Market or other applicable self-regulatory
organization, if any, but in any event at least one Business Day before
such record date.
(b) If the Property Trustee is not the only Holder of the
Junior Subordinated Debentures at the time the Company selects an
Extended Interest Payment Period, the Company shall give the Holders of
the Junior Subordinated Debentures and the Trustee written notice of
its selection of such Extended Interest Payment Period at least one
Business Day before the earlier of (i) the next succeeding Interest
Payment Date, or (ii) the date the Company is required to give notice
of the record or payment date of such interest payment to the Holders
of the Junior Subordinated Debentures or to the NASDAQ National Market
or other applicable self-regulatory organization, if any.
(c) The quarter in which any notice is given pursuant to
paragraph (a) or paragraph (b) of this Section 4.02 shall be counted as
one of the 20 quarters permitted in the maximum Extended Interest
Payment Period permitted under Section 4.01.
SECTION 4.03. LIMITATION OF TRANSACTIONS DURING EXTENSION. If (a) the
Company shall exercise its right to defer payment of interest as provided in
Section 4.01; or (b) there shall have occurred any Event of Default, then the
Company shall be subject to the restrictions on payments set forth under Section
5.06.
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
SECTION 5.01. PAYMENT OF PRINCIPAL AND INTEREST. The Company will duly
and punctually pay or cause to be paid the principal of and interest on the
Junior Subordinated Debentures at the time and place and in the manner provided
herein and established with respect to such Junior Subordinated Debentures.
SECTION 5.02. MAINTENANCE OF AGENCY. So long as any Junior
Subordinated Debentures remain Outstanding, the Company agrees to maintain an
office or agency in Denver, Colorado, or at such other location or locations as
may be designated as provided in this Section 5.02, where (a) Junior
Subordinated Debentures may be presented for payment, (b) Junior Subordinated
Debentures may be presented as hereinabove authorized for registration of
transfer and exchange, and (c) notices and demands to or upon the Company in
respect of the Junior Subordinated Debentures and this Indenture may be given or
served, such designation to continue with respect to such office or agency until
the Company shall, by written notice signed by its Chief Executive Officer, its
President or a Vice President and delivered to the Trustee, designate some other
office or agency for such purposes or any of them. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, 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, notices and demands.
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SECTION 5.03. PAYING AGENTS.
(a) If the Company shall appoint one or more paying agents
for the Junior Subordinated Debentures, other than the Trustee, the
Company will cause each such paying agent to execute and deliver to the
Trustee an instrument in which such agent shall agree with the Trustee,
subject to the provisions of this Section:
(i) that it will hold all sums held by it as such
agent for the payment of the principal of or interest on the
Junior Subordinated Debentures (whether such sums have been paid
to it by the Company or by any other obligor) in trust for the
benefit of the Persons entitled thereto;
(ii) that it will give the Trustee notice of any
failure by the Company (or by any other obligor) to make any
payment of the principal of or interest on the Junior Subordinated
Debentures when the same shall be due and payable;
(iii) that it will, at any time during the continuance
of any failure referred to in the preceding paragraph (a)(ii)
above, upon the written request of the Trustee, forthwith pay
to the Trustee all sums so held in trust by such paying agent;
and
(iv) that it will perform all other duties of paying
agent as set forth in this Indenture.
(b) If the Company shall act as its own paying agent with
respect to the Junior Subordinated Debentures, it will on or before
each due date of the principal of or interest on Junior Subordinated
Debentures, set aside, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay such principal 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 such action, or any failure (by it or any other obligor)
to take such action. Whenever the Company shall have one or more paying
agents for the Junior Subordinated Debentures, it will, prior to each
due date of the principal of or interest on the Junior Subordinated
Debentures, deposit with the paying agent a sum sufficient to pay the
principal or interest so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal or interest, and
(unless such paying agent is the Trustee) the Company will promptly
notify the Trustee of this action or failure so to act.
(c) Notwithstanding anything in this Section to the
contrary, (i) the agreement to hold sums in trust as provided in this
Section is subject to the provisions of Section 13.05, and (ii) 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
direct any paying agent to pay, to the Trustee all sums held in trust
by the Company or such paying agent, such sums to be held by the
Trustee upon the same terms and conditions as those upon which such
sums were held by the Company or such paying agent; and, upon such
payment by any paying agent to the Trustee, such paying agent shall be
released from all further liability with respect to such money.
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SECTION 5.04. APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 9.10, a Trustee, so that there
shall at all times be a Trustee hereunder.
SECTION 5.05. COMPLIANCE WITH CONSOLIDATION PROVISIONS. The Company
will not, while any of the Junior Subordinated Debentures remain Outstanding,
consolidate with, or merge into, or merge into itself, or sell or convey all or
substantially all of its property to any other company unless the provisions of
Article XII hereof are complied with.
SECTION 5.06. RESTRICTIONS ON CERTAIN PAYMENTS. If at any time (a)
there shall have occurred any event of which the Company has actual knowledge
that (i) with the giving of notice or the lapse of time, or both, would
constitute an Event of Default and (ii) in respect to which the Company shall
not have taken reasonable steps to cure, or (b) the Company shall have given
notice of its election of an Extended Interest Payment Period as provided herein
with respect to the Junior Subordinated Debentures and shall not have rescinded
such notice, or such Extended Interest Payment Period, or any extension thereof,
shall be continuing; or (c) while the Junior Subordinated Debentures are held by
the Trust, the Company shall be in default with respect to its payment of any
obligation under the Preferred Securities Guarantee, then the Company will not
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of the Company's
capital stock or (ii) make any payment of principal, interest or premium, if
any, on or repay, repurchase or redeem any debt securities of the Company
(including the Junior Subordinated Debentures) that rank pari passu with or
junior in interest to the Junior Subordinated Debentures 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 or junior in
interest to the Junior Subordinated Debentures (other than (A) dividends or
distributions in common stock, (B) any declaration of a dividend in connection
with the implementation of a shareholders' 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 Preferred Securities 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).
SECTION 5.07. COVENANTS AS TO THE TRUST. For so long as the Trust
Securities of the Trust remain outstanding, the Company will (a) maintain 100%
direct or indirect ownership of the Common Securities of the Trust; provided,
however, that any permitted successor of the Company under this Indenture may
succeed to the Company's ownership of the Common Securities, (b) use its
reasonable efforts to cause the Trust (i) to remain a business trust, except in
connection with a distribution of Junior Subordinated Debentures, the redemption
of all of the Trust Securities of the Trust or certain mergers, consolidations
or amalgamations, each as permitted by the Trust Agreement, and (ii) to
otherwise continue not to be treated as an association taxable as a corporation
or partnership for United States federal income tax purposes and (c) to use its
reasonable efforts to cause each Holder of Trust Securities to be treated as
owning an individual beneficial interest in the Junior Subordinated Debentures.
If the Junior Subordinated Debentures are to be issued as a Global
Subordinated Debenture in connection with the distribution of the Junior
Subordinated Debentures to the holders of the Preferred Securities issued by the
Trust upon a Dissolution Event, the Company
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will use its best efforts to list such Junior Subordinated Debentures on the
NASDAQ National Market or on such other exchange as the Preferred Securities may
then be listed.
ARTICLE VI
SECURITYHOLDERS' LISTS AND REPORTS
BY THE COMPANY AND THE TRUSTEE
SECTION 6.01. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
SECURITYHOLDERS. The Company will furnish or cause to be furnished to the
Trustee (a) on each regular record date (as defined in Section 2.05(a)) a list,
in such form as the Trustee may reasonably require, of the names and addresses
of the Holders as of such regular record date, provided that the Company shall
not be obligated to furnish or cause to furnish such list at any time that the
list shall not differ in any respect from the most recent list furnished to the
Trustee by the Company 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; provided, however, that, in either case, no such
list need be furnished if the Trustee shall be the Securities Registrar.
SECTION 6.02. PRESERVATION OF INFORMATION; COMMUNICATIONS WITH
SECURITYHOLDERS.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses
of the Holders contained in the most recent list furnished to it as
provided in Section 6.01 and as to the names and addresses of Holders
received by the Trustee in its capacity as Securities Registrar (if
acting in such capacity).
(b) The Trustee may destroy any list furnished to it as
provided in Section 6.01 upon receipt of a new list so furnished.
(c) Securityholders may communicate as provided in Section
312(b) of the Trust Indenture Act with other Securityholders with
respect to their rights under this Indenture or under the Junior
Subordinated Debentures.
SECTION 6.03. REPORTS BY THE COMPANY.
(a) The Company covenants and agrees to file with the
Trustee, within 15 days after the Company is required to file the same
with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission may from time to time by rules
and regulations prescribe) that the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the
Exchange Act; or, if the Company is not required to file information,
documents or reports pursuant to either of such sections, then to file
with the Trustee and the Commission, in accordance with the rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports that may
be required pursuant to any applicable rules and regulations of the
Commission.
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(b) The Company covenants and agrees to file with the
Trustee and the Commission, in accordance with the rules and
regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to
compliance by the Company with the conditions and covenants provided
for in this Indenture as may be required from time to time by such
rules and regulations.
(c) The Company covenants and agrees to transmit by mail,
first class postage prepaid, or reputable overnight delivery service
that provides for evidence of receipt, to the Securityholders, as their
names and addresses appear upon the Securities Register, within 30 days
after the filing thereof with the Trustee, such summaries of any
information, documents and reports required to be filed by the Company
pursuant to subsections (a) and (b) of this Section as may be required
by rules and regulations prescribed from time to time by the
Commission.
SECTION 6.04. REPORTS BY THE TRUSTEE.
(a) Beginning January 31, 1999, on or before January 31 in
each year in which any of the Junior Subordinated Debentures are
Outstanding, the Trustee shall transmit by mail, first class postage
prepaid, to the Securityholders, as their names and addresses appear
upon the Securities Register, a brief report dated as of the preceding
December 31, if and to the extent required under Section 313(a) of the
Trust Indenture Act.
(b) The Trustee shall comply with Section 313(b) and 313(c)
of the Trust Indenture Act.
(c) A copy of each such report shall, at the time of such
transmission to Securityholders, be filed by the Trustee with the
Company, and also with the Commission.
ARTICLE VII
REMEDIES OF THE TRUSTEE AND
SECURITYHOLDERS ON EVENT OF DEFAULT
SECTION 7.01. EVENTS OF DEFAULT.
(a) Whenever used herein, "Event of Default" means any one
or more of the following events that has occurred and is continuing:
(i) the Company defaults in the payment of any
installment of interest upon any of the Junior Subordinated
Debentures, as and when the same shall become due and payable,
and continuance of such default for a period of 30 days;
provided, however, that a valid extension of an interest payment
period by the Company in accordance with the terms of this
Indenture shall not constitute a default in the payment of
interest for this purpose;
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(ii) the Company defaults in the payment of the
principal of any of the Junior Subordinated Debentures as and
when the same shall become due and payable whether at maturity,
upon redemption, by declaration or otherwise;
(iii) the Company fails to observe or perform any other
of its covenants or agreements hereunder with respect to the
Junior Subordinated Debentures for a period of 90 days after the
date on which written notice of such failure, requiring the same
to be remedied and stating that such notice is a "Notice of
Default" hereunder, shall have been given to the Company by the
Trustee, by registered or certified mail, or to the Company and
the Trustee by the Holders of at least 25% in principal amount of
the Junior Subordinated Debentures at the time Outstanding;
(iv) the Company pursuant to or within the meaning of
any Bankruptcy Law (A) commences a voluntary case, (B) consents
to the entry of an order for relief against it in an involuntary
case, (C) consents to the appointment of a custodian of it or for
all or substantially all of its property or (D) makes a general
assignment for the benefit of its creditors;
(v) a court of competent jurisdiction enters an order
under any Bankruptcy Law that (A) is for relief against the
Company in an involuntary case, (B) appoints a custodian of the
Company for all or substantially all of its property, or (C)
orders the liquidation of the Company, and the order or decree
remains unstayed and in effect for 90 days; or
(vi) in the event Junior Subordinated Debentures are
issued to the Trust or a trustee of the Trust in connection with
the issuance of Trust Securities by the Trust, the Trust shall
have voluntarily or involuntarily dissolved, wound up its
business or otherwise terminated its existence, except in
connection with (A) the distribution of Junior Subordinated
Debentures to holders of Trust Securities in liquidation of their
interests in the Trust, (B) the redemption of all of the
outstanding Trust Securities of the Trust or (C) certain mergers,
consolidations or amalgamations, each as permitted by the Trust
Agreement.
(b) In each and every such case, unless the principal of all
the Junior Subordinated Debentures shall have already become due and
payable, either the Trustee or the Holders of not less than 25% in
aggregate principal amount of the Junior Subordinated Debentures then
Outstanding hereunder, by notice in writing to the Company (and to the
Trustee if given by such Securityholders) may declare the principal of
all the Junior Subordinated Debentures to be due and payable
immediately, and upon any such declaration the same shall become and
shall be immediately due and payable, notwithstanding anything
contained in this Indenture or in the Junior Subordinated Debentures to
the contrary.
(c) At any time after the principal of the Junior
Subordinated Debentures shall have been so declared due and payable,
and before any judgment or decree for the payment of the moneys due
shall have been obtained or entered as hereinafter provided,
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the Holders of a majority in aggregate principal amount of the Junior
Subordinated Debentures then Outstanding, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if: (i) the Company has paid or deposited with the Trustee
a sum sufficient to pay all matured installments of interest upon all
the Junior Subordinated Debentures and the principal of any and all
Junior Subordinated Debentures that shall have become due otherwise
than by acceleration (with interest upon such principal and, to the
extent that such payment is enforceable under applicable law, upon
overdue installments of interest, at the rate per annum expressed in
the Junior Subordinated Debentures to the date of such payment or
deposit) and the amount payable to the Trustee under Section 9.06, and
(ii) any and all Events of Default under this Indenture, other than the
nonpayment of principal on Junior Subordinated Debentures that shall
not have become due by their terms, shall have been remedied or waived
as provided in Section 7.06. Should the Holders fail to annul such
declaration and waive such default, then the holders of a majority in
aggregate Liquidation Amount of the Preferred Securities shall have
such right.
No such rescission and annulment shall extend to or shall affect
any subsequent default or impair any right consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any
right with respect to Junior Subordinated Debentures under this
Indenture and such proceedings shall have been discontinued or
abandoned because of such rescission or annulment or for any other
reason or shall have been determined adversely to the Trustee, then and
in every such case the Company and the Trustee shall be restored
respectively to their former positions and rights hereunder, and all
rights, remedies and powers of the Company and the Trustee shall
continue as though no such proceedings had been taken.
SECTION 7.02. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
(a) The Company covenants that (i) in case it shall default
in the payment of any installment of interest on any of the Junior
Subordinated Debentures as and when the same shall have become due and
payable, and such default shall have continued for a period of 90
Business Days, or (ii) in case it shall default in the payment of the
principal of any of the Junior Subordinated Debentures when the same
shall have become due and payable, whether upon maturity of the Junior
Subordinated Debentures or upon redemption or upon declaration or
otherwise, then, upon demand of the Trustee, the Company will pay to
the Trustee, for the benefit of the Holders of the Junior Subordinated
Debentures, the whole amount that then shall have become due and
payable on all such Junior Subordinated Debentures for principal or
interest, or both, as the case may be, with interest upon the overdue
principal and (to the extent that payment of such interest is
enforceable under applicable law and, if the Junior Subordinated
Debentures are held by the Trust or a trustee of the Trust, without
duplication of any other amounts paid by the Trust or trustee in
respect thereof) upon overdue installments of interest at the rate per
annum expressed in the Junior Subordinated Debentures; and, in addition
thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, and the amount payable to the Trustee under
Section 9.06.
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(b) If the Company shall fail to pay such amounts forthwith
upon such demand, the Trustee, in its own name and as trustee of an
express trust, shall be entitled and empowered to institute any action
or proceedings at law or in equity for the collection of the sums so
due and unpaid, and may prosecute any such action or proceeding to
judgment or final decree, and may enforce any such judgment or final
decree against the Company or other obligor upon the Junior
Subordinated Debentures and collect the moneys adjudged or decreed to
be payable in the manner provided by law out of the property of the
Company or other obligor upon the Junior Subordinated Debentures,
wherever situated.
(c) In case of any receivership, insolvency, liquidation,
bankruptcy, reorganization, readjustment, arrangement, composition or
judicial proceedings affecting the Company or the creditors or property
of either, the Trustee shall have power to intervene in such
proceedings and take any action therein that may be permitted by the
court and shall (except as may be otherwise provided by law) be
entitled to file such proofs of claim and other papers and documents as
may be necessary or advisable in order to have the claims of the
Trustee and of the Holders of Junior Subordinated Debentures allowed
for the entire amount due and payable by the Company under this
Indenture at the date of institution of such proceedings and for any
additional amount that may become due and payable by the Company after
such date, and to collect and receive any moneys or other property
payable or deliverable on any such claim, and to distribute the same
after the deduction of the amount payable to the Trustee under Section
9.06; and any receiver, assignee or trustee in bankruptcy or
reorganization is hereby authorized by each of the Holders to make such
payments to the Trustee, and, in the event that the Trustee shall
consent to the making of such payments directly to such
Securityholders, to pay to the Trustee any amount due it under Section
9.06.
(d) All rights of action and of asserting claims under this
Indenture may be enforced by the Trustee without the possession of any
of the Junior Subordinated Debentures, or the production thereof at any
trial or other proceeding relative thereto, and any such suit or
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 payment to the Trustee of any amounts due under
Section 9.06, be for the ratable benefit of the Holders of the Junior
Subordinated Debentures.
In case of an Event of Default hereunder, the Trustee may in its
discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either at law or in
equity or in bankruptcy or otherwise, whether for the specific enforcement of
any covenant or agreement contained in this Indenture or in aid of the exercise
of any power granted in this Indenture, or to enforce any other legal or
equitable right vested in the Trustee by this Indenture or by law.
Nothing contained herein shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Securityholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Junior Subordinated Debentures or the rights of any
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Holder thereof or to authorize the Trustee to vote in respect of the claim of
any Securityholder in any such proceeding.
SECTION 7.03. APPLICATION OF MONEYS COLLECTED. Any moneys collected by
the Trustee pursuant to this Article with respect to the Junior Subordinated
Debentures shall be applied in the following order, at the date or dates fixed
by the Trustee and, in case of the distribution of such moneys on account of
principal or interest, upon presentation of the Junior Subordinated Debentures,
and notation thereon the payment, if only partially paid, and upon surrender
thereof if fully paid:
FIRST, to the payment of costs and expenses of collection and of
all amounts payable to the Trustee under Section 9.06;
SECOND, to the payment of all Senior and Subordinated Debt of the
Company if and to the extent required by Article XVI; and
THIRD, to the payment of the amounts then due and unpaid upon
Junior Subordinated Debentures for principal and 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 Junior Subordinated Debentures for
principal and interest, respectively.
SECTION 7.04. LIMITATION ON SUITS. No Holder shall have any right by
virtue of or by availing any provision of this Indenture to institute any suit,
action or proceeding in equity or at law upon or under or with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless (a) such Holder previously shall have given to the
Trustee written notice of an Event of Default and of the continuance thereof;
(b) the Holders of not less than 25% in aggregate principal amount of the Junior
Subordinated Debentures then Outstanding shall have made written request upon
the Trustee to institute such action, suit or proceeding in its own name as
trustee hereunder; (c) such Holder or Holders shall have offered to the Trustee
such reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby; and (d) the Trustee for 60 days
after its receipt of such notice, request and offer of indemnity shall have
failed to institute any such action, suit or proceeding; and (e) during such
60-day period, the Holders of a majority in principal amount of the Junior
Subordinated Debentures do not give the Trustee a direction inconsistent with
the request.
Notwithstanding any other provisions of this Indenture to the contrary,
the right of any Holder to receive payment of the principal of and interest on
the Junior Subordinated Debentures on or after the respective due dates (or in
the case of redemption, on the redemption date), or to institute suit for the
enforcement of any such payment on or after such respective dates or redemption
date, shall not be impaired or affected without the consent of such Holder; and
by accepting a Junior Subordinated Debenture hereunder it is expressly
understood, intended and covenanted by the Holder thereof with every other such
Holder and the Trustee, that no one or more Holders shall have any right in any
manner whatsoever by virtue of or by availing any provision of this Indenture to
affect, disturb or prejudice the rights of any other Holders, or to obtain or
seek to obtain priority over or preference to any such other Holders, or to
enforce any right under this Indenture, except in the manner herein provided and
for the equal, ratable and
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common benefit of all Holders of Junior Subordinated Debentures. For the
protection and enforcement of the provisions of this Section, each and every
Securityholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.
SECTION 7.05. RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT
WAIVER.
(a) Except as otherwise provided in Section 7.02, all powers
and remedies given by this Article to the Trustee or to the
Securityholders shall, to the extent permitted by law, be deemed
cumulative and not exclusive of any other powers and remedies
available to the Trustee or the Holders of the Junior Subordinated
Debentures, by judicial proceedings or otherwise, to enforce the
performance or observance of the covenants and agreements contained in
this Indenture or otherwise established with respect to such Junior
Subordinated Debentures.
(b) No delay or omission of the Trustee or of any Holder of
any of the Junior Subordinated Debentures to exercise any right or
power accruing upon any Event of Default occurring and continuing as
aforesaid shall impair any such right or power, or shall be construed
to be a waiver of any such default or on acquiescence therein; and,
subject to the provisions of Section 7.04, every power and remedy
given by this Article or by law to the Trustee or the Securityholders
may be exercised from time to time, and as often as shall be deemed
expedient, by the Trustee or by the Securityholders.
SECTION 7.06. CONTROL BY SECURITYHOLDERS. The Holders of a majority in
aggregate principal amount of the Junior Subordinated Debentures at the time
Outstanding, determined in accordance with Section 10.04, 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, however, that such direction shall not be in conflict with
any rule of law or with this Indenture. Subject to the provisions of Section
9.01, the Trustee shall have the right to decline to follow any such direction
if the Trustee in good faith shall, by a Responsible Officer or Officers of the
Trustee, determine that the proceeding so directed would involve the Trustee in
personal liability. The Holders of a majority in aggregate principal amount of
the Junior Subordinated Debentures at the time Outstanding affected thereby,
determined in accordance with Section 10.04, may on behalf of the Holders of all
of the Junior Subordinated Debentures waive any past default in the performance
of any of the covenants contained herein and its consequences, except (a) a
default in the payment of the principal of or interest on any of the Junior
Subordinated Debentures as and when the same shall become due by its terms
otherwise than by acceleration (unless such default has been cured and a sum
sufficient to pay all matured installments of interest and principal has been
deposited with the Trustee in accordance with Section 7.01(c)), (b) a default in
the covenants contained in Section 5.06 or (c) in respect of a covenant or
provision hereof which under Article XI cannot be modified or amended without
the consent of the Holder of each Outstanding Junior Subordinated Debenture
affected; provided, however, that if the Junior Subordinated Debentures are held
by the Trust or a Trustee of the Trust, such waiver or modification to such
waiver shall not be effective until the Holders of a majority in Liquidation
Amount of Trust Securities of the Trust shall have consented to such
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<PAGE> 35
waiver or modification to such waiver; provided further, that if the consent of
the Holder of each Outstanding Junior Subordinated Debenture is required, such
waiver shall not be effective until each Holder of the Trust Securities of the
Trust shall have consented to such waiver. Upon any such waiver, the default
covered thereby shall be deemed to be cured for all purposes of this Indenture
and the Company, the Trustee and the Holders of the Junior Subordinated
Debentures shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other default
or impair any right consequent thereon.
SECTION 7.07. UNDERTAKING TO PAY COSTS. All parties to this Indenture
agree, and each Holder of any Junior Subordinated Debentures by such Holder's
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 Securityholder, or group of
Securityholders, holding more than 10% in aggregate principal amount of the
Outstanding Junior Subordinated Debentures, or to any suit instituted by any
Securityholder for the enforcement of the payment of the principal of or
interest on the Junior Subordinated Debentures on or after the due dates
thereof.
ARTICLE VIII
FORM OF JUNIOR SUBORDINATED DEBENTURE AND ORIGINAL ISSUE
SECTION 8.01. FORM OF JUNIOR SUBORDINATED DEBENTURE. The Junior
Subordinated Debenture and the Trustee's Certificate of Authentication to be
endorsed thereon are to be substantially in the forms contained as Exhibit A to
this Indenture, attached hereto and incorporated herein by reference.
SECTION 8.02. ORIGINAL ISSUE OF JUNIOR SUBORDINATED DEBENTURES. Junior
Subordinated Debentures in the aggregate principal amount of $________ may, upon
execution of this Indenture, be executed by the Company and delivered to the
Trustee for authentication, and the Trustee shall thereupon authenticate and
deliver the Junior Subordinated Debentures to or upon the written order of the
Company, signed by its Chairman, its Vice Chairman, its Chief Executive Officer,
its President or any Vice President, without any further action by the Company.
ARTICLE IX
CONCERNING THE TRUSTEE
SECTION 9.01. CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE.
(a) The Trustee, prior to the occurrence of an Event of
Default and after the curing of all Events of Default that may have
occurred, shall undertake to perform with respect to the Junior
Subordinated Debentures such duties and only such duties as are
specifically set forth in this
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Indenture, and no implied covenants shall be read into this Indenture
against the Trustee. In case an Event of Default has occurred (that has
not been cured or waived), 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 man would
exercise or use under the circumstances in the conduct of his own
affairs.
