As filed with the Securities and Exchange Commission on November 19, 1999
Registration Nos. 333-87357-01
333-87357
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 2
TO FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
FIRST STAR CAPITAL TRUST
FIRST STAR BANCORP, INC.
-----------------------------
(Name of Small Business Issuers in Their Charters)
Delaware Requested
Pennsylvania 6035 23-2753108
------------ ---- ----------
(States or Other Jurisdictions (Primary SIC No (I.R.S. Employer
of Incorporation or Organization) Identification Nos.)
First Star Bancorp, Inc. First Star Capital Trust
418 West Broad Street, c/o Bankers Trust (Delaware)
Bethlehem, Pennsylvania 18018 1101 Centre Road, Suite 200, Trust Department
(610) 691-2233 Wilmington, Delaware 19805
(302) 636-3301
-----------------------------
(Address and Telephone Number of Principal Executive Offices)
Mr. Joseph T. Svetik
Chief Executive Officer
First Star Bancorp, Inc.
418 West Broad Street, Bethlehem, Pennsylvania 18018
(610) 691-2233
-----------------------------
(Name, address and telephone number of agent for service)
Please send copies of all communications to:
John J. Spidi, Esq. Jeffrey P. Waldron, Esq.
Gregory A. Gehlmann, Esq. Wesley R. Kelso, Esq.
MALIZIA SPIDI & FISCH, PC STEVENS & LEE, PC
1301 K Street, N.W., Suite 700 East One Penn Square
Washington, D.C. 20005 Lancaster, Pennsylvania 17608
(202) 434-4660 (610) 964-1480
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
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 registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier 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 registrants hereby amend this registration statement on such date or
dates as may be necessary to delay its effective date until the registrants
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information in this prospectus is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. The securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus does not constitute an offer to sell, or the
solicitation of an offer to buy, any of the securities to any person in any
jurisdiction in which the offer, solicitation or sale would be unlawful.
<PAGE>
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED ^___________ __, 1999
^ Up to $12,000,000
First Star Capital Trust [LOGO]
Adjustable Rate Trust^ Preferred Securities
^ guaranteed by
First Star Bancorp, Inc.
--------------------------------
First Star Bancorp, Inc: We are a bank holding company that offers, through our
subsidiary, First Star Savings Bank, a variety of banking and lending services
to our customers, principally in Pennsylvania's Lehigh Valley.^ First Star
Capital Trust: First Star Capital Trust is a subsidiary of First Star Bancorp,
Inc. ^ The Offering: In connection with this offering, the ^ trust will:
o sell preferred securities to the public and common securities to ^ us,
o use the proceeds from these sales to buy an equal principal amount of ^
adjustable rate junior subordinated debentures due ^____________, 2029
issued by ^ us, and
o distribute the cash payments it receives on the junior subordinated
debentures to the holders of the preferred and common securities.
The preferred securities represent ^ interests in the assets of the ^
trust. For each preferred security that you own, you will be entitled to receive
cumulative cash distributions at an initial interest rate which will be an
annual rate ^ equal to the average yield on the five-year U.S. Treasury Note
Constant Maturity over the 20 business days before ____________, _____ plus
_.__%. Distributions on each preferred security will be payable at the interest
rate on the $10 liquidation amount, payable quarterly on the last business day
of March, June, September and December, ^ with interest accruing from
__________, _____. The interest rate will be adjusted at five-year intervals to
an annual rate equal to the average yield on the five-year U.S. Treasury Note
Constant Maturity over the 20 business days before the date the interest rate is
adjusted plus _.__%.
We may defer payment of distributions at any time for periods of up to
20 consecutive quarters. The preferred securities mature on ^____________, 2029.
The ^ trust may redeem the preferred securities, at a redemption price of $10
per preferred security plus accrued and unpaid distributions, at any time on or
after ^__________, 2004, or earlier if the following events occur, or become
likely to occur: a change in the tax treatment of the trust, the trust being
deemed to be an investment company, or a change in the regulatory capital
treatment of ^ the preferred securities ^.
There is currently no ^ market for the preferred securities. ^ The
preferred securities are expected to be quoted on the ^ OTC Bulletin Board,
however, an active market for the preferred securities is not expected to
develop.
--------------------------------
You should carefully read the factors set forth in "Risk Factors" beginning on
page ___.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission, the Federal Deposit Insurance
Corporation, the Pennsylvania Department of Banking, nor any state securities
regulator has approved or disapproved these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
Per Preferred Security Total
---------------------- -----
<S> <C> <C>
Public Offering Price ^ $10.00 up to $12,000,000
Underwriting Discounts and Commissions ^ $0.35 up to $420,000
Proceeds to ^ the trust before expenses ^ $9.65 up to $11,580,000
</TABLE>
The trust may sell less than $12,000,000 in preferred securities
without notice. We will pay Hopper Soliday a placement agent's fee, equal to
$0.35 per preferred security, or $420,000 in total if the maximum amount of
$12,000,000 of preferred securities is sold. We will pay all other expenses of
the offering, which we estimate will be approximately $________.
^ Hopper Soliday
A Division of Tucker Anthony Incorporated
^____________, 1999
<PAGE>
[GRAPHIC MATERIAL OMITTED]
[The map page will show an outline of the Commonwealth of Pennsylvania
with the Lehigh Valley area of the state enlarged to show
the location of the bank's main office and branch offices.
The address for each office location will be listed below the map.]
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
To understand this offering fully, you should read this entire
prospectus carefully, including the financial statements and the notes to the
consolidated financial statements of First Star Bancorp, Inc.
^
First Star Bancorp, Inc.
We are a bank holding company^ headquartered in Bethlehem, Pennsylvania
^. Our principal activity is holding all of the stock of First Star Savings
Bank^, a Pennsylvania-chartered stock savings bank which traces its origins to
1893. The bank's principal business consists of attracting deposits from the
general public and originating loans secured by residential properties.
Our bank conducts its operations through our main office located in
Bethlehem, Pennsylvania, and five branch offices located throughout the Lehigh
Valley in Bath, Palmer, Allentown, Nazareth and Alburtis. During the past twenty
years, the economy of the Lehigh Valley has shifted from one principally
dominated by manufacturing to an economy characterized by a diverse group of
industries including service and distribution firms, health care, technology,
manufacturing and retail firms. Although we currently do not have any plans to
do so, we would look to add branch locations in contiguous market areas with
customer bases that would be receptive to our strategy if economical
opportunities become available.
At ^ September 30, 1999, we had total assets of ^ $366.5 million,
deposits of ^ $192.0 million and total stockholders' equity of ^ $15.7 million.
^ From June 30, 1996 to June 30, 1999, our assets, loans and deposits have grown
at annual compounded rates of 26.1%, 8.5%, and 18.5%, respectively. Over that
same period, our net income has grown at an annual compounded rate of 27.2%, and
our return on average equity has increased from 12.9% for fiscal 1996 to 15.9%
for fiscal 1999.
We have built our bank ^ based on a strategy of being a low-cost
provider of savings opportunities in our market area. We believe that our
customers value competitively priced products, and by building a culture of
expense control and efficiency, we have been able to pass these savings on to
our customers by providing attractive deposit rates and loan products.
Our principal executive office is located at 418 West Broad Street,
Bethlehem, Pennsylvania. Our telephone number is (610) 691-2233.
First Star Capital Trust
The ^ trust will:
o issue and sell the preferred securities ^ to purchasers in the
offering;
o issue and sell the common securities to us;
o use the proceeds it receives from the sale of the preferred and
common ^ securities to purchase the junior subordinated
debentures from us;
o distribute the cash payments it receives on the junior
subordinated debentures to the holders of the preferred and
common securities; and
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
o engage in other activities that are incidental to the activities
described above.
^
The junior subordinated debentures will be the only assets of the ^
trust, and our payments to the ^ trust under the junior subordinated debentures
will be the ^ trust's sole source of revenue.
<TABLE>
<CAPTION>
The Offering
<S> <C>
The Issuer......................... First Star Capital Trust, a Delaware statutory business
trust.
The Securities that are being
Offered............................ Up to 1,200,000 preferred securities ^. The preferred
securities represent preferred ^ interests in the assets of
the ^ trust, which will consist solely of junior
subordinated debentures. ^
The Offering Price................. $10 per preferred security.
Calculation of the
Interest Rate...................... The initial interest rate will be determined on the date the
preferred securities are issued and will be an annual rate equal
to the average yield on the five year U.S. Treasury Note Constant
Maturity over the 20 business days preceding the date of
issuance, ___________, ____ plus _.__%. Distributions on the
preferred securities will be payable at the initial interest rate
for the first five years. The interest rate will then be adjusted
on the five-year anniversary of the issuance date (________,
200_) and will be equal to equal to the average yield on the five
year U.S. Treasury Note Constant Maturity over the 20 business
days preceding ________, 200_ plus _.__%. On each five-year
anniversary date thereafter, the interest rate will be adjusted,
with up to six different interest rates over the maximum 30 year
life of the preferred securities. The property trustee, Bankers
Trust Company, will be the calculation agent and will use Federal
Reserve statistical release H. 15, or any successor report to
statistical release H. 15 Daily Update as that report may change
over time, to gather the yield for a business day to calculate
the 20 business day average yield.
The Payment of
Distributions.................... ^ The distributions will be cumulative, will accumulate from
^__________ ____, and will be payable in arrears at the end
of each calendar quarter, commencing ^__________, 2000.
Junior Subordinated
Debentures......................... The ^ trust will invest the proceeds from the issuance of
the preferred securities and the common securities in an
equivalent amount of our ^ junior subordinated debentures.
Maturity........................... The junior subordinated debentures are scheduled to mature on
- --------------------------------------------------------------------------------
3
<PAGE>
<S> <C>
______________, 2029 unless we
voluntarily shorten the maturity date to
a date not earlier than ____________,
2004. We will not shorten the maturity
date unless we have received prior
approval if it is then required under
the applicable regulatory requirements.
The ^ trust must redeem the preferred
securities when the junior subordinated
debentures are paid on the maturity
date, or following any earlier
redemption of the junior subordinated
debentures.
We have the Option to ^ Defer
^Interest Payments................ At any time we are not in default under
the junior subordinated debentures, we
may defer payments of interest on the
junior subordinated debentures for up to
20 consecutive quarters, but not beyond
their stated maturity date. ^ The ^
trust would defer quarterly
distributions on the preferred
securities while we are deferring
payment on the junior subordinated
debentures. Deferred quarterly
distributions will accumulate additional
distributions at ^ the applicable
periodic interest rate ^ for that period
compounded quarterly.
During any period that we are deferring
interest payments, we may not declare or
pay any cash distributions on our capital
stock or debt securities that are of
equal or lower rank than the junior
subordinated debentures. After the end of
any period in which we are deferring
interest payments, if we have paid all
deferred and current interest under the
junior subordinated debentures, we may
defer interest payments again. If we
defer interest payments, you will be
required to include deferred interest
income in your gross income for ^ federal
income tax purposes before you have
received deferred interest payments.
Redemption of the Preferred
Securities....................... is Possible The ^ trust may redeem the
preferred securities in whole or in part
if we repay the junior subordinated
debentures. Subject to any regulatory
approval that may then be required, we
may redeem the junior subordinated
debentures prior to their scheduled
maturity (1) on or after ___________,
2004, in whole at any time or in part
from time to time, or (2) at any time, in
whole, but not in part, within 90 days
after:
o ^ the federal tax ^ treatment of the
trust changes or ^ is likely to ^ change;
o the ^ trust is or becomes likely to be deemed to be an
investment company; or
o there is a change in the regulatory capital treatment
of the preferred securities.
Upon any redemption of the junior
subordinated debentures we will use the
cash proceeds of the redemption to pay
you a liquidation amount for the
preferred securities. The liquidation
amount
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------
you will receive will be $10 per
preferred security plus any accrued and
unpaid distributions to the date of
redemption.
How the Securities will Rank
in Right of Payment.............. The preferred securities will rank
equally with the common securities of
the trust. The ^ trust will pay
distributions on ^ its preferred ^ and ^
common securities pro rata. However, if
we default by failing to pay interest
payments on the junior subordinated
debentures then no distributions on the
common securities will be paid until all
accumulated and unpaid distributions on
the preferred securities have been paid.
Our obligations under the junior
subordinated debentures are unsecured and
generally will rank junior in priority to
our senior and other subordinated
indebtedness. If we create any new trusts
similar to the ^ trust, then the junior
subordinated debentures will rank equally
with any other junior subordinated
debentures we issue to such trusts. We do
not presently intend to create any
additional trusts.
Our obligations under the guarantee are
unsecured and will rank junior to our
senior and other subordinated
indebtedness. If we issue any guarantees
in the future relating to preferred
securities issued by new trusts, then the
guarantee issued in this transaction will
rank equally with those guarantees.
Because we are a holding company, the
junior subordinated debentures and the
guarantee will effectively be
subordinated to all existing and future
liabilities of our subsidiaries.
The Junior Subordinated
Debentures May Be
Distributed to You........ ^ We will have the right to dissolve the
trust at any ^ time, although we ^ would
be required to receive the ^ prior
approval of the Federal Reserve to do
so. If we dissolve the ^ trust, after
satisfaction of any of the ^ trust's
liabilities to creditors, the ^ trust
will distribute your pro rata share of
the junior subordinated debentures to
you in liquidation of the ^ trust.
Our Guarantee of
Payments.................. We will fully and unconditionally
guarantee the preferred securities based
on:
o our obligations to make payments on the junior
subordinated debentures;
o our obligations under a guarantee executed for the
benefit of the holders of the preferred securities; and
o our obligations under the trust agreement.
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------
If we do not make payments on the junior
subordinated debentures, the ^ trust will
not have sufficient funds to make
payments on the preferred securities. ^
In that event, you would not be able to
rely on our guarantee ^ because our
guarantee applies only when the ^ trust
has funds available for payment.
Limited Voting Rights.............. You will have ^ limited
voting rights ^. You will have voting
rights only with respect to proposed
changes to the terms of the preferred
securities and the exercise of the
trust's rights as the holder of the
junior subordinated debentures.
The Use of Proceeds................ The ^ trust will invest all of the
proceeds from the sale of the preferred
and the common securities in our junior
subordinated debentures. We intend to
use the net proceeds from our sale of
the junior subordinated debentures to
make a contribution to the bank to fund
its operations and growth, including an
investment in back-office systems
technology designed to further increase
operating efficiencies, and for general
corporate purposes. Initially, we may
leverage the capital by investing in
mortgage-backed securities and U.S.
federal agency ^ or federally sponsored
agency obligations and funding these
purchases with borrowings.
Listing of the Preferred ^ The preferred securities ^ will be a new
Securities......................... issue of securities for ^ which there
currently is no market. The preferred
securities are expected to be quoted on
the OTC Electronic Bulletin Board,
however, the development of an active
trading market for the preferred
securities is unlikely. See "Market for
the Preferred Securities." ^
Book-entry......................... The preferred securities will be
represented by a global security that
will be deposited with and registered in
the name of The Depository Trust Company,
New York, New York, or its nominee. This
means that you will not receive a
certificate for your preferred
securities.
ERISA Considerations................ You must carefully consider the information
set forth under "^ ERISA Considerations."
Risk Factors
Before purchasing the preferred securities offered by this prospectus, you
should carefully consider the "Risk Factors" beginning on page ___.
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
^ SUMMARY CONSOLIDATED FINANCIAL DATA
The following is our selected consolidated information. This information is
only a summary, and you should read it together with our consolidated financial
statements and the notes beginning on page F-1. The information at September 30,
1999 and for the three months ended September 30, 1999 is unaudited and may not
be indicative of results on an annualized basis or for any other period. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) that are necessary for a fair presentation for this period and date
have been made.
<TABLE>
<CAPTION>
At or For
the Three
Months Ended
Sept. 30, At or For the Years Ended June 30,
------------------------ -------------------------------------------------------
1999 1999 1998 1997 1996 1995
------ ----- ------ ------ ------- ------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Selected Results of Operations:
Net interest income .......................... $2,018 $7,684 6,630 $ 5,787 $ 4,472 $ 4,302
Provision for loan losses .................... 47 423 385 220 244 104
Non-interest income .......................... (217) 796 1,760 720 548 581
Non-interest expenses ........................ 897 3,974 3,582 4,036(2) 2,848 2,694
Net income ................................... ^ 561 2,566(1) 2,816 1,509 1,270 1,319
Less preferred dividends ..................... (11) (43) (45) (44) (45) (44)
Net income applicable to common stockholders . 550 2,523 2,771 1,465 1,225 1,275
Per Share Data(3):
Earnings per common share- basic ............. $1.49 $ 6.90 7.68 $ 4.00 $ 3.30 $ 3.51
Earnings per common share - diluted .......... 0.83 3.76 4.15 2.53 2.48 2.57
Book value per share, fully diluted .......... 28.08 27.90 27.55 23.55 20.60 18.56
Selected Balance Sheet Data:
Total Assets ................................. ^ $366,492 $363,706 315,802 $ 270,899 $ 181,582 $ 186,021
Loans receivable, net(4) ..................... 186,581 184,264 176,386 149,476 144,299 154,420
Securities available for sale ................ 159,253 160,438 123,759 103,271 24,696 13,038
Total Deposits ............................... 192,039 190,148 145,096 118,662 114,266 121,747
Advances from Federal Home Loan Bank ......... 148,997 146,180 144,485 129,400 50,571 48,775
Subordinated debentures ...................... 5,480 5,480 5,480 5,480 1,480 1,480
Total Stockholders' ^ Equity ................. 15,661 15,476 15,113 12,015 10,570 9,112
Performance Ratios:
Return on average assets ..................... ^ 0.61%(7) 0.74% 0.97% 0.69% 0.63% 0.76%
Return on average equity ..................... 14.20(7) 15.85 ^ 20.35 13.83 12.91 15.65
Net interest margin .......................... ^ 2.23(7) 2.25 2.32 ^ 2.71 2.51 2.52
Efficiency ratio ............................. 41.55(6) 46.86 42.69 50.58(5) 56.73 55.17
Asset Quality Ratios:
Nonperforming loans to total loans ........... ^ 0.95% 1.22% 1.91% 2.72% 2.99% 1.62%
Allowance for loan losses to total loans ..... ^ 0.94 0.95 0.84 0.77 0.70 0.56
Allowance for loan losses to ^ non-performing
loans ..................................... 100.00 77.4 43.6 27.8 23.1 33.1
First Star Bancorp Capital Ratios:
Average stockholders' equity to average assets ^ 4.31% 4.67% 4.76% 5.02% 4.86% 4.83%
Leverage ratio ............................... 4.80 4.72 4.93 5.22 5.75 4.90
Tier 1 risk-based capital ratio .............. 8.13 7.92 8.88 8.81 10.34 8.80
Total risk-based capital ratio ............... 10.93 10.89 12.85 13.74 12.80 11.06
</TABLE>
- ------------
(1) Excluding the write-off of $111,000, net of income taxes, related to an
attempted merger/conversion transaction to acquire ^ Nesquehoning Savings
Bank that was abandoned, net income for fiscal 1999 would have been
$2,631,000.
(2) Includes a non-recurring expense of $745,000 for a one-time deposit
insurance premium to recapitalize the SAIF.
(3) Adjusted for two 20% stock dividends declared during fiscal 1998.
(4) Does not include loans available for sale of $1,468,000 and $1,654,000 at
June 30, 1997 and 1996.
(5) Does not include the non-recurring expense of $745,000 for a one-time
deposit insurance premium to recapitalize the SAIF.
(6) Does not include the writedown of investment securities of $358,000.
(7) Annualized.
- --------------------------------------------------------------------------------
7
<PAGE>
RISK FACTORS
An investment in the preferred securities involves a number of risks,
some of which relate to the terms of the preferred securities or the junior
subordinated debentures and others of which relate to us and our business. You
should carefully review the following information about these risks together
with other information contained in this prospectus before deciding whether this
investment is suitable for you.
Risk Factors Relating to the Preferred Securities
Our obligations under the guarantee and under the junior subordinated debentures
will be deeply subordinated and we will pay our other debt obligations before we
pay you.
Our obligations under the junior subordinated debentures and the
guarantee are unsecured and are subordinate in right of payment to all of our
existing and future senior debt, subordinated debt and additional senior
obligations, which totaled ^ $154.5 million at ^ September 30, 1999, excluding ^
$192.0 million of deposits. Neither the indenture governing the junior
subordinated debentures, nor the trust agreement and guarantee relating to the
preferred securities, limit our ability to incur additional indebtedness,
including indebtedness that ranks senior to the junior subordinated debentures
and guarantee.
The junior subordinated debentures and the guarantee also are
effectively subordinated to all existing and future liabilities of our
subsidiary, First Star Savings Bank. The bank will pay its creditors before it
pays dividends to us, and the bank's creditors will generally have priority over
us and you in any distribution of the bank's assets in a liquidation,
reorganization or other transaction. In the event that distributions from the
bank to us are not sufficient to cover our payment obligations under the junior
subordinated debentures or the guarantee, we may be unable to make those
payments. See "Description of Junior Subordinated Debentures -- Subordination"
on page ___ and "Business of First Star Savings Bank -- Sources of Funds --
Borrowings" and "-- Subordinated Debentures" on page ___.
If we do not make payments on the junior subordinated debentures, the ^ trust
will not be able to make payments on the preferred securities and the guarantee
will not apply.
The ability of the ^ trust to timely pay amounts due on the preferred
securities depends solely upon our making the related payments on the junior
subordinated debentures when due. If we default on our obligation to pay
principal of or interest on the junior subordinated debentures, the ^ trust will
not have sufficient funds to pay distributions on, or the $10 liquidation amount
of, the preferred securities.
In that event, you would not be able to rely on the guarantee for
payment because the guarantee applies only when the ^ trust has funds available
for payment. Instead, you or the property trustee would have to sue us to
enforce the property trustee's rights under the indenture relating to
8
<PAGE>
the junior subordinated debentures. See "Relationship Among the Preferred
Securities, the Junior Subordinated Debentures, and the Guarantee" on page ___.
Payments on the junior subordinated debentures by us to the ^ trust will depend
primarily on any dividends we may receive from the bank, which may be limited by
regulations and debt covenants.
The ^ trust will depend solely on our payments on the junior
subordinated debentures in paying amounts due on the preferred securities. We
are a separate legal entity from the bank and do not have significant operations
of our own. Therefore, we will depend primarily on any dividends we receive from
the bank to pay interest on the junior subordinated debentures to the ^ trust.
In addition, the dividends we receive from the bank will also continue to be
used to pay interest on our subordinated debt and dividends on our preferred
stock. The payment of dividends by the bank may be limited by regulations and
debt covenants. For a more complete discussion, see the immediately following
risk information and information under "Description of the Preferred Securities"
on page ___ and "Description of Junior Subordinated Debentures -- Subordination"
on page ___.
We may defer interest payments under the junior subordinated debentures, which
could ^ require you to pay taxes on interest payments before receiving the cash
distribution that is being taxed.
So long as we are not in default, we may defer the payment of interest
on the junior subordinated debentures at any time for up to 20 consecutive
quarters. Any deferral, however, could not extend beyond the stated maturity
date of the junior subordinated debentures. During any period in which we were
deferring interest payments, the ^ trust would defer quarterly distributions on
the preferred securities. Deferred distributions would accumulate with interest
at the ^ applicable periodic interest rate compounded quarterly from the normal
distribution payment date.
During each period in which we were deferring interest payments, the ^
federal income tax laws would require you to accrue and recognize income in the
form of original issue discount on your pro rata share of the interest accruing
on the junior subordinated debentures held by the ^ trust. As a result, you
would be subject to ^ federal income tax on this income before you would have
received cash distributions on the preferred securities.
In addition, during a deferral period:
o you would not receive the deferred cash distributions if you sold
the preferred securities before the record date for payment of
the deferred distributions, even if you held the preferred
securities on the last day of a quarter, and
o your tax basis in the preferred securities would increase by the
amount of accrued but unpaid distributions. If you sold the
preferred securities during a deferral period, your increased tax
basis would increase the amount of any capital loss that you
might have otherwise realized on the sale. A capital loss^
generally cannot be ^ used to offset ordinary income.
9
<PAGE>
See "Description of Junior Subordinated Debentures -- Option to Extend Interest
Payment Period" on page ___ and "United States Federal Income Tax Consequences
- -- Interest Income and Original Issue Discount" on page ___.
The preferred securities may be redeemed prior to maturity; you may be taxed on
the proceeds at the time of redemption and you may not be able to reinvest the
proceeds at the same or a higher rate of return.
Under the following circumstances, we may redeem the junior
subordinated debentures prior to maturity:
o We may redeem the junior subordinated debentures within 90 days
after the occurrence of the events described in "Description of
Preferred Securities -- Redemption" on page ___ at any time
during the life of the ^ trust.
o In addition, we may redeem the junior subordinated debentures
prior to maturity at any time after _______________, 2004, so
long as we have obtained any approvals from regulatory agencies
that are required at that time.
If we redeem the junior subordinated debentures, the ^ trust will
redeem the preferred securities. Under current ^ federal income tax law, the
redemption of the preferred securities would be a taxable event to you. In
addition, you may not be able to reinvest the money you receive in an investment
with a similar or higher expected rate of return. See "Description of Preferred
Securities -- Redemption" on page ___ and "^ Federal Income Tax Consequences --
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of the Trust"
on page ___ and "-- Sales of Preferred Securities" on page ___.
We may require you to exchange your preferred securities for junior subordinated
debentures; this may have adverse tax consequences for you and the junior
subordinated debentures may trade at a lower price than the price you paid for
the preferred securities.
We may dissolve the ^ trust at any time before its expiration. In such
an event, the trustees will, after paying the creditors of the ^ trust,
distribute your share of the junior subordinated debentures to you.
We cannot predict the market prices for the junior subordinated
debentures that would be distributed upon the dissolution of the ^ trust.
Accordingly, the junior subordinated debentures that you receive in a
distribution, or the preferred securities that you hold pending the
distribution, may trade at a lower price than the price you paid to purchase the
preferred securities. Because you may receive junior subordinated debentures,
your decision whether to invest in the preferred securities should also be made
with regard to the junior subordinated debentures. You should carefully review
all of the information regarding the junior subordinated debentures contained in
this prospectus.
Under current ^ federal income tax laws, a distribution of junior
subordinated debentures to you upon the dissolution of the ^ trust would not be
a taxable event for you. If, however, the ^ trust
10
<PAGE>
were taxable as a corporation at the time of its dissolution, then a
distribution of junior subordinated debentures to you may be a taxable event for
you.
See "Description of Preferred Securities -- Liquidation Distribution
Upon Dissolution" on page ___ and "United States Federal Income Tax Consequences
- -- Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of the
Trust" on page ___.
You will have only limited voting rights, and we can amend the trust agreement
without your consent.
You will have limited voting rights as a holder of the preferred
securities. Your voting rights will relate only to the modification of the
preferred securities and the exercise of the ^ trust's rights as holder of the
junior subordinated debentures. You will not usually be able to appoint, remove
or replace the property trustee or the Delaware trustee because these rights
generally reside with us as the holder of the common securities. However, if an
event of default under the trust agreement occurs and is continuing the holders
of at least a majority in aggregate liquidation amount of the preferred
securities may remove the trustees. Even if it would adversely affect your
rights, we, together with the property trustee and the administrators may amend
the trust agreement without your consent to ensure that the ^ trust will
maintain the desired federal income tax ^ treatment for us. See "Description of
Preferred Securities -- Voting Rights; Amendment of Trust Agreement" on page
___.
The market price for the preferred securities may decline after you invest, and
the development of an active trading market is unlikely.^
^ The preferred securities will be a new issue of securities for which
there is currently no public market. The preferred securities are expected to be
quoted on the OTC Bulletin Board. Although we have been advised that Hopper
Soliday intends to make a market in the preferred securities, ^ Hopper Soliday
is not obligated to do so and any market making may be interrupted or
discontinued at any time without ^ notice at its sole discretion. ^ The
development of any active market for the preferred securities is highly
unlikely. Investors who require liquidity should not purchase the preferred
securities. Even if an active public market ^ developed, there is no guarantee
that the market price for the preferred securities ^ would equal or exceed the
price you paid in this offering. See "Market for the Preferred Securities" on
page ___.
The preferred securities may not trade at a price that accurately
reflects the value of accrued but unpaid interest on the underlying junior
subordinated debentures. In addition to other circumstances, our deferral of
interest payments on the junior subordinated debentures may cause the market
price for the preferred securities to decline.
The holders of the preferred securities and the junior subordinated debentures
are not protected by covenants in the indenture and the trust agreement.
Neither the indenture, which sets forth the terms of the junior
subordinated debentures, nor the trust agreement, which sets forth the terms of
the preferred securities and the common securities, protects holders of junior
subordinated debentures or the preferred securities, respectively, in the event
we experience significant adverse changes in our financial condition or results
of operations. In addition, neither the indenture nor the trust agreement limits
our ability or the ability of any subsidiary
11
<PAGE>
to incur additional indebtedness. Therefore, the provisions of these governing
instruments should not be considered a significant factor in evaluating whether
we will comply with our obligations under the junior subordinated debentures or
the guarantee.
The preferred securities are not insured.
Neither the Bank Insurance Fund of the Federal Deposit Insurance
Corporation, the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation, nor any other governmental agency has insured the
preferred securities.
Risk Factors Relating to First Star Bancorp
Future changes in interest rates may reduce our profits.
Our ability to make a profit largely depends on our net interest
income, which could be negatively affected by changes in interest rates. Net
interest income is the difference between:
o the interest income we earn on our interest-earning assets, such
as mortgage loans and investment securities; and
o the interest expense we pay on our interest-bearing liabilities,
such as deposits and amounts we borrow.
Most of our mortgage loans have rates of interest which are fixed for
the life of the loan and are generally originated for periods of up to 30 years,
while our deposit accounts have significantly shorter periods to maturity.
Because our interest-earning assets generally have fixed rates of interest and
have longer effective maturities than our interest-bearing liabilities, the
yield on our interest-earning assets generally will adjust more slowly to
changes in interest rates than the cost of our interest-bearing liabilities,
which are primarily time deposits. As a result, our net interest income may be
reduced when interest rates increase significantly for long periods of time. In
addition, rising interest rates may reduce our earnings because there may be a
lack of customer demand for loans. Declining interest rates may also reduce our
net interest income if adjustable rate or fixed rate mortgage loans are
refinanced at reduced rates or paid off earlier than expected, and we reinvest
these funds in assets which earn us a lower rate of interest. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Management of Interest Rate Risk and Market Risk" on page ___.
Our allowance for loan losses may not be adequate to cover actual losses.
Like all financial institutions, we maintain an allowance for loan
losses to provide for loan defaults and non-performance. Our allowance for loan
losses may not be adequate to cover actual loan losses, and future provisions
for loan losses could materially and adversely affect our operating results. Our
allowance for loan losses is based on prior experience, as well as an evaluation
of the risks in the current portfolio, and is maintained at a level considered
adequate by management to absorb anticipated losses. The amount of future losses
is susceptible to changes in economic, operating and other conditions, including
changes in interest rates that may be beyond our control, and these losses may
12
<PAGE>
exceed current estimates. State and federal regulatory agencies, as an integral
part of their examination process, review our loans and allowance for loan
losses. We believe that our allowance for loan losses is adequate to cover
anticipated losses. There can be no assurance, however, that we will not further
increase the allowance for loan losses or that regulators will not require us to
increase this allowance. Either of these occurrences could adversely affect our
earnings.
Whether or not we make a profit is influenced by the health of our local
economy. Prolonged losses could hinder our ability to make interest payments and
reduce the value of your initial investment.
