<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 1997
REGISTRATION NO. 333-24417
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
FIRST STATE BANCORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW MEXICO 85-0366665
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
111 LOMAS AVENUE NW
ALBUQUERQUE, NEW MEXICO 87102
(505) 241-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL R. STANFORD, PRESIDENT
111 LOMAS AVENUE NW
ALBUQUERQUE, NEW MEXICO 87102
(505) 241-7500
(NAME, ADDRESS, AND TELEPHONE NUMBER INCLUDING AREA CODE, OF AGENT FOR SERVICE)
WITH COPIES TO:
JEFFREY W. HELLBERG, ESQ. WILLIAM S. RUBENSTEIN, ESQ.
HINKLE, COX, EATON, COFFIELD SKADDEN, ARPS, SLATE, MEAGHER
& HENSLEY, L.L.P. & FLOM LLP
1700 BANK ONE CENTER 919 THIRD AVENUE
AMARILLO, TEXAS 79101 NEW YORK, NEW YORK 10022
(806) 372-5569 (212) 735-3000
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 being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
FILES A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 25, 1997
PROSPECTUS
$12,000,000
FIRST STATE BANCORPORATION
% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2017
The $ aggregate principal amount of % Convertible Subordinated
Debentures due 2017 (the "Debentures") are convertible at any time before
maturity, unless previously redeemed, into shares of common stock, no par value
per share (the "Common Stock"), of First State Bancorporation (the "Company")
at a conversion price of $ per share (equivalent to a conversion rate of
shares per $1,000 principal amount of Debentures), subject to adjustment in
certain events. On April 16, 1997, the last reported sale price of the Common
Stock on The Nasdaq Stock Market's National Market (symbol: FSNM) was $14.75
per share. See "Market for Common Stock and Dividends."Before this offering,
there has been no public market for the Debentures. The Company intends to file
an application to list the Debentures for quotation on The Nasdaq SmallCap
Market.
Interest on the Debentures is payable semiannually in arrears on each and
, commencing on , 1997. The Debentures are redeemable, in whole or in
part, at any time and from time to time on or after , 2001, at the option of
the Company at fixed redemption prices as set forth herein, together with
accrued interest to the redemption date; provided that the Debentures may be
redeemed at the option of the Company, in whole or in part, at any time before
, 2001, without any premium if the closing sale price of the Common Stock
for at least 30 consecutive trading days equals or exceeds 140% of the
conversion price then in effect. The Debentures are not subject to any sinking
fund.
The Debentures will be unsecured general obligations of the Company
subordinate in right of payment to all existing and future Senior Indebtedness
(as defined herein) of the Company. See "Risk Factors--Subordination." The
Company currently has no Senior Indebtedness. Payment of principal of the
Debentures may be accelerated only in certain events involving the bankruptcy,
insolvency or reorganization of the Company. There is no right of acceleration
of payment of the Debentures in the case of a default in the performance of any
covenant of the Company, including payment of principal or interest. See
"Description of the Debentures--Events of Default and Default."
The Debentures will be issued in the form of a global debenture or debentures
(the "Global Debentures") registered in the name of the nominee of The
Depository Trust Company ("DTC"), which will act as depositary. Beneficial
interests in the Global Debenture will be shown on, and transfers thereof will
be effected only through, records maintained by DTC and its direct and indirect
participants. Except as described herein, Debentures in definitive form will
not be issued. The Debentures will be issued in registered form in
denominations of $1,000 and integral multiples thereof. See "Description of the
Debentures--Book-Entry."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND
OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
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<S> <C> <C> <C>
Per Debenture............................. % % %
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Total(4).................................. $ $ $
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</TABLE>
(1) Plus accrued interest, if any, from , 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $ .
(4) The Company has granted the Underwriters a 30-day option to purchase up to
$1,800,000 principal amount of additional Debentures, on the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be approximately $ , $ , and
$ , respectively. See "Underwriting."
----------
The Debentures are offered by the Underwriters, subject to prior sale, when,
as and if issued to and accepted by the Underwriters, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that the
Debentures will be ready for delivery in book-entry form only through the
facilities of DTC in New York, New York, on or about , 1997 against
payment therefor in immediately available funds.
KEEFE, BRUYETTE & WOODS, INC.
The date of this Prospectus is , 1997.
<PAGE>
[LOGO]
BANKING LOCATIONS
[PASTE UP CRC MAP @ 80%]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DEBENTURES
OFFERED HEREBY AND THE COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING
THE MARKET PRICE OF THE DEBENTURES OR THE COMMON STOCK OR BOTH, THE PURCHASE
OF DEBENTURES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by reference to the more detailed information and financial statements
and notes thereto appearing elsewhere, or incorporated by reference, in this
Prospectus. Unless otherwise indicated, all share and per share information for
periods prior to November 20, 1995, has been adjusted to give effect to a 5-
for-4 split of the Common Stock effected on November 20, 1995. Unless otherwise
indicated, all information in this Prospectus assumes that the Underwriters'
over-allotment option is not exercised.
THE COMPANY
First State Bancorporation is a New Mexico-based bank holding company that
provides commercial banking services primarily to small and medium-sized
businesses through its subsidiary bank, First State Bank of Taos ("First State
Bank" which, together with First State Bancorporation, is referred to herein as
the "Company" unless the context indicates otherwise). The Company operates
four offices in Taos County, five offices in Albuquerque, two offices in Santa
Fe and one office each in Rio Rancho, Los Lunas, Bernalillo and Placitas, New
Mexico. First State Bank, the largest bank in Taos County, has operated in the
county since 1922. See "The Company--History." At December 31, 1996, the
Company had total assets, total deposits and total stockholders' equity of
$325.0 million, $277.4 million and $21.1 million, respectively.
Management's strategy is to provide a business culture in which customers are
provided individualized service. As part of its operating and growth
strategies, the Company is seeking to (i) place greater emphasis on attracting
core deposits from, and providing financial services to, small and medium-sized
businesses; (ii) expand operations in Albuquerque, Santa Fe, and other
strategic areas in New Mexico; (iii) maintain asset quality through strict
adherence to credit administration standards; (iv) manage interest rate risk;
(v) continue to improve internal operating systems and (vi) manage noninterest
expenses.
Management believes that the Company is qualified to pursue an aggressive
growth strategy throughout New Mexico due to its responsive customer service,
its streamlined management structure, the strong community involvement of the
Company's management and employees and recent trends in the New Mexico banking
environment. Changes in banking laws have allowed out-of-state bank holding
companies to acquire New Mexico banking institutions. As a result, several
competing banks have been acquired by larger out-of-state institutions. See
"The Company--Growth Strategy." Management believes that, in certain cases, the
acquiring institutions have shifted the focus of the acquired banks away from
the small and medium-sized businesses that are at the core of the Company's
marketing efforts. The Company is seeking to capitalize on this environment by
expanding internally and through de novo branching opportunities and select
acquisitions.
Management believes that the changes in the competitive environment have
created expansion opportunities for the Company. These opportunities are
primarily centered in the Albuquerque, Santa Fe, Rio Rancho, and Los Lunas
markets. The Company has added staff to service the additional volume of loans
and deposits obtained as a result of expansion in these marketplaces. The level
of any additional staffing and related expenses will depend on the magnitude of
continued growth. In addition, the Company will consider potential acquisition
opportunities that complement the Company's existing operations and provide
economies of scale when combined with its existing locations. The Company is
not in negotiations with respect to any potential acquisitions. See "The
Company--Growth Strategy."
The Company's executive offices are located at 111 Lomas, Albuquerque, New
Mexico 87102, and its telephone number is (505) 241-7500.
3
<PAGE>
THE OFFERING
Securities Offered........ $ in principal amount of % Convertible Subor-
dinated Debentures due , 2017.
Interest Payment Dates.... and , commencing on , 1997.
Convertibility............ Convertible into Common Stock at any time before
maturity or redemption at $ per share, subject to
adjustment in certain events.
Mandatory Redemption...... None.
Optional Redemption....... The Debentures are redeemable, in whole or in part,
at any time and from time to time, on or after
, 2001, at the option of the Company on not
less than 30 days notice, at fixed redemption
prices as set forth herein, together with accrued
interest to the redemption date; provided that the
Debentures may be redeemed at the option of the
Company, in whole or in part, at any time before
, 2001, without any premium if the closing sale
price of the Common Stock for at least 30 consecu-
tive trading days equals or exceeds 140% of the
conversion price then in effect. See "Description
of the Debentures."
Subordination............. The payment of principal and premium, if any, and
interest on the Debentures is subordinated to all
existing and future Senior Indebtedness (as defined
herein). The Company currently has no Senior In-
debtedness. The Indenture (as defined herein) does
not limit the incurrence of indebtedness, including
Senior Indebtedness, by the Company. See "Descrip-
tion of the Debentures--Subordination."
Events of Default......... The Indenture defines an Event of Default with re-
spect to the Debentures as being certain events in-
volving the bankruptcy, insolvency or reorganiza-
tion of the Company. The Indenture does not provide
for any right of acceleration of the payment of
principal or interest or in the performance of any
covenant or agreement in the Debentures or in the
Indenture. See "Description of the Debentures--
Events of Default and Defaults."
Use of Proceeds........... A portion of the net proceeds will be contributed
to the capital of First State Bank and the remain-
ing net proceeds will be used for general corporate
purposes. In addition, the Company may use a por-
tion of such proceeds to pay any costs incurred in
connection with the redemption of the Company's
currently outstanding 7% Convertible Exchangeable
Redeemable Subordinated Debentures Due 2003 (the
"7% Debentures"). See "Use of Proceeds."
Nasdaq SmallCap Market
Symbol...................
Common Stock.............. The Common Stock is quoted on The Nasdaq Stock Mar-
ket's National Market under the symbol "FSNM." At
March 31, 1997, 2,227,332 shares of Common Stock
were outstanding.
RISK FACTORS
Before making an investment decision, prospective investors should consider
all of the information in this Prospectus. In particular, prospective investors
should evaluate the factors discussed under "Risk Factors."
RECENT DEVELOPMENTS
Net income for the three months ended March 31, 1997 was $710,000 or $0.28
per fully diluted share, compared to $505,000 or $0.22 per fully diluted share
for the same period of 1996, an increase of 40.6% and 27.3% in net income and
earnings per fully diluted share, respectively. Total assets were $351 million
at March 31, 1997, an increase of 33.0% from $264 million at March 31, 1996.
Loans and leases increased $60.7 million and total deposits increased $78.1
million over March 31, 1996 levels. Return on average assets and return on
average equity for the first quarter of 1997 were 0.85% and 13.06%,
respectively, compared to 0.78% and 11.56%, respectively, for the same period
in 1996. See "Recent Developments."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data of the Company is derived
from the Selected Consolidated Financial Data appearing elsewhere in this
Prospectus, and should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto and the information contained
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993(1) 1992(1)
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income......... $ 16,064 $ 13,307 $ 10,957 $ 7,581 $ 6,401
Provision for loan and lease
losses..................... 1,231 418 248 267 198
-------- -------- -------- -------- --------
Net interest income after
provision for loan and
lease losses.............. 14,833 12,889 10,709 7,314 6,203
Noninterest income.......... 2,934 1,683 1,705 1,204 1,347
Loss from credit card
processing operations...... -- (1,208) (158) -- --
Noninterest expense......... 14,590 10,926 9,625 6,724 6,137
-------- -------- -------- -------- --------
Income before taxes........ 3,177 2,438 2,631 1,794 1,413
Income tax expense
(benefit)................. 1,116 763 240 (17) 67
-------- -------- -------- -------- --------
Net income available to
common stockholders........ $ 2,061 $ 1,675 $ 2,391 $ 1,811 $ 1,346
======== ======== ======== ======== ========
PER SHARE DATA:
Net income(2)............... $ 0.88 $ 0.77 $ 1.06 $ 1.21 $ 0.98
Book value.................. 9.69 8.88 8.04 6.97 5.83
Dividends paid.............. 0.200 0.154 0.064 -- 0.433
Average fully diluted common
shares outstanding (in
thousands)................. 2,136 2,052 2,019 1,442 1,363
AVERAGE BALANCE SHEET DATA:
Total assets................ $285,628 $229,382 $186,886 $140,083 $126,150
Investment securities....... 35,611 34,250 32,211 21,642 25,959
Loans and leases............ 218,776 164,172 133,685 102,974 85,058
Deposits.................... 242,366 195,079 160,226 126,989 114,446
Stockholders' equity........ 18,313 16,817 14,723 9,031 7,396
PERFORMANCE RATIOS:
Return on average assets.... 0.72% 0.73% 1.28% 1.29% 1.07%
Return on average common
equity..................... 11.25 9.96 16.24 20.05 18.20
Net interest margin......... 6.25 6.49 6.46 5.89 5.60
Efficiency ratio(3)......... 76.84 72.80 76.00 76.64 80.67
ASSET QUALITY RATIOS(4):
Nonperforming assets to
total loans, leases and
other real estate owned.... 1.17% 1.60% 1.17% 1.99% 3.75%
Net charge-offs to average
loans and leases........... 0.26 0.02 0.17 0.25 0.27
Allowance for loan and lease
losses to total loans...... 1.00 1.01 0.98 1.18 1.21
Allowance for loan and lease
losses to nonperforming
loans(5)................... 153.52 81.58 290.12 201.26 134.45
CAPITAL RATIOS(4):
Leverage ratio.............. 6.17% 6.55% 7.06% 7.21% 5.18%
Average stockholders' equity
to average total assets.... 6.41 7.33 7.88 6.45 5.86
Tier 1 risk-based capital
ratio...................... 7.40 7.80 9.04 9.83 7.36
Total risk-based capital
ratio...................... 8.30 8.70 9.90 10.96 8.54
</TABLE>
- --------
(1) Except for December 1993, does not reflect the operations of the Santa Fe
Bank, which was acquired by the Company on December 1, 1993. This
acquisition was accounted for as a purchase.
(2) Net income per share is based upon the weighted average number of shares of
Common Stock, Common Stock equivalents, Common Stock options, Common Stock
warrants and 7% Debentures outstanding during the period.
(3) Calculated by dividing total noninterest expense, excluding securities
gains and losses, by net interest income plus noninterest income.
(4) At period end, except net charge-offs to average loans and average
stockholders' equity to average total assets.
(5) Nonperforming loans consist of nonaccrual loans and loans contractually
past due 90 days or more.
5
<PAGE>
RISK FACTORS
An investment in the Debentures offered hereby involves certain risks. In
addition to the other information contained or incorporated by reference
herein, the following factors should be considered carefully in evaluating the
Company before purchasing the Debentures offered hereby. Information contained
in this Prospectus contains "forward-looking statements" which can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "will," "should," "projected," "contemplates" or "anticipates" or
the negative thereof or other variations thereon or comparable terminology. No
assurance can be given that the matters covered by the forward-looking
statements will be achieved. The following factors could cause actual
experience to vary materially from the matters covered in such forward-looking
statements. Other factors, such as the general state of the economy, could
also cause actual experience to vary materially from the matters covered in
such forward-looking statements.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of Michael R. Stanford,
President of the Company and First State Bank, H. Patrick Dee, Secretary and
Treasurer of the Company and Executive Vice President and Chief Operating
Officer of First State Bank, and other members of management who have
relationships with customers of First State Bank. The loss of these officers
could have an adverse affect on the Company's growth and profitability.
Certain of these officers are participating in the Executive Income Protection
Plan. See "Management--Executive Income Protection Plan."
GROWTH STRATEGY AND POSSIBLE NEED FOR ADDITIONAL CAPITAL
The Company intends to pursue an aggressive growth strategy. This strategy
is focused primarily upon the ability of the Company to develop new account
relationships, establish de novo branches, complete acquisitions and generate
loans and deposits at acceptable risk levels and on acceptable terms. While
the Company believes that its existing capital level and anticipated earnings
will be sufficient to support the Company's operations and anticipated
expansion within its existing markets during at least the next 12 months and
to meet all regulatory requirements, other factors such as faster than
anticipated growth, reduced earnings levels and changes in regulatory
requirements may require the Company to seek additional capital. There can be
no assurance that the Company will be successful in implementing, or will have
the necessary regulatory capital to implement, its growth strategy or that it
would be able to raise additional capital if necessary. See "Business--Growth
Strategy," "--Competition" and "--Regulatory Oversight."
SOURCES OF PAYMENTS TO HOLDERS OF DEBENTURES; ABILITY TO PAY DIVIDENDS;
POSSIBLE ISSUANCE OF ADDITIONAL SECURITIES
Although the Company holds all of the outstanding capital stock of First
State Bank, the Company is a legal entity separate and distinct from First
State Bank. Except with respect to any proceeds of this offering retained by
the Company, the ability of the Company to pay the interest on and principal
of the Debentures and to pay dividends on the Common Stock will depend
primarily on the ability of First State Bank to pay dividends to the Company
in amounts sufficient to service the Company's obligations, including its
obligation to make any payments with respect to securities issued by the
Company in the future which are pari passu or have a preference over the
Debentures or the Common Stock, as applicable, with respect to the payment of
principal, interest, or dividends. See "Regulation and Supervision."
First State Bank's ability to pay dividends, make other capital
distributions, or pay management fees to the Company is governed by federal
and state law. Under regulations issued by the Board of Governors of the
Federal Reserve System (the "FRB" or "Federal Reserve Board"), First State
Bank is permitted to pay dividends during a calendar year of up to the lesser
of (i) its undivided profits then on hand, less its losses and bad debts, or
(ii) the total of the bank's net profits for that year combined with its
retained net profits of the preceding two calendar years, less any required
transfers to surplus or to a fund for the retirement of any preferred stock.
(Undivided profits may include, if approved by First State Bank's Board of
Directors and the
6
<PAGE>
FRB, part or all of any capital surplus that exceeds capital surplus required
by state law.) Any additional capital distributions would require prior
regulatory approval. In addition, First State Bank is prohibited under federal
law from paying any dividend that would cause it to become undercapitalized.
As of December 31, 1996, First State Bank met the capital requirements of an
adequately capitalized institution under applicable FRB regulations.
Additionally, the FRB has the right to object to a distribution on safety and
soundness grounds. There is no assurance that First State Bank will remain
adequately capitalized or that it will be in a position to make capital
distributions to the Company in an amount sufficient for the Company to
service the Debentures, or to pay dividends on the Common Stock issuable upon
conversion of the Debentures. See "Regulation and Supervision."
It is the policy of the Federal Reserve Board that bank holding companies
should pay cash dividends on common stock only out of income available over
the past year and only if prospective earnings retention is consistent with
the organization's expected future needs and financial condition. The policy
provides that bank holding companies should not maintain a level of cash
dividends that undermines the bank holding company's ability to serve as a
source of strength to its banking subsidiaries. Principal sources of revenues
for the Company are expected to be dividends received from First State Bank
and earnings on the proceeds of this offering that are retained by the
Company.
In addition, the federal regulatory agencies are authorized to prohibit a
banking institution or bank holding company from engaging in an unsafe or
unsound banking practice. Depending upon the circumstances, the agencies could
take the position that paying a dividend would constitute an unsafe or unsound
banking practice.
There is no restriction in the Indenture on the ability of the Company to
issue securities which are pari passu or have a preference over the Debentures
or the Common Stock, nor is there any restriction on the ability to issue
additional capital stock or incur additional indebtedness.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Debentures
will, to the extent set forth in the Indenture, be subordinated and subject in
right of payment to the prior payment in full of all Senior Indebtedness. In
certain events of insolvency, the payment of the principal of, premium if any,
and interest on the Debentures will, to the extent set forth in the Indenture,
also be effectively subordinated in right of payment to the prior payment in
full of all Other Financial Obligations (as defined herein). See "Description
of the Debentures--Subordination of Debentures." Only the capital stock of the
Company is currently junior in right of payment to the Debentures. As of March
26, 1997, the Company had no Senior Indebtedness and had outstanding $3.4
million in principal amount of 7% Debentures. The Company has called for
redemption the 7% Debentures effective April 30, 1997. The Indenture does not
limit the incurrence of additional indebtedness by the Company, including
Senior Indebtedness, or by First State Bank.
The Debentures will be obligations of the Company only, are not obligations
of or deposits in First State Bank, and are not insured by any government
agency. Because the Company is a bank holding company, its rights and the
rights of its creditors, including the holders of the Debentures, to
participate in any distribution of the assets of First State Bank (either as a
shareholder or as a creditor), upon a liquidation, reorganization, or
insolvency of First State Bank (and the consequent right of the holders of the
Debentures to participate in those assets) will be subject to the claims of
the creditors of First State Bank (including depositors in First State Bank).
If the Company is a creditor of First State Bank, the claims of the Company
would be subject to any prior security interest in the assets of First State
Bank and any indebtedness of First State Bank senior to that of the Company.
LIMITED COVENANTS
The covenants in the Indenture are limited and do not protect holders of
Debentures in the event of a material adverse change in the Company's
financial condition or results of operations. Additionally, as more fully
described in "Description of the Debentures," payments of principal of the
Debentures can be accelerated only
7
<PAGE>
upon certain events of bankruptcy, insolvency, or reorganization of the
Company. There is no right of acceleration of payment of the Debentures in the
case of a default in the performance of any covenant of the Company, including
payment of principal or interest. Neither the Debentures nor the Indenture
contains any provisions which will restrict the Company from incurring,
assuming or becoming liable with respect to any indebtedness or other
obligations, whether secured or unsecured, including indebtedness which will
rank senior to the Debentures. Neither the Debentures nor the Indenture
contains any financial ratios or specified levels of liquidity to which the
Company must adhere. In addition, neither the Debentures nor the Indenture
contains any provision which requires the Company to repurchase, redeem or
modify the terms of the Debentures upon a change in control or other events
involving the Company which may adversely affect the creditworthiness of the
Debentures. Therefore, neither the covenants nor the other provisions of the
Indenture should be a significant factor in evaluating whether the Company
will be able to comply or will comply with its obligations under the
Debentures. See "Description of the Debentures."
ABSENCE OF PUBLIC MARKET FOR DEBENTURES
Before this offering, there has been no public market for the Debentures.
Although the Company intends to apply to have the Debentures approved for
quotation on The Nasdaq SmallCap Market, there is no assurance that the
Debentures will be approved for quotation. Keefe, Bruyette & Woods, Inc. has
advised the Company that it intends to make a market in the Debentures and the
Common Stock but is not obligated to do so and may discontinue market making
at any time without notice. No assurance can be given that an active trading
market for the Debentures will develop, or, if any market develops, that it
will be sustained. Accordingly, holders of Debentures may experience
difficulty in reselling or may be unable to sell the Debentures. Additionally,
since the prices of securities generally fluctuate, there can be no assurance
that purchasers in this offering will be able to sell the Debentures at or
above the purchase price.
LIMITED TRADING MARKET FOR COMMON STOCK
The Debentures are convertible at any time before maturity, unless
previously redeemed, into shares of Common Stock of the Company. There is no
assurance that an active trading market for the Common Stock will be developed
or sustained or that a holder of Common Stock will have the ability to dispose
of his shares in a liquid market. The Common Stock was first issued by the
Company and commenced trading on The Nasdaq Stock Market's National Market on
November 3, 1993. As of March 31, 1997, there were outstanding 2,227,332
shares of Common Stock. See "Market for Common Stock and Dividends."
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation (the "Articles") contain certain
provisions that could delay, discourage or prevent an attempted acquisition or
change of control of the Company. These provisions include (i) a Board of
Directors classified into three classes with the directors of each class
having staggered, three-year terms, (ii) a requirement that the holders of at
least two-thirds of the outstanding Common Stock approve the removal of a
director without cause and (iii) a provision establishing certain advance
notice procedures for nomination of candidates for election as directors and
for stockholder proposals to be considered at meetings of stockholders. The
Articles authorize the Board of Directors of the Company to issue shares of
preferred stock without stockholder approval and upon such terms as the Board
of Directors may determine. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions, financings and
other corporate purposes, could also have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, a controlling interest in the Company. The Company has a
Shareholder Protection Rights Agreement (the "Rights Agreement") in effect to
ensure that all stockholders receive fair and equal treatment in the event of
any proposal to acquire control of the Company. Under the Rights Agreement,
each stockholder holds one right for each share of Common Stock held of
record. Upon the occurrence of certain triggering events set forth in the
Rights Agreement, holders of the rights, other than the "acquiring person" or
any affiliate or transferree of such acquiring person, may be entitled to
purchase Common Stock or, in the event of a merger or other business
combination in which the Common Stock interests of the Company's stockholders
8
<PAGE>
are changed, stock of the "acquiring person," at half the market value of such
stock. The Board of Directors may, at its option, exchange all of the rights
(other than rights held by the "acquiring person") for Common Stock of the
Company on a one-for-one basis. The Company will be entitled to redeem the
rights for $0.01 per right until the tenth day following a public announcement
of the acquisition of ten percent of the Common Stock. The rights expire on
October 25, 2006, unless earlier redeemed or exchanged by the Company. See
"Description of Capital Stock--Common Stock " and "--Certain Anti-Takeover
Provisions."
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Bylaws provide for the indemnification of its officers and
directors and in certain circumstances, exculpate its officers and directors
from liability for breaches of their fiduciary duties to the Company. See
"Management--Indemnification."
EXPOSURE TO LOCAL ECONOMIC CONDITIONS
The Company's success is dependent to a significant extent upon general
economic conditions in the Albuquerque metropolitan area and Santa Fe and Taos
counties. The banking industry in First State Bank's trade area is affected by
general economic conditions such as inflation, recession, unemployment and
other factors beyond the Company's control. Economic recession over a
prolonged period of time in the area could cause significant increases in
nonperforming assets, thereby causing operating losses, impairing liquidity
and eroding capital. There can be no assurance that future adverse changes in
the national and/or local economies would not have a material adverse effect
on the Company's financial condition, results of operations or cash flows.
INTEREST RATE RISK
The Company's earnings depend to a substantial extent on "rate
differentials," i.e., the difference between the income the Company receives
from loans, securities and other earning assets, and the interest it pays to
obtain deposits and other liabilities. These rates are highly sensitive to
many factors which are beyond the Company's control, including general
economic conditions and the policies of various governmental and regulatory
authorities. Increases in the discount rate by the FRB usually lead to rising
interest rates, which affect the Company's interest income, interest expense
and securities portfolio. From time to time, maturities of assets and
liabilities are not balanced, and a rapid increase or decrease in interest
rates could have an adverse effect on the net interest margin and results of
operations of the Company. The nature, timing and effect of any future changes
in federal monetary and fiscal policies on the Company and its results of
operations are not predictable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Asset/Liability Management."
COMPETITION
The banking business is highly competitive, and the profitability of the
Company depends principally upon the Company's ability to compete in its trade
areas. In addition to competing with other commercial and savings banks and
savings and loan associations, the Company competes with credit unions,
finance companies, mutual funds, insurance companies, brokerage and investment
banking firms, asset-based non-bank lenders and governmental organizations
that may offer subsidized financing at lower rates than those offered by the
Company. Many of such competitors have significantly greater financial and
other resources than the Company. Although the Company has been able to
compete effectively in the past, no assurance can be given that the Company
will continue to be able to compete effectively in the future. Various
legislative acts in recent years have led to increased competition among
financial institutions. There can be no assurance that the United States
Congress will not enact legislation that may further increase competitive
pressures on the Company. Competition from both financial and non-financial
institutions is expected to continue.
REGULATORY OVERSIGHT
Bank holding companies and banks operate in a highly regulated environment
and are subject to extensive supervision and examination by federal and state
regulatory agencies. The Company is subject to the Bank Holding Company Act of
1956, as amended (the "BHCA"), and to regulation and supervision by the FRB.
The Bank, as a state member bank, is subject to regulation and supervision by
the FRB and the New Mexico Financial
9
<PAGE>
Institutions Division of the Regulation and Licensing Department and, as a
result of the insurance of its deposits, the Federal Deposit Insurance
Corporation (the "FDIC"). These regulations are intended primarily for the
protection of depositors, rather than for the benefit of investors. The
Company and First State Bank are subject to changes in federal and state law,
as well as changes in regulation and governmental policies, income tax law and
accounting principles. The effects of any potential changes cannot be
predicted but could adversely affect the business and operations of the
Company and First State Bank in the future.
FRB policy requires a bank holding company such as the Company to serve as a
source of financial strength to its banking subsidiaries and commit resources
to their support. The FRB has required bank holding companies to contribute
cash to their troubled bank subsidiaries based upon this "source of strength"
doctrine, which could have the effect of decreasing funds available for the
payment of principal and interest on the Debentures or for distributions to
stockholders. In addition, a bank holding company in certain circumstances
could be required to guarantee the capital plan of an undercapitalized banking
subsidiary. See "Regulation and Supervision."
REGULATION OF CONTROL
Individuals or entities, alone or acting in concert with others, who acquire
10% or more of any class of voting securities of the Company may be presumed
to have acquired "control" of the Company under the Change in Bank Control
Act, which requires the prior approval of the FRB for any such acquisition.
Persons other than individuals, alone or acting in concert, seeking to acquire
25% or more (5% or more in the case of an acquiror that is a bank holding
company) of any class of voting securities of, or otherwise seeking to
control, the Company are also required to seek the prior approval of the FRB
under the BHCA. For purposes of these approval requirements, the FRB, in
general, considers securities convertible into voting securities to be voting
securities.
THE COMPANY
The Company is a New Mexico-based bank holding company that provides
commercial banking services primarily to small and medium-sized businesses
through its subsidiary bank First State Bank. The Company operates four
offices in Taos County, five offices in Albuquerque, two offices in Santa Fe
and one office each in Rio Rancho, Los Lunas, Bernalillo and Placitas, New
Mexico. In addition, the Company has received approval to open a new branch in
the Moriarty market, with the opening tentatively scheduled for the third
quarter of 1997. First State Bank, the largest bank in Taos County, has
operated in the county since 1922. The Company acquired three Albuquerque
branches in 1991 by merging the business operations of First State Bank with
an affiliated bank. The Company entered the Santa Fe market with the
acquisition of a controlling interest in First State Bank of Santa Fe (the
"Santa Fe Bank") on December 1, 1993. The Santa Fe Bank was merged into First
State Bank on June 5, 1994. See "--History." At December 31, 1996, the Company
had total assets, total deposits and total stockholders' equity of $325.0
million, $277.4 million and $21.1 million, respectively.
Management's strategy is to provide a business culture in which customers
are provided individualized service. As part of its operating and growth
strategies, the Company is seeking to (i) place greater emphasis on attracting
core deposits from, and providing financial services to, small and medium-
sized businesses; (ii) expand operations in Albuquerque, Santa Fe and other
strategic areas in New Mexico; (iii) maintain asset quality through strict
adherence to credit administration standards; (iv) manage interest rate risk;
(v) continue to improve internal operating systems and (vi) manage noninterest
expenses.
Management believes that the Company is qualified to pursue an aggressive
growth strategy throughout New Mexico due to its responsive customer service,
its streamlined management structure, the strong community involvement of the
Company's management and employees and recent trends in the New Mexico banking
environment. Changes in banking laws have allowed out-of-state bank holding
companies to acquire New Mexico banking institutions. As a result, several
competing banks have been acquired by larger out-of-state institutions. See
"--Growth Strategy." Management believes that, in certain cases, the acquiring
institutions have shifted the focus of the acquired banks away from the small
and medium-sized businesses that are at the core of the Company's marketing
efforts. The Company is seeking to capitalize on this environment by expanding
internally and through de novo branching opportunities and select
acquisitions.
10
<PAGE>
Management believes that the changes in the competitive environment have
created expansion opportunities for the Company. These opportunities are
primarily centered in the Albuquerque, Santa Fe, Rio Rancho and Los Lunas
markets. The Company has added staff to service the additional volume of loans
and deposits obtained as a result of expansion in these marketplaces. The
level of any additional staffing and related expenses will depend on the
magnitude of continued growth. In addition, the Company will consider
potential acquisition opportunities that complement the Company's existing
operations and provide economies of scale when combined with its existing
locations. The Company is not in negotiations with respect to any potential
acquisitions. See "--Growth Strategy."
At December 31, 1996, First State Bank was "adequately capitalized" under
regulatory capital guidelines.
The Company's executive offices are located at 111 Lomas, Albuquerque, New
Mexico 87102, and its telephone number is (505) 241-7500.
HISTORY
In 1988, Livingston & Co. Southwest L.P. ("Livingston & Co.") formed the
Company and an affiliated company, New Mexico Bank Corporation, to acquire
banking institutions in New Mexico. In December 1988, the Company acquired
First State Bank and New Mexico Bank Corporation acquired National Bank of
Albuquerque ("NBA"). After a change in New Mexico banking laws in 1991, the
Company and New Mexico Bank Corporation merged and NBA was merged into First
State Bank.
At the time of its acquisition, First State Bank had high levels of problem
assets relative to total assets and an unacceptable record of loan charge-
offs. To address these problems, Michael R. Stanford, who had been appointed
President of First State Bank in April 1988 and is President of the Company,
and his management team, focused on (i) strengthening underwriting standards
and increasing senior management involvement in loan approvals and (ii)
pursuing an aggressive policy of foreclosing upon nonperforming loans and
selling the underlying collateral. In addition, the Company sought to manage
noninterest expense by implementing expense and overhead reductions, including
eliminating two unprofitable branch offices and one redundant branch and
reducing staffing levels in the remaining three branches.
On December 1, 1993, the Company acquired 94.5% of the outstanding shares of
common stock (the "Santa Fe Stock") of the Santa Fe Bank (the "Santa Fe Bank
Transaction"). The selling shareholders of the Santa Fe Bank (the "Selling
Santa Fe Shareholders") included individuals who were (and continue to be)
members of the Company's senior management team, as well as individuals who
subsequently became members of the Board of Directors of the Company
(collectively, the "Affiliated Sellers"). The Affiliated Sellers owned, in the
aggregate, approximately 70% of the outstanding shares of Santa Fe Stock. The
Company issued 236,925 shares of the Company's Common Stock to the Selling
Santa Fe Shareholders in the Santa Fe Bank Transaction. Based on the closing
sale price of the Company's Common Stock on December 1, 1993 of $8.40 per
share, the total market value of the consideration received by the Selling
Santa Fe Shareholders in the Santa Fe Bank Transaction equaled approximately
$2.0 million, which represented 150% of the book value of the Santa Fe Bank at
June 30, 1993.
The Selling Santa Fe Shareholders acquired their ownership interest in the
Santa Fe Bank in March 1993 (the "March Transaction") for an aggregate amount
of $1.3 million from another bank holding company which had acquired such
stock through foreclosure of a bank stock loan. The terms of such acquisition
were favorable to the Selling Santa Fe Shareholders in part because the prior
owner had held the shares of Santa Fe Stock in excess of the permitted holding
period and was under pressure from its regulators to divest such holdings. The
Selling Santa Fe Shareholders entered into an agreement to sell the shares of
Santa Fe Stock to the Company on July 30, 1993. In addition to recognizing an
aggregate gain of approximately $700,000 from the Santa Fe Bank Transaction,
the Selling Santa Fe Shareholders received dividends in respect of the Santa
Fe Stock of approximately $84,000 on June 30, 1993, and $215,000 on September
30, 1993. The consideration to be paid by the Company in the Santa Fe Bank
Transaction was negotiated between representatives of the Selling Santa Fe
11
<PAGE>
Shareholders (primarily Mr. Stanford, President and Chief Executive Officer of
the Company, and Mr. H. Patrick Dee, Executive Vice President of the Company)
and the Company. Because the Selling Santa Fe Shareholders included members of
the Company's management, the transaction cannot be said to have been
negotiated at arms length. The Company believes that the purchase price for
the Santa Fe Bank was appropriate based on its review of comparable
transactions, the Santa Fe Bank's earnings performance, asset quality and
growth potential in the Santa Fe market, as well as the potential for
operating efficiencies presented by combining the banks.
The Company had been interested in acquiring the Santa Fe Bank prior to the
March Transaction. However, the Company was precluded from purchasing the
Santa Fe Bank at the time because the Federal Reserve Board had indicated that
it would prohibit Livingston & Co., as well as any affiliate of Livingston &
Co. (including the Company), from acquiring any additional financial
institutions. In connection with the Company's initial public offering of
Common Stock in November 1993, Livingston & Co.'s ownership interest in the
Company was redeemed, thus allowing the Company to purchase the Santa Fe Bank.
Since its initial public offering in 1993, the Company has made significant
investments in expansion and technology. Since 1993, First State Bank has
opened seven new branches which have contributed $80,364,000 in deposits. In
addition, management estimates that these new branches have generated
approximately $64,000,000 in loans.
In 1996, First State Bank opened a de novo leasing department. Management
believes that the leasing department will provide portfolio diversification as
well as an additional vehicle for investing deposits resulting from branch
expansions. The leasing department had funded leases of approximately
$20,676,000 as of December 31, 1996.
During 1996, First State Bank completed a conversion of its banking
application software. Management believes that the new software will enhance
the Bank's ability to service customers while realizing operational
efficiencies. First State Bank also implemented a telephone banking system
which is allowing it to handle growth without a proportionate increase in
staff. In 1996, a deposit imaging system was implemented. This system has
improved operational efficiencies and reduced certain direct costs.
OPERATING STRATEGY
The Company's operating strategies include:
. Providing responsive, personal customer service
. Attracting new account relationships
. Emphasizing community involvement
. Developing new business opportunities
. Increasing efficiency
. Optimizing asset/liability management
Customer Service. The Company's objective is to increase market share in
both lending volume and deposits by providing responsive customer service that
is tailored to its customers' needs. By maximizing personal contact with
customers, maintaining low employee turnover and endeavoring to understand the
needs and preferences of its customers, the Company is working to maintain and
further enhance its reputation of providing excellent customer service,
allowing it to achieve its growth and earnings goals.
The Company has developed a streamlined management structure that allows it
to make credit and other banking decisions rapidly. Management believes that
this structure, when compared to other competing institutions, enables the
Company to provide a higher degree of service and increased flexibility to
creditworthy customers.
New Account Relationships. The Company's strategy is to increase its
emphasis on relationship banking with small and medium-sized businesses and
individual customers across all product lines. The Company
12
<PAGE>
believes that the acquisition of many of the Company's local competitors by
out-of-state banking companies has reduced the service level offered to
customers of those banks and has created an opportunity for the Company to
expand its customer base. The Company intends to capitalize on this
opportunity by targeting its marketing efforts to those businesses and
individuals who prefer the personalized customer service emphasized by the
Company.
Community Involvement. First State Bank management and other employees
participate actively in a wide variety of civic and community activities and
organizations, including local chambers of commerce, a board of education,
United Way, and Habitat for Humanity. First State Bank also sponsors a number
of community-oriented events each year. The Company believes that these
activities assist First State Bank through increased visibility and through
development and maintenance of customer relationships.
New Business Opportunities. The Company has and will continue to consider a
variety of new banking opportunities, whether through the opening of de novo
branches, acquisition of an existing commercial bank or bank holding company,
or other opportunities permissible under state and federal banking
regulations. Expansion efforts will be focused in areas or markets that are
complementary to the First State Bank's existing customer base and areas of
operation. See "--Growth Strategy."
Increasing Efficiency. Management believes that investments in technology
and facilities made since 1993 will allow the Company to grow revenues
significantly faster than expenses over the next three years. These
investments should allow the Company to expand its asset base without a
commensurate increase in noninterest expense.
Asset/Liability Management. The Company's asset/liability management policy
is designed to provide stable net interest income growth by protecting its
earnings from undue interest rate risk. The Company maintains a strategy of
keeping the rate adjustment period on the majority of both assets and
liabilities to an earnings neutral position, with a substantial amount of
these assets and liabilities adjustable in 90 days or less. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Asset/Liability Management."
GROWTH STRATEGY
The Company expects to pursue an aggressive growth strategy through a
combination of internal growth, de novo branching and select acquisitions.
Several banks that compete with the Company have been acquired by larger out-
of-state financial institutions since 1993. Management believes that these
changes in the competitive environment have caused the acquired banks to
significantly alter their operating procedures and their approach to customer
service affording the Company an opportunity to gain profitable new account
relationships and to expand existing relationships.
In addition, management believes that there may be attractive opportunities
to open new branches and acquire branches of existing or merged institutions
in New Mexico. Management considers a variety of criteria when evaluating
potential branch expansion, including (i) the short and long-term growth
prospects for the location, (ii) the management and other resources required
to integrate the operations, if such integration is desirable, (iii) the
degree to which the branch would enhance the geographic diversification of the
Company, (iv) the degree to which the branch would enhance the Company's
presence in an existing market and (v) the costs of operating the branch.
First State Bank has obtained approval to open one new branch in the Moriarty
market, with the opening tentatively scheduled for the third quarter of 1997.
An additional future branch site has been acquired in Santa Fe, and the
Company is also evaluating other potential locations for new branches, one
each in Albuquerque and Belen.
The Company's goal over the next five years is to create a broad-based,
well-capitalized, customer-focused New Mexico financial institution with
assets of $600 to $700 million. Management believes that a financial
institution of this size is large enough to meet the needs of most customers,
yet small enough to deliver personal, high-quality service. To accommodate the
Company's anticipated growth, management intends to further
13
<PAGE>
develop the existing middle management of the Company and further develop its
MIS and other appropriate internal management systems. There can be no
assurance, however, that the Company will achieve its growth objectives.
MARKET AREAS AND BANKING OFFICES
Markets. First State Bank serves three distinct market areas within New
Mexico: Taos County; Albuquerque, Rio Rancho and Los Lunas; and Santa Fe. Taos
County is a popular year-round recreation and tourist area. Ski and golf
resorts in the area attract visitors from throughout the southwestern and
western United States. Taos also has an active art community catering to the
tourist trade.
The Albuquerque, Rio Rancho and Los Lunas area comprises the largest
metropolitan area in New Mexico and is the financial center of the state. It
has a diverse economy centered around federal and state government, military,
service and technology industries. Military facilities include Kirtland Air
Force Base and Sandia National Laboratories. A number of companies, including
Intel, Lockheed Martin, Taco Bell, Intuit, Sumitomo and General Mills, have
initiated or expanded operations in the area in the past several years.
Santa Fe is the state capital of New Mexico. Its principal industries are
government and tourism. Like Taos, Santa Fe is widely known for its
southwestern art galleries and amenities, including the Santa Fe Opera. Santa
Fe is one of the largest art markets in the United States, attracting visitors
from all parts of the United States and many foreign countries.
First State Bank. The following table sets forth certain information
concerning the banking offices of First State Bank as of December 31, 1996:
<TABLE>
<CAPTION>
TOTAL
NUMBER OF TOTAL LOANS AND
LOCATION FACILITIES DEPOSITS LEASES
-------- ---------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
First State Bank:
Taos County..................................... 4 $ 75,471 $ 47,512
Santa Fe........................................ 2 48,490 35,804
Albuquerque..................................... 5 112,951 124,471
Los Lunas....................................... 1 15,767 23,235
Rio Rancho...................................... 3 25,854 19,904
--- -------- --------
Total......................................... 15 $278,533 $250,926
=== ======== ========
</TABLE>
First State Bank offers a full range of financial services to commercial and
individual customers, including checking accounts, short and medium-term
loans, revolving credit facilities, inventory and accounts receivable
financing, equipment financing, residential and small commercial construction
lending, commercial leases, various savings programs, installment and personal
loans, safe deposit services, credit cards and brokerage services.
The Taos County locations provide conventional commercial and SBA loans to
established commercial businesses and businesses that support the tourism and
ski industries. The Taos branches also provide a broad range of consumer
banking services, including a full complement of deposit and residential
construction and other loan services.
The Albuquerque, Rio Rancho and Los Lunas locations primarily serve
established commercial businesses and individuals who may require a full range
of banking services. In addition to an emphasis on conventional commercial and
SBA lending, these locations are active in residential construction lending in
the metropolitan Albuquerque area.
The Santa Fe locations primarily serve a diverse group of small to medium-
sized business and individual customers, including commercial businesses that
support the tourism industry.
14
<PAGE>
First State Bank is the largest bank in Taos County with 39.4% of the total
deposits as of June 30, 1996, the latest date as of which information is
available. Management believes that the Company's growth in this market will
be through general economic growth and not as a result of increased market
share. In Albuquerque and Santa Fe, First State Bank had approximately 2.7%
and 4.0%, respectively, of the total deposits as of June 30, 1996. Management
believes that the Albuquerque, Los Lunas and Rio Rancho market, and the Santa
Fe market offer the greatest growth opportunity for the Company. The
Albuquerque market offers the Company a variety of expansion opportunities
including a number of potential sites for new branch locations. As the Company
pursues its growth objectives of providing high-quality personal banking
services, future branch expansion will be a high priority. See "--Growth
Strategy."
COMPETITION
First State Bank competes for loans, leases and deposits with other
commercial banks, savings banks, savings and loan associations, credit unions,
finance companies, mutual funds, insurance companies, brokerage and investment
banking firms, asset-based non-bank lenders, governmental organizations 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 significantly greater financial and other resources
than the Company. First State Bank also faces significant competition for
investors' funds from sellers of short-term money market securities and other
corporate and government securities.
First State Bank competes for loans and leases principally through the range
and quality of its services, interest rates and loan fees. First State Bank
believes its personal service philosophy enables it to compete favorably with
other financial institutions in its focus market of small and medium-sized
businesses. First State Bank actively solicits deposit-related clients and
competes for deposits by offering customers personal attention and
professional service.
FACILITIES
With the exception of its Southside facility in Taos, the Journal Center
facility in Albuquerque and the Bernalillo facility, which are owned by First
State Bank, the Company leases its banking facilities in Albuquerque, Taos,
Santa Fe, Rio Rancho and Los Lunas. The following table shows the size and age
of each of the banking facilities owned or leased by the Company:
<TABLE>
<CAPTION>
APPROXIMATE SQUARE
FOOTAGE BUILDING AREA
APPROXIMATE LAND APPROXIMATE SQUARE NOW UTILIZED FOR BANKING
AREA FOOTAGE BUILDING AREA SERVICES YEAR CONSTRUCTED OR
(SQ. FT.) (SQ. FT.) (SQ. FT.) LAST RENOVATED:
---------------- --------------------- ------------------------ -------------------
<S> <C> <C> <C> <C>
Taos
Main.................. 19,800 8,940 8,940 Renovated 6-93
North................. 45,215 2,239 2,239 Renovated 9-95
Questa................ 17,947 1,050 1,050 Renovated 8-93
South................. 36,590 5,550 5,550 Renovated 9-92
Albuquerque
Lomas................. 9,119 9,199 9,199 Renovated 3-95
Carlisle.............. 16,256 1,880 1,880 Constructed 9-95
Montgomery............ 14,514 3,742 3,742 Renovated 7-91
Sycamore.............. 45,834 5,164 4,164 Constructed 9-94
Journal Center........ 88,427 13,200 13,200 Constructed 9-95
Santa Fe
San Mateo............. 62,334 6,955 6,955 Renovated 11-95
Downtown.............. 5,100 2,116 2,116 Constructed 12-95
Rio Rancho
Rio Rancho............ 50,214 5,500 4,000 Constructed 3-95
Placitas.............. 807 807 807 Constructed 9-94
Bernalillo............ 43,539 4,610 4,610 Constructed 8-96
Los Lunas............... 57,243 4,327 4,327 Constructed 8-95
</TABLE>
15
<PAGE>
EMPLOYEES
As of December 31, 1996, the Company had 183 full-time equivalent employees.
The Company places a high priority on staff development, training and
selective hiring. New hires are selected on the basis of both technical skills
and customer service capabilities. Staff development involves intensive
training in marketing, customer service and regulatory compliance. None of the
Company's employees is covered by a collective bargaining agreement, and
management believes that its relationship with its employees is good.
RECENT DEVELOPMENTS
OVERVIEW
Net income for the three months ended March 31, 1997 was $710,000 or $0.28
per fully diluted share, compared to $505,000 or $0.22 per fully diluted share
for the same period of 1996, an increase of 40.6% and 27.3% in net income and
earnings per fully diluted share, respectively. The growth in net income was
primarily due to a $60.7 million increase in the loan and lease portfolio and
a $15.9 million increase in the investment portfolio.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------
1997 1996
----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Income Statement Data:
Net income available to common
stockholders............................... $ 710 $ 505
Net income per share(1)..................... 0.28 0.22
Fully diluted average shares outstanding.... 2,676,993 2,623,574
Balance Sheet Data(2):
Total assets................................ $ 350,741 $ 264,369
Loans and leases, net....................... 259,490 199,535
Total deposits ............................. 307,046 228,897
Total stockholders' equity.................. 21,928 17,796
Book value per share........................ 9.82 8.98
Performance Ratios
Return on average assets.................... 0.85% 0.78%
Return on average common equity............. 13.06 11.56
Asset Quality Ratios(2):
Nonperforming assets to total assets(3) .... 0.94% 1.16%
Allowance for loan and lease losses to total
loans...................................... 1.04 1.00
</TABLE>
- --------
(1) Net income per share is based upon the weighted average number of shares
of Common Stock, Common Stock equivalents, Common Stock options, Common
Stock warrants and 7% Debentures outstanding during the period.
(2) At period end.
(3) Nonperforming assets consist of accruing loans 90 days past due, non-
accrual loans, restructured loans and other real estate owned.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Debentures offered hereby are estimated to be approximately $12,000,000 after
deduction of the underwriting discount and estimated expenses. Initially, the
Company intends to contribute to the capital of First State Bank such portion
of the net proceeds of this offering as is required for First State Bank to
constitute a "well capitalized" institution. See "Regulation and Supervision."
First State Bank will use such funds for general corporate purposes, including
working capital, and for financing possible future acquisitions. Any net
proceeds retained by the Company will be used for general corporate purposes
and may be used to pay any costs incurred in connection with the redemption of
the 7% Debentures. In addition, from time to time the Company may contribute
additional amounts to the capital of First State Bank if necessary for First
State Bank to maintain "well capitalized" status under applicable regulatory
capital guidelines. Approximately $3.4 million principal amount of the 7%
Debentures was outstanding on March 31, 1997.
Pending utilization as described above, the Company intends to invest the
proceeds from this offering in short-term income producing obligations,
including U.S. Treasury securities, federal agency securities, money market
accounts and certificates of deposit.
MARKET FOR COMMON STOCK AND DIVIDENDS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on The Nasdaq Stock Market's National
Market under the symbol "FSNM." The following table sets forth, for the
periods indicated, the high and low bid prices on The Nasdaq Stock Market's
National Market as reported by Nasdaq, and the dividends paid per share for
the periods indicated. The Company's Common Stock commenced trading on
November 3, 1993. The quotations in the over-the-counter market reflect inter-
dealer prices, without retail markup, markdown or commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PAID
------ ------ ---------
<S> <C> <C> <C>
1995
First Quarter.................................... $11.20 $ 9.00 $0.032
Second Quarter................................... 11.20 11.20 0.032
Third Quarter.................................... 11.60 11.00 0.032
Fourth Quarter................................... 12.60 11.25 0.050
1996
First Quarter.................................... $12.00 $11.00 $0.050
Second Quarter................................... 12.50 10.88 0.050
Third Quarter.................................... 13.25 12.25 0.050
Fourth Quarter................................... 14.75 13.25 0.050
1997
First Quarter.................................... $15.63 $14.50 $0.050
Second Quarter (through April 14, 1997).......... 15.00 13.63 --
</TABLE>
The last reported sale price of the Company's Common Stock on April 16,
1997, was $14.75 per share. As of March 31, 1997, there were approximately 83
holders of record of Common Stock. The Company estimates that, as of March 31,
1997, there were approximately 1,500 beneficial holders of Common Stock.