(b) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except
that:
(i) prior to the occurrence of an 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 Trustee
shall be determined solely by the express provisions of
this Indenture, and the Trustee shall not be liable
except for the performance of such duties and
obligations as are specifically set forth in this
Indenture, and no implied covenants or obligations
shall be read into this Indenture against the Trustee;
and
(B) in the absence of bad faith on the part
of the Trustee, the 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 Trustee and conforming
to the requirements of this Indenture; but in the
case of any such certificates or opinions that by any
provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under
a duty to examine the same to determine whether or
not they conform to the requirement of this
Indenture;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer or
Responsible Officers of the Trustee, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent
facts;
(iii) the Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a
majority in principal amount of the Junior Subordinated
Debentures at the time Outstanding 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; and
(iv) none of the provisions contained in this
Indenture shall require the 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 there is reasonable ground for believing that
the repayment of such funds or liability is not reasonably assured
to it under the terms of this Indenture or adequate indemnity
against such risk is not reasonably assured to it.
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SECTION 9.02. CERTAIN RIGHTS OF TRUSTEE. Except as otherwise provided
in Section 9.01:
(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, consent, order, approval,
bond, 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, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by a Board Resolution
or an instrument signed in the name of the Company by the Chief
Executive Officer, the President or any Vice President and by the
Secretary or an Assistant Secretary or the Chief Accounting Officer
thereof (unless other evidence in respect thereof is specifically
prescribed herein);
(c) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken or
suffered or omitted hereunder in good faith and in reliance thereon;
(d) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Securityholders, pursuant to the
provisions of this Indenture, unless such Securityholders shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities that may be incurred therein or
thereby; nothing contained herein shall, however, relieve the Trustee
of the obligation, upon the occurrence of an Event of Default (that has
not been cured or waived) to exercise such of the rights and powers
vested in it by this Indenture, and to use the same degree of care and
skill in their exercise as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs;
(e) the Trustee shall not be liable for any action taken or
omitted to be taken by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture;
(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, consent,
order, approval, bond, security or other papers or documents, unless
requested in writing so to do by the Holders of not less than a
majority in principal amount of the Outstanding Junior Subordinated
Debentures (determined as provided in Section 10.04); provided,
however, that if the payment within a reasonable time to the Trustee of
the costs, expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the
terms of this Indenture, the Trustee may require reasonable indemnity
against such costs, expenses or liabilities as a condition to so
proceeding. The reasonable expense of every such examination shall be
paid by the Company or, if paid by the Trustee, shall be repaid by the
Company upon demand; and
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(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
SECTION 9.03. TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF THE
JUNIOR SUBORDINATED DEBENTURES.
(a) The recitals contained herein and in the Junior
Subordinated Debentures shall be taken as the statements of the Company
and the Trustee assumes no responsibility for the correctness of the
same.
(b) The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Junior Subordinated
Debentures.
(c) The Trustee shall not be accountable for the use or
application by the Company of any of the Junior Subordinated Debentures
or of the proceeds of such Junior Subordinated Debentures, or for the
use or application of any moneys paid over by the Trustee in accordance
with any provision of this Indenture, or for the use or application of
any moneys received by any paying agent other than the Trustee.
SECTION 9.04. MAY HOLD JUNIOR SUBORDINATED DEBENTURES. The Trustee or
any paying agent or Securities Registrar, in its individual or any other
capacity, may become the owner or pledgee of Junior Subordinated Debentures with
the same rights it would have if it were not Trustee, paying agent or Securities
Registrar.
SECTION 9.05. MONEYS HELD IN TRUST. Subject to the provisions of
Section 13.05, all moneys received by the Trustee shall, until used or applied
as herein provided, be held in trust for the purposes for which they were
received, but 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
moneys received by it hereunder except such as it may agree with the Company to
pay thereon.
SECTION 9.06. COMPENSATION AND REIMBURSEMENT.
(a) The Company covenants and agrees to pay to the Trustee,
and the Trustee shall be entitled to, such reasonable compensation
(which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust), as the Company and the
Trustee may from time to time agree in writing, for all services
rendered by it in the execution of the trusts hereby created and in the
exercise and performance of any of the powers and duties hereunder of
the Trustee, and, except as otherwise expressly provided herein, the
Company will pay or reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Trustee in accordance with any of the provisions of this Indenture
(including the reasonable compensation and the expenses and
disbursements of its counsel and of all Persons not regularly in its
employ) except any such expense, disbursement or advance as may arise
from its negligence or bad faith. The Company also covenants to
indemnify the Trustee (and its officers, agents, directors and
employees) for, and to hold it harmless against, any loss, liability or
expense incurred without negligence or bad faith on the part
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<PAGE> 39
of the Trustee and arising out of or in connection with the acceptance
or administration of this trust, including the costs and expenses of
defending itself against any claim of liability in the premises.
(b) The obligations of the Company under this Section to
compensate and indemnify the Trustee and to pay or reimburse the
Trustee for expenses, disbursements and advances shall constitute
additional indebtedness hereunder. Such additional indebtedness shall
be secured by a lien prior to that of the Junior Subordinated
Debentures upon all property and funds held or collected by the Trustee
as such, except funds held in trust for the benefit of the Holders of
the Junior Subordinated Debentures.
SECTION 9.07. RELIANCE ON OFFICERS' CERTIFICATE. Except as otherwise
provided in Section 9.01, whenever in the administration of the provisions of
this Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering or omitting to take any
action hereunder, such matter (unless other evidence in respect thereof be
herein specifically prescribed) may, in the absence of negligence or bad faith
on the part of the Trustee, be deemed to be conclusively proved and established
by an Officers' Certificate delivered to the Trustee and such certificate, in
the absence of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken, suffered or omitted to be taken by
it under the provisions of this Indenture upon the faith thereof.
SECTION 9.08. DISQUALIFICATION; CONFLICTING INTERESTS. If the Trustee
has or shall acquire any "conflicting interest" within the meaning of Section
310(b) of the Trust Indenture Act, the Trustee and the Company shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
SECTION 9.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at
all times be a Trustee with respect to the Junior Subordinated Debentures issued
hereunder which shall at all times be a corporation organized and doing business
under the laws of the United States of America or any state or territory thereof
or of the District of Columbia, or a corporation or other Person permitted to
act as trustee by the Commission, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000, and subject to supervision or examination by federal, state,
territorial, or District of Columbia 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, 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. The Company may not, nor may any Person
directly or indirectly controlling, controlled by, or under common control with
the Company, serve as Trustee. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect specified in Section 9.10.
SECTION 9.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) The Trustee, or any successor hereafter appointed, may
at any time resign by giving written notice thereof to the Company and
by transmitting notice of resignation by mail, first class postage
prepaid, to the Securityholders, as their names and addresses
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appear upon the Securities Register. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor trustee by
written instrument, in duplicate, executed by order of the Board of
Directors, one copy of which instrument shall be delivered to the
resigning Trustee and one copy to the successor trustee. If no
successor trustee shall have been so appointed and have accepted
appointment within 30 days after the mailing of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee, or any
Securityholder who has been a bona fide Holder of Junior Subordinated
Debentures for at least six months may, subject to the provisions of
Section 7.07, on behalf of such Securityholder and all other Holders,
petition any such court for the appointment of a successor trustee.
Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, appoint a successor trustee.
(b) In case at any time any one of the following shall
occur:
(i) the Trustee shall fail to comply with the
provisions of Section 9.08 after written request therefor by
the Company or by any Securityholder who has been a bona fide
Holder of Junior Subordinated Debentures for at least six
months; or
(ii) the Trustee shall cease to be eligible in
accordance with the provisions of Section 9.09 and shall fail
to resign after written request therefor by the Company or by
any such Securityholder; or
(iii) the Trustee shall become incapable of acting, or
shall be adjudged a bankrupt or insolvent, or commence a
voluntary bankruptcy proceeding, or a receiver of the Trustee or
of its property shall be appointed or consented to, 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, the Company may remove the Trustee and
appoint a successor trustee by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to
the successor trustee, or, subject to the provisions of Section 7.07,
unless the Trustee's duty to resign is stayed as provided herein, any
Securityholder who has been a bona fide Holder of Junior Subordinated
Debentures for at least six months may, on behalf of that Holder and
all other Holders, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor trustee. Such
court may thereupon after such notice, if any, as it may deem proper
and prescribe, remove the Trustee and appoint a successor trustee.
(c) The Holders of a majority in aggregate principal amount
of the Junior Subordinated Debentures at the time Outstanding may at
any time remove the Trustee by so notifying the Trustee and the Company
and may appoint a successor Trustee with the consent of the Company.
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(d) Any resignation or removal of the Trustee and
appointment of a successor trustee pursuant to any of the provisions of
this Section shall become effective upon acceptance of appointment by
the successor trustee as provided in Section 9.11.
SECTION 9.11. 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) Upon request of any such successor trustee, the Company
shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor trustee all such rights,
powers and trusts referred to in paragraph (a) of this Section.
(c) No successor trustee shall accept its appointment unless
at the time of such acceptance such successor trustee shall be
qualified and eligible under this Article.
(d) Upon acceptance of appointment by a successor trustee as
provided in this Section, the Company shall transmit notice of the
succession of such trustee hereunder by mail, first class postage
prepaid, to the Securityholders, as their names and addresses appear
upon the Securities Register. If the Company fails to transmit such
notice within ten days after acceptance of appointment by the successor
trustee, the successor trustee shall cause such notice to be
transmitted at the expense of the Company.
SECTION 9.12. 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 the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder, provided that such corporation shall be
qualified and eligible under the provisions of this Article IX, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding. In case any
Junior Subordinated Debentures 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 Junior Subordinated Debentures so authenticated with the same effect
as if such successor Trustee had itself authenticated such Junior Subordinated
Debentures.
SECTION 9.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with Section 311(a) of the Trust Indenture Act,
excluding any creditor relationship
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described in Section 311(b) of the Trust Indenture Act. A Trustee who has
resigned or been removed shall be subject to Section 311(a) of the Trust
Indenture Act to the extent included therein.
SECTION 9.14. APPOINTMENT OF AUTHENTICATING AGENT. At any time when
any of the Junior Subordinated Debentures remain Outstanding, the Trustee may
appoint an Authenticating Agent or Agents which shall be authorized to act on
behalf of the Trustee to authenticate Junior Subordinated Debentures issued upon
original issuance, exchange, registration of transfer or partial redemption
thereof or pursuant to Section 2.08, and Junior Subordinated Debentures 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 Junior Subordinated Debentures 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
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any state thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $10,000,000 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 such supervision or examining authority, for
the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such notice of
resignation or upon such termination, or in case at any time such Authenticating
Agent shall cease to be eligible in accordance with the provisions of this
Section, the Trustee may appoint a successor Authenticating Agent which shall be
acceptable to the Company and shall mail written notice of such appointment by
first class mail, postage prepaid, to all Securityholders as their names and
addresses appear in the Securities Register. Any successor Authenticating Agent
upon acceptance of its appointment hereunder shall become vested with all the
rights, powers and duties of its predecessor hereunder, with the like effect as
if originally named as an Authenticating Agent herein. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
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The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 9.06.
If an appointment is made pursuant to this Section, the Junior
Subordinated Debentures may have endorsed thereon, in lieu of the form of
certificate of authentication set forth in Section 8.01, a certificate of
authentication in the following form:
"This is one of the Junior Subordinated Debentures described in the
within mentioned Indenture."
-------------------------------------------,
as Trustee
By
-----------------------------------------,
as Authenticating Agent
By
-----------------------------------------,
Authorized Signature
ARTICLE X
CONCERNING THE SECURITYHOLDERS
SECTION 10.01. EVIDENCE OF ACTION BY SECURITYHOLDERS. Whenever in this
Indenture it is provided that the Holders of a majority or specified percentage
in aggregate principal amount of the Junior Subordinated Debentures may take any
action (including the making of any demand or request, the giving of any notice,
consent or waiver or the taking of any other action), the fact that at the time
of taking any such action the Holders of such majority or specified percentage
have joined therein may be evidenced by any instrument or any number of
instruments of similar tenor executed by such Holders in Person or by agent or
proxy appointed in writing.
If the Company shall solicit from the Securityholders any request,
demand, authorization, direction, notice, consent, waiver or other action, the
Company may, at its option, as evidenced by an Officers' Certificate, fix in
advance a record date for the determination of Securityholders entitled to give
such request, demand, authorization, direction, notice, consent, waiver or other
action, but the Company shall have no obligation to do so. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other action may be given before or after the record date, but only
the Securityholders of record at the close of business on the record date shall
be deemed to be Securityholders for the purposes of determining whether
Securityholders of the requisite proportion of Outstanding Junior Subordinated
Debentures have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other action, and for that
purpose the Outstanding Junior Subordinated Debentures shall be computed as of
the record date; provided, however, that no such authorization, agreement or
consent by such Securityholders on the record date shall be deemed
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effective unless it shall become effective pursuant to the provisions of this
Indenture not later than six months after the record date.
SECTION 10.02. PROOF OF EXECUTION BY SECURITYHOLDERS. Subject to the
provisions of Section 6.01, proof of the execution of any instrument by a
Securityholder (such proof will not require notarization) or his agent or proxy
and proof of the holding by any Person of any of the Junior Subordinated
Debentures shall be sufficient if made in the following manner:
(a) The fact and date of the execution by any such Person
of any instrument may be proved in any reasonable manner acceptable to
the Trustee.
(b) The ownership of Junior Subordinated Debentures shall
be proved by the Securities Register or by a certificate of the
Securities Registrar thereof.
(c) The Trustee may require such additional proof of any
matter referred to in this Section as it shall deem necessary.
SECTION 10.03. WHO MAY BE DEEMED OWNERS. Prior to the due presentment
for registration of transfer of any Junior Subordinated Debenture, the Company,
the Trustee, any paying agent and any Securities Registrar may deem and treat
the Person in whose name such Junior Subordinated Debenture shall be registered
upon the books of the Company as the absolute owner of such Junior Subordinated
Debenture (whether or not such Junior Subordinated Debenture shall be overdue
and notwithstanding any notice of ownership or writing thereon made by anyone
other than the Securities Registrar) for the purpose of receiving payment of or
on account of the principal of and (subject to Section 2.03) interest on such
Junior Subordinated Debenture and for all other purposes; and neither the
Company nor the Trustee nor any paying agent nor any Securities Registrar shall
be affected by any notice to the contrary.
SECTION 10.04. CERTAIN JUNIOR SUBORDINATED DEBENTURES OWNED BY COMPANY
DISREGARDED. In determining whether the Holders of the requisite aggregate
principal amount of Junior Subordinated Debentures have concurred in any
direction, consent or waiver under this Indenture, the Junior Subordinated
Debentures that are owned by the Company or any other obligor on the Junior
Subordinated Debentures or by any Person directly or indirectly controlling or
controlled by or under common control with the Company or any other obligor on
the Junior Subordinated Debentures shall be disregarded and deemed not to be
Outstanding for the purpose of any such determination, except that for the
purpose of determining whether the Trustee shall be protected in relying on any
such direction, consent or waiver, only Junior Subordinated Debentures that the
Trustee actually knows are so owned shall be so disregarded. The Junior
Subordinated Debentures so owned that have been pledged in good faith may be
regarded as Outstanding for the purposes of this Section, if the pledgee shall
establish to the satisfaction of the Trustee the pledgee's right with respect to
such Junior Subordinated Debentures and that the pledgee is not a Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company or any such other obligor. In case of a dispute
as to such right, any decision by the Trustee taken upon the advice of counsel
shall be full protection to the Trustee.
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SECTION 10.05. ACTIONS BINDING ON FUTURE SECURITYHOLDERS. At any time
prior to (but not after) the evidencing to the Trustee, as provided in Section
10.01, of the taking of any action by the Holders of the majority or percentage
in aggregate principal amount of the Junior Subordinated Debentures specified in
this Indenture in connection with such action, any Holder who is shown by the
evidence to have consented to such action may, by filing written notice with the
Trustee, and upon proof of holding as provided in Section 10.02, revoke such
action so far as concerns such Holder's Junior Subordinated Debentures. Except
as aforesaid any such action taken by the Holder shall be conclusive and binding
upon such Holder and upon all future Holders and owners of such Holder's Junior
Subordinated Debentures, and of any Junior Subordinated Debentures issued in
exchange therefor, on registration of transfer thereof or in place thereof,
irrespective of whether or not any notation in regard thereto is made upon such
Junior Subordinated Debentures. Any action taken by the Holders of the majority
or percentage in aggregate principal amount of the Junior Subordinated
Debentures specified in this Indenture in connection with such action shall be
conclusively binding upon the Company, the Trustee and the Holders of all the
Junior Subordinated Debentures.
ARTICLE XI
SUPPLEMENTAL INDENTURES
SECTION 11.01. SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF
SECURITYHOLDERS. In addition to any supplemental indenture otherwise authorized
by this Indenture, the Company and the Trustee may from time to time and at any
time enter into an indenture or indentures supplemental hereto (which shall
conform to the provisions of the Trust Indenture Act as then in effect), without
the consent of the Securityholders, for one or more of the following purposes:
(a) to cure any ambiguity, defect, or inconsistency herein,
or in the Junior Subordinated Debentures, provided that any such action
does not materially adversely affect the interests of the Holders or
the holders of the Preferred Securities so long as they remain
outstanding;
(b) to comply with Article XII;
(c) to provide for uncertificated Junior Subordinated
Debentures in addition to or in place of certificated Junior
Subordinated Debentures;
(d) to add to the covenants of the Company for the benefit
of the Holders or to surrender any right or power herein conferred upon
the Company;
(e) to add to, delete from, or revise the conditions,
limitations, and restrictions on the authorized amount, terms, or
purposes of issue, authentication, and delivery of Junior Subordinated
Debentures, as herein set forth;
(f) to make any change that does not adversely affect the
rights of any Securityholder in any material respect; or
(g) to establish the form of any certifications required to
be furnished pursuant to the terms of this Indenture or to add to the
rights of the Holders.
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The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into any such supplemental indenture
that affects the Trustee's own rights, duties or immunities under this Indenture
or otherwise.
Any supplemental indenture authorized by the provisions of this Section
may be executed by the Company and the Trustee without the consent of the
Holders of any of the Junior Subordinated Debentures at the time Outstanding,
notwithstanding any of the provisions of Section 11.02.
SECTION 11.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF
SECURITYHOLDERS. With the consent (evidenced as provided in Section 10.01) of
the Holders of not less than a majority in aggregate principal amount of the
Junior Subordinated Debentures at the time Outstanding, the Company, when
authorized by Board Resolutions, and the Trustee may from time to time and at
any time enter into an indenture or indentures supplemental hereto (which shall
conform to the provisions of the Trust Indenture Act as then in effect) for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or of any supplemental indenture or of
modifying in any manner not covered by Section 11.01 the rights of the Holders
of the Junior Subordinated Debentures under this Indenture; provided, however,
that no such supplemental indenture shall without the consent of the Holders of
each Junior Subordinated Debenture then Outstanding, (a) change (except as
expressly provided herein pursuant to Section 2.02) the stated maturity of the
Junior Subordinated Debentures or reduce the principal amount thereof; or reduce
the rate or extend (except as expressly provided herein pursuant to Section
4.01) the time of payment of interest thereon; or (b) reduce the percentage of
principal amount of Junior Subordinated Debentures, the Holders of which are
required to consent to any such supplemental indenture; provided, further, that
if the Junior Subordinated Debentures are held by the Trust or a trustee of the
Trust, such supplemental indenture shall not be effective until the holders of a
majority in aggregate Liquidation Amount of Preferred Securities shall have
consented to such supplemental indenture; provided further, that if the consent
of the Holder of each Outstanding Junior Subordinated Debenture is required,
such supplemental indenture shall not be effective until each Holder of the
Trust Securities shall have consented to such supplemental indenture.
It shall not be necessary for the consent of the Securityholders to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such consent shall approve the substance thereof.
SECTION 11.03. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution
of any supplemental indenture pursuant to the provisions of this Article or of
Section 12.01, this Indenture shall be and be deemed to be modified and amended
in accordance therewith.
SECTION 11.04. JUNIOR SUBORDINATED DEBENTURES AFFECTED BY SUPPLEMENTAL
INDENTURES. Junior Subordinated Debentures, affected by a supplemental
indenture, authenticated and delivered after the execution of such supplemental
indenture pursuant to the provisions of this Article or of Section 12.01, may
bear a notation in form approved by the Company, as to any matter provided for
in such supplemental indenture. If the Company shall so
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determine, new Junior Subordinated Debentures so modified as to conform, in the
opinion of the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may be prepared by the Company,
authenticated by the Trustee and delivered in exchange for the Junior
Subordinated Debentures then Outstanding.
SECTION 11.05. EXECUTION OF SUPPLEMENTAL INDENTURES. Upon the request
of the Company, accompanied by Board Resolutions authorizing the execution of
any such supplemental indenture, and upon the filing with the Trustee of
evidence of the consent of Securityholders required to consent thereto as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion but shall not be obligated to enter into
such supplemental indenture. The Trustee, subject to the provisions of Section
9.01, may receive an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant to this Article is authorized or
permitted by, and conforms to, the terms of this Article and that it is proper
for the Trustee under the provisions of this Article to join in the execution
thereof.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Trustee
shall transmit by mail, first class postage prepaid, a notice, setting forth in
general terms the substance of such supplemental indenture, to the
Securityholders as their names and addresses appear upon the Securities
Register. Any failure of the Trustee to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.
ARTICLE XII
SUCCESSOR CORPORATION
SECTION 12.01. COMPANY MAY CONSOLIDATE, ETC. The Company shall not
consolidate with or merge into any other Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, and no Person
shall consolidate with or merge into the Company or convey, transfer or lease
its properties and assets substantially as an entirety to the Company, unless
(a) in case the Company consolidates with or merges into another Person or
conveys or transfers its properties and assets substantially as an entirety to
any Person, the successor Person is organized under the laws of the United
States or any state or the District of Columbia, and such successor Person
expressly assumes the Company's obligations on the Junior Subordinated
Debentures issued under this Indenture; (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 occurred and be
continuing; and (c) such successor Person expressly assumes the due and punctual
performance and observance of all the covenants and conditions of this Indenture
to be kept and performed by the Company by executing and delivering a
supplemental indenture in form and substance satisfactory to the Trustee.
SECTION 12.02. SUCCESSOR SUBSTITUTED.
(a) In case of any such consolidation, merger, sale,
conveyance, transfer or other disposition and upon the assumption by
the successor Person by supplemental
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indenture, executed and delivered to the Trustee and satisfactory in
form to the Trustee, of the due and punctual payment of the principal
of and interest on all of the Junior Subordinated Debentures
Outstanding and the due and punctual performance of all of the
covenants and conditions of this Indenture to be performed by the
Company, such successor Person shall succeed to and be substituted for
the Company, with the same effect as if it had been named as the
Company herein, and thereupon the predecessor corporation shall be
relieved of all obligations and covenants under this Indenture and the
Junior Subordinated Debentures.
(b) In case of any such consolidation, merger, sale,
conveyance, transfer or other disposition such changes in phraseology
and form (but not in substance) may be made in the Junior Subordinated
Debentures thereafter to be issued as may be appropriate.
SECTION 12.03. EVIDENCE OF CONSOLIDATION, ETC., TO TRUSTEE. The
Trustee, subject to the provisions of Section 9.01, may receive an Opinion of
Counsel as conclusive evidence that any such consolidation, merger, sale,
conveyance, transfer or other disposition, and any such assumption, comply with
the provisions of this Article.
ARTICLE XIII
SATISFACTION AND DISCHARGE
SECTION 13.01. SATISFACTION AND DISCHARGE OF INDENTURE. If at any time:
(a) the Company shall have delivered to the Trustee for cancellation all Junior
Subordinated Debentures theretofore authenticated (other than any Junior
Subordinated Debentures that shall have been destroyed, lost or stolen and that
shall have been replaced or paid as provided in Section 2.08) and Junior
Subordinated Debentures for whose payment money or Governmental Obligations have
theretofore been deposited in trust or segregated and held in trust by the
Company (and thereupon repaid to the Company or discharged from such trust, as
provided in Section 13.05); or (b) all such Junior Subordinated Debentures not
theretofore delivered to the Trustee for cancellation shall have become due and
payable, or are by their terms to become due and payable within one year or are
to be called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption, and the Company shall
deposit or cause to be deposited with the Trustee as trust funds the entire
amount in moneys or Governmental Obligations sufficient or a combination thereof
sufficient, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay at maturity or upon redemption all Junior Subordinated
Debentures not theretofore delivered to the Trustee for cancellation, including
principal and interest due or to become due to such date of maturity or date
fixed for redemption, as the case may be, and if the Company shall also pay or
cause to be paid all other sums payable hereunder by the Company; then this
Indenture shall thereupon cease to be of further effect except for the
provisions of Sections 2.02, 2.03, 2.04, 2.05, 4.01, 4.02, 4.03 and 9.10, that
shall survive until the date of maturity or redemption date, as the case may be,
and Sections 9.06 and 13.05, that shall survive to such date and thereafter, and
the Trustee, on demand of the Company and at the cost and expense of the
Company, shall execute proper instruments acknowledging satisfaction of and
discharging this Indenture.
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SECTION 13.02. DISCHARGE OF OBLIGATIONS. If at any time all such Junior
Subordinated Debentures not theretofore delivered to the Trustee for
cancellation or that have not become due and payable as described in Section
13.01 shall have been paid by the Company by depositing irrevocably with the
Trustee, as trust funds, moneys or an amount of Governmental Obligations
sufficient to pay at maturity or upon redemption all such Junior Subordinated
Debentures not theretofore delivered to the Trustee for cancellation, including
principal and interest due or to become due to such date of maturity or date
fixed for redemption, as the case may be, and if the Company shall also pay or
cause to be paid all other sums payable hereunder by the Company, then after the
date such moneys or Governmental Obligations, as the case may be, are deposited
with the Trustee the obligations of the Company under this Indenture shall cease
to be of further effect except for the provisions of Sections 2.02, 2.03, 2.04,
2.05, 4.01, 4.02, 4.03, 9.06, 9.10 and 13.05 hereof that shall survive until
such Junior Subordinated Debentures shall mature and be paid. Thereafter,
Sections 9.06 and 13.05 shall survive.