Our success depends to a certain extent upon the general economic
conditions of the local markets that we serve. Unlike larger banks that are more
geographically diversified, we provide banking services primarily to customers
in the markets in which we have branches, so any decline in the economy of
Pennsylvania or the Lehigh Valley in particular could have an adverse impact on
us. Our financial results, the credit quality of our existing loan portfolio,
and the ability to generate new loans with acceptable yield and credit
characteristics may be adversely affected by changes in prevailing economic
conditions, including declines in real estate values and rapid changes in
interest rates. Although economic conditions in our market area are strong,
there can be no assurance that these conditions will continue, or that negative
trends and developments will not adversely affect us. See "Business of First
Star Savings Bank - Market Area and Competition" on page ___.
Changes in general economic conditions and monetary policies may affect the
financial institutions industry as a whole, which will not only impact us
directly, but by affecting the condition of financial institutions whose fixed
income securities we hold in our investment portfolio, could affect us
indirectly as well by reducing the credit quality of these holdings.
Conditions beyond our control may have a significant impact on our
financial condition and results of operations, including:
o the strength of credit demand by customers;
o fiscal and debt management policies of the federal government;
o the monetary policy of the Federal Reserve Board;
o the introduction and growth of new investment instruments by
non-bank financial competitors; and
o changes in rules and regulations governing the payment of
interest on deposit accounts.
^ At September 30, 1999, we held approximately ^ $67.2 million in
corporate bonds and both rated and unrated trust preferred securities of
financial institutions in our investment portfolio. To the extent the general
economic conditions discussed above affect our financial condition and results
of operations, they may also have a broader affect on the industry as a whole.
As a result, the credit quality of these investments may deteriorate, which may
have an impact on our financial condition and results of operations as well.
13
<PAGE>
The amount of common stock held by our executive officers and directors gives
them influence over the election of our Board of Directors and other matters
that require stockholder approval. This limits the ability of outside
stockholders to influence our activities.
A total of 334,799 shares of our common stock (including shares
issuable upon the exercise of options and conversion of convertible debentures),
or 51.2% of the common stock outstanding at ^ September 30, 1999, is
beneficially owned by our directors and executive officers. See "Principal
Security Holders" on page ___. Therefore, if they vote together, our directors
and executive officers have the ability to exert significant influence over the
election of our Board of Directors and other corporate actions requiring
stockholder approval, including the adoption of proposals made by stockholders.
Future laws or regulations could hurt our profitability.
We operate in a highly regulated industry. We are regulated by the
Federal Reserve Board, and our bank is regulated by the FDIC and the
Pennsylvania Department of Banking. Federal and state banking laws and
regulations govern matters ranging from the regulation of certain debt
obligations, changes in the control of bank holding companies, and the
maintenance of adequate capital to the general business operations and financial
conditions of our bank, including permissible types, amounts and terms of loans
and investments, the amount of reserves maintained against deposits,
restrictions on dividends, establishment of branch offices and the maximum rate
of interest that may be charged by law. These and other restrictions limit the
manner in which we can conduct our business and obtain financing, and could
reduce our profitability.
If we do not compete successfully against other financial institutions in our
market area, our profitability will be hurt.
We operate in a competitive environment. In the market areas in which
we compete, other savings banks, commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies and brokerage and investment banking firms and other financial
intermediaries offer similar services. Many of these competitors have
substantially greater resources and lending limits and may offer certain
services that we do not currently provide. In addition, some of the non-bank
competitors are not subject to the same extensive regulations that govern our
business. Our profitability depends on our ability to compete successfully in
our market area. See "Business of First Star Savings Bank - Market Area and
Competition" on page ___.
We cannot predict how changes in technology will affect our business. Our
ability to respond to such changes could impact our profitability.
The financial services market, including banking services, is
increasingly affected by advances in technology, including developments in:
o telecommunications;
o data processing;
14
<PAGE>
o automation;
o internet-based banking;
o telebanking; and
o debit cards and so-called "smart cards."
Our ability to compete successfully in the future will depend on
whether we can anticipate and respond to technological changes. To develop these
and other new technologies we will likely have to make additional capital
investments. Although we continually invest in new technology, we cannot assure
you that we will have sufficient resources or access to the necessary
proprietary technology to remain competitive in the future.
If our computer systems do not work properly with the Year 2000 date, we may not
be able to continue running our business properly.
Rapid and accurate data processing is essential to our operations.
Data processing is also essential to most other financial institutions and many
other companies. Many computer programs that can only distinguish the final two
digits of the year entered are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency.
Failure to resolve year 2000 issues presents the following risks to us:
(1) we could lose customers to other financial institutions,
resulting in a loss of revenue, if our third party service bureau
is unable to process properly customer transactions;
(2) governmental agencies, such as the Federal Home Loan Bank, and
correspondent banks could fail to provide funds to us, which
could materially impair our liquidity and affect our ability to
fund loans and deposit withdrawals;
(3) concern on the part of depositors that year 2000 issues could
impair access to their deposit account balances could result in
our experiencing deposit outflows prior to December 31, 1999; and
(4) we could incur increased personnel costs if additional staff is
required to perform functions that inoperative systems would have
otherwise performed.
Most of our material data processing that could be affected by this
problem is provided by a third party service bureau. If our third party service
bureau does not resolve this problem, we would likely experience significant
data processing delays, mistakes or failures. These delays, mistakes or failures
could have a significant adverse impact on our financial condition and
profitability. In addition, if our significant suppliers of utilities are not
adequately prepared for year 2000 they may be unable to provide the necessary
service to drive our data systems or provide sufficient sanitary
15
<PAGE>
conditions for our offices. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000 ^ Issue" on page ___.
USE OF PROCEEDS
The ^ trust will use all of the proceeds from the sale of the preferred
securities and common securities to purchase junior subordinated debentures from
us. We intend to use the net proceeds from the sale of the junior subordinated
debentures, estimated to be $___ million^:
o to make a contribution to the bank to fund its operations and
growth, including an investment in back-office systems technology
designed to further increase operating efficiencies;
o ^ to finance growth, which may include expansion of our lending
and investment activities, one or more branch acquisitions,
acquisitions of other financial institutions, or acquisitions of
other financial services companies; and
o for general corporate purposes.
Until opportunities to invest the funds in our core business become
available, we may leverage the capital by employing an investment strategy of
purchasing mortgage-backed ^ securities and U.S. federal agency or federally
sponsored agency obligations and funding these purchases with borrowings, in
order to improve our overall return to stockholders and help offset the cost of
this capital.
MARKET FOR THE PREFERRED SECURITIES
^ There is no existing market for the preferred securities. Following
the completion of the offering, we anticipate that the preferred securities will
be ^ quoted on the ^ OTC Bulletin Board. We expect that Hopper Soliday will make
a market in the preferred securities. Making a market may include the
solicitation of potential buyers and sellers in order to match buy and sell
orders. However, Hopper Soliday will not be obligated with respect to these
efforts and any market making may be interrupted or discontinued at any time
without any notice at its sole discretion.
The development of an active trading market depends on the existence of
willing buyers and sellers. There is no guarantee that an active or liquid
public trading market will develop for the preferred securities or whether
continued quotation of the preferred securities on the ^ OTC Bulletin Board will
be possible. Due to the small size of the offering, it is highly unlikely that
an active trading market will develop and be maintained. You could have
difficulty disposing of the preferred securities, and you should not view the
preferred securities as a short term investment. You may not be able to sell the
preferred securities at a price equal to or above the price you paid.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratios of earnings to
fixed charges for each of the years in the five-year period ended June 30, 1999
and for each of the quarterly periods ended September 30, 1999 and 1998. For
purposes of calculating the ratio of earnings to fixed charges,
16
<PAGE>
dividends, we divided consolidated income, before income taxes, plus fixed
charges by fixed charges. Fixed charges consist of:
o consolidated interest expense, including interest on our indebtedness and
including or excluding interest on deposits, as the case may be; and
o that portion of rental expense which is deemed representative of the
interest factor.
Three Months Ended
September 30, Years Ended June 30,
------------- ---------------------------------------
1999 1998 1999 1998 1997 1996 1995
------ ------- ------- ------ ----- ----- ------
Earnings/Fixed Charges:
Including interest on
deposits .......... 1.19x 1.20x 1.23x 1.30x 1.22x 1.22x 1.26x
Excluding interest on
deposits .......... 1.38x 1.37x 1.45x 1.55x 1.45x 1.67x 1.66x
17
<PAGE>
CAPITALIZATION
The following table presents our consolidated capitalization (1) at ^
September 30, 1999 and (2) as adjusted to give effect to the consummation of the
offering of preferred securities, assuming that $12,000,000 of preferred
securities are sold.
<TABLE>
<CAPTION>
Actual, at
^ September 30, 1999 Pro Forma Consolidated
-------------------- ----------------------
(Dollars in thousands)
<S> <C> <C>
Advances from Federal Home Loan Bank ^ $148,997 $148,997
Convertible subordinated debt 5,480 5,480
Guaranteed preferred beneficial interests
in subordinated debt(1) -- 12,000
--------- ------
^ 154,477 166,477
--------- -------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 2,500,000
shares authorized; 43,592 outstanding -- --
Common stock, $1.00 par value, 10,000,000
shares authorized; 375,404 outstanding 375 375
Additional paid-in capital 8,465 8,465
Retained earnings ^ 8,850 8,850
Employee stock ownership plan debt ^(100) (100)
Accumulated other comprehensive
income (loss) ^(1,929) ^(1,929)
------- --------
Total stockholders' equity ^ 15,661 15,661
-------- ------
Total capitalization ^ $ 170,138 $182,138
======== =======
FIRST STAR BANCORP CAPITAL
RATIOS:
Tier 1 risk-based capital ratio ^ 8.13% 10.27%(2)
Total risk-based capital ratio ^ 10.93% 15.61%(2)
Leverage ratio ^ 4.80% 6.20%(2)
FIRST STAR SAVINGS BANK CAPITAL
RATIOS:
Tier 1 risk-based capital ratio ^ 9.47% 11.96%(2)
Total risk-based capital ratio ^ 10.30% 15.08%(2)
Leverage ratio ^ 5.57% 7.18%(2)
</TABLE>
- ----------------
(1) Preferred securities representing beneficial interests in an aggregate
principal amount of $12,000,000 of the Junior Subordinated Debentures of
First Star Bancorp.
(2) Assumes $12,000,000 from the proceeds of the offering of the preferred
securities are invested in assets with a 100% risk weighting under the
risk-based capital rules.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following is our selected consolidated financial information. This
information is only a summary, and you should read it together with our
consolidated financial statements and notes beginning on page F-1. The
information at September 30, 1999, and for the three months ended September 30,
1999 and 1998 are unaudited and may not be indicative of results on an
annualized basis or for any other period. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) that are necessary
for a fair presentation for such periods or dates have been made.
Selected Financial Data
<TABLE>
<CAPTION>
At
September 30, At June 30,
------------- ---------------------------------------------------------
1999 1999 1998 1997 1996 1995
(Dollars in thousands^, except per share data)
Balance Sheet:
<S> <C> <C> <C> <C> <C> <C>
Total ^ assets $366,492 $363,706 $315,802 $270,899 $181,582 $186,021
Loans receivable, net 186,581 184,264 176,386 149,476 144,299 154,420
Securities available for sale 159,253 160,438 123,759 103,271 24,696 13,038
Cash and cash equivalents 4,283 3,078 2,080 3,310 3,680 8,599
Total ^ deposits 192,039 190,148 145,096 118,662 114,266 121,747
FHLB advances 148,997 146,180 144,485 129,400 50,571 48,775
Subordinated debentures 5,480 5,480 5,480 5,480 1,480 1,480
Total ^ stockholders' equity 15,661 15,476 15,113 12,015 10,570 9,112
Book value per share, fully
diluted(1) $28.08 $27.90 $27.55 $23.55 $20.60 $18.56
Other Data
Number of:
^ Loan accounts 3,253 3,258 ^ 3,210 3,082 3,126 3,202
Deposit accounts 18,976 18,616 15,967 ^ 14,436 14,079 13,341
Offices 6 6 6 6 5 5
</TABLE>
- ------------------------
(1) Adjusted for two 20% stock dividends declared during fiscal year ended June
30, 1998.
19
<PAGE>
Summary of Operations
<TABLE>
<CAPTION>
Three Months
Ended
September 30, Year Ended June 30,
------------------ ----------------------------------------------------------
1999 1998 1999 1998 1997 ^ 1996 1995
-------- -------- --------- --------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $6,580 $5,952 $25,064 $21,240 $16,193 $13,379 $12,192
Interest expense 4,562 4,164 17,380 14,610 10,406 8,907 7,890
----- ----- ------ ------ ------ ----- -----
Net interest income 2,018 1,788 6,630 5,787 4,472 4,302
7,684
Provision for loan losses 47 98 423 385 220 244 104
----- ----- ------ ------ ------ ------ ------
Net interest income after provision
for loan losses 1,971 1,690 7,261 6,245 5,567 4,228 4,198
Non-interest income 141 160 796 1,760 720 548 581
Permanent write-down on investment
securities (358) -- -- -- -- -- --
Non-interest expenses ^897 1,001 3,974 3,582 4,036(1) 2,848 2,694
----- ----- ------ ------ ------ ------ ------
Income before income taxes 857 849 4,083 4,423 2,251 1,928 2,085
Provision for income taxes 296 316 1,517 1,607 742 658 766
----- ----- ------ ------ ------ ------ ------
Net income ^ 561 533 2,566(2) 2,816 1,509 1,270 1,319
----- ----- ------ ------ ------ ------ ------
Less preferred dividends (11) (11) (43) (45) (44) (45) (44)
----- ----- ------ ------ ------ ------ ------
Net income applicable to common
stockholders $ 550 $ 522 $ 2,523 $ 2,771 $ 1,465 $ 1,225 $ 1,275
====== ====== ====== ====== ====== ====== ======
Earnings per common share -- basic(3) $ 1.49 $ 1.43 $ 6.90 $7.68 $4.00 $3.30 $3.51
Earnings per common share -- diluted(3) $ 0.83 $ 0.80 $ 3.76 $4.15 $2.53 ^ $2.48 $2.57
</TABLE>
- ---------------------
(1) Includes a non-recurring expense of $745,000 for the year ended June 30,
1997 for a one-time deposit insurance premium to recapitalize the SAIF.
(2) Excluding the write-off of $111,000, net of income taxes, related to an
attempted merger/conversion transaction to acquire Nesquehonig Savings Bank
that was abandoned, net income for fiscal 1999 would have been $2,631,000.
(3) Adjusted for two 20% stock dividends declared during fiscal 1998.
20
<PAGE>
Selected Financial Ratios
<TABLE>
<CAPTION>
At or For the
Three Months
Ended
September 30, At or For the Year Ended June 30,
--------------------- ----------------------------------------------------
1999 1998 1999 1998 1997(2) 1996 1995
---- ---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Performance Ratios^:
Return on average assets (net income
divided by average total assets) 0.61%(6) 0.65%(6) 0.74%(1) ^ 0.97% 0.69 % 0.63% 0.76% ^
Return on average equity (net income
divided by average equity) 14.20(6) 13.68(6) 15.85 ^20.35 ^13.83 12.91 15.65
Net interest rate spread ^ 1.98(6) 1.92(6) 1.99 2.03 2.45 2.21 2.30
Net interest margin(3) ^ 2.23(6) 2.21(6) 2.25 2.32 ^ 2.71 2.51 2.52
Efficiency ratio 41.55(4) 51.39 46.86 42.69 ^ 50.58(5)56.73 55.17
Asset Quality Ratios:
Non-performing loans to total loans 0.95 1.37 1.22 1.91 2.72 2.99 1.62
Allowance for loan losses to total ^ 0.94 0.85 0.95 0.84 0.77 0.70 0.56
loans
Allowance for loan losses to
nonperforming loans 100.00 62.14 77.4 43.6 27.8 23.1 33.1
First Star Bancorp Capital Ratios:
Average stockholders' equity to
average assets ^ 4.31 4.76 4.67 4.76 5.02 4.86 4.83
Tier 1 risk-based capital ratio 8.13 8.54 7.92 8.88 8.81 10.34 8.80
Total risk-based capital ratio 10.93 12.07 10.89 12.85 13.74 12.80 11.06
Leverage ratio 4.80 4.46 4.72 4.93 5.22 5.75 4.90
</TABLE>
- -------------
(1) Such ratios include the effect of the write-off of $111,000 ($65,000 after
income taxes) related to an attempted merger/conversion transaction with ^
Nesquehoning Savings Bank that was abandoned in 1999.
(2) For 1997, return on average assets and return on average equity, excluding
the effect of the special assessment to recapitalize the SAIF, were ^.90%
and ^ 17.99%, respectively.
(3) Net interest income as a percentage of average interest-earning assets.
(4) Does not include the writedown of investment securities of $358,000.
(5) Does not include the non-recurring expense of $745,000 for a one-time
deposit insurance premium to recapitalize the SAIF.
(6) Annualized.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
General
Management's discussion and analysis is intended to assist you in
understanding our financial condition and results of operations. The information
in this section should also be read with our consolidated financial statements
and notes to the consolidated financial statements beginning on page F-1.
Our results of operations depend primarily on our net interest income,
which is determined by (i) the difference between rates of interest we earn on
our interest-earning assets and the rates we pay on interest-bearing liabilities
(interest rate spread), and (ii) the relative amounts of interest-earning assets
and interest-bearing liabilities. Our results of operations are also affected by
non-interest income, including income from loan and deposit account service
charges, gains and losses from the sale of available for sale securities and by
non-interest expense, including, primarily, compensation and employee benefits,
federal deposit insurance premiums, office occupancy cost, and data processing
cost. Our results of operations are also affected significantly by general and
economic and competitive conditions, particularly changes in market interest
rates, government policies and actions of regulatory authorities, all of which
are beyond our control.
Financial Condition
General. Total assets increased at September 30, 1999, to $366.5
million from $363.7 million at June 30, 1999, an increase of $2.8 million, or
0.8%. Loans receivable increased to $186.6 million at September 30, 1999 from
$184.3 million at June 30, 1999, an increase of $2.3 million, or 1.2%. Total
cash and cash equivalents increased to $4.3 million at September 30, 1999 from
$3.1 million at June 30, 1999, an increase of $1.2 million, or 38.7%, due to an
increase in deposits of $1.9 million.
Total assets increased to $363.7 million at June 30, 1999, from $315.8
million at June 30, 1998, an increase of $47.9 million or ^ 15.3%. The increase
in total assets was attributable primarily to an increase in deposits which
increased by $45.1 million, or 31.1%, to $190.2 million from $145.1 million at
June 30, 1998. These funds were used to invest primarily in available for sale
securities which increased by $36.6 million, or 30%, to $160.4 million from
$123.8 million at June 30, 1998. Loans receivable increased from $176.4 million
to $184.3 million, an increase of $7.9 million, or 4.5%. Total cash and cash
equivalents increased to $3.1 million at June 30, 1999 from $2.1 million at June
30, 1998, an increase of $1.0 million, or 47.6%.
Securities Available for Sale. All of our investments are classified as
"available for sale." Securities available for sale decreased slightly to $159.3
million at September 30, 1999 from $160.4 million at June 30, 1999, a decrease
of $1.1 million, or 0.7%. Available for sale securities increased by $36.6
million, or 30%, to $160.4 million at June 30, 1999 from $123.8 million at June
30, 1998.
The following table sets forth the carrying value of our investments.
See Note 2 to our consolidated financial statements beginning on page F-1.
22
<PAGE>
At
September 30, At June 30,
------------- -----------------------------
1999 1999 1998 1997
-------- -------- -------- --------
(In thousands)
Securities Available for Sale:
U.S. Government and Federal Agencies $ 8,122 $ 5,350 $ 15,763 $ 16,996
Mortgage-backed securities ......... 78,592 81,217 76,035 74,736
Corporate debt securities .......... 26,235 27,376 10,379 9,806
Trust preferred securities ......... 40,971 41,269 19,826 --
Marketable equity securities ....... 5,333 5,226 1,756 1,733
-------- -------- -------- --------
Total securities available for sale $159,253 $160,438 $123,759 $103,271
======== ======== ======== ========
The following table sets forth certain information regarding scheduled
maturities, carrying values, approximate fair values, and weighted average
yields for our investments at ^ September 30, 1999 by contractual maturity. The
following table does not take into consideration the effects of scheduled
repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
Total Investment
One Year or Less One to Five Years Five to Ten Years More than Ten Years Securities
---------------- ----------------- ----------------- ------------------- ----------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and Federal
^ Agencies $ - -^% $ ^ 1,964 ^ 7.50% $ ^ 2,011 ^ 7.30% $ ^ 4,147 ^ 7.87% $ ^ 8,122 ^ 7.64%
Mortgage-backed securities ^- - 2,465 6.69 946 7.10 75,181 6.16 78,592 6.19
Corporate debt securities ^ 2,118 6.09 13,005 6.93 9,550 7.27 1,561 7.11 26,234 7.00
Trust preferred securities ^- - ^ 1,924 5.52 - - 39,047 7.12 40,971 7.04
Marketable equity securities - - - - - ^ 5,333 5.35 ^ 5,333 5.35
------ -------- ------- -------- -------
Total investments ^ $2,118 6.09% $19,358 6.80% $12,507 7.34% $125,269 6.32% $159,253 6.46%
===== ====== ====== ======= =======
</TABLE>
Loans Receivable. Loans receivable increased to $186.6 million at
September 30, 1999 from $184.3 million at June 30, 1999, an increase of $2.3
million or 1.2%. Loans receivable increased to $184.3 million at June 30, 1999
from $176.4 million at June 30, 1998, an increase of $7.9 million^ or 4.5%.
23
<PAGE>
The following table sets forth information concerning the types of
loans held by us, excluding loans held for sale.
<TABLE>
<CAPTION>
At September 30,
-------------------------
1999
-------------------------
(Dollars in thousands)
Type of Loans:
Real Estate:
<S> <C> <C>
1-4 family ^ $147,743 77.44%
Construction 1,618 0.85
Multi-family and
commercial ^ 32,696 17.14
Commercial leases 696 0.36
Consumer Loans:
Home equity 6,845 3.59
Auto loans 303 0.16
Other 879 0.46
-------- ------
Total loans $190,780 100.00%
------- =======
Less:
Loans in process (943)
Deferred loan
origination
fees and costs (1,477)
Allowance for
loan losses (1,779)
-------
Total loans, net $186,581
=======
</TABLE>
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------- --------------------- -------------------- -------------------- ----------------------
(Dollars in thousands)
Type of Loans:
Real Estate:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1-4 family $147,092 78.21% $139,864 78.04% $123,982 81.10% $125,418 85.40% $126,788 ^ 78.91%
Construction 800 0.43 110 0.06 1,231 0.80 895 0.61 12,208 7.60
Multi-family and
commercial 31,341 16.67 28,782 16.06 15,194 9.94 8,917 6.07 7,569 ^ 4.71
Commercial leases 813 0.43 1,496 0.84 1,897 1.24 1,345 0.92 2,009 1.25
Consumer Loans:
Home equity 7,059 3.75 7,905 4.41 9,349 6.12 9,071 6.18 10,735 6.68
Auto loans 301 0.16 329 0.18 218 0.14 220 0.15 323 0.20
Other 656 0.35 728 0.41 ^ 1,009 0.66 983 0.67 1,042 0.65
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans 188,062 100.00% 179,214 100.00% 152,880 100.00% 146,849 100.00% 160,674 100.00%
------- ======= ------- ====== ------- ====== ------- ======= ------- ======
Less:
Loans in process (605) (66) (927) (446) (4,180)
Deferred loan
origination
fees and costs (1,421) (1,273) (1,321) (1,090) (1,215)
Allowance for
loan losses (1,772) (1,489) (1,156) (1,014) (859)
------- ------- ------- ------- -------
Total loans, net $184,264 $176,386 $149,476 $144,299 $154,420
======= ======= ======= ======= =======
</TABLE>
24
<PAGE>
The following ^ table contains information concerning changes in the
amount of loans held by us.
<TABLE>
<CAPTION>
For the Three
Months Ended For the Years Ended
Sept. 30, June 30,
----------- -----------------------------------------------------
1999 1999 1998 1997 1996 1995
--------- -------- -------- -------- -------- --------
^(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Total gross loans receivable at
beginning of period ........... $ 188,062 $179,214 $152,880 $146,849 $160,674 ^$132,053
--------- -------- -------- -------- -------- --------
Loans originated:
1 to 4 family residential ..... ^ 7,235 42,175 48,159 16,493 16,702 14,657
Construction .................. 1,045 1,034 385 1,056 767 ^ 22,193
Multi-family and commercial
real estate ................. ^ 3,196 ^ 12,733 ^ 13,550 6,556 2,079 2,911
Home equity and second
mortgages ................... 1,507 4,211 2,733 4,522 3,662 4,766
Other consumer ................ 547 906 878 1,015 ^ 1,088
--------- -------- -------- -------- -------- --------
908
Total loans originated ...... ^ 13,530 61,059 65,705 29,642 24,118 45,615
--------- -------- -------- -------- -------- --------
Loans securitized and repayments:
Total loans securitized ....... -- 4,028 7,034 ^ -- 10,784 --
Loan principal repayments ..... ^ 10,812 48,183 32,337 23,611 27,159 16,994
--------- -------- -------- -------- -------- --------
Total loans securitized and
repayments .................... ^ 10,812 52,211 39,371 23,611 37,943 16,994
--------- -------- -------- -------- -------- --------
Total gross loans receivable
at end of period ............ $ 190,780 $188,062 $179,214 $152,880 $146,849 $160,674
========= ======== ======== ======== ======== ========
</TABLE>
The following table shows the maturity of loans (excluding residential
mortgages of 1-4 family residences) outstanding as of September 30, 1999. Also
provided are the amounts due after one year classified according to changes in
interest rates.
<TABLE>
<CAPTION>
Due After
Due Within 1 Through Due After
1 Year 5 Years 5 Years Total
------ ------- ------- -----
(In thousands)
<S> <C> <C> <C> <C>
Real Estate:
Construction $ - $ - $ 1,618 $ 1,618
Commercial Leases 128 568 - 696
Multi-Family and Commercial 2,316 14,217 16,163 32,696
----- ------ ------ ------
Total $2,444 $14,785 $17,781 $35,010
===== ======= ====== ======
Loans Maturing After
One Year With:
Fixed Interest Rates $10,696 $10,621
Adjustable Interest Rates 4,089 7,160
------- ------
Total $14,785 $17,781
====== ======
</TABLE>
Deposits. Deposits increased to $192.0 million at September 30, 1999,
from $190.1 million at June 30, 1999, an increase of $1.9 million or 1%. This
increase in deposits is concentrated primarily in certificates of deposit which
increased by $2.5 million to $145.5 million from $143 million.
25
<PAGE>
^ Deposits increased to $190.1 million at June 30, 1999, from $145.1
million at June 30, 1998, an increase of ^ $45.0 million or 31.0%. This increase
in deposits is concentrated primarily in certificates of deposit which increased
by $38.9 million to $143 million from $104.1 million, due to our matching rate
program whereby we matched any competitors published interest rates on deposit
accounts.
Regular savings, money market demand and NOW accounts constituted ^
$46.5 million, or ^ 24.2%, of our deposit portfolio at ^ September 30, 1999.
Certificates of deposit constituted ^ $145.5 million or ^ 75.8% of the deposit
portfolio of which ^ $16.2 million or ^ 8.4% of the deposit portfolio were
certificates of deposit with balances of $100,000 or more. Such deposits are
offered at negotiated rates. As of ^ September 30, 1999, we had ^ $1.2 million
in brokered deposits.
At ^ September 30, 1999 our deposits were represented by the various
types of deposit programs described below.
<TABLE>
<CAPTION>
Interest Minimum Balance as of Percentage of
Category Term Rate(1) Amount ^ September 30, 1999 Total Deposits
- -------- ---- ------- ------ -------------------- --------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Non-interest demand accounts None ^ 0% $ 250 $ ^ 2,073 1.08 %
NOW accounts None 2.10 750 ^ 13,342 6.95
Passbook and club accounts None 2.79 100 ^ 10,875 5.66
Money market demand None ^ 4.70 1,000 ^ 20,281 10.56
Certificates of Deposit:
Fixed Term, Fixed-rate 91 Days 4.40 1,000 ^ 1,629 0.85
Fixed Term, Fixed-rate 6-12 months ^ 4.78 1,000 ^ 65,696 34.21
Fixed Term, Fixed-rate 13-30 months ^ 5.31 1,000 ^ 47,053 24.50
Fixed Term, Fixed-rate 31-48 months ^ 5.35 1,000 ^ 6,180 3.22
Fixed Term, Fixed-rate 49-60 months ^ 5.45 1,000 ^ 13,793 7.18
IRA deposits ^ Various 5.45 1,000 11,117 5.79
------- ----
Total ^ $192,039 100.00%
======= ======
</TABLE>
- ----------
(1) Interest rate offerings as of ^ September 30, 1999.
The following table sets forth our time deposits classified by interest
rate at the dates indicated.
At September 30, At June 30,
---------------- -----------------------------
1999 1999 1998 1997
-------- -------- -------- --------
(In thousands)
Interest Rate
4.00% or less........... $ 255 $ 155 $^ 32 $ 153
4.01-6.00% ............. 132,091 126,547 67,255 ^68,062
6.01-8.00% ............. 13,071 16,088 36,532 16,167
8.01% or more........... 51 240 242 1,057
-------- -------- -------- --------
^ Total ............ ^ $145,468 $143,030 $104,061 $ 85,439
======== ======== ======== ========
26
<PAGE>
The following table sets forth the amount and maturities of our time
deposits classified by interest rate at ^ September 30, 1999.
<TABLE>
<CAPTION>
Amount Due
-------------------------------------------------------------------------------------
After
Interest Rate ^ Sept. 30, ^ Sept. 30, ^ Sept. 30, ^ Sept. 30,
- ------------- ----------- ----------- ----------- -----------
2000 2001 2002 2003 Total
------- ------ ----- ----- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
4.00% or less $ ^ 254 $ - ^ $ - ^ $ ^ 1 $ ^ 255
4.01-6.00% ^ 92,354 31,785 2,633 5,319 132,091
6.01-8.00% ^ 6,590 2,815 2,755 911 13,071
8.01 or more 51 - - - 51^
------- ------ ----- ----- -------
Total ^ $99,249 $34,600 $5,388 $6,231 $145,468
====== ====== ===== ===== =======
</TABLE>
The following table indicates the amount of our certificates of
deposits of $100,000 or more by time remaining until maturity as of ^ September
30, 1999.
Certificates
Maturity Period of Deposits
(In thousands)
Within three months $ ^ 4,278
Three through six months ^ 4,175
Six through twelve months ^ 3,521
Over twelve months ^ 4,238
-------
$16,212
=======
Borrowings. Advances from the Federal Home Loan Bank increased to
$148.9 million at September 30, 1999, from $146.2 million at June 30, 1999, an
increase of $2.7 million or 1.8%. Advances from the Federal Home Loan Bank
increased to $146.2 million at June 30, 1999, from $144.5 million at June 30,
1998, an increase of $1.7 million or 1.2%. In addition to providing funding for
our lending activities, we utilize advances from the Federal Home Loan Bank to
purchase investment securities, taking advantage of the spread to increase net
interest income.
27
<PAGE>
The following table sets forth the terms of our short-term
Federal Home Loan Bank advances.
<TABLE>
<CAPTION>
During the
Three Months During the
Ended September 30, Year Ended June 30
------------- -------------------------------------------
1999 1999 1998 1997
------------- -------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Average balance outstanding ^ $ 8,667 $5,367 $9,625 $4,833
Maximum balance at end of any month ^ 11,000 20,000 18,000 24,000
Balance outstanding end of period ^ 6,000 11,000 11,000 24,000
Weighted average rate during period ^ 5.56% 5.58% 5.92% 6.03%
Weighted average rate at end of period ^ 5.63% 5.11% 5.91% 6.26%
</TABLE>
We also have outstanding $5,480,000 in subordinated debentures. See
"Business of First Star Bancorp, Inc. and First Star Savings Bank - Source of
Funds - Subordinated Debentures."