DIVIDEND POLICY
The declaration and payment of cash dividends are determined by the Board of
Directors in light of the earnings, capital requirements and financial
condition of the Company, and other relevant factors. The ability of the
Company to pay cash dividends depends on the amount of cash dividends paid to
it by First State Bank and the capital position of the Company. Capital
distributions, including dividends, by First State Bank are subject to federal
and state regulatory restrictions tied to its earnings and capital. See
"Regulation and Supervision" and Note 10 of Notes to Consolidated Financial
Statements of the Company.
17
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at December 31, 1996, and as adjusted to reflect (i) the sale of the
Debentures and (ii) the conversion of the outstanding 7% Debentures into
shares of Common Stock. The information below should be read in conjunction
with the detailed information and financial statements and notes thereto
appearing elsewhere, or incorporated by reference, in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt:
7% Subordinated Convertible Debentures due 2003.... $ 3,788 $ 0
Long-term advance from FHLB........................ 218 218
% Subordinated Convertible Debentures due 2017.... 0 12,000
----------- -----------
Total long-term debt............................. $ 4,006 $ 12,218
=========== ===========
Stockholders' equity:
Preferred Stock, no par value, 1,000,000 shares
authorized, none issued or outstanding............ -- --
Common Stock, no par value, 4,000,000 shares
authorized, 2,172,357 shares issued and
outstanding(1)(2)................................. $ 11,907 $ 15,576
Retained earnings.................................. 9,098 9,098
Net unrealized appreciation on investment
securities available for sale--net of deferred
income taxes...................................... 46 46
----------- -----------
Total stockholders' equity....................... $ 21,051 $ 24,720
=========== ===========
</TABLE>
- --------
(1) Does not include 248,863 shares of Common Stock issuable upon exercise of
stock options outstanding at December 31, 1996, of which 192,363 were
exercisable as of December 31, 1996.
(2) Adjustment reflects the issuance of Common Stock in respect of the
conversion of the 7% Debentures, less unamortized offering costs incurred
in connection with the issuance of the 7% Debentures. The Company called
the 7% Debentures for redemption effective April 30, 1997. Although the
Company expects substantially all of the 7% Debentures to be converted
into Common Stock, there can be no assurance that any of the 7% Debentures
will be converted. If none of the outstanding 7% Debentures is converted,
Common Stock would be $11,907, retained earnings would be $8,979 and total
stockholders' equity would be $20,932.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data of the Company is derived
from and is qualified in its entirety by reference to the Consolidated
Financial Statements of the Company, and the notes thereto, appearing
elsewhere, or incorporated by reference, in this Prospectus, and should be
read in conjunction with such financial statements (and notes thereto) and the
information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations." See "Index to Consolidated Financial
Statements." No tax equivalent adjustments were made and all average balances
are daily average balances.
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1996 1995 1994 1993(1) 1992(1)
---------- ---------- ---------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income......... $ 25,681 $ 20,692 $ 15,623 $ 10,922 $ 10,397
Interest expense........ 9,617 7,385 4,666 3,341 3,996
---------- ---------- ---------- --------- ---------
Net interest income..... 16,064 13,307 10,957 7,581 6,401
Provision for loan and
lease losses........... 1,231 418 248 267 198
---------- ---------- ---------- --------- ---------
Net interest income
after provision for
loan and lease losses.. 14,833 12,889 10,709 7,314 6,203
Net gain (loss) on sale
of securities.......... 10 (19) (3) 12 140
Other noninterest
income................. 2,924 1,702 1,708 1,192 1,207
Loss from credit card
processing operation... -- (1,208) (158) -- --
Noninterest expense..... 14,590 10,926 9,615 6,723 6,137
---------- ---------- ---------- --------- ---------
Income before income
taxes and minority
interest............... 3,177 2,438 2,641 1,795 1,413
Income tax expense
(benefit).............. 1,116 763 240 (17) 67
---------- ---------- ---------- --------- ---------
Income before minority
interest............... 2,061 1,675 2,401 1,812 1,346
Minority interest....... -- -- (10) (1) 0
---------- ---------- ---------- --------- ---------
Net income.............. $ 2,061 $ 1,675 $ 2,391 $ 1,811 $ 1,346
========== ========== ========== ========= =========
PER SHARE DATA:
Net income(2) .......... $ 0.88 $ 0.77 $ 1.06 $ 1.21 $ 0.98
Book value ............. 9.69 8.88 8.04 6.97 5.83
Tangible book value .... 9.26 8.27 7.50 6.27 5.08
Dividends paid.......... 0.200 0.154 0.064 -- 0.433
Average fully diluted
common shares
outstanding............ 2,666,353 2,607,438 2,566,940 1,537,573 1,363,463
========== ========== ========== ========= =========
AVERAGE BALANCE SHEET
DATA:
Total assets............ $ 285,628 $ 229,382 $ 186,886 $ 140,083 $ 126,150
Loans and leases ....... 218,776 164,172 133,685 102,974 85,058
Investment securities... 35,611 34,250 32,211 21,642 25,959
Federal funds sold...... 2,770 6,717 3,842 3,954 2,939
Deposits................ 242,366 195,079 160,226 126,989 114,446
Stockholders' equity.... 18,313 16,817 14,723 9,031 7,396
PERFORMANCE RATIOS:
Return on average
assets................. 0.72% 0.73% 1.28% 1.29% 1.07%
Return on average common
equity................. 11.25 9.96 16.24 20.05 18.20
Net interest margin..... 6.25 6.49 6.46 5.89 5.60
Efficiency ratio(3)..... 76.84 72.80 76.00 76.64 80.67
Earnings to fixed
charges(4):
Including interest on
deposits.............. 1.33x 1.49x 1.60x 1.54x 1.35x
Excluding interest on
deposits.............. 3.56 4.76 5.34 11.20 8.44
ASSET QUALITY RATIOS(5):
Nonperforming assets to
total loans, leases and
other real estate
owned.................. 1.17% 1.60% 1.17% 1.99% 3.75%
Net charge-offs to
average loans and
leases................. 0.26 0.02 0.17 0.25 0.27
Allowance for loan and
lease losses to total
loans ................. 1.00 1.01 0.98 1.18 1.21
Allowance for loan and
lease losses to
nonperforming
loans(6)............... 153.52 81.58 290.12 201.26 166.15
CAPITAL RATIOS(5):
Leverage ratio.......... 6.17% 6.55% 7.06% 7.21% 5.18%
Average stockholders'
equity to average total
assets................. 6.41 7.33 7.88 6.45 5.86
Tier 1 risk-based
capital ratio.......... 7.40 7.80 9.04 9.83 7.36
Total risk-based capital
ratio.................. 8.30 8.70 9.90 10.96 8.54
</TABLE>
- --------
(1) Except for December 1993, does not reflect the operations of the Santa Fe
Bank, which was acquired by the Company on December 1, 1993. This
acquisition was accounted for as a purchase.
(2) Net income per share is based upon the weighted average number of shares
of Common Stock, Common Stock equivalents, Common Stock options, Common
Stock warrants and 7% Debentures outstanding during the period.
(3) Calculated by dividing total noninterest expense, excluding securities
gains and losses, by net interest income plus noninterest income.
(4) For purposes of computing the ratio of earnings to fixed charges, earnings
represent income before income taxes and minority interest plus fixed
charges, and fixed charges represent interest expense.
(5) At period end, except net charge-offs to average loans and average
stockholders' equity to average total assets.
(6) Nonperforming loans consist of nonaccrual loans and loans contractually
past due 90 days or more.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
GENERAL
The Company's net income increased in 1996 from 1995 primarily due to
increased net interest income which was the result of an increase in average
loans of approximately $54.6 million. The increase in net interest income was
partially offset by an increase in the provision for loan losses of $813,000,
operating costs related to branch expansion, addition of a commercial leasing
division and expansion of the credit card merchant program.
NET INTEREST INCOME
The primary component of earnings for financial institutions is net interest
income. Net interest income is the difference between interest income,
principally from loan, lease 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 years ended
December 31, 1996, 1995 and 1994, the Company's average interest-earning
assets were $257.2 million, $205.1 million and $169.7 million, respectively.
For the same periods, the Company's net interest margins were 6.25%, 6.49% and
6.46%.
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 from 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 for
the Company. No tax equivalent adjustments were made and all average balances
are daily average balances. Nonaccruing loans have been included in the table
as loans carrying a zero yield.
20
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ---------------------------- ----------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR
BALANCE EXPENSE COST BALANCE EXPENSE COST BALANCE EXPENSE COST
-------- --------- -------- -------- --------- -------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans and leases:
Commercial............. $ 31,164 $ 3,152 10.11% $ 18,503 $ 1,885 10.19% $ 28,405 $ 2,566 9.03%
Real estate--mortgage.. 130,347 13,500 10.36 99,566 10,552 10.60 56,622 5,261 9.29
Real estate--
construction.......... 36,320 4,533 12.48 37,235 4,918 13.21 36,635 4,786 13.06
Consumer............... 12,017 1,413 11.76 8,535 907 10.63 11,774 1,074 9.12
Leases................. 8,607 725 8.42 -- -- -- -- -- --
Other.................. 321 -- -- 333 -- -- 249 -- --
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total loans and
leases................ 218,776 23,323 10.66 164,172 18,262 11.12 133,685 13,687 10.24%
Allowance for loan and
lease losses........... (2,181) (1,636) (1,628)
Securities:
U.S. government........ 30,656 1,916 6.25 30,925 1,850 5.98 30,240 1,659 5.49
State and political
subdivisions:
Nontaxable............. 3,607 198 5.49 2,293 136 5.93 1,182 79 6.68
Taxable................ 35 3 8.57 145 13 8.97 115 12 10.43
Other.................. 1,313 96 7.31 887 45 5.07 674 34 5.04
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total securities...... 35,611 2,213 6.21 34,250 2,044 5.97 32,211 1,784 5.54
Federal funds sold...... 2,770 145 5.23 6,717 387 5.76 3,842 153 3.98%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-earning
assets............... 257,157 25,681 9.99% 205,139 20,693 10.09% 169,736 15,624 9.20%
======= ======= =======
Noninterest-earning
assets:
Cash and due from
banks................. 13,158 12,004 9,349
Other.................. 17,494 13,875 9,427
-------- -------- --------
Total noninterest-
earning assets........ 30,652 25,879 18,776
-------- -------- --------
Total assets.......... $285,628 $229,382 $186,886
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
Interest-bearing demand
accounts.............. $ 46,737 $ 1,097 2.35% $ 45,752 $ 1,224 2.68% $ 40,291 $ 942 2.34%
Certificates of
deposit............... 102,078 5,777 5.66 72,681 4,015 5.52 52,797 2,156 4.08
Money market savings
accounts.............. 31,210 1,023 3.28 23,375 758 3.24 21,502 582 2.71
Regular savings
accounts.............. 16,174 478 2.96 14,544 418 2.87 13,367 341 2.55
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-bearing
deposits.............. 196,199 8,375 4.27 156,352 6,415 4.10 127,957 4,021 3.14
Short-term borrowings... 17,006 855 5.03 9,804 536 5.47 4,549 199 4.37
Note payable............ 226 19 8.41 240 18 7.5 -- -- --
Convertible subordinated
debt................... 5,500 362 6.58 5,750 405 7.04 5,750 408 7.10
Capital leases.......... 60 5 8.33 100 12 12.00 233 38 16.31
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-bearing
liabilities........... 218,991 9,616 4.39% 172,246 7,386 4.29% 138,489 4,666 3.37%
Noninterest-bearing
demand accounts........ 46,167 38,727 32,309
Other noninterest-
bearing liabilities.... 2,157 1,592 1,365
-------- -------- --------
Total liabilities...... 267,315 212,565 172,163
Stockholders' equity.... 18,313 16,817 14,723
-------- -------- --------
Total liabilities and
stockholders' equity... $285,628 $229,382 $186,886
======== ------- ======== ------- ======== -------
Net interest income..... $16,065 $13,307 $10,958
======= ======= =======
Net interest spread .... 5.60% 5.80% 5.83%
Net interest margin .... 6.25 6.49 6.46
Ratio of average
interest-earning assets
to average interest-
bearing liabilities.... 117.43 119.10 122.56
</TABLE>
Loan fees of $1.9 million, $1.7 million and $1.9 million, are included in
interest income for the years ended December 31, 1996, 1995 and 1994,
respectively.
21
<PAGE>
The following table illustrates the changes in the Company's net interest
income due to changes in volume and changes in interest rate. Changes
attributable to the combined effect of volume and interest rates have been
included in the changes due to rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 VS. 1995 1995 VS. 1994
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGES IN DUE TO CHANGES IN
--------------------- ----------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ----- ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans and leases:
Commercial.................... $1,290 $ (23) $1,267 $ (895) $ 214 $ (681)
Real estate--mortgage......... 3,262 (314) 2,948 3,990 1,301 5,291
Real estate--construction..... (121) (264) (385) 78 54 132
Consumer...................... 370 136 506 (295) 128 (167)
Leases........................ 725 -- 725 -- -- --
------ ----- ------ ------ ------ ------
Total loans and leases...... 5,526 (465) 5,061 2,878 1,697 4,575
Securities:
U.S. government............... (16) 82 66 38 153 191
States and political subdivi-
sions:
Nontaxable.................. 78 (16) 62 74 (17) 57
Taxable..................... (10) -- (10) 3 (2) 1
Other......................... 22 29 51 11 -- 11
------ ----- ------ ------ ------ ------
Total securities............ 74 95 169 126 134 260
Federal funds sold............ (227) (15) (242) 114 120 234
------ ----- ------ ------ ------ ------
Total interest-earning as-
sets....................... 5,373 (385) 4,988 3,118 1,951 5,069
------ ----- ------ ------ ------ ------
INTEREST-BEARING LIABILITIES
Deposits:
Interest-bearing demand ac-
counts....................... 26 (153) (127) 128 153 281
Certificates of deposit....... 1,624 139 1,763 812 1,048 1,860
Money market savings ac-
counts....................... 254 11 265 51 125 176
Regular savings accounts...... 47 13 60 30 47 77
------ ----- ------ ------ ------ ------
Total interest-bearing de-
posits..................... 1,951 10 1,961 1,021 1,373 2,394
Short-term borrowings........... 394 (75) 319 230 103 333
Note payable.................... (1) 2 1 18 -- 18
Convertible subordinated debt... (18) (25) (43) -- -- --
Capital leases.................. (5) (2) (7) (22) (4) (26)
------ ----- ------ ------ ------ ------
Total interest-bearing lia-
bilities................... 2,321 (90) 2,231 1,247 1,472 2,719
------ ----- ------ ------ ------ ------
Total increase (decrease) in
net interest income........ $3,052 $(295) $2,757 $1,871 $ 479 $2,350
====== ===== ====== ====== ====== ======
</TABLE>
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 purpose of asset/liability management is to provide stable net interest
income growth by protecting the Company's earnings from undue interest rate
risk. Exposure to interest rate risk arises from volatile interest rates and
changes in the balance sheet mix. The Company maintains an asset/liability
management policy that provides
22
<PAGE>
guidelines for controlling exposure to interest rate risk. The Company'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.
Rising and falling interest rate environments can have various impacts on a
bank's net interest income, depending on the short-term interest rate gap that
the bank maintains, the relative changes in interest rates that occur when the
bank's various assets and liabilities reprice, unscheduled repayments of
loans, early withdrawals of deposits and other factors. As of December 31,
1996, the Company's cumulative interest rate gap for the period up to three
months was a negative $16.8 million and for the period up to one year was a
negative $24.0 million. Based solely on the Company's interest rate gap of
twelve months or less, net income of the Company could be unfavorably impacted
by an increase in interest rates or favorably impacted by a decrease in
interest rates.
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, 1996. The amounts are based upon
regulatory reporting formats and, therefore, may not be consistent with
financial information appearing elsewhere in this report 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>
THREE
LESS THAN MONTHS TO
THREE LESS THAN ONE ONE TO FIVE OVER FIVE
MONTHS YEAR YEARS YEARS TOTAL
--------- ------------- ----------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securi-
ties................. $ 1,700 $ 500 $31,589 $ 6,807 $ 40,596
Loans and leases:
Commercial.......... 21,833 6,902 7,801 42 36,578
Real estate......... 106,219 54,782 23,180 271 184,452
Consumer............ 3,323 3,490 6,425 -- 13,238
Leases.............. 669 2,104 13,885 -- 16,658
-------- -------- ------- ------- --------
Total interest-
earning assets... 133,744 67,778 82,880 7,120 291,522
-------- -------- ------- ------- --------
Interest-bearing liabil-
ities:
Savings and NOW ac-
counts............... 98,138 -- -- -- 98,138
Certificates of depos-
its of $100,000 or
more................. 11,654 34,431 5,611 -- 51,696
Other time accounts... 20,078 40,513 14,889 -- 75,480
Subordinated deben-
tures................ -- -- -- 3,788 3,788
Other interest-bearing
liabilities.......... 20,670 -- -- -- 20,670
-------- -------- ------- ------- --------
Total interest-
bearing liabili-
ties............. $150,540 $ 74,944 $20,500 $ 3,788 $249,772
-------- -------- ------- ------- --------
Interest rate gap....... (16,796) (7,166) 62,380 3,332 41,750
======== ======== ======= ======= ========
Cumulative interest rate
gap at December 31,
1996................... $(16,796) $(23,962) $38,418 $41,750
======== ======== ======= =======
Cumulative gap ratio at
December 31, 1996...... 0.89% 0.89% 1.16% 1.17%
======== ======== ======= =======
</TABLE>
23
<PAGE>
INVESTMENT PORTFOLIO
The following table provides the carrying value of the Company's investment
portfolio at each of the dates indicated. At December 31, 1996, 1995 and 1994,
the market value of the Company's investment portfolio exceeded the carrying
value by approximately $50,000, $174,000 and $285,000, respectively.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury securities............................ $ 9,789 $ 5,667 $ 9,348
U.S. government agency securities................... 25,994 28,118 19,973
Obligations of states and political subdivisions.... 3,271 4,004 1,889
Other securities.................................... 1,542 887 886
------- ------- -------
Total investment securities....................... $40,596 $38,676 $32,096
======= ======= =======
</TABLE>
The table below provides the carrying values, maturities and weighted
average yield of the investment portfolio of the Company as of December 31,
1996.
<TABLE>
<CAPTION>
AVERAGE WEIGHTED
CARRYING MATURITY AVERAGE
VALUE (YEARS) YIELDS
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury securities
One year or less.............................. $ 700 0.59 5.85%
After one through five years.................. 9,089 2.02 6.13
------- ----- ----
Total U.S. Treasury securities.............. 9,789 1.91 6.11
U.S. government agency securities
One year or less.............................. 1,500 0.17 5.28
After one through five years.................. 21,520 3.22 6.44
After five through ten years.................. 1,989 7.26 7.09
After ten years............................... 985 14.17 7.37
------- ----- ----
Total U.S. government agency securities..... 25,994 3.77 6.46
Obligations of states and political subdivisions
One year or less.............................. -- -- --
After one through five years.................. 981 3.63 5.12
After five through ten years.................. 1,100 7.60 5.83
After ten years............................... 1,190 15.87 5.24
------- ----- ----
Total states and political subdivisions se-
curities................................... 3,271 9.43 5.40
Other securities................................ 1,542 N/A 7.34
------- ----- ----
Total investment securities................. $40,596 3.78 6.28%
======= ===== ====
</TABLE>
LOAN AND LEASE PORTFOLIO
The following table presents the amount of loans and leases of the Company,
by category, at the dates indicated.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------- ---------------- ---------------- ---------------- ---------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 36,578 14.6% $ 23,204 12.6% $ 21,711 14.5% $ 27,878 22.9% $18,213 19.7%
Real estate--mortgage... 148,715 59.3 115,640 62.9 80,293 53.5 50,102 41.1 45,848 49.6
Real estate--
construction........... 35,737 14.2 34,924 19.0 39,372 26.3 29,833 24.5 14,454 15.6
Consumer and other...... 13,238 5.3 10,091 5.5 8,632 5.7 14,210 11.5 13,947 15.1
Leases.................. 16,658 6.6 -- -- -- -- -- -- -- --
-------- ---- -------- ---- -------- ---- -------- ---- ------- ----
Total loans and
leases............... $250,926 100% $183,859 100% $150,008 100% $122,023 100% $92,462 100%
======== ==== ======== ==== ======== ==== ======== ==== ======= ====
</TABLE>
24
<PAGE>
The following table presents the aggregate maturities of loans and leases in
each major category of the Company's loan and lease portfolio at December 31,
1996. Actual maturities may differ from the contractual maturities shown as a
result of renewals and prepayments.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------
LESS THAN ONE TO FIVE OVER FIVE
ONE YEAR YEARS YEARS TOTAL
--------- ----------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed-rate loans and leases:
Commercial.......................... $ 5,582 $ 7,223 $ 42 $ 12,847
Real estate......................... 4,491 13,466 271 18,228
Consumer............................ 4,418 4,959 -- 9,377
Leases.............................. 2,773 13,885 -- 16,658
-------- ------- ---- --------
Total fixed-rate loans and
leases........................... 17,264 39,533 313 57,110
Variable-rate loans:
Commercial.......................... 23,153 578 -- 23,731
Real estate......................... 156,510 9,714 -- 166,224
Consumer............................ 2,395 1,466 -- 3,861
-------- ------- ---- --------
Total variable-rate loans......... 182,058 11,758 -- 193,816
-------- ------- ---- --------
Total loans and leases............ $199,322 $51,291 $313 $250,926
======== ======= ==== ========
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets consist of loans and leases past due 90 days or more,
nonaccrual loans and leases, restructured loans and leases and other real
estate owned. The Company generally places a loan on nonaccrual status and
ceases accruing interest when loan payment performance is deemed
unsatisfactory. All loans past due 90 days, however, are placed on nonaccrual
status, unless the loan is both well collateralized and in the process of
collection. Cash payments received while a loan is classified as nonaccrual
are recorded as a reduction of principal as long as doubt exists as to
collection. The following table sets forth information with respect to these
assets at the dates indicated.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans and leases past due 90 days or
more................................. $ 689 $ 289 $ 190 $ 64 $ 44
Nonaccrual loans and leases........... 946 1,808 64 -- 438
Restructured loans and leases......... -- 172 252 652 351
------ ------ ------ ------ ------
Total nonperforming loans and
leases............................. 1,635 2,269 506 716 833
Other real estate owned............... 1,362 678 1,271 1,746 2,733
------ ------ ------ ------ ------
Total nonperforming assets.......... $2,997 $2,947 $1,777 $2,462 $3,566
====== ====== ====== ====== ======
Allowance for loan and lease losses... $2,510 $1,851 $1,468 $1,441 $1,120
====== ====== ====== ====== ======
Ratio of total nonperforming assets to
total assets......................... 0.92% 1.16% 0.87% 1.42% 2.67%
Ratio of total nonperforming loans and
leases to total loans and leases..... 0.65 1.23 0.35 0.59 0.90
Ratio of allowance for loan and lease
losses to total nonperforming loans
and leases........................... 153.52 81.58 290.12 201.26 134.45
</TABLE>
Management is not aware of any loans or leases in addition to those
disclosed above which, based upon known information, cause management to have
serious doubts as to the ability of such borrowers to comply with present loan
repayment terms.
25
<PAGE>
ANALYSIS OF THE ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses represents management's recognition
of the risks of extending credit and its evaluation of the quality of the loan
and lease portfolios. The allowance is maintained at a level considered
adequate to provide for anticipated loan and lease losses based on
management's assessment of various factors affecting the loan and lease
portfolios, including a review of problem loans and leases, business
conditions and loss experience and an overall evaluation of the quality of the
underlying collateral, holding and disposing costs and costs of capital. The
allowance is increased by provisions charged to operations and reduced by
loans and leases charged off, net of recoveries.
The following table sets forth information regarding changes in the
allowance for loan and lease losses of the Company for the periods indicated.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for loan and lease losses,
beginning of period................. $1,851 $1,468 $1,441 $1,120 $ 1,149
Charge incident to an acquisition.... -- -- -- 308 --
Charge-offs:
Commercial and other............... 438 98 388 339 191
Real estate loans.................. 70 162 30 15 165
Consumer loans..................... 246 85 19 31 75
------ ------ ------ ------ -------
Total charge-offs................ 754 345 437 385 431
------ ------ ------ ------ -------
Recoveries:
Commercial and other............... 13 197 135 73 144
Real estate loans.................. 40 85 43 22 17
Consumer loans..................... 129 28 38 34 43
------ ------ ------ ------ -------
Total recoveries................. 182 310 216 129 204
------ ------ ------ ------ -------
Net charge-offs...................... 572 35 221 254 227
Provision for loan and lease losses.. 1,231 418 248 267 198
------ ------ ------ ------ -------
Allowance for loan and lease losses,
end of period....................... $2,510 $1,851 $1,468 $1,441 $ 1,120
====== ====== ====== ====== =======
As a percentage of average total
loans and leases:
Net charge-offs.................... 0.26% 0.02% 0.17% 0.25% 0.27 %
Provision for loan and lease loss-
es................................ 0.56 0.25 0.19 0.26 0.23
Allowance for loan and lease loss-
es................................ 1.15 1.13 1.10 1.40 1.32
As a percentage of total loans and
leases at year-end:
Allowance for loan and lease loss-
es................................ 1.00 1.01 0.98 1.18 1.21
As a multiple of net charge-offs:
Allowance for loan and lease loss-
es................................ 4.39 52.89 6.64 5.67 4.93
Income before income taxes and pro-
vision for loan and lease losses.. 7.71 81.61 13.07 8.12 7.10
</TABLE>
26
<PAGE>
Specific reserves are provided for individual loans and leases where
ultimate collection is considered questionable by management after reviewing
the current status of loans and leases that are contractually past due and
considering the net realizable value of the security and of the loan and lease
guarantees, if applicable. The following table sets forth the allowance for
loan and lease losses by category, based upon management's assessment of the
risk associated with these categories, at the dates indicated and summarizes
the percentage of gross loans and leases in each category as a percentage of
total loans and leases.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------------- --------------------- --------------------- --------------------- ---------------------
(DOLLARS IN THOUSANDS)
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS AND LOANS AND LOANS AND LOANS AND LOANS AND
LEASES TO LEASES TO LEASES TO LEASES TO LEASES TO
AMOUNT OF TOTAL LOANS AMOUNT OF TOTAL LOANS AMOUNT OF TOTAL LOANS AMOUNT OF TOTAL LOANS AMOUNT OF TOTAL LOANS
ALLOWANCE AND LEASES ALLOWANCE AND LEASES ALLOWANCE AND LEASES ALLOWANCE AND LEASES ALLOWANCE AND LEASES
--------- ----------- --------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
unallocated por-
tion............ $ 600 14.57% $ 402 12.62% $1,027 14.48% $1,009 22.85% $ 784 28.53%
Real estate...... 1,560 73.51 1,269 81.89 294 79.77 288 65.50 224 65.21
Leases........... 150 6.64 -- -- -- -- -- -- -- --
Consumer......... 200 5.28 180 5.49 147 5.75 144 11.65 112 6.26
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total allowance
for loan and
lease losses.. $2,510 100% $1,851 100% $1,468 100% $1,441 100% $1,120 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
DEPOSITS
The following table presents the average balances outstanding for each major
category of the Company's deposits and weighted average interest rate paid for
interest-bearing deposits for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- ------------- -------- ------------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing demand
accounts............... $ 46,737 2.35% $ 45,752 2.68% $ 40,291 2.34%
Certificates of depos-
it..................... 102,078 5.66 72,681 5.52 52,797 4.08
Money market savings ac-
counts................. 31,210 3.28 23,375 3.24 21,502 2.71
Regular savings ac-
counts................. 16,174 2.96 14,544 2.87 13,367 2.55
Noninterest-bearing
demand accounts........ 46,167 -- 38,727 -- 32,309 --
-------- ---- -------- ---- -------- ----
Total................. $242,366 4.27% $195,079 4.10% $160,266 3.14%
======== ==== ======== ==== ======== ====
</TABLE>
The following table shows the amount and maturity of certificates of deposit
that had balances of $100,000 or more and the percentage of the total for each
maturity.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Three months or less........... $11,654 22.09% $ 8,153 28.37% $ 7,937 41.79%
Three through twelve months.... 34,764 65.90 15,651 54.48 8,912 46.91
Over twelve months............. 6,333 12.01 4,929 17.15 2,147 11.30
------- ------ ------- ------ ------- ------
Totals....................... $52,751 100.00% $28,733 100.00% $18,996 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
27
<PAGE>
SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
Securities sold under agreement to repurchase totaled $14.0 million, $9.0
million and $9.5 million at December 31, 1996, 1995 and 1994, respectively.
The weighted average interest rate on securities sold under agreement to
repurchase was 5.34%, 5.25% and 4.90% at December 31, 1996, 1995 and 1994,
respectively.
Securities sold under agreement to repurchase are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Balance.................................. $13,928,515 $8,913,474 $9,465,000
Weighted average interest rate........... 5.34% 5.25% 4.90%
Maximum amount outstanding at any month
end..................................... 13,928,516 9,622,511 9,465,000
Average balance outstanding during the
period.................................. 11,843,000 8,375,000 3,395,000
Weighted average interest rate during the
period.................................. 4.74% 5.20% 4.42%
</TABLE>
RETURN ON EQUITY AND ASSETS
The following table shows the return on average assets, return on average
equity, dividend payout ratio and ratio of average equity to average assets,
for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Return on average assets............... 0.72% 0.73% 1.28%
Return on average equity............... 11.25 9.96 16.24
Dividend payout ratio.................. 19.81 18.06 5.25
Average equity to average assets....... 6.41 7.33 7.88
</TABLE>
RESULTS OF OPERATIONS--YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Overview. The Company's net income increased to $2.1 million from $1.7
million in 1995 and decreased from $2.4 million in 1994. Net interest income
increased to $16.1 million in 1996, compared to $13.3 million in 1995 and
$11.0 million in 1994. This increase was offset by noninterest expenses that
increased to $14.6 million in 1996, compared to $11.0 million in 1995 and $9.6
million in 1994. Income tax expense increased to $1.1 million in 1996 from
$763,000 in 1995 and $240,000 in 1994. Income tax expense in 1994 was reduced
by utilization of net operating loss carry-forwards.
Interest Income. Interest income increased to $25.7 million in 1996, from
$20.7 million in 1995 and $15.6 million in 1994. This increase was due to an
increase in average interest-earning assets. Average interest-earning assets
were $257.2 million in 1996, compared to $205.1 million in 1995 and $169.7
million in 1994. Average yield on interest-earning assets decreased to 9.99%
from 10.09% in 1995 and increased from 9.20% in 1994. The increase in average
interest-earning assets occurred primarily in loans and leases. The average
balance in loans and leases increased to $218.8 million, from $164.2 million
in 1995 and $133.7 million in 1994. The average yield on loans and leases
decreased to 10.66% in 1996 from 11.12% in 1995 and increased from 10.24% in
1994.
Interest Expense. Interest expense increased to $9.6 million in 1996, from
$7.4 million in 1995 and $4.7 million in 1994. This increase was due to an
increase in average interest-bearing liabilities and the average cost of
interest-bearing liabilities. Average interest-bearing liabilities increased
to $219.0 million in 1996 from $172.2 million in 1995 and $138.5 million in
1994. These increases were due primarily to increases in deposits and short-
term borrowings. The average cost increased to 4.39% in 1996 from 4.29% in
1995 and 3.37% in 1994. The average balance in deposits increased to $196.2
million in 1996 from $156.4 million in 1995 and $128.0 million in 1994. The
average cost of deposits increased to 4.27% in 1996 from 4.10% in 1995 and
3.14% in 1994.
28
<PAGE>
Net Interest Income. Net interest income increased to $16.1 million in 1996,
from $13.3 million in 1995 and $11.0 million in 1994. This increase was due to
increases in average loans and leases. Net interest margin decreased to 6.25%
in 1996 from 6.49% in 1995 and 6.46% in 1994, as a result of decreased average
yields on loans and leases and increased cost of deposits.
Provision for Loan and Lease Losses. The provision for loan and lease losses
increased to $1.2 million in 1996 from $418,000 in 1995 and $248,000 in 1994.
This increase was necessitated by the increase in loans and leases outstanding
and increased charge-offs. Charge-offs net of recoveries of loans and leases
were $572,000 in 1996, $35,000 in 1995 and $221,000 in 1994.
Noninterest Income. Noninterest income was $2.9 million in 1996, compared to
$1.7 million in 1995 and $1.7 million in 1994. The increase for 1996 from 1995
was due to rental income from operating leases and credit card merchant fees.
Rental income from operating leases was $254,000 in 1996. The Company's
commercial leasing division commenced operations during 1996. Credit card
merchant income was $749,000 in 1996, $179,000 in 1995 and $84,000 in 1994.
Noninterest Expense. Noninterest expense increased to $14.6 million in 1996
from $10.9 million in 1995 and $9.6 million in 1994. This increase was due
largely to increases in salaries and employee benefits, occupancy, equipment
and marketing expense as a result of the Company's branch expansions in 1996,
1995 and 1994, the addition of the commercial leasing division in 1996 and the
expansion of the credit card merchant program. Salaries and employee benefits
increased to $6.4 million in 1996 from $4.9 million in 1995 and $4.0 million
in 1994. Occupancy expense increased to $1.9 million in 1996 from $1.4 million
in 1995 and $1.2 million in 1994. Equipment expense increased to $1.3 million
from $811,000 in 1995 and $565,000 in 1994. Marketing expense increased to
$637,000 in 1996, compared to $569,000 in 1995 and $377,000 in 1994.
Credit Card Processing Operation. As of December 31, 1995, the Company
decided to abandon its 48% limited partnership interest in Credit Card
Services, Ltd., effective April 1, 1996. The Company incurred losses from
operations of $278,000 and $158,000 in 1995 and 1994, respectively. In
addition, the Company incurred a loss of $930,000 in 1995 resulting from its
abandonment of the limited partnership interest.
Income Tax Expense. Income tax expense increased to $1.1 million in 1996,
from $763,000 in 1995 and $240,000 in 1994. Income tax expense in 1994 was
reduced by the utilization of net operating loss carry-forwards and reductions
in the deferred tax asset valuation allowance.
LIQUIDITY AND SOURCES OF FUNDS
The Company's primary sources of funds are customer deposits and loan and
lease repayments. These funds are used to make loans and leases, acquire
investment securities and other assets and fund continuing operations.
Scheduled loan and lease repayments are a relatively stable source of funds,
while deposit inflows and unscheduled loan and lease prepayments, which are
influenced by general interest rate levels, interest rates available on other
investments, competition, economic conditions and other factors, are not a
relatively stable source of funds. Deposits of the Company increased to $277.4
million at December 31, 1996, from $218.8 million at December 31, 1995. Growth
in deposits has occurred primarily due to growth in the economy of the
Company's trade area, market dislocations caused by the acquisition of local
competitors and branch expansions.
Net loans of the Company increased to $248.4 million at December 31, 1996,
from $182.0 million as of December 31, 1995. Real estate-mortgage loans
increased by $33.1 million during 1996. Commercial loans increased by $13.4
million, consumer loans increased by $3.1 million and commercial leases
increased to $16.7 million as a result of the opening of the commercial
leasing division in 1996.
Management anticipates that the Company will continue to rely primarily on
customer deposits and loan and lease repayments, as well as retained earnings,
to provide liquidity and will use funds so provided primarily to make loans
and leases and to purchase securities. The Company believes that its customer
deposits provide a
29
<PAGE>
strong source of liquidity because of the high percentage of core deposits,
many of which are a part of long-standing banking relationships. Borrowings
are used to compensate for reductions in other sources of funds. Borrowings
may also be used on a longer-term basis to support expanded lending activities
and to match the maturity or repricing intervals of assets. The sources of
such borrowings are federal funds sold, securities sold under agreements to
repurchase and borrowings from the Federal Home Loan Bank ("FHLB").
The Company's liquidity needs arise primarily from its need to service the
7% Debentures. The primary source of funds for the Company include interest on
money market accounts maintained by the Company and payments in lieu of taxes
from First State Bank. Management expects that in the future, a significant
source of funds for the Company will consist of dividends from First State
Bank. As of January 1, 1997, First State Bank had $3.5 million in retained
earnings which were available for the payment of dividends to the Company,
subject to regulatory capital requirements.
CAPITAL RESOURCES
The Company's total stockholders' equity increased to $21.1 million at
December 31, 1996, from $17.4 million at December 31, 1995. Of the $3.6
million increase, $2.1 million was produced by earnings and $1.9 million was
produced by the conversion of the 7% Debentures. This increase was offset by
the change in unrealized investment security gains and by dividend payments of
$408,000. Management currently intends to continue to retain a major portion
of the Company's earnings to support anticipated growth. As of December 31,
1996, the Company and First State Bank met the fully phased-in regulatory
capital requirements.
IMPACT OF INFLATION
The financial statements and related financial data and notes presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of the Company are monetary in nature. As a result, interest rates
have a more significant impact on the Company's performance than the effects
of general price levels.
REGULATION AND SUPERVISION
The Company and First State Bank are extensively regulated under federal and
New Mexico law. These laws and regulations are primarily intended to protect
depositors and the deposit insurance funds of the FDIC, not security holders
of the Company. The following information summarizes material statutory and
regulatory provisions affecting the Company. The information is qualified in
its entirety by reference to the particular statutory and regulatory
provisions. Any change in applicable laws, regulations or regulatory policies
may have a material effect on the business, operations and prospects of the
Company and First State Bank. The Company is unable to predict the nature or
the extent of the effects on its business and earnings that changes in fiscal
or monetary policies, economic control or new federal or state legislation may
have in the future.
THE COMPANY
General. The Company is a bank holding company registered under the BHCA,
and is subject to supervision and regulation by the Federal Reserve Board.
Federal laws subject bank holding companies to particular restrictions on the
types of activities in which they may engage, and to a range of supervisory
requirements, including regulatory enforcement actions for violations of laws
and policies.
Acquisitions and Permissible Activities. As a bank holding company, the
Company is required to obtain the prior approval of the FRB before acquiring
direct or indirect ownership or control of more than 5% of the
30
<PAGE>
voting shares of a bank or bank holding company. The FRB will not approve any
acquisition, merger or consolidation that would have a substantial
anticompetitive result, unless the anticompetitive effects of the proposed
transaction are outweighed by a greater public interest in meeting the needs
and convenience of the public. The FRB also considers managerial, capital and
other financial factors in acting on acquisition or merger applications.
A bank holding company may not engage in, or acquire direct or indirect
control of more than 5% of the voting shares of any company engaged in a
nonbanking activity, unless such activity has been determined by the FRB to be
closely related to banking or managing banks. The FRB has identified by
regulation various nonbanking activities in which a bank holding company may
engage with notice to, or prior approval by, the FRB.
Regulatory Restrictions on Dividends. It is the policy of the Federal
Reserve Board that bank holding companies should pay cash dividends on common
stock only out of income available over the past year and only if prospective
earnings retention is consistent with the organization's expected future needs
and financial condition. The policy provides that bank holding companies
should not maintain a level of cash dividends that undermines the bank holding
company's ability to serve as a source of strength to its banking
subsidiaries. In the future, dividends from First State Bank are expected to
be a significant source of funds for the Company.
In addition, the federal regulatory agencies are authorized to prohibit a
banking institution or bank holding company from engaging in an unsafe or
unsound banking practice. Depending upon the circumstances, the agencies could
take the position that paying a dividend would constitute an unsafe or unsound
banking practice.
Holding Company Obligations and Status. Under Federal Reserve Board policy,
a bank holding company is expected to act as a source of financial strength to
each of its banking subsidiaries and commit resources to their support. Such
support may be required at times when, absent this Federal Reserve Board
policy, a holding company may not be inclined to provide it. As discussed
below under "Prompt Corrective Action," a bank holding company in certain
circumstances could be required to guarantee the capital plan of an
undercapitalized banking subsidiary.
In the event of a bank holding company's bankruptcy under Chapter 11 of the
U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is
required to cure immediately any deficit under any commitment by the debtor
holding company to any of the federal banking agencies to maintain the capital
of an insured depository institution, and any claim for breach of such
obligation will generally have priority over most other unsecured claims.
Because the Company is a legal entity separate and distinct from its
subsidiaries, its right to participate in the distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization will be subject
to the prior claims of the subsidiary's creditors. In the event of a
liquidation or other resolution of the First State Bank, the claims of
depositors and other general or subordinated creditors of the First State Bank
are entitled to a priority of payment over the claims of holders of any
obligation of the institution to its stockholders, including any depository
institution holding company (such as the Company) or any stockholder or
creditor thereof.
Capital Adequacy. The FRB monitors the capital adequacy of bank holding
companies and has adopted risk-based capital adequacy guidelines to evaluate
bank holding companies on a consolidated basis. The guidelines require a ratio
of "Tier 1" or core capital (generally, common stockholders' equity, perpetual
preferred stock and minority interests in consolidated subsidiaries, less
goodwill, other disallowed intangibles and disallowed deferred tax assets,
among other items) to total risk-weighted assets of at least 4% and a ratio of
total capital to risk-weighted assets of at least 8%. At December 31, 1996,
the Company's ratio of total capital to risk-weighted assets was 8.30% and its
risk-based Tier 1 capital ratio was 7.40%.
The FRB also uses a leverage ratio to evaluate the capital adequacy of bank
holding companies. The leverage ratio applicable to the Company requires a
ratio of Tier 1 capital to adjusted total assets of not less than
31
<PAGE>
3%, although most organizations are expected to maintain leverage ratios that
are 100 to 200 basis points above this minimum ratio. The Company's leverage
ratio at December 31, 1996, was 6.17%.
The following table sets forth the capital ratios for the Company as of
December 31, 1996 and the minimum capital ratios required:
<TABLE>
<CAPTION>
ACTUAL MINIMUM
RATIO REQUIRED
------ --------
<S> <C> <C>
Tier 1 capital to total assets........................... 6.1% 3.0%
Tier 1 capital to risk-weighted assets................... 7.4 4.0
Total capital to risk-weighted assets.................... 8.3 8.0
</TABLE>
The Company expects that a portion of the net proceeds of this offering will
qualify as "Tier 2" capital under the Federal Reserve Board's risk-based
capital adequacy guidelines. Tier 2 capital is generally defined to include
allowance for loan and lease losses, perpetual preferred stock (to the extent
not included in Tier 1 capital), certain hybrid capital instruments, perpetual
debt, mandatory convertible debt securities, term subordinated debt and
intermediate-term preferred stock. Total capital is the sum of Tier 1 capital
and Tier 2 capital.
The federal banking agencies' risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to
operate with capital positions well above the minimum ratios. The federal bank
regulatory agencies may set capital requirements for a particular banking
organization that are higher than the minimum ratios when circumstances
warrant. Federal Reserve Board guidelines also provide that banking
organizations experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets. In
addition, the regulations of the Federal Reserve Board provide that
concentration of credit risk and certain risks arising from nontraditional
activities, as well as an institution's ability to manage these risks, are
important factors to be taken into account by regulatory agencies in assessing
an organization's overall capital adequacy.
The Federal Reserve Board and the other federal banking agencies recently
adopted amendments to their risk-based capital regulations to provide for the
consideration of interest rate risk in the agencies' determination of a
banking institution's capital adequacy. The amendments require such
institutions to effectively measure and monitor their interest rate risk and
to maintain capital adequate for that risk.
As discussed below under "Enforcement Powers of the Federal and State
Banking Agencies," failure to meet the minimum regulatory capital requirements
could subject a banking organization to a variety of enforcement remedies
available to federal regulatory authorities, including, in the most severe
cases, the termination of deposit insurance by the FDIC and the placement of
the institution into conservatorship or receivership.
FIRST STATE BANK
Overview. First State Bank is a state bank chartered under the laws of New
Mexico, subject to comprehensive regulation and periodic examination by the
New Mexico Financial Institutions Division of the Regulation and Licensing
Department (the "Division") and the deposits are insured by the FDIC. First
State Bank is also a member of the Federal Reserve System and is subject to
comprehensive regulation by the FRB and periodic examination by the Federal
Reserve Bank of Kansas City.
The affairs of state-chartered banks in New Mexico are regulated under the
New Mexico Banking Act (the "Banking Act") by the Division. The Director of
the Division and his staff exercise various supervisory powers provided in the
Banking Act and conduct examinations of state banks.
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<PAGE>
Restrictions on Dividends. First State Bank is limited under federal and
state law in the amount of dividends it may declare. Under regulations issued
by the Federal Reserve Board, First State Bank is permitted to pay dividends
during a calendar year of up to the lesser of (i) its undivided profits then
on hand, less its losses and bad debts, or (ii) the total of the bank's net
profits for that year combined with its retained net profits of the preceding
two calendar years, less any required transfers to surplus or to a fund for
the retirement of any preferred stock. (Undivided profits may include, if
approved by First State Bank's Board of Directors and the FRB, part or all of
any capital surplus that exceeds capital surplus required by state law.) Any
additional capital distributions would require prior regulatory approval. In
addition, the FRB and FDIC are authorized to prohibit First State Bank from
engaging in any unsafe and unsound practice in conducting business, and under
some circumstances payment of a dividend could be deemed an unsafe and unsound
practice. In addition, under federal law, a bank cannot pay a dividend that
will cause such bank to be "undercapitalized." Under state law, First State
Bank may pay dividends out of undivided profits, maintained in accordance with
state law, provided that any reserve against deposits required by state law
will not be impaired by the payment of such dividends. The Division also has
the authority to prohibit unsafe and unsound practices. The payment of
dividends by First State Bank may also be affected by other factors, such as
the need to maintain adequate capital or to meet loan demands.
At December 31, 1996, First State Bank could have paid total dividends to
the Company of approximately $3,500,000 without prior regulatory approval.
Restrictions on Transactions with Affiliates. First State Bank is subject to
Sections 23A and 23B of the Federal Reserve Act, which govern certain
transactions, such as loans, extensions of credit, investments and purchases
of assets between member banks and their affiliates, including their parent
holding companies. These restrictions limit the transfer of funds to the
Company, as defined in the statute, in the form of loans, extensions of
credit, investments or purchases of assets, and they require that First State
Bank's transactions with the Company be on terms no less favorable than
comparable transactions between First State Bank and unrelated third parties.
Transfers by First State Bank to the Company are limited in amount to 10% of
First State Bank's capital and surplus, and transfers to all affiliates are
limited in the aggregate to 20% of First State Bank's capital and surplus.
Furthermore, such loans and extensions of credit are also subject to various
collateral requirements.
Cross-Guarantee. Under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), a depository institution insured by the
FDIC can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC-insured institution in danger of
default. "Default" is defined generally as the appointment of a conservator or
receiver and "in danger of default" is defined generally as the existence of
certain conditions indicating that a "default" is likely to occur in the
absence of regulatory assistance. This provision would become applicable to
the Company and First State Bank in the event that the Company acquired an
additional depository institution subsidiary.
Capital Adequacy Standards. Regulations of the Federal Reserve Board
establish minimum requirements for the capital adequacy of depository
institutions that are substantially similar to the ratios described above for
the Company.
The following table sets forth the capital ratios for First State Bank as of
December 31, 1996, and the capital ratios required to be considered
"adequately capitalized" and "well capitalized":
<TABLE>
<CAPTION>
ACTUAL TO BE CONSIDERED TO BE CONSIDERED
RATIO "ADEQUATELY CAPITALIZED" "WELL CAPITALIZED"
------ ------------------------ ------------------
<S> <C> <C> <C>
Tier 1 capital to total
assets................. 6.9% 4.0% 5.0%
Tier 1 capital to risk-
weighted assets........ 8.4 4.0 6.0
Total capital to risk-
weighted assets........ 9.3 8.0 10.0
</TABLE>
Prompt Corrective Action. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), the federal banking agencies must take
prompt supervisory and regulatory actions against
33
<PAGE>
undercapitalized depository institutions. Depository institutions are assigned
one of five capital categories: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized," and are subjected to differential regulation corresponding
to the capital category within which the institutions fall. An institution is
critically undercapitalized if it has a tangible equity to total assets ratio
that is equal to or less than 2%. An institution is well capitalized if it has
a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based
capital ratio of 6% or greater, and a leverage ratio of 5% or greater, and the
institution is not subject to an order, written agreement, capital directive
or prompt corrective action directive to meet and maintain a specific capital
level for any capital measure. Under the regulations, First State Bank
currently is adequately capitalized.
Corrective Measures for Capital Deficiencies. FDICIA requires the federal
banking regulators to take "prompt corrective action" with respect to capital-
deficient institutions. FDICIA contains broad restrictions on certain
activities of undercapitalized institutions, including asset growth,
acquisitions, branch establishment and expansion into new lines of business.
With certain exceptions, an insured depository institution is prohibited from
making capital distributions, including dividends, and is prohibited from
paying management fees to control persons if the institution would be
undercapitalized after any such distribution or payment.
Depending on the level of an institution's capital, the agency's corrective
powers also include, among other things: prohibiting the payment of principal
and interest on subordinated debt and prohibiting the holding company from
making distributions without prior regulatory approval. Under certain
circumstances, a well capitalized, adequately capitalized or undercapitalized
institution may be treated as if the institution were in the next lower
capital category. Adequately capitalized institutions cannot accept, renew or
roll over brokered deposits except with a waiver from the FDIC, and are
subject to restrictions on the interest rates that can be paid on such
deposits. Undercapitalized institutions may not accept, renew or roll over
brokered deposits.
A banking institution that is undercapitalized is required to submit a
capital restoration plan, and such a plan will not be accepted unless, among
other things, the banking institution's holding company guarantees the plan up
to a certain specified amount. Any such guarantee from a depository
institution's holding company is entitled to a priority of payment in
bankruptcy. The Company's maximum liability under any such guarantee would be
the lesser of 5% of the undercapitalized bank's total assets at the time it
became undercapitalized or the amount necessary to bring the bank into
compliance with the capital plan.
As an institution's capital decreases, the powers of the federal regulators
become greater. A significantly undercapitalized institution is subject to
mandated capital-raising activities, restrictions on interest rates paid and
transactions with affiliates, removal of management and other restrictions.