SECTION 13.03. DEPOSITED MONEYS TO BE HELD IN TRUST. All moneys or
Governmental Obligations deposited with the Trustee pursuant to Sections 13.01
or 13.02 shall be held in trust and shall be available for payment as due,
either directly or through any paying agent (including the Company acting as its
own paying agent), to the Holders of the Junior Subordinated Debentures for the
payment or redemption of which such moneys or Governmental Obligations have been
deposited with the Trustee.
SECTION 13.04. PAYMENT OF MONEYS HELD BY PAYING AGENTS. In connection
with the satisfaction and discharge of this Indenture all moneys or Governmental
Obligations then held by any paying agent under the provisions of this Indenture
shall, upon demand of the Company, be paid to the Trustee and thereupon such
paying agent shall be released from all further liability with respect to such
moneys or Governmental Obligations.
SECTION 13.05. REPAYMENT TO COMPANY. Any moneys or Governmental
Obligations deposited with any paying agent or the Trustee, or then held by the
Company in trust for payment of principal of or interest on the Junior
Subordinated Debentures that are not applied but remain unclaimed by the Holders
of such Junior Subordinated Debentures for at least two years after the date
upon which the principal of or interest on such Junior Subordinated Debentures
shall have respectively become due and payable, shall be repaid to the Company
on ________________ of each year or (if then held by the Company) shall be
discharged from such trust; and thereupon the paying agent and the Trustee shall
be released from all further liability with respect to such moneys or
Governmental Obligations, and the Holder of any of the Junior Subordinated
Debentures entitled to receive such payment shall thereafter, as an unsecured
general creditor, look only to the Company for the payment thereof.
ARTICLE XIV
IMMUNITY OF INCORPORATORS,
STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 14.01. NO RECOURSE. No recourse under or upon any obligation,
covenant or agreement of this Indenture, or of any Junior Subordinated
Debenture, or for any claim based thereon or otherwise in respect thereof, shall
be had against any incorporator, stockholder, officer
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or director as such, past, present or future, of the Company or of any
predecessor or successor corporation, either directly or through the Company or
any such predecessor or successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly understood that this Indenture and the
obligations issued hereunder are solely corporate obligations, and that no such
personal liability whatever shall attach to, or is or shall be incurred by, the
incorporators, stockholders, officers or directors as such, of the Company or of
any predecessor or successor corporation, or any of them, because of the
creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Junior Subordinated Debentures or implied therefrom; and that any and all
such personal liability of every name and nature, either at common law or in
equity or by constitution or statute, of, and any and all such rights and claims
against, every such incorporator, stockholder, officer or director as such,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or in any of the Junior Subordinated Debentures or implied therefrom, are hereby
expressly waived and released as a condition of, and as a consideration for, the
execution of this Indenture and the issuance of such Junior Subordinated
Debentures.
ARTICLE XV
MISCELLANEOUS PROVISIONS
SECTION 15.01. EFFECT ON SUCCESSORS AND ASSIGNS. All the covenants,
stipulations, promises and agreements in this Indenture contained by or on
behalf of the Company or the Trustee shall bind their respective successors and
assigns, whether so expressed or not.
SECTION 15.02. ACTIONS BY SUCCESSOR. Any act or proceeding by any
provision of this Indenture authorized or required to be done or performed by
any board, committee or officer of the Company shall and may be done and
performed with like force and effect by the corresponding board, committee or
officer of any corporation that shall at the time be the lawful sole successor
of the Company.
SECTION 15.03. SURRENDER OF COMPANY POWERS. The Company by instrument
in writing executed by authority of two-thirds of its Board of Directors and
delivered to the Trustee may surrender any of the powers reserved to the
Company, and thereupon such power so surrendered shall terminate both as to the
Company and as to any successor corporation.
SECTION 15.04. NOTICES. Except as otherwise expressly provided herein
any notice or demand that by any provision of this Indenture is required or
permitted to be given or served by the Trustee or by the Holders of Junior
Subordinated Debentures to or on the Company may be given or served by being
deposited first class postage prepaid in a post-office letterbox addressed
(until another address is filed in writing by the Company with the Trustee), as
follows: c/o Union Bankshares, Ltd., 1825 Lawrence Street, Suite 444, Denver,
Colorado 80202, Attention: Chief Executive Officer. Any notice, election,
request or demand by the Company or any Securityholder to or upon the Trustee
shall be deemed to have been sufficiently given or made, for all purposes, if
given or made in writing at the Corporate Trust Office of the Trustee.
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SECTION 15.05. GOVERNING LAW. This Indenture and each Junior
Subordinated Debenture shall be deemed to be a contract made under the internal
laws of the State of Colorado and for all purposes shall be construed in
accordance with the laws of said state, provided that the immunities and the
standard of care of the Trustee shall be governed by Colorado law.
SECTION 15.06. TREATMENT OF JUNIOR SUBORDINATED DEBENTURES AS DEBT. It
is intended that the Junior Subordinated Debentures will be treated as
indebtedness and not as equity for federal income tax purposes. The provisions
of this Indenture shall be interpreted to further this intention.
SECTION 15.07. COMPLIANCE CERTIFICATES AND OPINIONS.
(a) Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this
Indenture, the Company shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent provided for in this
Indenture relating to the proposed action have been complied with and
an Opinion of Counsel stating that in the opinion of such counsel all
such conditions precedent have been complied with, except that in the
case of any such application or demand as to which the furnishing of
such documents is specifically required by any provision of this
Indenture relating to such particular application or demand, no
additional certificate or opinion need be furnished.
(b) Every certificate or opinion delivered to the Trustee
with respect to compliance with a condition or covenant in this
Indenture shall include (i) a statement that the Person making such
certificate or opinion has read such covenant or condition; (ii) 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; (iii) a statement that, in the
opinion of such Person, such Person has made such examination or
investigation as is necessary to enable such Person to express an
informed opinion as to whether or not such covenant or condition has
been complied with; and (iv) a statement as to whether or not, in the
opinion of such Person, such condition or covenant has been complied
with.
SECTION 15.08. PAYMENTS ON BUSINESS DAYS. In any case where the date of
maturity of interest or principal of the Junior Subordinated Debentures or the
date of redemption of the Junior Subordinated Debentures shall not be a Business
Day, then payment of interest or principal will be made on the next succeeding
Business Day (without any additional interest or other payment in respect of any
such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on the date such
payment was originally payable.
SECTION 15.09. CONFLICT WITH TRUST INDENTURE ACT. If and to the extent
that any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act,
such imposed duties shall control.
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SECTION 15.10. COUNTERPARTS. This Indenture may be executed in any
number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
SECTION 15.11. SEPARABILITY. In case any one or more of the provisions
contained in this Indenture or in the Junior Subordinated Debentures shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provisions
of this Indenture or of the Junior Subordinated Debentures, but this Indenture
and the Junior Subordinated Debentures shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.
SECTION 15.12. ASSIGNMENT. The Company will have the right at all times
to assign any of its respective rights or obligations under this Indenture to a
direct or indirect wholly owned Subsidiary of the Company, provided that, in the
event of any such assignment, the Company will remain liable for all such
obligations. Subject to the foregoing, this Indenture is binding upon and inures
to the benefit of the parties thereto and their respective successors and
assigns. This Indenture may not otherwise be assigned by the parties hereto.
SECTION 15.13. ACKNOWLEDGMENT OF RIGHTS. The Company acknowledges that,
with respect to any Junior Subordinated Debentures held by the Trust or a
trustee of the Trust, if the Property Trustee of the Trust fails to enforce its
rights under this Indenture as the Holder of the Junior Subordinated Debentures
held as the assets of the Trust, any holder of Preferred Securities may
institute legal proceedings directly against the Company to enforce such
Property Trustee's rights under this Indenture without first instituting any
legal proceedings against such Property Trustee or any other Person or entity.
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest or principal on the Junior Subordinated Debentures on the date such
interest or principal is otherwise payable (or in the case of redemption, on the
redemption date), the Company acknowledges that a holder of Preferred Securities
may directly institute a proceeding for enforcement of payment to such holder of
the principal of or interest on the Junior Subordinated Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Preferred
Securities of such holder on or after the respective due date specified in the
Junior Subordinated Debentures. This Section 15.13 may not be amended without
the prior written consent of the holders of all of the Preferred Securities.
ARTICLE XVI
SUBORDINATION OF JUNIOR SUBORDINATED DEBENTURES
SECTION 16.01. AGREEMENT TO SUBORDINATE. The Company covenants and
agrees, and each Holder of Junior Subordinated Debentures issued hereunder by
such Holder's acceptance thereof likewise covenants and agrees, that all Junior
Subordinated Debentures shall be issued subject to the provisions of this
Article XVI; and each Holder, whether upon original issue or upon transfer or
assignment thereof, accepts and agrees to be bound by such provisions.
The payment by the Company of the principal of and interest on all
Junior Subordinated Debentures issued hereunder shall, to the extent and in the
manner hereinafter set forth, be
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subordinated and junior in right of payment to the prior payment in full of all
Senior and Subordinated Debt, whether outstanding at the date of this Indenture
or thereafter incurred.
No provision of this Article XVI shall prevent the occurrence of any
default or Event of Default hereunder.
SECTION 16.02. DEFAULT ON SENIOR AND SUBORDINATED DEBT. In the event
and during the continuation of any default by the Company in the payment of
principal, premium, interest or any other payment due on any Senior and
Subordinated Debt of the Company or in the event that the maturity of any Senior
and Subordinated Debt of the Company has been accelerated because of a default,
then, in either case, no payment shall be made by the Company with respect to
the principal of or interest on the Junior Subordinated Debentures.
In the event that, notwithstanding the foregoing, any payment shall be
received by the Trustee when such payment is prohibited by the preceding
paragraph of this Section 16.02, such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Senior and
Subordinated Debt or their respective representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Senior and
Subordinated Debt may have been issued, as their respective interests may
appear, but only to the extent that the holders of the Senior and Subordinated
Debt (or their representative or representatives or a trustee) notify the
Trustee in writing within 90 days of such payment of the amounts then due and
owing on the Senior and Subordinated Debt and only the amounts specified in such
notice to the Trustee shall be paid to the holders of Senior and Subordinated
Debt.
SECTION 16.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any payment
by the Company or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon any
dissolution or winding-up or liquidation or reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all amounts due upon all Senior and Subordinated Debt of the
Company shall first be paid in full, or payment thereof provided for in money in
accordance with its terms, before any payment is made by the Company on account
of the principal or interest on the Junior Subordinated Debentures; and upon any
such dissolution or winding-up or liquidation or reorganization, any payment by
the Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the Holders or the Trustee
would be entitled to receive from the Company, except for the provisions of this
Article XVI, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, or by the Holders or by the Trustee under the Indenture if
received by them or it, directly to the holders of Senior and Subordinated Debt
of the Company (pro rata to such holders on the basis of the respective amounts
of Senior and Subordinated Debt held by such holders, as calculated by the
Company) or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing such
Senior and Subordinated Debt may have been issued, as their respective interests
may appear, to the extent necessary to pay such Senior and Subordinated Debt in
full, in money or money's worth, after giving effect to any concurrent payment
or distribution to or for the holders of such Senior and Subordinated Debt,
before any payment or distribution is made to the Holders or to the Trustee.
46
<PAGE> 54
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee before all Senior and Subordinated Debt of the Company is paid in full,
or provision is made for such payment in money in accordance with its terms,
such payment or distribution shall be held in trust for the benefit of and shall
be paid over or delivered to the holders of such Senior and Subordinated Debt or
their representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior and
Subordinated Debt may have been issued, and their respective interests may
appear, as calculated by the Company, for application to the payment of all
Senior and Subordinated Debt of the Company, as the case may be, remaining
unpaid to the extent necessary to pay such Senior and Subordinated Debt in full
in money in accordance with its terms, after giving effect to any concurrent
payment or distribution to or for the benefit of the holders of such Senior and
Subordinated Debt.
For purposes of this Article XVI, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article XVI with respect
to the Junior Subordinated Debentures to the payment of all Senior and
Subordinated Debt of the Company, as the case may be, that may at the time be
outstanding, provided that (a) such Senior and Subordinated Debt is assumed by
the new corporation, if any, resulting from any such reorganization or
readjustment, and (b) the rights of the holders of such Senior and Subordinated
Debt are not, without the consent of such holders, altered by such
reorganization or readjustment. The consolidation of the Company with, or the
merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of its property
as an entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided for in Article XII of this Indenture shall not be
deemed a dissolution, winding-up, liquidation or reorganization for the purposes
of this Section 16.03 if such other corporation shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the conditions stated
in Article XII of this Indenture. Nothing in Section 16.02 or in this Section
16.03 shall apply to claims of, or payments to, the Trustee under or pursuant to
Section 9.06 of this Indenture.
SECTION 16.04. SUBROGATION. Subject to the payment in full of all
Senior and Subordinated Debt of the Company, the rights of the Holders of the
Junior Subordinated Debentures shall be subrogated to the rights of the holders
of such Senior and Subordinated Debt to receive payments or distributions of
cash, property or securities of the Company, as the case may be, applicable to
such Senior and Subordinated Debt until the principal of and interest on the
Junior Subordinated Debentures shall be paid in full; and, for the purposes of
such subrogation, no payments or distributions to the holders of such Senior and
Subordinated Debt of any cash, property or securities to which the Holders of
the Junior Subordinated Debentures or the Trustee would be entitled except for
the provisions of this Article XVI, and no payment over pursuant to the
provisions of this Article XVI to or for the benefit of the holders of such
Senior and Subordinated Debt by Holders of the Junior Subordinated Debentures or
the Trustee, shall, as between the Company, its creditors other than holders of
Senior and Subordinated Debt of the Company, and the Holders of the Junior
Subordinated Debentures, be deemed to be a payment by the Company to or on
account of such Senior and Subordinated Debt. It is understood that
47
<PAGE> 55
the provisions of this Article XVI are and are intended solely for the purposes
of defining the relative rights of the Holders of the Junior Subordinated
Debentures, on the one hand, and the holders of such Senior and Subordinated
Debt on the other hand.
Nothing contained in this Article XVI or elsewhere in this Indenture or
in the Junior Subordinated Debentures is intended to or shall impair, as between
the Company, its creditors other than the holders of Senior and Subordinated
Debt of the Company, and the Holders of the Junior Subordinated Debentures, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holders of the Junior Subordinated Debentures the principal of and interest on
the Junior Subordinated Debentures as and when the same shall become due and
payable in accordance with their terms, or is intended to or shall affect the
relative rights of the Holders of the Junior Subordinated Debentures and
creditors of the Company, other than the holders of Senior and Subordinated Debt
of the Company, nor shall anything herein or therein prevent the Trustee or the
Holder of any Junior Subordinated Debenture from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article XVI of the holders of such Senior and
Subordinated Debt in respect of cash, property or securities of the Company, as
the case may be, received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to
in this Article XVI, the Trustee, subject to the provisions of Section 9.01, and
the Holders of the Junior Subordinated Debentures shall be entitled to
conclusively rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding-up, liquidation or
reorganization proceedings are pending, or a certificate of the receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making such
payment or distribution, delivered to the Trustee or to the Holders of the
Junior Subordinated Debentures, for the purposes of ascertaining the Persons
entitled to participate in such distribution, the holders of Senior and
Subordinated Debt and other indebtedness of the Company, as the case may be, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article XVI.
SECTION 16.05. TRUSTEE TO EFFECTUATE SUBORDINATION. Each Holder of
Junior Subordinated Debentures by such Holder's acceptance thereof authorizes
and directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article XVI and appoints the Trustee such Holder's attorney-in-fact for any and
all such purposes.
SECTION 16.06. NOTICE BY THE COMPANY. The Company shall give prompt
written notice to a Responsible Officer of the Trustee of any fact known to the
Company that would prohibit the making of any payment of moneys to or by the
Trustee in respect of the Junior Subordinated Debentures pursuant to the
provisions of this Article XVI. Notwithstanding the provisions of this Article
XVI or any other provision of this Indenture, the Trustee shall not be charged
with knowledge of the existence of any facts that would prohibit the making of
any payment of moneys to or by the Trustee in respect of the Junior Subordinated
Debentures pursuant to the provisions of this Article XVI, unless and until a
Responsible Officer of the Trustee shall have received written notice thereof
from the Company or a holder or holders of Senior and Subordinated Debt or from
any trustee therefor; and before the receipt of any such written notice,
48
<PAGE> 56
the Trustee, subject to the provisions of Section 9.01, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 16.06 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Junior Subordinated Debenture),
then, anything herein contained to the contrary notwithstanding, the Trustee
shall have full power and authority to receive such money and to apply the same
to the purposes for which it was received, and shall not be affected by any
notice to the contrary that may be received by it within two Business Days prior
to such date.
The Trustee, subject to the provisions of Section 9.01, shall be
entitled to conclusively rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior and Subordinated Debt of
the Company (or a trustee on behalf of such holder), to establish that such
notice has been given by a holder of such Senior and Subordinated Debt or a
trustee on behalf of any such holder or holders. 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 such Senior and Subordinated Debt to
participate in any payment or distribution pursuant to this Article XVI, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of such 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 XVI, 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 16.07. RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR AND
SUBORDINATED DEBT. The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article XVI in respect of any Senior and
Subordinated Debt at any time 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.
With respect to the holders of Senior and Subordinated Debt of the
Company, the Trustee undertakes to perform or to observe only such of its
covenants and obligations as are specifically set forth in this Article XVI, and
no implied covenants or obligations with respect to the holders of such Senior
and Subordinated Debt shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of such
Senior and Subordinated Debt and, subject to the provisions of Section 9.01, the
Trustee shall not be liable to any holder of such Senior and Subordinated Debt
if it shall pay over or deliver to Holders of Junior Subordinated Debentures,
the Company or any other Person money or assets to which any holder of such
Senior and Subordinated Debt shall be entitled by virtue of this Article XVI or
otherwise.
SECTION 16.08. SUBORDINATION MAY NOT BE IMPAIRED. No right of any
present or future holder of any Senior and Subordinated Debt of the Company 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,
49
<PAGE> 57
regardless of any knowledge thereof that any such holder may have or otherwise
be charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior and Subordinated Debt of the Company may, at any time and
from time to time, without the consent of or notice to the Trustee or the
Holders of the Junior Subordinated Debentures, without incurring responsibility
to the Holders of the Junior Subordinated Debentures and without impairing or
releasing the subordination provided in this Article XVI or the obligations
hereunder of the Holders of the Junior Subordinated Debentures to the holders of
such Senior and Subordinated Debt, do any one or more of the following: (a)
change the manner, place or terms of payment or extend the time of payment of,
or renew or alter, such Senior and Subordinated Debt, or otherwise amend or
supplement in any manner such Senior and Subordinated Debt or any instrument
evidencing the same or any agreement under which such Senior and Subordinated
Debt is outstanding; (b) sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing such Senior and Subordinated
Debt; (c) release any Person liable in any manner for the collection of such
Senior and Subordinated Debt; and (d) exercise or refrain from exercising any
rights against the Company and any other Person.
50
<PAGE> 58
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
UNION BANKSHARES, LTD.
By
---------------------------------
Charles R. Harrison, Chairman and
Chief Executive Officer
AMERICAN SECURITIES TRANSFER &
TRUST, INC., as Trustee
By
---------------------------------
Name
--------------------------------
Title
-------------------------------
By
---------------------------------
Name
--------------------------------
Title
-------------------------------
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
On the _______ day of ____________, 1998, before me personally came
__________________, to me known, who, being by me duly sworn, did depose and say
that he is the Chairman and Chief Executive Officer of UNION BANKSHARES, LTD.,
one of the corporations described in and which executed the above instrument;
and that he signed his name thereto on behalf of said corporation by authority
of the Board of Directors of said corporation.
Witness my hand and official seal:
-------------------------------
Notary Public
My Commission Expires:
- -------------------------------
51
<PAGE> 59
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
On the _______ day of ___________, 1998, before me personally came
______________________, to me known, who, being by me duly sworn, did depose and
say that he/she is the _______________________ of AMERICAN SECURITIES TRANSFER &
TRUST, INC., one of the corporations described in and which executed the above
instrument; and that he/she signed his/her name thereto on behalf of said
corporation by authority of the Board of Directors of said corporation.
Witness my hand and official seal:
-------------------------------
Notary Public
My Commission Expires:
- -------------------------------
52
<PAGE> 60
EXHIBIT A
(FORM OF FACE OF JUNIOR SUBORDINATED DEBENTURE)
This Junior Subordinated Debenture is a Global Subordinated Debenture
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 Junior Subordinated
Debenture is exchangeable for Junior Subordinated Debentures registered in the
name of a person other than the Depositary or its nominee only in the limited
circumstances described in the Indenture, and no transfer of this Junior
Subordinated Debenture (other than a transfer of this Junior Subordinated
Debenture 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) may be registered except in such limited circumstances.
Unless this Junior Subordinated Debenture is presented by an authorized
representative of American Securities Transfer & Trust, Inc. (
____[address]_______________) to the issuer or its agent for registration of
transfer, exchange or payment, and any Junior Subordinated Debenture issued is
registered in the name of Cede & Co. or such other name as requested by an
authorized representative of American Securities Transfer & Trust, Inc. (and any
payment hereon is made to Cede & Co. or to such other entity as is requested by
an authorized representative of American Securities Transfer & Trust, Inc.), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch the registered owner hereof, Cede & Co., has an interest
herein.
Registered Principal Amount
Registered No. _______________ $__________
CUSIP No. _______________
UNION BANKSHARES, LTD.
____% JUNIOR SUBORDINATED DEBENTURE
DUE ________________, 2028
Union Bankshares, Ltd., a Delaware corporation (the "Company," which
term includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to American Securities Transfer
& Trust, Inc. or registered assigns, the principal sum of
____________________________________________________________________ Dollars
($__________) on ________________, 2028 (which date may be shortened as provided
in the Indenture, the "Stated Maturity"), and to pay interest on said principal
sum from ________________, 1998, or from the most recent interest payment date
(each such date, an "Interest Payment Date") to which interest has been paid or
duly provided for, quarterly (subject to deferral as set forth herein) in
arrears on the 15th day of January, April, July and October in each year
commencing July 15, 1999, at the rate of ____% per annum until the principal
hereof shall have become due and payable, 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
same rate per annum compounded quarterly. The amount of each
<PAGE> 61
interest payment due with respect to the Junior Subordinated Debentures will
include amounts accrued through the date the interest payment is due. The amount
of interest payable on any Interest Payment Date shall be computed on the basis
of a 360-day year of twelve 30-day months. In the event that any date on which
interest is payable on this Junior Subordinated Debenture is not a Business Day
(as defined in the Indenture), then payment of interest payable on such date
will be made on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date. 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 Junior
Subordinated Debenture (or one or more Predecessor Junior Subordinated
Debentures, as defined in the Indenture) is registered at the close of business
on the regular record date for such interest installment, which shall be the
close of business on the business day next preceding such Interest Payment Date
unless otherwise provided in the Indenture. The principal of and the interest on
this Junior Subordinated Debenture shall be payable at the office or agency of
the Trustee (as defined in the Indenture) maintained for that purpose in any
coin or currency of the United States of America that at the time of payment is
legal tender for payment of public and private debts; provided, however, that
payment of interest may be made at the option of the Company by check mailed to
the Registered Holder (as defined in the Indenture) at such address as shall
appear in the Securities Register (as defined in the Indenture). Notwithstanding
the foregoing, so long as the Holder of this Junior Subordinated Debenture is
the Property Trustee (as defined in the Indenture), the payment of the principal
of and interest on this Junior Subordinated Debenture will be made at such place
and to such account as may be designated by the Property Trustee.
The Stated Maturity may be shortened at any time by the Company to any
date not earlier than ________________, 2003, subject to the Company having
received prior approval of the Federal Reserve (as defined in the Indenture) if
then required under applicable capital guidelines or policies of the Federal
Reserve.
The indebtedness evidenced by this Junior Subordinated Debenture is, to
the extent provided in the Indenture, subordinate and junior in right of payment
to the prior payment in full of all Senior and Subordinated Debt (as defined in
the Indenture), and this Junior Subordinated Debenture is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Junior
Subordinated Debenture, by accepting the same, (a) agrees to and shall be bound
by such provisions, (b) authorizes and directs the Trustee on his or her behalf
to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination so provided and (c) appoints the Trustee his or her
attorney-in-fact for any and all such purposes. Each Holder hereof, by his or
her acceptance hereof, hereby 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.
This Junior Subordinated Debenture shall not be entitled to any benefit
under the Indenture, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
A-2
<PAGE> 62
The provisions of this Junior Subordinated Debenture are continued on
the reverse side hereof and such continued provisions shall for all purposes
have the same effect as though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.
Dated: UNION BANKSHARES, LTD.
-------------------
By
-----------------------------------,
------------------------
Chairman and Chief Executive Officer
Attest:
By
-------------------------------
Secretary
A-3
<PAGE> 63
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
This is one of the Junior Subordinated Debentures described in the
within-mentioned Indenture.