Stockholders' Equity. Stockholders' equity increased to $15.7 million
at September 30, 1999, from $15.5 million at June 30, 1999, an increase of
$200,000 and or 1.3%. The increase is mainly attributable to net income from
operations, which was partially offset by a decrease in the unrealized gain on
securities available for sale.
Stockholders' equity increased to $15.5 million at June 30, 1999, from
$15.1 million at June 30, 1998, an increase of approximately $400,000 or 2.6%.
The increase is mainly attributable to net income from operations which was
substantially offset by an increase in the unrealized loss on securities
available for sale, due to an increase in market rates of interest.
Results of Operations for the Three Months Ended September 30, 1999 and 1998
Net Income. Net income for the three months ended September 30, 1999
and 1998 totaled $561,000 and $533,000 respectively, an increase of $28,000 or
5.25%. This increase from September 30, 1998 was mainly attributable to an
increase of $230,000 in net interest income and a decrease of $104,000 in
operating expenses, partially offset by a permanent write-down on investment
securities issued by Singer Co., of $358,000, due to the bankruptcy of Singer
Co. See "Results of Operations for the Fiscal Years Ended June 30, 1999 and 1998
- -- Results of Operations" and "-- Other Income."
Net Interest Income. Net interest income for the three months ended
September 30, 1999 increased by $230,000 to $2 million from $1.8 million for the
three months ended September 30, 1998.
Total Interest Income. For the three months ended September 30, 1999,
total interest income increased to $6.6 million from $6 million for the three
months ended September 30, 1998. This increase of $600,000 or 10% is primarily
due to an increase in income on securities of $338,000 to $2.7 million for the
three months ended September 30, 1999 from $2.4 million for the three months
ended September 30, 1998 due to an increase in the average balance of
securities.
28
<PAGE>
Total Interest Expense. Total interest expense increased to $4.6
million for the three months ended September 30, 1999 from $4.2 million for the
three months ended September 30, 1998. The two components of total interest
expense are interest on deposits and interest on borrowings. Interest on
deposits increased by $442,000 for the three months ended September 30, 1999 to
$2.3 million from $1.9 million for the three months ended September 30, 1998 due
to increased deposits. Interest on borrowings decreased by $44,000 for the three
months ended September 30, 1998 to $2.2 million from $2.3 million for the three
months ended September 30, 1998.
Provision For Loan Losses. The provision for loan losses was $47,000
for the three months ended September 30, 1999, as compared to $98,000 for the
three months ended September 30, 1998. The amount charged to operations and the
related balance in the allowance for loan loss is based on periodic reviews of
the portfolio by management. At its current level, the allowance for loan loss
represents 0.94% of loans outstanding at September 30, 1999 as compared to 0.95%
of loans outstanding at June 30, 1999.
Other Income. During the three months ended September 30, 1999, other
income (loss) decreased to ($217,000) from $160,000 for the three months ended
September 30, 1998. We recorded an impairment loss in our securities available
for sale portfolio of $358,000 during the three months ended September 30, 1999
due to a write-down of Singer Co. bonds following the bankruptcy of Singer Co.
See "Results of Operations for the Fiscal Years Ended June 30, 1999 and 1998 --
Other Income."
Operating Expenses. Total operating expenses decreased $104,000 or
10.4% to $897,000 for the three months ended September 30, 1999, as compared to
$1,001,000 for the three months ended September 30, 1998. Management continues
to monitor expenses and eliminate unnecessary expenses, where possible. The
ratio of operating expense to average assets continues to be low compared to our
peer banks, at an annualized ratio of 1.00% and the efficiency ratio for the
three months ended September 30, 1999 is 41.55%.
Results of Operations for the Fiscal Years Ended June 30, 1999 and 1998
General. The largest components of our total income and total expenses
are interest items. As a result, our earnings are greatly influenced by our net
interest income, which is determined by the difference between the interest
earned on our interest-earning assets and the rates paid on our interest-bearing
liabilities (interest rate spread) as well as by the relative amounts of ^ our
interest-earning assets and interest-bearing liabilities.
Like most savings banks, our interest income and cost of funds are
substantially affected by general economic conditions and by policies of
regulatory authorities of the state and federal government. Because a
significant portion of our assets consist of fixed rate loans, increases in
interest costs will result in a decline in our net interest income.
Results of Operations. We recorded net income of $2,566,000 for the
fiscal year ended June 30, 1999, representing an 8.9% decrease from the
$2,816,000 net income recorded for the fiscal year ended June 30, 1998. The
decrease from June 30, 1998, is mainly attributable to a decrease of $995,000 in
the gains realized on the sale of securities and an increase of $392,000 in
other expense which was partially offset by an increase of $1,054,000 in net
interest income.
29
<PAGE>
Our securities available for sale portfolio includes corporate debt
securities issued by Singer Co. Singer Co. is most recognized as a maker of
sewing machines throughout the world. On September 13, 1999, Singer filed for
Chapter 11 bankruptcy protection. ^ At September 30, 1999, we wrote the bonds ^
down to their estimated fair value of ^ $95,000, resulting in a reduction in net
income for the quarter ^ of $222,000, net of income tax benefits of $136,000.
See "- Other Income."
Net Interest Income. Net interest income is the most significant
component of our income from operations. Net interest income is the difference
between interest we receive on our interest-earning assets, primarily loans and
securities, and interest we pay on our interest-bearing liabilities, primarily
deposits and borrowings from the Federal Home Loan Bank.
Net interest income depends on the volume of and rates earned on
interest-earning assets and the volume of and rates paid on interest-bearing
liabilities. Net interest income increased $1.1 million or 15.9% for the fiscal
year ended June 30, 1999. Although the average balances increased during fiscal
1999 and 1998, our net interest rate spread and net interest margin remained
relatively stable, decreasing four and ^ seven basis points, respectively.
Total Interest Income. For the fiscal year ended June 30, 1999, total
interest income increased to $25.1 million from $21.2 million for fiscal year
ended June 30, 1998. This increase of $3.9 million or 18.4% is due to an
increase in income on loans receivable to $14.4 million for the fiscal year
ended June 30, 1999 as compared to $13.2 million for the fiscal year ended June
30, 1998 and to an increase in income on investment securities to $10.5 million
for fiscal 1999 from $7.9 million for fiscal 1998. During the same time periods
the average balance on loans receivable increased by ^ $16.2 million to $184.1
million for the fiscal year ended June 30, 1999 from ^ $167.9 million for the
fiscal year ended June 30, 1998, and the average balance on investment
securities increased by ^ $39.0 million to ^ $157.0 million for fiscal 1999 from
^ $118.0 million for fiscal 1998.
Total Interest Expense. Total interest expense increased to $17.4
million for the fiscal year ended June 30, 1999 from $14.6 million for the
fiscal year ended June 30, 1998. The two components of total interest expense
are interest on deposits, which increased by $1.8 million for the fiscal year
ended June 30, 1999 to $8.4 million from $6.6 million for the fiscal year ended
June 30, 1998 and interest on borrowings, which increased by $1 million for the
fiscal year ended June 30, 1998 to $8.9 million from $7.9 million for the fiscal
year ended June 30, 1998.
Provision For Loan Losses. We review the allowance for loan losses in
relation to (i) our past loan loss experience, (ii) known and inherent risks in
our portfolio, (iii) adverse situations that may affect the borrower's ability
to repay, (iv) the estimated value of any underlying collateral, and (v) current
economic conditions. Management believes the allowance for loan losses is at a
level that is adequate to provide for estimated losses. However, there can be no
assurance that further additions will not be made to the allowance and that such
losses will not exceed the estimated amount.
The provision for loan losses was $423,000 for the fiscal year ended
June 30, 1999, as compared to $385,000 for the fiscal year ended June 30, 1998.
The amount charged to operations and the related balance in the allowance for
loan losses is based on periodic reviews of the portfolio by management. At its
current level, the allowance for loan losses represents 0.95% of loans
outstanding at June 30, 1999 as compared to 0.84% of loans outstanding at June
30, 1998.
30
<PAGE>
Other Income. Included in other income are loan servicing income, gains
or losses on sales of securities available for sale, and other miscellaneous
sources of operating income.
During the fiscal year ended June 30, 1999, other income decreased to
$796,000 from $1,760,000 for the fiscal year ended June 30, 1998. The decrease
was mainly attributable to a decrease in the amount of gains realized on the
sale of securities which was $156,000 for the fiscal year ended June 30, 1999
and $1,151,000 for the fiscal year ended June 30, 1998. Also included in other
income were gains realized on the sale of real estate owned of $77,000 and
$101,000 for the fiscal years ended June 30, 1999 and 1998, respectively.
We ^ recorded an impairment loss in our securities available for sale
portfolio of $358,000 during the quarter ^ ended September 30, 1999 due to the
bankruptcy of Singer Co. as previously discussed. See "- Results of Operations^
for the Three Months Ended September 30, 1999 and 1998."
Operating Expenses. Total operating expenses increased $392,000 or
10.9% to $3,974,000 for the fiscal year ended June 30, 1999, as compared to
$3,582,000 for the fiscal year ended June 30, 1998.
The primary component of operating expenses was salaries and employee
benefits which increased $337,000 or 18.1% to $2,202,000 from $1,865,000 for the
fiscal year ended June 30, 1998. Also included in 1999 was one-time charge off
of $111,000, net of income taxes, relating to the canceled merger/conversion
with Nesquehonig Savings Bank. Management continues to monitor operating
expenses and reduce or eliminate such expenses where possible. The ratio of
operating expense to average assets for fiscal 1999 and fiscal 1998 was ^ 1.15%
and ^ 1.23% respectively. Excluding expenses related to the attempted
merger/conversion with Nesquehonig Savings Bank of $111,000, the ratio of
operating expense to average assets for fiscal 1999 would be 1.12%.
Comparison of Operating Results for the Fiscal Years Ended June 30, 1998 and
1997
Results of Operations. We recorded net income of $2,816,000 for the
fiscal year ended June 30, 1998, representing a 86.6% increase from the
$1,509,000 net income recorded for the fiscal year ended June 30, 1997. The
increase from June 30, 1997, is mainly attributable to an increase of $843,000
in net interest income, an increase in gains realized on the sale of
mortgage-backed securities of $804,000 and a decrease of $454,000 in total
operating expenses as a result of the $745,000 SAIF assessment in 1997.
Net Interest Income. Net interest income increased $843,000 ^ or 14.6%
due to an increase in the average balances, despite decreases in the net
interest rate spread and interest margin of ^ 42 and ^ 39 basis points,
respectively.
Total Interest Income. For the fiscal year ended June 30, 1998, total
interest income increased to $21.2 million from $16.2 million for fiscal year
ended June 30, 1997. This increase of $5 million or 30.86% is due primarily to
an increase in income on loans receivable to $13.2 million for the fiscal year
ended June 30, 1998 as compared to $11.9 million for the fiscal year ended June
30, 1997 and to an increase in income on investment securities to $8.0 million
for fiscal 1998 from $4.4 million for fiscal 1997. During the same time periods
the average balance on loans receivable increased by ^ $17.3 million to ^ $167.9
million for the fiscal year
31
<PAGE>
ended June 30, 1998 from ^ $150.6 million for the fiscal year ended June 30,
1997, and the average balance on investment securities increased by ^ $54.8
million to ^ $118.0 million for fiscal 1998 from ^ $63.2 million for fiscal
1997.
Total Interest Expense. Total interest expense increased to $14.6
million for the fiscal year ended June 30, 1998 from $10.4 million for the
fiscal year ended June 30, 1997. The two components of total interest expense
are interest on deposits, which increased by $1.1 million for the fiscal year
ended June 30, 1998 to $6.6 million from $5.5 million for the fiscal year ended
June 30, 1997 and interest on borrowings, which increased by $3.1 million for
the fiscal year ended June 30, 1998 to $8 million from $4.9 million for the
fiscal year ended June 30, 1997. These increases are attributable to increases
in the volume of both deposits and borrowings as described previously as well as
an increase in the cost of deposits and borrowings due to an increase in market
rates of interest.
Provision For Loan Losses. The provision for loan losses was $385,000
for the fiscal year ended June 30, 1998, as compared to $220,000 for the fiscal
year ended June 30, 1997. The amount charged to operations and the related
balance in the allowance for loan losses based on periodic reviews of the
portfolio by management. The allowance for loan losses represented 0.84% of
loans outstanding at June 30, 1998 as compared to 0.76% of loans outstanding at
June 30, 1997. This increase of $165,000 is a result of increased lending
activity during the fiscal year ended June 30, 1998.
Other Income. Included in other income are loan servicing income, gains
or losses on sales of mortgage-backed securities and other investments, and
other miscellaneous sources of operating income.
During the fiscal year ended June 30, 1998, other income increased to
$1,760,000 from $720,000 for the fiscal year ended June 30, 1997. The increase
is mainly attributable to increases in the amount of gains realized on the sale
of mortgage-backed and investment securities which were $1,151,000 for the
fiscal year ended June 30, 1998 and $283,000 for the fiscal year ended June 30,
1997. Also included in other income were gains realized on the sale of real
estate owned of $101,000 and $73,000 for the fiscal years ended June 30, 1998
and 1997, respectively. Loan servicing income increased by $59,000 to $285,000
for fiscal year ended June 30, 1998 from $226,000 for fiscal year ended June 30,
1997 primarily attributable to an increase in the loan volume serviced.
Operating Expenses. Total operating expenses decreased $454,000 or
11.3% to $3,582,000 for the fiscal year ended June 30, 1998, as compared to
$4,036,000 for the fiscal year ended June 30, 1997.
The primary component of operating expenses was salaries and employee
benefits which increased $276,000 or 17.3% to $1,865,000 from $1,589,000 for the
fiscal year ended June 30, 1997. In addition, total bonuses paid to senior
executive officers increased $67,000 or 137% to $116,000 from $49,000 for the
fiscal year ended June 30, 1997. The primary reason for the decrease in
operating expenses during fiscal 1998 from fiscal 1997 was due to a special
charge of $745,000 levied on September 30, 1996 against all SAIF member
financial institutions to recapitalize the SAIF fund. Management continues to
monitor operating expenses and to reduce or eliminate such expenses where
possible. The ratio of operating expense to average assets for fiscal 1998 and
fiscal 1997 was ^ 1.23% and ^ 1.86%, respectively.
32
<PAGE>
Average Balance Sheet.^ The following table sets forth certain information
relating to our average balance sheet and reflects the average yield on assets
and average cost of liabilities for the periods indicated. Average balances are
derived from month-end balances. Management does not believe that the use of
month-end balances instead of daily average balances has caused any material
differences in the information presented.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------------------------------
1999 1998
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost(5) Balance Expense Cost(5)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets (Dollars in thousands)
Interest-earning assets:
Loans receivable(1) $188,358 $3,836 8.15% 178,497 3,564 7.99%
Investment and mortgage-backed
securities(2) 172,826 2,744 6.35 144,481 2,388 6.61
----- -----
Total interest-earning assets 361,184 6,580 7.29% 322,978 5,952 7.37%
Non-interest-earning assets 5,247 4,656
------- -------
Total assets $366,431 $327,634
======= =======
Liabilities and
Stockholders'
Equity
Interest-bearing liabilities:
NOW accounts . $ 14,443 93 2.58% 13,698 80 2.34%
Passbook and club accounts 11,327 78 2.75 11,419 77 2.70
Money market demand accounts 20,207 228 4.51 15,756 186 4.72
Certificates of deposit 145,212 1,924 5.30 108,495 1,538 5.67
Short-term and
long-term 152,524 2,239 5.87 156,061 2,283 5.85
------- ----- ------- -----
Total interest-bearing liabilities 343,713 4,562 5.31% 305,429 4,164 5.45%
------- ----- ------- -----
Non-interest-bearing liabilities 6,911 6,616
----- -----
Total liabilities 350,624 312,045
Stockholders' equity 15,807 15,589
------ ------
Total liabilities and
stockholders' equity $366,431 $327,634
======= =======
Net interest income $ 2,018 $ 1,788
====== =======
Interest rate spread(3) 1.98% 1.92%
==== ====
Net interest margin(4) 2.23% 2.21%
==== ====
Ratio of average interest-earning
assets to average
interest-bearing 105.08% 105.75%
liabilities ====== ======
</TABLE>
- --------------------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
(5) Annualized.
33
<PAGE>
Average Balance Sheet. The following table sets forth certain information
relating to our average balance sheet and reflects the average yield on assets
and average cost of liabilities for the periods indicated. Average balances are
derived from month-end balances. Management does not believe that the use of
month-end balances instead of daily average balances has caused any material
differences in the information presented.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------- ------------------------------ ------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost Balance Expense Cost
------- ------- ---- ------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets (Dollars in thousands)
Interest-earning assets:
Loans receivable(1) $184,068 $14,358 7.80% ^ $167,876 $13,234 ^ 7.88% $150,633 $11,852 ^7.87%
Investment and mortgage-backed
securities(2) ^ 156,991 10,706 ^ 6.82 ^ 117,985 8,006 6.78 ^ 63,217 4,341 ^6.87
--------- ------ ----------- ----- ---------- -----
Total interest-earning assets ^ 341,059 25,064 ^ 7.35 285,861 21,240 ^ 7.43 213,850 16,193 ^7.57
Non-interest-earning assets ^ 5,903 4,613 3,453
------- ------- -------
Total assets ^ $346,962 $290,474 $217,303
======= ======= =======
Liabilities and
Stockholders'
Equity
Interest-bearing liabilities:
NOW accounts $^ 13,832 $ 320 ^2.31% $^ 12,823 $ 311 ^ 2.43% $^ 12,552 $ 267 ^2.13%
Passbook and club accounts ^ 11,369 306 2.69 10,427 283 2.71 10,029 278 2.78
Money market demand accounts ^ 17,570 788 ^ 4.48 12,986 572 ^ 4.41 9,991 420 4.20
Certificates of deposit 128,683 7,028 5.46 ^ 96,075 5,472 5.69 81,745 4,504 5.51
Short-term and
long-term ^ 152,627 8,938 5.86 ^ 138,339 7,972 ^ 5.76 ^ 88,744 4,937 ^5.56
--------- ------ --------- ------- ------- ------
borrowings
Total interest-bearing liabilities ^ 324,081 17,380 ^ 5.36% 270,650 14,610 ^ 5.40% 203,061 10,406 ^5.12%
--------- ------ ------- ------ ------- ------
Non-interest-bearing liabilities ^ 6,692 5,984 3,328
------- ----- -------
Total liabilities ^ 330,773 276,634 206,389
Stockholders' equity ^ 16,189 13,840 10,914
-------- ------ ------
Total liabilities and
stockholders' equity ^ $346,962 ^ $290,474 ^ $217,303
======= ======= =======
Net interest income $ 7,684 $ 6,630 $ 5,787
====== ======= =======
Interest rate spread(3) ^ 1.99% 2.03% 2.45%
====== ==== ====
Net interest margin(4) ^ 2.25% 2.32% 2.71%
====== ==== ====
Ratio of average interest-earning
assets to average
interest-bearing liabilities ^105.24% ^ 105.62% ^ 105.31%
======= ======== ========
</TABLE>
- ---------------------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
34
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in our
interest income and interest expense for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume; (ii)
changes in rates; (iii) changes in rate and volume.
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999 vs. 1998
Increase/(Decrease)
Due to
---------------------------------------
Rate/
Volume Rate Volume Total
--------- --------- -------- ---------
Interest-earning assets:
<S> <C> <C> <C> <C>
Loans receivable ^ $197 $ ^ 71 $ ^ 4 $272
Investment and mortgage-backed
securities ^ 468 ^(94) ^(18) 356
----- ---- ---- ---
Total interest-earning assets ^ 665 (23) (14) 628
----- --- --- ---
Interest-bearing liabilities:
NOW and money market deposits ^ 47 7 1 55
Savings and certificate accounts ^ 494 (87) (20) 387
Short-term and long-term
borrowings ^(52) 8 - (44)
----- --- --- ---
Total interest-bearing liabilities ^ 489 (72) (19) 398
----- --- --- ---
Increase (decrease) in net interest
income ^ $176 $ ^ 49 $ 5 $230
=== ===== ==== ===
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, Year Ended June 30,
1999 vs. 1998 1998 vs. 1997
Increase/(Decrease) Increase/(Decrease)
Due to Due to
--------------------------------------- -------------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
--------- --------- ------- --------- --------- ------- --------
(In thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable $1,276 $ (134) $ (18) $1,124 $1,357 $ 15 $ 10 $1,382
Investment and mortgage-backed
securities 2,645 47 8 2,700 3,763 (57) (41) 3,665
----- ---- ---- ----- ----- ---- ---- -----
Total interest-earning assets 3,921 (87) (10) 3,824 5,120 (42) (31) 5,047
----- ---- --- ----- ----- ---- ---- -----
Interest-bearing liabilities:
NOW and money market deposits 191 28 6 225 100 83 13 196
Savings and certificate accounts 1,812 (170) (63) 1,579 767 174 32 973
Short-term and long-term
borrowings 823 138 5 966 2,757 177 101 3,035
----- ---- ---- ----- ----- ---- ---- -----
Total interest-bearing liabilities 2,826 (4) (52) 2,770 3,624 434 146 4,204
----- ---- --- ----- ----- --- --- -----
Increase (decrease) in net interest
income $1,095 $ (83) $ 42 $1,054 $1,496 $(476) $(177) $ 843
===== ===== ==== ===== ===== ==== ==== ======
</TABLE>
35
<PAGE>
Interest Rate Risk
Because the majority of our assets and liabilities are sensitive to
changes in interest rates, our most significant form of market risk is interest
rate risk. Our exposure to interest rate risk results from the difference in
maturities on interest-bearing liabilities and interest-earning assets and the
volatility of interest rates.
We are vulnerable to an increase in interest rates to the extent that
interest-bearing liabilities mature or reprice more rapidly than
interest-earning assets. In the current market, we primarily originate
long-term, fixed rate loans secured by single-family residences. Our primary
source of funds has been deposits with substantially shorter maturities. While
having interest-bearing liabilities that reprice more frequently than
interest-earning assets is generally beneficial to net interest income during a
period of declining interest rates, this type of an asset/liability mismatch is
generally detrimental during periods of rising interest rates.
Our Board of Directors reviews our asset and liability policy on an
annual basis. The Board of Directors meets quarterly to review interest rate
risk and trends, as well as liquidity and capital ratios and requirements.
Management administers the policies and determinations of the Board of Directors
with respect to our asset and liability goals and strategies.
To manage the interest rate risk on our mortgage loan portfolio, we
emphasize the origination of adjustable-rate loans and sell a portion of our
fixed-rate mortgage loan originations. At June 30, 1999, adjustable-rate
mortgage loans totaled ^ $58.0 million or ^ 30.9% of our total loan portfolio.
To manage interest rate risk, we also maintain a portfolio of liquid assets
which includes investment securities and mortgage-backed securities. Maintaining
liquid assets, however, tends to reduce potential net income because liquid
assets usually provide a lower yield than other interest-earning assets. As an
asset/liability management tool, we may use alternative sources of funding if
deposit pricing in our local market area is not acceptable.
Net Portfolio Value. We utilize various asset/liability models to help
us monitor our sensitivity to changes in interest rates, notably net portfolio
value ("NPV") analysis. NPV is the difference between incoming and outgoing
discounted cash flows from assets, liabilities, and off-balance sheet contracts.
Our interest rate risk is measured as the change to its NPV as a result of
hypothetical 100-400 basis point changes in market interest rates. We calculate
the NPV quarterly. The following table presents our NPV at June 30, 1999. As of
September 30, 1999, there were no significant changes to our interest rate risk.
36
<PAGE>
<TABLE>
<CAPTION>
Changes
in Market $ %
Interest Rates NPV Amount Change Change in NPV NPV Ratio(1)
-------------- ---------- ---------------- ----------------------- ---------------------
(basis points) (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+400 964 -22,443 -95.9 0.29%
+300 8,063 -15,374 -65.6 2.38%
+200 13,816 -9,620 -41.0 3.98%
+100 19,008 -4,429 -18.9 5.34%
0 23,437 -- -- 6.44%
-100 26,704 3,267 13.9 7.19%
-200 26,758 3,321 14.2 7.10%
-300 26,134 2,697 11.5 6.84%
-400 26,802 3,365 14.4 6.89%
</TABLE>
(1) Calculated as the estimated NPV divided by present value of total assets.
Net Interest Income. The following table presents the effect on our net
interest income as a result of hypothetical 100-400 basis point changes in
market interest rates at June 30, 1999. As of September 30, 1999, there were no
significant changes to the hypothetical effect on our net interest income.
Changes
in Market $ Change in % Change in
Interest Rates Net Interest Income ^Net Interest Income
-------------- ------------------- --------------------
(basis points) (Dollars in thousands)
+400 -3,758 -44.0
+300 -2,565 -30.0
+200 -1,445 -16.9
+100 -416 -4.9
0 -- --
-100 -603 -7.1
-200 -1,114 -13.0
-300 -1,444 -16.9
-400 -1,555 -18.2
37
<PAGE>
Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, prepayments and deposit run-offs and should not be relied upon
as indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar
maturities or periods of repricing, they may react at different times and in
different degrees to changes in market rates of interest. The interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while rates on other types of assets and liabilities may
lag behind changes in market interest rates. In the event of a change in
interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making the calculations set forth above.
Additionally, an increased credit risk may result as many borrowers may be
unable to service their debt in the event of an interest rate increase.
Non-Performing Assets
We place all loans that are 90 days or more delinquent, or sooner, if
the collection of principal or interest becomes doubtful, on non-accrual status.
At June 30, 1999, our non-performing assets were $3.3 million as compared to
$4.5 million at June 30, 1998, a decrease of $1,200,000 or 26.7%. The ratio of
non-performing assets to total assets was 0.90% at June 30, 1999 compared to
1.44% at June 30, 1998.
At September 30, 1999 our non-performing assets were $2.8 million
compared to $3.3 million at June 30, 1999, a decrease of $489,000 or 15.0% due
to a decline in delinquent loans due to increased collection activity and an
increase in the transfer of delinquent loans to real estate owned and the
increased sale of said real estate owned. The following table sets forth
information regarding non-performing loans and real estate owned, as of the
dates indicated. For the quarter ended September 30, 1999 and for that year
ended June 30, 1999, interest income that would have been recorded on loans
accounted for on a nonaccrual basis under the original terms of such loans was
immaterial.
38
<PAGE>
<TABLE>
<CAPTION>
At September 30, At June 30,
----------------------------------
1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-performing loans:
Mortgage loans:
1-4 family residential real estate $1,447 $1,954 $2,645 $3,166 $3,689 $2,206
Construction -- -- -- -- 106 106
Multi-family ^-- - 336 336 -- 33
Commercial loans and leases 315 302 334 333 333 --
Consumer loans:
Home equity 16 28 100 287 174 180
Other consumer -- 5 -- 41 90 76
------ ------ ------ ------ ------ ------
Total non-performing loans 1,778 2,289 3,415 4,163 4,392 2,601
Real estate owned 991 969 1,129 767 259 506
------ ------ ------ ------ ------ ------
Total non-performing assets $2,769 $3,258 $4,544 $4,930 $4,651 $3,107
===== ===== ===== ===== ===== =====
Total non-performing loans to total loans 0.95% 1.22% 1.91% 2.72% 2.99% 1.62%
Total non-performing assets to
total assets 0.76% 0.90% 1.44% 1.82% 2.56% 1.67%
</TABLE>
Real estate owned consists of properties acquired by foreclosure and is
stated at fair value less cost to sell at the date of acquisition. Real estate
owned decreased to $969,000 at June 30, 1999, from $1,129,000 at June 30, 1998.
At ^ September 30, 1999, real estate owned was $991,000 and consisted of ^
twelve single-family dwelling units and one multi-family dwelling unit. ^ Eight
of these properties are located in the Pocono ^ Mountains area of Northeastern
Pennsylvania.
Liquidity and Capital Resources
We have pursued a policy of maintaining an adequate level of liquidity to
generate sufficient cash to fund current loan demand, meet deposit withdrawals,
pay operating expenses and fund debt obligations. The obligations associated
with the preferred securities issued in this offering will add to the level of
liquidity we will need to maintain. Cash for these short-term and long-term
needs is generated through deposits (including the use of brokered deposits),
funds borrowed from the Federal Home Loan Bank, the sale and maturity of
investment securities, cash flows generated from operations, and collections of
principal payments and prepayments of outstanding loans. Loan principal
repayments are a relatively stable source of funds while deposit flows are
influenced significantly by general interest rates and money market conditions.
Borrowings are also used to compensate for reductions in other sources of funds
such as deposits as well as to fund the expansion of loan volume. In the event
that they provide less expensive funds, brokered savings deposits are used as
well.
39
<PAGE>
As a member of the Federal Home Loan Bank System, we may borrow from the
Federal Home Loan Bank of Pittsburgh. At ^ September 30, 1999, we had
outstanding from the Federal Home Loan Bank of Pittsburgh advances equal to ^
$149 million as compared to ^ $146.2 million at June 30, 1999 and $144.5 million
in outstanding advances at June 30, 1998. Such borrowings, as a percentage of
our total assets, equaled 40.7% at September 30, 1999, 40.2% at June 30, 1999
and 45.8% at June 30, 1998. Within certain guidelines, the policies of Federal
Home Loan Bank of Pittsburgh are flexible with respect to the borrowing limits
of a member institution. At ^ September 30, 1999, our maximum borrowing capacity
was approximately ^ $203.7 million.
At ^ September 30, 1999, we had outstanding loan commitments, including
undisbursed lines of credit of approximately ^ $8.2 million. We believe that
normal cash flow from principal and interest payments on our loan portfolio will
be sufficient to meet these loan commitments. No other significant commitments
existed at ^ September 30, 1999.
Regulatory Capital. First Star Savings Bank is subject to regulatory
capital requirements by the Federal Deposit Insurance Corporation ("FDIC"). To
be deemed "adequately capitalized" the FDIC has three minimum regulatory capital
ratios: a leverage capital ratio equal to 4% of adjusted total assets; a Tier 1
risk-based capital ratio equal to 4% of risk-based assets; and total risk-based
capital equal to 8% of risk-based assets.
The following table sets forth the bank's regulatory capital position at ^
September 30, 1999, as compared to the minimum regulatory capital requirements
imposed on us by the FDIC.
Amount Percentage
------ ----------
(Dollars in thousands)
Leverage Ratio:
Actual capital ^ $20,237 5.57%
Regulatory requirement ^ 14,543 4.00
-------- ----
Excess $ ^ 5,694 1.57%
========= ====
Tier 1 Risk-Based Capital:
Actual Capital ^ $20,237 9.47%
Regulatory requirement ^ 8,544 4.00
-------- ----
Excess ^ $11,693 5.47%
====== ====
Total Risk-Based Capital:
Actual Capital ^ $22,016 10.30%
Regulatory requirement ^ 17,087 8.00
-------- ----
Excess $ ^ 4,929 2.30%
======== ====
For First Star Bancorp's capital ratios, see "Capitalization."
40
<PAGE>
Impact of Inflation and Changing Prices
The financial statements and related data 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, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and service as measured by the consumer price index.
Year 2000 ^ Issue
Rapid and accurate data processing is essential to our operations. Many
computer programs that can only distinguish the final two digits of the year
entered (a common programming practice in prior years) are expected to read
entries for the year 2000 as the year 1900 or as zero and incorrectly attempt to
compute payment, interest, delinquency and other data.