The regulators have very limited discretion in dealing with a critically
undercapitalized institution and are required to appoint a receiver or
conservator if the capital deficiency is not corrected promptly.
Examinations and Safety and Soundness. The FRB periodically examines and
evaluates state-chartered member banks, such as First State Bank. Based upon
such an evaluation, the FRB may revalue the assets of an insured institution
and require that it establish specific reserves to compensate for the
difference between the value determined by the regulator and the book value of
such assets. The cost of conducting the examinations is assessed to the bank.
The Division also conducts examinations of New Mexico state banks. The
Division may accept the results of a federal examination in lieu of conducting
independent examination.
The federal regulators have adopted regulations and examination procedures
promoting the safety and soundness of individual institutions by specifically
addressing, among other things: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate exposure; (v) asset growth; (vi) ratio of classified assets
to capital; (vii) minimum earnings and (viii) compensation and benefits
standards for management officials.
34
<PAGE>
The federal regulators have adopted uniform standards for evaluations of
loans secured by real estate or made to finance improvements to real estate.
First State Bank is required to establish and maintain written internal real
estate lending policies consistent with safe and sound banking practices and
appropriate to the size of the institution and the nature and scope of its
operations.
Deposit Insurance Premiums. The deposits of First State Bank are insured by
the FDIC through the Bank Insurance Fund (the "BIF") to the extent provided by
law. Under the FDIC's risk-based insurance system, BIF-insured institutions
are currently assessed premiums of between zero and twenty seven cents per
$100 of eligible deposits, depending upon the institution's capital position
and other supervisory factors. Congress recently enacted legislation that,
among other things, provides for assessments against BIF-insured institutions
that will be used to pay certain Financing Corporation ("FICO") obligations.
In addition to any BIF insurance assessments, BIF-insured banks are expected
to make payments for the FICO obligations equal to an estimated $0.0129 per
$100 of eligible deposits each year during 1997 through 1999 and an estimated
$0.024 per $100 of eligible deposits thereafter.
Brokered Deposit Restrictions. The FDIC has issued rules which prohibit
undercapitalized institutions from soliciting or accepting brokered deposits.
Adequately capitalized institutions may not solicit, accept or renew such
deposits, unless a waiver is obtained from the FDIC.
Community Reinvestment Act. The federal Community Reinvestment Act of 1977
("CRA") has become increasingly important to financial institutions. Among
other things, the CRA allows regulators to withhold approval of an acquisition
or the establishment of a branch unless the applicant has performed
satisfactorily under the CRA. Satisfactory performance means adequately
meeting the credit needs of the communities the applicant serves, including
low and moderate income areas. The applicable federal regulators now regularly
conduct CRA examinations to assess the performance of financial institutions.
First State Bank has received "satisfactory" ratings in its most recent CRA
examination.
Branching Acquisitions. Under New Mexico law, banks are permitted to conduct
business through branches, after application to and approval of the Director
of the Division, and after the Director makes certain findings regarding the
financial history and condition of the bank, as well as the appropriateness of
the branch in the community to be served.
In addition the acquisition of New Mexico banks and bank holding companies
by out-of-state banks, holding companies and other financial institutions is
permitted under the New Mexico Interstate Bank Acquisition Act, under the
conditions and upon receipt of the approvals set forth in the Act.
Changing Regulatory Structure. The laws and regulations affecting banks and
bank holding companies are continually being reviewed and revised. The rules
and the regulatory agencies in this area have changed significantly over
recent years and there is reason to expect that similar changes will continue
in the future. It is difficult to predict the outcome of these changes.
Enforcement Powers of the Federal and State Banking Agencies. The Federal
Reserve Board and the other federal banking agencies have broad enforcement
powers, including the power to terminate deposit insurance, impose substantial
fines and other civil and criminal penalties and appoint a conservator or
receiver. Failure to comply with applicable laws, regulations and supervisory
agreements could subject the Company or its banking subsidiaries, as well as
officers, directors and other institution-affiliated parties of these
organizations, to administrative sanctions and potentially substantial civil
money penalties. In addition to the grounds discussed under "Prompt Corrective
Action," the appropriate federal banking agency may appoint the FDIC as
conservator or receiver for a banking institution (or the FDIC may appoint
itself, under certain circumstances) if any one or more of a number of
circumstances exist, including, without limitation, the fact that the banking
institution is under capitalized and has no reasonable prospect of becoming
adequately capitalized; fails to become adequately capitalized when required
to do so; fails to submit a timely and acceptable capital restoration plan; or
materially fails to implement an accepted capital restoration plan. In
addition, the Division possesses
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<PAGE>
certain enumerated enforcement powers to address violations of the New Mexico
Banking Act by state-chartered banks and to preserve safety and soundness,
including, in the most severe cases, the authority to take possession of a
state bank.
EFFECT ON ECONOMIC ENVIRONMENT
The policies of regulatory authorities, including the monetary policy of the
FRB, have a significant effect on the operating results of bank holding
companies and their subsidiaries. Among the means available to the FRB to
affect the money supply are open market operations in U.S. Government
securities, changes in the discount rate on member bank borrowings and changes
in reserve requirements against member bank deposits. These means are used in
varying combinations to influence overall growth and distribution of bank
loans, investments and deposits, and their use may affect interest rates
charged on loans or paid for deposits.
FRB monetary policies have materially affected the operating results of
commercial banks in the past and are expected to continue to do so in the
future. The nature of future monetary policies and the effect of such policies
on the business and earnings of the Company cannot be predicted.
36
<PAGE>
MANAGEMENT
The table below states the names and ages of the directors and executive
officers of the Company as well as the positions and offices they hold. A
summary of the background and experience of each is given after the table. The
Company's Board of Directors consists of nine directors divided into three
classes of three directors each. The directors are elected by the stockholders
of the Company for staggered three-year terms and hold office until their
successors are elected and qualified. One class of directors is elected each
year.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael R. Stanford(1).......... 44 President, Chief Executive Officer, and
Director
H. Patrick Dee.................. 42 Executive Vice President, Chief Operating
Officer, Secretary/Treasurer and Director
Brian C. Reinhardt.............. 38 Senior Vice President and Chief Financial
Officer
Eloy A. Jeantete(1)............. 69 Chairman of the Board and Director
Leonard J. DeLayo, Jr.(3)....... 48 Director
Bradford M. Johnson(1)(2)....... 46 Director
Sherman McCorkle(1)(2).......... 53 Director
Douglas M. Smith, M.D.(1)(2).... 63 Director
Herman N. Wisenteiner(1)(3)..... 66 Director
Manuel Lujan, Jr................ 68 Director
</TABLE>
- --------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
Each officer of the Company serves at the discretion of the Board of
Directors. There are no family relationships among any of the directors,
officers or key employees of the Company. The current authorized number of
directors of the Company is ten.
Michael R. Stanford, a Director of the Company since its organization in
1988, is President and Chief Executive Officer of the Company and First State
Bank. Mr. Stanford's entire career has been in the banking industry. Prior to
joining First State Bank in 1987, Mr. Stanford spent five years with New
Mexico Banquest Corporation as Senior Vice President in charge of loan
administration. Mr. Stanford is a past director of the New Mexico Bankers
Association. In addition, Mr. Stanford is involved in a variety of civic
organizations.
H. Patrick Dee has been a Director of the Company since 1991 and presently
serves as Executive Vice President, Chief Operating Officer and
Secretary/Treasurer of the Company, and Executive Vice President and Chief
Operating Officer of First State Bank, a position he has held since December
1991. Prior to joining the Company, Mr. Dee spent four years with New Mexico
Banquest Corporation and, after its acquisition by Livingston & Co. Southwest
L.P. in 1988, with NBA. In 1989, Mr. Dee became Senior Vice President and
Chief Financial Officer of Livingston & Co. Southwest, L.P. Mr. Dee is a
certified public accountant.
Brian C. Reinhardt, a Senior Vice President and Chief Financial Officer of
the Company since 1995, joined First State Bank in September 1994. Prior to
joining First State Bank, Mr. Reinhardt was a Senior Manager with KPMG Peat
Marwick LLP. Mr. Reinhardt joined KPMG Peat Marwick LLP in 1984.
Eloy A. Jeantete, a Director of the Company since August 1993 and Chairman
of the Board since January 1994, joined the Bank 48 years ago as a bookkeeper
and has spent his entire working career with the Bank, rising to his present
position of Chairman of the Board of the Company. As a lifetime resident of
Taos, Mr. Jeantete has accumulated a long list of civic achievements and
community involvement, culminating with his election in 1990 as Mayor of Taos,
a position he held until March 1994.
Leonard J. DeLayo, Jr., a Director of the Company since November 1993,
served as a director of First State Bank from 1988 to January 1992. Mr. DeLayo
has been engaged in a general corporate and commercial law
37
<PAGE>
practice in New Mexico since 1974 and is the President and sole shareholder of
Leonard J. DeLayo, Jr., P.C., which currently provides legal services to the
Company and the Bank as outside counsel. Mr. DeLayo is a member of the
Albuquerque Board of Education.
Bradford M. Johnson, a Director of the Company since November 1993, is
President of Heron Hill Corporation, a private company engaged in investments
and financial consulting. From 1991 to November 1993, Mr. Johnson was a
partner and Director of Research of Sterne, Agee & Leach, Inc., an investment
banking firm in Atlanta, Georgia. Mr. Johnson studied at the University de
Paris-Sorbonne from 1987 to 1991. Mr. Johnson is a director of Community Bank
Capital Corporation, a privately owned thrift holding company in Atlanta,
Georgia.
Sherman McCorkle, a Director of the Company since November 1993, is the
President of Technology Ventures Corporation, a wholly owned subsidiary of
Lockheed Martin, and has over 15 years of banking experience. Mr. McCorkle
served as President and Chief Executive Officer of Sunwest Credit Services
Corporation from December 1988 to April 1992. Prior to that time, Mr. McCorkle
held a variety of positions with Sunwest Credit Services Corporation's parent,
Sunwest Bank of Albuquerque, N.A. Mr. McCorkle was a past Chairman of the
Greater Albuquerque Chamber of Commerce, a Board member of United Way, and a
member of the American Bankers Association.
Douglas M. Smith, M.D., a Director of the Company since November 1993, is a
Board Certified radiologist and the owner/general partner of The Historic Taos
Inn. Dr. Smith is the co-founder and former President of Palm Beach Imaging,
Inc., West Palm Beach, Florida, and a former member of the Board of Directors
of the PIE Medical Insurance Co., a physician-owned medical malpractice
insurance company headquartered in Cleveland, Ohio.
Herman N. Wisenteiner, a Director of the Company since November 1993, is
President and Chief Executive Officer of Horn Distributing Company, a real
estate holding company which he founded in 1971 in Santa Fe, New Mexico. In
addition to his many civic activities in northern New Mexico, from 1984 to
1993 Mr. Wisenteiner was also Chairman and Chief Executive Officer of CLX
Exploration Inc., a publicly traded oil and natural gas exploration and
production company headquartered in Denver, Colorado, and served as a Director
of First Interstate Bank, Santa Fe, from 1980 to 1993.
Manuel Lujan, Jr., a Director of the Company since June 1995, is a self-
employed consultant on federal legislative matters. Mr. Lujan is also a self-
employed real estate agent and an insurance agent for the Manuel Lujan
Insurance Agency. Mr. Lujan served as Secretary of the Interior during the
Bush administration until January 1993. Prior to serving as Secretary of the
Interior, Mr. Lujan was a member of the United States House of Representatives
representing New Mexico.
Committees. The Board of Directors has an Executive Committee, an Audit
Committee and a Compensation Committee. All of the members of the Audit
Committee and Compensation Committee are outside directors.
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<PAGE>
EXECUTIVE COMPENSATION.
The following tables set forth the compensation paid by the Company to the
two executive officers of the Company and one officer of First State Bank who
received in excess of $100,000 in cash compensation.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
NAME AND --------------------------------- STOCK OPTIONS
RINCIPAL POSITIONP YEAR SALARY ($) BONUS ($) OTHER ($)(1) GRANTED (#)
- ------------------ ---- ---------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Michael R. Stanford....... 1996 $183,333 $24,000 $41,621 0
President and Chief 1995 $175,000 $45,000 $42,636 0
Executive Officer 1994 $166,250 $37,500 $44,483 0
H. Patrick Dee............ 1996 $130,000 $16,000 $42,836 0
Secretary and 1995 $116,250 $30,000 $39,369 0
Treasurer 1994 $ 92,083 $22,500 $36,580 0
W. Gary Millhollon(2)..... 1996 $ 86,575 $20,830 $ 6,000 0
Senior Vice President
First State Bank
</TABLE>
- --------
(1) Represents insurance premiums paid by the Company on behalf of Messrs.
Stanford and Dee in the amount of $35,000 and $30,000, respectively, per
year, amounts contributed by the Company to Messrs. Stanford and Dee's
Section 401(k) plan, and auto allowance and dues.
(2) Mr. Millhollon was hired by First State Bank effective December 1995.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR AND FISCAL YEAR-END OPTIONS VALUE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES 12/31/96 (#) 12/31/96 ($)(1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Michael R. Stanford..... 19,600 $124,754 100,113(2)(3) $830,629
12,000 $ 82,500
H. Patrick Dee.......... -- -- 35,000 $231,000
8,750 $ 57,750
</TABLE>
- --------
(1) The closing price of the Company's Common Stock on December 31, 1996, was
$15.00 per share.
(2) On January 30, 1997, Mr. Stanford exercised options to acquire 21,500
shares of Common Stock at an exercise price of $5.01 per share.
(3) Includes the option to purchase 28,613 shares of Common Stock described
under "--Stock Option Agreement" below.
EXECUTIVE INSURANCE
First State Bank has key-person insurance policies on each of Messrs.
Stanford and Dee. Under these policies, First State Bank is named as
beneficiary of $810,000 of term life insurance on Mr. Stanford and $533,000 of
term life insurance on Mr. Dee. In addition, First State Bank also pays the
premiums on $690,000 of additional whole life insurance for Mr. Stanford and
$667,000 for Mr. Dee under which each is able to name the beneficiary. Under
the provisions of the term life policies the amount of term insurance under
each policy is gradually decreased over 10 years. However, First State Bank's
premium payments are kept level during the entire ten-year period with the
excess premiums from the term life policies being applied to the whole life
policies. As a result of the increasing portion of the premiums which are
allocated to the whole life policies, at the end of the ten-year period the
whole life policies are fully paid. Upon termination of employment, the whole
life policies would be transferable to Messrs. Stanford or Dee, as the case
may be, who could elect to continue making the premium payment if such
termination occurred before the tenth year of the policy. The annual premium
which will be paid for the whole life policies will constitute compensation to
such individuals.
39
<PAGE>
STOCK OPTION AGREEMENT
Under the terms of a stock option agreement, Mr. Stanford can exercise an
option to purchase 28,613 shares of Common Stock at a price of $5.01 per
share. As originally granted, the option allowed Mr. Stanford to purchase up
to 10 percent of the common stock of New Mexico Bank Corporation ("NMBC"), the
parent holding company of NBA, at the book value of the NMBC common stock as
of November 19, 1990. In December 1991, the option was converted to an option
to purchase the Company's Common Stock when NMBC was merged into the Company.
The option may be exercised at any time by Mr. Stanford and will expire on
October 12, 2003.
EXECUTIVE INCOME PROTECTION PLAN
The Company has an Executive Income Protection Plan (the "Plan") with the
following participants: Patrick G. Cahalan, Robert L. Chavez, H. Patrick Dee,
Brian C. Reinhardt and Michael R. Stanford, which provides for benefits upon a
Control Change (as defined in the Plan). Following a Control Change, the Plan
provides for a three-year employment term and specifies the employee's
position, salary, bonus, and benefits payable during that period. If the
employee (i) resigns; (ii) is discharged for any reason other than cause,
death or disability; or (iii) experiences a Reduction in Position (as defined
in the Plan) within a three-year period beginning on the date of the Control
Change, then the employee shall have income protection benefits consisting of
(a) a compensation benefit, payable in a single sum, equal to three times his
Compensation (as defined in the Plan) in the case of Messrs. Dee and Stanford
and two times his Compensation in the case of Messrs. Cahalan, Chavez, and
Reinhardt; (b) the same level of fringe benefits as existed on the date of the
Control Change for a period ending three years after the Control Change
including, without limitation, any plan or arrangement to receive and exercise
stock options and/or stock appreciation rights, restricted stock or grants
thereof in which the employee is participating on the date of the Control
Change (or plans or arrangements providing him with substantially similar
benefits); (c) an amount equal to the employee's non-vested accrued benefit in
the Company's retirement plans, determined as of the last valuation date under
such plans, if the employee is not fully vested under the terms of such plans;
(d) up to a maximum of 30% of his Compensation for out-placement services for
the employee; and (e) a lump-sum payment at the same time as the compensation
payment described in (a) above, if the Company has purchased a split-dollar
life insurance policy on the life of an employee.
"Control Change" is defined in the Plan as (i) a sale or sales (including an
exchange) of shares of the Company, other than pursuant to a public offering,
at one or more times by the Company, a stockholder or stockholders of the
Company, or any combination of the foregoing, which in the aggregate results
in the beneficial ownership of more than 50% of the combined voting power of
the Company's outstanding securities after the sale or sales by one or more
stockholders who were not stockholders of the Company on April 19, 1996 (the
effective date of the Plan), and who are not controlled after the sale or
sales, directly or indirectly, by one or more of the stockholders of the
Company on April 19, 1996; (ii) a sale or sales by the Company of all or
substantially all of its assets to one or more persons or entities who were
not stockholders of the Company on April 19, 1996, and who are not controlled
after the sale or sales, directly or indirectly, by one or more of such
stockholders; (iii) a merger or other combination in which the Company is
either the surviving or disappearing corporation, which results in the
beneficial ownership of more than 50% of the combined voting power of the
outstanding securities of the surviving corporation by one or more persons or
entities which were not stockholders of the Company on April 19, 1996, and
which are not controlled after such merger or other combination, directly or
indirectly, by one or more of such stockholders; (iv) the approval by the
stockholders of the Company of any plan or proposal to liquidate or dissolve
the Company; or (v) during any period of two consecutive years, individuals
who at the beginning of the period constitute the entire Board of Directors of
the Company cease for any reason to constitute a majority thereof, unless the
election or the nomination for election by the Company's stockholders of each
new director was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period.
"Compensation" means the sum of (i) the employee's average taxable
compensation from the Company; (ii) the employee's average elective salary
reduction contributions to plans under Internal Revenue Code (the
40
<PAGE>
"Code") Sections 401(k) and/or 125; and (iii) the product of the average
percentage of covered payroll contributed by the Company to the Company's
401(k) profit sharing plan multiplied by the sum of (i) and (ii), in each case
for the five calendar years preceding the Control Change.
"Reduction in Position" shall occur if an employee (i) is removed as an
officer or director; (ii) experiences a significant decrease in managerial or
supervisory authority; (iii) experiences a reduction in salary or bonus;
(iv) is required by the Company to relocate to an office more than 50 miles
from his location before the Control Change; (v) is reduced in the rate of his
awards under any stock option plan in effect before the Control Change; or
(vi) experiences a material adverse change in his terms and conditions of
employment.
The Plan provides that the employees will be entitled to a gross-up payment
if it is determined that any payment would be subject to the excise tax
imposed by Section 4999 of the Code. The Plan also provides for the Company to
pay the employee's legal fees incurred in any contest relating to the Plan and
certain other indemnification to the extent permitted under applicable New
Mexico or federal law and under the Company's Bylaws and the Articles.
As of the date of this Prospectus, the aggregate cost to the Company
(including the cost of early vesting under employee plans) under the Plan
would not exceed $2.4 million in the event of a Control Change.
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company (the "Outside
Directors") is paid an annual fee of $3,000 and a per-meeting fee of $500 and
will be reimbursed for expenses incurred in attending meetings of the Board of
Directors and the committee meetings of the Board of Directors.
SECTION 401(K) PLAN
In 1991, the Company adopted a tax-qualified profit sharing 401(k) plan (the
"Saving Plan") covering all employees who have attained 18 years of age and
have completed three months of service with the Company. Each participant in
the Saving Plan may reduce his or her salary by as much as the lesser of 20%
of his or her compensation or, in 1996, $9,500. The dollar limit is adjusted
each year for inflation. The Company is required to make matching
contributions of up to 50% of the first 6% of a participant's deferred
compensation up to a maximum of 3%. The Company may, but is not required to,
contribute additional amounts to the Saving Plan. Any such additional amounts
are allocated to the accounts of participants who were active participants on
the last day of the plan year or who retired or died or were disabled during
the plan year. The allocation is in proportion to the eligible participants'
compensation. During 1996, 1995 and 1994, First State Bank made contributions
to the Saving Plan of $106,000, $70,000 and $53,000, respectively.
All contributions by a participant are 100% vested and nonforfeitable at all
times. The Company's contributions become 100% vested after three years of
service with the Company. A participant may direct the investment of his or
her account pursuant to the investment options offered by the trustee of the
Saving Plan. Distribution of a participant's account under the Saving Plan
normally occurs upon the participant's retirement or the participant's
termination of employment with the Company.
INCENTIVE PLANS
The Company has adopted a Stock Option Plan (the "Stock Option Plan"). Under
the Stock Option Plan, the Company has reserved an aggregate of 225,000 shares
of Common Stock for issuance pursuant to the exercise of options. Options may
be granted to key employees of the Company, including directors who are also
employees of the Company, and to certain outside consultants. As of February
28, 1997, options to purchase 199,753 shares of Common Stock were outstanding
under the Stock Option Plan.
The Stock Option Plan is administered by a committee which is composed of
disinterested members of the Board of Directors (the "Committee"). Subject to
the terms of the Stock Option Plan, the Committee determines
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<PAGE>
the persons to whom awards are granted, the type of awards granted, the number
of shares granted, the vesting schedule, the type of consideration to be paid
to the Company upon exercise of options and the term of each option (not to
exceed ten years).
Under the Stock Option Plan, the Company may grant both incentive stock
options ("incentive stock options") intended to qualify under Section 422 of
the Code, and options which are not qualified as incentive stock options
("nonqualified stock options"). Incentive stock options must be granted at an
exercise price equal to or greater than the fair market value of the Common
Stock on the date of grant. The exercise price of nonqualified stock options
granted under the Stock Option Plan will be determined by the Committee on the
date of grant. The exercise price of incentive stock options granted to
holders of more than 10% of the Common Stock must be at least 110% of the fair
market value of the Common Stock on the date of grant, and the term of these
options may not exceed five years.
The Stock Option Plan provides that the total number of shares covered by
the Stock Option Plan, the number of shares covered by each option and the
exercise price per share may be proportionately adjusted by the Board of
Directors or the Committee in the event of a stock split, reverse stock split,
stock dividend or similar capital adjustment effected without receipt of
consideration by the Company.
Upon a change in control of the Company, stock options outstanding under the
Stock Option Plan immediately become fully vested and exercisable. Also, in
the event of a merger or consolidation in which the Company is not the
surviving corporation, the sale of all or substantially all of the Company's
assets, certain reorganizations or the liquidation of the Company, each option
granted under the Stock Option Plan may, at the election of the holder, become
immediately exercisable.
INDEMNIFICATION
The Company's Bylaws provide that the Company will indemnify all directors,
officers and employees of the Company to the fullest extent now permitted by
the New Mexico Business Corporation Act (the "NMBCA"). Under these provisions
any director, officer or employee who is made a party to any suit or
proceeding will be indemnified if (i) such person acted in good faith and in a
manner he reasonably believed to be in the best interests of the Company, (ii)
with respect to any criminal proceeding, had no reasonable cause to believe
his conduct was unlawful and (iii) in all other cases, that his conduct was at
least not opposed to the best interests of the Company. The NMBCA further
provides that such indemnification is not exclusive of any other rights to
which such individuals may be entitled under the Articles of Incorporation,
the Bylaws, an agreement, a resolution of stockholders or directors or
otherwise that are not inconsistent with the NMBCA. Pursuant to the Bylaws and
the NMBCA, the Company cannot indemnify a director in connection with a
proceeding by or in the right of the Company in which the director was
adjudged liable to the Company, or in connection with any other proceeding
charging improper personal benefit to the director, whether or not involving
action in his official capacity, in which he is adjudged liable on the basis
that personal benefit was improperly received by him.
In addition, the Company's Articles provide that to the fullest extent now
or hereafter permitted by New Mexico law, the Company's directors will not be
liable to the Company or its stockholders for monetary damages for breach of
their fiduciary duties as directors unless any such director has breached or
failed to perform the duties of the director's office in compliance with
Subsection 43-11-35(B) of the NMBCA (duty of care) and the breach or failure
to perform constitutes negligence, willful misconduct or recklessness in the
case of a director who has either an ownership interest in the Company or
receives compensation of more than $2,000 from the Company in any calendar
year, or willful misconduct or recklessness in the case of a director who does
not have an ownership interest in the Company and does not receive
compensation of more than $2,000 in any calendar year. Each director will
continue to be subject to liability for breach of the director's duty of
loyalty to the Company and its stockholders, for acts or omissions not
undertaken in good faith or involving intentional misconduct or knowing
violations of law, for liability arising under Section 53-11-46 of the NMBCA
(relating to the unlawful payment of distributions, and purchase or redemption
of the Company's stock) or for any transaction from which the director derived
an improper personal benefit. This provision also does not affect a
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<PAGE>
director's responsibilities under any other laws, such as federal securities
laws or state or federal environmental laws.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought. The Company is not aware of any other threatened litigation that may
result in claims for indemnification by any director, officer, employee or
other agent.
The Company maintains directors and officers liability insurance.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1997, by (i) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) each director of the Company, and (iii) all
directors and executive officers as a group. Unless otherwise indicated, based
on information furnished by such owners, the Company believes that the
stockholders listed below have sole investment and voting power with respect
to their shares. Unless otherwise indicated, the address of such person is the
Company's address, 111 Lomas Avenue N.W., Albuquerque, New Mexico 87102.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
NAME SHARES OWNED (1) SHARES OWNED
- ---- ---------------- -------------
<S> <C> <C>
Richard L. Duchossois........................ 112,500 5.12%
845 Larch Avenue
Elmhurst, IL 60126
John Hancock Advisors, Inc................... 170,125 7.74%
101 Humington Avenue
Boston, MA 02199
Michael R. Stanford.......................... 112,772(2)(3) 4.95%
H. Patrick Dee............................... 42,855(2)(4) 1.92%
Eloy A. Jeantete............................. 1,000 0.05%
Leonard J. DeLayo, Jr........................ 98,089(2)(5) 4.41%
Bradford M. Johnson.......................... 164,009(2) 7.43%
Sherman McCorkle............................. 1,051 0.05%
Douglas M. Smith, M.D........................ 23,750 1.08%
Herman N. Wisenteiner........................ 9,454(2) 0.43%
Manuel Lujan, Jr............................. 10,625 0.48%
All executive officers and directors as a
group (13 persons).......................... 503,018 21.16%
</TABLE>
- --------
(1) Includes shares of Common Stock issuable on conversion of 7% Debentures.
(2) Includes shares of Common Stock that were acquired as a result of the
individuals' sale of shares of the Santa Fe Bank to the Company.
(3) Includes 28,613 shares which may be acquired within 60 days pursuant to
outstanding stock options at an exercise price of $5.01 per share and
50,000 shares which may be acquired within 60 days pursuant to outstanding
stock options at an exercise price of $8.40 per share.
(4) Includes 35,000 shares which may be acquired within 60 days pursuant to
outstanding stock options at an exercise price of $8.40 per share.
(5) Includes 10,000 shares which may be acquired within 60 days pursuant to
outstanding stock options at an exercise price of $8.40 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Credit Transactions. The executive officers, directors and principal
stockholders of the Company and First State Bank, and members of their
immediate families and businesses in which these individuals hold controlling
interests, are customers of First State Bank and it is anticipated that such
parties will continue to be customers of
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<PAGE>
First State Bank in the future. Credit transactions with these parties are
subject to review by First State Bank's Board of Directors. All outstanding
loans and extensions of credit by First State Bank to these parties were made
in the ordinary course of business on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and in the opinion of management did not
involve more than the normal risk of collectability or present other
unfavorable features. At December 31, 1996, the aggregate balance of First
State Bank's loans and advances under existing lines of credit to these
parties was approximately $1.9 million, or 0.78% of First State Bank's total
loans. All payments of principal and interest on these loans are current.
These loans represented 9.24% of the Company's equity as of December 31, 1996.
Legal Services. Mr. DeLayo was a director of First State Bank from 1988
through January 1992, was a director of the Santa Fe Bank from March 1993 to
June 1994 and was appointed as a director of the Company in November 1993. Mr.
DeLayo acts as general counsel to the Company and First State Bank. Mr. DeLayo
and his firm, Leonard J. DeLayo, P.C., are involved in representing the
Company in numerous collection matters. The Company paid Mr. DeLayo's firm
approximately $146,000, $187,000 and $161,000 for its services in 1996, 1995
and 1994.
Santa Fe Branch Location. The Downtown Santa Fe location was constructed on
land owned by Herman Wisenteiner, a Director of the Company. The Company is
leasing the site from Mr. Wisenteiner for an initial term of 15 years
(beginning December 1995) at an initial rate of $60,000 per year. In the
opinion of management, the lease is on terms similar to other third-party
commercial transactions in the ordinary course of business.
DESCRIPTION OF THE DEBENTURES
The Debentures are to be issued under an Indenture, dated as of , 1997
(the "Indenture"), between the Company and First Trust National Association,
as Trustee (the "Trustee"), a copy of which is filed as an exhibit to the
Registration Statement. The following summaries of certain provisions of the
Indenture do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all the provisions of the Indenture,
including the definitions therein of certain terms. Wherever particular
sections or defined terms of the Indenture are referred to, such sections or
defined terms are incorporated herein by reference.
GENERAL
The Debentures will be unsecured subordinated obligations of the Company,
will be limited to an aggregate principal amount of $13,800,000 (including
$1,800,000 subject to the Underwriters' over-allotment option) and will mature
on . The Debentures will bear interest at the rate per annum shown on the
front cover of this Prospectus from , 1997 or from the most recent
Interest Payment Date on which interest has been paid or provided for, payable
semi-annually on and of each year, commencing , 1997, to the
Person in whose name such Debenture (or any predecessor Debenture) is
registered at the close of business on the Regular Record Date for such
interest payment, which shall be the or (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. (Sections
301 and 307) Principal of and premium, if any, and interest on the Debentures
will be payable, and the transfer of Debentures will be registrable, and the
Debentures may be presented for exchange or conversion at the offices of the
Trustee in the City of , or at such other office designated by the Company.
(Sections 301, 305 and 1002)
The Debentures will be issued only in fully registered form, without
coupons, in denominations of $1,000 and integral multiples thereof. (Section
302) No service charge will be made for any registration of transfer or
exchange of Debentures, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (Section 305)
Because the Company is a holding company, its rights and the rights of its
creditors, including the Holders of the Debentures, to participate in the
assets of any Subsidiary upon the latter's liquidation or recapitalization
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will be subject to the prior claims of the Subsidiary's creditors (including,
in the case of the Bank, its depositors), except to the extent that the
Company may itself be a creditor with recognized claims against the
Subsidiary. See also "The Company" and "Regulation and Supervision."
The Indenture does not contain any provisions that would provide protection
to Holders of the Debentures against a sudden and dramatic decline in credit
quality of the Company resulting from any takeover, recapitalization or
similar restructuring.
A holder of 25% or more of the outstanding Common Stock (5% or more if such
holder otherwise exercises a "controlling influence" over the Company) may be
subject to regulation as a "bank holding company" in accordance with the BHCA.
In addition, (i) any bank holding company or foreign bank with a U.S. presence
may be required to obtain the approval of the FRB under the BHCA to acquire or
retain 5% or more of the outstanding Common Stock and (ii) any person other
than a bank holding company may be required to obtain the approval of the FRB
under the Change in Bank Control Act to acquire or retain 10% or more of the
outstanding Common Stock. For purposes of the BHCA, Holders of the Debentures
may be deemed to be holders of the underlying shares of Common Stock.
SUBORDINATION OF DEBENTURES
The payment of the principal of and premium, if any, and interest on the
Debentures will, to the extent set forth in the Indenture, be subordinated in
right of payment to the prior payment in full of all Senior Indebtedness (as
defined in the Indenture). In certain events of insolvency, the payment of the
principal of and premium and interest on the Debentures will, to the extent
set forth in the Indenture, also be effectively subordinated in right of
payment to the prior payment in full of all Other Financial Obligations. Upon
any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of the Company, the holders of all Senior Indebtedness will first
be entitled to receive payment in full of all amounts due or to become due
thereon before the Holders of the Debentures will be entitled to receive any
payment in respect of the principal of or premium or interest on the
Debentures. If upon any such payment or distribution of assets to creditors,
there remain, after giving effect to such subordination provisions in favor of
the holders of Senior Indebtedness, any amounts of cash, property or
securities available for payment or distribution in respect of the Debentures
(as defined in the Indenture, "Excess Proceeds") and if, at such time, any
Entitled Persons in respect of Other Financial Obligations have not received
payment in full in respect of all amounts due or to become due on or in
respect of such Other Financial Obligations, then such Excess Proceeds first
shall be applied to pay or provide for the payment in full of such Other
Financial Obligations before any payment or distribution may be made in
respect of the Debentures. In the event of the acceleration of the maturity of
the Debentures, the holders of all Senior Indebtedness first will be entitled
to receive payment in full of all amounts due thereon before the Holders of
the Debentures will be entitled to receive any payment upon the principal of
or premium or interest on the Debentures. No payments on account of principal
of or interest on the Debentures or on account of the purchase or acquisition
of the Debentures may be made if there shall have occurred and be continuing a
default in any payment with respect to Senior Indebtedness or if any judicial
proceeding shall be pending with respect to any such default. (Article Twelve)
By reason of such subordination in favor of the holders of Senior
Indebtedness, in the event of insolvency, creditors of the Company who are not
holders of Senior Indebtedness or of the Debentures may recover less, ratably,
than holders of Senior Indebtedness and may recover more, ratably, than the
Holders of the Debentures.
The Company's obligations under the Debentures shall rank pari passu in
right of payment with each other.
The Indenture does not limit or prohibit the incurrence of additional Senior
Indebtedness, which may include indebtedness that is senior to the Debentures,
but subordinate to other obligations of the Company, including obligations of
the Company in respect of Other Financial Obligations.
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<PAGE>
CONVERSION RIGHTS
The Debentures will be convertible, at the option of the Holder, into Common
Stock of the Company at any time prior to the maturity date (subject to prior
redemption by the Company on not less than 30 days' notice and not more than
60 days' notice), initially at the conversion price stated on the cover page
hereof. The right to convert Debentures called for redemption will terminate
at the close of business on the Redemption Date and will be lost if not
exercised prior to that time. (Section 1301) For information as to notices of
redemption, see "Optional Redemption" below.
The conversion price will be subject to adjustment in certain events,
including (i) dividends (and other distributions) payable in Common Stock on
any class of capital stock of the Company, (ii) the issuance to all holders of
Common Stock of rights or warrants entitling them to subscribe for or purchase
Common Stock at less than the current market price (as defined), (iii)
subdivisions, combinations and reclassifications of Common Stock, (iv)
distributions to all holders of Common Stock of evidences of indebtedness of
the Company or assets (including securities, but excluding those dividends,
rights, warrants and distributions referred to above and any dividend or
distribution paid exclusively in cash), (v) distributions consisting
exclusively of cash (excluding any cash distributions referred to in (iv)
above) to all holders of Common Stock in aggregate amount that, together with
(A) other all-cash distributions made within the preceding 12 months and (B)
any cash and the fair market value of other consideration payable in respect
of any tender offer by the Company or a Subsidiary for the Company's Common
Stock concluded within the preceding 12 months, exceeds 12.5% of the Company's
market capitalization (being the product of the current market price (as
defined) of the Common Stock times the number of shares of Common Stock then
outstanding) on the date fixed for determination of stockholders entitled to
receive such distribution and (vi) the successful completion of a tender offer
made by the Company or any Subsidiary for the Company's Common Stock which
involves an aggregate consideration that, together with (A) any cash and other
consideration payable in respect of any tender offer by the Company or a
Subsidiary for the Company's Common Stock expiring within the 12 months
preceding the expiration of such tender offer and (B) the aggregate amount of
any all-cash distributions to all holders of the Company's Common Stock within
the 12 months preceding the expiration of such tender offer, exceeds 12.5% of
the Company's market capitalization on the expiration of such tender offer.
Generally no adjustments to the conversion price will be required to be made
until cumulative adjustments amount to 1% or more of the conversion price as
last adjusted. (Section 1304)
In the event that the Company shall distribute rights or warrants (other
than those referred to in (ii) in the preceding paragraph) pro rata to holders
of Common Stock, the Holder of any Debenture surrendered for conversion will
be entitled to receive upon such conversion in addition to the shares of
Common Stock issuable upon such conversion (the "Conversion Shares"), a number
of rights or warrants to be determined as follows: (i) if such conversion
occurs on or prior to the date for the distribution to the holders of rights
or warrants of separate certificates evidencing such rights or warrants (the
"Distribution Date"), the same number of rights or warrants to which a holder
of a number of shares of Common Stock equal to the number of Conversion Shares
is entitled at the time of such conversion in accordance with the terms and
provisions of and applicable to the rights or warrants, and (ii) if such
conversion occurs after such Distribution Date, the same number of rights or
warrants to which a holder of the number of shares of Common Stock into which
such Debenture was convertible immediately prior to such Distribution Date
would have been entitled on such Distribution Date in accordance with the
terms and provisions of and applicable to the rights or warrants. (Section
1304)
In addition to the foregoing adjustments, the Company will be permitted to
make such reductions in the conversion price as it considers to be advisable
in order that any event treated for Federal income tax purposes as a dividend
of stock or stock rights will not be taxable to the holders of the Common
Stock. (Section 1304) In case of certain consolidations or mergers to which
the Company is a party or the transfer of substantially all of the assets of
the Company, each Debenture then outstanding would, without the consent of any
Holders of Debentures, become convertible only into the kind and amount of
securities, cash and other property receivable upon the consolidation, merger
or transfer by a holder of the number of shares of Common Stock into which
such Debenture might have been converted immediately prior to such
consolidation, merger or transfer (assuming
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<PAGE>
such holder of Common Stock failed to exercise any rights of election and
received per share the kind and amount received per share by a plurality of
non-electing shares). (Section 1311)
Fractional shares of Common Stock are not to be issued upon conversion, but,
in lieu thereof, the Company will pay a cash adjustment based upon the market
price of the Common Stock. (Section 1303) Debentures surrendered for
conversion during the period from the close of business on any Regular Record
Date next preceding any Interest Payment Date to the opening of business on
such Interest Payment Date (except Debentures called for redemption on a
Redemption Date within such period) must be accompanied by payment of an
amount equal to the interest thereon which the registered Holder is to
receive. In the case of any Debenture which has been converted after any
Regular Record Date but on or before the next Interest Payment Date (except
Debentures called for redemption on a Redemption Date within such period),
interest whose Stated Maturity is on such Interest Payment Date shall be
payable on such Interest Payment Date notwithstanding such conversion, and
such interest shall be paid to the Holder of such Debenture on such Regular
Record Date. Except as described above, no interest on converted Debentures
will be payable by the Company on any Interest Payment Date subsequent to the
date of conversion. No other payment or adjustment for interest or dividends
is to be made upon conversion. (Sections 307 and 1302)
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
Federal income tax purposes (e.g., distributions of evidences of indebtedness
or assets of the Company, but generally not stock dividends or rights to
subscribe for Common Stock) and, pursuant to the antidilution provisions of
the Indenture, the conversion price of the Debentures is reduced, such
reduction may be deemed to be the payment of a taxable dividend to Holders of
Debentures. Holders of Debentures could, therefore, have taxable income as a
result of an event pursuant to which they received no cash or property that
could be used to pay the related income tax.
OPTIONAL REDEMPTION
The Debentures are to be redeemable at the election of the Company, in whole
or in part, from time to time, upon not less than 30 nor more than 60 days'
notice mailed to each Holder of Debentures to be redeemed at his address
appearing in the Security Register, on any date on or after , 2001, and
prior to maturity at the following Redemption Prices (expressed as percentages
of principal amount) plus accrued interest to the Redemption Date (subject to
the right of Holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date): If redeemed during the 12-month period beginning ,
<TABLE>
<CAPTION>
REDEMPTION REDEMPTION
--------------------------- -------------------------------------------------
YEAR PRICE YEAR PRICE
----- ------ ---- -----
<S> <C> <C> <C>
</TABLE>
and thereafter at 100% of principal amount. (Sections 203, 1101, 1105, and
1107)
Notwithstanding the foregoing, the Debentures may be redeemed at the option
of the Company, in whole or in part, at any time before , 2001, without
any premium if the closing sale price of the Common Stock for at least 30
consecutive trading days equals or exceeds 140% of the conversion price then
in effect.
No sinking fund is provided for the Debentures.
EVENTS OF DEFAULT AND DEFAULTS
The Indenture defines an Event of Default with respect to the Debentures as
being certain events involving the bankruptcy, insolvency or reorganization of
the Company. (Section 501) If any Event of Default with respect to the
Debentures at the time Outstanding occurs and is continuing, either the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Debentures may declare the principal amount of the Debentures to
be due and payable immediately (provided that no such declaration is required
upon certain events of
47
<PAGE>
bankruptcy), but upon certain conditions such declaration may be annulled and
past defaults (except, unless theretofore cured, a default in payment of
principal of (or premium, if any), or interest on the Debentures and certain
other specified defaults) may be waived by the Holders of a majority in
principal amount of the Outstanding Debentures on behalf of the Holders of all
Debentures. (Sections 502 and 513)
The Indenture does not provide for any right of acceleration of the payment
of principal of the Debentures upon a default in the payment of principal or
interest or in the performance of any covenant or agreement in the Debentures
or in the Indenture. The Indenture defines a Default with respect to the
Debentures as any one of the following events: (A) an Event of Default; (B)
default for 30 days in payment of interest on any Debenture; (C) default in
payment of principal of (or premium, if any), on any Debenture at Maturity;
(D) failure by the Company for 60 days after due notice in performance or the
breach of any covenant or warranty in the Indenture or any Debenture; and (E)
(i) failure by the Company or the Bank to pay indebtedness for money borrowed
(including the Debentures) in an aggregate principal amount exceeding $500,000
at the later of final maturity or upon the expiration of any applicable period
of grace with respect to such principal amount; (ii) acceleration of the
maturity of any indebtedness of the Company or the Bank for borrowed money in
excess of $500,000, if such failure to pay or acceleration results from a
default under the instrument giving rise to, or securing, such indebtedness
and is not annulled within 30 days after due notice, unless such default is
contested in good faith by appropriate proceedings. In case a Default shall
occur and be continuing, the Trustee may in its discretion proceed to protect
and enforce its rights and the rights of the Holders by appropriate judicial
proceeding as the Trustee deems most effectual. (Section 503)
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default with respect to the Debentures at the time
Outstanding, give to the Holders of the Outstanding Debentures notice of such
default known to it if uncured or not waived, provided that, except in the
case of default in the payment of principal of (or premium, if any), or
interest on any Debenture, the Trustee will be protected in withholding such
notice if the Trustee in good faith determines that the withholding of such
notice is in the interest of the Holders of the Outstanding Debentures; and,
provided further, that such notice shall not be given until 60 days after the
occurrence of a default with respect to the Debentures in the performance or
breach of a covenant in the Indenture other than for the payment of the
principal of (or premium, if any), or interest on any Debentures of such
series. The term "default" with respect to the Debentures for the purpose only
of the provision described in this paragraph means the happening of any of the
Events of Default or Defaults. (Section 602)
The Indenture provides that, subject to the duty of the Trustee during
default to act with the required standard of care, the Trustee will not be
under an obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless such
Holders shall have offered to the Trustee reasonable security or indemnity.
(Sections 601 and 603) The Indenture provides that the Holders of a majority
in principal amount of Outstanding Debentures may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or other power conferred on the Trustee, provided that
the Trustee may decline to act if such direction is contrary to law or the
Indenture and may take any other action deemed proper which is not
inconsistent with such directions. (Section 512)
The Indenture includes a covenant that the Company will file annually with
the Trustee a certificate of no default, or specifying any default that
exists. (Section 1004)
MODIFICATION OF THE INDENTURE
Modifications to and amendments of the Indenture may be made by the Company
and the Trustee, only with the consent of the Holders of 66 2/3% in aggregate
principal amount of the Outstanding Debentures, by executing supplemental
indentures adding any provisions to or changing or eliminating any of the
provisions of the Indenture or modifying the rights of the Holders of
Debentures, except that no such supplemental indenture may, (a) change the
Stated Maturity of the principal of, or any installment of interest on, any
Debenture; (b) reduce the principal amount of, or any premium or the rate of
interest on, any Debenture; (c) change the place or currency of payment of
principal of (or premium, if any) or interest on, any Debenture; (d) impair
the
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<PAGE>
right to institute suit for the enforcement of any payment on or with respect
to any Debenture; (e) reduce the percentage in principal amount of Debentures,
the consent of the Holders of which is required for modification or amendment
of the Indenture, for waiver of compliance with certain provisions of the
Indenture or for waiver of certain covenant defaults; (f) modify the
provisions of the Indenture relating to modification and amendment of the
Indenture; (g) adversely affect the right to convert Debentures or (h) modify
the subordination provisions in a manner adverse to the Holders of Debentures.
The Indenture provides, however, that each of the amendments and modifications
listed in clauses (a) through (h) above may be made with the consent of the
Holder of each Outstanding Debenture affected thereby. (Sections 901, 902 and
907)
The Holders of 66 2/3% in aggregate principal amount of the Outstanding
Debentures may waive compliance by the Company with certain restrictive
provisions of the Indenture. (Section 1007) The Holders of a majority in
aggregate principal amount of the Outstanding Debentures may waive any past
default under the Indenture, except a default in the payment of principal,
premium or interest. (Section 513)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of the Holders of any of the Debentures,
may consolidate with or merge into any other Person or convey, transfer or
lease its assets substantially as an entirety to any Person, or permit any
Person to consolidate with or merge into the Company or convey, transfer or
lease the properties substantially as an entirety to the Company, provided
that, (i) if applicable, the successor is a Person, organized under the laws
of any domestic jurisdiction; (ii) the successor Person, if other than the
Company, assumes the Company's obligations on the Debentures and under the
Indenture; (iii) after giving effect to the transaction no Event of Default or
Default, and no event which, after notice or lapse of time, would become an
Event of Default or Default shall have occurred and be continuing; and (iv)
certain other conditions are met. (Section 801) Upon any consolidation or
merger into any other Person or any conveyance, transfer or lease of the
Company's assets substantially as an entirety to any Person, the successor
Person shall succeed to, and be substituted for, the Company under the
Indenture, and the Company, except in the case of a lease, shall be relieved
of all obligations and covenants under the Indenture and the Debentures to the
extent it was the predecessor Person.
OUTSTANDING DEBENTURES
The Indenture provides that, in determining whether the Holders of the
requisite principal amount of Outstanding Debentures have given any request,
demand, authorization, direction, notice, consent or waiver under the
Indenture. Debentures owned by the Company or any of its Affiliates shall not
be deemed to be Outstanding. (Section 101)
CONCERNING THE TRUSTEE
In the ordinary course of business, the Company may maintain deposits with,
and from time to time may borrow from, the Trustee.
REPORTS TO HOLDERS
The Company intends to furnish to Holders of Debentures all quarterly and
annual reports which it sends to holders of its Common Stock.
BOOK-ENTRY
The Debentures will be issued in the form of the Global Debenture deposited
with, or on behalf of, DTC and registered in the name of Cede & Co. as DTC's
partnership nominee. Owners of beneficial interests in the Debentures
represented by the Global Debenture will hold such interests pursuant to the
procedures and practices of DTC and must exercise any rights in respect of
their interests (including any right to convert) in accordance with those
procedures and practices. Such beneficial owners will not be Holders, and will
not be entitled to any
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rights under the Global Debenture or the Indenture, with respect to the Global
Debenture, and the Company and the Trustee, and any of their respective
agents, may treat DTC as the sole Holder and owner of the Global Debenture.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the Debentures represented by
a Global Debenture.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking 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. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
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 ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, the American Stock Exchange and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its participants are on file with the Commission.
Purchases of Debentures under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Debentures on DTC's
records. The ownership interest of each actual purchaser of Debentures
("Beneficial Owner") is in turn to be recorded on the Direct or Indirect
Participant's records. Beneficial Owners will not receive written confirmation
from DTC 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 entered into the transaction.
Transfers of ownership interests in the 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 the Debentures, except in the event that the use of the
book-entry system for the Debentures is discontinued.
To facilitate subsequent transfers, all Debentures deposited by Participants
with DTC are registered in the name of DTC's partnership nominee, Cede & Co.
The deposit of Debentures with DTC and their registration in the name of Cede
& Co. effect no change in beneficial ownership. DTC has no knowledge of the
actual Beneficial Owners of the Debentures; DTC's records reflect only the
identity of the Direct Participants to whose accounts such 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 DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to 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 with respect to the Debentures shall be sent to Cede &
Co. If less than all of the Debentures are being redeemed, DTC's practice is
to determine by lot the amount of the interest of each Direct Participant in
such securities to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Debentures. Under its usual procedures, DTC mails an "Omnibus Proxy" to the
Company 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 the Debentures are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
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Principal, premium, if any, and interest payments on the Debentures will be
made to DTC. DTC's practice is to credit Direct Participants' accounts on the
relevant payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive
payments on such payable date. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices, as is the
case with securities held for the account of customers in bearer form or
registered in "street name," and will be the responsibility of such
Participant and not of DTC or the Company, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal, premium, if any, and interest to DTC is the responsibility of the
Company, disbursement of such payments to Direct Participants is the
responsibility of DTC and disbursement of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
A Beneficial Owner shall give notice to elect to have its Debentures
purchased or tendered, through its Participant, to the Trustee, and shall
effect delivery of such Debentures by causing the Direct Participant to
transfer the Participant's interest in the Global Debenture representing such
Debentures, on DTC's records, to the Trustee. The requirement for physical
delivery of tender or a mandatory purchase will be deemed satisfied when the
Debentures in connection with a demand for repayment, an optional ownership
rights in the Global Debenture representing such Debentures are transferred by
Direct Participants on DTC's records and followed by a book-entry credit of
tendered Debentures to the Trustee's account.
Except as provided herein, a Beneficial Owner in a Global Debenture will not
be entitled to receive physical delivery of Debentures. Accordingly, each
Beneficial Owner must rely on the procedures of DTC to exercise any rights
under the Debentures.