Dated: AMERICAN SECURITIES TRANSFER &
--------------------------- TRUST, INC., as Trustee
By
-------------------------------
Authorized Signature
A-4
<PAGE> 64
[FORM OF REVERSE OF JUNIOR SUBORDINATED DEBENTURE]
____% JUNIOR SUBORDINATED DEBENTURE
(CONTINUED)
This Junior Subordinated Debenture is one of the junior subordinated
debentures of the Company (herein sometimes referred to as the "Junior
Subordinated Debentures"), specified in the Indenture, all issued under and
pursuant to a Subordinated Indenture dated as of ________________, 1998 (the
"Indenture") duly executed and delivered between the Company and American
Securities Transfer & Trust, Inc., as Trustee (the "Trustee"), to which
Indenture reference is hereby made for a description of the rights, limitations
of rights, obligations, duties and immunities thereunder of the Trustee, the
Company and the Holders of the Junior Subordinated Debentures. The Junior
Subordinated Debentures are limited in aggregate principal amount as specified
in the Indenture.
Because of the occurrence and continuation of a Special Event (as
defined in the Indenture), in certain circumstances, this Junior Subordinated
Debenture may become due and payable at the option of the Company at the
principal amount together with any interest accrued thereon (the "Redemption
Price"). The Redemption Price shall be paid prior to 2:00 p.m. Denver, Colorado
time, on the date of such redemption or at such earlier time as the Company
determines.
The Company shall have the right to redeem this Junior Subordinated
Debenture at the option of the Company, in whole or in part, from time to time,
on or after ________________, 2003, at a redemption price equal to 100% of the
principal amount to be redeemed plus any accrued but unpaid interest thereon to
the date of such redemption. Any redemption pursuant to this paragraph will be
made upon not less than 30 days' nor more than 60 days' notice. If the Junior
Subordinated Debentures are only partially redeemed by the Company pursuant to
this paragraph, the Junior Subordinated Debentures will be redeemed pro rata or
by lot or by any other method utilized by the Trustee; provided that if, at the
time of redemption, the Junior Subordinated Debentures are registered as a
Global Subordinated Debenture (as defined in the Indenture), the Depositary (as
defined in the Indenture) shall determine the principal amount of such Junior
Subordinated Debentures held by each Junior Subordinated Debenture Holder to be
redeemed in accordance with its procedures.
In the event of redemption of this Junior Subordinated Debenture in
part only, a new Junior Subordinated Debenture for the unredeemed portion hereof
will be issued in the name of the Holder hereof upon the cancellation hereof.
In case an Event of Default (as defined in the Indenture), shall have
occurred and be continuing, the principal of all of the Junior Subordinated
Debentures may be declared, and upon such declaration shall become, due and
payable, in the manner, with the effect and subject to the conditions provided
in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the Holders of not less than a majority in
aggregate principal amount of the Junior Subordinated Debentures at the time
Outstanding, as defined in the Indenture, to execute
A-5
<PAGE> 65
supplemental indentures for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of the Indenture or of any
supplemental indenture or of modifying in any manner the rights of the Holders
of the Junior Subordinated Debentures; provided, however, that no such
supplemental indenture shall (i) change the stated maturity of the Junior
Subordinated Debentures except as provided in the Indenture, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, without the consent of the Holder of each Junior Subordinated
Debenture so affected, or (ii) reduce the aforesaid percentage of Junior
Subordinated Debentures, the Holders of which are required to consent to any
such supplemental indenture, without the consent of the Holders of each Junior
Subordinated Debenture then Outstanding and affected thereby. The Indenture also
contains provisions permitting the Holders of a majority in aggregate principal
amount of the Junior Subordinated Debentures at the time Outstanding, on behalf
of all of the Holders of the Junior Subordinated Debentures, to waive any past
default in the performance of any of the covenants contained in the Indenture,
or established pursuant to the Indenture, and its consequences, except a default
in the payment of the principal of or interest on any of the Junior Subordinated
Debentures. Any such consent or waiver by the registered Holder of this Junior
Subordinated Debenture (unless revoked as provided in the Indenture) shall be
conclusive and binding upon such Holder and upon all future Holders and owners
of this Junior Subordinated Debenture and of any Junior Subordinated Debenture
issued in exchange herefor or in place hereof (whether by registration of
transfer or otherwise), irrespective of whether or not any notation of such
consent or waiver is made upon this Junior Subordinated Debenture.
No reference herein to the Indenture and no provision of this Junior
Subordinated Debenture or of the Indenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of and
interest on this Junior Subordinated Debenture at the time and place and at the
rate and in the money herein prescribed.
The Company shall have the right at any time during the term of the
Junior Subordinated Debentures and from time to time to extend the interest
payment period of such Junior Subordinated Debentures for up to 20 consecutive
quarters (an "Extended Interest Payment Period"), at the end of which period the
Company shall pay all interest then accrued and unpaid (together with interest
thereon at the rate specified for the Junior Subordinated Debentures to the
extent that payment of such interest is enforceable under applicable law).
Before the termination of any such Extended Interest Payment Period, the Company
may further extend such Extended Interest Payment Period, provided that such
Extended Interest Payment Period together with all such further extensions
thereof shall not exceed 20 consecutive quarters or extend beyond the Stated
Maturity. At the termination of any such Extended Interest Payment Period and
upon the payment of all accrued and unpaid interest and any additional amounts
then due, the Company may commence a new Extended Interest Payment Period.
The Company has agreed that if at any time (a) there shall have
occurred any event of which the Company has actual knowledge that (i) with the
giving of notice or the lapse of time, or both, would constitute an Event of
Default and (ii) in respect to which the Company shall not have taken reasonable
steps to cure, or (b) the Company shall have given notice of its election of an
Extended Interest Payment Period as provided herein and shall not have rescinded
such notice, or such Extended Interest Payment Period, or any extension thereof,
shall be continuing; or (c) while the Junior Subordinated Debentures are held by
the Trust, the Company shall be in
A-6
<PAGE> 66
default with respect to its payment of any obligation under the Preferred
Securities Guarantee, then the Company will not (i) declare or pay any dividends
or distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company (including the Junior Subordinated Debentures)
that rank pari passu with or junior in interest to the Junior Subordinated
Debentures 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 or junior in interest to the Junior Subordinated
Debentures (other than (A) dividends or distributions in common stock, (B) any
declaration of a dividend in connection with the implementation of a
shareholders' 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 Preferred Securities 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).
As provided in the Indenture and subject to certain limitations therein
set forth, this Junior Subordinated Debenture is transferable by the registered
Holder hereof on the Securities Register of the Company, upon surrender of this
Junior Subordinated Debenture for registration of transfer at the office or
agency of the Trustee accompanied by a written instrument or instruments of
transfer in form satisfactory to the Company or the Trustee duly executed by the
registered Holder hereof or such Holder's attorney duly authorized in writing,
and thereupon one or more new Junior Subordinated Debentures of authorized
denominations and for the same aggregate principal amount will be issued to the
designated transferee or transferees. No service charge will be made for any
such transfer, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this Junior
Subordinated Debenture, the Company, the Trustee, any paying agent and the
Securities Registrar (as defined in the Indenture) may deem and treat the
Registered Holder hereof as the absolute owner hereof (whether or not this
Junior Subordinated Debenture shall be overdue and notwithstanding any notice of
ownership or writing hereon made by anyone other than the Securities Registrar)
for the purpose of receiving payment of or on account of the principal hereof
and interest due hereon and for all other purposes, and neither the Company nor
the Trustee nor any paying agent nor any Securities Registrar shall be affected
by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Junior Subordinated Debenture, or for any claim based hereon,
or otherwise in respect hereof, or based on or in respect of the Indenture,
against any incorporator, stockholder, officer or director, past, present or
future, as such, of the Company or of any predecessor or successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issuance
hereof, expressly waived and released.
The Junior Subordinated Debentures are issuable only in registered form
without coupons in denominations of $10 and any integral multiple thereof. This
Global Subordinated Debenture is exchangeable for Junior Subordinated Debentures
in definitive form only under certain limited circumstances set forth in the
Indenture. Junior Subordinated Debentures so issued are issuable
A-7
<PAGE> 67
only in registered form without coupons in denominations of $10 and any integral
multiple thereof.
All terms used in this Junior Subordinated Debenture that are defined
in the Indenture shall have the meanings assigned to them in the Indenture.
A-8
<PAGE> 68
EXHIBIT A FORM OF JUNIOR SUBORDINATED DEBENTURE
A-9
<PAGE> 1
EXHIBIT 4.3
CERTIFICATE OF TRUST
OF
UNION BANKSHARES CAPITAL TRUST I
THIS Certificate of Trust of Union Bankshares Capital Trust I (the
"Trust"), dated as of October 14, 1998, has been duly executed and is being
filed by the undersigned, as trustees, to form a business trust under the
Delaware Business Trust Act (12 Del. C. Section 3801 et seq.).
1. Name. The name of the business trust being formed hereby is Union
Bankshares Capital Trust I.
2. Delaware Trustee. The name and business address of the trustee of the
Trust with a principal place of business in the State of Delaware is Wilmington
Trust Company, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attn:
Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be effective upon
filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have
duly executed this Certificate of Trust as of the date first-above written.
WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as trustee of the Trust
By: /s/ Norma P. Closs
-----------------------------------
Name: Norma P. Closs
Title: Vice President
BRUCE E. HALL, not in his individual capacity but
solely as trustee of the Trust
/s/ Bruce E. Hall
---------------------------------------
<PAGE> 1
EXHIBIT 4.4
TRUST AGREEMENT
OF
UNION BANKSHARES CAPITAL TRUST I
THIS TRUST AGREEMENT is made as of October 14, 1998 (this "Trust
Agreement"), by and among Union Bankshares, Ltd., a Delaware corporation, as
depositor (the "Depositor"), and Wilmington Trust Company, a Delaware banking
corporation, as trustee, and Bruce E. Hall, as trustee (jointly, the
"Trustees"). The Depositor and the Trustees hereby agree as follows:
1. The trust created hereby shall be known as "Union Bankshares Capital
Trust I" (the "Trust"), in which name the Trustees or the Depositor, to the
extent provided herein, may conduct the business of the Trust, make and execute
contracts, and sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and sets over to
the Trust the sum of $10. Such amount shall constitute the initial trust estate.
It is the intention of the parties hereto that the Trust created hereby
constitute a business trust under Chapter 38 of Title 12 of the Delaware Code,
12 Del. C. Section 3801, et seq. (the "Business Trust Act"), and that this
document constitute the governing instrument of the Trust. The Trustees are
hereby authorized and directed to execute and file a certificate of trust with
the Delaware Secretary of State in such form as the Trustees may approve.
3. The Depositor and the Trustees will enter into an amended and
restated Trust Agreement satisfactory to each such party to provide for the
contemplated operation of the Trust created hereby and the issuance of the
Preferred or Capital Securities and Common Securities referred to therein. Prior
to the execution and delivery of such amended and restated Trust Agreement, the
Trustees shall not have any duty or obligation hereunder or with respect of the
trust estate, except as otherwise required by applicable law or as may be
necessary to obtain prior to such execution and delivery any licenses, consents
or approvals required by applicable law or otherwise. Notwithstanding the
foregoing, the Trustees may take all actions deemed proper as are necessary to
effect the transactions contemplated herein.
4. The Depositor, as sponsor of the Trust, is hereby authorized, in its
discretion, (i) to prepare and file with the Securities and Exchange Commission
(the "Commission") and to execute, in the case of the 1933 Act Registration
Statement and 1934 Act Registration Statement (as herein defined), on behalf of
the Trust, (a) a Registration Statement (the "1933 Act Registration Statement"),
including all pre-effective and post-effective amendments thereto, relating to
the registration under the Securities Act of 1933, as amended (the "1933 Act"),
of the Preferred or Capital Securities of the Trust, (b) any preliminary
prospectus or prospectus or supplement thereto relating to the Preferred or
Capital Securities of the Trust required to be filed pursuant to the 1933 Act,
and (c) a Registration Statement on Form 8-A or other appropriate form (the
"1934 Act Registration Statement"), including all pre-effective and
post-effective amendments thereto, relating to the registration of the Preferred
or Capital Securities of the Trust under the Securities Exchange Act of 1934, as
amended; (ii) if and at such time as determined by the Depositor, to file with
the New York Stock Exchange or other exchange, or the National Association of
Securities Dealers ("NASD"), and execute on behalf of the Trust a listing
application and all other applications, statements, certificates, agreements and
other instruments
<PAGE> 2
as shall be necessary or desirable to cause the Preferred or Capital Securities
of the Trust to be listed on the New York Stock Exchange or such other exchange,
or the NASD's Nasdaq National Market; (iii) to file and execute on behalf of the
Trust, such applications, reports, surety bonds, irrevocable consents,
appointments of attorney for service of process and other papers and documents
that shall be necessary or desirable to register the Preferred or Capital
Securities of the Trust under the securities or "Blue Sky" laws of such
jurisdictions as the Depositor, on behalf of the Trust, may deem necessary or
desirable; (iv) to execute and deliver letters or documents to, or instruments
for filing with, a depository relating to the Preferred or Capital Securities of
the Trust; and (v) to execute, deliver and perform on behalf of the Trust an
underwriting agreement with one or more underwriters relating to the offering of
the Preferred or Capital Securities of the Trust.
In the event that any filing referred to in this Section 4 is required
by the rules and regulations of the Commission, the New York Stock Exchange or
other exchange, NASD, or state securities or "Blue Sky" laws to be executed on
behalf of the Trust by the Trustees, the Trustees, in their capacity as trustees
of the Trust, are hereby authorized to join in any such filing and to execute on
behalf of the Trust any and all of the foregoing, it being understood that the
Trustees, in their capacity as trustees of the Trust, shall not be required to
join in any such filing or execute on behalf of the Trust any such document
unless required by the rules and regulations of the Commission, the New York
Stock Exchange or other exchange, NASD, or state securities or "Blue Sky" laws.
5. This Trust Agreement may be executed in one or more counterparts.
6. The number of trustees of the Trust initially shall be two and
thereafter the number of trustees of the Trust shall be such number as shall be
fixed from time to time by a written instrument signed by the Depositor which
may increase or decrease the number of trustees of the Trust; provided, however,
that to the extent required by the Business Trust Act, one trustee of the Trust
shall either be a natural person who is a resident of the State of Delaware or,
if not a natural person, an entity which has its principal place of business in
the State of Delaware. Subject to the foregoing, the Depositor is entitled to
appoint or remove without cause any trustee of the Trust at any time. Any
trustee of the Trust may resign upon thirty days' prior notice to the Depositor.
7. The Depositor hereby agrees to (i) reimburse the Trustees for all
reasonable expenses (including reasonable fees and expenses of counsel and other
experts) and (ii) indemnify, defend and hold harmless the Trustees and any of
the officers, directors, employees and agents of the Trustees (the "Indemnified
Persons") from and against all losses, damages, liabilities, claims, actions,
suits, costs, expenses, disbursements (including the reasonable fees and
expenses of counsel), taxes and penalties of any kind and nature whatsoever
(collectively, "Expenses"), to the extent that such Expenses arise out of or are
imposed upon or asserted at any time against such Indemnified Persons with
respect to the performance of this Trust Agreement, the creation, operation or
termination of the Trust or the transactions contemplated hereby; provided,
however, that the Depositor shall not be required to indemnify any Indemnified
Person
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<PAGE> 3
for any Expenses which are a result of the willful misconduct, bad faith or
gross negligence of such Indemnified Person.
8. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to conflict
of laws principles).
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed as of the day and year first above written.
UNION BANKSHARES, LTD., as
Depositor
By: /s/ Bruce E. Hall
---------------------------------------
Name: Bruce E. Hall
Title: Vice President
WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as trustee
of the Trust
By: /s/ Norma P. Closs
---------------------------------------
Name: Norma P. Closs
Title: Vice President
BRUCE E. HALL, not in his individual
capacity but solely as trustee of the Trust
-3-
<PAGE> 1
EXHIBIT 4.5
UNION BANKSHARES CAPITAL TRUST I
AMENDED AND RESTATED
TRUST AGREEMENT
AMONG
UNION BANKSHARES, LTD., AS DEPOSITOR
AMERICAN SECURITIES TRANSFER & TRUST, INC., AS PROPERTY TRUSTEE
WILMINGTON TRUST COMPANY, AS DELAWARE TRUSTEE
AND
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
DATED AS OF , 1998
-----------------
<PAGE> 2
TABLE OF CONTENTS
PAGE
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(Table of Contents will generate here)
Exhibits
- --------
Exhibit A Certificate of Trust
Exhibit B Form of Certificate Depository Agreement
Exhibit C Form of Common Securities Certificate
Exhibit D Form of Expense Agreement
Exhibit E Form of Preferred Securities Certificate
-i-
<PAGE> 3
AMENDED AND RESTATED TRUST AGREEMENT, dated as of ________________,
1998, among (i) Union Bankshares, Ltd., a Delaware corporation (including any
successors or assigns, the "Depositor"), (ii) American Securities Transfer &
Trust, Inc., a trust company duly organized and existing under the laws of the
State of Colorado, as property trustee (the "Property Trustee" and, in its
separate corporate capacity and not in its capacity as Property Trustee, the
"Trust Company"), (iii) Wilmington Trust Company, a Delaware banking
corporation duly organized and existing under the laws of the State of
Delaware, as Delaware trustee (the "Delaware Trustee," and, to the extent
expressly provided herein, in its separate corporate capacity and not in its
capacity as Delaware Trustee, the "Delaware Bank"), (iv) Charles R. Harrison,
an individual, Herman J. Zueck, an individual, and Bruce E. Hall, an
individual, each of whose address is c/o Union Bankshares, Ltd. (each an
"Administrative Trustee" and collectively the "Administrative Trustees") (the
Property Trustee, the Delaware Trustee and the Administrative Trustees referred
to collectively as the "Trustees") and (v) the several Holders, as hereinafter
defined.
WITNESSETH:
WHEREAS, the Depositor, the Delaware Trustee and Bruce E. Hall have
heretofore duly declared and created Union Bankshares Capital Trust I, a
business trust (the "Trust"), pursuant to the Delaware Business Trust Act by
the entering into of that certain Trust Agreement, dated as of October 14, 1998
(the "Original Trust Agreement"), and by the execution and filing by the
Delaware Trustee with the Secretary of State of the State of Delaware of the
Certificate of Trust, filed on October 14, 1998, the form of which is attached
as EXHIBIT A; and
WHEREAS, the Depositor, the Delaware Trustee and Bruce E. Hall 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 (as defined below) by the Trust to the Depositor, (ii) the issuance
and sale of the Preferred Securities (as defined below) 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 Junior Subordinated
Debentures (as defined below), (iv) the appointment of the Property Trustee,
and (v) the appointment of the Administrative Trustees;
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:
ARTICLE I
DEFINED TERMS
SECTION 1.01 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;
<PAGE> 4
(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.
"Accelerated Maturity Date" has the meaning set forth in Section 1.01
of the Indenture.
"Act" has the meaning specified in Section 6.08.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of additional interest
accrued on interest in arrears and paid by the Depositor on a Like Amount of
Junior Subordinated Debentures for such period.
"Additional Sums" has the meaning specified in Section 2.05 of the
Indenture.
"Administrative Trustee" means each of Charles R. Harrison, Herman J.
Zueck and Bruce E. Hall, solely in each such person's capacity as
Administrative Trustee of the Trust continued hereunder and not in such
person's individual capacity, or such Administrative Trustee's successor in
interest in such capacity, or any successor Administrative 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.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having
jurisdiction in the premises adjudging such Person a bankrupt or insolvent, or
approving as properly filed a petition seeking liquidation or reorganization of
or in respect of such Person under the United States Bankruptcy Code or any
other similar applicable federal or state law, and the continuance of any such
decree or order unvacated and unstayed for a period of 90 days; or the
commencement of an involuntary case under the United States Bankruptcy Code in
respect of such Person, which shall continue undismissed for a period of 90
days or entry of an order for relief in such case; or the entry of a decree or
order of a court having jurisdiction in the premises for the appointment on the
ground of insolvency or bankruptcy of a receiver, custodian, liquidator,
trustee or assignee in bankruptcy or
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<PAGE> 5
insolvency of such Person or of its property, or for the winding up or
liquidation of its affairs, and such decree or order shall have remained in
force unvacated and unstayed for a period of 90 days; or
(b) the institution by such Person of proceedings to be
adjudicated a voluntary bankrupt, or the consent by such Person to the filing
of a bankruptcy proceeding against it, or the filing by such Person of a
petition or answer or consent seeking liquidation or reorganization under the
United States Bankruptcy Code or other similar applicable federal or state law,
or the consent by such Person to the filing of any such petition or to the
appointment on the ground of insolvency or bankruptcy of a receiver or
custodian or liquidator or trustee or assignee in bankruptcy or insolvency of
such Person or of its property, or such Person shall make a general assignment
for the benefit of creditors.
"Bankruptcy Laws" has the meaning specified in Section 10.09.
"Book-Entry Preferred Securities Certificates" means certificates
representing Preferred Securities issued in global, fully registered form to
the 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 Colorado are authorized or
required by law or executive order to remain closed, or (c) a day on which the
Property Trustee's Corporate Trust Office or the Corporate Trust Office of the
Debenture Trustee is closed for business.
"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, substantially in the form attached as EXHIBIT B, as the same may
be amended and supplemented from time to time.
"Certificate of Trust" means, as stated in the recitals to this Trust
Agreement, the certificate of trust filed with the Secretary of State of the
State of Delaware with respect to the Trust, in the form attached as EXHIBIT A,
as the same may be 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.
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<PAGE> 6
"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 Trust Agreement 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 a common undivided beneficial interest in the
assets of the Trust, having a Liquidation Amount of $7.60 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 the principal corporate trust office of
the Property Trustee located at 836 Quail Street, Suite 100, Lakewood, Colorado
80215, Attention: Corporate Trust Administration.
"Debenture Event of Default" means an "Event of Default" as defined in
the Indenture.
"Debenture Redemption Date" means, with respect to any Junior
Subordinated Debentures to be redeemed under the Indenture, the date fixed for
redemption under the Indenture.
"Debenture Trustee" means American Securities Transfer & Trust, Inc.,
a trust company organized under the laws of the State of Colorado and any
successor thereto, as trustee under 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 Certificates 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 Bank" has the meaning specified in the preamble to this Trust
Agreement.
"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 corporation identified as the "Delaware
Trustee" in the preamble to this Trust Agreement solely in its capacity as
Delaware Trustee of the Trust continued hereunder and not in its individual
capacity, or its successor in interest in such capacity, or any successor
Delaware 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 4.01(a).
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<PAGE> 7
"Distributions" means amounts payable in respect of the Trust
Securities as provided in Section 4.01.
"Event of Default" means any one of the following events that shall
have occurred and be continuing (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the 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; or
(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 of
which or the breach of which is dealt with in clause (b) or (c), above) and
continuation of such default or breach for a period of 60 days after there has
been given, by registered or certified mail, to the defaulting Property Trustee
by the Holders of at least 25% in aggregate Liquidation Amount of the
Outstanding Preferred Securities a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or
(e) the occurrence of 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 9.01.
"Extension Period" means the "Extended Interest Payment Period" as
defined in the Indenture.
"Global Subordinated Debenture" has the meaning specified in the
Indenture.
"Guarantee" means the Preferred Securities Guarantee Agreement
executed and delivered by the Depositor and American Securities Transfer &
Trust, Inc., as trustee, contemporaneously with
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<PAGE> 8
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 Subordinated Indenture, dated as of
_________________, 1998, between the Depositor and the Debenture Trustee, as
trustee, as amended or supplemented from time to time.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"Junior Subordinated Debentures" means the $________ aggregate
principal amount of the Depositor's ____% Junior Subordinated Debentures due
2028, issued pursuant to the Indenture.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Junior Subordinated Debentures to be contemporaneously redeemed in
accordance with the Indenture and the proceeds of which will be used to pay the
Redemption Price of such Trust Securities and (b) with respect to a
distribution of Junior Subordinated Debentures to Holders of Trust Securities
in connection with a dissolution or liquidation of the Trust, Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the Holder to whom such Junior Subordinated
Debentures are distributed.
"Liquidation Amount" means the stated amount of $10 per Trust
Security.
"Liquidation Date" means the date on which Junior Subordinated
Debentures are to be distributed to Holders of Trust Securities in connection
with a dissolution and liquidation of the Trust pursuant to Section 9.04(a).
"Liquidation Distribution" has the meaning specified in Section
9.04(d).
"Maturity Date" has the meaning set forth in Section 2.02 of the
Indenture.
"Officers' Certificate" means a certificate signed by the Chief
Executive Officer, the President or a Vice President and by the Chief
Accounting Officer or the Controller or an Assistant Controller or 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:
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<PAGE> 9
(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.
"Original Trust Agreement" has the meaning specified in the recitals
to this Trust Agreement.
"Outstanding," when used with respect to Preferred Securities, means,
as of the date of determination, all Preferred Securities theretofore executed
and delivered under this Trust Agreement, except:
(a) Preferred Securities theretofore canceled by the Property
Trustee or delivered to the Property Trustee for cancellation;
(b) Preferred Securities for whose payment or redemption
money in the necessary amount has been theretofore deposited with the Property
Trustee or any Paying Agent for the Holders of such Preferred Securities;
provided that, if such Preferred Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Trust Agreement; and
(c) Preferred 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 5.04, 5.05, 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 (i) 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 (ii) the foregoing shall not apply at any
time when all of the Outstanding Preferred Securities are owned by the
Depositor, one or more of the 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
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<PAGE> 10
to the satisfaction of the Administrative Trustees the pledgee's right as to
such Preferred Securities so owned.