The following discussion of the implications of the year 2000 problem for
us contains ^ a number of forward-looking statements ^. These statements reflect
our best current estimates, which ^ were based on numerous assumptions ^ about
future events, including the continued availability of ^ certain resources,
representations received from third party ^ service providers and other third
parties, and additional factors. ^ There can be no guarantee that these ^
estimates, including year 2000 costs, will be achieved, and actual results could
^ cause our estimates and the impact of the year 2000 issue to differ materially
from what is described in the forward-looking statements contained in the
following discussion. Those factors include, but are not limited to,
uncertainties in the cost of hardware and software, the availability and cost of
programmers and other systems ^ personnel, inaccurate or incomplete execution of
the phases, ineffective remediation of computer code, the unpredictability of
consumer behavior, and whether our customers, vendors, competitors and other
third parties effectively address the year 2000 issues.
Year 2000 issues expose us to a number of risks, any one of which, if
realized, could have a material adverse effect on ^ our business, results of
operations or financial condition. These risks include the possibility that, to
the extent certain vendors fail to adequately address year 2000 issues, we may
suffer disruptions in important services on which we depend, such as
telecommunications, electrical power and data processing. Year 2000 issues could
affect our liquidity if customer withdrawals in anticipation of the year 2000
are greater than expected or if our lenders are unable to provide us with funds
when and as needed by us. Year 2000 issues also created additional credit risk
to our insofar as the failure of our customers and counterparties to adequately
address year 2000 issues could increase the likelihood that these customers and
counterparties become delinquent or default on their obligations to us. In
addition to increasing our risk exposure to problem loans, credit losses, and
liquidity problems, year 2000 issues expose us to increased risk of litigation
losses and expenses relating to the foregoing.
41
<PAGE>
We place a high degree of reliance on computer systems of third parties,
such as customers, suppliers, and other financial and governmental institutions.
Although we are assessing the readiness of these third parties and preparing
contingency plans, there can be no guarantee that the failure of these third
parties to modify their systems in advance of December 31, 1999 would not have a
material adverse affect on us.
Our year 2000 plan was presented to our Board of Directors in March 1998.
The plan was developed using the guidelines outlined in the Federal Financial
Institutions Examination Council's "The Effect of Year 2000 on Computer Systems"
and the mission critical system testing and implementation has been completed.
The Year 2000 Committee is responsible for the plan with the Board of Directors
receiving year 2000 progress reports on a quarterly basis.
Our primary operating software is through our third party service bureau,
Bisys, Inc. We have maintained ongoing contact with this vendor so that
modification of the software for year 2000 readiness is a top priority. The
modification of the software has been accomplished. We have performed
significant testing of the software utilized by Bisys, Inc. with successful
results. Bisys, Inc. has represented that the software currently being utilized
for our current operations is year 2000 compliant. We have participated in proxy
testing of Bisys, Inc. with another financial institution in our area. Proxy
testing is a cooperative effort of a number of financial institutions that use
the same service for a third party service bureau.
We have contacted all other material vendors and suppliers regarding their
year 2000 readiness. Each of these third parties has delivered written assurance
to us that year 2000 will not be an issue or that the issue will be
satisfactorily resolved prior to the end of 1999. Appropriate testing, if
possible, and any related contingency plans would be performed in the third and
fourth quarters of 1999. We have contacted all significant customers and
non-information technology suppliers (i.e. utility systems, telephone systems,
etc.), regarding their year 2000 state of readiness with significant customers
and non-information technology suppliers. Such parties have indicated that they
have established year 2000 plans and are in various stages of remediation and
testing. We are unable to test the year 2000 readiness of our significant
suppliers of utilities. We are relying on the utility companies' internal
testing and representations to provide the required services that drive our data
systems. We are currently determining what recourse we would have from such
parties if they do not resolve the year 2000 issues. All software that is
considered mission critical has been tested.
We have mailed Year 2000 questionnaires to ^ all of our commercial real
estate loan customers, and ^ over 89% of the questionnaires were returned. ^
These questionnaires were based on Appendix A of Guidance Concerning the Year
2000 Impact on Customers, Federal Financial Institutions Examination Council
(FFIEC) Interagency Statement, March 17, 1998. This questionnaire is also used
in the underwriting for new commercial loans. Our Year 2000 Committee members
reviewed the responses with the appropriate commercial loan officer to rate the
customers' risk levels based on the type of business and the type of loan and
collateral. We have received favorable questionnaire responses from our
borrowers. Borrowers have established year 2000 plans and are testing software
and contacting vendors and suppliers and plan to be ready for year 2000. Several
borrowers are real estate holding companies that have minimal risk.
42
<PAGE>
Individual mortgage loan and consumer loan customers were not contacted as
a practical matter; it was deemed to be beyond the scope of our testing
parameters, because most of these are individuals with adequate collateral on
the loans.
Costs will be incurred to replace certain non-compliant software and
hardware. We do not anticipate that direct costs for renovating or replacing
non-compliant hardware and software will exceed $25,000 of which approximately ^
$16,000 had been expended as of ^ September 30, 1999. No assurance can be given
that the year 2000 plan will be completed successfully by the year 2000, in
which event we could incur significant costs. If Bisys, Inc. fails to maintain
its system in a compliant state or incurs other obstacles prior to year 2000, we
would likely experience significant data processing delays, mistakes or
failures. These delays, mistakes or failures could have a significant adverse
impact on our financial condition and results of operations.
We are monitoring Bisys, Inc. to evaluate whether its data processing
system will fail and are being provided with periodic updates on the status of
testing and upgrades being made by the service bureau. If Bisys, Inc. fails, we
will attempt to locate an alternative service bureau that is year 2000
compliant. If we are unsuccessful, we will enter deposit and loan transactions
by hand in our general ledger and compute loan payments and deposit balances and
interest in our existing computer system. We are able to do this because of our
relatively small number of loan and deposit accounts and our internal
bookkeeping system. Our computer systems are independently able to generate
labels and mailings for all of our customers. If this labor intensive approach
is necessary, our management and employees will become much less efficient.
However, we believe that we would be able to operate in this manner for a
limited time, until our existing service bureau, or replacement bureau, is able
to provide data processing services. If very few financial institution service
bureaus were operating in the year 2000, their replacement costs, assuming we
could negotiate an agreement, could be material. We are currently determining
what recourse we would have from Bisys, Inc. if it does not resolve the year
2000 issues.
As part of our contingency planning, we will increase our liquidity to
accommodate any possible increase in customer demand for cash during the start
of 2000. To ensure maximum staffing, employees may not take vacation from
December 27, 1999 through January 14, 2000 (other than bank holidays).
The most reasonably likely worst case scenario is that some areas where we
have branch offices located will experience blackouts if utility service
companies are unable to provide necessary service to drive our data systems or
provide sufficient sanitary conditions to our offices. In the event that this
would happen, we would be unable to open the affected branches, and customers
would be directed to other branch locations and business would be transacted
manually.
Successful and timely completion of the year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including the progress and results of Bisys,
Inc., testing plans, and all vendors, suppliers and customer readiness.
Despite the best efforts of management to address this issue, the vast
number of external entities that have direct and indirect business relationships
with us, such as customers, vendors, payment system providers and other
financial institution, makes it impossible to assure that a failure to achieve
compliance by one or more of these entities would not have material adverse
impact on our operations.
43
<PAGE>
Recent Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities. In June 1998
the Financial Standards Accounting Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement establishes accounting and reporting for derivative
instruments, including certain instruments embedded in other contracts, and for
hedging activities. It requires that any entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. During July 1999, the FASB issued SFAS No. 137,
which delayed the effective date of this statement for one year, to fiscal years
beginning after June 15, ^ 2000. The adoption of this statement is not expected
to have a significant impact on the financial condition or operations of the
bank.
Mortgage Banking Activities. In October 1998, the FASB issued SFAS No. 134,
"Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." This statement
became effective for the Bank July 1, 1999. The adoption of this statement ^ did
not ^ have a significant impact on the financial condition or results of
operations of the Bank.
Business Combinations. In December 1998, the FASB issued an invitation to
comment on a document entitled "Methods of Accounting for Business Combinations:
Recommendations of the G4+1 for Achieving Convergence." Subsequently, in April
1999, the FASB tentatively agreed to eliminate the pooling-of-interests method
of accounting for business combinations. In reaching its conclusion, the FASB
commented that the use of two methods, purchase and pooling-of-interests, makes
it difficult for users to compare the financial statements of companies engaged
in business combinations, and that the pooling method is inconsistent with the
general concept of fair value associated with acquisitions. Accordingly, the
FASB concluded that there should be a single method of accounting for all
business combinations, and that method is the purchase method. As a general
rule, the purchase method establishes a new accounting basis for the assets and
liabilities acquired based on fair value and recognizes goodwill (positive or
negative). Goodwill, the difference between the purchase price and total value
of the assets and liabilities obtained, is an intangible asset that must be
amortized over future periods. Regarding transition, the FASB tentatively
concluded that all business combinations reported before final issuance of the
new standard, as well as all combinations in process at the time the new
standard is issued should be accounted for under APB 16 as a pooling, if the
pooling criteria within that standard are met. ^ In September 1999, the FASB
issued an Exposure Draft ^ of the new standard, "Business Combinations and
Intangible Assets." The FASB is expected to issue the final standard by the end
of 2000.
BUSINESS OF FIRST STAR BANCORP, INC.
AND FIRST STAR SAVINGS BANK
General
First Star Bancorp was formed in March 10, 1993 as a Pennsylvania-chartered
corporation to be the holding company and sole stockholder for First Star
Savings Bank. The holding company structure facilitates: (i) diversification
into non-banking activities, (ii) acquisitions of other financial institutions,
44
<PAGE>
such as savings institutions, (iii) expansion within existing and into new
market areas, and (iv) stock repurchases without adverse tax consequences. There
are, however, no present plans regarding diversification, acquisitions,
expansion or repurchases.
Our office is located at 418 West Broad Street, Bethlehem, Pennsylvania.
Our telephone number is (610) 691-2233.
First Star Savings Bank is a Pennsylvania-chartered stock savings bank
which traces its origins to 1893. Our principal business consists of attracting
deposits from the general public and originating loans secured by residential
properties. Our business is conducted through our main office located in
Bethlehem, Pennsylvania and five branch offices.
In May 1987, we converted from the mutual to the stock form of ownership.
In December of 1989, we issued and sold shares of First Star Savings Bank Series
A Convertible Preferred Stock in a private offering to nine individuals, all of
whom were directors of First Star. On July 27, 1993, we converted to a state
chartered savings bank.
The principal sources of funds for our activities are deposits, payments on
loans and borrowings from the FHLB of Pittsburgh. Funds are used principally for
the origination of adjustable-rate mortgage loans, but also for the origination
of fixed-rate mortgage loans, secured by first mortgages on one- to four-family
residences located in our local communities, and for the purchase of securities.
One- to four-family mortgage loans totaled ^ $147.7 million, or ^ 77.4% of our
total loans receivable portfolio at ^ September 30, 1999. Our principal sources
of revenue are interest received on loans and on investments and our principal
expense is interest paid on deposits.
Market Area
Our offices are located in Bath, Bethlehem, Palmer, Allentown, Nazareth and
Alburtis, which are all located within Lehigh and Northampton Counties. Our
market area includes the counties of Lehigh, Northampton, Carbon, Bucks and,
Monroe in their entireties. Carbon, Lehigh and Northampton Counties make up the
metropolitan area known locally as the Lehigh Valley. The population of this
area in 1990 was 595,000. The largest industry groups, ranked by number of
employees, include service industries, manufacturing, retail trade and
government. Monroe County is relatively sparsely populated, while Bucks County,
considered part of metropolitan Philadelphia, is densely populated, reporting
over 544,000 residents in 1990.
Allentown, Bethlehem and Easton are the principal cities of the Lehigh
Valley (Pennsylvania), which has an aggregate population of approximately
650,000. During the past twenty years, the economy of the Lehigh Valley has
shifted from one principally dominated by manufacturing, especially the steel
industry, to an economy characterized by a diverse group of industries including
service and distribution firms, health care, high technology, manufacturing and
retailing firms. Major employers include Air Products and Chemicals, Lehigh
Valley Hospital Center, Dun & Bradstreet, Prudential Insurance Company, Lucent
Technologies and Lehigh University. As of June 1999, unemployment in Lehigh and
Northampton Counties was 3.9% and 4.0%, respectively. An interstate highway
network through the Lehigh Valley benefits the local economy by providing
convenient access to New York, New England and Philadelphia.
45
<PAGE>
Lending Activities
Most of our loans are mortgage loans which are secured by one- to
four-family residences and to a lesser extent, commercial real estate. We also
make construction loans, as well as consumer (including home equity, automobile
and unsecured business) loans. In the current interest rate environment, most of
the loans we originate have fixed rates of interest.
Mortgage Loans
One- to Four-Family Residential Loans. Our primary lending activity
consists of originating one- to four-family residential mortgage loans secured
by property located in our market areas. About ^ 31% of our loan portfolio is
comprised of adjustable-rate mortgage loans which we retain for our portfolio.
The remainder consists of fixed-rate loans which we originate either to resell
in the secondary market or to retain in our portfolio, depending on the yield on
the loan and on our asset/liability management objectives. Residential real
estate loans often remain outstanding for significantly shorter periods than
their contractual terms because borrowers may refinance or repay loans at their
option.
The interest rate on our ARM loans is based on an index plus a stated
margin. We usually offer discounted initial interest rates on ARM loans.
Borrowers qualify for the ARM loan at the initial interest rate. However, ARM
loan borrowers are, for loan approval, required to meet lower income-to-debt
ratios than those required for fixed-rate loans. ARM loans provide for periodic
interest rate adjustments upward or downward of up to 2% per adjustment. The
interest rate generally may not increase more than 6% over the life of the loan.
Our ARM loans typically reprice annually, after the initial adjustment period of
one year, three years or five years, with most loans having terms to maturity of
30 years. ARM loans are offered to all applicants; however, in a relatively low
interest rate environment, borrowers may prefer a fixed-rate to ARM loans.
Our fixed-rate loans generally have terms of 10, 15 or 30 years with
principal and interest payments calculated using up to a 30-year amortization
period. Loans originated with a loan-to-value ratio in excess of 80% require
private mortgage insurance. The maximum loan-to-value ratio on mortgage loans
secured by non-owner occupied properties generally is limited to 80%. We conform
our loans to the standards that are used in the mortgage industry allowing our
loans to be readily sold in the secondary market. We currently retain servicing
rights to those loans sold in the secondary market. At June 30, 1999, we had no
loans specifically identified as held for sale.
ARM loans decrease the risk associated with changes in interest rates by
periodically repricing, but involve other risks because as interest rates
increase, the underlying payments by the borrower increase, thus increasing the
potential for default by the borrower. At the same time, the marketability of
the underlying collateral may be adversely affected by higher interest rates.
Upward adjustment of the contractual interest rate is also limited by the
maximum periodic and lifetime interest rate adjustment permitted by the loan
documents, and, therefore is potentially limited in effectiveness during periods
of rapidly rising interest rates.
Mortgage loans originated and held by us generally include due-on-sale
clauses. This gives us the right to deem the loan immediately due and payable in
the event the borrower transfers ownership of the property securing the mortgage
loan without our consent.
46
<PAGE>
Multi-Family and Commercial Real Estate Loans. Multi-family and commercial
loans generally have a loan-to-value ratio of 80% or less. These loans do not
have terms greater than 30 years. Our multi-family loans are secured by
primarily properties with five to ten units. Commercial real estate loans are
secured by office buildings, churches and other commercial properties.
Multi-family and commercial real estate lending entails significant
additional risks compared to residential property lending. These loans typically
involve large loan balances to single borrowers or groups of related borrowers.
The repayment of these loans typically is dependent on the successful operation
of the real estate project securing the loan. These risks can be significantly
affected by supply and demand conditions in the market for office and retail
space and may also be subject to adverse conditions in the economy. To minimize
these risks, we generally limit this type of lending to our market area and/or
to borrowers who are otherwise well known to us. Most construction loans convert
to permanent loans with us after 6 months.
Residential Construction Loans. We make residential construction loans on
one- to four-family residential property to the individuals who will be the
owners and occupants upon completion of construction. Upon completion of
construction, such loans are classified as one- to four-family loans. Only
interest payments are required during construction and these are to be paid from
the borrower's own funds. These loans are underwritten using the same criteria
as applied in the underwriting of one- to four-family mortgage loans. The
maximum loan-to-value ratio is 80%. Upon completion of construction, regular
principal and interest payments commence.
Commercial Leases. We invest in loans secured by commercial equipment
leases, primarily medical equipment. Such leases generally have fixed rates of
interest and are for terms of five years. A number of such leases were produced
by a single entity. See "Management's Discussion and Analysis --Financial
Condition -- Non-Performing Assets."
Consumer Loans. We offer consumer loans in order to provide a wider range
of financial services to our customers and because these loans provide higher
interest rates and shorter terms than many of our other loans. Our consumer
loans consist primarily of home equity, direct automobile loans, unsecured lines
of credit, and savings account loans.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
assets that depreciate rapidly. Repossessed collateral for a defaulted consumer
loan may not be sufficient for repayment of the outstanding loan, and the
remaining deficiency may not be collectible.
Loan Approval Authority and Underwriting. Our senior loan committee, which
is comprised of the President, Senior Vice President, Vice President of Lending,
and Servicing Manager approves all commercial loans and all mortgage loans over
$400,000. The loan committee has authority to approve loans in any category up
to 40% of the loans to one borrower limit. Loan requests above this amount must
be approved by the Board of Directors.
Upon receipt of a completed loan application from a prospective borrower, a
credit report is ordered. Income and certain other information is verified. If
necessary, additional financial information may be requested. An appraisal or
other estimate of value of the real estate intended to be used as
47
<PAGE>
security for the proposed loan is obtained. Appraisals are processed by
independent fee appraisers. Private mortgage insurance will also be required in
certain instances.
Construction loans are made on individual properties. Funds advanced during
the construction phase are held in a loans-in-process account and disbursed at
various stages of completion, following physical inspection of the construction
by a loan officer or appraiser.
Either title insurance or a title opinion is generally required on all real
estate loans. Borrowers also must obtain fire and casualty insurance. Flood
insurance is also required on loans secured by property which is located in a
flood zone.
Loan Commitments. Written commitments are given to prospective borrowers on
all approved real estate loans. Generally, the commitment requires acceptance
within 60 days of the loan application. Loan commitments in excess of this
period may be issued upon payment of a non-refundable fee or upon agreement on
an interest rate float, allowing us to adjust the interest rate on the loan. At
^ September 30, 1999, commitments to cover originations of mortgage and
commercial loans totaled ^ $1.3 million.
Loans to One Borrower. The maximum amount of loans which we may make to any
one borrower may not exceed 15% of our unimpaired capital and unimpaired
surplus. We may lend an additional 10% of our unimpaired capital and unimpaired
surplus if the loan is fully secured by readily marketable collateral. Our
maximum loan to one borrower limit was $3.3 million at ^ September 30, 1999. At
^ September 30, 1999, each of our five largest lending relationships had
outstanding loan balances of between $1.3 million and ^ $3.0 million. All of
these loans were performing in accordance with their terms.
Non-Performing and Problem Assets
Loan Delinquencies. When a mortgage loan becomes 15 days past due, a notice
of nonpayment is sent to the borrower. After the loan becomes 30 days past due,
another notice of nonpayment is sent to the borrower. If the loan continues in a
delinquent status for 90 days past due and no repayment plan is in effect,
foreclosure proceedings will be initiated. The borrower will be notified when
foreclosure is commenced.
Loans are reviewed on a monthly basis and are placed on a non-accrual
status when, in our opinion, the collection of additional interest is doubtful.
Interest accrued and unpaid at the time a loan is placed on nonaccrual status is
charged against interest income. Subsequent interest payments, if any, are
either applied to the outstanding principal balance or recorded as interest
income, depending on the assessment of the ultimate collectibility of the loan.
Classified Assets. The classification policies of the Pennsylvania
Department of Banking and FDIC regulations provide for a classification system
for problem assets of savings associations which covers all problem assets.
Under this classification system, problem assets of savings institutions such as
ours are classified as "substandard," "doubtful," or "loss." An asset is
considered substandard if it is inadequately protected by the current net worth
and paying capacity of the borrower or of the collateral pledged, if any.
Substandard assets include those characterized by the "distinct possibility"
that the institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as doubtful have
48
<PAGE>
all of the weaknesses inherent in those classified substandard, with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as loss are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
may be designated "special mention" because of potential weakness that do not
currently warrant classification in one of the aforementioned categories.
When we classify problem assets as either substandard or doubtful, we may
establish general allowances for loan losses in an amount deemed prudent by
management. General allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets. When we classify problem assets as loss, we are required either
to establish a specific allowance for losses equal to 100% of that portion of
the asset so classified or to charge off such amount. Our determination as to
the classification of our assets and the amount of its valuation allowances is
subject to review by the Pennsylvania Department of Banking and the FDIC, which
may order the establishment of additional general or specific loss allowances. A
portion of general loss allowances established to cover possible losses related
to assets classified as substandard or doubtful may be included in determining a
savings association's regulatory capital. Specific valuation allowances for loan
losses generally do not qualify as regulatory capital.
At ^ September 30, 1999, we had loans classified as special mention,
substandard, doubtful and loss as follows:
At
^ September 30,
1999
---------------
(In thousands)
Special mention ............ $ ^ 130
Substandard ................ ^ 1,853
Doubtful assets ............ ^ -
Loss assets ................ ^ 238
-----
Total ^ $2,221
======
Allowance for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the losses incurred in our loan
portfolio. The evaluation, including a review of all loans on which full
collectibility of interest and principal may not be reasonably assured,
considers: (i) our past loan loss experience, (ii) known and inherent risks in
our portfolio, (iii) adverse situations that may affect the borrower's ability
to repay, (iv) the estimated value of any underlying collateral, and (v) current
economic conditions.
We monitor our allowance for loan losses and make additions to the
allowance as economic conditions dictate. Although we maintain our allowance for
loan losses at a level that we consider adequate for the inherent risk of loss
in our loan portfolio, future losses could exceed estimated amounts
49
<PAGE>
and additional provisions for loan losses could be required. In addition, our
determination as to the amount of allowance for loan losses is subject to review
by the Pennsylvania Department of Banking and the FDIC, as part of their
examination process. After a review of the information available, the
Pennsylvania Department of Banking and the FDIC might require the establishment
of an additional allowance.
50
<PAGE>
<TABLE>
<CAPTION>
At
September 30,
------------------
1999
-------------------
Percent
of Loans
to Total
Amount Loans
------ -----
(Dollars in thousands)
<S> <C> <C>
At end of period allocated to:
One- to four-family ^ $ ^ 830 46.66%
Construction ^ 1 0.05
Multi-family and
commercial real estate ^ 901 50.65
Commercial leases 40 2.25
Consumer ^7 0.39
----- ------
Total allowance $1,779 100.00%
===== ======
</TABLE>
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ------------------ ----------------- ------------------- ----------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At end of period allocated to:
One- to four-family $ ^ 789 44.53% $^ 906 60.85% $ 814 70.41% $ 822 81.06% $651 75.70%
Construction - -- -- -- -- -- 16 1.58 30 3.49
Multi-family and
commercial real estate 928 52.37 481 32.30 234 20.24 117 11.54 130 15.12
Commercial leases 41 2.31 93 6.25 89 7.70 34 3.35 27 3.14
Consumer 14 0.79 9 0.60 19 1.65 ^25 2.47 22 2.55
----- ------ ----- ------ ----- ------ ----- ------ --- ------
Total allowance $1,772 100.00% $1,489 100.00% $1,156 100.00% $1,014 100.00% $860 100.00%
===== ====== ===== ====== ===== ====== ===== ====== === ======
</TABLE>
51
<PAGE>
The following table sets forth information with respect to our allowance
for loan losses at the dates and for the periods indicated:
<TABLE>
<CAPTION>
At September 30, At June 30,
------------------------------------------------------------
1999 1999 1998 1997 1996 1995
----------- ------ -------- ------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total loans outstanding $186,581 $184,264 $176,386 $149,476 $144,299 $154,420
======= ======= ======= ======= ======= =======
Average loans outstanding $188,358 $184,068 ^ 167,876 $150,633 $155,594 $150,989
======= ======= ======= ======= ======= =======
Allowance balance (at beginning of period) 1,772 1,489 1,156 1,014 860 839
Provision for loan losses 47 423 385 220 244 104
Net charge-offs:
1-4 family residential ^ 20 100 44 78 79 83
Construction -- -- -- -- -- --
Multi-family and commercial real estate 20 9 -- -- -- --
Commercial leases -- 29 -- -- -- --
Consumer ^-- 2 8 -- 11 --
----- ----- -------- -------- -------- ---------
Allowance balance (at end of period) $1,779 $1,772 $ 1,489 $ 1,156 $ 1,014 $ 860
===== ===== ======== ======== ======== =========
Allowance for loan losses as a percent of
total loans outstanding 0.94% 0.95% 0.84% 0.77% ^ 0.70% ^ 0.56%
Allowance for loan losses as a percent of
non-performing loans 100.00% 77.4% 43.6% 27.8% 23.1% 33.1%
Net loans charged off as a percent of
average loans outstanding 0.02% 0.08% 0.03% 0.05% ^0.06% 0.05%
</TABLE>
Real Estate Owned. At ^ September 30, 1999, we had ^ 13 properties with an
aggregate book value of ^ $991,000 in real estate owned. The largest real estate
owned property had a book value of ^ $150,000 at September 30, 1999 and
consisted of a ^ seven unit dwelling located in ^ Bethlehem, Pennsylvania. Of
the total amount of real estate owned, ^ $573,000 or ^ 57.7% of the total
consisted of ^ eight single family dwellings located in the Pocono Mountain ^
area of Northeastern Pennsylvania.
Investment Activities
Investment Securities. We classify our investment securities as
"available-for-sale" or "held-to-maturity" in accordance with SFAS No. 115. At ^
September 30, 1999, all investment securities were classified as available for
sale. At ^ September 30, 1999, our investment portfolio policy permitted
investments in instruments such as: (i) U.S. Treasury obligations, (ii) U.S.
federal agency or federally sponsored agency obligations, (iii) local municipal
obligations, (iv) mortgage-backed securities, (v) banker's acceptances, (vi)
certificates of deposit, (vii) federal funds, including FHLB overnight and term
deposits (up to six months), and (viii) corporate bonds, commercial paper and
mortgage derivative products. Our Board of Directors may authorize additional
investments.
At ^ September 30, 1999, our investment securities portfolio did not
contain securities of any issuer with an aggregate book value in excess of 10%
of our equity, excluding those issued by the United States government agencies
and a $2.0 million investment in each of the following issuers' trust preferred
securities: Northern Trust Corp, National Commerce Bank and Mercantile Bancorp,
Inc.
Mortgage-Backed Securities. To supplement lending activities, we have
invested in residential mortgage-backed securities and collateralized mortgage
obligations. Mortgage-backed securities can serve as collateral for borrowings
and, through repayments, as a source of liquidity. Mortgage-backed securities
represent a participation interest in a pool of single-family or other type of
mortgages. Principal
52
<PAGE>
and interest payments are passed from the mortgage originators, through
intermediaries (generally quasi-governmental agencies) that pool and repackage
the participation interests in the form of securities, to investors such as us.
The quasi-governmental agencies guarantee the payment of principal and interest
to investors and include the Federal Home Loan Mortgage Corporation ("FHLMC"),
the Government National Mortgage Association ("GNMA"), and Federal National
Mortgage Association ("FNMA").
At ^ September 30, 1999, our entire mortgaged-backed securities
portfolio was classified as "available-for-sale." Each security was issued by
GNMA, FHLMC or FNMA. Expected maturities will differ from contractual maturities
due to scheduled repayments and because borrowers may have the right to call or
prepay obligations with or without prepayment penalties.
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or
adjustable-rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through certificates.
The interest rate risk characteristics of the underlying pool of mortgages
(i.e., fixed-rate or adjustable-rate) and the prepayment risk, are passed on to
the certificate holder. The life of a mortgage-backed pass-through security is
equal to the life of the underlying mortgages. Mortgage-backed securities issued
by FHLMC and GNMA make up a majority of the passthrough certificates market.
We have not experienced any significant changes in the payment patterns
of our mortgage-backed securities portfolio in the last few years.
Sources of Funds
We use primarily deposits and FHLB borrowings as our major external
sources of funds for lending and other investment purposes. Funds are also
derived from the receipt of payments on loans and prepayment of loans and
maturities of investment securities and mortgage-backed securities and, to a
much lesser extent, borrowings and operations. Scheduled loan principal
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are significantly influenced by general interest
rates and market conditions.
Deposits. Consumer and commercial deposits are attracted principally
from within our primary market area through the offering of a selection of
deposit instruments including checking accounts, regular savings accounts, money
market accounts, and term certificate accounts. IRA accounts are also offered.
Deposit account terms vary according to the minimum balance required, the time
period the funds must remain on deposit, and the interest rate.
The interest rates paid by us on deposits are set weekly at the
direction of our senior management. Interest rates are determined based on our
liquidity requirements, interest rates paid by our competitors, and our growth
goals and applicable regulatory restrictions and requirements.
Borrowings. Advances may be obtained from the FHLB of Pittsburgh to
supplement our supply of lendable funds. Advances from the FHLB of Pittsburgh
are typically secured by a pledge of our stock in the FHLB of Pittsburgh,
substantially all of our first mortgage loans and other assets. Each FHLB
53
<PAGE>
credit program has its own interest rate (which may be fixed or adjustable) and
range of maturities. At ^ September 30, 1999, we could borrow up to ^ $203.7
million from the FHLB of Pittsburgh. If the need arises, we may also access the
Federal Reserve Bank discount window to supplement our supply of lendable funds
and to meet deposit withdrawal requirements. At ^ September 30, 1999, borrowings
from the FHLB of Pittsburgh totaled ^ $149.0 million ^($6.0 million of which
were short-term borrowings ^).
Subordinated Debentures. During the year ended June 30, 1992, the bank
issued $1,590,000 of Adjustable-Rate Mandatorily Convertible Subordinated
Debentures due in the year 2002 (the "Debentures"). The Debentures were assumed
by First Star Bancorp at the time of its formation. Interest on the Debentures
is 2% over the prime rate, adjustable monthly. Interest is payable on the
Debentures on the first day of each month. The Debentures will automatically
convert into Permanent Noncumulative Convertible Preferred Stock, Series A
("Series A Preferred Stock" (see Note 11 to the consolidated financial
statements)) of First Star Bancorp on January 1, 2002, unless previously
converted. The Debentures may be converted into Series A Preferred Stock at any
time, at either our option or the option of the holder, unless previously
redeemed, at a conversion price of one share per $9.864 principal amount of
Debenture, subject to adjustment in certain events. Each share of Series A
Preferred Stock is convertible into one share of our common stock, subject to
the limitations of our restated articles of incorporation.
The Debentures are redeemable, in whole or in part, on not less than 30
days' notice at our option at ^ par value. The Debentures are subordinated in
right of payment to all of our present and future senior indebtedness.
On December 31, 1996, we sold $4,000,000 of Adjustable-Rate Mandatorily
Convertible Subordinated Debentures due in the year 2008 (the "1996
Debentures"). Interest on the 1996 Debentures is 1% below the prime rate,
adjustable monthly. Interest is payable on the 1996 Debentures on the first day
of each month. The 1996 Debentures will automatically convert into Permanent
Noncumulative Convertible Preferred Stock, Series B ("Series B Preferred Stock")
of First Star Bancorp on December 31, 2008, unless previously converted. The
1996 Debentures may be converted into Series B Preferred Stock at any time by
the holder or by First Star Bancorp, unless previously redeemed, at a conversion
price of one share per $24.281 principal amount of 1996 Debenture, subject to
adjustment in certain events. The Series B Preferred Stock is convertible into
one share of our common stock, subject to the limitations of our restated
articles of incorporation.