DTC may discontinue providing its services as securities depositary with
respect to the Debentures at any time by giving reasonable notice to the
Company. Under such circumstances, in the event that a successor securities
depositary is not obtained, certificates representing the Debentures will be
printed and delivered. If the Company decides to discontinue use of the system
of book-entry transfers through DTC (or a successor depositary), certificates
representing the Debentures will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. The term "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.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which (i) national banking associations in the State of
Minnesota or (ii) banking institutions in Albuquerque, New Mexico are
authorized or obligated by law or executive order to close.
"Holder" means a Person in whose name a Debenture is registered in the
Security Register.
"Interest Payment Date" means the Stated Maturity of an instalment of
interest on the Debentures.
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"Maturity," when used with respect to any Debenture, means the date on which
the principal of such Debenture becomes due and payable as provided in such
Debenture or in the Indenture, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Other Financial Obligations" means all obligations of the Company to make
payments pursuant to the terms of financial instruments, such as (i)
securities contracts and foreign currency exchange contracts, (ii) derivative
instruments, such as swap agreements (including interest rate and foreign
exchange rate swap agreements), cap agreements, floor agreements, collar
agreements, interest rate agreements, foreign exchange rate agreements,
options, commodity futures contracts, commodity options contracts and (iii) in
the case of both (i) and (ii) above, similar financial instruments, other than
(A) obligations on account of Senior Indebtedness and (B) obligations on
account of indebtedness for money borrowed ranking pari passu with or
subordinate to the Debentures. "Entitled Persons" means any person who is
entitled to payment pursuant to the terms of Other Financial Obligations.
"Outstanding," when used with respect to Debentures, means, as of the date
of determination, all Debentures theretofore authenticated and delivered under
the Indenture, except:
(i) Debentures theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Debentures for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Debentures; provided that, if such Debentures are to be
redeemed, notice of such redemption has been duly given pursuant to the
Indenture or provision therefor satisfactory to the Trustee has been made;
and
(iii) Debentures which have been paid pursuant to Section 306 of the
Indenture or in exchange for or in lieu of which other Debentures have been
authenticated and delivered pursuant to the Indenture, other than any such
Debentures in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such Debentures are held by a bona
fide purchaser in whose hands such Debentures are valid obligations of the
Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Debentures have given any request, demand,
authorization, direction, notice, consent or waiver under the Indenture,
Debentures owned by the Company or any other obligor upon the Debentures or
any Affiliate of the Company or of such other obligor shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Debentures which the Trustee knows
to be so owned shall be so disregarded. Debentures so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Debentures and that the pledgee is not the Company or any
other obligor upon the Debentures or any Affiliate of the Company or of such
other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Debentures on behalf of
the Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Redemption Date," when used with respect to any Debenture to be redeemed,
means the date fixed for such redemption by or pursuant to the Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
means the or (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date.
"Security Register" means the register provided by the Company pursuant to
Section 305 of the Indenture for the registration of Debentures and of
transfers of Debentures.
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"Senior Indebtedness" is defined in the Indenture as (a) the principal of
(and premium, if any), and interest on all indebtedness of the Company for
money borrowed, whether outstanding on the date of execution of the Indenture
or thereafter created, assumed or incurred, except (i) such indebtedness as is
by its terms expressly stated to be junior in right of payment to the
Debentures and (ii) such indebtedness as is by its terms expressly stated to
rank pari passu with the Debentures and (b) any deferrals, renewals or
extensions of any such Senior Indebtedness. (Section 101) The term
"indebtedness for money borrowed" when used with respect to the Company is
defined to mean any obligation of, or any obligation guaranteed by, the
Company for the repayment of borrowed money, whether or not evidenced by
bonds, debentures, notes or other written instruments, and any deferred
obligation of, or any such obligation guaranteed by, the Company for the
payment of the purchase price of property or assets. (Section 101)
"Stated Maturity," when used with respect to any Debenture or any instalment
of interest thereon, means the date specified in such Debenture as the fixed
date on which the principal of such Debenture or such instalment of interest
is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
The term "voting stock" means stock which ordinarily has voting power for the
election of directors, whether at all times or only so long as no senior class
of stock has such voting power by reason of any contingency.
DESCRIPTION OF CAPITAL STOCK
The following summary description of the Company's capital stock does not
purport to be complete and is subject to the more detailed provisions of the
Company's Articles and Bylaws and is qualified in its entirety by reference
thereto.
The authorized capital stock of the Company consists of 4,000,000 shares of
Common Stock, no par value, and 1,000,000 shares of preferred stock (the
"Preferred Stock"). As of March 31, 1997, the Company had 2,227,332 shares of
Common Stock issued and outstanding, and no shares of Preferred Stock were
outstanding. At the Company's 1997 Annual Meeting of Shareholders the
stockholders will be presented with a proposal to increase the number of
authorized shares of Common Stock to 20,000,000.
COMMON STOCK
Voting. The holders of Common Stock currently possess exclusive voting
rights in the Company. Shares of Preferred Stock issued in the future may be
granted voting rights at the discretion of the Board of Directors. On matters
submitted to the stockholders of the Company, the holders of the Common Stock
will be entitled to one vote for each share held. No shares have cumulative
voting rights.
Dividends. Holders of shares of Common Stock are entitled to receive any
dividends declared by the Board of Directors out of funds legally available
therefor. The ability of the Company to pay cash dividends is subject to the
ability of First State Bank to pay dividends or make other distributions to
the Company, which in turn is subject to limitations imposed by law and
regulation. See "Regulation and Supervision."
Liquidation Rights. In the event of any liquidation or dissolution of the
Company, all assets of the Company legally available for distribution after
payment or provision for payment of (i) all debts and liabilities of the
Company, (ii) any accrued dividend claims and (iii) liquidation preferences of
any outstanding Preferred Stock, and will be distributed ratably, in cash or
in kind, among the holders of Common Stock.
Common Stock Purchase Rights. On October 25, 1996, the Board of Directors
declared a dividend paid on December 18, 1996, of one right (a "Right") for
each outstanding share of Common Stock of the Company held of record at the
close of business on November 20, 1996 (the "Record Date"), or issued
thereafter and
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before the Separation Time (as hereinafter defined) and thereafter pursuant to
options and convertible securities outstanding at the Separation Time. The
Rights were issued pursuant to a Shareholder Protection Rights Agreement,
dated as of October 25, 1996 (the "Rights Agreement"), between the Company and
American Securities Transfer & Trust, Inc., as Rights Agent. Each Right
entitles its registered holder to purchase from the Company, after the
Separation Time, one share of Common Stock for $45 (the "Exercise Price"),
subject to adjustment.
The Rights will be evidenced by the Common Stock certificates until the
close of business on the earlier of either (the "Separation Time"):
(1) the tenth business day after any Person (as defined in the Rights
Agreement) commences a tender or an exchange offer which, if consummated,
would result in such Person's becoming an Acquiring Person, as defined
below (or a later date as the Board of Directors of the Company may fix by
resolution adopted before the Separation Time that would otherwise have
occurred); or
(2) the tenth business day after the first date (the "Flip-in Date") of a
public announcement by the Company or any Person that such Person has
become an Acquiring Person, other than as a result of a Flip-over
Transaction or Event, as defined below (or such earlier or later date, not
beyond the thirtieth day after such acquisition, as the Board of Directors
of the Company may fix by resolution adopted before the Flip-in Date that
would otherwise have occurred);
provided, that if a tender or an exchange offer referred to in clause (1) is
canceled, terminated or otherwise withdrawn before the Separation Time without
the purchase of any shares of Common Stock pursuant thereto, such offer shall
be deemed never to have been made.
For purposes of the Rights Agreement, an Acquiring Person is any Person
having Beneficial Ownership (as defined in the Rights Agreement) of 10% or
more of the outstanding shares of Common Stock, other than:
(1) the Company, any wholly owned subsidiary of the Company or any
employee stock ownership or other employee benefit plan of the Company;
(2) any Person who becomes the Beneficial Owner of 10% or more of the
outstanding Common Stock solely through the Company's acquisition of Common
Stock, until the Person becomes the Beneficial Owner (other than through a
dividend or stock split) of any additional shares of Common Stock;
(3) any Person who becomes the Beneficial Owner of 10% or more of the
outstanding Common Stock without any plan or intent to seek or affect
control of the Company if the Person promptly enters into an irrevocable
commitment promptly to divest, and thereafter promptly divests, sufficient
securities so that such 10% or greater of Beneficial Ownership ceases; or
(4) any Person who Beneficially owns shares of Common Stock consisting
solely of (A) shares acquired pursuant to the grant or exercise of an
option granted by the Company in connection with an agreement to merge
with, or acquire, the Company entered into before a Flip-in Date; (B)
shares owned by the Person and its affiliates and associates at the time of
such grant; (C) shares, amounting to less than 1% of the outstanding Common
Stock, acquired by affiliates and associates of the Person after such
grant; and (D) shares held by the Person in trust accounts, managed
accounts and the like or otherwise held in a fiduciary capacity, that are
beneficially owned by third persons who are not affiliates or associates of
the Person or acting together with the Person to hold such shares, or which
are held by the Person in respect of a debt previously contracted.
The Rights Agreement provides that, until the Separation Time, the Rights
will be transferred only with the Common Stock. Common Stock certificates
issued after the Record Date but before the Separation Time shall evidence one
Right for each share of Common Stock represented thereby and shall contain a
legend incorporating by reference the terms of the Rights Agreement (as
amended from time to time). Notwithstanding the absence of the legend,
certificates evidencing shares of Common Stock outstanding at the Record Date
shall also evidence one Right for each share of Common Stock evidenced
thereby. Promptly following the Separation Time, separate
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certificates evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of Common Stock at the Separation Time.
The Rights will be exercisable on the first Business Day (as defined in the
Rights Agreement) following the Separation Time. The Rights will expire on the
earliest of (1) the Exchange Time (as defined below); (2) the close of
business on October 25, 2006; (3) the date on which the Rights are redeemed as
described below; or (4) upon the merger of the Company into another
corporation pursuant to an agreement entered into before the Flip-in Date (in
any such case, the "Expiration Time").
The Exercise Price and the number of Rights outstanding, or in certain
circumstances the securities purchasable upon exercise of the Rights, are
subject to adjustment from time to time to prevent dilution in the event of a
Common Stock dividend on, or a division or a combination into a smaller number
of shares of, Common Stock, or the issuance or distribution of any securities
or assets in respect of, in lieu of, or in exchange for Common Stock.
If before the Expiration Time a Flip-in Date occurs, the Company shall take
any necessary action to ensure and provide that each Right (other than Rights
beneficially owned by the Acquiring Person or any affiliate or associate
thereof or any transferee of any of the foregoing, which Rights shall become
void) shall constitute the right to purchase from the Company, upon the
exercise thereof in accordance with the Rights Agreement, that number of
shares of Common Stock having an aggregate Market Price (as defined in the
Rights Agreement), on the date of the public announcement of an Acquiring
Person's becoming such (the "Stock Acquisition Date") that gave rise to the
Flip-in Date, equal to twice the Exercise Price for an amount in cash equal to
the then-current Exercise Price. In addition, the Board of Directors of the
Company may, at its option, at any time on and after a Flip-in Date and before
an Acquiring Person becomes the Beneficial Owner of more than 50% of the
outstanding shares of Common Stock, elect to exchange all (but not less than
all) of the then-outstanding Rights (other than Rights beneficially owned by
the Acquiring Person or any affiliate or associate thereof, which Rights
become void) for shares of Common Stock at an exchange ratio of one share of
Common Stock per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the Separation Time (the
"Exchange Ratio"). Immediately upon such action by the Board of Directors (the
"Exchange Time"), the right to exercise the Rights will terminate, and each
Right will thereafter represent only the right to receive a number of shares
of Common Stock equal to the Exchange Ratio.
Before the Expiration Time, the Company may not enter into, consummate or
permit to occur a transaction or series of transactions after a Flip-in Date
(each, a "Flip-over Transaction or Event") in which, directly or indirectly:
(1) the Company consolidates or merges or participates in a binding share
exchange with any other Person if, at the time of the consolidation, merger
or share exchange or when the Company enters into an agreement with respect
to such consolidation, merger or share exchange, the Acquiring Person
controls the Board of Directors of the Company and either (a) any term of
or arrangement concerning the treatment of shares of capital stock in such
merger, consolidation or share exchange relating to the Acquiring Person is
not identical to the terms and arrangements relating to other holders of
Common Stock or (b) the person with whom the transaction or series of
transactions occurs is the Acquiring Person or an affiliate or associate of
the Acquiring Person, or
(2) the Company sells or otherwise transfers (or one or more of its
subsidiaries sells or otherwise transfers) assets (a) aggregating more than
50% of the assets (measured by either book value or fair market value) or
(b) generating more than 50% of the operating income or cash flow of the
Company and its subsidiaries (taken as a whole) to any other Person (other
than the Company or one or more of its wholly owned subsidiaries) or to two
or more such Persons which are affiliated or otherwise acting in concert,
if, at the time of the sale or transfer of assets or when the Company (or
any subsidiary) enters into an agreement with respect to the sale or
transfer, the Acquiring Person controls the Board of Directors of the
Company;
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in each case until it has entered into a supplemental agreement with the
Person engaging in the Flip-over Transaction or Event or the parent
corporation thereof (the "Flip-over Entity"), for the benefit of the holders
of the Rights, providing that upon consummation or occurrence of the Flip-over
Transaction or Event (i) each Right shall thereafter constitute the right to
purchase from the Flip-over Entity, upon exercise thereof in accordance with
the Rights Agreement, that number of shares of common stock of the Flip-over
Entity having an aggregate Market Price on the date of consummation or
occurrence of such Flip-over Transaction or Event equal to twice the Exercise
Price for an amount in cash equal to the then-current Exercise Price and (ii)
the Flip-over Entity shall thereafter be liable for, and shall assume, by
virtue of the Flip-over Transaction or Event and the supplemental agreement,
all obligations and duties of the Company pursuant to the Rights Agreement. An
Acquiring Person shall be deemed to control the Company's Board of Directors
when, following a Flip-in Date, the persons who were directors of the Company
before the Flip-in Date cease to constitute a majority of the Company's Board
of Directors. For purposes of the foregoing description, the term "Acquiring
Person" shall include any Acquiring Person and its affiliates and associates
counted together as a single Person.
The Board of Directors of the Company may, at its option, at any time before
the close of business on the Flip-in Date, redeem all (but not less than all)
of the then-outstanding Rights at $0.01 per Right (the "Redemption Price"), as
provided in the Rights Agreement. Immediately upon the action of the Board of
Directors of the Company electing to redeem the Rights, without any further
action and without any notice, the right to exercise the Rights will
terminate, and each Right will thereafter represent only the right to receive
the Redemption Price in cash or securities, as determined by the Board of
Directors of the Company.
The holders of Rights will, solely by reason of their ownership of Rights,
have no rights as stockholders of the Company, including, without limitation,
the right to vote or to receive dividends.
The Rights Agreement is designed to protect stockholders in the event of an
unsolicited attempt to acquire the Company for an inadequate price and to
protect against abusive practices that do not treat all stockholders equally,
such as, among others, partial and two-tier tender offers, coercive offers and
creeping stock accumulation programs. These practices can pressure
stockholders into tendering their Common Stock before realizing the full value
or total potential of the investments. The Rights Agreement is intended to
make the cost of abusive practices prohibitive and create an incentive for a
potential acquirer to negotiate in good faith with the Company's Board of
Directors. The Rights Agreement is not intended to, and will not, prevent all
unsolicited offers to acquire the Company. If an unsolicited offer is made,
and the Board of Directors determines that it is fair and in the best interest
of the Company and its stockholders, then, pursuant to the Rights Agreement,
the Board of Directors has the authority to redeem the Rights and permit the
offer to proceed. Essentially, the Rights Agreement will allow the Board of
Directors to evaluate the fairness of any unsolicited offer and the
credibility of the bidder, and will therefore enable the Board of Directors to
represent the interests of all stockholders more effectively. Of course, in
deciding whether to redeem the Rights in connection with any unsolicited
offer, the Board of Directors will be bound by its fiduciary obligations to
act in the best interests of the Company and its stockholders.
Other Characteristics. The Common Stock is not entitled to any preemptive
right to subscribe for or receive any shares of any class of stock of the
Company (or any securities convertible into shares of stock of the Company)
issued in the future.
PREFERRED STOCK
In supplementary sections to the Articles, the Company may provide for one
or more classes of Preferred Stock, which must be separately identified. The
shares of any such class may be divided into and issued in series, with each
series separately designated to distinguish the shares thereof from the shares
of all other series and classes. The terms of each series shall be stated in a
supplementary section to the Company's Articles and may provide for, among
other things, board representation, voting rights and dividend and liquidation
preferences. All shares of the same class must be identical except as to
certain relative rights and preferences specified in the Articles, as to which
there may be variations between different series. The Preferred Stock could be
deemed to
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have an antitakeover effect in that, if a hostile takeover situation should
arise, shares of Preferred Stock could be issued to purchasers sympathetic
with the Company's management or others in such a way as to render more
difficult or to discourage a merger, tender offer, proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management.
The effects of the issuance of the Preferred Stock on the holders of Common
Stock could include, among other things, (i) reduction of the amount otherwise
available for payments of dividends on Common Stock if dividends are payable
on the series of Preferred Stock; (ii) restrictions on dividends on Common
Stock if dividends on the series of Preferred Stock are in arrears; (iii)
dilution of the voting power of Common Stock if the series of Preferred Stock
has voting rights, including a possible "veto" power if the series of
Preferred Stock has class voting rights; (iv) dilution of the equity interest
of holders of Common Stock if the series of Preferred Stock is convertible,
and is converted, into Common Stock and (v) restrictions on the rights of
holders of Common Stock to share in the Company's assets upon liquidation
until satisfaction of any liquidation preference granted to the holders of the
series of Preferred Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Rights Agreement and certain provisions of the Company's
Articles could make more difficult the acquisition of the Company by means of
a tender offer, a proxy contest or otherwise and the removal of incumbent
officers and directors. These are intended to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of the Company to negotiate first with the
Company.
The following discussion is a summary of certain material provisions of the
Company's Articles, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part, which could have anti-takeover
effects.
Classified Board of Directors. Under the Articles, the Board of Directors is
classified into three classes, with the directors being elected for staggered,
three-year terms. The classification of the Company's Board of Directors will
have the effect of making it more difficult to change the composition of the
Board of Directors, because at least two annual meetings of the stockholders
would be required to change the control of the Board of Directors rather than
one. In addition, the Articles provide for the affirmative vote of two-thirds
of the outstanding Common Stock to remove directors without cause. The NMBCA
currently provides for a simple majority vote to remove directors, with or
without cause. This helps achieve the benefits of the classification since
stockholders holding a simple majority of Common Stock could not remove
without cause the two classes of directors not standing for election in a
particular year.
Advance Notice of Stockholder Proposals and Nominations. The Company's
Articles establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or bring other business
before a meeting of stockholders of the Company (the "Stockholder Notice
Procedure"). The Shareholder Notice Procedure provides that only persons who
are nominated by, or at the direction of, the Board, or by a stockholder who
has given timely written notice to the Secretary of the Company prior to the
meeting at which directors are to be elected, will be eligible for election as
directors of the Company and that, at an annual meeting, only such business
may be conducted as has been brought before the meeting by, or at the
direction of, the Board of Directors or by a stockholder who has given timely
written notice to the secretary of the Company of such stockholder's intention
to bring such business before such meeting.
Notice will be timely if the Secretary of the Company receives it not less
than 35 nor more than 50 days before the meeting, unless the Company has given
less than 45 days prior notice or public disclosure of the meeting, in which
case the stockholder will have until the 10th day after the Company gave
notice or made public disclosure of the meeting to give notice. In the case of
nominations for directors, the Articles further require that the stockholder's
notice set forth certain information concerning the stockholder and the
nominee. In the case of proposed business, the stockholder's notice shall
briefly describe the business and the reasons for considering it,
57
<PAGE>
state the stockholder's name and address, represent that the stockholder is
entitled to vote at the meeting and intends to appear in person or by proxy at
the meeting, and state any material interest of the stockholder in the
proposed business. The chairman of the meeting will have the power to receive
a notice relating to a stockholder nomination or a proposal for business and
will not accept nominations and proposals not made in accordance with these
procedures. This provision requires notices in addition to those currently
required by law to permit stockholders to make proposals at any meetings of
stockholders.
The advance notice requirements allow the Board of Directors to consider the
qualifications of the proposed nominees for the reasons for the proposed
business and, to the extent deemed necessary or desirable by the Board of
Directors, to inform stockholders about those qualifications or reasons.
Although these provisions do not give the Board of Directors any power to
approve or disapprove stockholder nominations for election of directors or
proposals for other business, they may have the effect of precluding a contest
for the election of directors or proposals for other business if the
procedures set forth in the Articles are not followed and may discourage or
deter a third party from conducting a solicitation of proxies to elect its own
slate of directors or to propose other business, without regard to whether
this might be harmful or beneficial to the Company and its stockholders.
Super-Majority Vote. The Articles require the affirmative vote of 66.6% of
the outstanding shares of the Company entitled to vote on the merger,
consolidation, sale, lease or exchange of all or substantially all of the
assets of the Company if the offeror or any affiliate of the offeror owns of
record, or owns beneficially, directly or indirectly, more than 10% of any
class of equity security of the Company.
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Company has agreed to sell to each of the
Underwriters named below, for whom Keefe, Bruyette & Woods, Inc. is acting as
representative (the "Representative"), and each Underwriter has severally
agreed to purchase from the Company, the principal amount of Debentures set
forth opposite its name below.
<TABLE>
<CAPTION>
UNDERWRITER
OF DEBENTURES PRINCIPAL AMOUNT
------------- ----------------
<S> <C>
Keefe, Bruyette & Woods, Inc.................................. $
-----
Total..................................................... $
=====
</TABLE>
The Purchase Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent. The Underwriters are obligated to
take and pay for all of the Debentures offered hereby (other than those
covered by the over-allotment option described below) if any are taken.
The Company has been advised by the Representative that the Underwriters
propose to offer the Debentures to the public at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of % of the principal amount of the
Debentures. The Underwriters may allow and dealers may re-allow a concession
not excess of % of the principal amount of the Debentures to certain other
dealers. After the initial public offering, the offering price and other
selling terms may be changed by the Underwriters.
Pursuant to the Purchase Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days after the date of this
Prospectus, to purchase up to an additional $1,800,000 in aggregate principal
amount of Debentures at the public offering price, less the underwriting
discount set forth on the cover page of this Prospectus, solely to cover over-
allotments, if any.
The Company and each of its directors and executive officers have agreed not
to sell, offer to sell, grant an option for the sale of, or otherwise dispose
of, (i) any debt securities similar to the Debentures or (ii) any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock, for a
58
<PAGE>
period of 180 days after the date of this Prospectus without the prior written
consent of the Representative, subject to certain limited exceptions set forth
in the Purchase Agreement.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act or to contribute
to payments the Underwriters may be required to make in respect thereof. The
Company has agreed to reimburse the Representative for certain expenses and
legal fees related to the sale of the Debentures.
Until the distribution of the Debentures is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Debentures and the Common Stock. As an
exception to these rules, the Representative is permitted to engage in certain
transactions that stabilize the price of the Debentures and the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Debentures and the Common Stock.
If the Underwriters create a short position in the Debentures in connection
with the offering, i.e., if they sell a greater aggregate principal amount of
Debentures than is set forth on the cover page of this Prospectus, the
Representative may reduce that short position by purchasing Debentures in the
open market. The Representative may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The Representative may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Representative purchases
Debentures in the open market to reduce the Underwriters' short position or to
stabilize the price of the Debentures, it may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those Debentures as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Debentures or the
Common Stock. In addition, neither the Company nor any of the Underwriters
makes any representation that the Representative will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
The underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for, or purchase, the Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive
market maker generally may not exceed 30% of its average daily trading volume
in the Common Stock during a specified two month prior period, or 200 shares,
whichever is greater. A passive market maker must identify passive market
making bids as such on the Nasdaq electronic inter-dealer reporting system.
Passive market making may stabilize or maintain the market price of the Common
Stock and, consequently, the Debentures, above independent market levels.
Underwriters and dealers are not required to engage in passive market making
and may end passive market making activities at any time.
The Debentures are a new issue of securities with no established trading
market. No assurance can be given as to the liquidity of the trading market
for the Debentures.
The Company intends to file an application for the approval of the
Debentures for quotation on The Nasdaq SmallCap Market.
59
<PAGE>
LEGAL MATTERS
The validity of the Debentures and Common Stock offered hereby will be
passed upon by Hinkle, Cox, Eaton, Coffield & Hensley, L.L.P., 1700 Bank One
Center, Amarillo, Texas 79101, counsel to the Company. Certain legal matters
with respect to the Debentures have been passed upon for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Underwriters.
EXPERTS
The consolidated financial statements of First State Bancorporation as of
December 31, 1996, and 1995, and for each of the years in the three year
period ended December 31, 1996 have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing. The report
of KPMG Peat Marwick LLP covering the December 31, 1996 financial statements
refers to a change in the method of accounting for investment securities.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Suite
1400, 500 West Madison Street, Chicago, Illinois 60661, and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C 20549, at prescribed rates. The Company's Common
Stock is traded on The Nasdaq Stock Market's National Market. Reports and
other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-2 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement"), of which this Prospectus is a part, under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities covered by this Prospectus. This Prospectus does not contain all
the information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. In addition, certain documents filed by the Company with the
Commission have been incorporated in this Prospectus by reference. See
"Incorporation of Certain Documents by Reference." For further information
with respect to the Company and the Debentures, reference is made to the
Registration Statement, including the exhibits thereto and the documents
incorporated herein by reference. The Registration Statement may be inspected
without charge at the principal office of the Commission in Washington, D.C.,
and copies of all or part of it may be obtained from the Commission upon
payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-KSB for the year ended December 31,
1996, previously filed with the Commission (File No. 22-25144), is hereby
incorporated in this Prospectus by reference and made a part hereof.
Financial and other information included in the reports incorporated by
reference herein does not reflect stock splits or dividends declared after the
respective dates of the reports, except as indicated in such reports.
60
<PAGE>
Any statement contained in a document all or a portion of which is
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 shall not be deemed to
constitute a part of this Prospectus except as so modified, and any statement
so superseded shall not be deemed to constitute part of this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, on his or her written or oral request, a copy of any
or all of the documents incorporated or deemed to be incorporated herein by
reference, other than certain exhibits to such documents. Written requests
should be directed to First State Bancorporation, 111 Lomas Avenue, N.W.,
Albuquerque, New Mexico 87102, Attention: Secretary; telephone (505) 241-7500.
61
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1996, and 1995............ F-3
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1995, and 1994.................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995, and 1994....................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995, and 1994.................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
First State Bancorporation:
We have audited the accompanying consolidated balance sheets of First State
Bancorporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentations. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
State Bancorporation and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years in
the three year period ended December 31, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 1(b) to the consolidated financial statements, the
Company changed its method of accounting for investment securities in 1994.
KPMG PEAT MARWICK LLP
Albuquerque, New Mexico
February 7, 1997
F-2
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks (note 2)..................... $ 15,711,932 $ 14,787,266
Federal funds sold................................... -- --
------------ ------------
Total cash and cash equivalents................ 15,711,932 14,787,266
Investment securities (note 3):
Available for sale (at market, amortized cost of
$20,979,000 and $17,329,000 at December 31, 1996
and 1995)......................................... 21,048,140 17,504,265
Held to maturity (at amortized cost, market of
$19,597,000 and $21,345,000 at December 31, 1996
and 1995)......................................... 19,547,433 21,171,746
------------ ------------
Total Investment Securities.................... 40,595,573 38,676,011
Loans and leases net of unearned interest (note 4)... 250,926,023 183,859,770
Less allowance for loan and lease losses............. 2,510,155 1,850,605
------------ ------------
Net loans and leases........................... 248,415,868 182,009,165
Premises and equipment, net (note 5)................. 13,558,835 11,652,018
Accrued interest receivable.......................... 2,001,678 1,959,569
Other real estate owned.............................. 1,362,494 678,373
Goodwill, less accumulated amortization of $713,926
and $609,719 at December 31, 1996 and 1995.......... 881,881 986,088
Other assets......................................... 2,440,184 2,232,070
------------ ------------
Total assets................................... $324,968,445 $252,980,560
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 6):
Noninterest-bearing.............................. $ 52,038,847 $ 42,026,645
Interest-bearing................................. 225,314,476 176,820,223
------------ ------------
Total deposits................................. 277,353,323 218,846,868
Securities sold under repurchase agreements (note
7)................................................ 13,928,515 8,913,474
Federal Home Loan Bank advances (note 7)........... 4,970,000 --
Federal funds purchased............................ 1,500,000 --
Other liabilities.................................. 2,159,976 1,808,207
Long-term debt (note 7)............................ 4,006,119 5,986,103
------------ ------------
Total liabilities.............................. 303,917,933 235,554,652
Stockholders' equity (note 10):
Preferred stock, no par value, 1,000,000 shares
authorized, none issued or outstanding............ -- --
Common stock, no par value, 4,000,000 shares
authorized, 2,172,357 and 1,962,067 issued and
outstanding at December 31, 1996 and 1995......... 11,906,581 9,864,598
Retained earnings.................................. 9,097,986 7,445,338
Unrealized gains on investment securities available
for sale, net of deferred income taxes (notes 1, 3
and 9)............................................ 45,945 115,972
------------ ------------
Total stockholders' equity..................... 21,050,512 17,425,908
Commitments and contingencies (note 12).............. -- --
------------ ------------
Total liabilities and stockholders' equity..... $324,968,445 $252,980,560
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans and leases.. $23,322,817 $18,261,973 $13,686,844
Interest on marketable securities:
Taxable.............................. 2,015,497 1,908,463 1,704,436
Nontaxable........................... 197,736 135,693 79,172
Federal funds sold..................... 145,246 386,619 153,087
----------- ----------- -----------
Total interest income................ 25,681,296 20,692,748 15,623,539
Interest expense:
Deposits............................... 8,375,055 6,415,153 4,021,900
Short-term borrowings.................. 855,443 533,903 155,018
Long-term debt and capital leases...... 386,120 436,395 489,562
----------- ----------- -----------
Total interest expense............... 9,616,618 7,385,451 4,666,480
----------- ----------- -----------
Net interest income.................. 16,064,678 13,307,297 10,957,059
Provision for loan and lease losses (note
4)...................................... 1,231,403 418,000 247,680
----------- ----------- -----------
Net interest income after provision
for loan and lease losses........... 14,833,275 12,889,297 10,709,379
----------- ----------- -----------
Other income (loss):
Service charges on deposit accounts.... 1,138,239 961,287 951,928
Other banking service fees............. 926,864 319,968 200,085
Loss from credit card processing
operation (note 15)................... -- (1,208,000) (158,000)
Gain (loss) on call or sale of
investment securities, net............ 10,156 (19,454) (3,753)
Other.................................. 859,258 421,336 556,369
----------- ----------- -----------
Total other income................... 2,934,517 475,137 1,546,629
----------- ----------- -----------
Other expenses:
Salaries and employee benefits......... 6,388,350 4,898,453 4,001,356
Occupancy.............................. 1,854,447 1,352,888 1,186,773
Data Processing........................ 698,228 202,965 199,338
Credit Card Interchange................ 504,179 -- --
Equipment.............................. 1,261,835 811,482 564,642
Legal, accounting and consulting....... 454,090 403,634 434,308
Marketing.............................. 636,704 568,964 377,247
Other real estate owned expenses....... 65,496 97,689 337,208
FDIC insurance premiums................ 2,000 199,169 359,220
Amortization of intangibles............ 185,286 182,836 222,942
Other.................................. 2,540,148 2,207,923 1,931,435
----------- ----------- -----------
Total other expenses................. 14,590,763 10,926,003 9,614,469
----------- ----------- -----------
Income before income taxes and minority
interest................................ 3,177,029 2,438,431 2,641,539
Income tax expense (note 9).............. 1,115,892 763,230 240,000
----------- ----------- -----------
Income before minority interest.......... 2,061,137 1,675,201 2,401,539
Minority interest in earnings of consoli-
dated subsidiaries...................... -- -- (10,478)
----------- ----------- -----------
Net income......................... $ 2,061,137 $ 1,675,201 $ 2,391,061
=========== =========== ===========
Earnings per share (note 1):
Earnings per common and common
equivalent share...................... $ 0.96 $ 0.82 $ 1.18
=========== =========== ===========
Earnings per common share--assuming
full dilution......................... $ 0.88 $ 0.77 $ 1.06
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
--------------------------------------------------------------
UNREALIZED
GAINS (LOSSES)
COMMON COMMON ON SECURITIES TOTAL
STOCK STOCK RETAINED AVAILABLE FOR STOCKHOLDERS'
SHARES AMOUNT EARNINGS SALE, NET EQUITY
--------- ----------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 1,962,067 $ 9,864,598 $3,807,193 -- $13,671,791
Net income............ -- -- 2,391,061 -- 2,391,061
Dividends ($.064 per
share)............... -- -- (125,572) -- (125,572)
Net unrealized
losses............... -- -- -- (163,544) (163,544)
--------- ----------- ---------- -------- -----------
Balance at December 31,
1994................... 1,962,067 9,864,598 6,072,682 (163,544) 15,773,736
Net income............ -- -- 1,675,201 -- 1,675,201
Dividends ($0.154 per
share)............... -- -- (302,545) -- (302,545)
Net change in market
value................ -- -- -- 279,516 279,516
--------- ----------- ---------- -------- -----------
Balance at December 31,
1995................... 1,962,067 9,864,598 7,445,338 115,972 17,425,908
Net Income............ -- -- 2,061,137 -- 2,061,137
Dividends ($0.20) per
share................ -- -- (408,489) -- (408,489)
Common shares issued
from exercise of
options (note 10).... 19,600 98,196 -- -- 98,196
Common shares issued
pursuant to
conversion of
subordinated
debentures (note 7).. 186,838 1,888,224 -- -- 1,888,224
Common shares issued
in employee benefit
plan................. 3,852 55,563 -- -- 55,563
Net change in market
value................ -- -- -- (70,027) (70,027)
--------- ----------- ---------- -------- -----------
Balance at December 31,
1996................... 2,172,357 $11,906,581 $9,097,986 $ 45,945 $21,050,512
========= =========== ========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income......................... $ 2,061,137 $ 1,675,201 $ 2,391,061
------------ ------------ ------------
Adjustments to reconcile net income
to cash provided by operating
activities:
Provision for loan and lease
losses............................ 1,231,403 418,000 247,680
Provision for decline in value of
other real estate owned........... 12,500 30,000 137,753
Depreciation and amortization...... 1,595,687 1,063,791 775,103
Net (gain) loss on call or sale of
investment securities............. (10,156) 19,454 3,753
Gain on sale of loans.............. -- -- (69,498)
Net loss on sale of premises and
equipment......................... -- -- 15,619
Loss from credit card processing
operation......................... -- 1,208,000 158,000
Net (gain) loss on sales of other
real estate owned................. 20,294 (45,403) 7,143
Minority interest in net income.... -- -- (80,531)
Increase in accrued interest
receivable........................ (557,115) (515,006) (370,641)
(Increase) decrease in other
assets, net....................... 62,334 (1,723,658) (491,767)
Increase in other liabilities,
net............................... 366,191 534,637 49,279
------------ ------------ ------------
Total adjustments................. 2,721,138 989,815 381,893
------------ ------------ ------------
Net cash provided by operating
activities....................... 4,782,275 2,665,016 2,772,954
------------ ------------ ------------
Cash flows from investing
activities:
Net increase in loans.............. (68,626,889) (33,537,346) (31,242,718)
Sales of loans..................... -- -- 3,102,622
Purchases of investment securities
carried at amortized cost......... (14,877,176) (20,049,734) (6,949,100)
Maturities of investment securities
carried at amortized cost......... 10,750,000 16,252,962 6,705,000
Purchases of investment securities
carried at market................. (6,243,339) (9,461,536) (3,461,561)
Maturities of investment securities
carried at market................. 7,890,000 3,026,790 638,166
Sales of investment securities
available for sale................ 500,156 4,095,844 1,278,145
Purchases of premises and
equipment......................... (5,803,732) (7,324,833) (3,660,522)
Sales of premises and equipment.... 2,537,649 -- --
Additions to other real estate
owned............................. (245,312) (244,770) (592,303)
Payments received on loans
classified as other real estate
owned............................. 1,518 265,082 333,663
Proceeds from sale of other real
estate owned...................... 555,156 237,556 592,540
------------ ------------ ------------
Net cash used in investing
activities....................... (73,561,969) (46,739,985) (33,256,068)
------------ ------------ ------------
Cash flows from financing
activities:
Net increase in interest-bearing
deposits.......................... 48,494,253 40,561,347 6,315,984
Net increase in noninterest-bearing
deposits.......................... 10,012,202 4,837,675 17,121,157
Net increase (decrease) in
securities sold under repurchase
agreements........................ 5,015,042 (551,583) 7,577,321
Common stock issued................ 153,759 -- --
Proceeds from Federal Home Loan
Bank borrowings................... 8,970,000 5,000,000 --
Payments on Federal Home Loan Bank
borrowings........................ (4,000,000) (5,000,000) --
Dividends paid..................... (408,489) (302,545) (125,572)
Proceeds from long-term debt....... -- 250,000 --
Payments on long-term debt......... (32,407) (126,896) (109,837)
Federal funds purchased, net....... 1,500,000 -- --
------------ ------------ ------------
Net cash provided by financing
activities....................... 69,704,360 44,667,998 30,779,053
------------ ------------ ------------
Increase in cash and cash
equivalents....................... 924,666 593,029 295,939
Cash and cash equivalents at
beginning of year.................. 14,787,266 14,194,237 13,898,298
------------ ------------ ------------
Cash and cash equivalents at end of
year............................... $ 15,711,932 $ 14,787,266 $ 14,194,237
============ ============ ============
Supplemental disclosure of
additional noncash investing and
financing activities:
Additions to other real estate
owned in settlement of loans...... $ 988,783 $ 203,420 $ 251,238
Additions to loans in settlement of
other real estate owned........... -- $ 425,219 $ 247,500
Issuance of common stock pursuant
to conversion of subordinated
debentures, net (note 7).......... $ 1,888,224 -- --
============ ============ ============
Supplemental disclosure of cash flow
information:
Cash paid for interest............. $ 9,426,618 $ 6,928,861 $ 4,524,416
============ ============ ============
Cash paid for income taxes......... $ 1,010,000 $ 925,000 $ 660,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization, Basis of Presentation and Principles of Consolidation
First State Bancorporation ("FSBC") is a New Mexico-based holding company
that is focused on New Mexico markets. In 1988, FSBC acquired First State Bank
of Taos ("FSBT"), a state chartered bank with locations in Taos, Albuquerque,
Santa Fe, Rio Rancho, Los Lunas, Bernalillo, Placitas, and Questa, New Mexico.
In December 1993, FSBC acquired First State Bank of Santa Fe ("the Santa Fe
Bank"), a state chartered bank located in Santa Fe, New Mexico. On June 5,
1994, the Santa Fe Bank was merged into FSBT. As a result of the merger, FSBC
purchased the interest of the minority stockholders of the Santa Fe Bank.
First State Bancorporation and its wholly owned subsidiary FSBT are
collectively referred to as the Company.
In November 1993, the Company completed a common stock and convertible
debenture offering. The proceeds received by the Company from the sale of the
common stock and the convertible debentures were principally used to purchase
the shares of the principal shareholders, Livingston & Company Southwest, L.P.
All significant intercompany accounts and transactions have been eliminated
in the consolidated financial statements.
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 and
lease losses and the valuation of real estate acquired in satisfaction of
loans. In connection with the determination of the allowances for loan and
lease losses and real estate owned, management obtains independent appraisals
for significant properties.
Management believes that the estimates and assumptions it uses to prepare
the financial statements, particularly as they relate to the allowances for
losses on loans and leases and real estate owned, are adequate. However,
future additions to these allowances may be necessary based on changes in
economic conditions. Further, regulatory agencies, as an integral part of
their examination process, periodically review the allowances for losses on
loans and leases and real estate owned and may require the Company to
recognize additions to these allowances based on their judgments about
information available to them at the time of their examinations.
The Company's results of operations depend on its net interest income. The
components of net interest income, interest income and interest expense, are
affected by general economic conditions and by competition in the marketplace.
Interest rate risk arises from volatile interest rates and changes in the
balance sheet mix. The Company maintains an asset/liability management policy
that provides guidelines for controlling exposure to interest rate risk. The
Company'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.
(b) Investment Securities
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115). FAS 115 requires that investment securities be
classified in one of three categories and accounted for as follows: (i) debt
securities that the Company has the positive intent and ability to hold to
maturity are classified as held to maturity and carried
F-7
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
at amortized cost; (ii) debt and equity securities that are bought and held
primarily for the purpose of selling them in the near term are classified as
trading securities and carried at fair value, with unrealized gains and losses
included in earnings; and (iii) debt and equity securities not classified as
either held to maturity securities or trading securities are classified as
available for sale securities. These are securities which the Company will
hold for an indefinite period of time and may be used as a part of the
Company's asset/liability management strategy and may be sold in response to
changes in interest rates, prepayments, or similar factors. Available for sale
securities are carried at estimated market value, with unrealized gains and
losses excluded from earnings and reported as a separate component of
stockholders' equity, net of related deferred income taxes. Upon purchase of
investment securities, management designates securities as either held to
maturity or available for sale. The Company does not maintain a trading
portfolio.
On November 15, 1995, the Financial Accounting Standards Board issued "A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities ("the Guide"). The Guide allowed the Company to
perform a one-time reassessment to determine the appropriateness of the
categories in which securities were designated.
On December 31, 1995, pursuant to the Guide, the Company reclassified
securities with an amortized cost of approximately $3,483,000, and an
approximate market value of $3,594,000 from held to maturity to available for
sale. In accordance with FAS 115, the unrealized appreciation, net of deferred
income taxes, was recorded as unrealized gains on investment securities as a
separate component of stockholders' equity. Sales of available for sale
securities are recognized using the specific identification method.
(c) Loans, Leases and Allowance for Loan and Lease Losses
Interest on loans is recognized as income based upon the daily principal
amount outstanding. Interest on nonaccrual loans is recognized as income when
payments are received. When a loan is placed on nonaccrual, any uncollected
interest accrued in the current year is charged against income, with prior
years' accruals charged to the allowance for loan and lease losses. Interest
accrued on loans is, in most instances, discontinued when a loan becomes 90
days past due and/or management believes the borrower's financial condition is
such that collection of future principal and interest payments is doubtful.
Loans are removed from nonaccrual status when they become current as to both
principal and interest and concern no longer exists as to the collectibility
of principal or interest.
Leases which meet the criteria to be classified as direct financing leases
are carried at the gross investment in the lease less unearned income.
Unearned income is recognized in a manner to produce a constant periodic rate
of return. The gross investment in the lease includes the minimum lease
payment due under the term of the lease, plus initial direct costs and the
estimated residual value of the collateral underlying the lease. Initial
direct costs are amortized using the level yield method. The value of
unguaranteed residuals are reviewed periodically and any necessary adjustments
are charged against operations. For leases which meet the operating lease
criteria, income is recognized as rental payments are earned. The equipment
leased under operating leases is carried as property and equipment at cost
less accumulated depreciation. Depreciation expense is calculated using the
straight-line method over the estimated useful life of the equipment,
generally five years.
The allowance for loan and lease losses is that amount which, in
management's judgment, is considered adequate to provide for potential losses
in the loan and lease portfolios. Management's determination of the allowance
for loan and lease losses is made with consideration of such factors as
delinquencies, changing collateral values, previous charge-off experience,
local and national economic conditions and other factors which, in
management's opinion, deserve current recognition in the allowance.
F-8
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
First State Bank's loan portfolio is concentrated in Albuquerque, Santa Fe,
Los Lunas, Rio Rancho and Taos, New Mexico. A significant portion of the loan
portfolio is secured by real estate in those communities. Accordingly, the
ultimate collectibility of First State Bank's loan portfolio is dependent upon
real estate values in those markets.
Loan origination fees and certain direct loan origination costs are deferred
and amortized to income over the contractual life of the loan using a method
that approximates the interest method. Any unamortized balance of the deferred
fees is recognized as income if the loans are sold, participated or repaid
prior to maturity.
The Company adopted Statement of Financial Accounting Standards No. 114 and
118, "Accounting by Creditors for Impairment of a Loan" (FAS 114 and 118) as
of January 1, 1995. The adoption of the standards did not have a significant
impact on the Company.
(d) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed by the straight-line
method over the estimated useful lives of the related assets.
(e) Intangible Assets
The excess of cost over the fair value of the net assets of acquired banks
is recorded as goodwill, which is amortized on a straight-line basis over a
period of 15 years. Core deposit intangibles are amortized over a 10-year
period using the straight-line method. At December 31, 1996 and 1995,
unamortized core deposit intangibles included in other assets in the
accompanying financial statements totaled $60,461 and $92,007, respectively.
The Company assesses the recoverability of goodwill and core-deposit
intangibles by determining whether the amortization of the intangibles over
their remaining lives can be recovered through projected undiscounted future
results of operations.
(f) Other Real Estate Owned
Other real estate owned consists of loan-related properties acquired through
foreclosure and by deed-in-lieu of foreclosure.
Other real estate owned is carried at the lower of the investment in the
related loan or fair value of the assets received. Fair value of such assets
is determined based on independent appraisals minus estimated costs of
disposition. Declines in value subsequent to acquisition are accounted for
within the allowance for other real estate owned. Provisions for losses
subsequent to acquisition, operating expenses and gain or losses from sales of
other real estate owned are charged or credited to other operating costs.
(g) Income Taxes
The Company files a consolidated tax return with its wholly owned
subsidiary. The Company uses the asset and liability method prescribed in the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (FAS 109). Under the asset and liability method, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-9
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(h) Statement of Cash Flows
For the purpose of reporting cash flows, cash and cash equivalents include
cash and due from banks and federal funds sold.
(i) Earnings per Common Share
Earnings per common and common equivalent share are computed by dividing net
income applicable to common stock by this total of the weighted average number
of common shares and the additional dilutive effect of stock options and
warrants outstanding during the period. The dilutive effect of outstanding
stock options and warrants is computed using the greater of the closing price
or the average market price of the Company's common stock for the period.
Earnings per common share, assuming full dilution, also include the dilution
which would result if the convertible debentures outstanding during the period
had been converted at the date of issuance in November 1993.
On November 20, 1995, the Company effected a 5-for-4 split of its common
stock. All references to number of shares and per-share computations in the
consolidated financial statements and notes have been retroactively restated
to reflect the common stock split. The number of shares used in the earnings
per-share computation are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Primary
Average common shares outstanding............... 2,026,428 1,962,067 1,962,067
Average common share equivalents................ 109,498 89,438 57,254
--------- --------- ---------
2,135,926 2,051,505 2,019,321
========= ========= =========
Fully diluted
Average common shares outstanding............... 2,026,428 1,962,067 1,962,067
Average common share equivalents:
Common stock options and warrants............. 136,351 97,752 57,254
Convertible debentures........................ 503,574 547,619 547,619
--------- --------- ---------
2,666,353 2,607,438 2,566,940
========= ========= =========
</TABLE>
(j) Stock Options
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees, and related
interpretations." As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123), which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant. Alternatively,
FAS 123 also allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in FAS 123 had been applied.
The Company has elected to continue to apply the provisions of APB Opinion No.
25. Had compensation cost for the Company's stock-based compensation plans
been determined consistent with FAS 123, the Company's net income and net
income per share for the year ended December 31, 1996, would have been
substantially the same as reported.
(k) Reclassifications
Certain 1995 balances have been reclassified to conform to the 1996
presentation.
F-10
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(l) Accounting Standards Issued but not yet Adopted
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" (FAS 125). FAS 125 is
effective for transfers and servicing of financial assets and extinguishments
of liabilities after December 31, 1996, and is to be applied prospectively.
This statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Management does not expect that
adoption of FAS 125 will have a material impact on the company's financial
position, results of operations, or liquidity.
2. CASH AND DUE FROM BANKS
First State Bank is required to maintain certain daily reserve balances on
hand in accordance with Federal Reserve Board requirements. The consolidated
reserve balances maintained in accordance with these requirements were
approximately $5,357,000 and $4,649,000 at December 31, 1996 and 1995,
respectively.
3. INVESTMENT SECURITIES
Following is a summary of amortized costs and approximate market values of
investment securities:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
As of December 31, 1996
Obligations of the U.S.
Treasury:
Available for sale........... $ 6,972,191 $ 39,662 $ 3,093 $ 7,008,760
Held to maturity............. 2,780,724 21,876 -- 2,802,600
Obligations of U.S. government
agencies:
Available for sale........... 12,463,885 60,400 27,355 12,496,930
Held to maturity............. 13,497,297 36,000 47,625 13,485,672
Obligations of states and
political subdivisions--
Held to maturity............. 3,269,412 39,810 547 3,308,675
Federal Home Loan Bank stock... 1,231,500 -- -- 1,231,500
Federal Reserve Bank stock..... 310,950 -- -- 310,950
----------- -------- ------- -----------
$40,525,959 $197,748 $78,620 $40,645,087
=========== ======== ======= ===========
As of December 31, 1995
Obligations of the U.S.
Treasury:
Available for sale........... $ 1,980,023 $ 16,910 $ 2,868 $ 1,994,065
Held to maturity............. 3,673,297 34,676 -- 3,707,973
Obligations of U.S. government
agencies:
Available for sale........... 14,461,975 168,375 6,700 14,623,650
Held to maturity............. 13,494,429 101,107 28,976 13,566,560
Obligations of states and
political subdivisions--
Held to maturity............. 4,004,020 68,871 2,429 4,070,462
Federal Home Loan Bank stock... 613,100 -- -- 613,100
Federal Reserve Bank stock..... 273,450 -- -- 273,450
----------- -------- ------- -----------
$38,500,294 $389,939 $40,973 $38,849,260
=========== ======== ======= ===========
</TABLE>
F-11
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and estimated market value of investment securities at
December 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
----------- -----------
<S> <C> <C>
Within one year:
Available for sale................................... -- --
Held to maturity..................................... $ 2,199,647 $ 2,200,596
One through five years:
Available for sale................................... 16,444,672 16,531,625
Held to maturity..................................... 15,058,414 15,079,550
Five through ten years:
Available for sale................................... 1,994,254 1,989,065
Held to maturity..................................... 1,099,372 1,121,782
After ten years:
Available for sale................................... 997,150 985,000
Held to maturity..................................... 1,190,000 1,195,019
Federal Reserve stock.................................. 310,950 310,950
Federal Home Loan Bank stock........................... 1,231,500 1,231,500
----------- -----------
Total.............................................. $40,525,959 $40,645,087
=========== ===========
</TABLE>
Marketable securities with an amortized cost of approximately $34,685,000
and $24,390,000 were pledged to collateralize deposits as required by law and
for other purposes at December 31, 1996 and 1995, respectively.