"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 5.09 and shall initially be the Trust Company.
"Payment Account" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee for the benefit of the
Securityholders in which all amounts paid in respect of the Junior Subordinated
Debentures will be held and from which the Property Trustee shall make payments
to the Securityholders in accordance with Sections 4.01 and 4.02.
"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 a preferred undivided beneficial interest
in the assets of the Trust, designated "____% Cumulative Trust Preferred
Securities," having a Liquidation Amount of $7.60 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 commercial bank or trust company
identified as the "Property Trustee" in the preamble to this Trust Agreement
solely in its capacity as Property Trustee of the Trust heretofore formed and
continued hereunder and not in its individual capacity, or its successor in
interest in such capacity, or any successor Property Trustee appointed as
herein provided.
"Redemption Date" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Debenture Redemption Date and the Maturity Date
of the Junior Subordinated Debentures shall be a Redemption Date for a Like
Amount of Trust Securities.
"Redemption Price" means, with respect to any Trust Security to be
redeemed, the Liquidation Amount of such Trust Security, plus accumulated and
unpaid Distributions to the Redemption Date allocated on a pro rata basis
(based on Liquidation Amounts) among the Trust Securities to be redeemed.
"Relevant Trustee" shall have the meaning specified in Section 8.10.
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"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.04.
"Securityholder" means a Person in whose name a Trust Security or
Trust Securities is registered in the Securities Register; any such Person is a
beneficial owner within the meaning of the Delaware Business Trust Act.
"Trust" means Union Bankshares Capital Trust I, the Delaware business
trust continued hereby and which was created as stated in the recitals 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 all exhibits hereto, including, 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 Company" has the meaning specified in the preamble to this
Trust Agreement.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this Trust Agreement 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 Junior Subordinated Debentures, (b) the
rights of the Property Trustee under the Guarantee, (c) any cash on deposit in,
or owing to, the Payment Account and (d) 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.
"Trustee" or "Trustees" means, individually or collectively, any of
the Property Trustee, the Delaware Trustee and the Administrative Trustees.
"Underwriting Agreement" means the Underwriting Agreement dated as of
_______________, 1998, among the Trust, the Depositor and the underwriters
named therein.
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ARTICLE II
ESTABLISHMENT OF THE TRUST
SECTION 2.01 NAME. The Trust heretofore created and continued hereby
shall continue to be known as "Union Bankshares Capital Trust I," 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 engage in the transactions contemplated hereby,
make and execute contracts and other instruments on behalf of the Trust and sue
and be sued.
SECTION 2.02 OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF
BUSINESS. The address of the Delaware Trustee in the State of Delaware is
Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware 19890,
Attention: Corporate Trust Administration, 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 Union Bankshares, Ltd., 1825 Lawrence Street, Suite 444, Denver,
Colorado 80202.
SECTION 2.03 INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL
EXPENSES. The Trustees acknowledge 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 2.04 ISSUANCE OF THE PREFERRED SECURITIES. On ______________,
1998, the Depositor and an Administrative Trustee, on behalf of the Trust and
pursuant to the Original Trust Agreement, executed and delivered 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 5.02 and deliver, in accordance with the
Underwriting Agreement, a Preferred Securities Certificate, registered in the
name of the nominee of the initial Clearing Agency, in an aggregate amount of
Preferred Securities having an aggregate Liquidation Amount of $ against
receipt of the aggregate purchase price of such Preferred Securities of $ ,
which amount such Administrative Trustee shall promptly deliver to the Property
Trustee.
SECTION 2.05 ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND
PURCHASE OF JUNIOR SUBORDINATED 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 5.02 and deliver
to the Depositor a Common Securities Certificate, registered in the name of the
Depositor, in an aggregate amount of Common Securities having an aggregate
Liquidation Amount of $ against payment by the Depositor of such amount.
Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust,
shall subscribe to and purchase from the Depositor Junior Subordinated
Debentures, registered in the
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name of the Property Trustee on behalf of the Trust and having an aggregate
principal amount equal to $____________, and, in satisfaction of the purchase
price for such Junior Subordinated Debentures, the Property Trustee, on behalf
of the Trust, shall deliver to the Depositor the sum of $ .
SECTION 2.06 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 Junior Subordinated Debentures, and (b)
to engage in those activities necessary, convenient 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 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 2.07 AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS.
(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 Article VIII, and in accordance
with the following provisions (i) and (ii), the Administrative Trustees shall
have the authority to enter into all transactions and agreements determined by
the Administrative Trustees to be appropriate in exercising the authority,
express or implied, otherwise granted to the Administrative 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,
including, without limitation, the execution of the Trust
Securities on behalf of the Trust in accordance with this
Trust Agreement, and complying with the terms of the
Underwriting Agreement regarding 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 or documents as may be necessary or
desirable in connection with the purposes and function of the
Trust;
(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,
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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 the NASDAQ National Market or such securities
exchange or exchanges as shall be determined by the Depositor
and, if required, 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 Junior Subordinated 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) 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;
(H) to take all action that may be necessary or
appropriate for the preservation and the continuation of the
Trust's valid existence, rights, franchises and privileges as
a statutory business trust under the laws of the State of
Delaware and of each other jurisdiction in which such
existence is necessary to protect the limited liability of
the Holders of the Preferred Securities or to enable the
Trust to effect the purposes for which the Trust was created;
(I) the execution and delivery of an application for
a taxpayer identification number for the Trust; and
(J) the taking of any action incidental to the
foregoing as the Administrative 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:
(A) the establishment of the Payment Account;
(B) the receipt of the Junior Subordinated
Debentures;
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(C) the receipt and collection of interest, principal
and any other payments made in respect of the Junior
Subordinated Debentures in the Payment Account;
(D) the distribution of amounts owed to the
Securityholders in respect of the Trust Securities in
accordance with the terms of this Trust Agreement;
(E) the exercise of all of the rights, powers and
privileges of a holder of the Junior Subordinated Debentures;
(F) the sending of notices of default and other
information regarding the Trust Securities and the Junior
Subordinated Debentures to the 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;
(I) after an Event of Default (other than under
paragraph (b), (c), (d) or (e) of the definition of such term
if the 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
2.07(a)(ii), the Property Trustee shall have none of the
duties, liabilities, powers or the authority of the
Administrative Trustees set forth in Section 2.07(a)(i).
(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
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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 and the Junior Subordinated Debentures, 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 to do any and all such acts, other than
actions which must be taken by or on behalf of the Trust, and advise
the Trustees of actions they must take on behalf of the Trust, and
prepare for execution and filing 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 NASDAQ
National Market or a national stock exchange or other organizations
for listing upon notice of issuance of any Preferred Securities and to
file or cause an Administrative Trustee to file thereafter with such
exchange or organization such notifications and documents as may be
necessary from time to time;
(iv) if required, 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 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 Investment Company
Act, will be classified as a "grantor trust" and not as an association taxable
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as a corporation for United States federal income tax purposes and so that the
Junior Subordinated Debentures will be treated as indebtedness of the Depositor
for United States federal income tax purposes. In this connection, subject to
Section 10.02, the Depositor and the Administrative Trustees are authorized to
take any action, not inconsistent with applicable law or this Trust Agreement,
that each of the Depositor and the Administrative Trustees determines in their
discretion to be necessary or desirable for such purposes. In no event shall
the Trustees be liable to the Trust or the Securityholders for any failure to
comply with this Section that results from a change in law or regulations or in
the interpretation thereof.
SECTION 2.08 ASSETS OF TRUST. The assets of the Trust shall consist of
the Trust Property.
SECTION 2.09 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 Securityholders in accordance with this Trust Agreement.
ARTICLE III
PAYMENT ACCOUNT
SECTION 3.01 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 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.
(b) The Property Trustee shall deposit in the Payment
Account, promptly upon receipt, all payments of principal of or interest on,
and any other payments or proceeds with respect to, the Junior Subordinated
Debentures. Amounts held in the Payment Account shall not be invested by the
Property Trustee pending distribution thereof.
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
SECTION 4.01 DISTRIBUTIONS.
(a) 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 accumulate from
_________________, 1998, and, except during any Extension Period with
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respect to the Junior Subordinated Debentures, shall be payable quarterly in
arrears on the 15th day of March, June, September and December in each year,
commencing March 15, 1999. The amount of each Distribution due with respect to
the Trust Securities will include amounts accrued through the date the
Distribution payment is due. 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 4.01(a) a
"Distribution Date").
(b) The Trust Securities represent undivided beneficial
interests in the Trust Property, and, as a practical matter, the 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. During any Extension Period with respect to the Junior
Subordinated Debentures, Distributions on the Preferred Securities will be
deferred for a period equal to the Extension Period. The amount of
Distributions payable for any period shall include the Additional Amounts, if
any.
(c) Distributions on the Trust Securities shall be made by
the Property Trustee solely 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 immediately available in the Payment Account for the payment of such
Distributions.
(d) 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 1st day of the
month in which the relevant Distribution Date occurs.
SECTION 4.02 REDEMPTION.
(a) On each Debenture Redemption Date and on the Maturity
Date of the Junior Subordinated Debentures, the Trust will be required to
redeem a Like Amount of Trust Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property
Trustee by first-class mail, postage prepaid, mailed not less than 30 nor more
than 60 days prior to the Redemption Date to each Holder of Trust Securities to
be redeemed, at such Holder's address appearing in the Securities Register. The
Property Trustee shall have no responsibility for the accuracy of any CUSIP
number contained in such notice. All notices of redemption shall state:
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(i) the Redemption Date;
(ii) the Redemption Price, or if the Redemption Price
cannot be calculated prior to the time the notice is required to be
sent, the estimate of the Redemption Price provided pursuant to the
Indenture together with a statement that it is an estimate and that
the actual Redemption Price will be calculated on the third Business
Day prior to the Redemption Date (and, if an estimate is provided, a
further notice shall be sent of the actual Redemption Price on the
date, or as soon as practicable thereafter, that notice of such actual
Redemption Price is received pursuant to the Indenture);
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities
are to be redeemed, the identification and the aggregate Liquidation
Amount of the particular Trust Securities to be redeemed;
(v) that on the Redemption Date the Redemption Price will
become due and payable upon each such Trust Security to be redeemed
and that Distributions thereon will cease to accumulate on and after
said date, except as provided in Section 4.02(d) below; and
(vi) the place or places where Trust Securities are to be
surrendered for the payment of the Redemption Price.
(c) The Trust Securities redeemed on each Redemption Date
shall be redeemed at the Redemption Price with the proceeds from the
contemporaneous redemption of Junior Subordinated Debentures. Redemptions of
the Trust Securities shall be made and the Redemption Price shall be payable on
each Redemption Date only to the extent that the Trust has immediately
available 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 10:00 a.m., Mountain time, on the
Redemption Date, subject to Section 4.02(c), the Property Trustee will, so long
as the Preferred Securities are in book-entry-only form, 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.
If the Preferred Securities are no longer in book-entry-only form, the Property
Trustee, subject to Section 4.02(c), will 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 Securities
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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, but
without interest on such Redemption Price, 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 accumulate, 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 record 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 the relevant Redemption 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 fifteen days prior to the
relevant Redemption Date.
(f) Subject to Section 4.03(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 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 $10 or
an integral multiple of $10 in excess thereof) of the Liquidation Amount of
Preferred Securities of a denomination larger than $10. The Property Trustee
shall promptly notify the Securities 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 which has been or is to be redeemed.
SECTION 4.03 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
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Section 4.02(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 then called for redemption, 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. The existence of an Event of Default does not
entitle the Holders of Preferred Securities to accelerate the maturity thereof.
(b) In the case of the occurrence of any Event of Default
resulting from a 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 shall have been cured, waived
or otherwise eliminated. Until any such Event of Default under this Trust
Agreement with respect to the Preferred Securities shall have been so cured,
waived or otherwise eliminated, the Property Trustee shall act solely on behalf
of the Holders of the Preferred Securities and not 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 4.04 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 Holder of the Common
Securities.
SECTION 4.05 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 furnished to such
Securityholder or the information required to be provided on such form. The
Administrative Trustees shall provide the Depositor with a copy of all such
returns and reports promptly after such filing or furnishing. The Property
Trustee shall comply with United States federal withholding and
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backup withholding tax laws and information reporting requirements with respect
to any payments to Securityholders under the Trust Securities.
SECTION 4.06 PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST. Upon receipt
under the Junior Subordinated Debentures of Additional Sums, the Property
Trustee, at the direction of an Administrative Trustee or the Depositor, 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.
SECTION 4.07 PAYMENTS UNDER INDENTURE. Any amount payable hereunder to
any Holder of Preferred Securities shall be reduced by the amount of any
corresponding payment such Holder has directly received under the Indenture
pursuant to Section 5.14(b) or (c) hereof.
ARTICLE V
TRUST SECURITIES CERTIFICATES
SECTION 5.01 INITIAL OWNERSHIP. Upon the creation of the Trust and the
contribution by the Depositor pursuant to Section 2.03 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 5.02 THE TRUST SECURITIES CERTIFICATES. The Preferred
Securities Certificates shall be issued in minimum denominations of $7.60
Liquidation Amount and integral multiples of $7.60 in excess thereof, and the
Common Securities Certificates shall be issued in denominations of $7.60
Liquidation Amount and integral multiples of $7.60 in excess 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 5.04,
5.11 and 5.13.
SECTION 5.03 EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES.
On the Closing Date, the Administrative Trustees shall cause Trust Securities
Certificates, in an aggregate Liquidation Amount as provided in Sections 2.04
and 2.05, to be executed on behalf of the Trust by at least one of the
Administrative Trustees and delivered to or upon the written order of the
Depositor, signed by its Chief Executive Officer, its President, or any Vice
President without further corporate action by the Depositor, in authorized
denominations.
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SECTION 5.04 REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED
SECURITIES CERTIFICATES. The Property Trustee shall keep or cause to be kept,
at the office or agency maintained pursuant to Section 5.08, a register or
registers for the purpose of registering Trust Securities Certificates and
transfers and exchanges of Preferred Securities Certificates (herein referred
to as the "Securities Register") in which the registrar designated by the
Property Trustee (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 Property Trustee 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
5.08, 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 5.08.
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 the Property Trustee and the
Securities Registrar duly executed by the Holder or such Holder's attorney duly
authorized in writing. Each Preferred Securities Certificate surrendered for
registration of transfer or exchange shall be canceled and subsequently
disposed of by the Property Trustee in accordance with its 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 of
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 5.05 MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES
CERTIFICATES. If (a) any mutilated Trust Securities Certificate shall be
surrendered to the Securities Registrar, or if the Securities Registrar shall
receive evidence to its satisfaction of the destruction, loss or theft of any
Trust Securities Certificate and (b) there shall be delivered to the Securities
Registrar and the Administrative Trustees such security or indemnity as may be
required
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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 5.06 PERSONS DEEMED SECURITYHOLDERS. The Trustees, the Paying
Agent and 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 5.07 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
15 and July 15 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 regular record date (as provided in Section 4.01(d)) 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
Securityholders 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 reason of the disclosure of its name and address,
regardless of the source from which such information was derived.
SECTION 5.08 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, 836 Quail Street, Suite 100, Lakewood, Colorado 80215,
Attention: Corporate Trust Administration, as the principal corporate trust
office for such purposes. The Administrative Trustees shall give prompt
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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 5.09 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 8.01, 8.03 and 8.06 shall
apply to the Property Trustee also in its role as Paying Agent, for so long as
the Property Trustee shall act as Paying Agent and, to the extent applicable,
to any other Paying Agent appointed hereunder. Any reference in this 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. On the
Closing Date, the Depositor shall acquire and retain beneficial and record
ownership of the Common Securities. To the fullest extent permitted by law, any
attempted transfer of the Common Securities (other than a transfer in
connection with a merger or consolidation of the Depositor into another
corporation pursuant to Section 12.01 of the Indenture) 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".
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 or held on behalf of The Depository Trust
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Company, the initial Clearing Agency, by, or on behalf of, the Trust. Such
Book-Entry 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 beneficial owner will receive a Definitive
Preferred Securities Certificate representing such beneficial 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
beneficial 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 Book-Entry Preferred Securities) as
the sole Holder of Book-Entry Preferred Securities 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
(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 will
receive and transmit payments on the Preferred Securities to such
Clearing Agency Participants. Any Clearing Agency designated pursuant
hereto will not be deemed an agent of the Trustees 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
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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 interests 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, 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 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 2.09, 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. When issued and
delivered to Holders of the Preferred Securities against payment of the
purchase price therefor, the Preferred Securities will be fully paid and
nonassessable interests in the Trust. The Holders of the Preferred 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
Junior Subordinated Debentures fail to declare the principal of all of the
Junior Subordinated Debentures to be immediately due and payable, the Holders
of at least 25% in Liquidation Amount of the Preferred Securities then
Outstanding shall have such right 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 Junior Subordinated Debentures shall
become immediately due and payable, provided that the payment of principal and
interest on such Junior Subordinated Debentures shall remain subordinated to
the extent provided in the Indenture. If, as a result of a Debenture Event of
Default, the Debenture Trustee or the holders of not less than
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25% in aggregate outstanding principal amount of the Junior Subordinated
Debentures have declared the Junior Subordinated Debentures due and payable and
if such default has been cured and a sum sufficient to pay all matured
installments due (otherwise than by acceleration) under the Junior Subordinated
Debentures has been deposited with the Debenture Trustee, then (if the holders
of not less than a majority in aggregate outstanding principal amount of Junior
Subordinated Debentures have not annulled such declaration and waived such
default) the Holders of a majority in aggregate Liquidation Amount of the
Preferred Securities may annul such declaration and waive such default.
(c) For so long as any Preferred Securities remain
outstanding, upon a Debenture Event of Default arising from the failure to pay
interest or principal on the Junior Subordinated Debentures, the Holders of any
Preferred Securities then Outstanding shall, to the fullest extent permitted by
law, have the right to directly institute proceedings for enforcement of
payment to such Holders of principal of or interest on the Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Preferred Securities of such Holders.
ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
SECTION 6.01 LIMITATIONS ON VOTING RIGHTS.
(a) Except as provided in this Section, in Sections 5.14,
8.10 and 10.02 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 Junior Subordinated 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 Junior Subordinated Debentures, (ii) waive any past
default which is waivable under Article Seven of the Indenture, (iii) exercise
any right to rescind or annul a declaration that the principal of all the
Junior Subordinated Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Indenture or the Junior
Subordinated Debentures, where such consent shall be required, without, in each
case, obtaining the prior approval of the Holders of at least a majority in
Liquidation Amount of all Outstanding Preferred Securities; provided, however,
that where a consent under the Indenture would require the consent of each
holder of outstanding Junior Subordinated Debentures affected thereby, no such
consent shall be given by the Property Trustee without the prior written
consent of each Holder of Preferred Securities. The Trustees shall not revoke
any action previously authorized or approved by a vote of the Holders of the
Outstanding Preferred Securities, except by a subsequent vote of the Holders of
the Outstanding Preferred Securities. The Property Trustee shall notify each
Holder of the Outstanding Preferred Securities of any notice of default
received from the Debenture Trustee with respect to the Junior Subordinated
Debentures. In addition to obtaining the foregoing approvals
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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 the Trust
will continue to be classified as a grantor trust and not as an association
taxable as a corporation for United States federal income tax purposes on
account of such action.
(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. No amendment to
this Trust Agreement may be made if, as a result of such amendment, the Trust
would cease to be classified as a grantor trust or would be classified as an
association taxable as a corporation for United States federal income tax
purposes.
SECTION 6.02 NOTICE OF MEETINGS. Notice of all meetings of the Holders
of Preferred Securities, stating the time, place and purpose of the meeting,
shall be given by the Property Trustee pursuant to Section 10.08 to each Holder
of Preferred Securities of record, at such Securityholder's 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 6.03 MEETINGS OF HOLDERS OF PREFERRED SECURITIES. No annual
meeting of Securityholders is required to be held. The Administrative Trustees,
however, shall call a meeting of Securityholders to vote on any matter upon the
written request of the Holders of 25% of the Outstanding Preferred Securities
(based upon their aggregate Liquidation Amount) and the Administrative Trustees
or the Property Trustee may, at any time in their discretion, call a meeting of
Holders of the Preferred Securities to vote on any matters as to which the
Holders of the Preferred Securities are entitled to vote.
Holders of record of 50% of the Outstanding Preferred Securities
(based upon their aggregate Liquidation Amount), present in person or by proxy,
shall constitute a quorum at any meeting of such Securityholders.
If a quorum is present at a meeting, an affirmative vote by the
Holders of record present, in person or by proxy, holding more than a majority
of the Preferred Securities (based upon their aggregate Liquidation Amount)
held by the Holders of Preferred Securities of record present, either in person
or by proxy, at such meeting shall constitute the action of the Holders of the
Preferred Securities, unless this Trust Agreement requires a greater number of
affirmative votes.
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SECTION 6.04 VOTING RIGHTS. Securityholders shall be entitled to one
vote for each $10 of Liquidation Amount represented by their Trust Securities
in respect of any matter as to which such Securityholders are entitled to vote.
SECTION 6.05 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. 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 6.06 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 more than 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 6.07 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 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 any 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 6.08 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 8.01) conclusive in favor of the
Trustees, if made in the manner provided in this Section.
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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 or her the execution thereof.
Where such execution is by a signer acting in a capacity other than such
signer's individual capacity, such certificate or affidavit shall also
constitute sufficient proof of such signer's 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 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.
A Holder of Preferred Securities may institute a legal proceeding
directly against the Depositor under the Guarantee to enforce its rights under
the Guarantee without first instituting a legal proceeding against the
Guarantee Trustee (as defined in the Guarantee), the Trust or any Person.
SECTION 6.09 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 7.01 REPRESENTATIONS AND WARRANTIES OF THE BANK AND THE
PROPERTY TRUSTEE. The Trust Company, in its separate corporate capacity and as
Property Trustee, as of the date hereof, and each successor Property Trustee at
the time of the successor Property Trustee's acceptance of its appointment as
Property Trustee hereunder (the term "Trust Company" being used hereafter in
this Article VII to refer to such successor Property Trustee in its
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separate corporate capacity and as Property Trustee), hereby represents and
warrants (as applicable) for the benefit of the Depositor and the
Securityholders that:
(a) the Trust Company is a trust company duly organized,
validly existing and in good standing under the laws of the State of Colorado;
(b) the Trust Company 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) this Trust Agreement has been duly authorized, executed
and delivered by the Trust Company and constitutes the valid and legally
binding agreement of the Trust Company enforceable against it in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles;
(d) the execution, delivery and performance by the Trust
Company of this Trust Agreement has been duly authorized by all necessary
corporate or other action on the part of the Trust Company and does not require
any approval of the stockholders of the Trust Company and such execution,
delivery and performance will not (i) violate the Trust Company's charter or
by-laws, (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 Trust Company 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 Colorado, as the case may be, governing the banking or
trust powers of the Trust Company, or any order, judgment or decree applicable
to the Trust Company;
(e) neither the authorization, execution or delivery by the
Trust Company of this Trust Agreement nor the consummation of any of the
transactions by the Trust Company 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 law of the State of Colorado governing the banking or
trust powers of the Trust Company; and
(f) there are no proceedings pending or, to the best of the
Trust Company's knowledge, threatened against or affecting the Trust Company 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 Trust Company to enter into or perform its obligations as one of the
Trustees under this Trust Agreement.
SECTION 7.02 REPRESENTATIONS AND WARRANTIES OF THE DELAWARE BANK AND
THE DELAWARE TRUSTEE. The Delaware Bank in its corporate capacity and as
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Delaware Trustee, as of the date hereof, and each successor Delaware Trustee at
the time of the successor Delaware Trustee's acceptance of its appointment as
Delaware Trustee hereunder (the term "Delaware Bank" being used hereafter in
this Article VIII to refer to such successor Delaware Trustee in its separate
corporate capacity and as Delaware Trustee), hereby represents and warrants (as
applicable) for the benefit of the Depositor and the Securityholders that:
(a) the Delaware Bank is a Delaware banking corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware;
(b) the Delaware Bank 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) this Trust Agreement has been duly authorized, executed
and delivered by the Delaware Bank and constitutes the valid and legally
binding agreement of the Delaware Bank enforceable against it in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles;
(d) the execution, delivery and performance by the Delaware
Bank of this Trust Agreement has been duly authorized by all necessary
corporate or other action on the part of the Delaware Bank and does not require
any approval of the stockholders of the Delaware Bank and such execution,
delivery and performance will not (i) violate the Delaware Bank's charter or
by-laws, (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 Delaware Bank 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 or
trust powers of the Delaware Bank, or any order, judgment or decree applicable
to the Delaware Bank;
(e) neither the authorization, execution or delivery by the
Delaware Bank of this Trust Agreement nor the consummation of any of the
transactions by the Delaware Bank 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 law of the State of Delaware governing the banking or
trust powers of the Delaware Bank; and
(f) there are no proceedings pending or, to the best of the
Delaware Bank's knowledge, threatened against or affecting the Delaware Bank 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 Delaware Bank to enter into or perform its obligations as one of the
Trustees under this Trust Agreement.
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SECTION 7.03 REPRESENTATIONS AND WARRANTIES OF DEPOSITOR. The
Depositor hereby represents and warrants for the benefit of the Securityholders
that:
(a) the Trust Securities Certificates issued on the Closing
Date on behalf of the Trust have been duly authorized and will have been duly
and validly executed, issued and delivered by the Administrative 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
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 Trust Company, the Property
Trustee, the Delaware Bank or the Delaware Trustee, as the case may be, of this
Trust Agreement.