The 1996 Debentures are redeemable at par value prior to maturity only
with the proceeds from the sale of common or perpetual preferred stock, unless
otherwise approved by the Board of Governors of the Federal Reserve System. The
1996 Debentures are subordinated in right of payment to all of our present and
future senior indebtedness.
During the year ended June 30, 1992, $110,000 of the 1992 Debentures were
converted into Series A Preferred Stock. At ^ September 30, 1999, $1,480,000 of
the 1992 Debentures and $4,000,000 of the 1996 Debentures remained outstanding.
All Debentures are includable as Tier 2 capital for determining our
compliance with regulatory capital requirements, subject to certain limitations
(see Note 19 to the consolidated financial statements). Upon conversion, the
Debentures become Tier 1 capital.
54
<PAGE>
Competition
Competition for deposits comes from other insured financial institutions
such as commercial banks, thrift institutions, credit unions, finance companies,
and multi-state regional banks in our market areas. Competition for funds also
includes a number of insurance products sold by local agents and investment
products such as mutual funds and other securities sold by local and regional
brokers. Loan competition varies depending upon market conditions and comes from
commercial banks, thrift institutions, credit unions and mortgage bankers.
Properties
We own three of our six offices and lease three of them. The net book value
of this real property at ^ September 30, 1999, was ^ $455,614. Our total
investment in office equipment had a net book value of ^ $147,062 at September
30, 1999.
Year Total Book Owned
Address Opened Investment Value or Leased
------- ------ ---------- ----- ---------
MAIN OFFICE:
418 West Broad Street 1952 ^ 1,935,522 ^ 288,088 Owned
Bethlehem, PA 18018
BRANCH OFFICES:
358 South Walnut Street 1986 80,446 ^ 9,411 Leased(1)
Bath, PA 18014
3590 Northwood Avenue 1987 153,092 -^- Leased(2)
Palmer, PA 18043
14 South Main Street 1989 5,894 ^ 1,807 Leased(3)
Nazareth, PA 18064
471-497 Wabash Street 1994 211,132 ^ 138,924 Owned
Allentown, PA 18103
11 North Main Street 1997 196,660 ^ 164,446 Owned
Alburtis, PA 18011
- ---------------------
(1) Expires May 2001. Option to renew for an additional three-year term.
(2) Expires June 2008. Option to renew for an additional ten-year term.
(3) Expires June 2000. Option to renew for an additional one-year term.
55
<PAGE>
Personnel
At ^ September 30, 1999 we had 43 full-time employees and 7 part-time
employees. None of our employees are represented by a collective bargaining
group. We believe that our relationship with our employees is good.
Additional Subsidiary Activity
First Star Bancorp has two direct subsidiaries: First Star Savings and
Integrated Financial Corp. Integrated Financial Corp. primarily manages a
property acquired at a sheriff sale and holds an investment in a limited
partnership. Furthermore, Integrated Financial Corp. has one wholly owned
subsidiary, Integrated Abstract, Inc., which is substantially inactive.
Legal Proceedings
We are, from time to time, a party to legal proceedings arising in the
ordinary course of our business, including legal proceedings to enforce our
rights against borrowers. We are not a party to any legal proceedings which are
expected to have a material adverse effect on our financial statements.
MANAGEMENT OF FIRST STAR BANCORP, INC.
Directors and Executive Officers
Our Board of Directors is composed of six members, each of whom serves for
a term of three years, with approximately one-third of the directors elected
each year. Our charter and bylaws require that directors be divided into three
classes, as nearly equal in number as possible. Our officers are elected
annually by our board and serve at the board's discretion.
The following table sets forth information with respect to our directors
and executive officers.
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Age at June Year First Current Owned at Percent
30, 1999 Elected Term June 30, of
Name Director Expires 1999(1) Class(2)
- ---- ----------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Harold J. Suess 78 1964 2000 5,828(3) 1.5%
Stephen M. Szy 54 1987 2000 3,864(4) 1.0
Joseph T. Svetik 50 1987 2001 101,438(5)(6) 22.1
Paul J. Sebastian 56 1986 2001 97,574(6)(7) 21.2
Mark Parseghian, Jr. 71 1974 1999 4,190(8) 1.1
Tighe Scott 50 1987 1999 121,905(9) 25.4
^
</TABLE>
- -----------------------
(1) Except as otherwise noted below, the named individual effectively exercises
sole voting and investment power over the shares beneficially owned.
56
<PAGE>
(2) Assumes the full conversion of the 1992 Debentures and the 1996 Debentures
into Series A and Series B Preferred Stock, respectively, and full
conversion of Series A and Series B Preferred Stock into common stock.
(3) Includes 2,027 shares of the Series A Preferred Stock.
(4) Includes 1,013 shares of the Series A Preferred Stock.
(5) Includes 9,792 shares which may be received upon the exercise of stock
options which are immediately exercisable, 8,617 shares of the Series A
Preferred Stock, 38,522 shares of Series A Preferred Stock receivable upon
conversion of 1992 Debentures and 27,799 shares of Series B Preferred Stock
receivable upon conversion of 1996 Debentures.
(6) Excludes 47,429 shares of common stock held by the First Star Bancorp, Inc.
Employee Stock Ownership Plan for which such person serves as plan trustee
and exercises shared voting and investment power. Shares which are
unallocated to participating employees (47,429 shares) and shares for which
no voting direction is received are voted by the plan trustees as directed
by the Board of Directors or the ESOP Committee. The individuals serving as
plan trustees disclaim beneficial ownership of stock held under the ESOP.
(7) Includes 14,828 shares which may be received upon the exercise of stock
options which are immediately exercisable, 8,617 shares of the Series A
Preferred Stock, 29,399 shares of Series A Preferred Stock receivable upon
conversion of 1992 Debentures and 31,917 shares of Series B Preferred Stock
receivable upon conversion of 1996 Debentures.
(8) Includes 1,267 shares held by Mr. Parseghian's wife and 2,059 shares of
Series B Preferred Stock receivable upon conversion of 1996 Debentures also
held by Mr. Parseghian's wife.
(9) Includes 19,261 shares of the Series A Preferred Stock and 64,880 shares of
Series A Preferred Stock receivable upon conversion of 1992 Debentures and
19,548 shares of Series B Preferred Stock receivable upon conversion of
1996 Debentures. Tighe Scott is the brother of Neil Scott and the son of
Amelio Scott.
The business experience during at least the past five years for each of the
directors is as follows:
Joseph T. Svetik. Mr. Svetik became Chairman of the Board of the bank in
August 1997. Upon its formation in 1993, Mr. Svetik became President and Chief
Executive Officer of First Star Bancorp. Mr. Svetik became President and Chief
Executive Officer of the bank in November 1990. Prior to that date, Mr. Svetik
was Executive Vice President and Chief Executive Officer of the bank. Prior to
his employment by the bank, Mr. Svetik was Vice President, Treasurer and Chief
Financial Officer of Third Federal Savings Bank, Newtown, Pennsylvania. Mr.
Svetik is a certified public accountant.
Paul J. Sebastian. Mr. Sebastian became Senior Vice President of the bank
in October 1989 and Chairman of the Board of Directors of First Star Bancorp in
August 1997. From December 1986, through August 1991, Mr. Sebastian was a
principal in Professional Services Group of America, Inc., Allentown,
Pennsylvania, which provides financial services to individuals and businesses.
Prior to that, Mr. Sebastian had been a Registered Representative with Shearson
Lehman Brothers Inc. in Allentown, Pennsylvania, since February 1983. From
November 1981 to February 1983, Mr. Sebastian was Chief Financial Officer of
First Federal Savings Bank, Pottstown, Pennsylvania. From August 1976 to
November 1981, Mr. Sebastian was an Examiner with the Federal Home Loan Bank
Board, Pittsburgh, Pennsylvania. Mr. Sebastian is a certified public accountant.
Mark Parseghian, Jr. For more than the past five years, Mr. Parseghian has
been self-employed as a consultant to companies engaged in the construction
industry.
Tighe J. Scott. For more than the past five years, Mr. Scott has been Vice
President of Operations of Scotty's Fashion, Inc. an apparel manufacturer
located in Pen Argyl, Pennsylvania.
Harold J. Suess. Retired for the past several years, Mr. Suess is a prior
President of Bethlehem Fence Works. From 1990 until his retirement, he was
Chairman of the Board of that company.
57
<PAGE>
Stephen M. Szy. For more than the past five years, Mr. Szy has been
self-employed as a public accountant in Hellertown, Pennsylvania.
Meetings and Committees of the Board of Directors
First Star Bancorp's Board of Directors holds regular monthly meetings and
special meetings when needed. During the fiscal year ended June 30, 1999, the
Board met 12 times. No director attended fewer than 75% of the total number of
Board meetings held during the fiscal year ended June 30, 1999, and the total
number of meetings held by all committees of the Board on which the director
served during such year.
The Board of Directors has a number of standing committees, including an
Executive Committee, an Audit Committee and a Compensation Committee.
The Executive Committee, except as limited by our bylaws, has the full
authority of the Board of Directors when the Board of Directors is not in
session. The current members of the Executive Committee are Directors Sebastian,
Svetik and Szy. The Executive Committee did not meet during the fiscal year
ended June 30, 1999.
The Audit Committee reviews our records and affairs to determine our
financial condition and reviews with management and the independent auditors the
systems of internal control. This committee approves the scope of the audit
procedures employed by our independent auditors and meets with the auditors to
discuss the results of their audit. The Audit Committee reports to the Board of
Directors with respect to the foregoing matters and recommends annually the
selection of our independent auditors. The current members of the Audit
Committee are Directors Parseghian and Szy. During the fiscal year ended June
30, 1999, the Audit Committee met four times.
The Compensation Committee is responsible for reviewing and establishing
compensation for all officers and employees of First Star Bancorp and also
administers First Star Bancorp's Employee Stock Compensation Program. The
current members of the Compensation Committee are Directors Parseghian, Scott,
and Suess. This Committee met twice during the fiscal year ended June 30, 1999.
The full Board of Directors acts as a nominating committee for the annual
selection of nominees to the Board of Directors. Only its nominations, and those
of any stockholder delivered to the Secretary of First Star Bancorp at least 60
days in advance of the Annual Meeting, shall be voted on at the Annual Meeting.
In its capacity as the Nominating Committee, the Board of Directors held one
meeting during the fiscal year ended June 30, 1999.
Director Compensation
Each director is paid monthly. Total aggregate fees paid to the directors
for the year ended June 30, 1999 were $30,675. Since January 1, 1998, each
outside director has been paid a monthly fee of $450 for each meeting attended.
In addition, non-officer directors receive an annual cash bonus based upon
the performance of First Star Savings. During fiscal 1999, each non-employee
director received a cash bonus of $2,000.
58
<PAGE>
Executive Compensation
Compensation Committee Report on Executive Compensation. The Compensation
Committee met twice during the fiscal year ended June 30, 1999 to review
compensation paid to the chief executive officer and senior vice president of
the bank. The Committee reviews various published surveys of compensation paid
to employees performing similar duties for depository institutions and their
holding companies, with a particular focus on the level of compensation paid by
comparable stockholder institutions in and around the Bank's market areas and
the Company's return on average assets and return on average equity compared to
its competitors of similar size, including institutions with total assets of
between $300 million and $500 million. Although the Committee does not
specifically set compensation levels for executive officers based on whether
particular financial goals have been achieved by the Bank, the Committee does
consider the overall profitability of the Bank when making these decisions. The
Compensation Committee has the following goals for compensation programs
impacting the executive officers of the Company and the Bank:
o to provide motivation for the executive officers to enhance
stockholder value by linking their compensation to the future value of
the Company's stock;
o to retain the executive officers who have led the Company to build its
existing market franchise and to allow the Bank to attract high
quality executive officers in the future by providing total
compensation opportunities which are consistent with competitive norms
of the industry and the Company's level of performance; and
o to maintain reasonable fixed compensation costs by targeting base
salaries at a competitive average.
During the year ended June 30, 1999, Joseph Svetik, President and CEO
received a base salary of $180,961 in recognition of his continued leadership in
the management of the Company and the Bank. Additionally, Mr. Svetik has been
previously awarded stock options under the Employee Stock Compensation Plan.
Such awards are intended to provide incentive to the President for
implementation of a business plan that will enhance shareholder value in the
intermediate and long term. The Committee also considers the annual compensation
paid to the presidents and chief executive officers of publicly owned financial
institutions nationally, in Pennsylvania and in surrounding states with assets
of between $300 million and $500 million and the individual job performance of
Mr. Svetik in consideration of its annual setting of the president's salary.
Compensation Committee:
Mark Parseghian, Jr.
Tighe J. Scott
Harold J. Suess
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by our chief executive officer and
senior vice president at June 30, 1999, 1998 and 1997. No other employee earned
in excess of $100,000 during the periods indicated.
59
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------- Stock Based
Fiscal Other Annual Compensation All Other
Name and Principal Position Year Salary Bonus Compensation(1) # of Options Compensation
- --------------------------- ---- ------ ----- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph T. Svetik 1999 $180,961 $41,000 -- -- $25,640(2)
Director, President and CEO 1998 149,581 58,026 -- -- 26,175(2)
1997 ^ 138,870 24,450 -- -- 23,370(2)
Paul J. Sebastian 1999 174,213 41,000 -- -- 25,695(3)
Director, Senior Vice President 1998 142,103 58,026 -- ^-- 25,614(3)
1997 ^ 131,927 24,450 -- ^-- 23,391(3)
</TABLE>
- ---------------------
(1) Other annual compensation does not equal the lesser of $50,000 or 10% of
the total of individual's annual salary and bonus.
(2) Includes First Star matching contributions of $1,640, $2,175 and $870 under
the 401(k) Plan and First Star contributions of $24,000, $24,000 and
$22,500 made pursuant to the Employee Stock Ownership Plan during 1999,
1998 and 1997, respectively.
(3) Includes First Star matching contributions of $1,695, $1,614 and $1,652
under the 401(k) Plan and First Star contributions of $24,000, $24,000 and
$21,739 made pursuant to the Employee Stock Ownership Plan during 1999,
1998 and 1997, respectively.
Stock Option Plans. We have established an Employee Stock Compensation
Program pursuant to which stock options may be granted to officers and key
employees. See note 10 to our consolidated financial statements beginning on
page F-1. The following table sets forth information concerning options granted
under this program.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
---------------------------------------------------------------------------------
Value of
Shares Number of Options In-the-money Options
Acquired on Value at Fiscal Year-End(#) at Fiscal Year-End($)
Name Exercise (#) Realized Exercisable/Unexercisable Exercisable/Unexercisable(3)
- ---- ------------ -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Joseph T. Svetik 1,584 $94,248(1) 9,792/0 ^ $501,912/0
Paul J. Sebastian 1,300 78,650(2) 14,828/0 766,302/0
</TABLE>
- ------------------------
(1) Based upon the difference between the option exercise price and ^ a market
price of ^ $68.00 per share ^, based on the average of the high and low
sales prices as reported on the OTC Bulletin Board on August 17, 1998^
(2) Based upon the difference between the option exercise price and a market
price of $69.00 per share, based on the average of the high and low sales
prices as reported on the OTC Bulletin Board on December 17, 1998.
^(3) Based upon the difference between the option exercise price and the last
reported sales price ^ of $61.00 per share ^ on June 30, 1999.
Employment Agreements. We have entered into employment agreements with
Joseph T. Svetik and Paul J. Sebastian. Each agreement has a five-year term.
Each agreement is automatically extended each year, provided no notice has been
given by either the bank or that employee to terminate employment, so that the
number of years remaining in each agreement remains at five. The agreements are
terminable by us for "cause" as defined in the agreements. If we terminate the
individual without
60
<PAGE>
cause or such person terminates for good reason, he will be entitled to two
times his salary for the remainder of the term of the contract. Salaries for
these executives are set annually by the compensation committee of the Board of
Directors.
Employee Stock Ownership Plan. We have established an employee stock
ownership plan, the ESOP, for the exclusive benefit of participating employees
of ours, to be implemented upon the completion of the conversion. Participating
employees are employees who have completed one year of service with us or our
subsidiary and have attained the age of 21.
Contributions to the ESOP and shares released from the suspense account are
allocated among participants on the basis of total compensation. All
participants must be employed at least 1,000 hours in a plan year, or have
terminated employment following death, disability or retirement, in order to
receive an allocation. Participant benefits become vested in plan allocations
following five years of participation in the plan. Employment prior to the
adoption of the ESOP shall be credited for the purposes of vesting. Vesting will
be accelerated upon retirement, death, disability, change in control of First
Star Bancorp, or termination of the ESOP. Forfeitures will be reallocated to
participants on the same basis as other contributions in the plan year. Benefits
may be payable in the form of a lump sum upon retirement, death, disability or
separation from service. Our contributions to the ESOP are discretionary and may
cause a reduction in other forms of compensation. Therefore, benefits payable
under the ESOP cannot be estimated.
The Board of Directors appointed directors Svetik and Sebastian to serve as
ESOP administrators and to serve as the initial ESOP Trustees. The Board of
Directors or the ESOP Committee may instruct the ESOP Trustees regarding
investments of funds contributed to the ESOP. The ESOP Trustees must vote all
allocated shares held in the ESOP in accordance with the instructions of the
participating employees. Unallocated shares and allocated shares for which no
timely direction is received will be voted by the ESOP Trustees as directed by
the Board of Directors or the ESOP Committee, subject to the Trustees' fiduciary
duties.
Certain Related Transactions
We grant loans to our officers, directors and employees. These loans are
made in the ordinary course of business and upon the same terms, including
collateral, as those prevailing at the time for comparable transactions and do
not involve more than the normal risk of collectibility or present any other
unfavorable features. Loans to officers and directors and their affiliates
amounted to ^ $3.5 million or 24.6% of our total equity, at June 30, 1999. All
of these loans were current at June 30, 1999.
PRINCIPAL SECURITY HOLDERS
We know of no person or entity other than those set forth below who is a
beneficial owner of more than 5% of our common stock. The following table
assumes the full conversion of the 1992 and 1996 Debentures into Series A
Preferred Stock and Series B Preferred Stock, respectively, and full conversion
of the Series A and B Preferred Stock into common stock. The following table
sets forth, as of June 30, 1999, certain information as to those persons who
were beneficial owners of more than 5% of our outstanding shares of common stock
and as to such stock beneficially owned by all of our officers and directors of
as a group, as calculated from the lists of our stockholders.
61
<PAGE>
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership(1) Class
- ---------------- ----------------------- -----
Neil Scott (2)(3)
315 Pennsylvania Avenue
Pen Argyl, Pennsylvania 18072 38,411 9.4%
Amelio Scott (2)(4)
205 David Avenue
Pen Argyl, Pennsylvania 18072 32,830 8.2%
Tighe Scott (2)(5)
Hemlock Lane Star Route
Saylorsburg, Pennsylvania 18353 121,905 25.4%
Paul J. Sebastian (6)(7)
418 West Broad Street
Bethlehem, Pennsylvania 18018 97,574 21.2%
Joseph T. Svetik (6)(8)
418 West Broad Street
Bethlehem, Pennsylvania 18018 101,438 22.1%
First Star Bancorp, Inc.(9)
Employee Stock Ownership Plan
418 West Broad Street
Bethlehem, Pennsylvania 18018 69,050 17.4%
All directors and executive officers as a group
(6) persons) (6)(10) 334,799 51.2%
^-------------------------
(1) Includes shares of common stock owned by corporations or foundations in
which the stockholder, director or officer is an officer or major
stockholder or by spouses, or as a custodian or trustee for minor children,
over which shares the named individual or all officers and directors as a
group effectively exercise sole voting and investment power, unless
otherwise indicated. Also includes shares of common stock that may be
obtained through the conversion or exercise of other securities. Absent the
conversion or exercise of other securities, all directors and executive
officers as a group held 56,520 shares of common stock at June 30, 1999.
(2) Amelio Scott and Neil Scott are father and son, respectively. Tighe Scott,
a director of First Star Bancorp, is also a son of Amelio Scott.
(3) Includes 15,206 shares of common stock issuable upon conversion of Series A
Preferred Stock which is issuable upon conversion of Debentures and 19,562
shares of common stock issuable upon conversion of Series B Preferred Stock
which is issuable upon conversion of Debentures.
(4) Includes 24,710 shares of common stock issuable upon conversion of Series B
Preferred Stock which is issuable upon conversion of Debentures.
62
<PAGE>
(5) Includes 84,141 shares of common stock issuable upon conversion of Series A
Preferred Stock (including Debentures that are convertible into Series A
Preferred Stock) and 19,548 shares of common stock issuable upon conversion
of Series B Preferred Stock (including Debentures that are convertible into
Series B Preferred Stock).
(6) Excludes 47,429 shares of common stock held by the First Star Bancorp, Inc.
Employee Stock Ownership Plan for which such person serves as plan trustee
and exercises shared voting and investment power. Shares which are
unallocated to participating employees (47,429 shares) and shares for which
no voting direction is received are voted by the plan trustees as directed
by the Board of Directors or the ESOP Committee. The individuals serving as
plan trustees disclaim beneficial ownership of stock held under the ESOP.
(7) Includes 14,828 shares of common stock which may be acquired through the
exercise of stock options which are immediately exercisable. Also includes
38,016 shares of common stock issuable upon conversion of Series A
Preferred Stock (including Debentures that are convertible into Series A
Preferred Stock) and 31,917 shares of common stock issuable upon conversion
of Series B Preferred Stock which is issuable upon conversion of
Debentures.
(8) Includes 9,792 shares of common stock which may be acquired through the
exercise of stock options which are immediately exercisable. Also includes
47,139 shares of common stock issuable upon conversion of Series A
Preferred Stock (including Debentures that are convertible into Series A
Preferred Stock) and 27,799 shares of common stock issuable upon conversion
of Series B Preferred Stock which is issuable upon conversion of
Debentures.
(9) Includes 21,621 shares of common stock issuable upon conversion of Series B
Preferred Stock which is issuable upon conversion of Debentures.
(10) Includes 24,620 shares of common stock which may be acquired through the
exercise of stock options which are immediately exercisable. Also includes
shares over which officers and directors exercise joint voting and
investment power with certain members of their families, 172,336 shares of
common stock issuable upon conversion of Series A Preferred Stock
(including Debentures that are convertible into Series A Preferred Stock)
and 81,323 shares of common stock issuable upon conversion of Series B
Preferred Stock which is issuable upon conversion of Debentures.
REGULATION
Set forth below is a brief description of material laws which relate to us.
The description is not complete and is qualified in its entirety by references
to applicable laws and regulation. Regulation of First Star Savings Bank
General. As a Pennsylvania chartered, SAIF-insured savings bank, the bank
is subject to extensive regulation and examination by the Pennsylvania
Department of Banking, the FDIC, which insures its deposits to the maximum
extent permitted by law, and to a much lesser extent, by the Federal Reserve.
The federal and state laws and regulations which are applicable to banks
regulate, among other things, the scope of their business, their investments,
the reserves required to be kept against deposits, the
63
<PAGE>
timing of the availability of deposited funds and the nature and amount of and
collateral for certain loans. The laws and regulations governing the bank
generally have been promulgated to protect depositors and not for the purpose of
protecting stockholders. The regulatory structure also gives the regulatory
authorities extensive discretion in connection with their supervisory and
enforcement activities and examination policies, including policies with respect
to the classification of assets and the establishment of adequate loan loss
reserves for regulatory purposes. Any change in such regulation, whether by the
Pennsylvania Department of Banking, the FDIC or the United States Congress could
have a material adverse impact on the bank and its operations.
Pennsylvania Savings Bank Law. The Pennsylvania Banking Code ("Banking
Code") contains detailed provisions governing the organization, location of
offices, rights and responsibilities of trustees, officers, and employees, as
well as corporate powers, savings and investment operations and other aspects of
the bank and its affairs. The Banking Code delegates extensive rule-making power
and administrative discretion to the Pennsylvania Department of Banking so that
the supervision and regulation of state chartered savings banks may be flexible
and readily responsive to changes in economic conditions and in savings and
lending practices.
One of the purposes of the Banking Code is to provide savings banks with
the opportunity to be fully competitive with each other and with other financial
institutions existing under other state, federal and foreign laws. To this end,
the Banking Code provides state-chartered savings banks with all of the powers
enjoyed by federal savings and loan associations, subject to regulation by the
Pennsylvania Department of Banking. The Federal Deposit Insurance Act (the
"FDIA"), however, prohibits state chartered institutions from making new
investments, loans, or becoming involved in activities as principal and equity
investments which are not permitted for national banks unless (1) the FDIC
determines the activity or investment does not pose a significant risk of loss
to the SAIF and (2) the savings bank meets all capital requirements.
Accordingly, the ability of the Banking Code to provide additional operating
authority to us is limited by the FDIA.
The Pennsylvania Department of Banking generally examines each savings bank
not less frequently than once every two years. The Banking Code permits the
Pennsylvania Department of Banking to accept the examinations and reports of the
FDIC in lieu of the Pennsylvania Department of Banking's examination. The
present practice is for the Pennsylvania Department of Banking to conduct
individual examinations. The Pennsylvania Department of Banking may order any
savings bank to discontinue any violation of law or unsafe or unsound business
practice and may direct any trustee, officer, attorney or employee of a savings
bank engaged in an objectionable activity, after the Pennsylvania Department of
Banking has ordered the activity to be terminated, to show cause at a hearing
before the Pennsylvania Department of Banking why such person should not be
removed.
Interstate Acquisitions. The Commonwealth of Pennsylvania has enacted
legislation regarding the acquisition of commercial banks, bank holding
companies, savings banks and savings and loan associations located in
Pennsylvania by institutions located outside of Pennsylvania. The statute
dealing with savings institutions authorizes (i) a savings bank, savings and
loan association or holding company thereof located in another state (a "foreign
institution") to acquire the voting stock of, merge or consolidate with, or
purchase assets and assume liabilities of, a Pennsylvania-chartered savings bank
and (ii) the establishment of branches in Pennsylvania by foreign institutions,
in each case subject to certain conditions including (A) reciprocal legislation
in the state in which the foreign institution seeking entry into Pennsylvania is
located permitting comparable entry by Pennsylvania savings institutions and (B)
64
<PAGE>
approval by the Pennsylvania Department of Banking. Pennsylvania law also
provides for nationwide branching by Pennsylvania-chartered savings banks and
savings and loan associations, subject to the Pennsylvania Department of
Banking's approval and certain other conditions.
On September 29, 1994, the United States Congress enacted the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking
Law"), which amended various federal banking laws to provide for nationwide
interstate banking, interstate bank mergers and interstate branching. The
Interstate Banking Law allows the acquisition by a bank holding company of a
bank located in another state.
Pennsylvania has enacted legislation authorizing full interstate branching
for state- chartered financial institutions. This legislation allows
out-of-state banks to branch into Pennsylvania either by buying an existing bank
or converting it into a branch or by setting up a de novo branch. The
legislation also allows state-chartered banks the same rights as federally
chartered banks to branch into other states that allow interstate branching.
Deposit Insurance. The FDIC is an independent federal agency that insures
the deposits, up to prescribed statutory limits, of federally insured banks and
savings institutions and safeguards the safety and soundness of the banking and
savings industries. Two separate insurance funds, the Bank Insurance Fund
("BIF") for commercial banks, state savings banks and some federal savings
banks, and the SAIF for savings associations, are maintained and administered by
the FDIC. First Star Savings, which was previously a state savings association,
remains a member of the SAIF and its deposit accounts are insured by the FDIC,
up to the prescribed limits. The FDIC has examination authority over all insured
depository institutions, including the bank, and has under certain circumstances
authority to initiate enforcement actions against federally insured savings
institutions to safeguard safety and soundness and the deposit insurance fund.
Assessments. As a member of the SAIF, the bank paid an insurance premium to
the FDIC equal to a minimum of 0.23% of its total deposits during 1996 and prior
years. In 1996, the annual insurance premium for most BIF members was lowered to
$2,000. The lower insurance premiums for BIF members placed SAIF members at a
competitive disadvantage to BIF members.
Effective December 31, 1996, federal law was revised to mandate a one-time
special assessment on SAIF members such as the bank of approximately 0.657% of
deposits held on March 31, 1995. Beginning January 1, 1997, the deposit
insurance assessment for most SAIF members was reduced to 0.064% of deposits on
an annual basis through the end of 1999. During this same period, BIF members
will be assessed approximately 0.013% of deposits. After 1999, assessments for
BIF and SAIF members should be the same. It is expected that these continuing
assessments for both SAIF and BIF members will be used to repay outstanding
Financing Corporation bond obligations.
Regulatory Capital Requirements. The FDIC has promulgated regulations and
adopted a statement of policy prescribing the capital adequacy requirements for
state-chartered banks, some of which, like the bank, are not members of the
Federal Reserve. At June 30, 1999, the bank exceeded all regulatory capital
requirements and was classified as "well capitalized."
65
<PAGE>
The FDIC's capital regulations establish a minimum 3% Tier 1 leverage
capital requirement for the most highly-rated state-chartered, non-member banks;
other banks must maintain a minimum Tier 1 leverage ratio of 4%. The FDIC
defines a highly-rated bank as one that is not anticipating or experiencing
significant growth and has well diversified risk, including no undue interest
rate risk exposure, excellent asset quality, high liquidity, good earnings and
which the FDIC, in general, considers a strong banking organization, rated
composite 1 under the Uniform Financial Institutions Rating System. Leverage or
core capital is defined as the sum of common stockholders' equity (including
retained earnings), noncumulative perpetual preferred stock and related surplus,
and minority interests in consolidated subsidiaries, minus all intangible assets
other than certain qualifying supervisory goodwill, and certain purchased
mortgage servicing rights and purchased credit and relationships.
The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard for savings banks requires the
maintenance of total capital (which is defined as Tier I capital and
supplementary (Tier 2) capital) to risk weighted assets of 8%. In determining
the amount of risk-weighted assets, all assets, plus certain off balance sheet
assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the
FDIC believes are inherent in the type of asset or item.
The components of Tier 1 capital are equivalent to those discussed above
under the 4% leverage standard. The components of supplementary (Tier 2) capital
include certain perpetual preferred stock, certain mandatory convertible
securities, certain subordinated debt and intermediate preferred stock and
general allowances for loan and lease losses. Allowance for loan and lease
losses includable in supplementary capital is limited to a maximum of 1.25% of
risk-weighted assets. Overall, the amount of capital counted toward
supplementary capital cannot exceed 100% of core capital.
A bank which has less than the minimum leverage capital requirement is
subject to various capital plan and activities restriction requirements. The
FDIC's regulation also provides that any insured depository institution with a
ratio of Tier 1 capital to total assets that is less than 2.0% is deemed to be
operating in an unsafe or unsound condition pursuant to Section 8(a) of the FDIA
and could be subject to potential termination of deposit insurance.
The bank is also subject to similar Pennsylvania Department of Banking
guidelines. The components and requirements of leverage and risk-based capital
are substantially the same as those defined by the FDIC.
The bank was in compliance in both the FDIC and Pennsylvania capital
requirements at ^ September 30, 1999.
Prompt Corrective Action. Federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed.
The capital levels established for each of the categories are as follows:
66
<PAGE>
Total
Risk-Based Tier 1 Risk-Based
Capital Category Tier 1 Capital Capital Capital
- ---------------- -------------- ----------- ------------------
Well Capitalized 5% or more 10% or more 6% or more
Adequately
Capitalized 4% or more* 8% or more 4% or more
Undercapitalized less than 4% less than 8% less than 4%
Significantly
Undercapitalized less than 3% less than 6% less than 3%
Critically 2% or less
Undercapitalized tangible equity ^ - --
- -----------------------
* For institutions with the highest CAMEL rating, the required Tier 1 capital
ratio is 3%.