Proceeds from sales of investments in debt securities for the years ended
December 31, were $500,156 in 1996, $4,095,844 in 1995 and $1,278,146 in 1994.
Gross losses realized were zero in 1996, $26,997 in 1995 and $3,753 in 1994.
Gross gains realized were $156 in 1996, $7,543 in 1995 and zero in 1994.
4. LOANS AND LEASES
Following is a summary of loans and leases by major categories:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1996 1995
------------ ------------
<S> <C> <C>
Commercial........................................... $ 36,578,045 $ 23,204,781
Consumer and other................................... 13,238,944 10,091,600
Lease financing...................................... 16,658,963 --
Real estate--mortgage................................ 148,712,636 115,640,653
Real estate--construction............................ 35,737,435 34,922,736
------------ ------------
$250,926,023 $183,859,770
============ ============
</TABLE>
F-12
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease receivable under noncancellable leasing arrangements as
of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
DIRECT
FINANCING OPERATING
LEASES LEASES
----------- ----------
<S> <C> <C>
Years ending December 31:
1997................................................. $ 4,706,704 $ 911,387
1998................................................. 4,601,372 861,244
1999................................................. 3,883,109 790,927
2000................................................. 3,096,316 730,475
2001................................................. 1,640,355 584,894
Thereafter........................................... 704,408 --
----------- ----------
Net minimum future lease receipts...................... $18,632,264 $3,878,927
==========
Less unearned income................................... (3,595,644)
Unamortized initial indirect costs..................... 184,395
Estimated residual value............................... 1,437,948
-----------
Net investment in direct financing leases.............. $16,658,963
===========
</TABLE>
Following is a summary of changes to the allowance for loan and lease
losses:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year................ $1,850,605 $1,467,954 $1,441,437
Provision charged to operations............. 1,231,403 418,000 247,680
Loans charged off........................... (753,512) (345,459) (437,378)
Recoveries.................................. 181,659 310,110 216,215
---------- ---------- ----------
Balance at end of year...................... $2,510,155 $1,850,605 $1,467,954
========== ========== ==========
</TABLE>
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures," effective January 1, 1995. Prior periods
have not been restated. All loans have been evaluated for collectibility under
the provisions of these statements.
The recorded investment in loans for which an impairment has been recognized
were $1,057,802 at December 31, 1996, and $1,730,483 at December 31, 1995. The
average investment in loans for which impairment has been recognized was
$1,294,000 in 1996. The allowance for loan losses related to these loans were
zero at December 31, 1996 and $135,583 at December 31, 1995.
The allowance for impaired loans is included in the allowance for loan and
lease losses. Interest income of $18,293 was recognized on impaired loans
during 1996. No interest income was recognized on impaired loans during 1995.
Loans on which the accrual of interest has been discontinued amounted to
$946,408, $1,807,601 and $64,828 at December 31, 1996, 1995 and 1994,
respectively. If interest on such loans had been accrued, such income would
have been approximately $12,000 in 1996, $98,000 in 1995 and $800 in 1994.
Actual interest income on those loans, which is recorded only when received,
amounted to zero in 1996, 1995 and 1994.
F-13
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Activity during 1996 and 1995 regarding outstanding loans to certain
related-party loan customers of the subsidiary bank's (executive officers,
directors and principal shareholders of First State Bank including their
families and companies in which they are principal owners) was as follows:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Balance at beginning of year........................... $1,495,355 $ 2,779,317
Advances............................................... 858,845 3,133,028
Loans to parties no longer related..................... -- (1,833,955)
Repayments............................................. (408,081) (2,583,035)
---------- -----------
Balance at December 31................................. $1,946,119 $ 1,495,355
========== ===========
</TABLE>
5. PREMISES AND EQUIPMENT
Following is a summary of premises and equipment, at cost:
<TABLE>
<CAPTION>
ESTIMATED AS OF DECEMBER 31,
USEFUL ------------------------
LIFE (YEARS) 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Land................................... -- $ 1,389,490 $ 2,432,185
Building and leasehold improvements.... 15-30 7,267,468 8,706,747
Equipment.............................. 5 5,060,522 3,474,327
Equipment subject to operating lease
financing............................. 3-5 4,017,468 --
Assets under capital leases............ 5 78,781 78,781
----------- -----------
17,813,729 14,692,040
Less accumulated depreciation and
amortization.......................... (4,254,894) (3,040,022)
----------- -----------
$13,558,835 11,652,018
=========== ===========
</TABLE>
Depreciation and amortization expense on premises and equipment in 1996,
1995 and 1994 was $1,331,147, $822,344 and $670,897, respectively.
During 1996, the Company entered into two agreements for the sale and lease
back of two bank branch facilities totaling $2,563,500. The leases are
classified as operating leases in accordance with Statement of Financial
Accounting Standards No. 13 as amended. The net book value of the premises was
removed from the consolidated balance sheet and a gain of approximately
$13,000 was deferred and is being recognized as an adjustment to rent expense
over the term of the lease. The two leases have a lease term of fifteen years.
The minimum lease payments total $255,000 in 1997, $255,000 in 1998, $255,000
in 1999, $255,000 in 2000, $255,000 in 2001 and $2,420,000 thereafter. Rent
expense under these leases was $130,400 in 1996.
6. DEPOSITS
Following is a summary of interest-bearing deposits:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1996 1995
------------ ------------
<S> <C> <C>
Interest-bearing checking accounts................... $ 49,245,938 $ 49,289,474
Money market savings................................. 32,811,455 24,257,612
Regular savings...................................... 16,081,190 15,352,403
Time:
Denominations $100,000 and over.................... 52,751,491 28,732,839
Denominations under $100,000....................... 74,424,402 59,187,895
------------ ------------
$225,314,476 $176,820,223
============ ============
</TABLE>
F-14
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. BORROWINGS
Securities sold under agreement to repurchase
Securities sold under agreements to repurchase are comprised of customer
deposit agreements with overnight maturities. The obligations are not
federally insured but are collateralized by a security interest in U.S.
Treasury or U.S. government agency securities. These securities are segregated
and safekept by third-party banks. These securities had a market value of
$15,916,000 and $10,731,000, at December 31, 1996 and 1995, respectively.
Securities sold under agreement to repurchase are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Balance............................................. $ 13,928,515 $ 8,913,474
Weighted average interest rate...................... 5.34% 5.25%
Maximum amount outstanding at any month end......... 13,928,516 9,622,511
Average balance outstanding during the period....... 11,843,000 8,375,000
Weighted average interest rate during the period.... 4.74% 5.20%
</TABLE>
Subordinated Debentures
The convertible debentures issued November 10, 1993, had an outstanding
balance of $3,788,000 and $5,750,000 at December 31, 1996 and 1995,
respectively. Interest on the convertible debentures accrues from the date of
issuance and is payable semiannually on May 1 and November 1 of each year at a
rate of 7.00 percent per annum. The convertible debentures mature on November
10, 2003, subject to prior redemption or exchange. The convertible debentures
are subordinated to all present and future senior indebtedness. Only capital
stock of the Company (common or preferred) is junior to the convertible
debentures.
The convertible debentures may be redeemed at the option of the Company, in
whole or in part, at a redemption value of 101 percent of the outstanding
principal amount plus accrued interest. The redemption value decreases one
percent each succeeding November 1 until reaching 100 percent in 1997.
If necessary to meet regulatory capital requirements, the Company may
require the holders of the convertible debentures to exchange all of the
convertible debentures for convertible preferred stock at a rate of one share
of convertible preferred stock for each $25 in principal amount of convertible
debentures.
The holders of the convertible debentures are entitled at any time up to and
including November 1, 2003, subject to prior redemption or exchange, to
convert the principal amount into shares of common stock at a conversion price
of $10.50 per share subject to adjustment in certain events, including (i) the
issuance of capital stock of the Company as a dividend or distribution on the
common stock; (ii) subdivisions, combinations or reclassifications of the
common stock; (iii) the issuance to all holders of common stock of certain
rights or warrants entitling them to subscribe for common stock at a price per
share less than the then current market price; or (iv) the distribution to all
holders of common stock of assets or debt securities of the Company or rights
or warrants to purchase securities of the Company. In 1996, debentures
totaling $1,962,000 were converted into 186,838 shares of common stock.
Federal Home Loan Bank advances
First State Bank has a note payable to the Federal Home Loan Bank of Dallas
included in long-term debt, dated January 30, 1995, with an outstanding
balance of $218,119 and $236,103 at December 31, 1996, and 1995, respectively.
The note is payable in monthly installments of principal and interest at 8.26%
through February 1, 2005.
F-15
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
First State Bank has a Federal Home Loan Bank advance with a balance of
$4,000,000 at December 31, 1996. The advance has a final maturity of April 23,
2003, but is prepayable, in whole or in part monthly. The advance bears
interest based on the one month LIBOR index plus 0.21%, 5.86% at December 31,
1996.
First State Bank has a Federal Home Loan Bank advance with a balance of
$970,000 at December 31,1996, secured by a U.S. Treasury security with an
estimated market value of $977,000. The advance has an eight-day term maturing
January 7, 1997, and bears interest at 5.61%.
The maximum amount of Federal Home Loan Bank advances outstanding during
1996 was $8,000,000, and the weighted average interest rate paid for these
advances was 5.74%, with an average outstanding balance of $4,283,000.
8. LEASES
First State Bank leases certain of its premises and equipment under
noncancellable operating leases from unrelated parties. Rent expense for the
years ended December 31, 1996, 1995, and 1994, totaled approximately $829,000,
$529,000 and $417,000, respectively. Minimum future payments under these
leases at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1997......................................................... $1,026,609
1998......................................................... 1,021,932
1999......................................................... 715,226
2000......................................................... 676,750
2001......................................................... 638,049
2002 and beyond.............................................. 5,797,999
----------
$9,876,565
==========
</TABLE>
9. INCOME TAXES
Federal income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Current................................... $1,124,780 $1,013,725 $ 508,100
Deferred.................................. (8,888) (250,495) (268,100)
---------- ---------- ---------
Total expense........................... $1,115,892 $ 763,230 $ 240,000
========== ========== =========
</TABLE>
F-16
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Actual income tax expense from continuing operations differs from the
"expected" tax expense for 1996, 1995 and 1994 (computed by applying the U.S.
federal corporate tax rate of 34 percent to income from continuing operations
before income taxes) as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
--------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense.............. $1,080,000 $ 829,000 $ 898,000
Increase (reduction) in income taxes
resulting from:
Tax-exempt interest........................ (76,000) (62,000) (57,000)
Amortization of intangibles................ 92,000 96,000 75,800
Utilization of operating loss carryforwards
and credits............................... -- -- (377,000)
Change in valuation allowance for deferred
tax assets................................ (120,000) (132,466) (341,534)
Other...................................... 139,582 32,696 41,734
---------- --------- ---------
Total income tax expense................. $1,115,892 $ 763,230 $ 240,000
========== ========= =========
</TABLE>
Elements of deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1996 1995
-------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................. $592,424 $ 368,230
Write-down of other real estate owned..................... 37,267 32,167
Depreciation.............................................. 92,323 79,523
Accrued expenses.......................................... 17,000 17,000
Deferred compensation expense............................. 31,618 20,244
Alternative minimum tax credit carryforwards.............. -- 61,747
Loss from abandonment of credit card operation............ -- 316,200
Other..................................................... 14,838 23,000
-------- ---------
Total gross deferred tax assets......................... 785,470 918,111
Less valuation allowance................................ -- (120,000)
-------- ---------
785,470 798,111
Deferred tax liabilities:
Deferred gains on sale of other real estate owned......... 17,987 39,516
Tax effect of unrealized gains on investment securities... 23,669 59,743
-------- ---------
Total gross deferred tax liabilities.................... 41,656 99,259
-------- ---------
Net deferred tax asset.................................. $743,814 $ 698,852
======== =========
</TABLE>
In order to fully realize the deferred tax asset on the Company's balance
sheet at December 31, 1996, of $785,470, the Company will need to generate
future taxable income of approximately $2,310,000. Based on the Company's
historical and current pre-tax income, management believes it is more likely
than not that the Company will realize the benefit of the temporary
differences prior to the expiration of the carry-forward period and further
believes that the existing net deductible temporary differences will reverse
during periods in which the Company generates net taxable income. There can be
no assurance, however, that the Company will generate taxable income or any
specific level of continuing taxable income.
F-17
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. STOCKHOLDERS' EQUITY
At December 31, 1996, under terms of a stock option agreement, an officer of
First State Bank has an outstanding option to purchase 50,113 common shares of
the Company at a price of $5.01 per share. The options may be exercised at any
time and expire on October 12, 2003. During 1996, the officer exercised 19,600
options for a total of $98,196.
Effective October 5, 1993, the Company adopted the First State
Bancorporation 1993 Stock Option Plan, which provides for the granting of
options to purchase up to 225,000 shares of the Company common stock. Exercise
dates and prices for the options are set by a committee of the Board of
Directors. The plan also provides that options other than those qualifying as
incentive stock options may be granted. On November 2, 1993, three officers
and one consultant, who is also a director of the Company, were granted
150,000 options at a price of $8.40 per share. On December 12, 1994, eleven
officers were granted 13,750 options at a price of $8.40 per share. On
December 29, 1995, twenty officers were granted 35,000 options at a price of
$8.40 per share. Compensation expense of $33,453 and $59,542 was recognized
pursuant to the grant of options in 1996 and 1995, respectively. Vesting of
these options is 20 percent at the date of grant and 20 percent per year
thereafter until fully vested. At December 31, 1996, the vested portion of
these options totaled 142,250 shares.
On October 25, 1996, the Board of Directors approved a shareholder
protection rights agreement to protect the shareholders of the Company from
abusive or unfair take-over practices. The terms of the agreement provide one
right for each share of common stock held. The rights become exercisable only
if a person or a group accumulates ten percent or more of the Company's common
shares. The Company would be entitled to redeem the rights for $0.01 per right
until the tenth day following a public announcement of an acquisition of 10%
of its common shares. The rights expire on October 25, 2006.
On October 25, 1996, the Board of Directors approved a dividend reinvestment
plan. The plan allows any shareholder of record of 300 shares of common stock
to reinvest dividends on those shares in common shares issued by the Company
pursuant to the plan. Holders of 300 or more shares may also acquire shares
from the Company through the plan in an amount not to exceed $30,000
quarterly.
In connection with the common stock and convertible debenture offering, the
Company sold to the underwriter for $100 a five-year warrant to purchase
48,125 shares of common stock. The warrant is exercisable at $10.50 per share
of common stock of the Company. The warrants expire November 1, 1998.
Bank regulations specify the level of dividends that can be paid by First
State Bank. As of January 1, 1997, First State Bank had approximately
$3,500,000 in retained earnings which was available for the payment of
dividends to the Company subject to regulatory capital requirements. Future
dividend payments will be dependent upon the level of earnings generated by
First State Bank and/or regulatory restrictions, if any.
Payment of dividends subsequent to January 1, 1993 to the Company's
stockholders is limited by the convertible debenture indenture to amounts not
to exceed the sum of: (a) 75 percent of the Company's net income, plus (b) 75
percent of the net proceeds received by the Company from equity securities
issued, excluding the November 1993 offering.
The Bank is subject to various regulatory capital requirements administered
by federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly discretionary--actions by regulators
that, if undertaken, could have a direct material effect on the Company's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company must meet specific capital
guidelines that involve quantitative measures of the Company's assets,
liabilities, and certain off balance sheet items as calculated under
regulatory accounting practices. The
F-18
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company'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 Company to maintain minimum amounts and ratios of total and Tier I
capital (as defined in regulations) to risk-weighted assets, and of Tier I
capital, and of Tier I capital to total assets. Management believes, as of
December 31, 1996, that the Company meets all capital adequacy requirements to
which it is subject.
As of December 31, 1996, the most recent notification from the Federal
Reserve Bank of Kansas City categorized the Bank as adequately capitalized
under the regulatory framework for prompt corrective action. To be categorized
as adequately capitalized, 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 institution's category.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
----------------------------------------------------
FOR CAPITAL TO BE CONSIDERED
ACTUAL ADEQUACY PURPOSES WELL CAPITALIZED
------------- ------------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ---------- -------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk
weighted assets:
Consolidated........... $22,418 8.3% $ 21,530 8.0% $ 26,912 10.0%
Bank subsidiary........ 24,975 9.3% 21,483 8.0% 26,841 10.0%
Tier I capital to risk
weighted assets:
Consolidated........... 19,941 7.4% 10,764 4.0% 16,146 6.0%
Bank subsidiary........ 22,498 8.4% 10,739 4.0% 16,108 6.0%
Tier I capital to total
assets:
Consolidated........... 19,941 6.1% 12,990 4.0% 16,238 5.0%
Bank subsidiary........ 22,498 6.9% 12,911 4.0% 16,139 5.0%
<CAPTION>
AS OF DECEMBER 31, 1995
----------------------------------------------------
FOR CAPITAL TO BE CONSIDERED
ACTUAL ADEQUACY PURPOSES WELL CAPITALIZED
------------- ------------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ---------- -------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk
weighted assets:
Consolidated........... $17,871 8.7% $ 16,433 8.0% $ 20,541 10.0%
Bank subsidiary........ 20,502 10.0% 16,401 8.0% 20,502 10.0%
Tier I capital to risk
weighted assets:
Consolidated........... 16,020 7.8% 8,215 4.0% 12,323 6.0%
Bank subsidiary........ 18,651 9.0% 8,198 4.0% 12,297 6.0%
Tier I capital to total
assets:
Consolidated........... 16,020 6.8% 9,423 4.0% 11,779 5.0%
Bank subsidiary........ 18,651 7.4% 10,081 4.0% 12,602 5.0%
</TABLE>
11. EMPLOYEE BENEFIT PLANS
Effective January 1, 1991, First State Bank adopted an employee tax-
sheltered savings plan for substantially all full-time employees which
provides a mandatory 50% matching by First State Bank of employee
contributions up to a maximum of 6% of gross annual wages. Full vesting occurs
after three years. Contributions to the plan totaled $105,788 in 1996, $70,391
in 1995 and $53,178 in 1994.
F-19
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. COMMITMENTS AND CONTINGENCIES
In the normal course of business, various commitments and contingent
liabilities are outstanding, such as standby letters of credit and commitments
to extend credit. These financial instruments with off balance sheet risk are
not reflected in the financial statements. Financial instruments with off
balance sheet risk involve elements of credit risk, interest rate risk,
liquidity risk and market risk. Management does not anticipate any significant
losses as a result of these transactions.
The following table summarizes these financial instruments:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Commitments to extend credit..................... $46,883,000 $41,570,000
Standby letters of credit........................ 1,417,000 1,405,000
</TABLE>
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. The Bank controls the credit risk of these transactions
through credit approvals, limits, and monitoring procedures.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit are written 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. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers.
The Bank evaluates each customer's creditworthiness 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 of the
customer. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, and income-producing commercial
properties.
In the normal course of business, the Company is involved in various legal
matters. After consultation with legal counsel, management does not believe
the outcome of these legal matters will have an adverse impact on the
Company's financial position.
13. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
The assets of the Company, as parent company, consist primarily of the
investment in its subsidiary bank and the parent company's marketable
securities portfolio. The primary sources of the parent company's cash
revenues are dividends from its subsidiary bank along with interest received
from the marketable securities portfolio. This cash revenue is the source of
funds for payment of interest on the convertible debentures issued by the
parent company. Following are condensed financial statements of the parent
company for December 31:
F-20
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and due from banks.............................. $ 1,180 $ 1,078
Securities available for sale........................ -- 2,000
Investment in subsidiary............................. 23,104 19,263
Goodwill............................................. 384 416
Deferred tax asset................................... 32 343
Other assets......................................... 279 398
----------- -----------
Total assets....................................... $ 24,979 $ 23,498
=========== ===========
LIABILITIES AND EQUITY CAPITAL:
Liabilities--accounts payable and accrued expenses... $ 141 $ 124
Estimated liabilities for credit card processing
operation........................................... -- 198
Convertible debentures............................... 3,788 5,750
Equity capital....................................... 21,050 17,426
----------- -----------
Total liabilities and equity capital............... $ 24,979 $ 23,498
=========== ===========
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income:
Cash dividends from subsidiaries................ $ -- $ -- $ --
Loss from credit card processing operation...... -- (1,208) (158)
Other income.................................... 67 176 203
------- -------- -------
Total income (loss)........................... 67 (1,032) 45
------- -------- -------
Expenses:
Interest expense................................ 362 405 408
Amortization.................................... 158 176 176
Legal........................................... 57 56 78
Consulting...................................... 65 62 54
Other........................................... 173 255 28
------- -------- -------
Total expense................................. 815 954 744
------- -------- -------
Loss before income taxes and undistributed income
of bank subsidiary............................... (748) (1,986) (699)
Income tax benefit................................ 148 596 228
Undistributed income of bank subsidiary........... 2,661 3,065 2,862
------- -------- -------
Net Income........................................ $ 2,061 $ 1,675 $ 2,391
======= ======== =======
</TABLE>
F-21
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 2,061 $ 1,675 $ 2,391
-------- -------- --------
Adjustments to reconcile net income to cash
used by operations:
Amortization of goodwill..................... 32 32 33
Undistributed income of bank subsidiaries.... (2,661) (3,064) (3,020)
Loss from investment in credit card
operation................................... -- 1,208 158
(Increase) decrease in other assets.......... 356 (255) 186
Increase (decrease) in other liabilities,
net......................................... (181) 121 35
-------- -------- --------
Total adjustments.......................... (2,454) (1,958) (2,608)
-------- -------- --------
Net cash used by operating activities...... (393) (283) (217)
Cash flows from investing activities:
Sale of investment securities.................. -- 3,998 496
Maturity of investment securities.............. 2,000 1,000 500
Purchase of investment securities.............. -- (2,494) (483)
-------- -------- --------
Net cash provided by investing activities.. 2,000 2,504 513
-------- -------- --------
Cash flows from financing activities:
Common stock issued............................ 154 -- --
Capital contributions to subsidiary bank....... (1,250) (500) (500)
Contributions and loans to credit card
processing operation.......................... -- (523) (650)
Dividends paid................................. (409) (303) (126)
-------- -------- --------
Net cash used by financing activities...... (1,505) (1,326) (1,276)
-------- -------- --------
Increase in cash and due from banks.............. 102 895 (980)
Cash and due from banks at beginning of year..... 1,078 183 1,163
-------- -------- --------
Cash and due from banks at end of year........... $ 1,180 $ 1,078 $ 183
======== ======== ========
</TABLE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" (FAS 107), requires disclosure of current fair
value of all financial instruments, both assets and liabilities recognized and
not recognized in the balance sheet, for which it is practicable to estimate
fair value. FAS 107 defines fair value as the amount at which a financial
instrument could be exchanged in a current transaction between willing parties
other than in a forced or liquidation sale.
Financial instruments are defined as cash, evidence of ownership in an
entity, or a contract that both imposes on one entity a contractual
obligation: (1) to deliver cash or another financial instrument to a second
entity, or (2) to exchange other financial instruments on potentially
unfavorable terms with a second entity and conveys to the second entity a
contractual right: (a) to receive cash or another financial instrument from
the first entity, or (b) to exchange other financial instruments on
potentially favorable terms with the first entity.
Fair value estimates are made at a specific point in time based on available
relevant market information about the financial instrument. However, a
significant portion of the Company's financial instruments, such as
F-22
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
commercial real estate loans, do not currently have an active marketplace in
which they can be readily sold or purchased to determine fair value.
Consequently, fair value estimates for those financial instruments are based
on assumptions made by management regarding the financial instrument's credit
risk characteristics, prevailing interest rates, future estimated cash flows,
expected loss experience, current and future economic conditions and other
factors which affect fair value. As a result, these fair value estimates are
subjective in nature and involve uncertainties and matters of significant
judgment, and therefore, cannot be determined with precision. Accordingly,
changes in management's assumptions could cause the fair value estimates to
deviate substantially. Further, these estimates do not reflect any additional
premium or discount that could result from offering for sale, at one time, the
Company's entire holdings of a particular financial instrument or any
estimated transaction costs. Lastly, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect
on the fair value estimates and have not been considered in the estimates.
The carrying values and estimated fair values of the Company's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks.................. $ 15,712 $ 15,712 $ 14,787 $ 14,787
Marketable securities available for
sale.................................... 21,048 21,048 17,504 17,504
Marketable securities held to maturity... 19,547 19,597 21,172 21,345
Loans, net............................... 250,926 250,503 182,009 182,898
Accrued interest receivable.............. 2,002 2,002 1,960 1,960
Financial liabilities:
Deposits................................. 277,353 278,000 218,846 219,705
Securities sold under repurchase
agreements.............................. 13,929 13,929 8,913 8,913
Long-term debt........................... 4,006 4,043 5,985 6,101
Federal Home Loan Bank advances.......... 4,970 4,970 -- -
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and due from banks. Carrying value approximates fair value since these
instruments are payable on demand and do not present credit concerns.
Federal funds sold and interest-bearing deposits with banks. Carrying value
approximates fair value since these instruments have short-term maturities and
do not present credit concerns.
Marketable securities available for sale and held to maturity. The estimated
fair value of securities available for sale and held to maturity is based on
independent dealer quotations or published market price bid quotes.
Loans, net. The estimated fair value of the loan portfolio is calculated by
discounting scheduled cash flows over the estimated maturity of loans using
the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities or repricing
terms. Credit risk is accounted for through a reduction of contractual cash
flows by loss estimates of classified loans and as a component of the discount
rate.
F-23
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accrued interest receivable. Carrying value of interest receivable
approximates fair value, since these instruments have short-term maturities.
Deposits. The estimated fair value of deposits with no stated maturity, such
as demand deposits, savings accounts and money market deposits, approximates
the amounts payable on demand at December 31, 1996 and 1995. The fair value of
fixed maturity certificates of deposit is estimated by discounting the future
contractual cash flows using the rates currently offered for deposits of
similar remaining maturities.
Securities sold under repurchase agreements. The estimated fair value of
securities sold under repurchase agreements, which reset frequently to market
interest rates, approximate fair value.
Long-term debt. Long-term debt consists primarily of subordinated debentures
which are callable at the Company's option; their fair value is therefore
considered to be their call price.
Federal Home Loan Bank Advances. Federal Home Loan Bank advances reprice at
least monthly; accordingly their carrying value is considered to approximate
their fair value.
Off Balance Sheet Items. The estimated fair values of the Company's off
balance sheet items are not material to the fair value of financial
instruments included in the statement of financial condition. Rates currently
available to the Company and subsidiary for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
15. CREDIT CARD PROCESSING OPERATION
As of December 31, 1995, the Company decided to abandon its 48% limited
partnership investment in Credit Card Services, Ltd. (CCS), effective April 1,
1996. CCS is a credit card processing operation located in Henderson, Nevada.
The Company's initial investment in CCS was made in June 1994. The loss from
abandonment includes the Company's limited partnership investment, loans to
the partnership and commitments for advances to the partnership. The following
is a summary of the loss from CCS:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994
------------- ------------
<S> <C> <C>
Equity in losses from operations.............. $ 278,000 $ 158,000
Loss from abandonment of limited partnership
interest..................................... $ 930,000 --
------------- -----------
$ 1,208,000 $ 158,000
============= ===========
</TABLE>
F-24
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE IN THIS PROSPEC-
TUS, AND, IF GIVEN OR MADE, THE INFORMATION AND REPRESENTATIONS MUST BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME AFTER THE DATE HEREOF. THIS PROSPECTUS DOES NOT CON-
STITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURI-
TIES IN ANY CIRCUMSTANCES IN WHICH THE OFFER OR SOLICITATION IS UNLAWFUL.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 3
Summary Consolidated Financial Data........................................ 5
Risk Factors............................................................... 6
The Company................................................................ 10
Recent Developments........................................................ 16
Use of Proceeds............................................................ 17
Market for Common Stock and Dividends...................................... 17
Capitalization............................................................. 18
Selected Consolidated Financial Data....................................... 19
Management's Discussion and Analysis of
Financial Condition and Results of Operations For the Years Ended
December 31, 1996, 1995 and 1994.......................................... 20
Regulation and Supervision................................................. 30
Management................................................................. 37
Description of the Debentures.............................................. 44
Description of Capital Stock............................................... 53
Underwriting............................................................... 58
Legal Matters.............................................................. 60
Experts.................................................................... 60
Available Information...................................................... 60
Incorporation of Certain Documents by Reference............................ 60
Index to Consolidated Financial Statements................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$
FIRST STATE BANCORPORATION
% SUBORDINATED DEBENTURES
DUE 2017
---------------
PROSPECTUS
---------------
KEEFE, BRUYETTE & WOODS, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following statement states the estimated amounts of expenses (other than
underwriting discounts and commissions) to be borne by the Registrant in
connection with the Offering:
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 4,182
NASD Filing Fee.................................................... 1,880
NASDAQ Listing Fee................................................. 10,000
Legal Fees and Expenses............................................ 55,000
Trustee and Transfer Agent Fees and Expenses....................... 4,250
Accounting Fees and Expenses....................................... 49,500
Printing, Mailing, and Publication Expenses........................ 19,500
Blue Sky Fees and Expenses......................................... 2,500
Miscellaneous Expenses............................................. 5,000
--------
TOTAL FEES AND EXPENSES.......................................... $151,812
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Bylaws provide that the Company will indemnify all directors,
officers and employees of the Company to the fullest extent now permitted by
the New Mexico Business Corporation Act (the "NMBCA"). Under these provisions
any director, officer or employee who is made a party to any suit or
proceeding will be indemnified if (i) such person acted in good faith and in a
manner he reasonably believed to be in the best interests of the Company, (ii)
with respect to any criminal proceeding, had no reasonable cause to believe
his conduct was unlawful and (iii) in all other cases, that his conduct was at
least not opposed to the best interests of the Company. The NMBCA further
provides that such indemnification is not exclusive of any other rights to
which such individuals may be entitled under the Articles of Incorporation,
the Bylaws, an agreement, a resolution of shareholders or directors or
otherwise that are not inconsistent with the NMBCA. Pursuant to the Bylaws and
the NMBCA, the Company cannot indemnify a director in connection with a
proceeding by or in the right of the Company in which the director was
adjudged liable to the Company, or in connection with any other proceeding
charging improper personal benefit to the director, whether or not involving
action in his official capacity, in which he is adjudged liable on the basis
that personal benefit was improperly received by him.
In addition, the Company's Articles of Incorporation provide that to the
fullest extent now or hereafter permitted by New Mexico law, the Company's
directors will not be liable to the Company or its stockholders for monetary
damages for breach of their fiduciary duties as directors unless any such
director has breached or failed to perform the duties of the director's office
in compliance with Subsection 43-11-35(B) of the NMBCA (duty of care) and the
breach or failure to perform constitutes negligence, willful misconduct or
recklessness in the case of a director who has either an ownership interest in
the Company or receives compensation of more than $2,000 from the Company in
any calendar year, or willful misconduct or recklessness in the case of a
director who does not have an ownership interest in the Company and does not
receive compensation of more than $2,000 in any calendar year. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company and its stockholders, for acts or omissions not
undertaken in good faith or involving intentional misconduct or knowing
violations of law, for liability arising under Section 53-11-46 of the NMBCA
(relating to the unlawful payment of distributions, and purchase or redemption
of the Company's stock), or for any transaction from which the director
derived an improper personal benefit. This provision also does not affect a
director's responsibilities under any other laws, such as federal securities
laws or state or federal environmental laws.
II-1
<PAGE>
ITEM 16. EXHIBITS.
The following exhibits are either filed herewith or incorporated by
reference to documents previously filed as indicated below:
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
1 Form of Purchase Agreement
3.1 Restated Articles of Incorporation of the Company
3.2 Bylaws of the Company(1)
4.1 Form of Indenture between the Company and First Trust National
Association, as Trustee, with respect to the Debentures
4.2 Specimen Convertible Subordinated Debenture (found at Article II of
the Form of Indenture filed as Exhibit 4.1)
4.3 Shareholder Protection Rights Agreement, dated as of October 25,
1996, between the Company and American Securities Transfer & Trust,
Incorporated, as Rights Agent(3)
5 Form of Opinion of Hinkle, Cox, Eaton, Coffield & Hensley, L.L.P.,
regarding binding obligation of the Convertible Subordinated
Debentures being offered
10.1 Stock Option Plan of the Company(1)
10.2 Stock Option Agreement with Michael R. Stanford(1)
10.3 Lease agreement between the Company and Horn Distributing, Herman
N. Wisenteiner, President(2)
10.4 Executive Income Protection Plan(2)
12.1 Statement re Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Hinkle, Cox, Eaton, Coffield & Hensley, L.L.P. (included
in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
24 Power of Attorney*
25 Form T-1: Statement of Eligibility of Trustee
</TABLE>
- --------
* Previously filed.
(1) Incorporated by reference from the Company's Registration Statement on
Form SB-2, Commission File No. 33-68166, declared effective November 3,
1993.
(2) Incorporated by reference from the Company's Form 10-QSB for the quarter
ended June 30, 1996.
(3) Incorporated by reference from the Company's Form 10-QSB for the quarter
ended September 30, 1996.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information stated in
the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to the information in the Registration Statement;
(2) That, to determine any liability under the Act, each post-effective
amendment shall be deemed a new registration statement relating to the
securities offered therein, and the offering of those securities at that
time shall be deemed the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, to determine any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15 (d) of the Exchange Act that is
incorporated by reference in the Registration Statement shall be deemed a new
registration statement relating to the securities offered therein, and the
offering of the securities at that time shall be deemed the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. If 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 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 its indemnification is against public policy
as expressed in the Securities Act and will be governed by the final
adjudication of the issue.
The undersigned Registrant hereby undertakes that:
(a) To determine any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed part of this registration statement as
of the time it was declared effective.
(b) To determine any liability under the Securities Act, each post-
effective amendment that contains a form of prospectus shall be deemed a
new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed the initial
bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN ALBUQUERQUE, NEW MEXICO, ON APRIL 23, 1997.
First State Bancorporation
*
By: _________________________________
CHIEF EXECUTIVE OFFICER,PRESIDENT
AND DIRECTOR
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON APRIL 23, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chief Executive Officer,
- --------------------------------- President, and Director
MICHAEL R. STANFORD
* Executive Vice President,
- --------------------------------- Chief Operating Officer
H. PATRICK DEE and Director
* Senior Vice President and
- --------------------------------- Chief Financial Officer
BRIAN C. REINHARDT (Principal Financial and
Accounting Officer)
* Chairman of the
- --------------------------------- Board and Director
ELOY A. JEANTETE
* Director
- ---------------------------------
LEONARD J. DELAYO, JR.
* Director
- ---------------------------------
BRADFORD M. JOHNSON
* Director
- ---------------------------------
SHERMAN MCCORKLE
* Director
- ---------------------------------
DOUGLAS M. SMITH, M.D.
* Director
- ---------------------------------
HERMAN N. WISENTEINER
* Director
- ---------------------------------
MANUEL LUJAN, JR.
*By: /s/ Brian C. Reinhardt
-----------------------------
BRIAN C. REINHARDT
ATTORNEY-IN FACT
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBITS DESCRIPTION NUMBERED PAGE
-------- ----------- -------------
<C> <S> <C>
1 Form of Purchase Agreement
3.1 Restated Articles of Incorporation of the Company
3.2 Bylaws of the Company(1)
4.1 Form of Indenture between the Company and First Trust
National Association, as Trustee, with respect to the
Debentures
4.2 Specimen Convertible Subordinated Debenture (found at
Article II of the Form of Indenture filed as Exhibit
4.1)
4.3 Shareholder Protection Rights Agreement, dated as of
October 25, 1996, between the Company and American
Securities Transfer & Trust, Incorporated, as Rights
Agent(3)
5 Form of Opinion of Hinkle, Cox, Eaton, Coffield &
Hensley, L.L.P., regarding binding obligation of the
Convertible Subordinated Debentures being offered
10.1 Stock Option Plan of the Company(1)
10.2 Stock Option Agreement with Michael R. Stanford(1)
10.3 Lease agreement between the Company and Horn
Distributing, Herman N. Wisenteiner, President(2)
10.4 Executive Income Protection Plan(2)
12.1 Statement re Computation of Ratio of Earnings to
Fixed Charges
23.1 Consent of Hinkle, Cox, Eaton, Coffield & Hensley,
L.L.P. (included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
24 Power of Attorney*
25 Form T-1: Statement of Eligibility of Trustee
</TABLE>
- --------
* Previously filed.
(1) Incorporated by reference from the Company's Registration Statement on
Form SB-2, Commission File No. 33-68166, declared effective November 3,
1993.
(2) Incorporated by reference from the Company's Form 10-QSB for the quarter
ended June 30, 1996.
(3) Incorporated by reference from the Company's Form 10-QSB for the quarter
ended September 30, 1996.
II-5
<PAGE>
FIRST STATE BANCORPORATION
(a New Mexico corporation)
Convertible Subordinated Debentures due 2017
PURCHASE AGREEMENT
Dated: ., 1997
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C>
PURCHASE AGREEMENT........................................................ 1
SECTION 1. Representations and Warranties.................... 3
------------------------------
(a) Representations and Warranties by the Company.............. 3
(i) Compliance with Registration Requirement.......... 3
---------------------------------------
(ii) Incorporated Documents............................ 4
----------------------
(iii) Independent Accountants........................... 4
-----------------------
(iv) Financial Statements.............................. 4
--------------------
(v) No Material Adverse Change in Business............ 4
--------------------------------------
(vi) Good Standing of the Company...................... 5
----------------------------
(vii) Good Standing of Subsidiaries..................... 5
-----------------------------
(viii) Capitalization.................................... 5
--------------
(ix) Authorization of Agreement........................ 6
--------------------------
(x) Authorization of the Indenture.................... 6
------------------------------
(xi) Authorization of the Securities................... 6
-------------------------------
(xii) Description of the Securities and the Indenture... 6
-----------------------------------------------
(xiii) Authorization and Description of Common Stock..... 6
---------------------------------------------
(xiv) Absence of Defaults and Conflicts................. 7
---------------------------------
(xv) Absence of Labor Dispute.......................... 7
------------------------
(xvi) Absence of Proceedings............................ 7
----------------------
(xvii) Accuracy of Exhibits.............................. 8
------------------------
(xviii) Possession of Intellectual Property............... 8
-----------------------------------
(xix) Absence of Further Requirements................... 8
-------------------------------
(xx) Possession of Licenses and Permits................ 8
----------------------------------
(xxi) Title to Property................................. 9
-----------------
(xxii) Compliance with Cuba Act.......................... 9
------------------------
(xxiii) Investment Company Act............................ 9
----------------------
(xxiv) Environmental Laws................................ 9
------------------
(xxv) Taxes............................................. 10
-----
(xxvi) Accounting Controls............................... 10
-------------------
(xxvii) Insurance......................................... 10
---------
(xxviii) Registration Rights............................... 11
-------------------
(xxix) Stabilization..................................... 11
-------------
(xxx) Certain Relationships............................. 11
------------------------
(xxxi) Certain Actions................................... 11
------------------------
(b) Officer's Certificates..................................... 11
SECTION 2. Sale and Delivery to Underwriters; Closing................. 11
------------------------------------------
(a) Initial Securities......................................... 11
(b) Option Securities.......................................... 11
(c) Payment.................................................... 12
(d) Denominations; Registration................................ 12
SECTION 3. Covenants of the Company................................... 13
------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
(a) Compliance with Securities Regulations
and Commission Requests.................................... 13
(b) Filing of Amendments....................................... 13
(c) Delivery of Registration Statements........................ 13
(d) Delivery of Prospectuses................................... 14
(e) Continued Compliance with Securities Laws.................. 14
(f) Blue Sky Qualifications.................................... 14
(g) Rule 158................................................... 15
(h) Use of Proceeds............................................ 15
(i) Listing.................................................... 15
(j) Restriction on Sale of Securities ......................... 15
(k) Restriction on Sale of Common Stock........................ 15
(l) Reporting Requirements..................................... 16
(m) Compliance with Cuba Act................................... 16
SECTION 4. Payment of Expenses........................................ 16
-------------------
(a) Expenses................................................... 16
(b) Termination of Agreement................................... 17
SECTION 5. Conditions of Underwriters' Obligations.................... 17
---------------------------------------
(a) Effectiveness of Registration Statement.................... 17
(b) Opinion of Counsel for Company............................. 17
(c) Opinion of Counsel for Underwriters........................ 17
(d) Officers' Certificate...................................... 18
(e) Accountant's Comfort Letter................................ 18
(f) Bring-down Comfort Letter.................................. 18
(g) Approval of Listing........................................ 19
(h) No Objection............................................... 19
(i) Lock-up Agreements......................................... 19
(j) Conditions to Purchase of Option Securities................ 19
(k) Additional Documents....................................... 20
(l) Termination of Agreement................................... 20
SECTION 6. Indemnification............................................ 20
---------------
(a) Indemnification of Underwriters............................ 20
(b) Indemnification of Company, Directors and Officers......... 21
(c) Actions against Parties; Notification...................... 22
(d) Settlement without Consent if Failure to Reimburse......... 22
SECTION 7. Contribution............................................... 22
------------
SECTION 8. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery................................................... 24
--------
SECTION 9. Termination of Agreement................................... 24
------------------------
(a) Termination; General....................................... 24
(b) Liabilities................................................ 24
SECTION 10. Default by One or More of the Underwriters................ 25
------------------------------------------
SECTION 11. Notices................................................... 25
-------
SECTION 12. Parties................................................... 25
-------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 13. GOVERNING LAW AND TIME.................................... 25
----------------------
SECTION 14. Effect of Headings........................................ 26
------------------
SCHEDULES
Schedule A - List of Underwriters................................... Sch A-1
Schedule B - Pricing Information.................................... Sch B-1
Schedule C - List of Subsidiaries................................... Sch C-1
Schedule D - List of persons and entities subject to lock-up........ Sch D-1
EXHIBITS
Exhibit A - Form of Opinion of Company's Counsel........................ A-1
Exhibit B - Form of Lock-up Letter...................................... B-1
</TABLE>
iii
<PAGE>
Draft of April 17, 1997
FIRST STATE BANCORPORATION
(a New Mexico corporation)
$__________
__% Convertible Subordinated Debentures due 2017
PURCHASE AGREEMENT
------------------
., 1997
KEEFE, BRUYETTE & WOODS, INC.
as Representative of the several Underwriters
Two World Trade Center
New York, New York 10048
Ladies and Gentlemen:
First State Bancorporation, a New Mexico corporation (the "Company"),
confirms its agreement with Keefe, Bruyette & Woods, Inc. ("KBW") and each of
the other Underwriters named in Schedule A hereto (collectively, the
"Underwriters", which term shall also include any underwriter substituted as
hereinafter provided in Section 10 hereof), for whom KBW is acting as
representative (in such capacity, the "Representative"), with respect to the
issue and sale by the Company and the purchase by the Underwriters, acting
severally and not jointly, of the respective principal amounts set forth in said
Schedule A of $__________ aggregate principal amount of the Company's __%
Convertible Subordinated Debentures due 2017 (the "Debentures"), and with
respect to the grant by the Company to the Underwriters, acting severally and
not jointly, of the option described in Section 2(b) hereof to purchase all or
any part of an additional $_________ principal amount of Debentures to cover
over-allotments, if any. The aforesaid $__________ principal amount of
Debentures (the "Initial Securities") to be purchased by the Underwriters and
all or any part of the $_________ principal amount of Debentures subject to the
option described in Section 2(b) hereof (the "Option Securities") are
hereinafter called, collectively, the "Securities". The Securities are to be
issued pursuant to an indenture dated as of . (the "Indenture") between the
Company and ., as trustee (the "Trustee").
The Securities are convertible into shares of common stock, no par value
per share, of the Company (the "Common Stock"), in accordance with the terms of
the Securities and the Indenture, at the initial conversion price specified in
Schedule B hereto. Each such share of Common Stock will be issued with the
rights (the "Rights") attached thereto issued pursuant to
1
<PAGE>
the Shareholder Protection Rights Agreement, dated as of October 25, 1996,
between the Company and American Securities Transfer & Trust, Incorporated, as
Rights Agent.
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representative deems advisable after
this Agreement has been executed and delivered and the Indenture has been
qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-2 (No. 333-24417) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b).
The information included in such prospectus or in such Term Sheet, as the case
may be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto, schedules thereto, if any, and the
documents incorporated by reference therein pursuant to Item 12 of Form S-2
under the 1933 Act, at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final prospectus,
including the documents incorporated by reference therein pursuant to Item 12 of
Form S-2 under the 1933 Act, in the form first furnished to the Underwriters for
use in connection with the offering of the Securities is herein called the
"Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to
the preliminary prospectus dated April 17, 1997, together with the Term Sheet,
and all references in this Agreement to the date of the Prospectus shall mean
the date of the Term Sheet. For purposes of this Agreement, all references to
the Registration Statement, any preliminary prospectus, the Prospectus or any
Term Sheet or any amendment or supplement to any of the foregoing shall be
deemed to include the copy filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval system ("EDGAR").
2
<PAGE>
All references in this Agreement to financial statements and schedules and
other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934 (the "1934 Act") which is
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectus, as the case may be.
SECTION 1. Representations and Warranties.
------------------------------
(a) Representations and Warranties by the Company. The Company represents
and warrants to each Underwriter as of the date hereof, as of the Closing Time
referred to in Section 2(c) hereof, and as of each Date of Delivery (if any)
referred to in Section 2(b) hereof, and agrees with each Underwriter, as
follows:
(i) Compliance with Registration Requirements. The Company meets
-----------------------------------------
the requirements for use of Form S-2 under the 1933 Act. Each of the
Registration Statement and any Rule 462(b) Registration Statement has become
effective under the 1933 Act and no stop order suspending the effectiveness of
the Registration Statement or any Rule 462(b) Registration Statement has been
issued under the 1933 Act and no proceedings for that purpose have been
instituted or are pending or, to the knowledge of the Company, are contemplated
by the Commission, and any request on the part of the Commission for additional
information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any Option Securities are purchased,
at the Date of Delivery), the Registration Statement, the Rule 462(b)
Registration Statement and any amendments and supplements thereto complied and
will comply in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations and the 1939 Act and the rules and regulations of the
Commission under the 1939 Act (the "1939 Act Regulations"), and did not and will
not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading. Neither the Prospectus nor any amendments or supplements
thereto, at the time the Prospectus or any such amendment or supplement was
issued and at the Closing Time (and, if any Option Securities are purchased, at
the Date of Delivery), included or will include an untrue statement of a
material fact or omitted or will omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. If Rule 434 is used, the Company will
comply with the requirements of Rule 434 and the Prospectus shall not be
"materially different", as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time it became effective. The
representations and warranties in this subsection
3
<PAGE>
shall not apply to statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information furnished to
the Company in writing by any Underwriter through KBW expressly for use in the
Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all
material respects with the 1933 Act Regulations and each preliminary prospectus
and the Prospectus delivered to the Underwriters for use in connection with this
offering was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(ii) Incorporated Documents. The documents incorporated or deemed
----------------------
to be incorporated by reference in the Registration Statement and the
Prospectus, at the time they were or hereafter are filed with the Commission,
complied and will comply in all material respects with the requirements of the
1934 Act and the rules and regulations of the Commission thereunder (the "1934
Act Regulations"), and, when read together with the other information in the
Prospectus, at the time the Registration Statement became effective, at the time
the Prospectus was issued and at the Closing Time (and if any Option Securities
are purchased, at the Date of Delivery), did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
(iii) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act and the
1933 Act Regulations.
(iv) Financial Statements. The financial statements included in
--------------------
the Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the Company and
its consolidated subsidiaries at the dates indicated and the statement of
operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial statements
have been prepared in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved. The
supporting schedules, if any, included in the Registration Statement present
fairly in accordance with GAAP the information required to be stated therein.
The selected financial data and the summary financial information included in
the Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited financial statements
included in the Registration Statement.
(v) No Material Adverse Change in Business. Since the
--------------------------------------
respective dates as of which information is given in the Registration Statement
and the Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course
4
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of business (a "Material Adverse Effect"), (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than those in the
ordinary course of business, which are material with respect to the Company and
its subsidiaries considered as one enterprise, and (C) except for regular
quarterly dividends on the Common Stock in amounts per share that are consistent
with past practice, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(vi) Good Standing of the Company. The Company has been duly
----------------------------
organized and is validly existing as a corporation in good standing under the
laws of the State of New Mexico and has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under this Agreement;
and the Company is duly qualified as a foreign corporation to transact business
and is in good standing in each other jurisdiction in which such qualification
is required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure or failures so to qualify or to be
in good standing would not, individually or in the aggregate, result in a
Material Adverse Effect; and the Company is duly registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended.
(vii) Good Standing of Subsidiaries. First State Bank of Taos (the
-----------------------------
"Bank") has been duly organized and is validly existing as a state bank in good
standing under the laws of the State of New Mexico and has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus. Each other subsidiary of the Company (each of
the Bank and each such other subsidiary is referred to herein as a "Subsidiary"
and, collectively, as the "Subsidiaries") has been duly organized and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, and has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus. Each Subsidiary is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure or failures so to
qualify or to be in good standing would not, individually or in the aggregate,
result in a Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of each
such Subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company, directly or through subsidiaries,
free and clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity; none of the outstanding shares of capital stock of any
Subsidiary was issued in violation of the preemptive or similar rights of any
securityholder of such Subsidiary. The only Subsidiaries of the Company are the
Subsidiaries listed on Schedule C hereto. Except for the shares of capital
stock of the Subsidiaries owned by the Company and such Subsidiaries, neither
the Company nor the Subsidiaries owns any shares of stock or any other equity
securities of any corporation or has any equity interest in any firm,
partnership, association or other entity, except as described in the Prospectus
and except for those interests which are not required to be described in the
Registration Statement.
5
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(viii) Capitalization. The authorized, issued and outstanding capital
--------------
stock of the Company is as set forth in the Prospectus in the column entitled
"Actual" under the caption "Capitalization" (except for subsequent issuances, if
any, pursuant to this Agreement, pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectus or pursuant to the exercise
of convertible securities or options referred to in the Prospectus). The shares
of issued and outstanding capital stock of the Company have been duly authorized
and validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company was issued in violation of
the preemptive or other similar rights of any securityholder of the Company.
(ix) Authorization of Agreement. This Agreement has been duly
--------------------------
authorized, executed and delivered by the Company.
(x) Authorization of the Indenture. The Indenture has been duly
------------------------------
authorized by the Company and duly qualified under the 1939 Act and, when duly
executed and delivered by the Company and the Trustee, will constitute a valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(xi) Authorization of the Securities. The Securities have been duly
-------------------------------
authorized and, at the Closing Time, will have been duly executed by the Company
and, when authenticated, issued and delivered in the manner provided for in the
Indenture and delivered against payment of the purchase price therefor as
provided in this Agreement, will constitute valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors' rights generally
and except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law), and will be in the form contemplated by, and entitled to the benefits of,
the Indenture.