ARTICLE VIII
THE TRUSTEES
SECTION 8.01 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. No Administrative Trustee nor the Delaware Trustee shall be liable for such
Trustee's acts or omissions hereunder except as a result of such Trustee's own
gross negligence or willful misconduct. The Property Trustee's liability shall
be determined under the Trust Indenture Act. 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. To the extent that, at law or in
equity, the Delaware Trustee or an Administrative Trustee has duties (including
fiduciary duties) and liabilities relating thereto to the Trust or to the
Securityholders, the Delaware Trustee or such Administrative 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 Delaware Trustee or the Administrative 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 Delaware Trustee and the
Administrative 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
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the Property Trustee or a Paying Agent to make payments in accordance with the
terms hereof. Each Securityholder, by such Securityholder's acceptance of a
Trust Security, agrees that such Securityholder will look solely to the revenue
and proceeds from the Trust Property to the extent legally available for
distribution to such Securityholder as herein provided and that the Trustees
are not personally liable to such Securityholder for any amount distributable
in respect of any Trust Security or for any other liability in respect of any
Trust Security. This Section 8.01(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 Junior
Subordinated Debentures and the Payment Account shall be to deal with
such Property in a similar manner as the Property Trustee deals with
similar property for its own account, subject to the protections and
limitations on liability afforded to the Property Trustee under this
Trust Agreement and the Trust Indenture Act;
(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
3.01 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 negligence, default or
misconduct of the Administrative Trustees or the Depositor.
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SECTION 8.02 CERTAIN NOTICES.
(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 10.08,
notice of such Event of Default to the Securityholders, the Administrative
Trustees and the Depositor, unless such 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, an Event
of Default.
(b) The Administrative Trustees shall transmit, to the
Securityholders in the manner and to the extent provided in Section 10.08,
notice of the Depositor's election to begin or further extend an Extension
Period on the Junior Subordinated Debentures (unless such election shall have
been revoked) within the time specified for transmitting such notice to the
holders of the Junior Subordinated Debentures pursuant to the Indenture as
originally executed.
(c) In the event the Depositor elects to accelerate the
Maturity Date in accordance with Section 2.02 of the Indenture, the Property
Trustee shall give notice to each Holder of Trust Securities of the
acceleration of the Maturity Date and the Accelerated Maturity Date not later
than five Business Days after the Property Trustee receives the notice provided
in Section 2.02(c) of the Indenture.
SECTION 8.03 CERTAIN RIGHTS OF PROPERTY TRUSTEE. Subject to the
provisions of Section 8.01:
(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
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 Holders of the Preferred Securities 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 10 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
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Securityholders, in which event the Property Trustee shall have no liability
except for its own bad faith, negligence or willful misconduct;
(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 conclusively rely upon an
Officer's 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 reregistration thereof;
(f) the Property Trustee may consult with counsel of its
choice 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 own negligence or recklessness with respect to selection of
any agent or attorney appointed by it hereunder;
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(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 8.04 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 (as such) shall not be
accountable for the use or application by the Depositor of the proceeds of the
Junior Subordinated Debentures.
SECTION 8.05 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, subject to Sections 8.08 and 8.13
and except as provided in the definition of the term "Outstanding" in Article
I, may otherwise deal with the Trust with the same rights it would have if it
were not a Trustee or such other agent.
SECTION 8.06 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);
(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 such Trustee's negligence,
bad faith or willful misconduct (or, in the case of the Administrative Trustees
or the Delaware Trustee, any such expense, disbursement or advance as may be
attributable to its, his or her gross negligence, bad faith or willful
misconduct); and
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(c) to the fullest extent permitted by applicable law, to
indemnify and hold harmless (i) each Trustees and any predecessor Trustee, (ii)
any Affiliate of any Trustee, (iii) any officer, director, shareholder,
employee, representative or agent of any Trustee, and (iv) any employee of
agent of the Trust, (referred to as an "Indemnified Person") from and against,
any loss, damage, liability, tax, penalty, expense or claim of any kind or
nature whatsoever incurred by such Indemnified Person arising out of or in
connection with the creation, operation or dissolution of the Trust or any act
or omission performed or omitted by 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 gross negligence, bad faith or willful
misconduct with respect to such acts or omissions (or, in the case of the
Property Trustee, by reason of negligence, bad faith or willful misconduct with
respect to such acts or omissions).
The provisions of this Section 8.06 shall survive the termination of
this Trust Agreement.
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 the 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 of 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.
No Trustee may claim any Lien on any Trust Property as a result of any
amount due pursuant to this Section 8.06.
SECTION 8.07 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 $500,000 (and its parent holding
company having a combined capital and surplus of at least $50 million). 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
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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 8.08 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 8.09 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 shall have power to
appoint, and upon the written request of the Property Trustee, the Depositor
and the Administrative Trustees shall for such purpose join with the Property
Trustee in the execution, delivery and performance of all instruments and
agreements necessary or proper to appoint, one or more Persons approved by the
Property Trustee either to act as co-trustee, jointly with the Property
Trustee, of all or any part of such Trust Property, or to the extent required
by law to act as separate trustee of any such property, in either case with
such powers as may be provided in the instrument of appointment, and to vest in
such Person or Persons in the capacity aforesaid, any property, title, right or
power deemed necessary or desirable, subject to the other provisions of this
Section. If the Depositor and the Administrative Trustees do not join in such
appointment within 15 days after the receipt by them 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.
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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 join with the Property Trustee in the execution, delivery
and performance of all instruments and agreements necessary or proper to
effectuate such resignation or removal. A successor to any co-trustee or
separate trustee so resigned or removed may be appointed in the manner provided
in this Section 8.09.
(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
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within 30 days after the giving of such notice of resignation, the Relevant
Trustee may petition, at the expense of the Depositor, 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 Holder of the
Common Securities. 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 such Relevant Trustee (in its
individual capacity and on behalf of the Trust). An Administrative Trustee may
be removed by the Holder of the Common Securities at any time. In no event will
the Holders of the Preferred Securities have the right to vote to appoint,
remove or replace the Administrative Trustees.
If the Relevant Trustee shall resign, be removed or become incapable
of acting as Trustee, or if a vacancy shall occur in the office of such
Relevant Trustee for any cause, at a time when no Debenture Event of Default
shall have occurred and be continuing, the Holder of the Common Securities, by
Act of the Holder of the Common Securities delivered to the retiring Relevant
Trustee, shall promptly appoint a successor Trustee or Trustees with respect to
the Trust Securities and the Trust, and the successor Trustee shall comply with
the applicable requirements of Section 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 is continuing,
the Holders of the Preferred Securities by Act of the Holders of a majority in
Liquidation Amount of the Preferred Securities then Outstanding delivered to
the retiring Relevant Trustee, shall promptly appoint a successor 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 Holder
of the Common Securities, by Act of the Holder of the Common Securities
delivered to an Administrative Trustee, shall promptly appoint a successor
Administrative Trustee or Administrative Trustees, and such successor
Administrative Trustee or Administrative Trustees shall comply with the
applicable requirements of Section 8.11. If no successor Trustee with respect
to the Trust Securities shall have been so appointed by the Holder of the
Common Securities or the Holders of the Preferred Securities and accepted
appointment in the manner required by Section 8.11, any Securityholder who has
been a Securityholder for at least six months may, on behalf of such
Securityholder and all others similarly situated, petition a court of competent
jurisdiction for the appointment of a successor Trustee.
The Property Trustee shall give notice of each resignation and each
removal of a Relevant Trustee and each appointment of a successor Trustee to
all Securityholders in the manner provided in Section 10.08 and shall give
notice to the Depositor. Each notice shall include the name of the successor
Trustee and the address of its Corporate Trust office if it is the Property
Trustee.
Subject to 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
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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 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 the
Delaware Trustee, as the case may be, set forth in Section 8.07).
SECTION 8.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. In case of the
appointment hereunder of a successor Trustee, the retiring Relevant Trustee and
each successor Trustee with respect to the Trust Securities shall execute and
deliver an instrument hereto wherein each successor Trustee shall accept such
appointment and which shall contain such provisions as shall be necessary or
desirable to transfer and confirm to, and to vest in, each successor Trustee
all the rights, powers, trusts and duties of the retiring Relevant Trustee with
respect to the Trust Securities and the Trust, and upon the execution and
delivery of such instrument, the resignation or removal of the retiring
Relevant Trustee shall become effective to the extent provided therein and each
such successor Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the retiring
Relevant Trustee with respect to the Trust Securities and the Trust; but, on
request of the Trust or any successor Trustee such retiring Relevant Trustee
shall duly assign, transfer and deliver to such successor 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 Trustee, the Trust shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts referred to in the
immediately preceding paragraph, as the case may be.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 8.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS. Any Person into which the Property Trustee, the Delaware Trustee or
any Administrative Trustee that is not a natural person may be merged or
converted or with which it may be consolidated, or any Person resulting from
any merger, conversion or consolidation to which such Relevant Trustee shall be
a party, or any 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 Person 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. If and when the Property Trustee shall be or become a creditor of the
Depositor or the Trust (or any other obligor upon the Junior Subordinated
Debentures or the Trust Securities), the Property Trustee shall be subject to
and shall take all actions necessary in order to comply with the provisions of
the Trust Indenture Act regarding the collection of claims against the
Depositor or Trust (or any such other obligor).
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SECTION 8.14 REPORTS BY PROPERTY TRUSTEE.
(a) Not later than January 31 of each year commencing with
January 31, 2000, the Property Trustee shall transmit to all Securityholders in
accordance with Section 10.08, and to the Depositor, a brief report dated as of
the preceding December 31 with respect to:
(i) its eligibility under Section 8.07 or, in lieu
thereof, if to the best of its knowledge it has continued to be
eligible under said Section, a written statement to such effect; and
(ii) any change in the property and funds in its
possession as Property Trustee since the date of its last report and
any action taken by the Property Trustee in the performance of its
duties hereunder which it has not previously reported and which in its
opinion materially affects the Trust Securities.
(b) In addition the Property Trustee shall transmit to
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
securities exchange or other organization upon which the Trust Securities may
be listed, 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 the 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, provided that the
Holder 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
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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 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 2.07(a)(i); 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 the Trust, 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 9.01 DISSOLUTION UPON EXPIRATION DATE. Unless earlier
dissolved, the Trust shall automatically dissolve on ____________________, 2028
(the "Expiration Date"), and thereafter the Trust Property shall be distributed
in accordance with Section 9.04.
SECTION 9.02 EARLY DISSOLUTION. The first to occur of any of the
following events is an "Early Termination Event," upon the occurrence of which
the Trust shall dissolve:
(a) the occurrence of a Bankruptcy Event in respect of, or
the dissolution or liquidation of, the Depositor;
(b) delivery of written direction to the Property Trustee by
the Depositor at any time (which direction is wholly optional and within the
discretion of the Depositor) to dissolve the
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Trust and distribute the Junior Subordinated Debentures to Securityholders in
exchange for the Preferred Securities in accordance with Section 9.04;
(c) the redemption of all of the Preferred Securities in
connection with the redemption of all of the Junior Subordinated Debentures;
and
(d) an order for dissolution of the Trust shall have been
entered by a court of competent jurisdiction.
SECTION 9.03 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 9.04, or upon the redemption of all of the Trust Securities
pursuant to Section 4.02, 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 Trustee under the
Delaware Business Trust Act.
SECTION 9.04 LIQUIDATION.
(a) If an Early Termination Event specified in clause (a),
(b), or (d) of Section 9.02 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
Junior Subordinated Debentures, subject to Section 9.04(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 Junior Subordinated Debentures;
and
(iii) provide such information with respect to the
mechanics by which Holders may exchange Trust Securities certificates
for Junior Subordinated Debentures, or if Section 9.04(d) applies
receive a Liquidation Distribution, as the Administrative Trustees or
the Property Trustee shall deem appropriate.
(b) Except where Section 9.02(c) or 9.04(d) applies, in order
to effect the liquidation of the Trust and distribution of the Junior
Subordinated Debentures to Securityholders,
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the Property Trustee 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 separate
exchange agent, shall establish such procedures as it shall deem appropriate to
effect the distribution of Junior Subordinated Debentures in exchange for the
Outstanding Trust Securities Certificates.
(c) Except where Section 9.02(c) or 9.04(d) applies, after
the Liquidation Date, (i) the Trust Securities will no longer be deemed to be
Outstanding, (ii) certificates (or, at the election of the Depositor a Global
Subordinated Debenture, subject to the provisions of the Indenture)
representing a Like Amount of Junior Subordinated 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 reasonable efforts to have the Junior Subordinated Debentures
listed on the NASDAQ National Market or on such other securities exchange or
other organization as the Preferred Securities may then be listed or traded,
(iv) any Trust Securities Certificates not so surrendered for exchange will be
deemed to represent a Like Amount of Junior Subordinated Debentures, accruing
interest at the rate provided for in the Junior Subordinated 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 Trust Securities Certificates with respect to such Junior
Subordinated Debentures) and (v) all rights of Securityholders holding Trust
Securities will cease, except the right of such Securityholders to receive
Junior Subordinated Debentures upon surrender of Trust Securities Certificates.
(d) In the event that, notwithstanding the other provisions
of this Section 9.04, whether because of an order for dissolution entered by a
court of competent jurisdiction or otherwise, distribution of the Junior
Subordinated Debentures in the manner provided herein is determined by the
Property Trustee not to be practical, the Trust shall be dissolved and the
Trust Property shall be liquidated by the Property Trustee in such manner as
the Property Trustee determines. In such event, on the date of the dissolution
of the Trust, 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 dissolution, 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 dissolution, pro rata (determined as aforesaid)
with Holders of Preferred Securities, except that, if a Debenture Event of
Default has occurred and is continuing, the Preferred Securities shall have a
priority over the Common Securities.
SECTION 9.05. 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
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an entirety to any corporation or other Person, except pursuant to this Section
9.05. 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, 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 substantially
the same powers and duties as the Property Trustee as the holder of the Junior
Subordinated Debentures, (iii) 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, (iv) such
successor entity has a purpose identical to that of the Trust, (v) the
Successor Securities will be listed or traded on any national securities
exchange or other organization on which the Preferred Securities may then be
listed, (vi) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the Depositor has received an Opinion of Counsel
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the Holders of the 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 Investment Company
Act and (vii) 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 Person or
permit any other Person to consolidate, amalgamate, merge with or into, or
replace it, if such consolidation, amalgamation, merger or replacement 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 10.01 LIMITATION OF RIGHTS OF SECURITYHOLDERS. The death or
incapacity of any Person having an interest, beneficial or otherwise, in Trust
Securities shall not operate to terminate this Trust Agreement, nor entitle the
legal representatives or heirs of such Person, 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.
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SECTION 10.02 AMENDMENT.
(a) This Trust Agreement may be amended from time to time by
the Trustees and the Depositor, without the consent of any Securityholders, (i)
as provided in Section 8.11 with respect to acceptance of appointment by a
successor Trustee, (ii) to cure any ambiguity, correct or supplement any
provision herein or therein which may be inconsistent with any other provision
herein or therein, or to make any other provisions with respect to matters or
questions arising under this Trust Agreement, that shall not be inconsistent
with the other provisions of this Trust Agreement, or (iii) 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 Investment Company
Act; provided, however, that in the case of clause (ii), such action shall not
adversely affect in any material respect the interests of any Securityholder,
and any amendments of this Trust Agreement shall become effective when notice
thereof is given to the Securityholders.
(b) Except as provided in Section 6.01(c) or Section 10.02(c)
hereof, any provision of this Trust Agreement may be amended by the Trustees
and the Depositor (i) with the consent of Securityholders representing not less
than a majority (based upon Liquidation Amounts) of the Trust Securities then
Outstanding and (ii) upon 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 Investment Company
Act.
(c) In addition to and notwithstanding any other provision in
this Trust Agreement, without the consent of each affected Securityholder (such
consent being obtained in accordance with Section 6.03 or 6.06 hereof), this
Trust Agreement may not be amended to (i) change the amount or timing of any
distribution on the Trust Securities or otherwise adversely affect the amount
of any distribution required to be made in respect of the Trust Securities as
of a specified date or (ii) restrict the right of a 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 (such consent being obtained in accordance with Section
6.03 or 6.06 hereof), this paragraph (c) of this Section 10.02 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 Investment Company
Act or to 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.
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(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 10.03 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 10.04 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 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 10.05 PAYMENTS DUE ON NON-BUSINESS DAY. If the date fixed for
any payment on any Trust Security shall be a day that is not a Business Day,
then such payment need not be made on such date but may be made on the next
succeeding day which is a Business Day (except as otherwise provided in
Sections 4.01(a) and 4.02(d)), with the same force and effect as though made on
the date fixed for such payment, and no Distribution shall accumulate thereon
for the period after such date.
SECTION 10.06 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(s), including any successor by operation of law. Except in
connection with a consolidation, merger or sale involving the Depositor that is
permitted under Article Twelve 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 10.07 HEADINGS. The Article and Section headings are for
convenience only and shall not affect the construction of this Trust Agreement.
SECTION 10.08 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 Holder of Preferred
Securities, to such Securityholder as such Securityholder's name and address
may appear on the Securities Register; and (b) in the case of the Holder of the
Common Securities or the Depositor, to Union Bankshares,
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<PAGE> 51
Ltd., 836 Quail Street, Suite 100, Lakewood, Colorado 80215 Attention: Chief
Executive Officer; Facsimile No.: (303) 234-5340. Any notice to the Holders of
the Preferred Securities shall also be given to such Owners as have, within two
years preceding the giving of such notice, filed their names and addresses with
the Property Trustee for that purpose. 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 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 American Securities
Transfer & Trust, Inc., 1825 Lawrence Street, Suite 444, Denver, Colorado
80202, Attention: Corporate Trust Administration; (b) with respect to the
Delaware Trustee, to Wilmington Trust Company, Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust
Administration; and (c) with respect to the Administrative Trustees, to them at
the address above for notices to the Depositor, marked "Attention:
Administrative Trustees of Union Bankshares Capital Trust I." 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.
SECTION 10.09 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, insolvency, reorganization or other similar law
(including, without limitation, the United States Bankruptcy Code)
(collectively, "Bankruptcy Laws") or otherwise join in the commencement of any
proceeding against the Trust under any Bankruptcy Law. In the event the
Depositor takes action in violation of this Section 10.09, the Property Trustee
agrees, for the benefit of Securityholders, that at the expense of the
Depositor (which expense shall be paid prior to the filing), 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. The provisions
of this Section 10.09 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.
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(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 to be 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 Trust 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 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.
SECTION 10.12 COUNTERPARTS. This Trust Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be an original, and all of which counterparts together shall constitute one and
the same agreement.
* * * * *
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UNION BANKSHARES, LTD.,
as Depositor
By:
-------------------------------------------
Charles R. Harrison, Chairman and
Chief Executive Officer
AMERICAN SECURITIES TRANSFER & TRUST,
INC.,
as Property Trustee
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
WILMINGTON TRUST COMPANY,
as Delaware Trustee, and not in its individual
capacity
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
---------------------------------------------
Charles R. Harrison, as Administrative Trustee
---------------------------------------------
Herman J. Zueck, as Administrative Trustee
---------------------------------------------
Bruce E. Hall, as Administrative Trustee
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EXHIBIT C
THIS CERTIFICATE IS NOT TRANSFERABLE
CERTIFICATE NUMBER NUMBER OF SECURITIES
--------- -----------
CERTIFICATE EVIDENCING COMMON SECURITIES
OF
UNION BANKSHARES CAPITAL TRUST I
____% COMMON SECURITIES
(LIQUIDATION AMOUNT $7.60 PER COMMON SECURITY)
UNION BANKSHARES CAPITAL TRUST I, a statutory business trust created
under the laws of the State of Delaware (the "Trust"), hereby certifies that
Union Bankshares, Ltd. (the "Holder") is the registered owner of ____________
____________________________________________________ (________________)
securities of the Trust representing undivided beneficial interests in the
assets of the Trust and designated the ____% Common Securities (liquidation
amount $7.60 per Common Security) (the "Common Securities"). In accordance with
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 _________________, 1998, as the same may be amended
from time to time (the "Trust Agreement"), including the designation of the
terms of 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.
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has
executed this certificate this ____ day of ______________, 1998.
UNION BANKSHARES CAPITAL TRUST I
By:
--------------------------------
Bruce E. Hall
Administrative Trustee
<PAGE> 55
EXHIBIT D
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT dated as of _______________, 1998, between UNION BANKSHARES,
LTD., a Delaware corporation (the "Company"), and UNION BANKSHARES CAPITAL TRUST
I, a Delaware business trust (the "Trust").
WHEREAS, the Trust intends to issue its Common Securities (the "Common
Securities") to, and receive ____% Junior Subordinated Debentures due 2028 (the
"Junior Subordinated Debentures") from, the Company and to issue and sell ____%
Cumulative Preferred Securities (the "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 _______________, 1998, as
the same may be amended from time to time (the "Trust Agreement"); and
WHEREAS, the Company will directly or indirectly own all of the Common
Securities of the Trust and will issue the Junior Subordinated Debentures.
NOW, THEREFORE, in consideration of the purchase by each holder of the
Preferred Securities, which purchase the Company hereby agrees shall benefit the
Company and which purchase the Company acknowledges will be made in reliance
upon the execution and delivery of this Agreement, the Company, including in its
capacity as holder of the Common Securities, and the Trust hereby agree as
follows:
ARTICLE I
SECTION 1.01. GUARANTEE BY THE COMPANY. Subject to the terms and
conditions hereof, the Company, including in its capacity as holder of the
Common Securities, 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 Preferred Securities or other
similar interests in the Trust the amounts due such holders pursuant to the
terms of the 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 1.02. 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 Preferred
Securities (whether upon redemption, liquidation, exchange or otherwise) and (b)
the date on which there are no Beneficiaries
<PAGE> 56
remaining; provided, however, that this Agreement shall continue to be effective
or shall be reinstated, as the case may be, if at any time any holder of
Preferred Securities or any Beneficiary must restore payment of any sums paid
under the Preferred Securities, under any Obligation, under the Preferred
Securities Guarantee Agreement dated the date hereof by the Company and American
Securities Transfer & Trust, Inc. as guarantee trustee or under this Agreement,
for any reason whatsoever. This Agreement is continuing, irrevocable,
unconditional and absolute.
SECTION 1.03. WAIVER OF NOTICE. The Company hereby waives notice of
acceptance of this Agreement and of any Obligation to which it applies or may
apply, and the Company hereby waives presentment, demand for payment, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 1.04. NO IMPAIRMENT. The obligations, covenants, agreements and
duties of the Company 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.
The Beneficiaries shall not be obligated to give notice to, or obtain
the consent of, the Company with respect to the happening of any of the
foregoing.
SECTION 1.05. ENFORCEMENT. A Beneficiary may enforce this Agreement
directly against the Company, and the Company waives any right or remedy to
require that any action be brought against the Trust or any other person or
entity before proceeding against the Company.
ARTICLE II
SECTION 2.01. BINDING EFFECT. All guarantees and agreements contained
in this Agreement shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the
Beneficiaries.
2
<PAGE> 57
SECTION 2.02. AMENDMENT. So long as there remains any Beneficiary or
any Preferred Securities are outstanding, this Agreement shall not be modified
or amended in any manner adverse to such Beneficiary or to the holders of the
Preferred Securities.
SECTION 2.03. NOTICES. Any notice, request or other communication
required or permitted to be given hereunder shall be given in writing by
delivering the same 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):
Union Bankshares Capital Trust I
1825 Lawrence Street, Suite 444
Denver, Colorado 80202
Facsimile No.: (303) 298-5352
Attention: Corporate Trust Administration
Union Bankshares, Ltd.
1825 Lawrence Street, Suite 444
Denver, Colorado 80202
Facsimile No.: (303) 298-5352
Attention: Chief Executive Officer
SECTION 2.04. GOVERNING LAW. This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the State of Colorado
(without regard to conflict of laws principles).
THIS AGREEMENT is executed as of the day and year first above written.
UNION BANKSHARES, LTD.,
By
-----------------------------------------
Charles R. Harrison, Chairman and Chief
Executive Officer
UNION BANKSHARES CAPITAL TRUST I
By
-----------------------------------------
Bruce E. Hall, Administrative Trustee
3
<PAGE> 58
EXHIBIT E
This Preferred Security is a Book-Entry Preferred Securities
Certificate within the meaning of the Trust Agreement hereinafter referred to
and is registered in the name of The Depository Trust Company, a New York
corporation (the "Depositary") or a nominee of the Depositary. This Preferred
Security is exchangeable for Preferred Securities registered in the name of a
person other than the Depositary or its nominee only in the limited
circumstances described in the Trust Agreement (as defined below) and no
transfer of this Preferred Security (other than a transfer of this Preferred
Security 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) may be registered except in limited circumstances.
Unless this Preferred Security is presented by an authorized
representative of the Depositary to Union Bankshares Capital Trust I 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 Depositary (and any payment
hereon is made to Cede & Co. or to such other entity as is requested by an
authorized representative of the Depositary), 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.
Certificate Number Number of Preferred Securities
**1** 1,315,790
CUSIP NO.