For purposes of the regulation, the term "tangible equity" includes core
capital elements counted as Tier 1 Capital for purposes of the risk-based
capital standards, plus the amount of outstanding cumulative perpetual preferred
stock (including related surplus), minus all intangible assets with certain
exceptions. A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency. A
bank holding company must guarantee that a subsidiary depository institution
meets its capital restoration plan, subject to certain limitations. The
obligation of a controlling holding company to fund a capital restoration plan
is limited to the lesser of 5% of an undercapitalized subsidiary's assets or the
amount required to meet regulatory capital requirements. An undercapitalized
institution is also generally prohibited from increasing its average total
assets, making acquisitions, establishing any branches, or engaging in any new
line of business, except in accordance with an accepted capital restoration plan
or with the approval of the FDIC.
At ^ September 30, 1999, the bank had the requisite capital levels to
qualify as well capitalized while First Star Bancorp was adequately capitalized
under such measures.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), as
implemented by FDIC regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the FDIC, in connection with its examination of a savings bank, to
assess the institution's record of meeting the credit needs of its community and
to take such record into account in its evaluation of certain applications by
such institution, and to provide a written evaluation of an institution's CRA
67
<PAGE>
performance utilizing a four tiered descriptive rating system. The bank received
a "satisfactory" rating in its last CRA examination in August, 1999.
Transactions With Affiliates. Generally, restrictions on transactions with
affiliates require that transactions between a savings association or its
subsidiaries and its affiliates be on terms as favorable to the bank as
transactions with non-affiliates. In addition, certain of these transactions are
restricted to a percentage of the bank's capital. Affiliates of the bank include
First Star Bancorp and any company which would be under common control with the
bank.
The bank's authority to extend credit to executive officers, trustees and
10% stockholders, as well as entities such persons control are currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated by the Federal Reserve Board. Among other things, these regulations
require such loans to be made on terms substantially similar to those offered to
unaffiliated individuals, place limits on the amount of loans the bank may make
to such persons based, in part, on the bank's capital position, and require
certain approval procedures to be followed. See, however, "Management of First
Star Bancorp, Inc. - Certain Related Transactions."
Federal Home Loan Bank System. The bank is a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Trustees of the FHLB.
As a member, the bank is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At ^ September 30, 1999, the bank had $7.9 million
in FHLB stock, which was in compliance with this requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
in low and moderate income housing projects. These contributions have adversely
affected the level of FHLB dividends paid and could continue to do so in the
future. For the year ended June 30, 1999, dividends paid by the FHLB of
Pittsburgh to the bank totaled approximately $508,000.
Federal Reserve System. The Federal Reserve requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve may be used to
satisfy the liquidity requirements that are imposed by the Pennsylvania
Department of Banking. At ^ September 30, 1999, the bank met its reserve
requirements.
Savings associations have authority to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve policy generally requires savings
associations to exhaust all sources before
68
<PAGE>
borrowing from the Federal Reserve. The bank had no discount window borrowings
at ^ September 30, 1999.
Regulation of First Star Bancorp
General. First Star Bancorp, as a bank holding company, is subject to
regulation and supervision by the Board of Governors of the Federal Reserve and
by the Pennsylvania Department of Banking. This regulation is generally intended
to ensure that First Star Bancorp limits its activities to those allowed by law
and that it operates in a safe and sound manner without endangering the
financial health of its subsidiary banks. First Star Bancorp will be required to
file annually a report of its operations with, and is subject to examination by,
the Federal Reserve and the Pennsylvania Department of Banking.
BHCA Activities and Other Limitations. The Bank Holding Company Act of
1956, as amended ("BHCA"), prohibits a bank holding company from acquiring
direct or indirect ownership or control of more than 5% of the voting shares of
any bank, or increasing such ownership or control of any bank, without prior
approval of the Federal Reserve. In determining whether to authorize a bank
holding company (or a company that will become a bank holding company) to
acquire control of a bank, the Federal Reserve takes into consideration the
financial and managerial resources of the bank holding company, as well as those
of the bank to be acquired, and considers whether the acquisition is likely to
have anti-competitive effects or other adverse effects. No approval under the
BHCA is required, however, for a bank holding company already owning or
controlling 50% or more of the voting shares of a bank to acquire additional
shares of such bank.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring more than 5% of the voting shares of any company that is not a
bank and from engaging in any business other than banking or managing or
controlling banks. Under the BHCA, the Federal Reserve is authorized to approve
the ownership of shares by a bank holding company in any company, the activities
of which the Federal Reserve has determined to be so closely related to banking
or to managing or controlling banks as to be a proper incident thereto. In
making such determinations, the Federal Reserve is required to weigh expected
benefits to the public, such as greater convenience, increased competition or
gains in efficiency, against the possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices.
The Federal Reserve has by regulation determined that certain activities
are closely related to banking within the meaning of the BHCA. These activities
include those of operating a mortgage company, a finance company, a credit card
company, a factoring company, a trust company or a savings association;
performing certain data processing operations; providing limited securities
brokerage services; acting as an investment or financial advisor; leasing
personal property on a full-payout (and, to a limited extent, less than
full-payout), non-operating basis; providing tax planning and preparation
services; operating a collection agency; and providing certain courier services.
The Federal Reserve also has determined that certain other activities, including
real estate brokerage and syndication, land development, property management and
underwriting of life insurance not related to credit transactions, are not
closely related to banking and a proper incident thereto.
Regulatory Capital Requirements. The Federal Reserve has adopted capital
adequacy guidelines pursuant to which it assesses the adequacy of capital in
examining and supervising a bank holding
69
<PAGE>
company and in analyzing applications to it under the BHCA. The Federal Reserve
capital adequacy guidelines are similar to those imposed on the bank by the
FDIC. See "Regulation of First Star Savings Bank - Regulatory Capital
Requirements."
In addition, at the holding company level, our subordinated debt is
included in Tier 2 capital, subject to certain limitations. If not converted
prior to maturity at the option of either the holder or us, the subordinated
debentures will automatically convert at maturity into permanent noncumulative
preferred stock. Upon that conversion, the debentures would become Tier 1
capital. We have $1,480,000 in subordinated debentures scheduled to mature on
January 1, 2002 and an additional $4,000,000 in subordinated debentures
scheduled to mature on December 31, 2008. If all of our subordinated debt had
been converted into preferred stock at ^ September 30, 1999, our leverage ratio
would have been ^ 6.30%, our Tier 1 risk-based capital ratio would have been ^
10.66% and our total risk-based capital ratio would have been ^ 11.48%.
The preferred securities will be^ includable as up to 25% of Tier 1
capital. At September 30, 1999, approximately $6.8 million of preferred
securities would have been includable ^ in Tier 1 capital.
Commitments to Affiliated Depository Institutions. Under Federal Reserve
policy, First Star Bancorp will be expected to act as a source of financial
strength to the bank and to commit resources to support the bank in
circumstances when it might not do so absent such policy. The enforceability and
precise scope of this policy is unclear, however, in light of recent judicial
precedent. However, should the bank require the support of additional capital
resources, it should be anticipated that First Star Bancorp will be required to
respond with any such resources available to it.
Restrictions Applicable to Pennsylvania-Chartered Holding Companies. First
Star Bancorp is subject to such regulations as the Pennsylvania Department of
Banking may from time to time prescribe. No holding company regulations have
been issued to date.
Recent Developments - Financial Modernization. On November 12, 1999,
President Clinton signed into law the Gramm-Leach-Bliley Act (the "Act") which
will, effective March 11, 2000, permit qualifying bank holding companies to
become financial holding companies and thereby affiliate with securities firms
and insurance companies and engage in other activities that are financial in
nature. The Act defines "financial in nature" to include securities
underwriting, dealing and market making; sponsoring mutual funds and investment
companies; insurance underwriting and agency; merchant banking activities; and
activities that the Board has determined to be closely related to banking. A
qualifying national bank also may engage, subject to limitations on investment,
in activities that are financial in nature, other than insurance underwriting,
insurance company portfolio investment, real estate development, and real estate
investment, through a financial subsidiary of the bank.
FIRST STAR CAPITAL TRUST
The ^ trust is a statutory business trust formed under Delaware law
pursuant to:
o the initial trust agreement, dated as of August 24, 1999, executed by
us, as depositor, and by the Delaware trustee; and
70
<PAGE>
o the Certificate of Trust filed with the Secretary of State of the
State of Delaware on ^ August 24, 1999.
The initial trust agreement will be amended and restated in its entirety
substantially in the form filed as an exhibit to the registration statement of
which this prospectus forms a part. The trust agreement will be qualified as an
indenture under the Trust Indenture Act. The ^ trust will issue all of the
preferred securities to purchasers in the offering as described in this
prospectus. We will acquire all of the common securities issued by the ^ trust,
which will represent an aggregate liquidation amount equal to at least 3% of the
total capital of the ^ trust. The common securities will be equal in right to
payments with the preferred securities, except that upon the occurrence and
during the continuance of an event of default under the Trust Agreement
resulting from a debenture event of default, our rights as holder of the common
securities to payment in respect of distributions and payments upon liquidation,
redemption or otherwise will be subordinated to your right to payments as a
holder of the preferred securities. See "Description of the Preferred Securities
- -- Subordination of Common Securities."
The ^ trust exists for the purpose of:
o issuing the preferred securities and common securities representing
undivided beneficial interests in its assets,
o investing the gross proceeds of the preferred securities and the
common securities in the junior subordinated debentures issued by us,
and
o engaging in activities that are incidental to the activities described
above.
The junior subordinated debentures will be the only assets of the ^ trust
and payments under the junior subordinated debentures will be the only revenue
of the ^ trust. The ^ trust has a term of 30 years, but may dissolve earlier as
provided in the trust agreement. The address of the ^ trust is c/o Bankers Trust
(Delaware), 1101 Centre Road, Suite 200, Trust Department, Wilmington, Delaware
19805, and the telephone number is (302) 636-3301.
The trustees and the administrators will conduct the affairs of the ^
trust. We will select two individuals who are our employees, officers or
affiliates to be the administrators of the ^ trust. The property trustee will be
a financial institution that is not our affiliate and will serve as
institutional trustee under the Trust Agreement and as indenture trustee for
purposes of compliance with the Trust Indenture Act. Bankers Trust Company, a
state chartered trust company organized under the laws of the State of New York,
will be the property trustee until we decide to remove or replace it. For
purposes of compliance with the provisions of the Trust Indenture Act, Bankers
Trust Company will also act as guarantee trustee under the Guarantee and as
trustee under the Indenture. The Delaware trustee will be an entity that
maintains its principal place of business in the State of Delaware. Bankers
Trust (Delaware), a Delaware banking corporation, will act as Delaware trustee.
The property trustee will hold the junior subordinated debentures for the
benefit of the holders of the preferred securities and the common securities and
in such capacity will have the power to exercise all rights, powers and
privileges under the indenture. The property trustee will also maintain
exclusive control of a segregated noninterest-bearing bank account, the property
account, to hold all payments made
71
<PAGE>
under the junior subordinated debentures for the benefit of the holders of the
preferred securities and the common securities. The property trustee will make
payments of distributions and payments on liquidation, redemption and otherwise
to the holders of the preferred securities and the common securities out of
funds from the property account. The guarantee trustee will hold the guarantee
for the benefit of the holders of the preferred securities. We, as the holder of
all the common securities, will have the right to appoint, remove or replace any
trustee and to increase or decrease the number of trustees. We will pay all fees
and expenses related to the ^ trust and the offering of the preferred securities
and the common securities.
Your rights as a holder of the preferred securities, including economic
rights, rights to information and voting rights, are set forth in the trust
agreement, the Delaware Business Trust Act and the Trust Indenture Act. See
"Description of the Preferred Securities."
The address of the Delaware trustee is Bankers Trust (Delaware), 1101
Centre Road, Suite 200, Trust Department, Wilmington, Delaware 19805, and the
telephone number is (302) 636-3301.
The address of the property trustee, the guarantee trustee and the
debenture trustee is Bankers Trust Company, Four Albany Street, 4th Floor, New
York, New York 10006, and the telephone number is (212) 250-2500.
ACCOUNTING TREATMENT
For financial reporting purposes, we will treat ^ the trust as our
subsidiary. Accordingly, we will include the accounts of ^ the trust in our
consolidated financial statements. We will present the preferred securities as a
separate category in our consolidated statements of financial condition under
the caption "Guaranteed Preferred Beneficial Interests in Subordinated Debt,"
and we will include appropriate disclosures about the preferred securities, the
guarantee and the junior subordinated debentures in the notes to our
consolidated financial statements. For financial reporting purposes, we will
record distributions on the preferred securities as interest expense in our
consolidated statements of income.
DESCRIPTION OF PREFERRED SECURITIES
The ^ trust will issue the preferred securities and the common securities
under the trust agreement for the ^ trust. The preferred securities will
represent preferred undivided beneficial interests in the assets of the ^ trust,
and you will be entitled a preference in certain circumstances with respect to
distributions and amounts payable on redemption or liquidation over the common
securities, as well as other benefits as described in the trust agreement.
This summary describes ^ the material provisions of the preferred
securities and the trust agreement ^. You should read the form of the trust
agreement, which is filed as an exhibit to the registration statement of which
this prospectus is a part. Wherever particular defined terms of the trust
agreement are referred to in this prospectus, ^ those defined terms are
incorporated ^ into this prospectus by reference. A copy of the form of the
trust agreement is also available upon request from the trustees.
72
<PAGE>
General
The preferred securities will be limited to $12,000,000 liquidation amount
(as defined in the trust agreement) outstanding^. See "Underwriting." The
preferred securities will rank equally, and payments will be made pro rata, with
the common securities except as described under "-- Subordination of Common
Securities." The junior subordinated debentures will be registered in the name
of the ^ trust and held by the property trustee in trust for your benefit and
the benefit of the holders of the common securities. The guarantee we will
execute for the benefit of the holders of the preferred securities will be
subordinated to most of our other obligations and liabilities. The guarantee
will not guarantee payment of distributions or amounts payable on redemption or
liquidation of the preferred securities if the ^ trust does not have funds on
hand available to make such payments. See "Description of Guarantee."
Distributions
For each preferred security that you own, you will be entitled to receive
cumulative cash distributions at an initial interest rate which will be an
annual rate equal to the average yield on the five-year U.S. Treasury Note
Constant Maturity over the 20 business days before ____________, _____ plus
_.__%. The interest rate will be adjusted at five-year intervals to an annual
rate equal to the average yield on the five-year U.S. Treasury Note Constant
Maturity over the 20 business days before the date the interest rate is adjusted
plus _.__%. The property trustee, Bankers Trust Company, will be the calculation
agent and will use the average yield for the five-year U.S. Treasury Note
Constant Maturity (expressed as a percentage per annum) as quoted in the Federal
Reserve statistical release H. 15 Daily Update, or any successor report to the
H. 15 Daily Update as that report may change over time. The calculation agent
will, upon the request of any holder of preferred securities, provide the
interest rate in effect during any period. All percentages resulting from any
calculations on the preferred securities will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point, with five one-millionths
of a percentage point rounded upward.
Distributions ^ on each preferred security will be payable at the ^
applicable periodic interest rate of ^ the ^ $10 liquidation amount ^, payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, to record holders at the close of business on the 15th day of March, June,
September and December (whether or not a business day) next preceding the
relevant distribution date. Each date on which distributions will be paid is
referred to as a distribution date in this prospectus. Distributions on the
preferred securities will be cumulative. Distributions will accumulate from
______ __, 1999. The first distribution date for the preferred securities will
be __________ __, ^ 2000. The amount of distributions payable for any period
less than a full distribution period will be computed on the basis of a 360-day
year of twelve 30-day months and the actual days elapsed in a partial month in
such period. Distributions payable for each full distribution period will be
computed by dividing the annual rate by four. If any date on which distributions
are payable is not a business day, then payment will be made on the next
succeeding day that is a business day (without any additional distributions or
other payment because of the delay), except that, if such business day falls in
the next calendar year, the payment will be made on the immediately preceding
business day.
So long as we are not in default, we may defer the payment of interest on
the junior subordinated debentures at any time for one or more extension
periods. No extension period may exceed 20 consecutive quarters. No extension
period may extend beyond the maturity date of the junior
73
<PAGE>
subordinated debentures. As a consequence of any deferral by us, quarterly
distributions on the preferred securities will be deferred by the ^ trust during
the extension period. Distributions to which you are entitled will accumulate
additional distributions thereon at the ^ applicable periodic interest rate,
compounded quarterly from the relevant payment date, computed on the basis of a
360-day year of twelve 30-day months and the actual days elapsed in a partial
month in such period. Additional distributions payable for each full
distribution period will be computed by dividing the annual rate by four.
During any extension period, we may not (1) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of our capital stock or (2) make any payment of principal,
interest or premium on or repay, repurchase or redeem any of our debt securities
that rank equally in all respects with or junior in interest to the junior
subordinated debentures, of which there are none as of the date of this
prospectus. These prohibitions, however, do not apply to:
o repurchases, redemptions or other acquisitions of our capital stock in
connection with any employment contract, benefit plan or other similar
arrangement, a dividend reinvestment or stockholder stock purchase
plan or the issuance of our capital stock (or securities convertible
into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable extension
period;
o a reclassification, exchange or conversion of any class or series of
our capital stock (or any capital stock of our subsidiaries) for any
class or series of our capital stock or of any class or series of our
indebtedness for any class or series of our capital stock;
o the purchase of fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged;
o any declaration of a dividend in connection with any stockholders'
rights plan, or the issuance of rights, stock or other property under
any stockholders' rights plan, or the redemption or repurchase of
rights pursuant thereto; or
o any dividend in the form of stock, warrants, options or other rights
where the dividend stock or the stock issuable upon exercise of such
warrants, options or other rights is the same stock as that on which
the dividend is being paid or ranks equally with or junior to such
stock.
Before the end of an extension period, we may further defer the payment of
interest. Upon the termination of an extension period and the payment of all
amounts then due, we may elect to begin a new extension period. We must give the
trustees notice of our election of an extension period at least one business day
prior to the earlier of (1) the date the distributions on the preferred
securities would have been payable but for the election to begin the extension
period and (2) the date the property trustee is required to give you notice of
the record date or the date the distributions are payable, but in any event not
less than one business day prior to the record date. The property trustee will
give you notice of our election to begin a new extension period. Subject to the
foregoing, there is no limitation on the number of times that we may elect to
begin an extension period. See "Description of Junior Subordinated
74
<PAGE>
Debentures -- Option To Extend Interest Payment Period" and "^ United States
Federal Income Tax Consequences -- Interest Income and Original Issue Discount."
We currently do not intend to exercise our right to defer payments of
interest by extending the interest payment period on the junior subordinated
debentures.
The revenue of the ^ trust available for distribution to you will be
limited to payments under the junior subordinated debentures, which the ^ trust
will purchase with the proceeds of this offering of preferred securities. See
"Description of Junior Subordinated Debentures." If we do not make payments on
the junior subordinated debentures, the ^ trust will not have funds available to
pay distributions or other amounts payable on the preferred securities. The
payment of distributions and other amounts payable on the preferred securities
(if and to the extent the ^ trust has funds legally available for and cash
sufficient to make such payments) is guaranteed by us on a limited basis as
described in this prospectus under "Description of Guarantee."
Redemption
If we redeem the junior subordinated debentures, the ^ trust will redeem a
proportionate amount of the preferred and common securities. We may redeem the
junior subordinated debentures (1) on or after _________, 2004 in whole at any
time or in part from time to time, or (2) in whole, but not in part, at any time
within 90 days following the occurrence and during the continuation of a Tax
Event, Investment Company Event or Capital Treatment Event (each as defined
below), in each case subject to possible regulatory approval. See "--
Liquidation Distribution Upon Dissolution."
"Tax Event" means the receipt by the ^ trust of an opinion of our counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including an announced prospective change) in, the laws (or any
regulations thereunder) of the United States or a political subdivision or
taxing authority thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance of
the preferred securities, there is more than an insubstantial risk that:
o the ^ trust is, or will be within 90 days of the delivery of such
opinion, subject to United States federal income tax with respect to
income received or accrued on the junior subordinated debentures;
o interest payable by us on the junior subordinated debentures is not,
or within 90 days of the delivery of such opinion will not be,
deductible by us, in whole or in part, for United States federal
income tax purposes; or
o the ^ trust is, or will be within 90 days of the delivery of such
opinion, subject to more than an insignificant amount of other taxes,
duties or other governmental charges.
See "United States Federal Income Tax Consequences -- Pending Tax
Litigation Affecting the Preferred Securities" for discussion of pending United
States Tax Court litigation that, if decided
75
<PAGE>
adversely to the taxpayer, could give rise to a Tax Event, which would permit us
to redeem the junior subordinated debentures prior to ________________, 2004.
If a Tax Event described in the first or third circumstances above has
occurred and is continuing and the ^ trust holds of all the junior subordinated
debentures, we will pay on the junior subordinated debentures any additional
amounts as may be necessary so that the amount of distributions then due and
payable by the ^ trust on the outstanding preferred securities and common
securities of the ^ trust will not be reduced as a result of any additional
taxes, duties and other governmental charges to which the ^ trust has become
subject as a result of a Tax Event.
"Investment Company Event" means the receipt by the ^ trust of an opinion
of our counsel experienced in such matters to the effect that, as a result of
the occurrence of a change in law or regulation or a written change (including
any announced prospective change) in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority, there is more than an insubstantial risk that the ^ trust is, or will
be, considered an "investment company" that is required to be registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act").
"Capital Treatment Event" means the reasonable determination by us that, as
a result of the occurrence of any amendment to, or change (including any
announced prospective change) in, the laws (or any rules or regulations
thereunder) of the United States or any political subdivision thereof or
therein, or as a result of any official or administrative pronouncement or
action or judicial decision interpreting or applying such laws or regulations,
there is more than an insubstantial risk that we will not be entitled to treat
an amount equal to the liquidation amount of the preferred securities as Tier 1
Capital (or the then equivalent thereof), except as otherwise restricted by the
Federal Reserve, for purposes of the risk-based capital adequacy guidelines of
the Federal Reserve, as then in effect and applicable to us. The Federal Reserve
has determined that the proceeds of certain qualifying securities like the
preferred securities will qualify as Tier 1 capital for us only up to an amount
not to exceed, when taken together with all of our cumulative preferred stock,
if any, 25% of our Tier 1 capital.
Redemption Procedures
The ^ trust will only redeem preferred securities if we have redeemed
junior subordinated debentures. The ^ trust may redeem preferred securities only
in an amount equal to the funds it has on hand and legally available to pay the
redemption price. The redemption price for each security will equal $10 plus
accumulated but unpaid distributions as of the redemption date and the related
amount of the premium, if any, paid by us upon the concurrent redemption of some
or all of the junior subordinated debentures.
Unless payment of the redemption price is withheld or refused and not paid
either by the ^ trust or us pursuant to the guarantee, additional interest will
stop accruing on those preferred securities called for redemption on the date
they are called for redemption.
Notice of any redemption will be mailed to you at your address as it
appears on the securities register maintained by the property trustee at least
30 days but not more than 60 days before the redemption date. If notice of
redemption has been given, then, ^ in accordance with the normal operating
76
<PAGE>
procedures of The Depository Trust Company ("DTC"), on the redemption date, to
the extent funds are available for payment, the property trustee will, for
preferred securities held in book-entry form:
o deposit irrevocably ^ DTC with funds sufficient to pay the applicable
redemption price; and
o give DTC irrevocable instructions and authority to pay the redemption
price to you.
For preferred securities not held in book-entry form, the property trustee
will, to the extent funds are available for payment:
o irrevocably deposit with the paying agent for the preferred securities
funds sufficient to pay the applicable redemption price; and
o give the paying agent irrevocable instructions and authority to pay
the redemption price to you once you surrender your certificates
evidencing the preferred securities.
Notwithstanding the foregoing, distributions payable on or prior to the
redemption date for any preferred securities called for redemption will be
payable to the holders on the relevant record dates for those distributions.
Once notice of redemption is given and funds are deposited as required,
then all of your rights with respect to the preferred securities called for
redemption will cease, except for your right to receive the redemption price,
but without interest after the date of redemption.
If any date fixed for redemption of preferred securities is not a business
day, then payment of the redemption price payable on such date will be made on
the next day that is a business day (without any interest or other payment for
the delay), except that, if the next business day falls in the next calendar
year, payment will be made on the immediately preceding business day.
In payment of the redemption price for the preferred securities called for
redemption is improperly withheld or refused and not paid, either by the ^ trust
or by us pursuant to the guarantee, interest on those preferred securities will
continue to accumulate at the then applicable rate, from the redemption date
originally established to the date the payment is actually made. In this case,
the actual payment date will be the redemption date for purposes of calculating
the redemption price.
If less than all the junior subordinated debentures are going to be
redeemed, then the aggregate liquidation amount of the preferred and common
securities to be redeemed shall be allocated based upon the respective
liquidation amounts of each class, with 97% being allocated to the preferred
securities and 3% being allocated to the common securities, except in the case
of an event of default. See "--Subordination of Common Securities." The property
trustee will select the particular preferred securities to be redeemed not more
than 60 days before the redemption date by any method the property trustee deems
fair and appropriate, or, if the preferred securities are then held in
book-entry form, in accordance with DTC's customary procedures.
77
<PAGE>
Subordination of Common Securities
Payment of distributions on, and the redemption price of, and the
liquidation distribution in respect of, the preferred securities and common
securities will be made on a proportionate basis, based on the aggregate
liquidation amount of each class of securities. However, if a debenture event of
default has occurred and is continuing as a result of any failure by us to make
an interest or principal payment on the junior subordinated debentures, then no
payment of any distribution on, or redemption price of, or liquidation
distribution in respect of, the common securities may be made, unless all unpaid
amounts due on the preferred securities have been paid in full or provided for,
as appropriate.
If there is an event of default under the trust agreement that results from
an event of default on the junior subordinated debentures, we, as the holders of
the common securities, will have no right to act with respect to the event of
default under the trust agreement until the effects of all events of default
under the trust agreement regarding the preferred securities have been cured,
waived or otherwise eliminated. Until that time, the property trustee will act
solely on your behalf and not on behalf of the holders of the common securities.
See "-- Events of Default; Notice" and "Description of Junior Subordinated
Debentures -- Debenture Events of Default."
Liquidation Distribution Upon Dissolution
We will have the right to dissolve the ^ trust at any time, and, after
paying all the expenses and liabilities of the ^ trust, distribute the junior
subordinated debentures to you. However, because the proceeds from the preferred
securities offering may be counted as up to 25% of our Tier 1 capital and
dissolution of the ^ trust could impact our overall capital structure, we may
only dissolve the ^ trust if we have received prior approval of the Federal
Reserve, if then required.
Pursuant to the trust agreement, the ^ trust will dissolve upon expiration
of its term, on _____________, 2034. Early dissolution will occur upon the
occurrence of any of the following:
o the bankruptcy of First Star Bancorp;
o the filing of a certificate of dissolution, or its equivalent, of
First Star Bancorp;
o our delivery of a written direction to the property trustee to
dissolve the ^ trust, which we may do in our discretion;
o the entry of a court order for the dissolution of the ^ trust; or
o the redemption of all the preferred securities in connection with the
redemption of all the preferred and common securities as described
under "- Redemption."
In the event of a dissolution, after the ^ trust pays all amounts owed to
its creditors, the holders of the preferred and common securities will be
entitled to receive:
78
<PAGE>
o junior subordinated debentures, if the dissolution does not arise from
redemption of the junior subordinated debentures, in an aggregate
principal amount equal to the aggregate liquidation amount of the
preferred and common securities; or
o cash, if distribution of junior subordinated debentures is not
practical or if the dissolution arises from the redemption of the
junior subordinated debentures.
In the event of a cash payment, you will receive an amount equal to the
liquidation amount of the preferred securities, plus accumulated and unpaid
distributions to the date of the liquidation distribution. If the liquidation
distribution can be paid only in part because the ^ trust has insufficient
assets available for payment, then the holders of the preferred and common
securities will be paid on a proportionate basis. However, if an event of
default under the junior subordinated debentures has occurred and is continuing
as a result of our failure to make interest or principal payments to the ^ trust
when due, you will receive a liquidation distribution on your preferred
securities before we receive a liquidation distribution on our common
securities. See "--Subordination of Common Securities."
Events of Default; Notice
Any one of the following events constitutes an event of default under the
trust agreement with respect to the preferred and common securities.
o the occurrence of a event of default with respect to the junior
subordinated debentures (see "Description of Junior Subordinated
Debentures -- Debenture Events of Default");
o default by the ^ trust in the payment of any distribution when it
becomes due and payable, and the continuation of such default for a
period of 30 days;
o default by the ^ trust in the payment of any redemption price of any
preferred security or common security when it becomes due and payable;
o default in the performance, or breach, in any material respect, of any
covenant or warranty given by the ^ trust in the trust agreement
(other than a default or breach in the performance of a covenant or
warranty which is addressed by either the second or third events of
default listed above), and the continuation of such default or breach
for a period of 60 days after the holders of at least 25% in aggregate
liquidation amount of the outstanding preferred securities have given
to the property trustee, the Delaware trustee and us a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" under the trust
agreement; or
o the occurrence of bankruptcy or insolvency with respect to the
property trustee if a successor property trustee has not been
appointed within 90 days of the bankruptcy or insolvency.
Within five business days after the occurrence of any event of default
actually known to the property trustee, the property trustee will transmit
notice of the event of default to you, to us, and to the administrators, unless
the event of default has been cured or waived. Along with the administrators, we
79
<PAGE>
are required to file annual certificates with the property trustee declaring
whether or not we and they are in compliance with all the conditions and
covenants applicable to us and to them under the trust agreement.
Removal of Trustees; Appointment of Successors
The holders of at least a majority in aggregate liquidation amount of the
outstanding preferred securities may remove the property trustee or the Delaware
trustee for cause or, if an event of default with respect to the junior
subordinated debentures has occurred and is continuing, with or without cause.
If a trustee is removed by the holders of the outstanding preferred securities,
the successor may be appointed by the holders of at least 25% in aggregate
liquidation amount of preferred securities. If a trustee resigns, such trustee
will appoint its successor. If a trustee fails to appoint a successor, the
holders of at least 25% in aggregate liquidation amount of the outstanding
preferred securities may appoint a successor. If a successor has not been
appointed, we, any holder of preferred securities, or the other trustee may
petition a court in the State of Delaware to appoint a successor. Any successor
Delaware trustee must meet the applicable requirements of Delaware law. Any
successor property trustee must be a national or state-chartered bank that at
the time of appointment has:
o securities rated in one of the three highest rating categories by a
nationally recognized statistical rating organization; and
o capital and surplus of at least $50,000,000.
No resignation or removal of a trustee and no appointment of a successor
trustee will be effective until the successor trustee delivers its written
acceptance of the appointment.
Merger or Consolidation of Trustees
Any entity into which the property trustee or the Delaware trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which the trustee is a
party, or any entity succeeding to all or substantially all of the corporate
trust business of the trustee, will be the successor of that trustee under the
trust agreement, provided that entity is otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Trust
The ^ trust may, at our request and with the consent of the holders of at
least a majority in aggregate liquidation amount of the outstanding preferred
securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any state, so long as:
o the successor entity (1) expressly assumes all the obligations of the
^ trust with respect to the preferred securities or (2) substitutes
for the preferred securities other securities having substantially the
same terms as the preferred securities so long as the substitute
preferred securities have the same priority as the preferred
securities with respect to distributions and payments upon
liquidation, redemption and otherwise;
80
<PAGE>
o a trustee of the successor entity, possessing the same powers and
duties as the property trustee, is appointed to hold the junior
subordinated debentures;
o the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the preferred securities (including
any substitute preferred securities) to be downgraded by any
nationally recognized statistical rating organization, if then rated;
o the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the preferred securities (including
any substitute preferred securities) in any material respect;
o the successor entity has a purpose substantially identical to that of
the ^ trust;
o prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the ^ trust has received an opinion
from independent counsel experienced in these matters to the effect
that (1) the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect your rights,
preference and privileges as a holder of preferred securities
(including any substitute preferred securities) in any material
respect, and (2) following the merger, consolidation, amalgamation,
replacement, conveyance transfer or lease, neither the ^ trust nor the
successor entity will be required to register as an investment company
under the Investment Company Act; and
o we or any permitted successor or assignee own all the common
securities of the successor entity and guarantee the obligations of
the successor entity under the successor securities at least to the
extent provided by the guarantee.