(xii) Description of the Securities and the Indenture. The Securities
-----------------------------------------------
and the Indenture will conform in all material respects to the respective
statements relating thereto contained in the Prospectus and will be in
substantially the respective forms filed or incorporated by reference, as the
case may be, as exhibits to the Registration Statement.
(xiii) Authorization and Description of Common Stock. Each of the
---------------------------------------------
Common Stock and the Rights conforms to all statements relating thereto
contained or incorporated by reference in the Prospectus and each such
description conforms to the rights set forth in the respective instruments
defining the same. Upon issuance and delivery of the Securities in accordance
with this Agreement and the Indenture, the Securities will be convertible at the
6
<PAGE>
option of the holder thereof for shares of Common Stock and associated Rights,
if any, in accordance with the terms of the Securities and the Indenture; the
shares of Common Stock and the associated Rights, if any, issuable upon
conversion of the Securities have been duly authorized and reserved for issuance
upon such conversion by all necessary corporate action and such shares of Common
Stock, when issued upon such conversion, will be validly issued and will be
fully paid and non-assessable; no holder of such shares of Common Stock will be
subject to personal liability by reason of being such a holder; and the issuance
of such shares of Common Stock upon such conversion will not be subject to the
preemptive or other similar rights of any securityholder of the Company.
(xiv) Absence of Defaults and Conflicts. Neither the Company nor any of
---------------------------------
the Subsidiaries is in violation of its charter or by-laws or in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other agreement or instrument to which the Company or
any of the Subsidiaries is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company or any Subsidiary is
subject (collectively, "Agreements and Instruments") except for such defaults
that would not, individually or in the aggregate, result in a Material Adverse
Effect; and the execution, delivery and performance of this Agreement, the
Indenture and the Securities and the consummation of the transactions
contemplated herein and in the Registration Statement (including (a) the
issuance and sale of the Securities and the use of the proceeds from the sale of
the Securities as described in the Prospectus under the caption "Use of
Proceeds", (b) the issuance of the shares of Common Stock issuable upon
conversion of the Securities and (c) the consummation of the Company's
redemption (the "Redemption") of its outstanding 7% Subordinated Convertible
Debentures due 2003 (the "7% Debentures")) and compliance by the Company with
its obligations hereunder and under the Indenture and the Securities have been
duly authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined below) under, give rise to any right of termination under, or result in
the creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any Subsidiary pursuant to, the Agreements and
Instruments (except for such conflicts, breaches or defaults or liens, charges
or encumbrances that would not, individually or in the aggregate, result in a
Material Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any Subsidiary or any
applicable law, statute, rule, regulation, judgment, order, writ or decree of
any government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of their assets,
properties or operations. As used herein, a "Repayment Event" means any event
or condition which gives the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right to require
the repurchase, redemption or repayment of all or a portion of such indebtedness
by the Company or any Subsidiary.
(xv) Absence of Labor Dispute. No labor dispute with the employees of
------------------------
the Company or any Subsidiary exists or, to the knowledge of the Company, is
imminent, and the
7
<PAGE>
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its or any Subsidiary's principal suppliers, customers or
contractors, which, in either case, may reasonably be expected to result in a
Material Adverse Effect.
(xvi) Absence of Proceedings. There is no action, suit, proceeding,
----------------------
inquiry or investigation before or brought by any court or governmental agency
or body, domestic or foreign, now pending, or, to the knowledge of the Company,
threatened, against or affecting the Company or any Subsidiary, which is
required to be disclosed in the Registration Statement (other than as disclosed
therein), or which might reasonably be expected to result in a Material Adverse
Effect, or which might reasonably be expected to materially and adversely affect
the properties or assets thereof or the consummation of the transactions
contemplated in this Agreement or the consummation of the Redemption or the
performance by the Company of its obligations hereunder; the aggregate of all
pending legal or governmental proceedings to which the Company or any Subsidiary
is a party or of which any of their respective property or assets is the subject
which are not described in the Registration Statement, including ordinary
routine litigation incidental to the business, could not reasonably be expected
to result in a Material Adverse Effect.
(xvii) Accuracy of Exhibits. There are no contracts or documents which
--------------------
are required to be described in the Registration Statement, the Prospectus or
the documents incorporated by reference therein or to be filed as exhibits
thereto which have not been so described and filed as required.
(xviii) Possession of Intellectual Property. The Company and the
-----------------------------------
Subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks,
trade names or other intellectual property (collectively, "Intellectual
Property") necessary to carry on the business now operated by them, and neither
the Company nor any of the Subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others with
respect to any Intellectual Property or of any facts or circumstances which
would render any Intellectual Property invalid or inadequate to protect the
interest of the Company or any of the Subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable decision, ruling or
finding) or invalidity or inadequacy, individually or in the aggregate, would
result in a Material Adverse Effect.
(xix) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration, qualification or
decree of, any court or governmental authority or agency is necessary or
required for the performance by the Company of its obligations hereunder, in
connection with the offering, issuance or sale of the Securities hereunder, the
issuance of shares of Common Stock upon conversion of Securities or the
consummation of the transactions contemplated by this Agreement or for the due
execution, delivery or performance of the Indenture by the Company or for the
consummation of the Redemption, except such as have been already obtained or as
may be required under the 1933
8
<PAGE>
Act or the 1933 Act Regulations or state securities laws and except for the
qualification of the Indenture under the 1939 Act.
(xx) Possession of Licenses and Permits. The Company and its
----------------------------------
Subsidiaries possess such certificates, authorities, permits, licenses,
approvals, consents and other authorizations (collectively, "Governmental
Licenses") issued by the appropriate federal, state, local or foreign regulatory
agencies or bodies necessary to conduct the business now operated by them; the
Company and its Subsidiaries are in compliance with the terms and conditions of
all such Governmental Licenses, except where the failure so to comply would not,
individually or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such Governmental
Licenses to be in full force and effect would not have a Material Adverse
Effect; and neither the Company nor any of its Subsidiaries has received any
notice of proceedings relating to the revocation or modification of any such
Governmental Licenses which, individually or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would result in a Material Adverse
Effect.
(xxi) Title to Property. The Company and the Subsidiaries have good
-----------------
and marketable title to all real property owned by the Company and the
Subsidiaries and good title to all other properties owned by them, in each case,
free and clear of all mortgages, pledges, liens, security interests, claims,
restrictions or encumbrances of any kind except such as (a) are described in the
Prospectus or (b) do not, individually or in the aggregate, materially affect
the value of such property and do not interfere with the use made and proposed
to be made of such property by the Company or any of the Subsidiaries; and all
of the leases and subleases material to the business of the Company and the
Subsidiaries, considered as one enterprise, and under which the Company or any
of the Subsidiaries holds properties described in the Prospectus, are in full
force and effect, and neither the Company nor any Subsidiary has any notice of
any material claim of any sort that has been asserted by anyone adverse to the
rights of the Company or any Subsidiary under any of the leases or subleases
mentioned above, or affecting or questioning the rights of the Company or such
Subsidiary to the continued possession of the leased or subleased premises under
any such lease or sublease.
(xxii) Compliance with Cuba Act. The Company has complied with, and is
------------------------
and will be in compliance with, the provisions of that certain Florida act
relating to disclosure of doing business with Cuba, codified as Section 517.075
of the Florida statutes, and the rules and regulations thereunder (collectively,
the "Cuba Act") or is exempt therefrom.
(xxiii) Investment Company Act. The Company is not, and upon the
----------------------
issuance and sale of the Securities as herein contemplated and the application
of the net proceeds therefrom as described in the Prospectus will not be, an
"investment company" or an entity "controlled" by an "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended (the
"1940 Act").
9
<PAGE>
(xxiv) Environmental Laws. Except as described in the Registration
------------------
Statement and except as would not, individually or in the aggregate, result in a
Material Adverse Effect, (A) neither the Company nor any of the Subsidiaries is
in violation of any federal, state, local or foreign statute, law, rule,
regulation, ordinance, code, policy or rule of common law or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent, decree or judgment, relating to pollution or protection of human
health, the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or threatened
release of chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum or petroleum products (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and the Subsidiaries have all permits,
authorizations and approvals required under any applicable Environmental Laws
and are each in compliance with their requirements, (C) there are no pending or
threatened administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company or any of the Subsidiaries and (D) there are no events or circumstances
that might reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of the
Subsidiaries relating to Hazardous Materials or any Environmental Laws.
(xxv) Taxes. All United States federal income tax returns of the
-----
Company and the Subsidiaries required by law to be filed have been filed and all
taxes shown by such returns or otherwise assessed, which are due and payable,
have been paid, except assessments against which appeals have been or will be
promptly taken and as to which adequate reserves have been provided. The United
States federal income tax returns of the Company through the fiscal year ended
December 31, 1995 have been settled and no assessment in connection therewith
has been made against the Company. Each of the Company and the Subsidiaries has
filed all other tax returns that are required to have been filed by it pursuant
to applicable foreign, state, local or other law except insofar as the failure
to file such returns would not result in a Material Adverse Effect, and has paid
all taxes due pursuant to such returns or pursuant to any assessment received by
the Company or any Subsidiary, except for such taxes, if any, as are being
contested in good faith and as to which adequate reserves have been provided.
The charges, accruals and reserves on the books of the Company in respect of any
income and corporation tax liability for any years not finally determined are
adequate to meet any assessments or re-assessments for additional income tax for
any years not finally determined, except to the extent of any inadequacy that
would not result in a Material Adverse Effect.
(xxvi) Accounting Controls. The Company and the Subsidiaries maintain a
-------------------
system of internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with management's
general or specific authorization, (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (C)
10
<PAGE>
access to assets is permitted only in accordance with management's general or
specific authorization and (D) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(xxvii) Insurance. The Company and the Subsidiaries carry or are
---------
entitled to the benefits of insurance, with financially sound and reputable
insurers, in such amounts and covering such risks as is generally maintained by
companies of established repute engaged in the same or similar business, and all
such insurance is in full force and effect.
(xxviii) Registration Rights. There are no persons with registration
-------------------
rights or other similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the 1933
Act.
(xxix) Stabilization. Neither Company nor any of its officers,
-------------
directors or controlling persons has taken, directly or indirectly, any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities.
(xxx) Certain Relationships. No relationship, direct or indirect,
---------------------
exists between or among any of the Company or any affiliate of the Company, on
the one hand, and any director, officer, stockholder, customer or supplier of
any of them, on the other hand, which is required by the 1933 Act or by the 1933
Act Regulations to be described in the Registration Statement or the Prospectus
which is not so described or is not described as required.
(xxxi) Certain Actions. The Company has not distributed and, prior to
---------------
the later to occur of (i) the Closing Time and (ii) completion of the
distribution of the Securities, will not distribute any offering material in
connection with the offering and sale of the Securities other than the
Registration Statement, any preliminary prospectus, the Prospectus or other
materials, if any, permitted by the 1933 Act and approved by the
Representative(s).
(b) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Representative or to counsel
for the Underwriters shall be deemed a representation and warranty by the
Company to each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
------------------------------------------
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price set forth in Schedule B, the aggregate principal
amount of Initial Securities set forth in Schedule A opposite the name of such
11
<PAGE>
Underwriter, plus any additional principal amount of Initial Securities which
such Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriters, severally
and not jointly, to purchase up to an additional $_________ principal amount of
Securities at the same price set forth in Schedule B for the Initial Securities,
plus accrued interest, if any, from the Closing Date to the date of Delivery (as
defined below). The option hereby granted will expire 30 days after the date
hereof and may be exercised in whole or in part from time to time only for the
purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Initial Securities upon notice by the
Representative to the Company setting forth the number of Option Securities as
to which the several Underwriters are then exercising the option and the time
and date of payment and delivery for such Option Securities. Any such time and
date of delivery (a "Date of Delivery") shall be determined by the
Representative, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Time, as
hereinafter defined. If the option is exercised as to all or any portion of the
Option Securities, each of the Underwriters, acting severally and not jointly,
will purchase that proportion of the total number of Option Securities then
being purchased which the number of Initial Securities set forth in Schedule A
opposite the name of such Underwriter bears to the total number of Initial
Securities.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
[Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York
10022], or at such other place as shall be agreed upon by the Representative and
the Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing
occurs after 4:30 P.M. (Eastern time) on any given day) business day after the
date hereof (unless postponed in accordance with the provisions of Section 10),
or such other time not later than ten business days after such date as shall be
agreed upon by the Representative and the Company (such time and date of payment
and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representative
and the Company, on each Date of Delivery as specified in the notice from the
Representative to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representative for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representative, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. KBW, individually and not as representative of the Underwriters, may
(but shall not be obligated to) make payment
12
<PAGE>
of the purchase price for the Initial Securities or the Option Securities, if
any, to be purchased by any Underwriter whose funds have not been received by
the Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial Securities
and the Option Securities, if any, shall be in such denominations ($1,000 or
integral multiples thereof) and registered in such names as the Representative
may request in writing at least one full business day before the Closing Time or
the relevant Date of Delivery, as the case may be. The certificates [,which may
be in temporary form,] for the Initial Securities and the Option Securities, if
any, will be made available for examination and packaging by the Representative
in The City of New York not later than 10:00 A.M. (Eastern time) on the business
day prior to the Closing Time or the relevant Date of Delivery, as the case may
be.
SECTION 3. Covenants of the Company. The Company covenants with each
------------------------
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests.
The Company, subject to Section 3(b), will comply with the requirements of Rule
430A or Rule 434, as applicable, and will notify the Representative immediately,
and confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect the
filings necessary pursuant to Rule 424(b) and will take such steps as it deems
necessary to ascertain promptly whether the form of prospectus transmitted for
filing under Rule 424(b) was received for filing by the Commission and, in the
event that it was not, it will promptly file such prospectus. The Company will
make every reasonable effort to prevent the issuance of any stop order and, if
any stop order is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) Filing of Amendments. The Company will give the Representative
notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectus included in the
Registration Statement at the time it became effective or to the Prospectus,
whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the
Representative with copies of any such documents a reasonable amount of time
prior to such proposed filing or use, as the case may be, and
13
<PAGE>
will not file or use any such document to which the Representative or counsel
for the Underwriters shall object.
(c) Delivery of Registration Statements. The Company has furnished
or will deliver to the Representative and counsel for the Underwriters, without
charge, signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or incorporated by
reference therein and documents incorporated or deemed to be incorporated by
reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Representative, without charge, a
conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters. The copies of
the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such
number of copies of the Prospectus (as amended or supplemented) as such
Underwriter may reasonably request. The Prospectus and any amendments or
supplements thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations, the 1934 Act and the 1934
Act Regulations and the 1939 Act and the 1939 Act Regulations so as to permit
the completion of the distribution of the Securities as contemplated in this
Agreement and in the Prospectus. If at any time when a prospectus is required by
the 1933 Act to be delivered in connection with sales of the Securities, any
event shall occur or condition shall exist as a result of which it is necessary,
in the opinion of counsel for the Underwriters or for the Company, to amend the
Registration Statement or amend or supplement the Prospectus in order that the
Prospectus will not include any untrue statements of a material fact or omit to
state a material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the opinion of such
counsel, at any such time to amend the Registration Statement or amend or
supplement the Prospectus in order to comply with the requirements of the 1933
Act or the 1933 Act Regulations, the Company will promptly prepare and file with
the Commission, subject to Section 3(b), such amendment or supplement as may be
necessary to correct such statement or omission or to make the Registration
Statement or the Prospectus comply
14
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with such requirements, and the Company will furnish to the Underwriters
such number of copies of such amendment or supplement as the Underwriters
may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts,
in cooperation with the Underwriters, to qualify the Securities and the
shares of Common Stock issuable upon conversion of Securities for offering
and sale under the applicable securities laws of such states and other
jurisdictions (domestic or foreign) as the Representative may designate and
to maintain such qualifications in effect for a period of not less than one
year from the later of the effective date of the Registration Statement and
any Rule 462(b) Registration Statement; provided, however, that the Company
shall not be obligated to file any general consent to service of process or
to qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is
not otherwise so subject. In each jurisdiction in which the Securities
have been so qualified, the Company will file such statements and reports
as may be required by the laws of such jurisdiction to continue such
qualification in effect for a period of not less than one year from the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement. The Company will also supply the Underwriters with
such information as is necessary for the determination of the legality of
the Securities for investment under the laws of such jurisdictions as the
Underwriters may request.
(g) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds received
by it from the sale of the Securities in the manner specified in the
Prospectus under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to (a) effect and
maintain the quotation of the Common Stock issuable upon conversion of the
Securities on the Nasdaq National Market and will file with the Nasdaq
National Market all documents and notices required by the Nasdaq National
Market of companies that have securities that are traded in the over-the-
counter market and quotations for which are reported by the Nasdaq National
Market and (b) effect and maintain the quotation of the Securities on the
Nasdaq SmallCap Market and will file with the Nasdaq SmallCap Market all
documents and notices required by the Nasdaq SmallCap Market of companies
that have securities that are traded in the over-the-counter market and
quotations for which are reported by the Nasdaq SmallCap Market.
(j) Restriction on Sale of Securities. During a period of 180 days
from the date of the Prospectus, the Company will not, without the prior
written consent of KBW,
15
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directly or indirectly, issue, sell, offer or contract to sell, grant any
option for the sale of, or otherwise transfer or dispose of, any debt
securities of the Company.
(k) Restriction on Sale of Common Stock. During a period of 180 days
from the date of the Prospectus, the Company will not, without the prior
written consent of KBW, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase
or otherwise transfer or dispose of any share of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
or file or cause to be filed any registration statement under the 1933 Act
with respect to any of the foregoing or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the Common
Stock, whether any such swap or transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Securities to be sold hereunder, (B) any shares of Common Stock
issued by the Company upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof and referred to in
the Prospectus, (C) any shares of Common Stock issued or options to
purchase Common Stock granted pursuant to existing employee benefit plans
of the Company referred to in the Prospectus or (D) any shares of Common
Stock issued pursuant to any non-employee director stock plan or dividend
reinvestment plan.
(l) Reporting Requirements. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant
to the 1934 Act within the time periods required by the 1934 Act and the
1934 Act Regulations.
(m) Compliance with Cuba Act. In accordance with the Cuba Act and
without limitation to the provisions of Sections 6 and 7 hereof, the
Company agrees to indemnify and hold harmless each Underwriter from and
against any and all loss, liability, claim, damage and expense whatsoever
(including fees and disbursements of counsel), as incurred, arising out of
any violation by the Company of the Cuba Act.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all
-------------------
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters, the Indenture
and such other documents as may be required in connection with the offering,
purchase, sale, issuance or delivery of the Securities or the issuance or
delivery of the Common Stock issuable upon conversion thereof, (iii) the
preparation, issuance and delivery of the certificates for the Securities to the
Underwriters and the certificates for the Common Stock issuable upon conversion
thereof, (iv) the fees and disbursements of the Company's counsel, accountants
and
16
<PAGE>
other advisors, (v) the qualification of the Securities and the Common Stock
under securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any Term
Sheets and of the Prospectus and any amendments or supplements thereto, (vii)
the preparation, printing and delivery to the Underwriters of copies of the Blue
Sky Survey and any supplement thereto, (viii) the fees and expenses of the
Trustee, including the fees and disbursements of counsel for the Trustee in
connection with the Indenture and the Securities, (ix) the fees and expenses of
any transfer agent or registrar for the Common Stock, (x) any fees payable in
connection with the rating of the Securities, (xi) the filing fees incident to,
and the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities Dealers,
Inc. (the "NASD") of the terms of the sale of the Securities and (xii) the fees
and expenses incurred in connection with the inclusion of the Securities in the
Nasdaq SmallCap Market and the Common Stock issuable upon conversion thereof in
the Nasdaq National Market.
(b) Termination of Agreement. If this Agreement is terminated by the
Representative in accordance with the provisions of Section 5 or Section 9(a)(i)
hereof, the Company shall reimburse the Underwriters for all of their out-of-
pocket expenses, including the reasonable fees and disbursements of counsel for
the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
---------------------------------------
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any Subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel to the
Underwriters. A prospectus containing the Rule 430A Information shall have
been filed with the Commission in accordance with Rule 424(b) (or a post-
effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A) or, if
the Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) Opinion of Counsel for Company. At Closing Time, the
Representative shall have received the favorable opinion, dated as of
Closing Time, of Hinkle, Cox,
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Eaton, Coffield & Hensley, L.L.P., counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other
Underwriters to the effect set forth in Exhibit A hereto and to such
further effect as counsel to the Underwriters may reasonably request.
(c) Opinion of Counsel for Underwriters. At Closing Time, the
Representative shall have received the favorable opinion, dated as of
Closing Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Underwriters, in form and substance satisfactory to the Underwriters,
together with signed or reproduced copies of such letter for each of the
other Underwriters. In giving such opinion such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the law of the
State of New York and the federal law of the United States, upon the
opinions of counsel satisfactory to the Representative. Such counsel may
also state that, insofar as such opinion involves factual matters, they
have relied, to the extent they deem proper, upon certificates of officers
of the Company and its subsidiaries and certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and
the Representative shall have received a certificate of the President or a
Vice President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of Closing Time, to the effect
that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true and correct
with the same force and effect as though expressly made at and as of
Closing Time, (iii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or
prior to Closing Time, and (iv) no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or are contemplated by the
Commission.
(e) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Representative shall have received from KPMG Peat Marwick
LLP a letter dated such date, in form and substance satisfactory to the
Representative, together with signed or reproduced copies of such letter
for each of the other Underwriters containing statements and information of
the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(f) Bring-down Comfort Letter. At Closing Time, the Representative
shall have received from KPMG Peat Marwick LLP a letter, dated as of
Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to
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<PAGE>
subsection (e) of this Section, except that the specified date referred to
shall be a date not more than three business days prior to Closing Time.
(g) Approval of Listing. At Closing Time, (i) the Securities shall
have been approved for inclusion in the Nasdaq SmallCap Market, subject
only to official notice of issuance and (i) the Common Stock issuable on
conversion of the Securities shall have been approved for inclusion in the
Nasdaq National Market, subject only to official notice of issuance.
(h) No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(i) Lock-up Agreements. At the date of this Agreement, the
Representative shall have received an agreement substantially in the form
of Exhibit B hereto signed by the persons listed on Schedule D hereto.
(j) Conditions to Purchase of Option Securities. In the event that
the Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the Option Securities, the representations
and warranties of the Company contained herein and the statements in any
certificates furnished by the Company or any Subsidiary of the Company
hereunder shall be true and correct as of each Date of Delivery and, at the
relevant Date of Delivery, the Representative shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
---------------------
Delivery, of the President or a Vice President of the Company and of
the chief financial or chief accounting officer of the Company
confirming that the certificate delivered at the Closing Time pursuant
to Section 5(d) hereof remains true and correct as of such Date of
Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion of
------------------------------
Hinkle, Cox, Eaton, Coffield & Hensley, L.L.P., counsel for the
Company, in form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to
the same effect as the opinion required by Section 5(b) hereof.
(iii) Opinion of Counsel for Underwriters. The favorable
-----------------------------------
opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to
the same effect as the opinion required by Section 5(c) hereof.
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<PAGE>
(iv) Bring-down Comfort Letter. A letter from KPMG Peat Marwick
-------------------------
LLP, in form and substance satisfactory to the Representative and
dated such Date of Delivery, substantially in the same form and
substance as the letter furnished to the Representative pursuant to
Section 5(f) hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more than
five days prior to such Date of Delivery.
(k) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the Underwriters shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them
to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection
with the issuance and sale of the Securities as herein contemplated shall
be satisfactory in form and substance to the Representative and counsel for
the Underwriters.
(l) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representative by notice to the
Company at any time at or prior to Closing Time or such Date of Delivery,
as the case may be, and such termination shall be without liability of any
party to any other party except as provided in Section 4 and except that
Sections 1, 3(m), 6, 7 and 8 shall survive any such termination and remain
in full force and effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification of Underwriters. The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
20
<PAGE>
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by KBW), reasonably incurred
in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever based upon any such untrue statement
or omission, or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through KBW expressly for use in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto).
(b) Indemnification of Company, Directors and Officers. Each Underwriter
severally agrees to indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through KBW
expressly for use in the Registration Statement (or any amendment thereto) or
such preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by KBW, and, in the case of
parties indemnified pursuant to Section 6(b)
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<PAGE>
above, counsel to the indemnified parties shall be selected by the Company. An
indemnifying party may participate at its own expense in the defense of any such
action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in Section 6
------------
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Underwriters on the
other hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering
22
<PAGE>
of the Securities pursuant to this Agreement (before deducting expenses)
received by the Company and the total underwriting discount received by the
Underwriters, in each case as set forth on the cover of the Prospectus, or, if
Rule 434 is used, the corresponding location on the Term Sheet, bear to the
aggregate initial public offering price of the Securities as set forth on such
cover.
The relative fault of the Company on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the principal amount of Initial Securities set forth opposite
their respective names in Schedule A hereto and not joint.
23
<PAGE>
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or any of its subsidiaries submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any Underwriter or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the Underwriters.
SECTION 9. Termination of Agreement.
------------------------
(a) Termination; General. The Representative may terminate this Agreement,
by notice to the Company, at any time at or prior to Closing Time (i) if there
has been, since the time of execution of this Agreement or since the respective
dates as of which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of business, or
(ii) if there has occurred any material adverse change in the financial markets
in the United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representative, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the Nasdaq National Market or the Nasdaq
SmallCap Market, or if trading generally on the American Stock Exchange or the
New York Stock Exchange or in the Nasdaq National Market or in the Nasdaq
SmallCap Market has been suspended or materially limited, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices have been
required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) if a banking moratorium has been declared by
Federal, New York or New Mexico authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof, and provided further that Sections 1,
3(m), 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the Underwriters. If one or more of
------------------------------------------
the Underwriters shall fail at Closing Time to purchase the Securities which it
or they are obligated to purchase under this Agreement (the "Defaulted
Securities"), the Representative shall have the right, but not the obligation,
within 24 hours thereafter, to make arrangements for one or more of the non-
defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, the Representative shall not
have completed such arrangements within such 24-hour period, then this Agreement
shall terminate without liability on the part of any non-defaulting Underwriter.
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No action pursuant to this Section shall relieve any defaulting Underwriter
from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement, either the Representative or the Company shall have the right to
postpone the Closing Time for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangement.
SECTION 11. Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representative at Two World Trade Center,
New York, New York 10048, attention of Albert A. De Almeida, Jr., Senior Vice
President; and notices to the Company shall be directed to it at 111 Lomas
Avenue NW, Albuquerque, New Mexico 87102, attention of Michael R. Sanford,
President.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
-------
and be binding upon the Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
25
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Underwriters and the Company in accordance with its terms.
Very truly yours,
FIRST STATE BANCORPORATION
By ____________________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
KEEFE, BRUYETTE & WOODS, INC.
By ______________________________________
Authorized Signatory
For itself and as Representative of the other Underwriters named in Schedule A
hereto.
26
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Principal
Amount of
Name of Underwriter Securities
- ------------------- ----------
<S> <C>
Keefe, Bruyette & Woods, Inc. ...........................
------------
Total.................................................... $
============
</TABLE>
Sch A - 1
<PAGE>
SCHEDULE B
FIRST STATE BANCORPORATION
$__________ Convertible Subordinated Debentures due 2017
1. The initial public offering price of the Securities shall be __% of
the principal amount thereof, plus accrued interest, if any, from the date of
issuance.
2. The purchase price to be paid by the Underwriters for the Initial
Securities shall be __% of the principal amount thereof.
3. The interest rate on the Securities shall be __% per annum.
4. The Securities shall be convertible into shares of common stock, no
par value per share, of the Company at an initial conversion price of $____ per
share (equivalent to a conversion rate of ____ shares per $1,000 principal
amount of Securities).
5. [Include the terms of any optional or mandatory redemption and other
price-related terms.]
Sch B - 1
<PAGE>
SCHEDULE C
First State Bank of Taos
Sch C - 1
<PAGE>
SCHEDULE D
Michael R. Stanford
H. Patrick Dee
Brian C. Reinhardt
Eloy A. Jeantete
Leonard J. DeLayo, Jr.
Bradford M. Johnson
Sherman McCorkle
Douglase M. Smith, M.D.
Herman N. Wisenteiner
Manuel Lujan, Jr.
Sch D - 1
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of New Mexico.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under each of the
Purchase Agreement and the Indenture.
(iii) The Company is duly registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended. The activities of each of the
Subsidiaries are permitted to subsidiaries of a bank holding company.
(iv) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure or failures so to
qualify or to be in good standing would not, individually or in the aggregate,
result in a Material Adverse Effect.
(v) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus in the column entitled "Actual" under the
caption "Capitalization" (except for subsequent issuances, if any, pursuant to
the Purchase Agreement or pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectus or pursuant to the exercise of
convertible securities or options referred to in the Prospectus); the shares of
issued and outstanding capital stock of the Company have been duly authorized
and validly issued and are fully paid and non-assessable; and none of the
outstanding shares of capital stock of the Company was issued in violation of
the preemptive or other similar rights of any securityholder of the Company.
(vi) Each Subsidiary has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure or failures so to qualify or to be in good standing
would not, individually or in the aggregate, result in a Material Adverse
Effect; except as otherwise disclosed in the Registration
A-1
<PAGE>
Statement, all of the issued and outstanding capital stock of each Subsidiary
has been duly authorized and validly issued, is fully paid and non-assessable
and, to the best of our knowledge, is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity; none of the outstanding shares of capital stock of
any Subsidiary was issued in violation of the preemptive or similar rights of
any securityholder of such Subsidiary.
(vii) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(viii) The Indenture has been duly authorized, executed and delivered by
the Company and (assuming the due authorization, execution and delivery thereof
by the Trustee) constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors' rights generally
and except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
(ix) The Securities are in the form contemplated by the Indenture, have
been duly authorized by the Company and, assuming that the Securities have been
duly authenticated by the Trustee in the manner described in its certificate
delivered to you today (which fact such counsel need not determine by an
inspection of the Securities), the Securities have been duly executed, issued
and delivered by the Company and constitute valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors' rights generally
and except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law), and will be entitled to the benefits of the Indenture.
(x) Upon issuance and delivery of the Securities in accordance with the
Purchase Agreement and the Indenture, the Securities shall be convertible at the
option of the holder thereof for shares of Common Stock in accordance with the
terms of the Securities and the Indenture; the shares of Common Stock and the
Rights issuable upon conversion of the Securities have been duly authorized and
reserved for issuance upon such conversion by all necessary corporate action;
such shares of Common Stock, when issued upon such conversion, will be validly
issued and will be fully paid and non-assessable and no holder of such Common
Stock is or will be subject to personal liability by reason of being such a
holder.
(xi) The issuance of the shares of Common Stock upon conversion of the
Securities is not subject to the preemptive or other similar rights of any
securityholder of the Company.
(xii) The Indenture has been duly qualified under the 1939 Act.
A-2
<PAGE>
(xiii) The Securities and the Indenture conform as to legal matters in all
material respects to the descriptions thereof contained in the Prospectus.
(xiv) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectus pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); and, to the best of our knowledge, no
stop order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission.
(xv) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectus, excluding the documents incorporated by reference
therein, and each amendment or supplement to the Registration Statement and
Prospectus, excluding the documents incorporated by reference therein, as of
their respective effective or issue dates (other than the financial statements
and supporting schedules included therein or omitted therefrom, and the
Trustee's Statement of Eligibility on Form T-1 (the "Form T-1"), as to which we
need express no opinion) complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations.
(xvi) The documents incorporated by reference in the Prospectus (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which we need express no opinion), when they were filed
with the Commission complied as to form in all material respects with the
requirements of the 1934 Act and the rules and regulations of the Commission
thereunder.
(xvii) If Rule 434 has been relied upon, the Prospectus was not
"materially different," as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time it became effective.
(xviii) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company and the
requirements of the Nasdaq National Market.
(xix) To the best of our knowledge, there is not pending or threatened
any action, suit, proceeding, inquiry or investigation, to which the Company or
any subsidiary is a party, or to which the property or assets of the Company or
any subsidiary is subject, before or brought by any court or governmental agency
or body, domestic or foreign, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of the
transactions contemplated in the Purchase Agreement or the performance by the
Company of its obligations thereunder or the consummation of the Redemption or
that is required to be described in the Prospectus that is not described as
required; and to the best of our knowledge, all pending
A-3
<PAGE>
legal or governmental proceedings to which the Company or any of its
subsidiaries is a party or that affect any of their respective properties or
assets that are not described in the Prospectus, including ordinary routine
litigation incidental to the business, would not reasonably be expected to
result in a Material Adverse Effect.
(xx) The information in the Prospectus under "Summary", "Risk Factors -
Sources of Payments to Holders of Debentures; Ability to Pay Dividends; Possible
Issuance of Additional Securities", "Risk Factors - Subordination", "Risk
Factors - Limited Covenants", "Risk Factors -Anti-takeover Provisions", "Risk
Factors - Regulatory Oversight", "Risk Factors - Regulation of Control",
"Regulation and Supervision", "Management - Executive Insurance", "Management -
Stock Option Agreement", "Management - Executive Income Protection Plan",
"Management - Compensation of Directors", "Management - Section 401(k) Plan",
"Management - Incentive Plans", "Management - Indemnification", "Description of
the Debentures" and "Description of Capital Stock" and in the Registration
Statement under Item 15, to the extent that it constitutes matters of law,
summaries of legal matters, the Company's charter and bylaws, documents or legal
proceedings, or legal conclusions, has been reviewed by us and is correct in all
material respects.
(xxi) To the best of our knowledge, there are no statutes or regulations
that are required to be described in the Prospectus that are not described as
required.
(xxii) All descriptions in the Registration Statement of contracts and
other documents to which the Company or its subsidiaries are a party are
accurate in all material respects; to the best of our knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto,
and the descriptions thereof or references thereto are correct in all material
respects.
(xxiii) To the best of our knowledge, neither the Company nor any
subsidiary is in violation of its charter or by-laws and no default by the
Company or any subsidiary exists in the due performance or observance of any
material obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration Statement or the
Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement.
(xxiv) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act and the
1933 Act Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states and except for the
qualification of the Indenture under the 1939 Act, as to which we need express
no opinion) is necessary or required in connection with the due authorization,
execution and delivery of the Purchase Agreement or the due execution, delivery
or performance of the Indenture by the
A-4
<PAGE>
Company or for the offering, issuance, sale or delivery of the Securities and
the issuance of shares of Common Stock upon conversion of Securities or the
consummation of the Redemption.
(xxv) The execution, delivery and performance of the Purchase Agreement,
the Indenture and the Securities and the consummation of the transactions
contemplated in the Purchase Agreement and in the Registration Statement
(including (a) the issuance and sale of the Securities and the use of the
proceeds from the sale of the Securities as described in the Prospectus under
the caption "Use Of Proceeds", (b) the issuance of the shares of Common Stock
issuable upon conversion of the Securities and (c) the consummation of the
Redemption) and compliance by the Company with its obligations under the
Purchase Agreement, the Indenture and the Securities do not and will not,
whether with or without the giving of notice or lapse of time or both, conflict
with or constitute a breach of, or default or Repayment Event (as defined in
Section 1(a)(xiv) of the Purchase Agreement) under, give rise to any right of
termination under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any subsidiary
pursuant to any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or any other agreement or instrument, known to us, to
which the Company or any subsidiary is a party or by which it or any of them may
be bound, or to which any of the property or assets of the Company or any
subsidiary is subject (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not, individually or in the aggregate, have a
Material Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any subsidiary, or any
applicable law, statute, rule, regulation, judgment, order, writ or decree,
known to us, of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any subsidiary or any of their
respective properties, assets or operations.
(xxvi) The Company is not, and upon the issuance and sale of the
Securities as contemplated in the Purchase Agreement and the application of the
net proceeds therefrom as described in the Prospectus will not be, an
"investment company" or an entity "controlled" by an "investment company," as
such terms are defined in the 1940 Act.
Nothing has come to our attention that would lead us to believe that the
Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included or incorporated by
reference therein or omitted therefrom and the Form T-1, as to which we need
make no statement), at the time such Registration Statement or any such
amendment became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus or any
amendment or supplement thereto (except for financial statements and schedules
and other financial data included or incorporated by reference therein or
omitted therefrom and the Form T-1, as to which we need make no statement), at
the time the Prospectus was issued, at the time any such amended or supplemented
prospectus was issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
A-5
<PAGE>
In rendering such opinion, such counsel may rely, as to matters of
fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A-6
<PAGE>
[Form of lock-up pursuant to Section 5(j)]
Exhibit B
., 1997
KEEFE, BRUYETTE & WOODS, INC.
as Representative of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
Two World Trade Center
New York, New York 10048
Re: Proposed Public Offering by First State Bancorporation
------------------------------------------------------
Dear Sirs:
The undersigned, a stockholder [and an officer and/or director]/1/ of First
State Bancorporation, a New Mexico corporation (the "Company"), understands that
Keefe, Bruyette & Woods, Inc. ("KBW") proposes to enter into a Purchase
Agreement (the "Purchase Agreement") with the Company providing for the public
offering of $__________ aggregate principal amount of the Company's Convertible
Subordinated Debentures due 2017 (the "Securities"). In recognition of the
benefit that such an offering will confer upon the undersigned as a stockholder
[and an officer and/or director]/2/ of the Company, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agrees with each underwriter to be named in the
Purchase Agreement that, during a period of 180 days from the date of the
Purchase Agreement, the undersigned will not, without the prior written consent
of KBW, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of, or otherwise dispose of or
transfer any shares of the Company's Common Stock, no par value per share (the
"Common Stock"), or any securities convertible into or exchangeable or
exercisable for Common Stock, whether now owned or hereafter acquired by the
undersigned or with respect to which the undersigned has or hereafter acquires
the power of disposition, or file or caused to be filed any registration
statement under the Securities Act of 1933, as amended, with respect to any of
the foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of Common Stock or any securities convertible
into or exchangeable for Common Stock, whether any such swap or transaction is
to be settled by delivery of Common Stock or other securities, in cash or
otherwise.
Very truly yours,
Signature:
-----------------------
Print Name:
----------------
- ----------------------------
/1/ Delete or revise bracketed language as appropriate.
B-1
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
FIRST STATE BANCORPORATION
a New Mexico corporation
In accordance with Section 53-13-7 of the New Mexico Business
Corporation Act and pursuant to a resolution duly adopted by its board of
directors, First State Bancorporation hereby restates its articles of
incorporation. These restated articles of incorporation correctly set forth
without change the corresponding provisions of the articles of incorporation as
theretofore amended and they supersede the original articles of incorporation
and all amendments thereto:
ARTICLE I
The name of the corporation is First State Bancorporation.
ARTICLE 2
The address of the corporation's registered office in the State of New
Mexico is 111 Lomas Avenue, NW, Albuquerque, New Mexico, 87102.
ARTICLE 3
The purpose of the corporation shall be primarily to purchase, own and
hold the stock of other corporations, and do every act and thing covered
generally by the denomination "holding corporation," and especially to direct
the operations of the other corporations through the ownership of stock therein;
to purchase, subscribe for, acquire, own, hold, sell, exchange, assign,
transfer, create security interests in, pledge or otherwise dispose of shares,
voting trust certificates for shares of capital stock or any bonds, notes,
securities or evidence of indebtedness created by any other corporation or
corporations organized under the laws of this state or any other state or
district or country, nation or government, and also bonds and evidences of
indebtedness of the United States or of any state, district, territory,
dependency or country or subdivision or municipality thereof; to issue and
exchange therefor shares of the capital stock, bonds, notes or other
obligations of the corporation and while the owner thereof to exercise all the
rights, powers and privileges of ownership including the right to vote on any
shares of stock or voting trust certificates so owned; to promote, lend money to
and guarantee the dividends, stocks, bonds, notes, evidences of indebtedness,
contracts or other obligations owed, and otherwise aid in any manner, which
shall be lawful, any corporation or association of which any bonds, stocks,
voting trust certificates or other securities or evidences of indebtedness shall
be held by or for this corporation, or in which, or in the welfare of which,
this corporation shall have any interest and to do any acts and things permitted
by law and designed to protect, preserve, improve or enhance the value of any
such bonds, stocks or other securities or evidences or indebtedness or the
property of this corporation.
Further, to engage in the conduct of financial management and activities
related thereto; to transact any lawful business for which corporations may be
incorporated under the Business Corporation Act of New Mexico, to have and to
exercise such additional powers, privileges and franchise as law may allow,
even though not specifically provided herein.
<PAGE>
ARTICLE 4
Section 4.1 Authorized Shares. The total number of shares that the
-----------------
corporation shall have authority to issue is five million (5,000,000) shares, of
which four million (4,000,000) shares shall be common stock, no par value and
one million (1,000,000) shares shall be preferred shares as determined pursuant
to Section 4.3 hereof.
Section 4.2 Common Stock. Each holder of common stock shall be entitled to
------------
one vote for each share of common stock held on all matters as to which holders
of common stock shall be entitled to vote. Except for and subject to those
preferences, rights, and privileges expressly granted to the holders of
preferred stock, and except as may be provided by the laws of the State of New
Mexico, the holders of common stock shall have exclusively all other rights of
stockholders of the corporation, including, but not by any way of limitation,
(i) the right to receive dividends, when and as declared by the board of
directors out of assets lawfully available therefor, and (ii) in the event of
any distribution of assets upon the dissolution and liquidation of the
corporation, the right to receive ratably and equally all of the assets of the
corporation remaining after the payment to the holders of preferred stock of the
specific amounts, if any, which they are entitled to receive as may be provided
herein or pursuant hereto.
Section 4.3 Preferred Stock. The board of directors of the corporation is
---------------
authorized, subject to limitations prescribed by law, to provide by resolution
or resolutions for the issuance of the shares of preferred stock as a class or
in one or more series, and, by filing a certificate of designations pursuant to
the Business Corporation Act of New Mexico setting forth a copy of such
resolution or resolutions to establish from time to time the number of shares to
be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of the class or of each such series and
the qualifications, limitations, and restrictions thereof. The authority of the
board of directors with respect to the class or each series shall include, but
not be limited to, determination of the following:
(i) The number of shares constituting any series and the distinctive
designation of that series;
(ii) The dividend rate on the shares of the class or of any series,
whether dividends shall be cumulative, and if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends
(iii) Whether the class or any series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(iv) Whether the class or any series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the board of directors shall
determine;
(v) Whether or not the shares of the class or of any series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the date or date upon or after which they shall be redeemable and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
- 2 -
<PAGE>
(vi) Whether the class or any series shall have a sinking fund for the
redemption or purchase of shares of the class or of that series, and, if so, the
terms and amount of such sinking fund;
(vii) The rights of the shares of the class or of any series in the event
of voluntary or involuntary dissolution or winding up of the corporation, and
the relative rights of priority, if any, of payment of shares of the class or of
that series;
(viii) Any other powers, preferences, rights, qualifications, limitations,
and restrictions of the class or of any series.
Section 4.4 Cumulative Voting. Cumulative voting shall not be permissible
-----------------
in the election of directors or for any other purpose.
Section 4.5 Pre-emptive Rights. No shareholder shall be entitled to
------------------
pre-emptive rights.
ARTICLE 5
The name and mailing address of the incorporator are:
Leonard J. Delayo, Jr., P.C.
Post Office Box 1590
Albuquerque, New Mexico 87103
ARTICLE 6
Section 6.1. Number and Election of Directors. The number of directors
--------------------------------
shall be fixed as provided in the Bylaws of the Corporation (the "Bylaws"), but
in no case shall the number of directors elected by the holders of the Common
Stock be less than nine, or greater than fifteen. The Board of Directors shall
be divided into three classes, designated "Class I," "Class II," and "Class
III." The number of directors in each class elected by the holders of the Common
Stock, shall be as nearly equal as possible. The term of directors in Class I
shall be initially one year and thereafter three years. The term of directors in
Class II shall be initially two years and thereafter three years. The term of
directors in Class III shall be three years. The initial term for each of the
foregoing classes shall commence on the election of directors at the annual
meeting of shareholders in 1996. At each annual meeting of shareholders
commencing with the annual meeting in 1997, a number of directors equal to the
number of the class whose term expires at the meeting shall be elected (unless
the number of directors in such class has been increased or decreased, in which
case the larger or smaller number shall be elected) by the affirmative vote of
the holders of the majority of the shares represented at the meeting either in
person or by proxy and entitled to vote on the election of directors.
Notwithstanding the foregoing, each director shall hold office until his or her
successor is chosen and qualified in his or her stead.
Newly created directorships resulting from any increase in the number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office, or other cause
may be filled by a majority vote of the
-3-
<PAGE>
directors then in office (even though the number of directors then in office may
constitute less than a quorum). A director elected to fill a vacancy shall be
elected for the unexpired term of his or her predecessor in office. A director
elected to fill an increase in the number of directors may be elected by the
Board of Directors for a term of office continuing only until the next election
of directors by the shareholders.
Any repeal or modification of this Section 6.1 by the shareholders of the
corporation shall not adversely affect any right or protection of a director of
the Corporation in respect of any act or omission before the repeal or
modification.
Section 6.2 Bylaw Amendments. The board of directors of the corporation is
----------------
expressly authorized to make, alter, or repeal the bylaws of the corporation,
but such authorization shall not divest the stockholders of the power, nor limit
their power, to adopt, amend, or repeal bylaws.
ARTICLE 7
No director of the corporation shall be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director unless:
I. the director has breached or failed to perform the duties of the
directors office in compliance with Subsection B of Section 53-11-35 NMSA 1978;
and
II. the breach or failure to perform constitutes:
A. negligence, willful misconduct or recklessness in the case of a
director who has either an ownership interest in the corporation or receives in
his capacity as a director, or as an employee of the corporation, compensation
of more than two thousand dollars ($2,000) from the corporation in any calendar
year; or
B. willful misconduct or recklessness in the case of a director,
who does not have an ownership interest in the corporation and does not receive
in his capacity as director, or as an employee of the corporation compensation
of more than two thousand dollars ($2,000) from the corporation in any calendar
year.
No amendment to or repeal of these provisions shall apply to or have any
effect on the liability or alleged liability of any director of the corporation
for or with respect to any acts or omissions of such director occurring prior to
such amendment.
Notwithstanding anything contained herein to the contrary, director
liability shall be eliminated to the greatest extent possible as is now or in
the future allowed by the laws of New Mexico.
ARTICLE 8
The corporation shall have authority, to the fullest extent now or
hereafter permitted by the Business Corporation Act of New Mexico, or by any
other applicable law, to enter into any
-4-
<PAGE>
contract of transaction with one or more of its directors or officers, or with
any corporation, partnership, joint venture, trust, association, or other entity
in which one or more of its directors or officers are directors or officers, or
have a financial interest, notwithstanding such relationships and
notwithstanding the fact that the director or officer is present at or
participates in the meeting of the board of directors or committee thereof which
authorizes the contract or transaction.
ARTICLE 9
If any person, firm, or corporation, hereinafter referred to as the Tender
Offeror, or any person, firm, or corporation controlling the Tender Offeror,
controlled by the Tender Offeror, or under common control with the Tender
Offeror, or any group of which the Tender Offeror or any of the foregoing
persons, firms, or corporations are members, or any other group controlling the
Tender Offeror, controlled by the Tender Offeror, or under common control with
the Tender Offeror owns of record, or owns beneficially, directly or
indirectly, more than 10 percent of any class of equity security of this
Company, then any merger or consolidation of the Company with the Tender
Offeror, or any sale, lease, or exchange of substantially all of the assets of
this Company or the Tender Offeror to the other may not be effected unless a
meeting of shareholders of this Company is held to act thereon and the votes of
the holders of voting securities of this company representing not less than 66.6
percent of the votes entitled to vote thereon voted in favor thereof. As used
herein, the term group includes persons, firms, and corporations acting in
concert, whether or not as a formal group, and the term equity security means
any share or similar security; or any security convertible, with or without
consideration, into such a security, or carrying any warrant to subscribe to or
purchase such a security; or any such warrant or right. The foregoing provision
is in addition to the requirements of the New Mexico Business Corporation Act
and may not be amended or repeated without an affirmative vote of at least 66.6
percent of the shares entitled to vote thereon.
ARTICLE 10
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this certificate of incorporation, in the manner now or
hereafter prescribed by statute and this certificate of incorporation, and all
rights conferred upon officers, directors and stockholders herein are granted
subject to this reservation.
ARTICLE 11
Subject to the rights of holders of any class or series of shares
ranking prior to the Common Stock in respect of dividends or assets, only
persons who are nominated in accordance with the procedures in this Article
shall be eligible to be nominated as directors at any meeting of the
shareholders of the Corporation. At any meeting of the shareholders of the
Corporation, nominations of persons for election to the Board of Directors may
be made (1) by or at the direction of the Board of Directors or (2) by any
shareholder of the Corporation who is a shareholder of record at the time of
giving the notice provided for in this Article, who shall be entitled to vote at
the meeting, and who complies with the notice procedures set forth in this
Article. For a nomination to be properly brought before a shareholders' meeting
by a shareholder, timely written notice shall be made to the Secretary of the
Corporation. The
-5-
<PAGE>
shareholder's notice shall be delivered to, or mailed and received at, the
principal office of the Corporation not less than 35 days nor more than 50 days
before the meeting; provided, however, if less than 45 days notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholders to be timely must be received not later than the
close of business on the tenth day following the day on which the notice of the
meeting was mailed or the public disclosure was made. The shareholder's notice
shall set forth (1) as to each person whom the shareholder proposed to nominate
for election or reelection as a director, all information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required by applicable law (including the person's
written consent to being named as a nominee and to serving as a director if
elected); and (2)(a) the name and address, as they appear on the Corporation's
books, of the shareholder, (b) a description of all arrangements or
understandings between the shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder. The shareholder shall also comply
with all applicable requirements of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the rules and regulations thereunder with respect
to the matters in this paragraph. If the chairman of the meeting determines and
declares at the meeting that a nomination was not made in accordance with the
procedures prescribed by this Article, the nomination shall not be accepted.
At any meeting of the shareholders of the Corporation, only such business
shall be conducted as has been brought before the meeting (1) by or at the
direction of the Board of Directors or (2) by any shareholder of the Corporation
who is a shareholder of record at the time of giving the notice provided for in
this Article, who shall be entitled to vote at the meeting, and who complies
with the notice procedures set forth in this Article. For business to be
properly brought before a shareholder's meeting by a shareholder, timely written
notice shall be made to the Secretary of the Corporation. The shareholder's
notice shall be delivered to, or mailed and received at, the principal office of
the Corporation not less than 35 days or more than 50 days before the meeting;
provided, however, if less than 45 day notice or prior public disclosure of the
date of the meeting is given or made to shareholders, notice by the shareholder
to be timely must be received not later than the close of business on the tenth
day following the day on which the notice of the meeting was mailed or the
public disclosure was made. The shareholder's notice shall set forth (1) a brief
description of the business desired to be brought before the meeting and the
reasons for considering the business, and (2)(a) the name and address, as they
appear on the Corporation's books, or the shareholder, (b) a representation that
the shareholder is a holder of record of the Common Stock entitled to vote at
the meeting on the date of the notice and intends to appear in person or by
proxy at the meeting to present the business specified in the notice, and (c)
any material interest of the shareholder in the proposed business. The
shareholder shall also comply with all applicable requirements of the 1934 Act
and the rules and regulations thereunder with respect to the matters set forth
in this paragraph. If the chairman of the meeting determines and declares at the
meeting that the proposed business was not brought before the meeting in
accordance with the procedures prescribed by this paragraph, the business shall
not be considered.