-------------------
Certificate Evidencing Preferred Securities
of
Union Bankshares Capital Trust I
____% Cumulative Preferred Securities
(liquidation amount $7.60 per Preferred Security)
MB CAPITAL I, a statutory business trust created under the laws of the
State of Delaware (the "Trust"), hereby certifies that Cede & Co. (the "Holder")
is the registered owner of One Million Three Hundred Fifteen Thousand Seven
Hundred Ninety (1,315,790) preferred securities of the Trust representing
undivided beneficial interests in the assets of the Trust and designated the
____% Cumulative Preferred Securities (liquidation amount $7.60 per Preferred
Security) (the "Preferred Securities"). The 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 5.04 of the Trust Agreement (as
defined below). The designations, rights, privileges, restrictions, preferences,
and other terms and provisions of the Preferred Securities are set forth in, and
this certificate and the Preferred Securities represented
<PAGE> 59
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
_________________, 1998, as the same may be amended from time to time (the
"Trust Agreement"), including the designation of the terms of Preferred
Securities as set forth therein. The Holder is entitled to the benefits of the
Preferred Securities Guarantee Agreement entered into by Union Bankshares, Ltd.,
a Delaware corporation, and American Securities Transfer & Trust, Inc., as
guarantee trustee, dated as of _________________, 1998 (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 __________________, 1998.
UNION BANKSHARES CAPITAL TRUST I
By:
-------------------------------------
Bruce E. Hall
Administrative Trustee
<PAGE> 1
================================================================================
PREFERRED SECURITIES GUARANTEE AGREEMENT
UNION BANKSHARES, LTD.
and
AMERICAN SECURITIES TRANSFER & TRUST, INC.
Dated: ______________, 1998
================================================================================
<PAGE> 2
<TABLE>
<S> <C> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.01. Definitions and Interpretations............................ 1
ARTICLE II
TRUST INDENTURE ACT
Section 2.01. Trust Indenture Act; Application........................... 5
Section 2.02. Lists of Holders of Securities............................. 5
Section 2.03. Reports by the Preferred Guarantee Trustee................. 5
Section 2.04. Periodic Reports to Preferred Guarantee Trustee............ 5
Section 2.05. Evidence of Compliance with Conditions Precedent........... 6
Section 2.06. Events of Default; Waiver.................................. 6
Section 2.07. Event of Default; Notice................................... 6
Section 2.08. Conflicting Interests...................................... 6
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
Section 3.01. Powers and Duties of the Preferred Guarantee Trustee....... 7
Section 3.02. Certain Rights of Preferred Guarantee Trustee.............. 8
Section 3.03. Not Responsible for Recitals or Issuance of Guarantee...... 10
Section 3.04. Compensation and Reimbursement............................. 10
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
Section 4.01. Preferred Guarantee Trustee; Eligibility................... 11
Section 4.02. Appointment, Removal and Resignation of Preferred
Guarantee Trustees......................................... 12
ARTICLE V
GUARANTEE
Section 5.01. Guarantee.................................................. 12
Section 5.02. Waiver of Notice and Demand................................ 13
Section 5.03. Obligations Not Affected................................... 13
Section 5.04. Rights of Holders.......................................... 14
Section 5.05. Guarantee of Payment....................................... 14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.06. Subrogation................................................ 14
Section 5.07. Independent Obligations.................................... 14
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
Section 6.01. Limitation of Transactions................................. 14
Section 6.02. Ranking.................................................... 15
ARTICLE VII
TERMINATION
Section 7.01. Termination................................................ 15
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Exculpation................................................ 15
Section 8.02. Indemnification............................................ 16
ARTICLE IX
MISCELLANEOUS
Section 9.01. Successors and Assigns..................................... 16
Section 9.02. Amendments................................................. 16
Section 9.03. Notices.................................................... 16
Section 9.04. Benefit.................................................... 17
Section 9.05. Governing Law.............................................. 17
</TABLE>
ii
<PAGE> 4
CROSS REFERENCE TABLE
<TABLE>
<CAPTION>
Section of Trust Indenture Act of 1939, Section of Guarantee
as Amended Agreement
<S> <C>
310(a) 4.01(a)
310(b) 4.01(c), 2.08
310(c) Inapplicable
311(a) 2.02(b)
311(b) 2.02(b)
311(c) Inapplicable
312(a) 2.02(a)
312(b) 2.02(b)
313 2.03
314(a) 2.04
314(b) Inapplicable
314(c) 2.05
314(d) Inapplicable
314(e) 1.01, 2.05, 3.02
314(f) 2.01, 3.02
315(a) 3.01(d)
315(b) 2.07
315(c) 3.01
315(d) 3.01(d)
316(a) 1.01, 3.06, 5.04
316(b) 5.03
316(c) 8.02
317(a) Inapplicable
317(b) Inapplicable
318(a) 2.01(b)
318(b) 2.01
318(c) 2.01(a)
</TABLE>
<PAGE> 5
PREFERRED SECURITIES GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Preferred Securities Guarantee"), dated
as of ______________, 1998, is executed and delivered by UNION BANKSHARES, LTD.,
a Delaware corporation (the "Guarantor"), and AMERICAN SECURITIES TRANSFER &
TRUST, INC., as trustee (the "Preferred Guarantee Trustee"), for the benefit of
the Holders (as defined herein) from time to time of the Preferred Securities
(as defined herein) of UNION BANKSHARES CAPITAL TRUST I, a Delaware statutory
business trust ("UBCT").
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
"Trust Agreement") dated as of _________, 1998 among the trustees of UBCT named
therein, the Guarantor, as sponsor, and the holders from time to time of
undivided beneficial interests in the assets of UBCT, UBCT is issuing on the
date hereof 1,315,790 preferred securities, having an aggregate liquidation
amount of $10,000,004 designated the ____% Cumulative Preferred Securities (the
"Preferred Securities"); and
WHEREAS, as incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, to pay to the
Holders of the Preferred Securities the Guarantee Payments (as defined herein)
and to make certain other payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.01. DEFINITIONS AND INTERPRETATIONS. In this Preferred
Securities Guarantee, unless the context otherwise requires:
(a) capitalized terms used in this Preferred Securities
Guarantee but not defined in the preamble above have the respective
meanings assigned to them in this Section 1.01;
(b) a term defined anywhere in this Preferred Securities
Guarantee has the same meaning throughout;
(c) all references to "the Preferred Securities Guarantee" or
"this Preferred Securities Guarantee" are to this Preferred Securities
Guarantee as modified, supplemented or amended from time to time;
<PAGE> 6
(d) all references in this Preferred Securities Guarantee to
Articles and Sections are to Articles and Sections of this Preferred
Securities Guarantee, unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same
meaning when used in this Preferred Securities Guarantee, unless
otherwise defined in this Preferred Securities Guarantee or unless the
context otherwise requires; and
(f) a reference to the singular includes the plural and vice
versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than (a) a Saturday or Sunday, (b)
a day on which banking institutions in the State of Colorado are authorized or
required by law or executive order to remain closed, or (c) a day on which the
Preferred Guarantee Trustee's Corporate Trust Office is closed for business.
"Corporate Trust Office" means the office of the Preferred Guarantee
Trustee at which the corporate trust business of the Preferred Guarantee Trustee
shall, at any particular time, be principally administered, which office at the
date of execution of this Agreement is located at 836 Quail Street, Suite 100,
Lakewood, Colorado 80215, Attn: Corporate Trust Administration.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities.
"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: (a) every
obligation of such person for money borrowed; (b) 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; (c) every reimbursement obligation of such person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such person; (d) 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); (e) every capital lease obligation of such person; and (f) every
obligation of the type referred to in clauses (a) through (e) of another person
and all dividends of another person the payment of which, in either case, such
person has guaranteed or for which such person is responsible or liable,
directly or indirectly, as obligor or otherwise.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Preferred Securities Guarantee.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by UBCT: (a) any accrued and unpaid Distributions (as defined in
the Trust Agreement) that are required to be paid on such Preferred Securities
to the extent UBCT shall have funds available therefor, (b) the redemption
price, including all accrued and unpaid Distributions to the date of redemption
(the
2
<PAGE> 7
"Redemption Price") to the extent UBCT has funds available therefor, with
respect to any Preferred Securities called for redemption by UBCT, and (c) upon
a voluntary or involuntary dissolution, winding-up or termination of UBCT (other
than in connection with the distribution of Junior Subordinated Debentures to
the Holders in exchange for Preferred Securities as provided in the Trust
Agreement), the lesser of (i) the aggregate of the liquidation amount and all
accrued and unpaid Distributions on the Preferred Securities to the date of
payment, to the extent UBCT shall have funds available therefor, and (ii) the
amount of assets of UBCT remaining available for distribution to Holders in
liquidation of UBCT (in either case, the "Liquidation Distribution").
"Holder" shall mean any holder, as registered on the books and records
of UBCT of any Preferred Securities; provided, however, that, in determining
whether the holders of the requisite percentage of Preferred Securities have
given any request, notice, consent or waiver hereunder, "Holder" shall not
include the Guarantor or any Affiliate of the Guarantor.
"Indemnified Person" means the Preferred Guarantee Trustee, any
Affiliate of the Preferred Guarantee Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives, nominees,
custodians or agents of the Preferred Guarantee Trustee.
"Indenture" means the Subordinated Indenture dated as of
______________, 1998, among the Guarantor (the "Debenture Issuer") and American
Securities Transfer & Trust, Inc., as trustee, and any indenture supplemental
thereto pursuant to which the Junior Subordinated Debentures are to be issued to
the Property Trustee (as defined in the Trust Agreement) of UBCT.
"Junior Subordinated Debentures" means the series of junior
subordinated deferrable interest debt securities of the Guarantor designated the
___% Junior Subordinated Debentures due 2028 held by the Property Trustee of
UBCT.
"Majority in liquidation amount of the Preferred Securities" means,
except as provided by the Trust Indenture Act, a vote by Holders of Preferred
Securities, voting separately as a class, of more than 50% of the liquidation
amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined) of all Preferred Securities.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Authorized officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definition
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;
3
<PAGE> 8
(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.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Preferred Guarantee Trustee" means American Securities Transfer &
Trust, Inc., until a Successor Preferred Guarantee Trustee has been appointed
and has accepted such appointment pursuant to the terms of this Preferred
Securities Guarantee and thereafter means each such Successor Preferred
Guarantee Trustee.
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer within the Corporate Trust Office of the Preferred
Guarantee Trustee, including any vice-president, any assistant vice-president,
any assistant secretary, the treasurer, any assistant treasurer or other officer
of the Corporate Trust Office of the Preferred Guarantee Trustee customarily
performing functions similar to those performed by any of the above designated
officers 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.
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.01.
"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 Guarantor
whether or not such claim for post-petition interest is allowed in such
proceeding), on Debt of the Guarantor, whether incurred on or prior to the date
of the 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 Preferred
Securities Guarantee or to other Debt which is pari passu with, or subordinated
to, the Preferred Securities Guarantee; provided, however, that Senior and
Subordinated Debt shall not be deemed to include (a) any Debt of the Guarantor
which when incurred and without respect to any election under section 1111(b) of
the United States Bankruptcy Code of 1978, as amended, was without recourse to
the Guarantor, (b) any Debt of the Guarantor to any of its subsidiaries, (c) any
Debt to any employee of the Guarantor, (d) any Debt which by its terms is
subordinated to trade accounts payable or accrued liabilities arising in the
ordinary course of business to the extent that payments made to the holders of
such Debt by the holders of the Junior Subordinated Debentures as a result of
the subordination provisions of the Indenture would be greater than they
otherwise would have been as a result of any obligation
4
<PAGE> 9
of such holders to pay amounts over to the obligees on such trade accounts
payable or accrued liabilities arising in the ordinary course of business as a
result of the subordination provisions to which such Debt is subject, (e) the
Junior Subordinated Debentures, and (f) any other debt securities issued
pursuant to the Indenture.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.01. TRUST INDENTURE ACT; APPLICATION.
(a) This Preferred Securities Guarantee is subject to the
provisions of the Trust Indenture Act that are required to be part of
this Preferred Securities Guarantee and shall, to the extent
applicable, be governed by such provisions; and
(b) If and to the extent that any provision of this Preferred
Securities Guarantee 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 2.02. LISTS OF HOLDERS OF SECURITIES.
(a) The Guarantor shall provide the Preferred Guarantee Trustee
with a list, in such form as the Preferred Guarantee Trustee may
reasonably require, of the names and addresses of the Holders of the
Preferred Securities ("List of Holders") (i) on or before January 15
and July 15 of each year, and (ii) at any other time within 30 days of
receipt by the Guarantor of a written request for a List of Holders,
as of a date no more than 14 days before such List of Holders is given
to the Preferred Guarantee Trustee provided, that the Guarantor shall
not be obligated to provide such List of Holders at any time the List
of Holders does not differ from the most recent List of Holders given
to the Preferred Guarantee Trustee by the Guarantor. The Preferred
Guarantee Trustee may destroy any List of Holders previously given to
it on receipt of a new List of Holders.
(b) The Preferred Guarantee Trustee shall comply with its
obligations under Sections 311(a), 311(b) and Section 312(b) of the
Trust Indenture Act.
SECTION 2.03. REPORTS BY THE PREFERRED GUARANTEE TRUSTEE. On or before
July 15 of each year, the Preferred Guarantee Trustee shall provide to the
Holders of the Preferred Securities 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 Preferred Guarantee Trustee shall
also comply with the requirements of Section 313(d) of the Trust Indenture Act.
SECTION 2.04. PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE. The
Guarantor shall provide to the Preferred Guarantee Trustee such documents,
reports and information as required
5
<PAGE> 10
by Section 314 of the Trust Indenture Act, if any, 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 2.05. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. The
Guarantor shall provide to the Preferred Guarantee Trustee such evidence of
compliance with the conditions precedent, if any, provided for in this Preferred
Securities Guarantee 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 2.06. EVENTS OF DEFAULT; WAIVER. The Holders of a Majority in
liquidation amount of Preferred Securities may, by vote, on behalf of the
Holders of all of the Preferred Securities, 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 Preferred Securities Guarantee, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent thereon.
SECTION 2.07. EVENT OF DEFAULT; NOTICE.
(a) The Preferred Guarantee Trustee shall, within 90 days after
the occurrence of an Event of Default, transmit by mail, first class
postage prepaid, to the Holders of the Preferred Securities, notices
of all Events of Default actually known to a Responsible Officer of
the Preferred Guarantee Trustee, unless such defaults have been cured
before the giving of such notice, provided, that, the Preferred
Guarantee Trustee shall be protected in withholding such notice if and
so long as a Responsible Officer of the Preferred Guarantee Trustee in
good faith determines that the withholding of such notice is in the
interests of the Holders of the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to
have knowledge of any Event of Default unless the Preferred Guarantee
Trustee shall have received a properly addressed written notice, or of
which a Responsible Officer of the Preferred Guarantee Trustee charged
with the administration of the Trust Agreement shall have obtained
actual knowledge.
SECTION 2.08. CONFLICTING INTERESTS. The Trust Agreement shall be
deemed to be specifically described in this Preferred Securities Guarantee for
the purposes of clause (i) of the first proviso contained in Section 310(b) of
the Trust Indenture Act.
6
<PAGE> 11
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
PREFERRED GUARANTEE TRUSTEE
SECTION 3.01. POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE.
(a) This Preferred Securities Guarantee shall be held by the
Preferred Guarantee Trustee for the benefit of the Holders of the
Preferred Securities, and the Preferred Guarantee Trustee shall not
transfer this Preferred Securities Guarantee to any Person except a
Holder of Preferred Securities exercising such Holder's rights
pursuant to Section 5.04(b) or to a Successor Preferred Guarantee
Trustee on acceptance by such Successor Preferred Guarantee Trustee of
its appointment to act as Successor Preferred Guarantee Trustee. The
right, title and interest of the Preferred Guarantee Trustee shall
automatically vest in any Successor Preferred Guarantee Trustee, 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 Preferred Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible
Officer of the Preferred Guarantee Trustee has occurred and is
continuing, the Preferred Guarantee Trustee shall enforce this
Preferred Securities Guarantee for the benefit of the Holders of the
Preferred Securities.
(c) The Preferred 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 Preferred Securities Guarantee, and
no implied covenants shall be read into this Preferred Securities
Guarantee against the Preferred Guarantee Trustee. In case an Event of
Default has occurred (that has not been cured or waived pursuant to
Section 2.06) and is actually known to a Responsible Officer of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall
exercise such of the rights and powers vested in it by this Preferred
Securities Guarantee, 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 such person's own affairs.
(d) No provision of this Preferred Securities Guarantee shall
be construed to relieve the Preferred 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 Preferred
Guarantee Trustee shall be determined solely by the express
provisions of this Preferred Securities Guarantee, and the
Preferred Guarantee Trustee shall
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not be liable except for the performance of such duties and
obligations as are specifically set forth in this Preferred
Securities Guarantee, and no implied covenants or
obligations shall be read into this Preferred Securities
Guarantee against the Preferred Guarantee Trustee; and
(B) in the absence of bad faith on the part of the
Preferred Guarantee Trustee, the Preferred 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 Preferred
Guarantee Trustee and conforming to the requirements of this
Preferred Securities Guarantee; but in the case of any such
certificates or opinions that by any provision hereof are
specifically required to be furnished to the Preferred
Guarantee Trustee, the Preferred Guarantee Trustee shall be
under a duty to examine the same to determine whether or not
they conform to the requirements of this Preferred
Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable for
any error of judgment made in good faith by a Responsible
Officer of the Preferred Guarantee Trustee, unless it shall be
proved that the Preferred Guarantee Trustee was negligent in
ascertaining the pertinent facts upon which such judgment was
made;
(iii) the Preferred Guarantee Trustee shall not be liable
with respect to any action taken or omitted to be taken by it
in good faith in accordance with the direction of the Holders
of not less than a Majority in liquidation amount of the
Preferred Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the
Preferred Guarantee Trustee, or exercising any trust or power
conferred upon the Preferred Guarantee Trustee under this
Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee
shall require the Preferred 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 Preferred 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 Preferred Securities Guarantee or indemnity,
reasonably satisfactory to the Preferred Guarantee Trustee,
against such risk or liability is not reasonably assured to it.
SECTION 3.02. CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE.
(a) Subject to the provisions of Section 3.01:
(i) The Preferred Guarantee Trustee may conclusively rely
upon, and shall be fully protected in acting or refraining from
acting upon, any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction,
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consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be
genuine and to have been signed, sent or presented by the proper
party or parties.
(ii) Any direction or act of the Guarantor contemplated by
this Preferred Securities Guarantee shall be sufficiently
evidenced by an Officers' Certificate.
(iii) Whenever, in the administration of this Preferred
Securities Guarantee, the Preferred Guarantee Trustee shall
deem it desirable that a matter be proved or established before
taking, suffering or omitting any action hereunder, the
Preferred Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on
its part, request and conclusively rely upon an Officers'
Certificate which, upon receipt of such request, shall be
promptly delivered by the Guarantor.
(iv) The Preferred Guarantee Trustee shall have no duty to
see to any recording, filing or registration of any instrument
(or any re-recording, re-filing or registration thereof).
(v) The Preferred Guarantee Trustee may consult with
counsel, and the written advice or opinion of such counsel with
respect to legal matters 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
accordance with such advice or opinion. Such counsel may be
counsel to the Guarantor or any of its Affiliates and may
include any of its employees. The Preferred Guarantee Trustee
shall have the right at any time to seek instructions
concerning the administration of this Preferred Securities
Guarantee from any court of competent jurisdiction.
(vi) The Preferred Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it
by this Preferred Securities Guarantee at the request or
direction of any Holder, unless such Holder shall have provided
to the Preferred Guarantee Trustee such security and indemnity,
reasonably satisfactory to the Preferred Guarantee Trustee,
against the costs, expenses (including attorneys' fees and
expenses and the expenses of the Preferred Guarantee Trustee's
agents, nominees or custodians) 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
Preferred Guarantee Trustee; provided that, nothing contained
in this Section 3.02(a)(vi) shall be taken to relieve the
Preferred Guarantee Trustee, upon the occurrence of an Event of
Default, of its obligation to exercise the rights and powers
vested in it by this Preferred Securities Guarantee.
(vii) The Preferred 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,
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bond, debenture, note, other evidence of indebtedness or other
paper or document, but the Preferred Guarantee Trustee, in its
discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit.
(viii) The Preferred Guarantee Trustee may execute any of
the trusts or powers hereunder or perform any duties hereunder
either directly or by or through agents, nominees, custodians
or attorneys, and the Preferred Guarantee Trustee shall not be
responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder.
(ix) Any action taken by the Preferred Guarantee Trustee or
its agents hereunder shall bind the Holders of the Preferred
Securities, and the signature of the Preferred Guarantee
Trustee or its agents alone shall be sufficient and effective
to perform any such action. No third party shall be required to
inquire as to the authority of the Preferred Guarantee Trustee
to so act or as to its compliance with any of the terms and
provisions of this Preferred Securities Guarantee, both of
which shall be conclusively evidenced by the Preferred
Guarantee Trustee's or its agent's taking such action.
(x) Whenever in the administration of this Preferred
Securities Guarantee the Preferred Guarantee Trustee shall deem
it desirable to receive instructions with respect to enforcing
any remedy or right or taking any other action hereunder, the
Preferred Guarantee Trustee (A) may request instructions from
the Holders of a Majority in liquidation amount of the
Preferred Securities, (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
conclusively relying on or acting in accordance with such
instructions.
(b) No provision of this Preferred Securities Guarantee shall
be deemed to impose any duty or obligation on the Preferred 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 Preferred 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
Preferred Guarantee Trustee shall be construed to be a duty.
SECTION 3.03. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.
The recitals contained in this Preferred Securities Guarantee shall be taken as
the statements of the Guarantor, and the Preferred Guarantee Trustee does not
assume any responsibility for their correctness. The Preferred Guarantee Trustee
makes no representation as to the validity or sufficiency of this Preferred
Securities Guarantee.
SECTION 3.04. COMPENSATION AND REIMBURSEMENT. The Guarantor covenants
and agrees to pay to the Preferred Guarantor Trustee, and the Preferred
Guarantor Trustee shall be entitled to, such reasonable compensation (which
shall not be limited by any provision of law in regard to the compensation of a
trustee of an express trust), as the Guarantor and the Preferred
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Guarantor Trustee may from time to time agree in writing, for all services
rendered by it in the execution of the trusts hereby created and in the exercise
and performance of any of the powers and duties hereunder of the Preferred
Guarantee Trustee, and, except as otherwise expressly provided herein, the
Guarantor will pay or reimburse the Preferred Guarantor Trustee upon its request
for all reasonable expenses, disbursements and advances incurred or made by the
Preferred Guarantor Trustee in accordance with any of the provisions of this
Preferred Securities Guarantee (including the reasonable compensation and the
expenses and disbursements of its counsel and of all Persons not regularly in
its employ) except any such expense, disbursement or advance as may arise from
its negligence or bad faith. The Guarantor also covenants to indemnify the
Preferred Guarantor Trustee (and its officers, agents, directors and employees)
for, and to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on the part of the Preferred Guarantor Trustee
and arising out of or in connection with the acceptance or administration of
this trust, including the costs and expenses of defending itself against any
claims of liability in the premises.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.01. PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY.
(a) There shall at all times be a Preferred Guarantee Trustee
which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any state or territory thereof
or of the District of Columbia, or a corporation or Person permitted
by the Securities and Exchange Commission to act as an institutional
trustee under the Trust Indenture Act, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus
of at least $50,000,000, and subject to supervision or examination by
federal, state, territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the supervising or examining
authority referred to above, then, for the purposes of this Section
4.01(a)(ii), 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 Preferred Guarantee Trustee shall cease to
be eligible to so act under Section 4.01(a), the Preferred Guarantee
Trustee shall immediately resign in the manner and with the effect set out
in Section 4.02(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust
Indenture Act.
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SECTION 4.02. APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED
GUARANTEE TRUSTEES.
(a) Subject to Section 4.02(b), the Preferred Guarantee Trustee
may be appointed or removed without cause at any time by the
Guarantor.
(b) The Preferred Guarantee Trustee shall not be removed in
accordance with Section 4.02(a) until a Successor Preferred Guarantee
Trustee has been appointed and has accepted such appointment by
written instrument executed by such Successor Preferred Guarantee
Trustee and delivered to the Guarantor.
(c) The Preferred Guarantee Trustee appointed to office
shall hold office until a Successor Preferred Guarantee Trustee shall
have been appointed or until its removal or resignation. The Preferred
Guarantee Trustee may resign from office (without need for prior or
subsequent accounting) by an instrument in writing executed by the
Preferred Guarantee Trustee and delivered to the Guarantor, which
resignation shall not take effect until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such appointment
by instrument in writing executed by such Successor Preferred
Guarantee Trustee and delivered to the Guarantor and the resigning
Preferred Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have
been appointed and accepted appointment as provided in this Section
4.02 within 60 days after delivery to the Guarantor of an instrument
of resignation, the resigning Preferred Guarantee Trustee may petition
any court of competent jurisdiction for appointment of a Successor
Preferred Guarantee Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a
Successor Preferred Guarantee Trustee.
(e) No Preferred Guarantee Trustee shall be liable for the acts
or omissions to act of any Successor Preferred Guarantee Trustee.
(f) Upon termination of this Preferred Securities Guarantee or
removal or resignation of the Preferred Guarantee Trustee pursuant to
this Section 4.02, the Guarantor shall pay to the Preferred Guarantee
Trustee all amounts accrued to the date of such termination, removal
or resignation.
ARTICLE V
GUARANTEE
SECTION 5.01. GUARANTEE. The Guarantor irrevocably and unconditionally
agrees to pay in full to the Holders the Guarantee Payments (without duplication
of amounts theretofore paid by UBCT), as and when due, regardless of any
defense, right of set-off or counterclaim that UBCT may have or assert. 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
UBCT to pay such amounts to the Holders.
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SECTION 5.02. WAIVER OF NOTICE AND DEMAND. The Guarantor hereby waives
notice of acceptance of this Preferred Securities Guarantee and of any liability
to which it applies or may apply, presentment, demand for payment, any right to
require a proceeding first against UBCT or any other Person before proceeding
against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice
of redemption and all other notices and demands.