Notwithstanding the foregoing, the ^ trust may not, except with the consent
of all holders of the preferred securities, consolidate, amalgamate, merge with
or into, or be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to, any other entity or permit any other
entity to consolidate, amalgamate, merge with or into or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause the ^ trust or the successor entity to be taxable as a corporation
for United States federal income tax purposes.
Voting Rights; Amendment of Trust Agreement
Except as provided below and under "--Removal of Trustees; Appointment of
Successors" and "Description of Guarantee -- Amendments and Assignment" and as
otherwise required by law and the trust agreement, you will have no voting
rights.
We, the property trustee and the administrators, may amend the trust
agreement without your consent in order to:
o cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to
make any other provisions with respect to
81
<PAGE>
matters or questions arising under the trust agreement, provided that
any such amendment does not adversely affect in any material respect
your interests; or
o modify, eliminate or add to any provisions of the trust agreement as
may be necessary to ensure that the ^ trust will not be taxable as a
corporation for United States federal income tax purposes at any time
that any preferred or common securities are outstanding or to ensure
that the ^ trust will not be required to register as an "investment
company" under the Investment Company Act.
With the consent of holders of not less than a majority in aggregate
liquidation amount of the preferred securities, we, the property trustee and the
administrators may amend any provision of the trust agreement so long as the
trustees have received an opinion of counsel that the amendment or the exercise
of any power granted to the trustees by the amendment will not:
o affect the ^ trust's status as a grantor trust exempt from taxation
for United States federal income tax purposes; or
o the ^ trust's exemption from status as an "investment company" under
the Investment Company Act.
However, without the consent of each holder of preferred securities or
common securities affected thereby, the trust agreement may not be amended to:
o change the amount or timing of any distribution on the preferred and
common securities or otherwise adversely affect the amount of any
distribution required to be made in respect of the preferred and
common securities as of a specified date; or
o restrict your right or our right as the holders of common securities
to institute suit for the enforcement of any payment on or after such
date.
So long as any junior subordinated debentures are held by the ^ trust, the
property trustee will not:
o direct the time, method and place of conducting any proceeding for any
remedy available to the debenture trustee, or execute any trust or
power conferred on the property trustee with respect to the junior
subordinated debentures;
o waive any past default that is waivable under the indenture;
o exercise any right to rescind or annul a declaration that the
principal of all the junior subordinated debentures shall be due and
payable; or
o consent to any amendment, modification or termination of the indenture
or the junior subordinated debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the
holders of at least a majority in aggregate liquidation amount of the
outstanding preferred securities, or, if a consent under the indenture
would
82
<PAGE>
require the consent of each holder of junior subordinated debentures
affected thereby, no such consent will be given by the property
trustee without the prior consent of each holder of the preferred
securities.
The property trustee may not revoke any action previously authorized or
approved by a vote of the holders of the preferred securities except by
subsequent vote of the holders of the preferred securities. The property trustee
will notify you of any notice of default with respect to the junior subordinated
debentures. In addition to obtaining your approval as described above, before
taking any of the actions listed above, the property trustee will obtain an
opinion of counsel experienced in such matters to the effect that the ^ trust
will not be taxable as a corporation for United States federal income tax
purposes on account of such action.
Any required approval of holders of preferred securities may be given at a
meeting of holders of preferred securities convened for such purpose or pursuant
to written consent. The property trustee will cause a notice of any meeting at
which you are entitled to vote, or of any matter upon which action by your
written consent is to be taken, to be given to you in the manner set forth in
the trust agreement.
Your vote or consent will not be required to redeem and cancel preferred
securities.
If we or any of our affiliates or the trustees or any of their affiliates
own any preferred securities, those preferred securities will not be treated as
outstanding for purposes of the votes or consents described above.
Expenses and Taxes
In the indenture, we have agreed to pay:
o all debts and obligations of the ^ trust (other than
distributions on the preferred and common securities);
o any and all taxes and all costs and expenses with respect thereto
(other than United States withholding taxes) to which the ^ trust
might become subject; and
o all costs and expenses of the ^ trust, including the costs and
expenses of:
1) the trustees, and
2) the organization and operation of the ^ trust.
Our payment obligations under the indenture are for the benefit of, and
shall be enforceable by, any creditor of the ^ trust to whom any of these debts,
obligations, costs, expenses and taxes are owed. Any creditor may enforce these
obligations directly against us, and we have irrevocably waived any right or
remedy to require that any creditor take any action against the ^ trust or any
other person before proceeding against us. We have also agreed in the indenture
to execute any additional agreements as may be necessary or desirable to give
full effect to the foregoing.
83
<PAGE>
Book Entry, Delivery and Form
DTC will act as securities depository for the preferred securities. The ^
trust will issue one or more fully registered global preferred securities
certificates in the name of Cede & Co. (DTC's nominee). These certificates will
represent the total aggregate number of preferred securities. The ^ trust will
deposit these certificates with DTC or a custodian appointed by DTC. The ^ trust
will not issue certificates to you for the preferred securities that you
purchase, unless DTC's services are discontinued.
Ownership of beneficial interests in a global security deposited with DTC
is limited to participants that have accounts with DTC. Access to the DTC system
is also available to indirect participants, such as securities brokers and
dealers, banks and trust companies, that may hold interests through a direct
participant. Upon the issuance of the global security, DTC will credit the
accounts of direct participants with their respective amounts of preferred
securities represented by the global security by its book-entry system. If you
purchase preferred securities within the DTC system, the purchase must be made
by or through a direct participant. You, as the actual owner of the preferred
securities, are the "beneficial owner." Your beneficial ownership interest will
be recorded on the direct or indirect participant's records, and DTC will have
no knowledge of your individual ownership.
You will not receive written confirmation from DTC of your purchases. The
direct or indirect participant through whom you purchased the preferred
securities should send you written confirmations providing details of your
transactions, as well as periodic statements of your holdings. The participants
are responsible for keeping accurate account of the holdings of their customers
like you.
Transfers of ownership interests in the preferred securities will be
accomplished by entries made on the books of participants acting on your behalf.
The laws of some states may require that specified purchasers of securities
take physical delivery of the securities in definitive form. These laws may
impair the ability to transfer beneficial interests in the global certificate
representing the preferred securities.
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 you will be governed by arrangements
among them, and any statutory or regulatory requirements that may be in effect
from time to time.
Redemption notices will be sent to DTC. If less than all of the preferred
securities are being redeemed, DTC will reduce each direct participant's
holdings of preferred securities in accordance with its procedures.
In those cases where a vote by the holders of the preferred securities is
required, neither DTC nor Cede & Co. will itself consent or vote. Under its
usual procedures, DTC would mail an omnibus proxy to the ^ trust 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
preferred securities are credited on the record date, which are identified in a
listing attached to the omnibus proxy.
84
<PAGE>
The ^ trust will make distribution payments on the preferred securities
directly 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 payment
on such payment date.
Payments by participants (whether direct participants or indirect
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." These payments will be
the responsibility of the participant and not of DTC, the ^ trust or First Star
Bancorp.
As the beneficial owner in a global preferred securities certificate, you
will not be entitled to receive physical delivery of preferred securities. You
will not be considered an owner or a holder under the trust agreement. Instead,
DTC will be considered the sole owner or holder of the preferred securities.
Accordingly, you must rely on the procedures of DTC and, if you are not a direct
participant, on the procedures of the indirect participant through which you own
your interest, to exercise any of your rights under the preferred securities.
DTC may discontinue providing its services as securities depositary with
respect to the preferred securities at any time by giving written notice to the
property trustee, the Delaware trustee and us that it is no longer willing, or
no longer able, to provide its services. In the event that we are not able to
obtain a successor securities depositary within 90 days, we will print and
deliver preferred securities certificates. In addition, we may, at our
discretion, decide to discontinue the book-entry system with respect to the
preferred securities. In that event, we will print and deliver certificates for
the preferred securities to you.
DTC has advised the ^ trust and us as follows:
o DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A
of the Exchange Act;
o DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities transactions
between participants through electronic book entry changes to accounts
of its participants, thereby eliminating the need for physical
movement of certificates;
o participants include securities brokers and dealers (such as Hopper
Soliday), banks, trust companies and clearing corporations and may
include certain other organizations;
o certain participants (or their representatives), together with other
entities, own DTC; and
o indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through, or
maintain a custodial relationship with, a participant, either directly
or indirectly.
85
<PAGE>
Same-Day Settlement and Payment
Settlement for the preferred securities will be made by Hopper Soliday in
immediately available funds.
Secondary trading in preferred securities of corporate issuers is generally
settled in clearinghouse or next-day funds. In contrast, the preferred
securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the preferred securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as to
the effect, if any, of settlement in immediately available funds on trading
activity in the preferred securities.
Payment and Paying Agency
Payments in respect of the preferred securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable distribution dates
or, if the preferred securities are not held by DTC, such payments will be made
by check mailed to the holder entitled thereto at such address as appears on the
securities register for the preferred and common securities. The paying agent
will initially be the property trustee and any co-paying agent chosen by the
property trustee and acceptable to the administrators. The paying agent will be
permitted to resign as paying agent upon 30 days' written notice to the property
trustee and the administrators. If the property trustee is no longer the paying
agent, the property trustee will appoint a successor (which must be a bank or
trust company reasonably acceptable to the administrators) to act as paying
agent.
Registrar and Transfer Agent
The property trustee will act as registrar and transfer agent for the
preferred securities.
Registration of transfers of preferred securities will be effected without
charge by or on behalf of the ^ trust, but only upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The ^ trust will not be required to register or cause to be registered
the transfer of the preferred securities after the preferred securities have
been called for redemption.
Obligations and Duties of the Property Trustee
The property trustee, other than during the occurrence and continuance of
an event of default, undertakes to perform only such duties as are specifically
set forth in the trust agreement and, after such event of default, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the property
trustee is under no obligation to exercise any of the powers vested in it by the
trust agreement at your request unless it is offered reasonable indemnity
against the costs, expenses and liabilities that it might incur.
For information concerning the relationships between the property trustee
and us, see "Description of Junior Subordinated Debentures -- Information
Concerning the Debenture Trustee."
86
<PAGE>
Miscellaneous
The administrators and the property trustee are authorized and directed to
conduct the affairs of and to operate the ^ trust in such a way that:
o the junior subordinated debentures will be treated as our indebtedness
for United States federal income tax purposes, and
o the ^ trust will not be;
a) required to register as an "investment company" under the
Investment Company Act; or
b) taxable as a corporation for United States federal income tax
purposes.
To achieve these purposes, the administrators, the property trustee, and
we, as holders of the common securities, are authorized to take any action that
they and we determine to be necessary or desirable for such purposes, as long as
such action does not materially adversely affect your interests and is not
inconsistent with applicable law, the certificate of trust or the trust
agreement.
You will not have preemptive or similar rights.
The ^ trust may not borrow money, issue debt or mortgage or pledge any
of its assets.
Subject to applicable law^, including, without limitation, United States
federal securities laws^, we or our affiliates may at any time and from time to
time purchase outstanding preferred securities by tender, in the open market or
by private agreement, and may resell such securities.
Governing Law
The trust agreement will be governed by and construed in accordance with
the laws of the State of Delaware.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The junior subordinated debentures will be issued under the indenture
between Bankers Trust Company, the debenture trustee, and us. The following is a
summary of the material terms and provisions of the junior subordinated
debentures ^. You should read the form of the indenture that is filed as an
exhibit to the registration statement of which this prospectus is a part.
Whenever particular defined terms of the indenture (as amended or supplemented
from time to time) are referred to in this prospectus, those defined terms are
incorporated into this prospectus by reference. A copy of the form of indenture
is available from the debenture trustee upon request.
87
<PAGE>
General
The ^ trust will invest the proceeds of the issuance of the preferred
securities, together with the consideration paid by us for the common
securities, in the junior subordinated debentures issued by us. The junior
subordinated debentures are subordinated, unsecured debt under the indenture and
will bear interest, accruing from ___________ __, 1999, at the ^ applicable
periodic interest rate of the principal amount thereof, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year,
commencing ___________ __, 1999, to the person in whose name each junior
subordinated debenture is registered at the close of business on the 15th day of
March, June, September or December (whether or not a business day) next
preceding such interest payment date. It is anticipated that, until the
liquidation, (if any), of the ^ trust, each junior subordinated debenture will
be registered in the name of the ^ trust and held by the property trustee in
trust for you and us, as the holders of the common securities.
The amount of interest payable for any period less than a full interest
period will be computed on the basis of a 360-day year of twelve 30-day months
and the actual days elapsed in a partial month in such period. The amount of
interest payable for any full interest period will be computed by dividing the
annual rate by four. If any date on which interest is payable to the junior
subordinated debentures is not a business day, then payment of the interest
payable on such date will be made on the next business day (without any interest
or other payment in respect of any such delay), or, if the next business day
falls in the next calendar year, such payment will be made on the immediately
preceding business day.
Accrued interest that is not paid on the applicable interest payment date
will bear additional interest on the amount thereof (to the extent permitted by
law) at the ^ applicable periodic interest rate, compounded quarterly and
computed on the basis of a 360-day year of twelve 30-day months and the actual
days elapsed in a partial month in such period. The amount of additional
interest payable for any full interest period will be computed by dividing the
annual rate by four.
The term "interest" as used herein includes quarterly interest payments,
interest on quarterly interest payments not paid on the applicable interest
payment date and, if applicable, any additional sums we pay on the junior
subordinated debentures following a Tax Event (as defined under "Description of
Preferred Securities -- Redemption") that may be required so that distributions
payable by the ^ trust will not be reduced by any additional taxes, duties or
other governmental changes resulting from such Tax Event.
The junior subordinated debentures will mature on _____________, 2029,
subject to our right to shorten the maturity date at any time to any date not
earlier than ___________, 2004, if we have received prior approval of the
Federal Reserve, if then required under applicable capital guidelines or
policies of the Federal Reserve. In the event we elect to shorten the maturity
of the junior subordinated debentures, we will give notice to the registered
holders of the junior subordinated debentures, the debenture trustee and the ^
trust at least 90 days before the new maturity date. The property trustee will
give you notice of the shortening of the stated maturity of the junior
subordinated debentures at least 30 but not more than 60 days before the new
maturity date.
The junior subordinated debentures will be unsecured and will rank junior
and be subordinate in right of payment to all of our senior indebtedness,
including the outstanding subordinated debentures.
88
<PAGE>
The junior subordinated debentures will not be subject to a sinking fund. The
indenture does not limit our ability to incur or issue other secured or
unsecured debt, including senior indebtedness, whether under the junior
subordinated debentures or any existing or other indenture that we may enter
into in the future or otherwise. See "-- Subordination."
Option to Extend Interest Payment Period
So long as we are not in default, we may defer the payment of interest on
the junior subordinated debentures at any time for one or more "extension
periods." No extension period may exceed 20 consecutive quarters. No extension
period may extend beyond the maturity date of the junior subordinated
debentures. During any extension period we have the right to make partial
payments of interest on any interest payment date. At the end of an extension
period, we will pay all interest then accrued and unpaid, together with interest
on that amount, compounded quarterly, at the ^ applicable periodic interest
rate. During an extension period, interest will continue to accrue and holders
of junior subordinated debentures (or holders of preferred securities) will be
required to accrue interest income for United States federal income tax
purposes. See "^ United States Federal Income Tax Consequences --Interest Income
and Original Issue Discount."
During any extension period, we may not:
o make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any of our debt securities that rank
equally in all respects with or junior in interest to the junior
subordinated debentures, or
o declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our
capital stock, except that we may:
(a) repurchase, redeem or make other acquisitions of shares of our
capital stock in connectionwith any employment contract, benefit
plan or other similar arrangement with or for the benefit of any
one or more employees, officers directors or consultants, in
connection with a dividend reinvestment or stockholder stock
purchase plan or in connection with the issuance of our capital
stock (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction
entered into prior to the applicable extension period;
(b) take any necessary action in connection with any
reclassification, exchange or conversionof any class or series of
our capital stock (or any capital stock of a subsidiary of ours)
or of any class or series of our indebtedness for any class or
series of our capital stock;
(c) purchase fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged;
(d) declare a dividend in connection with any stockholders' rights
plan, or issue
89
<PAGE>
rights, stock or other property under any stockholders' rights
plan, or redeem or repurchase rights pursuant thereto; and
(e) declare a dividend in the form of stock warrants, options or
other rights where the dividend stock or the stock issuable upon
exercise of such warrants, options or other rights is the same
stock as that on which the dividend is being paid or ranks
equally with or junior to such stock.
Before the termination of any extension period, we may further defer the
payment of interest, provided that no extension period may exceed 20 consecutive
quarters or extend beyond the stated maturity of the junior subordinated
debentures. Upon the termination of any extension period and the payment of all
amounts then due, we may elect to begin a new extension period subject to the
above conditions. No interest will be due and payable during an extension
period, except at its end. As long as the junior subordinated debentures are
held by the ^ trust, we will give the property trustee notice of an extension
period at least one business day prior to the earlier of (1) the date a
distribution on the preferred securities would have been payable but for our
election to begin an extension period and (2) the date the property trustee is
required to give you notice of the record date or the date such distribution is
payable, but in any event not less than one business day prior to such record
date. The property trustee will give you notice of our election to begin a new
extension period. There is no limitation on the number of times that we may
elect to begin an extension period.
Redemption
We have the right, after receipt of prior approval of the Federal Reserve,
if approval is then required, to redeem the junior subordinated debentures prior
to maturity at our option:
o on or after _________________, 2004, in whole at any time or in part
from time to time, or
o in whole, but not in part, at any time within 90 days following the
occurrence and during the continuation of a Tax Event, Investment
Company Event or Capital Treatment Event (each as defined under
"Description of Preferred Securities -- Redemption").
In either case, the redemption price will equal 100% of the principal
amount of the junior subordinated debentures to be redeemed, plus accrued and
unpaid interest, to the date of redemption (including any additional interest on
any additional sums we pay following a Tax Event as described below under
"--Additional Sums"). The proceeds of any redemption will be used by the ^ trust
to redeem a proportionate amount of the preferred securities.
Additional Sums
We have covenanted in the indenture that, if and for so long as the ^ trust
is the holder of all junior subordinated debentures and the ^ trust is required
to pay any additional taxes, duties or other governmental charges as a result of
a Tax Event, we will pay as additional sums on the junior subordinated
debentures such amounts as may be required so that the distributions payable by
the ^ trust
90
<PAGE>
will not be reduced as a result of any such additional taxes, duties or other
governmental charges. See "Description of Preferred Securities -- Redemption."
Registration, Denomination and Transfer
The junior subordinated debentures will initially be registered in the name
of the ^ trust. If the junior subordinated debentures are distributed to you in
connection with the involuntary or voluntary dissolution or liquidation of the ^
trust, they will be issued in the form of one or more global certificates. In
that event, we expect that the depositary arrangements for and payment on the
junior subordinated debentures will be substantially identical to those in
effect for the preferred securities. See "Description of Preferred Securities --
Book Entry, Delivery and Form."
If DTC is at any time unwilling or unable to continue as depositary and we
do not appoint a successor depositary within 90 days of receipt of notice from
DTC to such effect, we will cause the junior subordinated debentures to be
issued in definitive form to you. In that event, principal and interest will be
payable, the transfer of the junior subordinated debentures will be registerable
without service charge upon payment of any taxes and other governmental charges,
and the junior subordinated debentures will be exchangeable for junior
subordinated debentures of other authorized denominations of a like aggregate
principal amount, at the corporate trust office of the debenture trustee in New
York, New York, or at the offices of any paying agent or transfer agent we
appoint. We may also, at our option, make payment of interest by check mailed to
the address of the persons entitled to payment under the junior subordinated
debentures. A holder of $1 million or more in aggregate principal amount of
junior subordinated debentures, however, may receive payments of interest (other
than interest payable at the stated maturity) by wire transfer of immediately
available funds upon written request to the debenture trustee not later than 15
calendar days prior to the date on which the interest is payable.
In the event of any redemption, neither we, nor the debenture trustee, will
be required to:
o issue, register the transfer of or exchange junior subordinated
debentures during a period beginning at the opening of business 15
days before the day of selection for redemption of the junior
subordinated debentures to be redeemed and ending at the close of
business on the day of mailing of the relevant notice of redemption;
or
o transfer or exchange any junior subordinated debentures so selected
for redemption, except, in the case of any junior subordinated
debentures being redeemed in part, any portion of the debenture not to
be redeemed.
Any monies deposited with the debenture trustee or any paying agent, or
then held by us in trust, for the payment of the principal of (and premium, if
any) or interest on any junior subordinated debenture and remaining unclaimed
for two years after this principal (and premium, if any) or interest has become
due and payable shall, at our request, be repaid to us and the holder of such
junior subordinated debenture shall thereafter look, as a general unsecured
creditor, only to us for payment thereof.
91
<PAGE>
Restrictions on ^ Payments; ^ Covenants of the Company
We have covenanted that if at any time:
o we have actual knowledge of any event of default under the junior
subordinated debentures that we have not taken reasonable steps to
cure;
o we are in default with respect to our payment of any obligations under
the guarantee, if the junior subordinated debentures are then held by
the ^ trust, or
o we have given notice of our election of an extension period and have
not rescinded such notice, or the extension period, or any extension
thereof, is continuing,
then we will not:
o make any payment of principal of or interest or premium, if any,
on or repay, repurchase or redeem any of our debt securities that
rank equally in all respects with, or junior in interest to, the
junior subordinated debentures; or
o declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to,
any of our capital stock, except that we may:
(a) repurchase, redeem or make other acquisitions of shares of
our capital stock in connectionwith any employment contract,
benefit plan or other similar arrangement with or for the
benefit of any one or more employees, officers, directors or
consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the
issuance of our capital stock (or securities convertible
into or exercisable for such capital stock) as consideration
in an acquisition transaction entered into prior to the
applicable extension period or other event referred to
below;
(b) take any necessary action in connection with any
reclassification, exchange or conversionof any class or
series of our capital stock (or any capital stock of any
subsidiary of ours) for any class or series of our capital
stock or of any class or series of our indebtedness for any
class or series of our capital stock;
(c) purchase fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged;
(d) declare a dividend in connection with any stockholders'
rights plan, or issue rights, stock or other property under
any stockholders' rights plan, or redeem or repurchase
rights pursuant thereto; or
92
<PAGE>
(e) declare a dividend in the form of stock, warrants, options
or other rights where the dividend stock or the stock
issuable upon exercise of such warrants, options or other
rights is the same stock as that on which the dividend is
being paid or ranks equally with or junior to such stock.
We have covenanted in the indenture:
o to continue to hold, directly or indirectly, 100% of the common
securities, provided that certain successors may succeed to our
ownership of the common securities;
o as holder of the common securities, not to voluntarily terminate,
windup or liquidate the ^ trust, other than:
(a) in connection with a distribution of junior subordinated
debentures to the holders of the preferred securities in
liquidation of the ^ trust; or
(b) in connection with certain mergers, consolidations or
amalgamations permitted by the trust agreement; and
o to use reasonable efforts, consistent with the terms and
provisions of the trust agreement, to cause the ^ trust to
continue not to be taxable as a corporation for United States
federal income tax purposes.
Modification of Indenture
From time to time, we and the debenture trustee may, without the consent of
any of the holders of the outstanding junior subordinated debentures, amend,
waive or supplement the provisions of the indenture to:
o evidence our succession to another corporation or association and
the assumption by that corporation or association of our
obligations under the junior subordinated debentures;
o add further covenants, restrictions or conditions for the
protection of holders of the junior subordinated debentures;
o cure ambiguities or correct the junior subordinated debentures in
the case of defects or inconsistencies in the provisions thereof,
so long as any cure or correction does not adversely affect the
interest of the holders of the junior subordinated debentures in
any material respect;
o change the terms of the junior subordinated debentures to
facilitate the issuance of the junior subordinated debentures in
certificated or other definitive form;
o evidence or provide for the appointment of a successor debenture
trustee; or
o qualify, or maintain the qualification of, the indenture under
the Trust Indenture Act.
93
<PAGE>
We and the debenture trustee, with the consent of the holders of not less
than a majority in principal amount of the junior subordinated debentures, may
modify the indenture in a manner affecting the rights of the holders of the
junior subordinated debentures. However, the consent of all holders of junior
subordinated debenture is required to:
o change the stated maturity of, or any installment of interest on,
the junior subordinated debentures, or reduce the principal
amount thereof, the rate of interest thereon or any premium
payable upon the redemption thereof, or change the place of
payment where, or the currency in which, any such amount is
payable, or impair the right to institute suit for the
enforcement of any payment on junior subordinated debentures; or
o reduce the percentage of principal amount of junior subordinated
debentures which would be required to consent to any modification
of, or waiver of rights under, the indenture.
Furthermore, so long as any of the preferred securities remain outstanding,
no modification may be made that adversely affects you in any material respect,
and no termination of the indenture may occur, and no waiver of any event of
default or compliance with any covenant under the indenture may be effective,
without the prior consent of the holders of at least a majority of the aggregate
liquidation amount of the outstanding preferred securities unless and until the
principal of (and premium, if any, on) the junior subordinated debentures and
all accrued and unpaid interest thereon have been paid in full and certain other
conditions are satisfied.
Debenture Events of Default
Any one or more of the following described events with respect to the
junior subordinated debentures that has occurred and is continuing is an "event
of default" with respect to the junior subordinated debentures:
o failure to pay any interest on the junior subordinated debentures
when due and continuance of this default for a period of 30 days
(subject to the deferral of any due date in the case of an
extension period); or
o failure to pay any principal of or premium, if any, on the junior
subordinated debentures when due; or
o failure to observe or perform certain other covenants contained
in the indenture for 90 days after written notice of such failure
to us from the debenture trustee or the holders of at least 25%
in aggregate outstanding principal amount of the outstanding
junior subordinated debentures; or
o the occurrence of the appointment of a receiver or other similar
official in any liquidation, insolvency or similar proceeding
with respect to us or all or substantially all of our property;
or a court or other governmental agency shall enter a decree or
order appointing a receiver or similar official and such decree
or order shall remain unstayed and undischarged for a period of
60 days.
94
<PAGE>
As described in "Description of Preferred Securities -- Events of Default;
Notice," the occurrence of an event of default in respect of the junior
subordinated debentures will also constitute an event of default in respect of
the preferred securities.
The holders of at least a majority in aggregate principal amount of
outstanding junior subordinated debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
debenture trustee. The debenture trustee or the holders of not less than 25% in
aggregate principal amount of outstanding junior subordinated debentures may
declare the principal due and payable immediately upon a event of default, and,
should the debenture trustee or such holders of junior subordinated debentures
fail to make such declaration, the holders of at least 25% in aggregate
liquidation amount of the outstanding preferred securities shall have such
right. The holders of a majority in aggregate principal amount of outstanding
junior subordinated debentures may annul such declaration and waive the default
if all defaults (other than the non-payment of the principal of junior
subordinated debentures which has become due solely by such acceleration) have
been cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
debenture trustee. Should the holders of junior subordinated debentures fail to
annul such declaration and waive such default, the holders of a majority in
aggregate liquidation amount of the outstanding preferred securities shall have
such right.
The holders of at least a majority in aggregate principal amount of the
outstanding junior subordinated debentures affected thereby may, on behalf of
the holders of all the junior subordinated debentures, waive any past default,
except a default in the payment of principal (or premium, if any) or interest
(unless this default has been cured and a sum sufficient to pay all matured
installments of interest and principal (and premium on, if any) due otherwise
than by acceleration has been deposited with the debenture trustee) or a default
in respect of a covenant or provision which under the indenture cannot be
modified or amended without the consent of the holder of each outstanding junior
subordinated debenture affected by the default. See "-- Modification of Junior
Subordinated Indenture." We are required to give an annual certificate to the
debenture trustee declaring whether or not we are in compliance with all the
conditions and covenants applicable to us under the indenture.
If an event of default occurs and is continuing, the property trustee will
have the right to declare the principal of and the interest on the junior
subordinated debentures, and any other amounts payable under the indenture, to
be due and payable and to enforce its other rights as a creditor with respect to
the junior subordinated debentures.
Enforcement Rights by Holders of Preferred Securities
If an event of default on the junior subordinated debentures has occurred
and is continuing because of our failure to pay interest or principal on the
junior subordinated debentures when due, you may institute a legal action
against us for enforcement of payment to you of the principal of or interest on
the junior subordinated debentures in an amount equal to the aggregate
liquidation amount of the preferred securities you hold. We may not amend the
indenture to remove your right to bring this direct legal action without your
prior written consent. We will have the right under the indenture to set-off any
payment we make to you in connection with such a legal action.
95
<PAGE>
You will not be able to exercise directly any remedies available to the
holders of the junior subordinated debentures except as described in the
preceding paragraph. See "Description of Preferred Securities -- Events of
Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
We may not consolidate with or merge into any other entity or convey,
transfer or lease our properties and assets substantially as an entirety to any
entity, and no entity may consolidate with or merge into us or convey, transfer
or lease its properties and assets substantially as an entirety to us, unless:
o the successor entity is organized under the laws of the United States
or any state or the District of Columbia, and such successor entity
expressly assumes our obligations in respect of the junior
subordinated debentures; provided, however, that nothing in the
indenture shall be deemed to restrict or prohibit, and no supplemental
indenture shall be required in the case of the merger of a bank (as
defined below) with and into a bank or us, the consolidation of banks
into a bank or us, or the sale or other disposition of all or
substantially all of the assets of any bank to another bank or us, if,
in any such case in which we are not the surviving, resulting or
acquiring entity, we would own, directly or indirectly, at least 80%
of the voting securities of the bank (and of any other bank any voting
securities of which are owned, directly indirectly, by such bank)
surviving such merger, resulting from such consolidation or acquiring
such assets;
o immediately after giving effect thereto, no event of default with
respect to the junior subordinated debentures, and no event which,
after notice or lapse of time or both, would constitute an event of
default with respect to the junior subordinated debentures, has
occurred and is continuing; and
o certain other conditions as prescribed in the indenture are satisfied.
For purposes of the first bullet point above, the term "bank" means each
of:
o any banking subsidiary of ours the consolidated assets of which
constitute 20% or more of our consolidated assets and our consolidated
subsidiaries;
o any other banking subsidiary designated as a bank pursuant to a board
resolution and set forth in an officers' certificate delivered to the
trustee; and
o any subsidiary of ours that owns, directly or indirectly, any voting
securities, or options, warrants or rights to subscribe for or
purchase voting securities, of any bank under the first and second
bullet points above and in the case of all three bullet points their
respective successors (whether by consolidation, merger, conversion,
transfer of substantially all their assets and business or otherwise)
so long as any such successor is a banking subsidiary (in the case of
the first and second bullet point) or a subsidiary (in the case of the
third bullet point) of ours.
96
<PAGE>
The provisions of the indenture do not give holders of the junior
subordinated debentures protection if we are involved in a highly leveraged or
other transaction that may adversely affect holders of the junior subordinated
debentures.
Satisfaction and Discharge
The indenture will cease to be of further effect and we will deemed to have
satisfied and discharged the indenture when:
o all junior subordinated debentures not previously delivered to the
debenture trustee for cancellation (1) have become due and payable, or
(2) will become due and payable at the stated maturity within one
year;
o we deposit or cause to be deposited with the debenture trustee funds,
in trust, for the purpose and in an amount sufficient to pay and
discharge the entire indebtedness on the junior subordinated
debentures not previously delivered to the debenture trustee for
cancellation, for the principal (and premium, if any) and interest to
the date of the deposit or to the stated maturity or redemption date;
and
o we have paid all other sums payable by us under the indenture and we
have delivered applicable certificates and opinions affirming our
compliance with all of our obligations.