The notice procedures set forth in this Article 11 do not change or limit
any procedures the Corporation may require in accordance with applicable law
with respect to the inclusion of matters in the Corporation's proxy statement.
-6-
<PAGE>
ARTICLE 12
These Articles of Incorporation may be amended by the affirmative vote of
the holders of a majority of the shares of the Common Stock.
Notwithstanding the foregoing or any other provision of these Articles of
Incorporation or the Bylaws (and notwithstanding that a lesser percentage may be
specified by law), to amend, alter, change, or repeal, or to adopt any
provisions inconsistent with, Section 6.1, Article 11 or this paragraph of
Article 12, or to remove any director of the Corporation without cause, the
affirmative vote of the holders of at least two-thirds of the Common Stock shall
be required.
Executed on October 25, 1996.
----------
/s/ Michael R. Stanford
------------------------------
Michael R. Stanford, President
/s/ H. Patrick Dee
------------------------------
H. Patrick Dee, Secretary
Under penalties of perjury, I declare and affirm that I am one of the
above corporate officers who signed the foregoing document executed by the
corporation, and that the statements contained therein are true and correct to
the best of my knowledge, information and belief.
/s/ H. Patrick Dee
------------------------------
-7-
<PAGE>
================================================================================
FIRST STATE BANCORPORATION,
Issuer
------
TO
FIRST TRUST NATIONAL ASSOCIATION
Trustee
-------
_______________
Indenture
Dated as of , 1997
----------------------------
_______________
$__________
__% Convertible Subordinated Debentures Due 2017
================================================================================
<PAGE>
FIRST STATE BANCORPORATION
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------------------- ----------
<S> <C>
(S) 310(a)(1) .................................... 609
(a)(2) .................................... 609
(a)(3) .................................... Not
Applicable
(a)(4) .................................... Not
Applicable
(b) .................................... 608
610
(S) 311(a) .................................... 613
(b) .................................... 613
(S) 312(a) .................................... 701
702(a)
(b) .................................... 702(b)
(c) .................................... 702(c)
(S) 313(a) .................................... 703(a)
(b) .................................... 703(a)
(c) .................................... 703(a)
(d) .................................... 703(b)
(S) 314(a) .................................... 704
(b) .................................... Not
Applicable
(c)(1) .................................... 102
(c)(2) .................................... 102
(c)(3) .................................... Not
Applicable
(d) .................................... Not
Applicable
(e) .................................... 102
(S) 315(a) .................................... 601
(b) .................................... 602
(c) .................................... 601
(d) .................................... 601
(e) .................................... 514
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------------------- ----------
<S> <C>
(S) 316(a) .................................... 101
(a)(1)(A) .................................... 502
512
(a)(1)(B) .................................... 513
(a)(2) .................................... Not
Applicable
(b) .................................... 508
(c) .................................... 104(c)
(S) 317(a)(1) .................................... 503
(a)(2) .................................... 504
(b) .................................... 1003
(S) 318(a) .................................... 107
</TABLE>
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-ii-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS OF THE COMPANY ................................................... 1
</TABLE>
ARTICLE ONE
Definitions and Other Provisions
of General Application
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 101. Definitions ................................................ 1
-----------
"Act" ...................................................... 2
"Affiliate" ................................................ 2
"Agent Member" ............................................. 2
"Applicable Procedures" .................................... 2
"Authenticating Agent" ..................................... 2
"Bank" ..................................................... 2
"Board of Directors" ....................................... 3
"Board Resolution" ......................................... 3
"Business Day" ............................................. 3
"Closing Price" ............................................ 3
"Commission" ............................................... 3
"Common Stock" ............................................. 3
"Company" .................................................. 4
"Company Request" or "Company Order" ....................... 4
"Corporate Trust Office" ................................... 4
"corporation" .............................................. 4
"Custodian" ................................................ 4
"Defaulted Interest" ....................................... 4
"Depositary" ............................................... 4
"DTC" ...................................................... 4
"Entitled Persons" ......................................... 5
"Event of Default" ......................................... 5
"Excess Proceeds" .......................................... 5
"Global Security" .......................................... 5
"Holder" ................................................... 5
"indebtedness for money borrowed" .......................... 5
"Indenture" ................................................ 5
"Interest Payment Date" .................................... 5
"Major Depository Institution
Subsidiary"................................................. 5
"Maturity" ................................................. 6
"Officers' Certificate" .................................... 6
"Opinion of Counsel" ....................................... 6
</TABLE>
- ------------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
"Other Financial Obligations" .............................. 6
"Outstanding" .............................................. 6
"Paying Agent" ............................................. 7
"Person" ................................................... 7
"Predecessor Security" ..................................... 7
"Redemption Date" .......................................... 8
"Redemption Price" ......................................... 8
"Regular Record Date" ...................................... 8
"Responsible Officer" ...................................... 8
"Security Register" and "Security
Registrar" ................................................. 8
"Senior Indebtedness" ...................................... 8
"Special Record Date" ...................................... 8
"Stated Maturity" .......................................... 8
"Subsidiary" ............................................... 9
"Trading Date" ............................................. 9
"Trustee" .................................................. 9
"Trust Indenture Act" ...................................... 9
"Vice President" ........................................... 9
SECTION 102. Compliance Certificates and Opinions ....................... 9
------------------------------------
SECTION 103. Form of Documents Delivered to Trustee ..................... 10
--------------------------------------
SECTION 104. Acts of Holders; Record Dates .............................. 11
-----------------------------
SECTION 105. Notices, Etc., to Trustee and Company ...................... 12
-------------------------------------
SECTION 106. Notice to Holders; Waiver .................................. 12
-------------------------
SECTION 107. Conflict with Trust Indenture Act .......................... 13
---------------------------------
SECTION 108. Effect of Headings and Table of Contents ................... 13
----------------------------------------
SECTION 109. Successors and Assigns ..................................... 13
----------------------
SECTION 110. Separability Clause ........................................ 13
-------------------
SECTION 111. Benefits of Indenture ...................................... 14
---------------------
SECTION 112. GOVERNING LAW .............................................. 14
-------------
SECTION 113. Legal Holidays ............................................. 14
--------------
</TABLE>
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-ii-
<PAGE>
Page
----
ARTICLE TWO
Security Forms
<TABLE>
<S> <C> <C>
SECTION 201. Forms Generally ............................................ 14
---------------
SECTION 202. Form of Face of Security ................................... 15
------------------------
SECTION 203. Form of Reverse of Security ................................ 18
---------------------------
SECTION 204. Form of Trustee's Certificate of Authentication ............ 24
-----------------------------------------------
<CAPTION>
ARTICLE THREE
The Securities
<S> <C> <C>
SECTION 301. Title and Terms ............................................ 25
---------------
SECTION 302. Denominations .............................................. 26
-------------
SECTION 303. Execution, Authentication, Delivery and Dating ............. 26
----------------------------------------------
SECTION 304. Temporary Securities ....................................... 27
--------------------
SECTION 305. Registration, Registration of Transfer and Exchange ........ 27
---------------------------------------------------
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities ........... 30
------------------------------------------------
SECTION 307. Payment of Interest; Interest Rights Preserved ............. 31
----------------------------------------------
SECTION 308. Persons Deemed Owners ...................................... 33
--------------------
SECTION 309. Cancellation ............................................... 33
------------
SECTION 310. Computation of Interest .................................... 33
-----------------------
</TABLE>
- -------------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE FOUR
Satisfaction and Discharge
<S> <C> <C>
SECTION 401. Satisfaction and Discharge of Indenture.... 33
---------------------------------------
SECTION 402. Application of Trust Money................. 35
--------------------------
ARTICLE FIVE
Remedies
SECTION 501. Events of Default........................... 35
-----------------
SECTION 502. Acceleration of Maturity; Rescission and
----------------------------------------
Annulment................................... 37
---------
SECTION 503. Collection of Indebtedness and Suits for
----------------------------------------
Enforcement by Trustee...................... 38
----------------------
SECTION 504. Trustee May File Proofs of Claim............ 41
--------------------------------
SECTION 505. Trustee May Enforce Claims Without Possession
---------------------------------------------
of Securities............................... 42
-------------
SECTION 506. Application of Money Collected.............. 42
------------------------------
SECTION 507. Limitation on Suits......................... 43
-------------------
SECTION 508. Unconditional Right of Holders to Receive
-----------------------------------------
Principal, Premium and Interest and to
--------------------------------------
Convert..................................... 44
-------
SECTION 509. Restoration of Rights and Remedies.......... 44
----------------------------------
SECTION 510. Rights and Remedies Cumulative.............. 44
------------------------------
SECTION 511. Delay or Omission Not Waiver................ 44
----------------------------
SECTION 512. Control by Holders.......................... 45
------------------
</TABLE>
- --------------------
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-iv-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 513. Waiver of Past Defaults.................... 45
-----------------------
SECTION 514. Undertaking for Costs...................... 45
---------------------
SECTION 515. Waiver of Stay or Extension Laws........... 46
--------------------------------
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities........ 46
-------------------------------------------
SECTION 602. Notice of Defaults......................... 47
-------------------------------------------
SECTION 603. Certain Rights of Trustee.................. 47
-------------------------------------------
SECTION 604. Not Responsible for Recitals or Issuance of
-------------------------------------------
Securities................................. 48
----------
SECTION 605. May Hold Securities........................ 49
-------------------
SECTION 606. Money Held in Trust........................ 49
-------------------
SECTION 607. Compensation and Reimbursement............. 49
------------------------------
SECTION 608. Disqualification; Conflicting Interests.... 50
---------------------------------------
SECTION 609. Corporate Trustee Required; Eligibility.... 50
---------------------------------------
SECTION 610. Resignation and Removal; Appointment of
---------------------------------------
Successor.................................. 50
---------
SECTION 611. Acceptance of Appointment by Successor..... 52
--------------------------------------
SECTION 612. Merger, Conversion, Consolidation or Suc-
-----------------------------------------
cession to Business........................ 52
-------------------
SECTION 613. Preferential Collection of Claims Against
-----------------------------------------
Company.................................... 53
-------
SECTION 614. Appointment of Authenticating Agent........ 53
-----------------------------------
</TABLE>
- --------------
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-v-
<PAGE>
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 701. Company to Furnish Trustee Names and Ad-
----------------------------------------
dresses of Holders......................... 55
------------------
SECTION 702. Preservation of Information; Communications
-------------------------------------------
to Holders................................. 55
----------
SECTION 703. Reports by Trustee......................... 56
------------------
SECTION 704. Reports by Company......................... 56
------------------
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc., Only on
--------------------------------------
Certain Terms.............................. 57
-------------
SECTION 802. Successor Substituted...................... 58
---------------------
ARTICLE NINE
Supplemental Indentures
SECTION 901.
Supplemental Indentures Without Consent of
------------------------------------------
Holders................................... 58
-------
SECTION 902. Supplemental Indentures with Consent of
---------------------------------------
Holders................................... 59
-------
SECTION 903. Execution of Supplemental Indentures...... 60
------------------------------------------
SECTION 904. Effect of Supplemental Indentures......... 61
---------------------------------
SECTION 905. Conformity with Trust Indenture Act....... 61
-----------------------------------
</TABLE>
- ---------------------
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-vi-
<PAGE>
<TABLE>
Page
----
<S> <C> <C>
SECTION 906. Reference in Securities to Supplemental
---------------------------------------
Indentures ................................ 61
----------
SECTION 907. Subordination Unimpaired .................. 61
------------------------
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and Interest 61
------------------------------------------
SECTION 1002. Maintenance of Office or Agency ........... 62
-------------------------------
SECTION 1003. Money for Security Payments to Be Held in
-----------------------------------------
Trust ..................................... 62
-----
SECTION 1004. Statement by Officers as to Default ....... 64
-----------------------------------
SECTION 1005. Existence ................................. 64
---------
SECTION 1006. Payment of Taxes and Other Claims ......... 64
---------------------------------
SECTION 1007. Waiver of Certain Covenants ............... 65
---------------------------
SECTION 1008. Book-Entry System ......................... 65
-----------------
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Right of Redemption ....................... 65
-------------------
SECTION 1102. Applicability of Article .................. 66
------------------------
SECTION 1103. Election to Redeem; Notice to Trustee ..... 66
-------------------------------------
SECTION 1104. Selection by Trustee of Securities to Be
----------------------------------------
Redeemed .................................. 66
--------
</TABLE>
- -----------------------------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-vii-
<PAGE>
<TABLE>
Page
----
<S> <C> <C>
SECTION 1105. Notice of Redemption ...................... 67
--------------------
SECTION 1106. Deposit of Redemption Price ............... 67
---------------------------
SECTION 1107. Securities Payable on Redemption Date ..... 68
-------------------------------------
SECTION 1108. Securities Redeemed in Part ................ 68
---------------------------
ARTICLE TWELVE
Subordination of Securities
SECTION 1201. Securities Subordinate to Senior Indebted-
-----------------------------------------
ness ...................................... 69
----
SECTION 1202. Payment Over of Proceeds Upon Dissolution,
-----------------------------------------
Etc. ...................................... 69
---
SECTION 1203. Prior Payment to Senior Indebtedness Upon
-----------------------------------------
Acceleration of Securities ................ 70
--------------------------
SECTION 1204. No Payment When Senior Indebtedness in
--------------------------------------
Default ................................... 71
-------
SECTION 1205. Payment Permitted If No Default ........... 71
-------------------------------
SECTION 1206. Subrogation to Rights of Holders of Senior
------------------------------------------
Indebtedness .............................. 72
------------
SECTION 1207. Provisions Solely to Define Relative Rights 72
-------------------------------------------
SECTION 1208. Trustee to Effectuate Subordination ....... 73
-----------------------------------
SECTION 1209. No Waiver of Subordination Provisions ..... 73
-------------------------------------
SECTION 1210. Notice to Trustee ......................... 74
-----------------
SECTION 1211. Reliance on Judicial Order or Certificate of
--------------------------------------------
Liquidating Agent ........................ 75
------------------
SECTION 1212. Trustee Not Fiduciary for Holders of Senior
-------------------------------------------
Indebtedness .............................. 75
------------
</TABLE>
- -----------------------------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-viii-
<PAGE>
<TABLE>
Page
----
<S> <C> <C>
SECTION 1213. Rights of Trustee as Holder of Senior
-------------------------------------
Indebtedness; Preservation of Trustee's
---------------------------------------
Rights .................................... 75
------
SECTION 1214. Article Applicable to Paying Agents ....... 76
-----------------------------------
SECTION 1215. Payment of Proceeds in Certain Cases ...... 76
------------------------------------
SECTION 1216. Certain Conversions Deemed Payment ........ 78
----------------------------------
ARTICLE THIRTEEN
Conversion of Securities
SECTION 1301. Conversion Privilege and Conversion Price.. 78
-----------------------------------------
SECTION 1302. Exercise of Conversion Privilege .......... 79
--------------------------------
SECTION 1303. Fractions of Shares ....................... 80
-------------------
SECTION 1304. Adjustment of Conversion Price ............ 80
------------------------------
SECTION 1305. Notice of Adjustments of Conversion Price.. 87
-----------------------------------------
SECTION 1306. Notice of Certain Corporate Actions ....... 88
-----------------------------------
SECTION 1307. Company to Reserve Common Stock ........... 89
-------------------------------
SECTION 1308. Taxes on Conversions ...................... 89
--------------------
SECTION 1309. Covenant as to Common Stock ............... 89
---------------------------
SECTION 1310. Cancellation of Converted Securities ...... 89
------------------------------------
SECTION 1311. Provisions in Case of Consolidation, Merger
-------------------------------------------
or Sale of Assets ......................... 89
-----------------
</TABLE>
- -----------------------------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-ix-
<PAGE>
INDENTURE, dated as of __________ __, 1997 between FIRST STATE
BANCORPORATION, a corporation duly organized and existing under the laws of the
State of New Mexico (herein called the "Company"), having its principal office
at 111 Lomas Avenue N.W., Albuquerque, New Mexico 87102, and FIRST TRUST
NATIONAL ASSOCIATION, a national banking association duly organized and existing
under the laws of The United States of America, as Trustee (herein called the
"Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its ____%
Convertible Subordinated Debentures Due 2017 (herein called the "Securities") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act,
<PAGE>
either directly or by reference therein, have the meanings assigned to them
therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as
are generally accepted at the date of such computation; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent Member" means any member of, or participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Global Security to the extent
applicable to such transaction and as in effect from time to time.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 614 to act on behalf of the Trustee to authenticate
Securities.
"Bank" means FIRST STATE BANK OF TAOS, a state bank chartered under
the laws of the State of New Mexico, and its successors (whether by
consolidation, merger, conversion, transfer of substantially all of their assets
2
<PAGE>
and business or otherwise) so long as FIRST STATE BANK OF TAOS or any successor
is a Subsidiary.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that 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, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which (i) national banking associations in the
State of Minnesota or (ii) banking institutions in Albuquerque, State of New
Mexico, are authorized or obligated by law or executive order to close.
"Closing Price" means, with respect to the Common Stock of the
Company, for any day, the reported last sales price or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices, in either case (i) on the Nasdaq National Market or, if the Common Stock
is not quoted on the Nasdaq National Market, on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
or (ii) if not quoted on the Nasdaq National Market or listed or admitted to
trading on any national securities exchange, the average of the closing bid and
asked prices in the over-the-counter market as furnished by any New York Stock
Exchange member firm selected from time to time by the Trustee for that purpose.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" includes any stock of any class of the Company which
has no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding-up of the
Company and which is not subject to redemption by the Company. However, subject
to the provisions of Section 1311, shares issuable on conversion of Securities
shall include only shares of the class designated as Common Stock of the Company
at the date of this instrument or shares of any class or classes resulting from
any
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<PAGE>
reclassification or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and which are
not subject to redemption by the Company; provided that if at any time there
--------
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee
at which at any particular time its corporate trust business shall be
administered, which office at the date of the execution of this Indenture is
located at 180 East 5th Street, St. Paul, Minnesota 55101.
"corporation" means a corporation, association, company, joint-stock
company or business trust.
"Custodian" means First Trust National Association, as custodian with
respect to any Global Security, or any successor entity thereto.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, with respect to any Global Securities, a clearing
agency that is registered as such under the Exchange Act and is designated by
the Company to act as Depositary for such Global Securities (or any successor
securities clearing agency so registered).
"DTC" means The Depository Trust Company, a New York corporation.
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<PAGE>
"Entitled Persons" means any person entitled to payment pursuant to
the terms of Other Financial Obligations.
"Event of Default" has the meaning specified in Section 501.
"Excess Proceeds" has the meaning specified in Section 1215(a).
"Global Security" means a Security that is registered in the Security
Register in the name of a Depositary or a nominee thereof.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"indebtedness for money borrowed", when used with respect to the
Company, means any obligation of, or any obligation guaranteed by, the Company
for the repayment of borrowed money, whether or not evidenced by bonds,
debentures, notes or other written instruments, and any deferred obligation of,
or any such obligation guaranteed by, the Company for the payment of the
purchase price of property or assets.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Interest Payment Date" means the Stated Maturity of an instalment of
interest on the Securities.
"Major Depository Institution Subsidiary", means a Subsidiary that is
an insured depository institution and that is or would be a direct or indirect
major subsidiary (or other subsidiary deemed to be the equivalent of a major
subsidiary) as such term is defined by the Board of Governors of the Federal
Reserve System (or any successor thereof) from time to time; provided, however,
that any Subsidiary that had consolidated quarterly average total assets that
were less than 20% of the Company's consolidated quarterly average total assets
for the most recently available quarter shall not be deemed to be a Major
Depository Institution Subsidiary.
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<PAGE>
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, a Vice Chairman of the Board, the President or a Vice President, and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee. One of the officers
signing an Officers' Certificate given pursuant to Section 1004 shall be the
principal executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Trustee.
"Other Financial Obligations" means all obligations to make payment
pursuant to the terms of financial instruments, such as (i) securities contracts
and foreign currency exchange contracts, (ii) derivative instruments, such as
swap agreements (including interest rate and foreign exchange rate swap
agreements), cap agreements, floor agreements, collar agreements, interest rate
agreements, foreign exchange rate agreements, options, commodity futures
contracts and commodity options contracts and (iii) in the case of both (i) and
(ii) above, similar financial instruments other than (A) obligations on account
of Senior Indebtedness and (B) obligations on account of indebtedness for money
borrowed ranking pari passu with or subordinate to the Securities.
---- -----
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
------
(i) Securities theretofore cancelled by the Trustee or delivered
to the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Securities; provided that, if such Securities are
--------
to be redeemed, notice of such redemption has been duly given pursuant to
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<PAGE>
this Indenture or provision therefor satisfactory to the Trustee has been
made; and
(iii) Securities which have been paid pursuant to Section 306 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any such
Securities in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such Securities are held by a bona
fide purchaser in whose hands such Securities are valid obligations of the
Company;
provided, however, that in determining whether the Holders of the requisite
- -------- -------
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to such Securities and
that the pledgee is not the Company or any other obligor upon the Securities or
any Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
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<PAGE>
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the __________ or _____________ (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the 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 his knowledge of
and familiarity with the particular subject.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Senior Indebtedness" means the principal of, and premium, if any, and
interest on (a) all indebtedness of the Company for money borrowed, whether
outstanding on the date of execution of this Indenture or thereafter created,
assumed or incurred, except (i) such indebtedness as is by its terms expressly
stated to be junior in right of payment to the Securities and (ii) such
indebtedness as is by its terms expressly stated to rank pari passu in right of
---- -----
payment with the Securities, and (b) any deferrals, renewals or extensions of
any such Senior Indebtedness.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
instalment of interest thereon, means the date specified in such Security as the
fixed date on which the principal of such Security or such instalment of
interest is due and payable.
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<PAGE>
"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"Trading Date" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which the Common Stock is not traded on the
principal exchange or market on which the Common Stock is traded or quoted.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed; provided, however,
-------- -------
that in the event the Trust Indenture Act of 1939 is amended after such date,
"Trust Indenture Act" means, to the extent required by any such amendment, the
Trust Indenture Act of 1939 as so amended.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of
an Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirement set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include
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<PAGE>
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
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<PAGE>
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders; Record Dates.
-----------------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders entitled to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote
11
<PAGE>
shall be the 30th day (or, if later, the date of the most recent list of Holders
required to be provided pursuant to Section 701) prior to such first
solicitation or vote, as the case may be. With regard to any record date, only
the Holders on such date (or their duly designated proxies) shall be entitled to
give or take, or vote on, the relevant action.
(d) The ownership of Securities shall be proved by the Security
Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every 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 Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
SECTION 105. Notices, Etc., to Trustee and Company.
-------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Department, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this instrument or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each
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Holder affected by such event, at his address as it appears in the Security
Register, not later than the latest date (if any), and not earlier than the
earliest date (if any), prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. Conflict with Trust Indenture Act.
---------------------------------
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under such Act to be a
part of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall be
deemed to apply to this Indenture as so modified or to be excluded, as the case
may be.
SECTION 108. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining
13
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provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness, the Holders of Securities, and
subject to Section 907, Entitled Persons in respect of Other Financial
Obligations, any benefit or any legal or equitable right, remedy or claim under
this Indenture.
SECTION 112. GOVERNING LAW.
-------------
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 113. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security or the last date on which a Holder has the right to
convert his Securities shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Securities) payment of interest or
principal (and premium, if any) or conversion of the Securities need not be made
on such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on the Interest Payment Date or Redemption Date, or
at the Stated Maturity, or on such last day for conversion, provided that no
--------
interest shall accrue for the period from and after such Interest Payment Date,
Redemption Date or Stated Maturity, as the case may be.
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally.
---------------
The Securities and the Trustee's certificates of authentication shall
be in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
14
<PAGE>
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities.
Any definitive Securities shall be typed, printed, lithographed or
engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any other manner permitted by the rules of any
automated quotation system or securities exchange on which the Securities may be
quoted or listed, as the case may be, all as determined by the officers
executing such Securities, as evidenced by their execution of such Securities.
SECTION 202. Form of Face of Security.
------------------------
[The following legend shall appear on the face of each Global Security:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A
NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND
ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES.]
[The following legend shall appear on the face of each Global Security for which
The Depository Trust Company is to be the Depositary:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR REGISTERED
SECURITIES IN DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED
TO IN THE INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY.]
15
<PAGE>
FIRST STATE BANCORPORATION
___% Convertible Subordinated Debentures Due 2017
THIS DEBENTURE IS NOT A DEPOSIT AND IS NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY GOVERNMENT AGENCY
No. __________ $________
FIRST STATE BANCORPORATION, a corporation duly organized and existing
under the laws of the State of New Mexico (herein called the "Company", which
term includes any successor Person under the Indenture hereinafter referred to),
for value received, hereby promises to pay to _________________, or registered
assigns, the principal sum of ________________ Dollars on ____________, and to
pay interest thereon from _____________ or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, semi-annually on
____________ and ___________ in each year, commencing ___________, at the rate
of ___% per annum, until the principal hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the _________ or __________ (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities not less than 10 days prior to such Special
Record Date, or be paid at any time in any other lawful manner not inconsistent
with the requirements of any automated quotation system or securities exchange
on which the Securities may be quoted or listed, and upon such notice as may be
required by such automated quotation system or exchange, all as more fully
provided in said Indenture. Payment of the principal of (and premium, if any)
and interest on this Security will be made at the office or agency of the
Company maintained for that purpose, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts; provided, however, that at the option of the Company
-----------------
payment of interest may be made
16
<PAGE>
by check mailed to the address of the Person entitled thereto as such address
shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
FIRST STATE BANCORPORATION
[SEAL] By
----------------------------
Name:
Title:
Attest:
- ------------------------------------
Name:
Title:
17
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SECTION 203. Form of Reverse of Security.
---------------------------
This Security is one of a duly authorized issue of Securities of the
Company designated as its __% Convertible Subordinated Debentures Due 2017
(herein called the "Securities"), limited in aggregate principal amount to
$______, issued and to be issued under an Indenture, dated as of _______ __,
1997 (herein called the "Indenture"), between the Company and First Trust
National Association, as Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee, the holders of Senior Indebtedness and the Holders of
the Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
Subject to and upon compliance with the provisions of the Indenture,
the Holder of this Security is entitled, at his option, at any time on or before
the close of business on _________, or in case this Security or a portion hereof
is called for redemption, then in respect of this Security or such portion
hereof until and including, but (unless the Company defaults in making the
payment due upon redemption) not after, the close of business on the Redemption
Date, to convert this Security (or any portion of the principal amount hereof
which is $1,000 or an integral multiple thereof), at the principal amount
hereof, or of such portion, into fully paid and non-assessable shares
(calculated as to each conversion to the nearest 1/100 of a share) of Common
Stock of the Company at a conversion price equal to $___ aggregate principal
amount of Securities for each share of Common Stock (or at the current adjusted
conversion price if an adjustment has been made as provided in the Indenture) by
surrender of this Security, duly endorsed or assigned to the Company or in
blank, to the Company at its office or agency maintained for that purpose,
accompanied by written notice to the Company that the Holder hereof elects to
convert this Security, or if less than the entire principal amount hereof is to
be converted, the portion hereof to be converted, and, in case such surrender
shall be made during the period from the close of business on any Regular Record
Date next preceding any Interest Payment Date to the opening of business on such
Interest Payment Date (unless this Security or the portion thereof being
converted has been called for redemption on a Redemption Date within such
period), also accompanied by payment in New York Clearing House or other funds
acceptable to the Company of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of this Security then being
converted.
18
<PAGE>
Subject to the aforesaid requirement for payment and, in the case of a
conversion after the Regular Record Date next preceding any Interest Payment
Date and on or before such Interest Payment Date, to the right of the Holder of
this Security (or any Predecessor Security) of record at such Regular Record
Date to receive an instalment of interest (with certain exceptions provided in
the Indenture), no payment or adjustment is to be made on conversion for
interest accrued hereon or for dividends on the Common Stock issued on
conversion. No fractions of shares or scrip representing fractions of shares
will be issued on conversion, but instead of any fractional interest the Company
shall pay a cash adjustment as provided in the Indenture. The conversion price
is subject to adjustment as provided in the Indenture. In addition, the
Indenture provides that in case of certain consolidations or mergers to which
the Company is a party or the transfer of substantially all of the assets of the
Company, the Indenture shall be amended, without the consent of any Holders of
Securities, so that this Security, if then outstanding, will be convertible
thereafter, during the period this Security shall be convertible as specified
above, only into the kind and amount of securities, cash and other property
receivable upon the consolidation, merger or transfer by a holder of the number
of shares of Common Stock into which this Security might have been converted
immediately prior to such consolidation, merger or transfer (assuming such
holder of Common Stock failed to exercise any rights of election and received
per share the kind and amount received per share by a plurality of non-electing
shares).
The Securities are subject to redemption upon not less than 30 days'
notice by mail, at any time, as a whole or in part, at the election of the
Company, at the following Redemption Prices (expressed as percentages of the
principal amount) if redeemed during the 12-month period beginning ________ of
the years indicated:
Redemption Redemption
Year Price Year Price
- ------ ---------- ---- ----------
and thereafter at a Redemption Price equal to 100% of the principal amount,
together in the case of any such redemption with accrued interest to the
Redemption Date; provided that interest installments whose Stated Maturity is
--------
19
<PAGE>
on or prior to such Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, of record at the close of
business on the relevant Record Dates referred to on the face hereof, all as
provided in the Indenture; and provided, further, that the Securities may not be
-------- -------
redeemed prior to _____, 2001, unless the reported closing price of the Common
Stock on The Nasdaq Stock Market's National Market (or as such price is
otherwise determined in accordance with the Indenture) has been at least 140% of
the then effective conversion price for each of 30 successive Business Days
ending within five days of the date of notice of redemption.
Any Securities called for redemption, unless surrendered for
conversion on or before the close of business on the Redemption Date, are
subject to purchase from the Holder of such Securities at the Redemption Price
by one or more investment bankers or other purchasers who may agree with the
Company to purchase such Securities and convert them into Common Stock of the
Company.
In the event of redemption or conversion of this Security in part
only, a new Security or Securities for the unredeemed or unconverted portion
hereof will be issued in the name of the Holder hereof upon the cancellation
hereof.
The indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and subject in right of payment to the prior
payment in full of the principal of (and premium, if any) and interest on all
Senior Indebtedness, as defined in the Indenture, and this Security is issued
subject to the provisions of the Indenture with respect thereto. Each Holder of
this Security, by accepting the same, agrees that each holder of Senior
Indebtedness, whether created or acquired before or after the issuance of the
Securities, shall be deemed conclusively to have relied on such provisions in
acquiring and continuing to hold, or in continuing to hold, such Senior
Indebtedness. The Indenture also provides that if, upon the occurrence of
certain events of bankruptcy or insolvency relating to the Company, there
remains, after giving effect to such subordination provisions, any amount of
cash, property or securities available for payment or distribution in respect of
Securities of this series (as defined in the Indenture, "Excess Proceeds"), and
if, at such time, any Entitled Person (as defined in the Indenture) has not
received payment in full of all amounts due or to become due on or in respect of
Other Financial Obligations (as defined in the Indenture), then such Excess
Proceeds shall first be applied to pay or provide for the payment in full of
such Other Financial Obligations before any payment or distribution may be made
in respect of Securities of this
20
<PAGE>
series. This Security is also issued subject to the provisions of the Indenture
regarding payments to Entitled Persons in respect of Other Financial
Obligations. Each Holder of this Security, by accepting the same, agrees to be
bound by the provisions of the Indenture described herein and authorizes and
directs the Trustee to take such action on his behalf as may be necessary or
appropriate to acknowledge or effectuate the subordination of this Security and
payment of Excess Proceeds as provided in the Indenture and appoints the Trustee
his attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of 66-
2/3% in aggregate principal amount of the Securities at the time Outstanding.
The Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by the Holder of this Security shall be conclusive and binding upon such Holder
and upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed or to convert this Security as provided in the
Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained for that purpose, duly endorsed by,
or accompanied by a written instrument of transfer in form
21
<PAGE>
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
22
<PAGE>
[FORM OF CONVERSION NOTICE]
TO FIRST STATE BANCORPORATION
The undersigned Holder of this Security hereby irrevocably exercises
the option to convert this Security or portion hereof (which is $1,000 or an
integral multiple thereof) below designated, into shares of Common Stock of
First State Bancorporation in accordance with the terms of the Indenture
referred to in this Security, and directs that the shares issuable and
deliverable upon conversion, together with any check in payment for fractional
shares and any Securities representing any unconverted principal amount hereof,
be issued and delivered to the registered Holder hereof unless a different name
has been indicated below. If shares of Common Stock or Securities are to be
issued in the name of a Person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto. Any amount required to be
paid by the undersigned on account of interest accompanies this Security.
Dated:
---------------------
-----------------------------
Fill in for registration of
shares of Common Stock and
Securities if to be issued -----------------------------
otherwise than to the Signature(s)
registered Holder.
Signature(s) must be
- --------------------------- guaranteed by an Eligible
Name Guarantor Institution with
membership in an approved
- --------------------------- signature guarantee program
Address pursuant to Rule 17Ad-15
under the Securities
- --------------------------- Exchange Act of 1934.
Please print name and
address (including zip
code)
SOCIAL SECURITY OR TAXPAYER
IDENTIFICATION NUMBER
- ---------------------------
Portion of Security to be
Converted (in an integral
multiple of $1,000, if less
than all):
-----------------------------
23
<PAGE>
[FORM OF ASSIGNMENT]
For value received _______________________________ hereby sell(s),
assign(s) and transfer(s) unto ______________________________ (please insert
social security or other identifying number of assignee) the within Security and
hereby irrevocably constitutes and appoints ______________________________ as
attorney to transfer the said Security on the books of the Company, with full
power of substitution in the premises.
Dated:
-------------------------------
--------------------------------
--------------------------------
Signature(s)
Signature(s) must be
guaranteed by an Eligible
Guarantor Institution with
membership in an approved
signature guarantee program
pursuant to Rule 17Ad-15
under the Securities
Exchange Act of 1934.
NOTICE: The signature on the conversion notice or the assignment must
correspond with the name as written upon the face of the Security in every
particular without alteration or enlargement or any change whatever.
SECTION 204. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
This is one of the Securities referred to in the within-mentioned
Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
As Trustee
By
---------------------------
Authorized Signatory
24
<PAGE>
ARTICLE THREE
The Securities
SECTION 301. Title and Terms.
---------------
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $___________, as
such amount may be increased, but not by an amount in excess of $___________,
solely as a result of the purchase of additional Securities (referred to in the
Purchase Agreement as "Option Securities") pursuant to the exercise of the
underwriter's over-allotment option granted by the Company under the Purchase
Agreement, dated as of ____________, 1997 (the "Purchase Agreement"), between
the Company and Keefe, Bruyette & Woods, Inc. (the "Underwriter"), except for
Securities authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities pursuant to Sections 304, 305,
306, 906, 1108 or 1302.
The Securities shall be known and designated as the "__% Convertible
Subordinated Debentures Due 2017" of the Company. Their Stated Maturity shall
be ____________, and they shall bear interest at the rate of ____% per annum,
from __________ or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, as the case may be, payable semi-annually on
_____________ and ________, commencing ___________, until the principal thereof
is paid or made available for payment.
Upon receipt by the Trustee of an Officers' Certificate stating that
the Underwriter has elected to purchase from the Company a specified aggregate
principal amount of Option Securities, not to exceed a total of $___________ for
all such elections in accordance with this paragraph, pursuant to the Purchase
Agreement, the Trustee shall authenticate and make available for delivery such
specified aggregate principal amount of such Option Securities to or upon a
Company Request, and such specified aggregate principal amount of such Option
Securities shall be considered part of the original aggregate principal amount
of the Securities.
The principal of (and premium, if any) and interest on the Securities
shall be payable at the office or agency of the Company maintained for such
purpose; provided, however, that at the option of the Company payment
-------- -------
25
<PAGE>
of interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
The Securities shall be redeemable as provided in Article Eleven.
The Securities shall be subordinated and subject in right of payment
to the prior payment of Senior Indebtedness as provided in Article Twelve.
The Securities shall be convertible as provided in Article Thirteen.
SECTION 302. Denominations.
-------------
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, its President or one of
its Vice Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
26
<PAGE>
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder.
SECTION 304. Temporary Securities.
--------------------
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities of
authorized denominations. Until so exchanged the temporary Securities shall in
all respects be entitled to the same benefits under this Indenture as definitive
Securities.
For purposes of this Section 304, each Global Security shall be
considered a definitive Security.
SECTION 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is hereby
appointed "Security Registrar" for the
27
<PAGE>
purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security at an
office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations and of a like aggregate principal
amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906, 1108 or 1302 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing, or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
28
<PAGE>
The provisions of Clauses (1), (2), (3), (4) and (5) below shall apply
only to Global Securities:
(1) Each Global Security authenticated under this Indenture
shall be registered in the name of the Depositary designated for such
Global Security or a nominee thereof and delivered to such Depositary or a
nominee thereof or Custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture, no
Global Security may be exchanged in whole or in part for Securities
registered, and no transfer of a Global Security in whole or in part may be
registered, in the name of any Person other than the Depositary for such
Global Security or a nominee thereof unless (A) such Depositary (i) has
notified the Company that it is unwilling or unable to continue as
Depositary for such Global Security or (ii) has ceased to be a clearing
agency registered under the Exchange Act, or (B) there shall have occurred
and be continuing an Event of Default with respect to such Global Security.
(3) Subject to Clause (2) above, any exchange of a Global
Security for other Securities may be made in whole or in part, and all
Securities issued in exchange for a Global Security or any portion thereof
shall be registered in such names as the Depositary for such Global
Security shall direct.
(4) Every Security authenticated and delivered upon registration
of transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Article Three or otherwise, shall
be authenticated and delivered in the form of, and shall be, a Global
Security, unless such Security is registered in the name of a Person other
than the Depositary for such Global Security or a nominee thereof.
(5) The Depositary or its nominee, as registered owner of a
Global Security, shall be the Holder of such Global Security for all
purposes under the Indenture and the
29
<PAGE>
Securities, and owners of beneficial interests in a Global Security shall
hold such interests pursuant to the Applicable Procedures. Accordingly,
any such owner's beneficial interest in a Global Security will be shown
only on, and the transfer of such interest shall be effected only through,
records maintained by the Depositary or its nominee or its Agent Members
and such owners of beneficial interests in a Global Security will not be
considered the owners or holders thereof.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
------------------------------------------------
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of like tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and
30
<PAGE>
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which shall
be not more
31
<PAGE>
than 15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the expense of
the Company, shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed, first-class
postage prepaid, to each Holder at his address as it appears in the
Security Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following Clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
automated quotation system or securities exchange on which the Securities
may be quoted or listed, and upon such notice as may be required by such
automated quotation system or securities exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this
Clause, such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
In the case of any Security which is converted after any Regular
Record Date and on or prior to the next succeeding Interest Payment Date (other
than any Security whose Maturity is prior to such Interest Payment Date),
interest whose Stated Maturity is on such Interest Payment Date shall be payable
on such Interest Payment Date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) shall be paid
32
<PAGE>
to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on such Regular Record Date.
Except as otherwise expressly provided in the immediately preceding sentence, in
the case of any Security which is converted, interest whose Stated Maturity is
after the date of conversion of such Security shall not be payable.
SECTION 308. Persons Deemed Owners.
---------------------
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of (and premium, if
any) and (subject to Section 307) interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. Cancellation.
------------
All Securities surrendered for payment, redemption, registration of
transfer or exchange or conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as provided
in this Section, except as expressly permitted by this Indenture. All cancelled
Securities held by the Trustee shall be disposed of as directed by a Company
Order.
SECTION 310. Computation of Interest.
-----------------------
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
33
<PAGE>
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, on demand of and at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 306 and
(ii) Securities for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Securities not theretofore delivered to
the Trustee for cancellation, for principal (and
34
<PAGE>
premium, if any) and interest to the date of such deposit (in the case
of Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee. All moneys deposited with the Trustee pursuant to Section 401 (and
held by it or any Paying Agent) for the payment of Securities subsequently
converted shall be returned to the Company upon Company Request.
ARTICLE FIVE
Remedies
SECTION 501. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for
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such Event of Default and whether it shall be occasioned by the provisions of
Article Twelve or be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary case
or proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of substantially all of its assets
(other than the appointment of a conservator with respect to the Bank or
any other depository institution Subsidiary of the Company insured by the
Federal Deposit Insurance Corporation or any successor agency), or ordering
the winding up or liquidation of its affairs, and the continuance of any
such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 60 consecutive days; or
(2) the commencement by the Company of a voluntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law, or the consent by it to the filing of
a decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or to the commencement of
any bankruptcy or insolvency case or proceeding against it, or the filing
by it of a petition or answer or consent seeking reorganization or relief
under any applicable federal or state law, or the consent by it to filing
of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or substantially all of its assets (other
than the appointment of a conservator with respect to the Bank or any other
depository institution Subsidiary of the
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Company insured by the Federal Deposit Insurance Corporation or any
successor agency), or the making by it of an assignment for the benefit of
creditors.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default occurs and is continuing, then in every such
case the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal amount of all the Securities to
be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Holders), and upon any such declaration such principal
amount shall become immediately due and payable, except that no such declaration
shall be required upon the occurrence of an Event of Default specified in
Section 501(2).
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, on) any Securities
which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities,
and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
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and
(2) all Events of Default have been cured or waived as provided in
Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
---------------------------------------------------------------
The Company covenants that if
(1) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal of (or premium,
if any, on) any Security at the Maturity thereof, or
(3) there shall occur the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of any Major
Depository Institution Subsidiary in an involuntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of any Major Depository Institution Subsidiary or of any
substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree or order for relief
or any such other decree or order unstayed and in effect for a period of 60
consecutive days, or
(4) there shall occur the commencement by any Major Depository
Institution Subsidiary of a voluntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or the consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the any Major
Depository Institution Subsidiary or of
38
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any substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due, or the taking of
corporate action by the Company or any Major Depository Institution
Subsidiary in furtherance of any such action;
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities ((in the case of an event referred to in subsections
503(1) and 503(2) above) or of all the Securities (in the case of an event
referred to in subsections 503(3) and 503(4) above)), the whole amount then due
and payable on such Securities for principal (and premium, if any) and interest,
interest on any overdue principal (and premium, if any) and on any overdue
interest, at the rate borne by the Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such Security or Securities and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon such Security
or Securities, wherever situated.
"Default" means any one of the following events (whatever the reason
for such Default and whether it shall be occasioned by the provisions of Article
Twelve or 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 or any administrative or governmental body):
(A) an Event of Default specified in Section 501; or
(B) the events referred to in subsections 503(1) through (4) above;
or
(C) default in performance, or breach, of any covenant or warranty of
the Company in
39
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this Indenture or any Security (other than a covenant or warranty a default
in whose performance or whose breach is elsewhere in this Section
specifically dealt with), and continuance of such default or breach for a
period of 60 days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by
the Holders of at least 25% in principal amount of the Outstanding
Securities a written notice specifying such default or breach and requiring
it to be remedied and stating that such notice is a "Notice of Default"
hereunder; or
(D) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company or under any mortgage,
indenture or instrument under which there may be issued or by which there
may be secured or evidenced any indebtedness for money borrowed by the
Company (including this Indenture) or any Major Depository Institution
Subsidiary, whether such indebtedness now exists or shall hereafter be
created, which default shall have resulted (i) in a failure to pay an
aggregate principal amount exceeding $500,000 of such debt at the later of
final maturity or upon the expiration of any applicable period of grace
with respect to such principal amount, or (ii) in such indebtedness in an
aggregate principal amount exceeding $500,000 becoming or being declared
due and payable prior to the date on which it would otherwise have become
due and payable, without such indebtedness having been discharged, or such
acceleration having been rescinded or annulled, within a period of 30 days
after there shall have been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of
at least 25% in principal amount of the Outstanding Securities a written
notice specifying such default and requiring the Company to cause such
indebtedness to be discharged or cause such acceleration to be rescinded or
annulled and stating that such notice is a "Notice of Default" hereunder;
provided, however, that, subject to the provisions of Sections 601 and 602,
-------- -------
the Trustee shall not be deemed to have
40
<PAGE>
knowledge of such default unless either (A) a Responsible Officer of the
Trustee shall have actual knowledge of such default or (B) the Trustee
shall have received written notice thereof from the Company, from any
Holder, from the holder of any such indebtedness or from the trustee under
any such mortgage, indenture or other instrument; and provided, further,
-------- -------
that any such event of default shall not be deemed to have occurred if and
so long as the Company shall contest the validity thereof in good faith by
appropriate proceedings.
If a Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest, if any, owing and unpaid in respect of the
Securities and to file such other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
41
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(ii) to collect and receive moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
-----------------------------------------------------------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
------------------------------
Subject to Article Twelve, any money collected by the Trustee pursuant
to this Article shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal (or premium, if any) or interest, upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607; and
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SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal (and premium, if
any) and interest, respectively.
SECTION 507. Limitation on Suits.
-------------------
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture,
43
<PAGE>
except in the manner herein provided and for the equal and ratable benefit of
all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
----------------------------------------------------------------
Interest and to Convert.
-----------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Section 307) interest on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date) and to convert such Security in accordance with Article Thirteen and to
institute suit for the enforcement of any such payment and right to convert, and
such rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy
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accruing upon any Default shall impair any such right or remedy or constitute a
waiver of any such Default or an acquiescence therein. Every right and remedy
given by this Article or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.
SECTION 512. Control by Holders.
------------------
The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, provided that
--------
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
---------------------
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, suffered or
omitted by it as
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Trustee, a court may require any party litigant in such suit to file an
undertaking to pay the costs of such suit, and may assess costs against any such
party litigant, in the manner and to the extent provided in the Trust Indenture
Act; provided, that neither this Section nor the Trust Indenture Act shall be
--------
deemed to authorize any court to require such an undertaking or to make such an
assessment in any suit instituted by the Company or in any suit for the
enforcement of the right to convert any Security in accordance with Article
Thirteen.
SECTION 515. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities.
-----------------------------------
The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section. Subject to the foregoing, (i) the
Trustee undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture, and (ii) no implied covenants or
obligations shall be read into this Indenture against the Trustee.
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SECTION 602. Notice of Defaults.
------------------
Within 90 days after the occurrence of any default hereunder known to
the Trustee, the Trustee shall transmit by mail to all Holders of Securities, as
their names and addresses appear in the Security Register, notice of such
default hereunder known to the Trustee, unless such default shall have been
cured or waived; provided, however, that, except in the case of a default in the
-------- -------
payment of the principal of (or premium, if any) or interest on any Security,
the Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors or
Responsible Officers of the Trustee in good faith determine that the withholding
of such notice is in the interest of the Holders of Securities; and provided,
--------
further, that in the case of any default of the character specified in Section
- -------
503(C), no such notice to Holders shall be given until at least 30 days after
the occurrence thereof. For the purpose of this Section, the term "default"
means any event which is, or after notice or lapse of time or both would become,
a Default.
SECTION 603. Certain Rights of Trustee.
-------------------------
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith
47
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on its part, rely upon an Officers' Certificate;
(d) 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, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder.
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
------------------------------------------------------
The recitals contained herein and in the Securities, except the
Trustee's certificates of
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<PAGE>
authentication, shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities. The Trustee shall not be accountable for the use or application by
the Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
-------------------
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
SECTION 606. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 607. Compensation and Reimbursement.
------------------------------
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder, including reasonable default
fees of the Trustee upon the occurrence of an Event or Default (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against,
any loss,
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liability or expense incurred without negligence or bad faith on its part,
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 or liability in connection with the exercise or performance of
any of its powers or duties hereunder.
As security for the performance of the obligations of the Company
under this Section, the Trustee shall have a lien prior to the Securities upon
all property and funds held or collected by the Trustee as such, except for
funds held in trust for the benefit of the Holders of Securities.
SECTION 608. Disqualification; Conflicting Interests.
---------------------------------------
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the 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 Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall at all times be a Trustee hereunder which shall be a
Person that is eligible pursuant to the Trust Indenture Act to act as such and
has a combined capital and surplus of at least $50,000,000 and is subject to
supervision or examination by federal or state authority. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such 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 Trustee shall cease to be eligible
in accordance with the provisions of this Section, it shall resign immediately
in the manner and with the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
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(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others
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similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder 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 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. 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.
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 612. Merger, Conversion, Consolidation or Succession to Business.
-----------------------------------------------------------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and
52
<PAGE>
deliver the Securities so authenticated with the same effect as if such
successor Trustee had itself authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
-------------------------------------------------
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
-----------------------------------
The Trustee may appoint an Authenticating Agent or Agents which shall
be authorized to act on behalf of the Trustee to authenticate Securities issued
upon original issue and upon exchange, registration of transfer, partial
conversion or partial redemption or pursuant to Section 306, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the authentication
and delivery of Securities by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent 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 $50,000,000 and subject to supervision or examination
by federal or state authority. If such Authenticating Agent publishes reports
of condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Authenticating Agent shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to
be eligible in accordance with the provisions of this Section, such
Authenticating Agent shall resign immediately in the manner and with the effect
specified in this Section.
Any 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,
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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 a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders as their
names and addresses appear in the Security 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
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
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 607.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
54
<PAGE>
This is one of the Securities described in the within-mentioned
Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
As Trustee
By [AUTHENTICATING AGENT],
As Authenticating Agent
By
---------------------------
Authorized Signatory
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
---------------------------------------------------------
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record
Date, 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, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
excluding from any such list names and addresses received by the Trustee, if
- ---------
acting as and in its capacity as Security Registrar.
SECTION 702. Preservation of Information; Communications to Holders.
------------------------------------------------------
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee, if acting as
55
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and in its capacity as Security Registrar. The Trustee may destroy any list
furnished to it as provided in Section 701 upon receipt of a new list so
furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act.
SECTION 703. Reports by Trustee.
------------------
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission and with the Company. The
Company will notify the Trustee when the Securities are listed on any stock
exchange.
SECTION 704. Reports by Company.