SECTION 5.03. OBLIGATIONS NOT AFFECTED. The obligations, covenants,
agreements and duties of the Guarantor under this Preferred Securities Guarantee
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 UBCT of any express or implied
agreement, covenant, term or condition relating to the Preferred
Securities to be performed or observed by UBCT;
(b) the extension of time for the payment by UBCT of all or
any portion of the Distributions, Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the
Preferred Securities or the extension of time for the performance of
any other obligation under, arising out of, or in connection with, the
Preferred Securities (other than an extension of time for payment of
Distributions, Redemption Price, Liquidation Distribution or other sum
payable that results from the extension of any interest payment period
on the Junior Subordinated Debentures or any extension of the maturity
date of the Junior Subordinated Debentures permitted by the
Indenture);
(c) any failure, omission, delay or lack of diligence on the
part of the Holders to enforce, assert or exercise any right,
privilege, power or remedy conferred on the Holders pursuant to the
terms of the Preferred Securities, or any action on the part of UBCT
granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale
of any collateral, receivership, insolvency, bankruptcy, assignment
for the benefit of creditors, reorganization, arrangement, composition
or readjustment of debt of, or other similar proceedings affecting,
UBCT or any of the assets of UBCT;
(e) any invalidity of, or defect or deficiency in, the
Preferred Securities;
(f) the settlement or compromise of any obligation guarantied
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 5.03 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 consent of, the Guarantor with respect to the happening of any of the
foregoing.
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SECTION 5.04. RIGHTS OF HOLDERS.
(a) The Holders of a Majority in liquidation amount of the
Preferred Securities have the right to direct the time, method and
place of conducting of any proceeding for any remedy available to the
Preferred Guarantee Trustee in respect of this Preferred Securities
Guarantee or exercising any trust or power conferred upon the
Preferred Guarantee Trustee under this Preferred Securities Guarantee.
(b) Any Holder of Preferred Securities may institute a legal
proceeding directly against the Guarantor to enforce its rights under
this Preferred Securities Guarantee, without first instituting a legal
proceeding against UBCT, the Preferred Guarantee Trustee or any other
Person.
SECTION 5.05. GUARANTEE OF PAYMENT. This Preferred Securities
Guarantee creates a Guarantee of payment and not of collection.
SECTION 5.06. SUBROGATION. The Guarantor shall be subrogated to all
(if any) rights of the Holders of Preferred Securities against UBCT in respect
of any amounts paid to such Holders by the Guarantor under this Preferred
Securities Guarantee; provided, however, that the Guarantor shall not (except to
the extent required by mandatory provisions of law) be entitled to enforce or
exercise any right that it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under this
Preferred Securities Guarantee, if, at the time of any such payment, any amounts
are due and unpaid under this Preferred Securities 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 5.07. INDEPENDENT OBLIGATIONS. The Guarantor acknowledges that
its obligations hereunder are independent of the obligations of UBCT with
respect to the Preferred Securities, and that the Guarantor shall be liable as
principal and as debtor hereunder to make Guarantee Payments pursuant to the
terms of this Preferred Securities Guarantee notwithstanding the occurrence of
any event referred to in subsections (a) through (g), inclusive, of Section
5.03.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.01. LIMITATION OF TRANSACTIONS. So long as any Preferred
Securities remain outstanding, if there shall have occurred and be continuing an
Event of Default or an event of default under the Trust Agreement, then (a) the
Guarantor shall not declare or pay any dividend or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of its
capital stock, (b) the Guarantor shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by the Guarantor (including other Junior Subordinated
Debentures) which rank pari passu with or junior in interest to the Junior
Subordinated Debentures or (c) the Guarantor shall not make any guarantee
payments with respect to any guarantee by the guarantor of the debt securities
of any subsidiary
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of the Guarantor if such guarantee ranks pari passu or junior in interest to the
Junior Subordinated Debentures (other than (i) dividends or distributions in
common stock, (ii) any declaration of a dividend in connection with the
implementation of a shareholders' 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, (iii) payments under this Preferred Securities Guarantee and
(iv) purchases of common stock related to the issuances of common stock or
rights under any of the Guarantor's benefit plans for its directors, officers or
employees).
SECTION 6.02. RANKING. This Preferred Securities Guarantee will
constitute an unsecured obligation of the Guarantor and will rank subordinate
and junior in right of payment to all Senior and Subordinated Debt of the
Guarantor.
ARTICLE VII
TERMINATION
SECTION 7.01. TERMINATION. This Preferred Securities Guarantee shall
terminate upon (a) full payment of the Redemption Price of all Preferred
Securities, (b) upon full payment of the amounts payable in accordance with the
Trust Agreement upon liquidation of UBCT or (c) upon distribution of the Junior
Subordinated Debentures to the Holders of the Preferred Securities.
Notwithstanding the foregoing, this Preferred Securities Guarantee will continue
to be effective or will be reinstated, as the case may be, if at any time any
Holder of Preferred Securities must restore payment of any sums paid under the
Preferred Securities or under this Preferred Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Guarantor or any Covered
Person for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith
in accordance with this Preferred Securities Guarantee and in a manner
that such Indemnified Person reasonably believed to be within the
scope of the authority conferred on such Indemnified Person by this
Preferred Securities Guarantee or by law, except that an Indemnified
Person shall be liable for any such loss, damage or claim incurred by
reason of such Indemnified Person's negligence or willful misconduct
with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying
in good faith upon the records of the Guarantor and upon such
information, opinions, reports or statements presented to the
Guarantor by any Person as to matters the Indemnified Person
reasonably believes are within such other Person's professional or
expert competence and who has been selected with reasonable care by or
on behalf of the Guarantor, including
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information, opinions, reports or statements as to the value and
amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which
Distributions to Holders of Preferred Securities might properly be
paid.
SECTION 8.02. INDEMNIFICATION. The Guarantor agrees to indemnify each
Indemnified Person for, and to hold each Indemnified Person harmless against,
any loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration of
the trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against, or
investigating, any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The obligation to
indemnify as set forth in this Section 8.02 shall survive the termination of
this Preferred Securities Guarantee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. SUCCESSORS AND ASSIGNS. All guaranties and agreements
contained in this Preferred Securities Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of the Guarantor and shall
inure to the benefit of the Holders of the Preferred Securities then
outstanding.
SECTION 9.02. AMENDMENTS. Except with respect to any changes that do
not materially adversely affect the rights of Holders (in which case no consent
of Holders will be required), this Preferred Securities Guarantee may only be
amended with the prior approval of the Holders of at least a Majority in
liquidation amount of the Preferred Securities. The provisions of Article VI of
the Trust Agreement with respect to meetings of Holders of the Securities apply
to the giving of such approval.
SECTION 9.03. NOTICES. All notices provided for in this Preferred
Securities Guarantee shall be in writing, duly signed by the party giving such
notice, and shall be delivered, telecopied or mailed by registered or certified
mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the
Preferred Guarantee Trustee's mailing address set forth below (or such
other address as the Preferred Guarantee Trustee may give notice of to
the Holders of the Preferred Securities):
American Securities Transfer & Trust, Inc.
836 Quail Street, Suite 100
Lakewood, Colorado 80215
Attention: Corporate Trust Administration
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(b) If given to the Guarantor, at the Guarantor's mailing
address set forth below (or such other address as the Guarantor may
give notice of to the Holders of the Preferred Securities):
Union Bankshares, Ltd.
1825 Lawrence Street, Suite 444
Denver, Colorado 80202
Attention: Chief Executive Officer
(c) If given to any Holder of Preferred Securities, at the
address set forth on the books and records of UBCT.
All such notices 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 9.04. BENEFIT. This Preferred Securities Guarantee is solely
for the benefit of the Holders of the Preferred Securities and, subject to
Section 3.01(a), is not separately transferable from the Preferred Securities.
SECTION 9.05. GOVERNING LAW. THIS PREFERRED SECURITIES GUARANTEE SHALL
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF COLORADO; PROVIDED THAT THE IMMUNITIES AND THE STANDARD OF CARE OF
THE TRUSTEE SHALL BE GOVERNED BY COLORADO LAW.
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THIS PREFERRED SECURITIES GUARANTEE is executed as of the day and year
first above written.
UNION BANKSHARES, LTD., as Guarantor
By
-----------------------------------------
Charles R. Harrison, Chairman and Chief
Executive Officer
AMERICAN SECURITIES TRANSFER & TRUST, INC.,
as Preferred Guarantee Trustee
By
-----------------------------------------
Name
---------------------------------------
Title
--------------------------------------
By
-----------------------------------------
Name
---------------------------------------
Title
--------------------------------------
18
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EXHIBIT D
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT dated as of _______________, 1998, between UNION BANKSHARES,
LTD., a Delaware corporation (the "Company"), and UNION BANKSHARES CAPITAL TRUST
I, a Delaware business trust (the "Trust").
WHEREAS, the Trust intends to issue its Common Securities (the "Common
Securities") to, and receive ____% Junior Subordinated Debentures due 2028 (the
"Junior Subordinated Debentures") from, the Company and to issue and sell ____%
Cumulative Preferred Securities (the "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 _______________, 1998, as
the same may be amended from time to time (the "Trust Agreement"); and
WHEREAS, the Company will directly or indirectly own all of the Common
Securities of the Trust and will issue the Junior Subordinated Debentures.
NOW, THEREFORE, in consideration of the purchase by each holder of the
Preferred Securities, which purchase the Company hereby agrees shall benefit the
Company and which purchase the Company acknowledges will be made in reliance
upon the execution and delivery of this Agreement, the Company, including in its
capacity as holder of the Common Securities, and the Trust hereby agree as
follows:
ARTICLE I
SECTION 1.01. GUARANTEE BY THE COMPANY. Subject to the terms and
conditions hereof, the Company, including in its capacity as holder of the
Common Securities, 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 Preferred Securities or other
similar interests in the Trust the amounts due such holders pursuant to the
terms of the 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 1.02. 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 Preferred
Securities (whether upon redemption, liquidation, exchange or otherwise) and (b)
the date on which there are no Beneficiaries
<PAGE> 2
remaining; provided, however, that this Agreement shall continue to be effective
or shall be reinstated, as the case may be, if at any time any holder of
Preferred Securities or any Beneficiary must restore payment of any sums paid
under the Preferred Securities, under any Obligation, under the Preferred
Securities Guarantee Agreement dated the date hereof by the Company and American
Securities Transfer & Trust, Inc. as guarantee trustee or under this Agreement,
for any reason whatsoever. This Agreement is continuing, irrevocable,
unconditional and absolute.
SECTION 1.03. WAIVER OF NOTICE. The Company hereby waives notice of
acceptance of this Agreement and of any Obligation to which it applies or may
apply, and the Company hereby waives presentment, demand for payment, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 1.04. NO IMPAIRMENT. The obligations, covenants, agreements and
duties of the Company 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.
The Beneficiaries shall not be obligated to give notice to, or obtain
the consent of, the Company with respect to the happening of any of the
foregoing.
SECTION 1.05. ENFORCEMENT. A Beneficiary may enforce this Agreement
directly against the Company, and the Company waives any right or remedy to
require that any action be brought against the Trust or any other person or
entity before proceeding against the Company.
ARTICLE II
SECTION 2.01. BINDING EFFECT. All guarantees and agreements contained
in this Agreement shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the
Beneficiaries.
2
<PAGE> 3
SECTION 2.02. AMENDMENT. So long as there remains any Beneficiary or
any Preferred Securities are outstanding, this Agreement shall not be modified
or amended in any manner adverse to such Beneficiary or to the holders of the
Preferred Securities.
SECTION 2.03. NOTICES. Any notice, request or other communication
required or permitted to be given hereunder shall be given in writing by
delivering the same 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):
Union Bankshares Capital Trust I
1825 Lawrence Street, Suite 444
Denver, Colorado 80202
Facsimile No.: (303) 298-5352
Attention: Corporate Trust Administration
Union Bankshares, Ltd.
1825 Lawrence Street, Suite 444
Denver, Colorado 80202
Facsimile No.: (303) 298-5352
Attention: Chief Executive Officer
SECTION 2.04. GOVERNING LAW. This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the State of Colorado
(without regard to conflict of laws principles).
THIS AGREEMENT is executed as of the day and year first above written.
UNION BANKSHARES, LTD.,
By
-----------------------------------------
Charles R. Harrison, Chairman and Chief
Executive Officer
UNION BANKSHARES CAPITAL TRUST I
By
-----------------------------------------
Bruce E. Hall, Administrative Trustee
3
<PAGE> 1
Exhibit 5.1
[Letterhead of Davis, Graham & Stubbs LLP]
December 9, 1998
Union Bankshares, Ltd.
1825 Lawrence Street
Suite 444
Denver, Colorado 80202
Re: Registration Statement on Form S-2
Ladies and Gentlemen:
We have acted as special counsel to Union Bankshares, Ltd. (the
"Company") In connection with the filing by the Company and Union Bankshares
Capital Trust I ("UBSC Capital") of a Registration Statement on Form S-2 with
the Securities and Exchange Commission on October 26, 1998, as amended, relating
to a public offering by UBSC Capital of up to 1,447,368 ___% Cumulative
Preferred Securities (the "Preferred Securities") guaranteed by the Company (the
"Guarantee") and the offering by the Company of its ___% Junior Subordinated
Debentures (the "Debentures").
This opinion is delivered pursuant to the requirements of Item
601(b)(5) of Regulation S-B under the Securities Act of 1933, as amended (the
"1933 Act").
We have examined the forms of Subordinated Indenture and Preferred
Security Guarantee Agreement filed by the Company as exhibits to the
Registration Statement (the "Indenture" and the "Guarantee Agreement"). In
addition, we have examined and relied on originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments, have made such inquiries as to questions of fact of
officers and representatives of the Company and have made such examinations of
law as we have deemed necessary or appropriate for purposes of giving the
opinion expressed below. In such examination, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals
and the conformity with the originals of all documents submitted to us as
copies.
We have assumed for purposes of this opinion (i) the corporate power,
authority and legal right of the trustee or trustees (the "trustees") under the
Indenture and the Guarantee Agreement to execute, deliver and perform their
obligations under the Indenture and the Guarantee Agreement, respectively, that
the performance of such obligations by the trustees will not violate their
charters or by-laws and that the trustees have the legal ability to exercise
their trust powers and (ii) that the Indenture and the Guarantee Agreement will
have been duly authenticated,
<PAGE> 2
authorized, executed and delivered by the applicable trustee at the time of
issuance of the Debentures and the Guarantee Agreement.
The following opinions are limited solely to the applicable federal law
of the United States of America, the law of the State of Colorado and the
General Corporation Law of the State of Delaware. While we are not licensed to
practice in the State of Delaware, we have reviewed applicable provisions of the
General Corporation Law of Delaware as we have deemed appropriate in connection
with the provisions expressed herein. Except as described, we have neither
examined nor do we express any opinion with respect to Delaware law.
Based upon and subject to the foregoing, we are of the opinion that:
When (i) the Registration Statement has become effective under the 1933
Act, (ii) each of the Indenture and the Guarantee Agreement has been qualified
under the Trust Indenture Act of 1939, as amended, and has been duly executed
and delivered by the parties thereto, (iii) the definitive terms of the
Debentures and of the Guarantee and of their issue and sale have been duly
established in conformity with the resolutions of the board of directors of the
Company and the Indenture and Guarantee Agreement, as applicable, so as not to
violate any applicable law or agreement or instrument then binding on the
Company, (iv) such Debentures and the Guarantee have been duly executed and
authenticated in accordance with the Indenture and the Guarantee Agreement and
(v) such Debentures and the Guarantee have been issued and sold as contemplated
in the Registration Statement, the Prospectus and in the applicable supplement
to the Prospectus, such Debentures and the Guarantee will constitute valid and
legally binding obligations of the Company, entitled to the benefits provided by
the Indenture and Guarantee Agreement, respectively, except (A) the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (B) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
this firm under the heading "Legal Matters" in the Prospectus included in the
Registration Statement as the counsel who will pass upon the validity of the
securities. In giving this consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Davis, Graham & Stubbs, LLP
<PAGE> 1
EXHIBIT 5.2
[Letterhead of Richards, Layton & Finger, P.A.]
December 8, 1998
Union Bankshares Capital Trust I
1825 Lawrence Street, Suite 444
Denver, CO 80202
Re: Union Bankshares Capital Trust I
Ladies and Gentlemen:
We have acted as special Delaware counsel for Union
Bankshares, Ltd., a Delaware corporation (the "Company"), and Union Bankshares
Capital Trust I, a Delaware business trust (the "Trust"), in connection with the
matters set forth herein. At your request, this opinion is being furnished to
you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, dated as of October
14, 1998 (the "Certificate"), as filed in the office of the Secretary of State
of the State of Delaware (the "Secretary of State") on October 14, 1998;
(b) The Trust Agreement of the Trust, dated as of October 14,
1998, among the Company, as depositor, and the trustees of the Trust named
therein;
(c) A form of Amended and Restated Trust Agreement of the
Trust (the "Trust Agreement"), to be entered into among the Company, as
depositor, the trustees of the Trust named therein, and the holders, from time
to time, of undivided beneficial interests in the assets of the Trust, attached
as an exhibit to the Registration Statement (as defined below);
(d) Amendment No. 2 to the Registration Statement on Form S-2
(the "Registration Statement"), including a preliminary prospectus and a
supplement thereto
<PAGE> 2
Union Bankshares Capital Trust I
December 8, 1998
Page 2
(collectively, the "Prospectus"), relating to the Preferred Securities of the
Trust representing undivided beneficial interests in the assets of the Trust
(each, a "Preferred Security" and collectively, the "Preferred Securities"), as
proposed to be filed by the Company and the Trust with the Securities and
Exchange Commission on or about December 8, 1998; and
(e) A Certificate of Good Standing for the Trust, dated
December 8, 1998, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise
defined are used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any
documents other than the documents listed in paragraphs (a) through (e) above.
In particular, we have not reviewed any document (other than the documents
listed in paragraphs (a) through (e) above) that is referred to in or
incorporated by reference into the documents reviewed by us. We have assumed
that there exists no provision in any document that we have not reviewed that is
inconsistent with the opinions stated herein. We have conducted no independent
factual investigation of our own but rather have relied solely upon the
foregoing documents, the statements and information set forth therein and the
additional matters recited or assumed herein, all of which we have assumed to be
true, complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed
(i) the authenticity of all documents submitted to us as authentic originals,
(ii) the conformity with the originals of all documents submitted to us as
copies or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the
Trust Agreement constitutes the entire agreement among the parties thereto with
respect to the subject matter thereof, including with respect to the creation,
operation and termination of the Trust, and that the Trust Agreement and the
Certificate are in full force and effect and have not been amended, (ii) except
to the extent provided in paragraph 1 below, the due creation or due
organization or due formation, as the case may be, and valid existence in good
standing of each party to the documents examined by us under the laws of the
jurisdiction governing its creation, organization or formation, (iii) the legal
capacity of natural persons who are parties to the documents examined by us,
(iv) that each of the parties to the documents examined by us has the power and
authority to execute and deliver, and to perform its obligations under, such
documents, (v) the due authorization, execution and delivery by all parties
thereto of all documents examined by us, (vi) the receipt by each Person to whom
a Preferred Security is to be issued by the Trust (collectively, the "Preferred
Securityholders") of a Preferred Securities Certificate, in accordance with the
Trust Agreement, and as described in the
<PAGE> 3
Union Bankshares Capital Trust I
December 8, 1998
Page 3
Registration Statement, and (vii) that the Preferred Securities are issued to
the Preferred Securityholders in accordance with the Trust Agreement, and as
described in the Registration Statement. We have not participated in the
preparation of the Registration Statement and assume no responsibility for its
contents.
This opinion is limited to the laws of the State of Delaware
(excluding the securities laws of the State of Delaware), and we have not
considered and express no opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our opinions
are rendered only with respect to Delaware laws and rules, regulations and
orders thereunder that are currently in effect.
Based upon the foregoing, and upon our examination of such
questions of law and statutes of the State of Delaware as we have considered
necessary or appropriate, and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Business Trust Act.
2. The Preferred Securities will represent valid and, subject
to the qualifications set forth in paragraph 3 below, fully paid and
nonassessable undivided beneficial interests in the assets of the Trust.
3. The Preferred Securityholders, as beneficial owners of the
Trust, will be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Preferred
Securityholders may be obligated to make payments as set forth in the Trust
Agreement.
We consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement. In
addition, we hereby consent to the use of our name under the heading "Legal
Matters" in the Prospectus. In giving the foregoing consents, we do not thereby
admit that we come within the category of Persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder. Except as
stated above, without our prior written consent, this opinion may not be
furnished or quoted to, or relied upon by, any other Person for any purpose.
Very truly yours,
/s/ Richard, Layton & Finger, P.A.
----------------------------------
Richard, Layton & Finger, P.A.
WAY/MLG
<PAGE> 1
Exhibit 8.1
[Letterhead of Davis, Graham & Stubbs LLP]
December 9, 1998
Union Bankshares, Ltd.
Union Bankshares Capital Trust I
1825 Lawrence Street, Suite 444
Denver, Colorado 80202
Re: Opinion of Counsel Related to the Material Federal Income Tax
Consequences of the Purchase and Ownership of Preferred Securities
Issued by Union Bankshares Capital Trust I
Ladies and Gentlemen:
We have acted as special counsel to Union Bankshares, Ltd. (the
"Company") in connection with the preparation and filing with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act"), of
a Form S-2 Registration Statement, dated October 26, 1998, SEC File No.
333-66153, as amended (the "Registration Statement"). The Registration Statement
relates to the offer for sale of up to 1,447,368 ___% Cumulative Preferred
Securities (the "Preferred Securities") of Union Bankshares Capital Trust I
("UBSC Capital"), a statutory business trust formed by the Company under the
laws of the State of Delaware, and the Junior Subordinated Debentures to be
issued by the Company to UBSC Capital in connection with the sale of the
Preferred Securities.
This opinion letter relates to the material federal income tax
consequences of the purchase and ownership of the Preferred Securities by
investors. All capitalized terms used in this opinion letter and not otherwise
defined herein are used as described in the Registration Statement. The
consequences described herein are not applicable to investors who may be subject
to special tax treatment, such as banks, real estate investment trusts,
regulated investment companies, insurance companies, dealers in securities or
currencies, tax-exempt investors, non-United States Persons or persons that will
hold the Preferred Securities as part of a position in a "straddle" or as part
of a "hedging" or other integrated transaction. In addition, this opinion does
not include any description of any alternative minimum tax consequences or the
tax laws of any state, local or foreign government that may be applicable to an
investor.
We have examined the Registration Statement and such other documents as
we have deemed necessary to render our opinion expressed below. In our
examination of such material, we have relied upon the current and continued
accuracy of the factual matters we have considered, and we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity to original documents of all copies of documents
submitted to us. In addition, we also have assumed that the transactions related
to the issuance of the Junior Subordinated Debentures and the Preferred
Securities will be consummated in accordance with the terms and forms of the
documents. As to any facts material to the opinions expressed herein which were
not independently established or verified, we have relied upon oral or written
statements and representations of officers, trustees, and other representatives
of the Company, UBSC Capital and others. Should any of the above facts,
circumstances, or assumptions be subsequently determined incorrect or
inaccurate, our conclusions may vary from those set forth below and such
variance could be material.
This letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of
<PAGE> 2
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this letter
should be read in conjunction therewith.
Based on the foregoing, and assuming that UBSC Capital was formed and
will be maintained in compliance with the terms of the Trust Agreement it is our
opinion that:
(1) UBSC Capital will be classified for United States federal income
tax purposes as a grantor trust and not as an association taxable as a
corporation for United States federal income tax purposes, and as a result, each
beneficial owner of Preferred Securities will be treated as owning an undivided
beneficial interest in the Junior Subordinated Debentures.
(2) Unless the Company exercises its option to extend the interest
payment period, stated interest on the Junior Subordinated Debentures generally
will be included in income by a Securityholder at the time such interest income
is paid or accrued in accordance with the Securityholder's regular method of tax
accounting.
(3) Gain or loss will be recognized by a Securityholder on a sale of
Preferred Securities (including a redemption for cash) in an amount equal to the
difference between the amount realized (which for this purpose, will exclude
amounts attributable to accrued interest or original issue discount not
previously included in income) and the Securityholder's adjusted tax basis in
the Preferred Securities sold or so redeemed. Gain or loss recognized by the
Securityholder on Preferred Securities held for more than one year will
generally be taxable as long-term capital gain or loss.
This opinion is based upon the Internal Revenue Code of 1986, as
amended, the Treasury regulations promulgated thereunder and other relevant
authorities and law, all as in effect on the date hereof. All of the above are
subject to change or modification by subsequent legislative, regulatory,
administrative or judicial decisions which could adversely affect our opinions.
Consequently, future changes in the law, or administrative or judicial
interpretations thereof, may cause the tax treatment of the transactions
referred to herein to be materially different from that described above.
Other than the specific tax opinions set forth in this letter, no other
opinion has been rendered with respect to the tax treatment of the proposed
issuance and sale of the Junior Subordinated Debentures or the Preferred
Securities, including, but not limited to, the tax treatment of the proposed
transactions under other provisions of the Code and the regulations, the tax
treatment of any conditions existing at the time of, or effects resulting from,
the proposed transactions that are not specifically covered by the above
opinions, or the tax treatment of the proposed transactions under state, local,
foreign or any other tax laws.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and the use of our name in the Registration Statement
under the captions "Certain Federal Income Tax Consequences." In giving such
consent, we do not concede that this consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
/s/ Davis, Graham & Stubbs, LLP