------------------
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; provided that any such
--------
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be
filed with the Trustee within 15 days after the same is so required to be filed
with the Commission.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
56
<PAGE>
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
----------------------------------------------------
The Company shall not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and the Company shall not permit any Person to
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially
as an entirety to any Person, the Person formed by such consolidation or
into which the Company is merged or the Person which acquires by conveyance
or transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a corporation, partnership or trust,
shall be organized and validly existing under the laws of the United States
of America, any state thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, the due and
punctual payment of the principal of (and premium, if any) and interest on
all the Securities and the performance or observance of every covenant of
this Indenture on the part of the Company to be performed or observed and
shall have provided for conversion rights in accordance with Section 1311;
(2) immediately after giving effect to such transaction, no Default,
and no event which, after notice or lapse of time or both, would become a
Default, shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required
in connection with such transaction, such supplemental indenture comply
with this Article and that all conditions precedent
57
<PAGE>
herein provided for relating to such transaction have been complied with.
SECTION 802. Successor Substituted.
---------------------
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer or lease of the properties
and assets of the Company substantially as an entirety in accordance with
Section 801, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein, and thereafter, except in the case
of a lease, the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Securities.
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the Securities; or
(2) 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; or
(3) to secure the Securities; or
(4) to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Section 1311; or
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(5) to add any additional Events of Default or Defaults; or
(6) to add to, change or eliminate any of the provisions of this
Indenture, provided that any such addition, change or elimination shall not
--------
modify the rights of the Holder of any Security with respect to such
provision; or
(7) subject to Section 907, to add to, change or eliminate any of the
provisions of Article Twelve, provided that any such addition, change or
elimination shall not adversely affect the interests of the Holders of
Outstanding Securities in any material respect; or
(8) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture, provided that such action pursuant to this Clause (8)
--------
shall not adversely affect the interests of the Holders in any material
respect.
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of not less than 66-2/3% in principal
amount of the Outstanding Securities, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution, and
the Trustee may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of modifying in any manner the rights
of the Holders under this Indenture; provided, however, that no such
-------- -------
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any instalment
of interest on, any Security, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the coin or currency in
which, any Security or any premium or
59
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interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date), or
adversely affect the right to convert any Security as provided in Article
Thirteen (except as permitted by Section 901(4)), or modify the provisions
of this Indenture with respect to the subordination of the Securities in a
manner adverse to the Holders, or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture,
or
(3) modify any of the provisions of this Section, Section 513 or
Section 1007, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
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<PAGE>
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 906. Reference in Securities to Supplemental Indentures.
--------------------------------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
SECTION 907. Subordination Unimpaired.
------------------------
No provision in any supplemental indenture that affects the superior
position of the holders of Senior Indebtedness shall be effective against any
holder of Senior Indebtedness, unless such holder shall have consented thereto.
Notwithstanding any provision in this Indenture or otherwise, the rights of
Entitled Persons in respect of Other Financial Obligations under this Indenture
and otherwise in respect of the Securities may, at any time and from time to
time, be modified in any respect or eliminated without the consent of any
Entitled Person in respect of Other Financial Obligations.
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and Interest.
------------------------------------------
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The Company will duly and punctually pay the principal of (and
premium, if any) and interest on the Securities in accordance with the terms of
the Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company will maintain an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange, where Securities may be surrendered for
conversion and where notices and demands to or upon the Company in respect of
the Securities and this Indenture may be served. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. 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, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the Borough of Manhattan, The City of New
York) where the Securities may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
-------- -------
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency for such purposes. The Company
will give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
-----------------------------------------------
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or interest
on any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal (and premium, if
any) or interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act.
62
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Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal of (and premium, if any) or interest on
any Securities, deposit with a Paying Agent a sum sufficient to pay such amount,
such sum to be held as provided by the Trust Indenture Act, and (unless such
Paying Agent is the Trustee) the Company will promptly notify the Trustee of its
action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (i) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent and (ii) during the continuance of any
default by the Company (or any other obligor upon the Securities) in the making
of any payment in respect of the Securities, upon the written request of the
Trustee, forthwith pay to the Trustee all sums held in trust by such Paying
Agent as such.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Security and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
-------- -------
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, the City of New York, and the City of
Albuquerque, State of New Mexico, notice that such money remains unclaimed and
that, after a
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<PAGE>
date specified therein, which shall not be less than 30 days from the date of
such publication, any unclaimed balance of such money then remaining will be
repaid to the Company.
SECTION 1004. Statement by Officers as to Default.
-----------------------------------
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
SECTION 1005. Existence.
---------
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect for it and the
Bank their existence, rights (charter and statutory) and franchises; provided,
--------
however, that the Company shall not be required to preserve any such right or
- -------
franchise if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
its Subsidiaries or the Bank and that the loss thereof is not disadvantageous in
any material respect to the Holders.
SECTION 1006. Payment of Taxes and Other Claims.
---------------------------------
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, and (2)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
--------
however, that the Company shall not be required to pay or discharge or cause to
- -------
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
64
<PAGE>
SECTION 1007. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 1005 to 1006, inclusive, if before
the time for such compliance the Holders of at least 66-2/3% in principal amount
of the Outstanding Securities shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such covenant or condition shall remain in full force and
effect.
SECTION 1008. Book-Entry System.
-----------------
If the Securities cease to trade in DTC's book-entry settlement
system, the Company covenants and agrees that it shall use reasonable efforts to
make such other book-entry arrangements that it determines are reasonable for
the Securities.
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Right of Redemption.
-------------------
The Securities may be redeemed at the election of the Company, as a
whole or from time to time in part, at any time, under the conditions and at the
Redemption Prices specified in the form of Security hereinbefore set forth,
together with accrued interest to the Redemption Date. In the case of any such
redemption prior to ___, 2001, the Company shall, prior to giving notice of such
redemption pursuant to Section 1105, furnish the Trustee with an Officers'
Certificate stating that the Company is entitled to redeem the Securities
pursuant to the provisions of the third paragraph in the reverse of the form of
Security hereinbefore set forth.
The Company will consult with the Board of Governors of the Federal
Reserve System prior to electing to redeem for cash any of these Securities.
65
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SECTION 1102. Applicability of Article.
------------------------
Redemption of Securities at the election of the Company, as permitted
by any provision of this Indenture, shall be made in accordance with such
provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company of less than all the Securities, the
Company shall, at least 60 days prior to the Redemption Date fixed by the
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee of such Redemption Date and of the principal amount of Securities to
be redeemed.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
-------------------------------------------------
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $1,000 or any integral multiple thereof) of the principal amount of
Securities of a denomination larger than $1,000.
If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed (so
far as may be) to be the portion selected for redemption. Securities which have
been converted during a selection of Securities to be redeemed shall be treated
by the Trustee as Outstanding for the purpose of such selection.
The Trustee shall promptly notify the Company and each Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
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portion of the principal amount of such Securities which has been or is to be
redeemed.
SECTION 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given 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 Securities to be redeemed, at his address appearing in
the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities are to be redeemed,
the identification (and, in the case of partial redemption of any
Securities, the principal amounts) of the particular Securities to be
redeemed,
(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed and that interest
thereon will cease to accrue on and after said date,
(5) the conversion price, the date on which the right to convert the
Securities to be redeemed will terminate and the place or places where such
Securities may be surrendered for conversion, and
(6) the place or places where such Securities are to be surrendered
for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
---------------------------
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except
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if the Redemption Date shall be an Interest Payment Date) accrued interest on,
all the Securities which are to be redeemed on that date other than any
Securities called for redemption on that date which have been converted prior to
the date of such deposit.
If any Security called for redemption is converted, any money
deposited with the Trustee or with any Paying Agent or so segregated and held in
trust for the redemption of such Security shall (subject to any right of the
Holder of such Security or any Predecessor Security to receive interest as
provided in the last paragraph of Section 307) be paid to the Company upon
Company Request or, if then held by the Company, shall be discharged from such
trust.
SECTION 1107. Securities Payable on Redemption Date.
-------------------------------------
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided, however, that installments of interest whose
-------- -------
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to their
terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Security.
SECTION 1108. Securities Redeemed in Part.
---------------------------
Any Security which is to be redeemed only in part shall be surrendered
at an office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized
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denomination as requested by such Holder, in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Security so
surrendered.
ARTICLE TWELVE
Subordination of Securities
SECTION 1201. Securities Subordinate to Senior Indebtedness.
---------------------------------------------
The Company covenants and agrees, and each Holder of a Security, by
his acceptance thereof, likewise covenants and agrees, that, to the extent and
in the manner hereinafter set forth in this Article, the indebtedness
represented by the Securities and the payment of the principal of (and premium,
if any) and interest on each and all of the Securities are hereby expressly made
subordinate and subject in right of payment to the prior payment in full of all
Senior Indebtedness.
SECTION 1202. Payment Over of Proceeds Upon Dissolution, Etc.
-----------------------------------------------
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, or (b) any liquidation, dissolution or other winding
up of the Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshalling of assets and liabilities of the Company, then and in any
such event the holders of Senior Indebtedness shall be entitled to receive
payment in full of all amounts due or to become due on or in respect of all
Senior Indebtedness, or provision shall be made for such payment in money or
money's worth, before the Holders of the Securities are entitled to receive any
payment on account of principal of (or premium, if any) or interest on the
Securities, and to that end the holders of Senior Indebtedness shall be entitled
to receive, for application to the payment thereof, any payment or distribution
of any kind or character, whether in cash, property or securities, which may be
payable or deliverable in respect of the Securities in any such case,
proceeding, dissolution, liquidation or other winding up or event.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any
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Security shall have received any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities,
before all Senior Indebtedness is paid in full or payment thereof provided for,
and if such fact shall, at or prior to the time of such payment or distribution,
have been made known to the Trustee or, as the case may be, such Holder, then
and in such event such payment or distribution shall be paid over or delivered
forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person making payment or distribution of
assets of the Company for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior Indebtedness in
full, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Indebtedness.
For purposes of this Article only, 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 which are subordinated
in right of payment to all Senior Indebtedness which may at the time be
outstanding to substantially the same extent as, or to a greater extent than,
the Securities are so subordinated as provided in this Article. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the conveyance
or transfer of its properties and assets substantially as an entirety to another
Person upon the terms and conditions set forth in Article Eight shall not be
deemed a dissolution, winding up, liquidation, reorganization, assignment for
the benefit of creditors or marshalling of assets and liabilities of the Company
for the purposes of this Section if the Person formed by such consolidation or
into which the Company is merged or which acquires by conveyance or transfer
such properties and assets substantially as an entirety, as the case may be,
shall, as a part of such consolidation, merger, conveyance or transfer, comply
with the conditions set forth in Article Eight.
SECTION 1203. Prior Payment to Senior Indebtedness Upon Acceleration of
---------------------------------------------------------
Securities.
----------
In the event that any Securities are declared due and payable before
their Stated Maturity, then and in such event the holders of the Senior
Indebtedness shall be entitled to receive payment in full of all amounts due on
or in respect of such Senior Indebtedness, or provision shall be made for such
payment in money or money's worth, before
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the Holders of the Securities are entitled to receive any payment of the
principal of (or premium, if any) or interest on the Securities or on account of
the purchase or other acquisition of Securities.
In the event that, notwithstanding the foregoing, the Company shall
make any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment with
respect to which Section 1202 would be applicable.
SECTION 1204. No Payment When Senior Indebtedness in Default.
----------------------------------------------
(a) In the event and during the continuation of any default in the
payment of principal of (or premium, if any) or interest on any Senior
Indebtedness beyond any applicable grace period with respect thereto, or (b) in
the event any judicial proceeding shall be pending with respect to any such
default, then no payment shall be made by the Company on account of principal of
(or premium, if any) or interest on the Securities or on account of the purchase
or other acquisition of Securities.
In the event that, notwithstanding the foregoing, the Company shall
make any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment with
respect to which Section 1202 would be applicable.
SECTION 1205. Payment Permitted If No Default.
-------------------------------
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Company, at any time except during
the pendency of any case, proceeding, dissolution, liquidation or other winding
up, assignment for the benefit of creditors or other marshalling of assets and
liabilities of the Company
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referred to in Section 1202 or under the conditions described in Section 1203 or
1204, from making payments at any time of principal of (and premium, if any) or
interest on the Securities, or (b) the application by the Trustee or any Paying
Agent of any money deposited with it hereunder to the payment of or on account
of the principal of (and premium, if any) or interest on the Securities or the
retention of such payment by the Holder of any moneys so received, if, at the
time of such application by the Trustee, it did not have knowledge that such
payment would have been prohibited by the provisions of this Article.
SECTION 1206. Subrogation to Rights of Holders of Senior Indebtedness.
-------------------------------------------------------
Subject to the payment in full of all Senior Indebtedness, the Holders
of the Securities shall be subrogated (equally and ratably with the holders of
all indebtedness of the Company which by its express terms is subordinated to
indebtedness of the Company to substantially the same extent as the Securities
are subordinated and is entitled to like rights of subrogation) to the rights of
the holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness until the
principal of (and premium, if any) and interest on the Securities shall be paid
in full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Indebtedness of any cash, property or securities to which
the Holders of the Securities or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the provisions of
this Article to the holders of Senior Indebtedness by Holders of the Securities
or the Trustee, shall, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Securities, be deemed to be a payment
or distribution by the Company to or on account of the Senior Indebtedness.
SECTION 1207. Provisions Solely to Define Relative Rights.
-------------------------------------------
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness (and, in the case of Section
1215, Entitled Persons in respect of Other Financial Obligations) on the other
hand. Nothing contained in this Article or elsewhere in this Indenture or in
the Securities is intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional
(and which, subject to the rights under this Article of the holders of
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Senior Indebtedness and the rights under Section 1215 of Entitled Persons in
respect of Other Financial Obligations, is intended to rank equally with all
other general obligations of the Company), to pay to the Holders of the
Securities the principal of (and premium, if any) and interest on the Securities
as and when the same shall become due and payable in accordance with their
terms; or (b) affect the relative rights against the Company of the Holders of
the Securities and creditors of the Company other than the holders of Senior
Indebtedness; or (c) prevent the Trustee or the Holder of any Security from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article of the holders
of Senior Indebtedness, and under Section 1215 of Entitled Persons in respect of
Other Financial Obligations, to receive cash, property and securities otherwise
payable or deliverable to the Trustee or such Holder.
SECTION 1208. Trustee to Effectuate Subordination.
-----------------------------------
Each Holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 1209. No Waiver of Subordination Provisions.
-------------------------------------
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, Senior Indebtedness, or otherwise amend or supplement in any manner
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Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
SECTION 1210. Notice to Trustee.
-----------------
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment or
distribution to or by the Trustee in respect of the Securities. Notwithstanding
the provisions of this Article or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts which
would prohibit the making of any payment or distribution to or by the Trustee in
respect of the Securities, unless and until the Trustee shall have received
written notice thereof from the Company or a holder of Senior Indebtedness or
from any trustee therefor or from any Entitled Persons in respect of Other
Financial Obligations, and, prior to the receipt of any such written notice, the
Trustee shall be entitled in all respects to assume that no such facts exist.
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness (or a trustee therefor) or an Entitled Person in respect of Other
Financial Obligations to establish that such notice has been given by a holder
of Senior Indebtedness (or a trustee therefor) or an Entitled Person in respect
of Other Financial Obligations. In the event that the Trustee determines in
good faith that further evidence is required with respect to the right of any
Person as a holder of Senior Indebtedness or an Entitled Person in respect of
Other Financial Obligations to participate in any payment or distribution
pursuant to this Article, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness or Other Financial Obligations held by such Person, the
extent to which such Person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such Person under
this Article, and if such evidence is not furnished, the Trustee may defer any
payment or distribution to such Person pending judicial determination as to the
right of such Person to receive such payment.
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SECTION 1211. Reliance on Judicial Order or Certificate of Liquidating Agent.
--------------------------------------------------------------
Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee and the Holders of the Securities shall be entitled
to rely upon any order or decree entered by any court of competent jurisdiction
in which such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other Person making
such payment or distribution, delivered to the Trustee or to the Holders of
Securities, for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company and the Entitled Persons in respect of Other
Financial Obligations, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Article.
SECTION 1212. Trustee Not Fiduciary for Holders of Senior Indebtedness.
--------------------------------------------------------
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness or Entitled Persons in respect of Other Financial
Obligations and shall not be liable to any such holders or creditors if it shall
in good faith mistakenly pay over or distribute to Holders of Securities or to
the Company or to any other Person cash, property or securities to which any
holders of Senior Indebtedness or Entitled Persons in respect of Other Financial
Obligations shall be entitled by virtue of this Article or otherwise.
SECTION 1213. Rights of Trustee as Holder of Senior Indebtedness; Preservation
----------------------------------------------------------------
of Trustee's Rights.
-------------------
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, and with respect to any Other Financial
Obligations owed to the Trustee as an Entitled Person, to the same extent as any
other holder of Senior Indebtedness or Entitled Persons in respect of Other
Financial Obligations, as the case may be, and nothing in this Indenture shall
deprive the Trustee of any of its rights as such holder or Entitled Person.
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Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 607.
SECTION 1214. Article Applicable to Paying Agents.
-----------------------------------
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee; provided,
--------
however, that Section 1213 shall not apply to the Company or any Affiliate of
- -------
the Company if it or such Affiliate acts as Paying Agent.
SECTION 1215. Payment of Proceeds in Certain Cases.
------------------------------------
(a) If, after giving effect to the provisions of Section 1202 and
Section 1206, any amount of cash, property or securities shall be available for
payment or distribution in respect of the Securities ("Excess Proceeds"), and
any Entitled Persons in respect of Other Financial Obligations shall not have
received payment in full of all amounts due or to become due on or in respect of
such Other Financial Obligations (and provision shall not have been made for
such payment in money or money's worth), then such Excess Proceeds shall first
be applied (ratably with any amount of cash, property or securities available
for payment or distribution in respect of any other indebtedness of the Company
that by its express terms provides for the payment over of amounts corresponding
to Excess Proceeds to Entitled Persons in respect of Other Financial
Obligations) to pay or provide for the payment of the Other Financial
Obligations remaining unpaid, to the extent necessary to pay all Other Financial
Obligations in full, after giving effect to any concurrent payment or
distribution to or for Entitled Persons in respect of Other Financial
Obligations. Any Excess Proceeds remaining after the payment (or provision for
payment) in full of all Other Financial Obligations shall be available for
payment or distribution in respect of the Securities.
(b) In the event that, notwithstanding the foregoing provisions of
subsection (a) of this Section, the Trustee or Holder of any Security shall have
received any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, before all Other Financial
Obligations are paid in full or payment thereof duly provided for, and if such
fact shall,
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at or prior to the time of such payment or distribution have been made known to
the Trustee or, as the case may be, such Holder, then and in such event, subject
to any obligation that the Trustee or such Holder may have pursuant to Section
1202, such payment or distribution shall be paid over or delivered forthwith to
the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee,
agent or other Person making payment or distribution of assets of the Company
for payment in accordance with subsection (a).
(c) Subject to the payment in full of all Other Financial
Obligations, the Holders of the Securities shall be subrogated (equally and
ratably with the holders of all indebtedness of the Company that by its express
terms provides for the payment over of amounts corresponding to Excess Proceeds
to Entitled Persons in respect of Other Financial Obligations and is entitled to
like rights of subrogation) to the rights of the Entitled Persons in respect of
Other Financial Obligations to receive payments and distributions of cash,
property and securities applicable to the Other Financial Obligations until the
principal of and interest on the Securities shall be paid in full. For purposes
of such subrogation, no payments or distributions to Entitled Persons in respect
of Other Financial Obligations of any cash, property or securities to which
Holders of the Securities or the Trustee would be entitled except for the
provisions of this Section, and no payments over pursuant to the provisions of
this Section to Entitled Persons in respect of Other Financial Obligations by
Holders of Securities or the Trustee, shall, as among the Company, its creditors
other than Entitled Persons in respect of Other Financial Obligations and the
Holders of Securities be deemed to be a payment or distribution by the Company
to or on account of the Other Financial Obligations.
(d) The provisions of subsections (a), (b) and (c) of this Section
are and are intended solely for the purpose of defining the relative rights of
the Holders of the Securities, on the one hand, and the Entitled Persons in
respect of Other Financial Obligations, on the other hand, after giving effect
to the rights of the holders of Senior Indebtedness, as provided in this
Article. Nothing contained in subsections (a), (b) and (c) of this Section is
intended to or shall affect the relative rights against the Company of the
Holders of the Securities and (1) the holders of Senior Indebtedness or (2)
other creditors of the Company other than Entitled Persons in respect of Other
Financial Obligations.
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SECTION 1216. Certain Conversions Deemed Payment.
----------------------------------
For the purposes of this Article only, (1) the issuance and delivery
of junior securities upon conversion of Securities in accordance with Article
Thirteen shall not be deemed to constitute a payment or distribution on account
of the principal of or premium or interest on Securities or on account of the
purchase or other acquisition of Securities, and (2) the payment, issuance or
delivery of cash, property or securities (other than junior securities) upon
conversion of a Security shall be deemed to constitute payment on account of the
principal of such Security. For the purposes of this Section, the term "junior
securities" means (a) shares of any stock of any class of the Company and (b)
securities of the Company which are subordinated in right of payment to all
Senior Indebtedness which may be outstanding at the time of issuance or delivery
of such securities to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as provided in this Article. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities is
intended to or shall impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Securities, the right,
which is absolute and unconditional, of the Holder of any Security to convert
such Security in accordance with Article Thirteen.
ARTICLE THIRTEEN
Conversion of Securities
SECTION 1301. Conversion Privilege and Conversion Price.
-----------------------------------------
Subject to and upon compliance with the provisions of this Article, at
the option of the Holder thereof, the principal amount of any Security which is
payable at Stated Maturity or any portion thereof which is $1,000 or an integral
multiple of $1,000 may be converted into fully paid and non-assessable shares
(calculated as to each conversion to the nearest 1/100 of a share) of Common
Stock of the Company, at the conversion price, determined as hereinafter
provided, in effect at the time of conversion. Such conversion right shall
expire at the close of business on __________, subject, in the case of
conversion of any Global Security, to any Applicable Procedures. In case a
Security or portion thereof is called for redemption, such conversion right in
respect of the Security or portion so called shall expire at the close of
business on the Redemption Date unless the Company defaults in making the
payment due upon
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redemption, subject as aforesaid to any Applicable Procedures with respect to
any Global Security.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "conversion price") shall be initially $_____ per
share of Common Stock. The conversion price shall be adjusted in certain
instances as provided in this Article.
SECTION 1302. Exercise of Conversion Privilege.
--------------------------------
In order to exercise the conversion privilege, the Holder of any
Security to be converted shall surrender such Security, duly endorsed or
assigned to the Company or in blank, at any office or agency of the Company
maintained for that purpose pursuant to Section 1002, accompanied by written
notice to the Company substantially in the form set forth in the form of reverse
of Security in Section 203 at such office or agency that the Holder elects to
convert such Security or, if less than the entire principal amount thereof is to
be converted, the portion thereof to be converted. Securities surrendered for
conversion during the period from the close of business on any Regular Record
Date next preceding any Interest Payment Date to the opening of business on such
Interest Payment Date shall (except in the case of Securities or portions
thereof which have been called for redemption on a Redemption Date within such
period) be accompanied by payment in New York Clearing House funds, as the case
may be, or other funds acceptable to the Company of an amount equal to the
interest payable on such Interest Payment Date on the principal amount of
Securities being surrendered for conversion. Subject to the provisions of
Section 307 relating to the payment of Defaulted Interest by the Company, in the
case of a Security which is converted after any Regular Record Date and on or
prior to the next succeeding Interest Payment Date (other than any Securities or
portions thereof which have been called for redemption on a Redemption Date
within such period), the interest whose Stated Maturity is on such Interest
Payment Date shall be payable on such Interest Payment Date to the Holder of
such Security at the close of business on such Regular Record Date
notwithstanding the conversion of such Security after such Regular Record Date
and prior to such Interest Payment Date. Except as set forth above and subject
to the final paragraph of Section 307, no payment or adjustment shall be made
upon any conversion on account of any interest accrued on the Securities
surrendered for conversion or on account of any dividends on the Common Stock
issued upon conversion.
Securities shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of such Securities for conversion
in accordance
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with the foregoing provisions, and at such time the rights of the Holders of
such Securities as Holders shall cease, and the Person or Persons entitled to
receive the Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such Common Stock at such time. As
promptly as practicable on or after the conversion date, the Company shall issue
and shall deliver at such office or agency a certificate or certificates for the
number of full shares of Common Stock issuable upon conversion, together with
payment in lieu of any fraction of a share, as provided in Section 1303.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations in aggregate principal amount equal to
the unconverted portion of the principal amount of such Security.
SECTION 1303. Fractions of Shares.
-------------------
No fractional shares of Common Stock shall be issued upon conversion
of Securities. If more than one Security shall be surrendered for conversion at
one time by the same Holder, the number of full shares which shall be issuable
upon conversion thereof shall be computed on the basis of the aggregate
principal amount of the Securities (or specified portions thereof) so
surrendered. Instead of any fractional share of Common Stock which would
otherwise be issuable upon conversion of any Security or Securities (or
specified portions thereof), the Company shall pay a cash adjustment in respect
of such fraction in an amount equal to the same fraction of the Closing Price at
the close of business on the day of conversion (or, if such day is not a Trading
Day, on the Trading Day immediately preceding such day).
SECTION 1304. Adjustment of Conversion Price.
------------------------------
(a) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company in shares of Common
Stock, the conversion price in effect at the opening of business on the day
following the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
conversion price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or
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other distribution, such reduction to become effective immediately after the
opening of business on the day following the date fixed for such determination.
For the purposes of this paragraph (a), the number of shares of Common Stock at
any time outstanding shall not include shares held in the treasury of the
Company or which shall have been otherwise acquired by the Company but shall
include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. The Company will not pay any dividend or
make any distribution on shares of Common Stock held in the treasury of the
Company.
(b) Subject to the last sentence of paragraph (g) of this Section, in
case the Company shall issue rights or warrants to all holders of its Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the current market price per share (determined as
provided in paragraph (h) of this Section) of the Common Stock on the date fixed
for the determination of the shareholders entitled to receive such rights or
warrants, the conversion price in effect at the opening of business on the day
following the date fixed for such determination shall be reduced by multiplying
such conversion price by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of Common Stock so
offered for subscription or purchase would purchase at such current market price
and the denominator shall be the number of shares of Common Stock outstanding at
the close of business on the date fixed for such determination plus the number
of shares of Common Stock so offered for subscription or purchase, such
reduction to become effective immediately after the opening of business on the
day following the date fixed for such determination. For the purposes of this
paragraph (b), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Company but shall include
shares issuable in respect of scrip certificates issued in lieu of fractions of
shares of Common Stock. The Company will not issue any rights or warrants in
respect of shares of Common Stock held in the treasury of the Company.
(c) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the conversion price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and, conversely,
in case outstanding shares of Common Stock shall each be combined into a smaller
number of
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<PAGE>
shares of Common Stock, the conversion price in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(d) Subject to the last sentence of this paragraph (d) and the last
sentence of paragraph (g) of this Section, in case the Company shall, by
dividend or otherwise, distribute to all holders of its Common Stock evidences
of its indebtedness, shares of any class of capital stock, cash or assets
(including securities, but excluding those rights or warrants referred to in
paragraph (b) of this Section, any dividend or distribution paid exclusively in
cash and any dividend or distribution referred to in paragraph (a) of this
Section), the conversion price shall be adjusted so that the same shall equal
the price determined by multiplying the conversion price in effect immediately
prior to the close of business on the date fixed for the determination of
shareholders entitled to receive such distribution by a fraction of which the
numerator shall be the current market price per share (determined as provided in
paragraph (h) of this Section) of the Common Stock on the date fixed for such
determination less the then fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution filed with the Trustee) of the portion of the assets, securities or
evidences of indebtedness so distributed applicable to one share of Common Stock
and the denominator shall be such current market price per share of the Common
Stock, such adjustment to become effective immediately prior to the opening of
business on the day following the date fixed for the determination of
shareholders entitled to receive such distribution. If the Board of Directors
determines the fair market value of any distribution for purposes of this
paragraph (d) by reference to the actual or when issued trading market for any
securities comprising such distribution, it must in doing so consider the prices
in such market over the same period used in computing the current market price
per share pursuant to paragraph (h) of this Section. Notwithstanding the
foregoing, in the event that the Company shall distribute rights or warrants
(other than those referred to in paragraph (b) of this Section) ("Rights") pro
rata to holders of Common Stock, the Company shall make proper provision so that
each Holder of a Security who converts such Security (or any portion thereof)
after the record date for such distribution and prior to the expiration or
redemption of the Rights shall be entitled to receive upon such conversion, in
addition to the shares of
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Common Stock issuable upon such conversion (the "Conversion Shares"), a number
of Rights to be determined as follows: (i) if such conversion occurs on or
prior to the date for the distribution to the holders of Rights of separate
certificates evidencing such Rights (the "Distribution Date"), the same number
of Rights to which a holder of a number of shares of Common Stock equal to the
number of Conversion Shares is entitled at the time of such conversion in
accordance with the terms and provisions of and applicable to the Rights; and
(ii) if such conversion occurs after the Distribution Date, the same number of
Rights to which a holder of the number of shares of Common Stock into which the
principal amount of the Security so converted was convertible immediately prior
to the Distribution Date would have been entitled on the Distribution Date in
accordance with the terms and provisions of and applicable to the Rights.
(e) In case the Company shall, by dividend or otherwise, at any time
distribute to all holders of its Common Stock cash (excluding any cash that is
distributed as part of a distribution referred to in paragraph (d) of this
Section) in an aggregate amount that, together with (i) the aggregate amount of
any other distributions to all holders of its Common Stock made exclusively in
cash with the 12 months preceding the date of payment of such distribution and
in respect of which no conversion price adjustment pursuant to this paragraph
(e) has been made and (ii) the aggregate of any cash plus the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution) of consideration payable in
respect of any tender offer by the Company or a Subsidiary for all or any
portion of the Company's Common Stock concluded within the 12 months preceding
the date of payment of such distribution and in respect of which no conversion
price adjustment pursuant to paragraph (f) of this Section has been made,
exceeds 12.5% of the product of the current market price per share (determined
as provided in paragraph (h) of this Section) of the Common Stock on the date
fixed for the determination of shareholders entitled to receive such
distribution times the number of shares of Common Stock outstanding on such
date, the conversion price shall be reduced so that the same shall equal the
price determined by multiplying the conversion price in effect immediately prior
to the effectiveness of the conversion price reduction contemplated by this
paragraph (e) by a fraction of which the numerator shall be the current market
price per share (determined as provided in paragraph (h) of this Section) of the
Common Stock on such date less the amount of cash so distributed applicable to
one share of Common Stock and the denominator shall be such current market price
per share of the Common Stock,
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<PAGE>
such reduction to become effective immediately prior to the opening of business
on the later of (a) the date following the date fixed for the payment of such
distribution and (b) the date 20 days after the notice relating to such
distribution is given pursuant to Section 1306(a).
(f) In case a tender offer made by the Company or any Subsidiary for
all or any portion of the Company's Common Stock shall be consummated and such
tender offer shall involve an aggregate consideration having a fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution) on the last time (the
"Expiration Time") tenders may be made pursuant to such tender offer (as it may
be amended) that, together with (i) the aggregate of the cash plus the fair
market value (as determined by the Board of Directors, whose determination shall
be conclusive and described in a Board Resolution), as of the Expiration Time,
of consideration payable in respect of any tender offer by the Company or a
Subsidiary for all or any portion of the Company's Common Stock consummated
within 12 months preceding the Expiration Time and in respect of which no
conversion price adjustment pursuant to this paragraph (f) has been made and
(ii) the aggregate amount of any distributions to all holders of the Company's
Common Stock made exclusively in cash within the 12 months preceding the
Expiration Time and in respect of which no conversion price adjustment pursuant
to paragraph (e) of this Section has been made, exceeds 12.5% of the product of
the current market price per share (determined as provided in paragraph (h) of
this Section) of the Common Stock on the Expiration Time times the number of
shares of Common Stock outstanding (including any tendered shares) on the
Expiration Time, the conversion price shall be reduced so that the same shall
equal the price determined by multiplying the conversion price in effect
immediately prior to the Expiration Time by a fraction of which the numerator
shall be (i) the product of the current market price per share (determined as
provided in paragraph (h) of this Section) of the Common Stock on the Expiration
Time times the number of shares of Common Stock outstanding (including any
tendered shares) on the Expiration Time minus (ii) the fair market value
(determined as aforesaid) of the aggregate consideration payable to stockholders
based on the acceptance (up to any maximum specified in the terms of the tender
offer) of all shares validly tendered and not withdrawn as of the Expiration
Time (the shares deemed so accepted, up to any such maximum, being referred to
as the "Purchased Shares") and the denominator shall be the product of (i) such
current market price per share on the Expiration Time times (ii) such number of
outstanding shares on the Expiration Time minus the number of Purchased Shares,
such reduction to
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<PAGE>
become effective immediately prior to the opening of business on the day
following the Expiration Time.
(g) The reclassification of Common Stock into securities other than
Common Stock (other than any reclassification upon a consolidation or merger to
which Section 1311 applies) shall be deemed to involve (i) a distribution of
such securities other than Common Stock to all holders of Common Stock (and the
effective date of such reclassification shall be deemed to be "the date fixed
for the determination of shareholders entitled to receive such distribution"
within the meaning of paragraph (d) of this Section), and (ii) a subdivision or
combination, as the case may be, of the number of shares of Common Stock
outstanding immediately prior to such reclassification into the number of shares
of Common Stock outstanding immediately thereafter (and the effective date of
such reclassification shall be deemed to be "the day upon which such subdivision
becomes effective" or "the day upon which such combination becomes effective",
as the case may be, and "the day upon which such subdivision or combination
becomes effective" within the meaning of paragraph (c) of this Section). Rights
or warrants issued by the Company to all holders of its Common Stock entitling
the holders thereof to subscribe for or purchase shares of Common Stock, which
rights or warrants (i) are deemed to be transferred with such shares of Common
Stock, (ii) are not exercisable and (iii) are also issued in respect of future
issuances of Common Stock, in each case in clauses (i) through (iii) until the
occurrence of a specified event or events ("Trigger Event"), shall for purposes
of this Section 1304 not be deemed issued until the occurrence of the earliest
Trigger Event.
(h) For the purpose of any calculation under paragraphs (b), (d) and
(e) of this Section, the current market price per share of Common Stock on any
date shall be deemed to be the average of the Closing Prices for the 15
consecutive Trading Days selected by the Company commencing not more than 20
Trading Days before, and ending not later than the day in question, provided,
however, that (i) if the "ex" date for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
conversion price pursuant to paragraph (a), (b), (c), (d), (e) or (f) above
occurs on or after the 20th Trading Day prior to the day in question and prior
to the "ex" date for the issuance or distribution requiring such computation,
the Closing Price for each Trading Day prior to the "ex" date for such other
event shall be adjusted by multiplying such Closing Price by the same fraction
by which the conversion price is so required to be adjusted as a result of such
other event, (ii) if the "ex" date for any event (other than the issuance or
distribution
85
<PAGE>
requiring such computation) that requires an adjustment to the conversion price
pursuant to paragraph (a), (b), (c), (d), (e) or (f) above occurs on or after
the "ex" date for the issuance or distribution requiring such computation and on
or prior to the day in question, the Closing Price for each Trading Day on and
after the "ex" date for such other event shall be adjusted by multiplying such
Closing Price by the reciprocal of the fraction by which the conversion price is
so required to be adjusted as a result of such other event, and (iii) if the
"ex" date for the issuance or distribution requiring such computation is on or
prior to the day in question, after taking into account any adjustment required
pursuant to clause (ii) of this proviso, the Closing Price for each Trading Day
on or after such "ex" date shall be adjusted by adding thereto the amount of any
cash and the fair market value on the day in question (as determined by the
Board Directors in a manner consistent with any determination of such value for
purposes of paragraph (d) or (e) of this Section, whose determination shall be
conclusive and described in a Board Resolution) of the evidences of
indebtedness, shares of capital stock or assets being distributed applicable to
one share of Common Stock as of the close of business on the day before such
"ex" date. For the purpose of any computation under paragraph (f) of this
Section, the current market price per share of Common Stock on any date shall be
deemed to be the average of the daily Closing Prices for the 15 consecutive
Trading Days selected by the Company commencing on or after the latest (the
"Commencement Date") of (i) the date 20 Trading Days before the date in
question, (ii) the date of commencement of the tender offer requiring such
computation and (iii) the date of the last amendment, if any, of such tender
offer involving a change in the maximum number of shares for which tenders are
sought or a change in the consideration offered, and ending not later than the
Expiration Time of such tender offer; provided, however, that if the "ex" date
for any event (other than the tender offer requiring such computation) that
requires an adjustment to the conversion price pursuant to paragraph (a), (b),
(c), (d), (e) or (f) above occurs on or after the Commencement Date and prior to
the Expiration Time for the tender offer requiring such computation, the Closing
Price for each Trading Day prior to the "ex" date, for such other event shall be
adjusted by multiplying such Closing Price by the same fraction by which the
conversion price is so required to be adjusted as a result of such other event.
For purposes of this paragraph, the term "ex" date, (i) when used with respect
to any issuance or distribution, means the first date on which the Common Stock
trades regular way on the relevant exchange or in the relevant market from which
the Closing Price was obtained without the right to receive such issuance or
distribution, (ii) when used with respect
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<PAGE>
to any subdivision or combination of shares of Common Stock, means the first
date on which the Common Stock trades regular way on such exchange or in such
market after the time at which such subdivision or combination becomes
effective, and (iii) when used with respect to any tender offer means the first
date on which the Common Stock trades regular way on such exchange or in such
market after the Expiration Time of such tender offer.
(i) No adjustment in the conversion price shall be required unless
such adjustment would require an increase or decrease of at least 1% in such
price; provided, however, that any adjustment which by reason of this paragraph
-------- -------
(i) is not required to be made shall be carried forward and taken into account
in any subsequent adjustment; and provided, further that all such adjustments
-------- -------
shall be made no later than the third anniversary of the earliest date on which
an adjustment would have been made but for this paragraph (i) and all
calculations under this paragraph (i) shall be made to the nearest cent.
(j) In addition to the adjustments in conversion price required by
paragraphs (a), (b), (c), (d), (e) and (f), of this Section, the Company may
from time to time in its discretion make such decreases in the conversion price
as it considers to be advisable in order to avoid or diminish any federal income
tax to any holders of shares of Common Stock resulting from any dividend or
distribution of stock or issuance of rights or warrants to purchase or subscribe
for stock or from any event treated as such for federal income tax purposes or
for any other reasons.
SECTION 1305. Notice of Adjustments of Conversion Price.
-----------------------------------------
Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price in
accordance with Section 1304 and shall prepare a certificate signed by the
chief financial officer or the Treasurer of the Company setting forth the
adjusted conversion price and showing in reasonable detail the facts upon
which such adjustment is based, and such certificate shall forthwith be
filed at each office or agency maintained for the purpose of conversion of
Securities pursuant to Section 1002; and
(b) a notice stating that the conversion price has been adjusted and
setting forth the adjusted conversion price shall forthwith be required,
and as soon as practicable after it is required, such notice
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<PAGE>
shall be mailed by the Company to all Holders at their last addresses as
they shall appear in the Securities Register.
SECTION 1306. Notice of Certain Corporate Actions.
-----------------------------------
In case:
(a) the Company shall declare a dividend (or any other distribution)
on its Common Stock payable otherwise than in cash out of its retained
earnings; or
(b) the Company shall authorize the granting to the holders of its
Common Stock of rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any other rights; or
(c) of any reclassification of the Common Stock of the Company (other
than a subdivision or combination of its outstanding shares of Common
Stock, or of any consolidation, merger or share exchange to which the
Company is a party and for which approval of any shareholders of the
Company is required), or of the sale or transfer of all or substantially
all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be filed with the Trustee, and shall cause to be
mailed to all Holders at their last addresses as they shall appear in the
Securities Register, at least 20 days (or 10 days in any case specified in
clause (a) or (b) above) prior to the applicable record date hereinafter
specified, a notice stating (i) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights or warrants, or, if a record
is not to be taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distribution, rights or warrants are to be
determined, or (ii) the date on which such reclassification, consolidation,
merger, share exchange, sale, transfer, dissolution, liquidation or winding up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, share exchange, sale, transfer,
dissolution, liquidation or winding up. If at any time the Trustee shall not be
the conversion agent, a copy of such notice shall also forthwith be filed by the
Company with the Trustee.
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<PAGE>
SECTION 1307. Company to Reserve Common Stock.
-------------------------------
The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of Securities, the full number of shares of
Common Stock then issuable upon the conversion of all outstanding Securities.
SECTION 1308. Taxes on Conversions.
--------------------
The Company will pay any and all taxes that may be payable in respect
of the issue or delivery of shares of Common Stock on conversion of Securities
pursuant hereto. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that of the Holder of
the Security or Securities to be converted, and no such issue or delivery shall
be made unless and until the person requesting such issue has paid to the
Company the amount of any such tax, or has established to the satisfaction of
the Company that such tax has been paid.
SECTION 1309. Covenant as to Common Stock.
---------------------------
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Securities will upon issue be fully paid and non-
assessable and, except as provided in Section 1308, the Company will pay all
taxes, liens and charges with respect to the issue thereof.
SECTION 1310. Cancellation of Converted Securities.
------------------------------------
All Securities delivered for conversion shall be delivered to the
Trustee to be cancelled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 309.
SECTION 1311. Provisions in Case of Consolidation, Merger or Sale of Assets.
-------------------------------------------------------------
In case of any consolidation of the Company with, or merger of the
Company into, any other Person, any merger or consolidation of another Person
into the Company (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the Company), or any sale or transfer of all or substantially
all of the assets of the Company, the Person formed by such consolidation or
resulting from such merger or which acquires such assets or the Company, as the
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<PAGE>
case may be, shall execute and deliver to the Trustee a supplemental indenture
providing that the Holder of each Security then outstanding shall have the right
thereafter, during the period such Security shall be convertible as specified in
Section 1301, to convert such Security only into the kind and amount of
securities, cash and other property receivable upon such consolidation, merger,
sale or transfer by a holder of the number of shares of Common Stock of the
Company into which such Security might have been converted immediately prior to
such consolidation, merger, sale or transfer, assuming such holder of Common
Stock of the Company is not a Person with which the Company consolidated or into
which the Company merged or which merged into the Company, or to which such sale
or transfer was made, as the case may be (a "Constituent Person"), or an
Affiliate of a Constituent Person, and failed to exercise his right of election,
if any, as to the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, sale or transfer (provided that if
the kind or amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer is not the same for each share of Common
Stock of the Company in respect of which such rights of election shall not have
been exercised ("non-electing share"), then for the purpose of this Section the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of the
non-electing shares). Such supplemental indenture shall provide for adjustments
which, for events subsequent to the effective date of such supplemental
indenture, shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article. The above provisions of this Section
shall similarly apply to successive consolidations, mergers, sales or transfers.
--------------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
FIRST STATE BANCORPORATION
[SEAL] By ____________________________
Name:
Title:
Attest:
__________________________
Name:
Title:
FIRST TRUST NATIONAL ASSOCIATION
[SEAL] By ___________________________
Name:
Title:
Attest:
___________________________
Name:
Title:
91
<PAGE>
STATE OF NEW YORK ) ss.:
COUNTY OF NEW YORK )
On the _____ day of __________, 1997, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that he/she is ______________________________________________
of FIRST STATE BANCORPORATION, one of the corporations described in and which
executed the foregoing instrument; that he/she knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he/she signed his/her name thereto by like authority.
______________________________
Notary Public
STATE OF NEW YORK ) ss.:
COUNTY OF NEW YORK )
On the _____ day of __________, 1997, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that he/she is ____________________________________________ of
FIRST TRUST NATIONAL ASSOCIATION, one of the corporations described in and which
executed the foregoing instrument; that he/she knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he/she signed his/her name thereto by like authority.
______________________________
Notary Public
92
<PAGE>
[LETTERHEAD OF HINKLE, COX, EATON, COFFIELD & HENSLEY, L.L.P. APPEARS HERE]
April 21, 1997
First State Bancorporation
111 Lomas Avenue NW
Albuquerque, New Mexico 87102
Ladies and Gentlemen:
We have assisted in the preparation and filing with the Securities and
Exchange Commission (the "Commission") of a Registration Statement on Form S-2
filed with the Commission on April 2, 1997 (the "Registration Statement"),
relating to $13,800,000 principal amount of Convertible Subordinated Debentures
due 2017 (the "Debentures") of First State Bancorporation, a New Mexico
corporation (the "Company") and the shares of Common Stock, no par value per
share, of the Company issuable upon conversion of the Debentures, including the
corresponding rights under the Shareholder Protection Rights Agreement dated as
of October 25, 1996, between the Company and American Securities Transfer,
Incorporated, as Rights Agent (the "Conversion Shares").
We have examined the Restated Articles of Organization and the By-Laws of
the Company and have examined and relied on the originals, or copies certified
to our satisfaction of such records of meetings of the directors and
shareholders of the Company, documents and other instruments as in our judgment
are necessary or appropriate to enable us to render the opinions expressed
below.
We assume that appropriate action will be taken prior to the sale of the
Debentures to register and qualify the Debentures and the Conversion Shares for
sale under any applicable state "blue sky" or securities law.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a duly organized and validly existing corporation under
the laws of New Mexico with corporate powers adequate for the conduct
of its business
<PAGE>
First State Bancorporation
April 21, 1997
Page 2
as described in the Registration Statement and the Prospectus
constituting a part thereof.
2. The execution and delivery of the Indenture between the Company and
Colorado National Bank, as trustee (the "Indenture"), have been
duly authorized by the Company and, when executed and delivered by
the Company, the Indenture will constitute a valid and legally
binding instrument of the Company, except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium, notice, or other laws relating to or affecting
creditors' rights generally.
3. The Debentures and the Conversion Shares have been duly authorized
and when the Debentures have been duly executed, authenticated,
issued, and delivered to and paid for by the Underwriters, (a) the
Debentures will constitute valid and binding obligations of the
Company and will be entitled to all the benefits of the Indenture,
except as the enforceability of the Debentures may be limited by
bankruptcy, insolvency, reorganization, moratorium, notice, or
other laws relating to or affecting creditor's rights generally and
(b) the Conversion Shares issuable upon conversion of the
Debentures will be legally issued, fully paid, and non-assessable.
We hereby consent to the use of our name in the Registration Statement and
under the caption "Legal Matters" in the related Prospectus and to the filing of
this opinion as an Exhibit to the Registration Statement.
Very truly yours,
/s/ Hinkle, Cox, Eaton, Coffield & Hensley
<PAGE>
Exhibit 12.1
----
First State Bancorporation and Subsidiaries
Computation of Earnings To Fixed Charges
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Including interest on deposits:
Earnings:
Income before taxes and minority interest $3,177 $2,438 $2,641 $1,795 $1,413
Loss from credit card processing operation - 1,208 158 - -
Interest expense 9,617 7,385 4,666 3,341 3,996
-------------------------------------------------------------------
12,794 11,031 7,465 5,136 5,409
Fixed charges:
Interest expense 9,617 7,385 4,666 3,341 3,996
-------------------------------------------------------------------
Earnings to fixed charges 1.33 1.49 1.60 1.54 1.35
===================================================================
Excluding interest on deposits:
Earnings:
Income before taxes and minority interest $3,177 $2,438 $2,641 $1,795 $1,413
Loss from credit card processing operation - 1,208 158 - -
Interest expense 9,617 7,385 4,666 3,341 3,996
Interest on deposits (8,375) (6,415) (4,021) (3,165) (3,806)
-------------------------------------------------------------------
4,419 4,616 3,444 1,971 1,603
Fixed charges:
Interest expense 9,617 7,385 4,666 3,341 3,996
Interest on deposits (8,375) (6,415) (4,021) (3,165) (3,806)
-------------------------------------------------------------------
1,242 970 645 176 190
-------------------------------------------------------------------
Earnings to fixed charges 3.56 4.76 5.34 11.20 8.44
===================================================================
</TABLE>
<PAGE>
EXHIBIT 23.2
Independent Auditors' Consent
-----------------------------
The Board of Directors
First State Bancorporation:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
April 24, 1997
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER
THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
---------------------------------
FIRST TRUST NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
NOT APPLICABLE 41-0257700
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. National Bank) Identification No.)
First Trust Center
180 East Fifth Street 55101
St. Paul, Minnesota (Zip Code)
(Address of principal executive offices)
---------------------------------
FIRST STATE BANCORPORATION
(Exact name of obligor as specified in its charter)
NEW MEXICO 85-0366665
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 LOMAS AVENUE NW 87102
ALBUQUERQUE, NEW MEXICO (Zip Code)
(Address of principal executive offices)
---------------------------------
CONVERTIBLE SUBORDINATED DEBENTURES DUE 2017
(Title of the indenture securities)
<PAGE>
1. GENERAL INFORMATION Furnish the following information as to the Trustee.
--------------------
(a) Name and address of each examining or supervising authority to which it
is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH THE OBLIGOR If the obligor is an affiliate of the
-----------------------------
Trustee, describe each such affiliation.
None
Items 3-15 are not applicable because to the best of the Trustee's knowledge
the obligor is not in default under any Indenture for which the Trustee acts
as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement
----------------
of eligibility.
Each of the exhibits listed below , other than Exhibit 6, is incorporated
herein by reference from registration numbers referenced after each exhibit
below.
1. Copy of Articles of Association. Registration #22-27000.
2. Copy of Certificate of Authority to Commence Business. Registration
#22-27000.
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2; no separate instrument). Registration
#22-27000.
4. Copy of Existing By-Laws. Registration #22-27000.
5. Copy of each indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321 (b) of the Act.
7. Copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or
examining authority. Registration #333-2090.
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what persons
have been underwriters for any securities of the obligor within three years
prior to the date of filing this statement, or what persons are owners of 10% or
more of the voting securities of the obligor, or affiliates, are based upon
information furnished to the Trustee by the obligor. While the Trustee has no
reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, FIRST TRUST NATIONAL ASSOCIATION, an Association organized and existing
under the laws of the United States, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto affixed and attested on the 24th day of
April, 1997.
FIRST TRUST NATIONAL ASSOCIATION
[SEAL]
/s/ ADAM M. DALMY
-----------------------
ADAM M. DALMY
VICE PRESIDENT
/s/ WILLIAM W.MACMILLAN
- -----------------------
WILLIAM W. MACMILLAN
ASSISTANT SECRETARY
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the
undersigned, FIRST TRUST NATIONAL ASSOCIATION hereby consents that reports of
examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.
Dated: April 24, 1997
FIRST TRUST NATIONAL ASSOCIATION
/s/ ADAM M. DALMY
------------------------
ADAM M. DALMY
VICE PRESIDENT