Subordination
The junior subordinated debentures will be subordinate and junior in right
of payment, to the extent set forth in the indenture, to all of our senior
indebtedness (as defined below). We may not make payment of principal, including
redemption payments, or interest on the junior subordinated debentures if:
o any amount due on our senior indebtedness is not paid when due and the
default has not been cured or waived; or
o the maturity of any of our senior indebtedness has been accelerated
because of a default and the acceleration has not been rescinded.
As used herein, "senior indebtedness" means, whether recourse is to all or
a portion of our assets and whether or not contingent:
o every obligation of ours for money borrowed;
o every obligation of ours evidenced by bonds, debentures, notes or
other similar instrument, including obligations incurred in connection
with the acquisition of property, assets or businesses;
o every reimbursement obligation of ours with respect to letters of
credit, bankers' acceptance or similar facilities issued for our
account;
97
<PAGE>
o every obligation of ours issued or assumed as the deferred purchase
price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business);
o every capital lease obligation of ours;
o every obligation of ours for claims (as defined in Section 101(4) of
the United States Bankruptcy Code of 1978, as amended) in respect of
derivative products such as interest foreign exchange rate contracts,
commodity contracts and similar arrangements; and
o every obligation of the type referred to above of another person and
all dividends of another person the payment of which, in either case,
we have guaranteed or are responsible or liable, directly or
indirectly, as obligor or otherwise.
However, senior indebtedness shall not include any of the following:
o any obligations which, by their terms, are expressly stated to rank
equally in right of payment with, to not be superior in right of
payment to, the junior subordinated debentures;
o any of our senior indebtedness which when incurred and without respect
to any election under Section 1111(b) of the United States Bankruptcy
Code of 1978, as amended, was without recourse to us;
o any indebtedness of ours to any of our subsidiaries;
o indebtedness to executive officers or directors, or
o any indebtedness in respect of debt securities issued to any trust, or
a trustee of such trust, partnership or other entity affiliated with
us that is a financing entity of ours in connection with the issuance
by such financing entity of securities that are similar to the
preferred securities.
As of ^ September 30, 1999, ^ our senior indebtedness was approximately ^
$_____ million, excluding ^ $_____ million of deposits. All senior indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) must first be paid in full before any payment or distribution,
whether in cash, securities or other property, can be made on the junior
subordinated debentures in the event of:
o certain events of bankruptcy, dissolution or liquidation of us or
another holder of the common securities;
o any proceeding for our liquidation, dissolution or other winding up,
voluntary or involuntary, whether or not involving insolvency or
bankrupt proceedings;
o any assignment by us for the benefit of creditors; or
98
<PAGE>
o any other marshaling of our assets.
In that event, any payment or distribution on account of the junior
subordinated debentures, whether in cash, securities or other property, that
would otherwise (but for the subordination provisions) be payable or deliverable
in respect of the junior subordinated debentures will be paid directly to the
holders of senior indebtedness in accordance with the priorities then existing
until all senior indebtedness (including any interest thereon accruing after the
commencement of any such proceedings) has been paid in full.
In the event of any proceeding described above, after payment in full of
all sums owed on our senior indebtedness, the holders of junior subordinated
debentures, together with the holders of our obligations that rank equal with
the junior subordinated debentures, will be entitled to be paid from our
remaining assets. This payment will be made before any payment or other
distribution, whether in cash, property or otherwise, will be made on account of
any capital stock or obligations ranking junior to the junior subordinated
debentures and such other obligations. If payment or distribution on account of
the junior subordinated debentures of any character or security, whether in
cash, securities or other property, is received by any holder of any junior
subordinated debentures in contravention of the procedures described above, such
payment or distribution or security will be received in trust for the benefit
of, and must be paid over or delivered and transferred to, the holders of our
senior indebtedness to the extent necessary to pay all such senior indebtedness
in full.
The subordination of the junior subordinated debentures will not prevent
the occurrence of any event of default on the junior subordinated debentures.
The indenture places no limitation on the amount of additional senior
indebtedness that we may incur. We expect from time to time to incur additional
senior indebtedness.
Information Concerning the Debenture Trustee
The debenture trustee, outside of the occurrence and continuation of a
default in the performance of our obligations under the junior subordinated
debentures, is under no obligation to exercise any of the powers vested in it at
the request of any holder of junior subordinated debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
that it might incur. The debenture trustee is not required to expend or risk its
own funds or otherwise incur personal financial liability in the performance of
its duties if the debenture trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it.
Bankers Trust Company, the debenture trustee, may serve from time to time
as trustee under other indentures or trust agreements with us or our
subsidiaries relating to other issues of our securities. In addition, we as well
as certain of our affiliates may have other banking relationships with Bankers
Trust Company and its affiliates.
Governing Law
The indenture and the junior subordinated debentures will be governed by
and construed in accordance with the laws of the State of New York.
99
<PAGE>
DESCRIPTION OF GUARANTEE
We will execute and deliver the guarantee in connection with the issuance
of preferred securities by the ^ trust for your benefit. Bankers Trust Company
will act as guarantee trustee under the guarantee. The following summary of ^
the material provisions of the guarantee ^. You should read the form of the
guarantee, which is filed as an exhibit to the registration statement of which
this prospectus is a part. A copy of the form of guarantee is available upon
request from the guarantee trustee.
General
We will irrevocably agree to pay in full on a subordinated basis, to the
extent set forth in the guarantee, the guarantee payments, as described below,
to you, as and when due, regardless of any defense, right of set-off or
counterclaim that the ^ trust may have or assert other than the defense of
payment. The following payments with respect to the preferred securities, to the
extent not paid by or on behalf of the ^ trust, will be subject to the
guarantee:
o any accrued and unpaid distributions required to be paid on such
preferred securities, to the extent that the ^ trust has funds on hand
available therefor at such time;
o the redemption price with respect to any preferred securities called
for redemption, to the extent that the ^ trust has funds on hand
available for its payment at such time; and
o upon a voluntary or involuntary dissolution, termination, winding up
or liquidation of the ^ trust (unless the junior subordinated
debentures are distributed to you), the lessor of:
(a) the aggregate of the liquidation amount and all accumulated and
unpaid distributions to the date of payment, to the extent that
the ^ trust has funds on hand available for their payment; and
(b) the amount of assets of the ^ trust remaining available for
distribution to you on liquidation of the ^ trust.
Our obligation to make a guarantee payment may be satisfied by our direct
payment to you or by causing the ^ trust to pay these amounts to you.
The guarantee will be an irrevocable guarantee of payment on a subordinated
basis of the ^ trust's obligations under the preferred securities, but will
apply only to the extent that the ^ trust has funds sufficient to make such
payments, and is not a guarantee of collection.
If we do not make payments on the junior subordinated debentures held by
the ^ trust, the ^ trust will not be able to pay any amounts payable in respect
of the preferred securities and will not have funds legally available for these
payments. The guarantee will rank subordinate and junior in right of payment to
all of our senior indebtedness. See " -- Status of the Guarantee." The guarantee
does not limit our ability to incur or issue other secured or unsecured debt,
including senior indebtedness, whether under the indenture or any other
indenture that we may enter into in the future or otherwise.
100
<PAGE>
Status of the Guarantee
The guarantee will constitute our unsecured obligation and will rank
subordinate and junior in right of payment to all of our senior indebtedness in
the same manner as the junior subordinated debentures.
The guarantee will constitute a guarantee of payment and not of collection.
This means that the guarantee trustee may institute a legal proceeding directly
against us as the guarantor to enforce its rights under the guarantee without
first instituting a legal proceeding against any other person or entity. The
guarantee will not be discharged except by payment of the guarantee payments in
full to the extent not paid by the ^ trust or distribution of the junior
subordinated debentures to the holders of the preferred securities.
Amendments and Assignment
Except for changes which do not materially adversely affect your rights (in
which case no consent will be required), the guarantee may not be amended
without the prior approval of the holders of a majority of the aggregate
liquidation amount of the outstanding preferred securities. The manner of
obtaining any such approval is set forth under "Description of Preferred
Securities -- Voting Rights; Amendment of Trust Agreement." All guarantees and
agreements contained in the guarantee shall bind our successors, assigns,
receivers, trustees and representatives and shall inure to your benefit.
Events of Default
An event of default under the guarantee will occur if we fail to perform
any of our payment or other obligations under the guarantee, or to perform any
non-payment obligation if such non-payment default remains unremedied for 30
days. The holders of not less than a majority in aggregate liquidation amount of
the outstanding preferred securities have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the guarantee
trustee in respect of the guarantee or to direct the exercise of any trust or
power conferred upon the guarantee trustee under the guarantee.
You may institute a legal proceeding directly against us to enforce your
rights under the guarantee without first instituting a legal proceeding against
the ^ trust, the guarantee trustee or any other person or entity.
We are required, as guarantor, to give an annual certificate to the
guarantee trustee declaring whether or not we are in compliance with all the
conditions and covenants applicable to us under the guarantee.
Information Concerning the Guarantee Trustee
The guarantee trustee, other than during the occurrence and continuance of
a default by us in performance of the guarantee, undertakes to perform only such
duties as are specifically set forth in the guarantee and, after the occurrence
of an event of default with respect to the guarantee, must exercise the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the guarantee
trustee is under no obligation to exercise any of the
101
<PAGE>
powers vested in it at your request, unless it is offered reasonable indemnity
by such holder against the costs, expenses and liabilities that it might incur.
For information concerning our relationship with Bankers Trust Company, as
guarantee trustee, see "Description of Junior Subordinated Debentures
- --Information Concerning the Debenture Trustee.
Termination of the Guarantee
The guarantee will terminate and be of no further force and effect upon
full payment of the redemption price of the preferred securities, upon full
payment of the amounts payable with respect to the preferred securities upon
liquidation of the ^ trust, or upon distribution of junior subordinated
debentures to you and the other holders of the preferred securities in exchange
for all of the preferred securities. The guarantee will continue to be effective
or will be reinstated, as the case may be, if at any time you must restore
payment of any sums paid to you under the preferred securities or the guarantee.
Governing Law
The guarantee will be governed by and construed in accordance with the laws
of the State of New York.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES, AND THE GUARANTEE
Full and Unconditional Guarantee
We have irrevocably guaranteed, on a subordinate basis all of the ^ trust's
obligations under the preferred securities to the extent set forth under
"Description of Guarantee." Taken together, our obligations under the junior
subordinated debentures, the indenture, the trust agreement and the guarantee
provide, in the aggregate, a full, irrevocable and unconditional guarantee of
payments of distributions and other amounts due on the preferred securities. No
single document standing alone or operating in conjunction with fewer than all
the other documents constitutes the guarantee. Only the combined operation of
these documents has the effect of providing a full, irrevocable and
unconditional guarantee of the ^ trust's obligations in respect of the preferred
securities.
If and to the extent that we do not make payments on the junior
subordinated debentures, the ^ trust will not have sufficient funds to pay
distributions or other amounts due on the preferred securities. The guarantee
does not cover payment of amounts payable with respect to the preferred
securities when the ^ trust does not have sufficient funds to pay such amounts.
In that event, your remedy is to institute a legal proceeding directly against
us for enforcement of our payment obligations under the junior subordinated
debentures having a principal amount equal to the liquidation amount of the
preferred securities you hold. See "Description of Junior Subordinated Debenture
- -- Enforcement Rights by Holders of Preferred Securities."
Our obligations under the junior subordinated debentures and the guarantee
are subordinate and junior in right of payment to all senior indebtedness.
102
<PAGE>
Sufficiency of Payments
As long as we make the payments on the junior subordinated debentures when
they are due, the ^ trust should have funds sufficient to cover distributions
and other payments distributable on the preferred securities, primarily because:
o the aggregate principal amount of the junior subordinated
debentures will be equal to the sum of the aggregate stated
liquidation amount of the preferred securities and common
securities;
o the interest rate and interest and other payment dates on the
junior subordinated debentures will match the distribution rate,
distribution dates and other payment dates for the preferred
securities;
o we will pay any and all costs, expenses and liabilities of the ^
trust except the ^ trust's obligations to you and the holders of
the common securities; and
o the trust agreement further provides that the ^ trust will not
engage in any activity that is not consistent with the limited
purposes of the ^ trust.
Notwithstanding anything to the contrary in the indenture, we have the
right to set-off any payment we are otherwise required to make thereunder
against and to the extent we have previously made, or are concurrently on the
date of such payment making, a payment under the guarantee.
Enforcement Rights of Holders of Preferred Securities
You may institute a legal proceeding directly against us to enforce your
rights under the guarantee without first instituting a legal proceeding against
the guarantee trustee, the ^ trust or any other person or entity. See
"Description of Guarantee."
A default or event of default under any of our senior indebtedness would
not constitute a default or event of default in respect of the preferred
securities. However, in the event of payment defaults under, or acceleration of
our senior indebtedness, the subordination provisions of the indenture provide
that no payments may be made in respect of the junior subordinated debentures
until such senior indebtedness has been paid in full or any payment default on
senior indebtedness has been cured or waived. See "Description of Junior
Subordinated Debentures -- Subordination."
Limited Purpose of Trust
The preferred securities represent preferred undivided beneficial interests
in the assets of the ^ trust, and the ^ trust exists for the sole purpose of
issuing the preferred securities and common securities and investing the
proceeds from their issuance in the junior subordinated debentures. A principal
difference between your rights as a holder of preferred securities and a holder
of a junior subordinated debenture is that a holder of a junior subordinated
debenture is entitled to receive from us payments on junior subordinated
debentures held, while you are entitled to receive distributions or other
amounts
103
<PAGE>
distributable with respect to the preferred securities from the ^ trust (or from
us under the Guarantee) only if and to the extent the ^ trust has funds
available for the payment of such distributions.
Rights Upon Dissolution
Upon any voluntary or involuntary dissolution of the ^ trust, other than
any such dissolution involving the distribution of the junior subordinated
debentures, after satisfaction of liabilities to creditors of the ^ trust as
required by applicable law, you will be entitled to receive, out of assets held
by the ^ trust, the liquidation distribution in cash. See "Description of
Preferred Securities -- Liquidation Distribution Upon Dissolution." If we are
voluntarily or involuntarily liquidated or declare bankruptcy, the ^ trust, as
registered holder of the junior subordinated debentures, will be our
subordinated creditor, subordinated and junior in right of payment to all our
senior indebtedness as set forth in the indenture, but entitled to receive
payment in full of all amounts payable with respect to the junior subordinated
debentures before any of our stockholders receive payments or distributions.
Since we are the guarantor under the guarantee and have agreed under the
indenture to pay all costs, expenses and liabilities of the ^ trust (other than
the ^ trust's obligations to you and the holders of the common securities), your
position as a holder of the preferred securities and the position of a holder of
such junior subordinated debentures relative to other creditors and to our
stockholders in the event of our liquidation or bankruptcy are expected to be
substantially the same.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
General
In the opinion of Malizia Spidi & Fisch, PC, Washington, D.C., in its
capacity as our special tax counsel ("Tax Counsel"), the following accurately
describes the United States federal income tax consequences that may be relevant
to the purchase, ownership and disposition of the preferred securities by
beneficial owners ("Owners").
The preferred securities and payments on the preferred securities generally
are subject to taxation. Therefore, you should consider the tax consequences of
owning and receiving payments on the preferred securities as they specifically
relate to you before acquiring them.
^
The following discussion is general and may not apply to your particular
circumstances for any of the following (or other) reasons:
o This ^ discussion is based on federal tax laws in effect as of
the date of this prospectus which are all subject to change at
any time. Changes to any of these laws may be applied
retroactively which may cause the tax consequences to become
substantially different from the consequences described below.
o This ^ discussion only refers to preferred securities you acquire
at original issuance at the original offering price and hold as
capital assets (within the meaning of federal tax law). ^ We do
not discuss all of the tax consequences that may be relevant to
Owners who are
104
<PAGE>
subject to special rules, such as banks, thrift institutions,
real estate investment trusts, regulated investment companies,
insurance companies, brokers and dealers in securities or
currencies, certain securities traders, tax-exempt organizations
and certain other financial institutions. This discussion also
does not discuss tax consequences that may be relevant to an
Owner in light of the Owner's particular circumstances, such as
an Owner holding a preferred security as a position in a
straddle, hedging, conversion or other integrated investment.
o This ^ discussion does not address:
(a) The income tax consequences to stockholders in, partners of,
or beneficiaries of, a holder of preferred securities;
(b) the United States alternative minimum tax consequences of
purchasing, owning and disposing of preferred securities; or
(c) any state, local or foreign tax consequences of purchasing,
owning, holding or disposing of preferred securities.
The authorities on which this ^ discussion is based are subject to various
interpretations, and the opinions of Tax Counsel are not binding on the Internal
Revenue Service (the "IRS") or the courts, either of which could take a contrary
position. Moreover, no rulings have been or will be sought from the IRS with
respect to the transaction described herein. Accordingly, we cannot assure you
that the IRS will not challenge the opinion expressed herein or that a court
would not rule in favor of the IRS.
You must consult your own tax advisors regarding the tax consequences to
you of purchasing, owning, holding, or disposing of the preferred securities
because the following discussion may not apply to you.
U.S. Holders
In General. For purposes of the following discussion, a "U.S. Holder"
means:
o a citizen or individual resident of the United States;
o a corporation or partnership created or organized in or under the laws
of the United States or any political subdivision thereof;
o an estate the income of which is includible in its gross income for
U.S. federal income tax purposes without regard to its source; or
o a trust if a court within the United States is able to exercise
primary supervision over its administration and at least one United
States person has the authority to control all substantial decisions
of the trust.
Characterization of the Trust. Under current law and assuming compliance
with the terms of the trust agreement, the ^ trust will be characterized for
United States federal income tax purposes as a grantor trust. Accordingly, for
United States federal income tax purposes, if you, as a U.S. Holder, purchase a
preferred security you will be considered the owner of an undivided interest in
the junior
105
<PAGE>
subordinated debentures owned by the ^ trust, and you will be required to
include all income or gain recognized for United States federal income tax
purposes with respect to your share of the junior subordinated debentures on
your income tax return.
Characterization of the Junior Subordinated Debentures. We intend to take
the position that, under current law, the junior subordinated debentures are our
debt for United States federal income tax purposes. We, along with the ^ trust
and you (by acceptance of a beneficial interest in a preferred security) agree
to treat the junior subordinated debentures as debt of First Star Bancorp and
the preferred securities as evidence of a beneficial ownership interest in the ^
trust. We cannot assure you, however, that our position will not be challenged
by the IRS or, if challenged, that a challenge will not be successful. Tax
Counsel has not given us an opinion as to whether the junior subordinated
debentures will be classified as our debt for U.S. federal income tax purposes.
The remainder of this discussion assumes that the junior subordinated debentures
will be classified as our debt for United States federal income tax purposes.
Interest Income and Original Issue Discount. Under the terms of the junior
subordinated debentures, we have the ability to defer payments of interest from
time to time by extending the interest payment period for a period not exceeding
20 consecutive quarterly periods, but not beyond the maturity of the junior
subordinated debentures. Treasury Regulations provide that debt instruments like
the junior subordinated debentures will not be considered issued with original
issue discount ("OID") even if their issuer can defer payments of interest if
the likelihood of any deferral is "remote."
We have concluded, and this discussion assumes, that, as of the date of
this prospectus, the likelihood of our deferring payments of interest is
"remote" within the meaning of the applicable Treasury regulations. Our
conclusion is based in part on the fact that exercising that option would
prevent us from declaring dividends on our preferred and common stock and would
prevent us from making any payments with respect to debt securities that rank
equally with or junior to the junior subordinated debentures. Therefore, the
junior subordinated debentures should not be treated as issued with OID by
reason of our deferral option. Rather, you will be taxed on stated interest on
the junior subordinated debentures when it is paid or accrued in accordance with
your method of accounting for income tax purposes. You should note, however,
that no published rulings or any other published authorities of the IRS have
addressed this issue and that Tax Counsel has not given us an opinion as to
whether the junior subordinated debentures will be treated as issued with OID.
Accordingly, it is possible that the IRS could take a position contrary to our
interpretation described herein.
If we exercise our option to defer payments of interest, the junior
subordinated debentures would be treated as redeemed and reissued for OID
purposes. The sum of the remaining interest payments (and any insignificant OID)
on the junior subordinated debentures would thereafter be treated as OID. The
OID would accrue, and be includible in your taxable income, on an economic
accrual basis (regardless of your method of accounting for income tax purposes)
over the remaining term of the junior subordinated debentures (including any
period of interest deferral), without regard to the timing of payments under the
junior subordinated debentures. Subsequent distributions of interest on the
junior subordinated debentures generally would not be taxable. The amount of OID
that would accrue in any period would generally equal the amount of interest
that accrued on the junior subordinated debentures in that period at the stated
interest rate. Consequently, during any period of interest deferral, you will
include OID in gross income in advance of the receipt of cash, and if you
dispose of a preferred security prior to the record date for
106
<PAGE>
payment of distributions on the junior subordinated debentures following that
period, you will be subject to income tax on OID accrued through the date of
disposition (and not previously included in income), but you will not receive
cash from the ^ trust with respect to the OID.
Characterization of Income. Because the income underlying the preferred
securities will not be characterized as dividends for income tax purposes, if
you are a corporate holder of the preferred securities you will not be entitled
to a dividends-received deduction for any income you recognize with respect to
the preferred securities.
^
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of the
Trust. Under certain circumstances described above (See "Description of the
Preferred Securities -- Liquidation Distribution Upon Dissolution"), the ^ trust
may distribute the junior subordinated debentures to you in exchange for your
preferred securities and in liquidation of the ^ trust. Except as discussed
below, such a distribution would not be a taxable event for United States
federal income tax purposes, and you would have an aggregate adjusted basis in
the junior subordinated debentures you receive for United States federal income
tax purposes equal to your aggregate adjusted basis in your preferred
securities. For United States federal income tax purposes, your holding period
in the junior subordinated debentures you receive in such a liquidation of the ^
trust would include the period during which you held the preferred securities.
If, however, the relevant event is a Tax Event that results in the ^ trust being
treated as an association taxable as a corporation, the distribution would
likely constitute a taxable event to you for United States federal income tax
purposes.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), we may redeem junior subordinated debentures for cash
and distribute the proceeds of such redemption to you in redemption of your
preferred securities. Such a redemption would be taxable for United States
federal income tax purposes, and you would recognize gain or loss as if you had
sold the preferred securities for cash. See "-- Sales of Preferred Securities"
below.
Sales of Preferred Securities. If you sell preferred securities, you will
generally recognize gain or loss equal to the difference between your adjusted
basis in the preferred securities and the amount realized on the sale of such
preferred securities. Your adjusted basis in the preferred securities generally
will be the initial purchase price, increased by OID previously included (or
currently includible) in your gross income to the date of disposition, and
decreased by payments received on the preferred securities (other than any
interest received with respect to the period prior to the effective date we
first exercise our option to defer payments of interest). Any such gain or loss
generally will be capital gain or loss, and generally will be a long-term
capital gain or loss if you have held the preferred securities as a capital
asset for more than one year prior to the date of disposition.
If you dispose of your preferred securities between record dates for
payments of distributions thereon, you will be required to include accrued but
unpaid interest (or OID) on the junior subordinated debentures through the date
of disposition in your taxable income for United States federal income tax
purposes (notwithstanding that you may receive a separate payment from the
purchaser with respect to accrued interest). You may deduct that amount from the
sales proceeds received (including the separate payment, if any, with respect to
accrued interest) for the preferred securities (or as to OID only, to add
107
<PAGE>
such amount to your adjusted tax basis in the preferred securities). To the
extent the selling price is less than your adjusted tax basis (which will
include accrued but unpaid OID if any), you will recognize a capital loss.
Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
^ Tax Litigation ^ Regarding the Preferred Securities
In 1998, ^ Enron Corp. filed a petition in the United States Tax Court
contesting the IRS's disallowance of interest deductions that ^ Enron Corp.
claimed in respect of securities issued in 1993 and 1994 that are, in some
respects, similar to the preferred securities. (Enron Corp. v. Commissioner,
Docket No. 6149-98, filed April 1, 1998). ^ The Enron Corp. case was settled on
October 1, 1999. The settlement allowed Enron Corp.'s interest deductions
related to the securities issued in 1993 and 1994. The Enron Corp. settlement
may not be relied upon by any other taxpayers and as a result the IRS may still
choose to disallow interest deductions related to the preferred securities. An
IRS disallowance of interest deductions related to the preferred securities may
cause a Tax Event^, which would give us the right to redeem the junior
subordinated debentures. See "Description of Junior Subordinated Debentures --
Redemption" and "Description of Preferred Securities -- Liquidation Distribution
Upon Dissolution."
Non-U.S. Holders
The following discussion applies to you if you are not a U.S. Holder as
described above.
Payments to you, as a non-U.S. Holder, on a preferred security will
generally not be subject to withholding of income tax, provided that:
o you did not (directly or indirectly, actually or constructively) own
10% or more of the total combined voting power of all classes of our
stock entitled to vote;
o you are not a controlled foreign corporation that is related to us
through stock ownership; and
o either (a) you certify to the ^ trust or its agent under penalties of
perjury, that you are not a U.S. Holder and provide your name and
address, or (b) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary
course of its trade or business, and holds the preferred security in
such capacity, certifies to the ^ trust or its agent, under penalties
of perjury, that it requires and has received such a statement from
you or another financial institution between it and you in the chain
of ownership, and furnishes the ^ trust or its agent with a copy of
the statement.
As discussed above, it is possible that changes in the law affecting the
federal income tax consequences of the junior subordinated debentures could
adversely affect our ability to deduct interest payable on the junior
subordinated debentures. Changes in the law could also cause the junior
subordinated debentures to be classified as our equity (rather than our debt)
for United States federal income tax purposes. This might cause the income
derived from the junior subordinated debentures to be characterized as
dividends, generally subject to a 30% income tax (on a withholding basis) when
paid to you if you are not a U.S. Holder, rather than as interest which, as
discussed above, generally is exempt
108
<PAGE>
from income tax in the hands of a person who is not a U.S. Holder. However,
according to new Treasury Regulations that become effective January 1, 2001, the
30% income tax withholding may not be required if certain requirements are met.
A non-U.S. Holder will generally not be subject to withholding of income
tax on any gain realized upon the sale or other disposition of a preferred
security.
If you hold the preferred securities in connection with the active conduct
of a United States trade or business, you will generally be subject to income
tax on all income and gains recognized with respect to your proportionate share
of the junior subordinated debentures.
Information Reporting
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, the preferred securities held by a
noncorporate U.S. Holder within the United States. In addition, payments made
on, and payments of the proceeds from the sale of, the preferred securities to
or through the United States office of a broker are subject to information
reporting unless you certify as to your non-U.S. Holder status or otherwise
establish an exemption from information reporting and backup withholding. See
"--Backup Withholding." Taxable income on the preferred securities for a
calendar year should be reported to U.S. Holders on the appropriate forms by the
following January 31st.
Backup Withholding
Payments made on, and proceeds from the sale of, the preferred securities
may be subject to a "backup" withholding tax of 31% unless you comply with
certain identification or exemption requirements. Any amounts withheld will
generally be allowed as a credit against your income tax liability, or refunded,
provided the required information is provided to the IRS.
The preceding discussion is only a summary and does not address the
consequences to particular person of the purchase, ownership and disposition of
the preferred securities. You must contact your own tax advisor to determine
your particular tax consequences.
ERISA CONSIDERATIONS
^ With respect to individual retirement accounts ("IRAs") and employee
benefit plans that are subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA") ^, we may be considered a "party in interest" within
the meaning of ERISA or a "disqualified person" within the meaning of Section
4975 of the Code ^. If we are considered to be a party in interest or a
disqualified person, an employee benefit plan or IRA that ^ purchases the
preferred securities ^ could be subject to excise taxes and, in the case of an
IRA, could be disqualified. Any pension or other employee benefit plan,
fiduciary or IRA holder^ that wishes to purchase the preferred securities ^
should consult with legal counsel.
109
<PAGE>
UNDERWRITING
Payment Method
The subscription price for the preferred securities, equal to $10.00 per
preferred security, must be paid by wire transfer or by check payable to "First
Star Capital Trust" upon execution of the Subscription Agreement. Wire transfer
instructions are set forth in the Subscription Agreement.
Termination of the Offering
The trust is offering, pursuant ^ to the terms ^ of the Agency Agreement,
preferred securities up to an aggregate liquidation amount of $12,000,000. This
offering is not contingent upon the sale of a minimum amount of preferred
securities. Hopper Soliday, ^ as placement agent, is acting as the trust's agent
in placing the preferred securities ^ on a best-efforts basis. The offering ^
will terminate on the earlier of (i) the acceptance by us of subscriptions for
the preferred securities ^, which acceptance may be for less than the full
$12,000,000 of preferred securities offered, or (ii) , 1999 or such later date
on or before December 31, 1999 to which we and the trust may extend the offering
without further notice to the investors. We may also terminate the offering at
any time in our discretion without accepting any subscriptions. Upon the sale of
the securities offered hereby, proceeds will be released to the trust and
preferred securities will be issued to investors.
Closing Procedure
Two business days prior to the termination date of the offering, a notice
of termination date will be transmitted to each subscriber via facsimile.
Payment for the preferred securities must be received by the escrow agent by
2:00 P.M., E.S.T. on the business day prior to the termination date.
Confirmation of receipt of payment will be transmitted promptly via facsimile to
each subscriber. The termination date will also be considered the issuance date
of the preferred securities and interest on the preferred securities will start
accruing on such date.
Escrow Arrangement
Pending any closing, all funds relating to subscriptions for preferred
securities will be placed in an escrow account with Bankers Trust, as escrow
agent. Upon issuance of the preferred securities, all funds relating to
subscriptions for preferred securities (other than escrow interest on such funds
as described below) will be transferred to the trust.
If an investor's subscription is not accepted or if the offering is not
consummated for any reason, any funds held in escrow will be returned to
investors. Funds held in escrow will be deposited in money market accounts,
short term certificates of deposit or short term certificates issued or
guaranteed by the United States government. Earnings, if any, generated on funds
returned to investors from the escrow account will be distributed to such
investors on a pro rata basis according to the respective number of days between
the time of deposit of their payments into escrow and the return of such
payments. Such earnings, if any, will be paid promptly following such return.
All other earnings generated on funds in escrow will be distributed to us.
110
<PAGE>
Compensation of Placement Agent
In view of the fact that proceeds from the sale of the preferred securities
will be used by the trust to purchase subordinated debentures issued by us, we
will pay sales commissions to Hopper Soliday, as placement agent equal to 3.5%
of the offering price of all preferred securities sold in the offering (equal to
$0.35 per preferred security) or $420,000 in the aggregate if all $12,000,000 of
preferred securities offered hereby are sold. We have also agreed to pay a
financial advisory fee of $25,000 to Hopper Soliday as compensation for the cost
of due diligence and pricing advice.
Relationship with the Placement Agent
Pursuant to an Agency Agreement among us, the trust and Hopper Soliday,
as placement agent, we and the trust have agreed to indemnify Hopper Soliday
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
^^
Hopper Soliday may in the future perform various services for us,
including investment banking services, for which it may receive customary fees.
LEGAL AND TAX MATTERS
The validity of the Guarantee and the Junior Subordinated Debentures and ^
the tax ^ opinion will be passed upon by Malizia Spidi & Fisch, PC, Washington,
D.C., counsel to First Star Bancorp. Certain legal matters for Hopper Soliday, a
division of Tucker Anthony Incorporated, will be passed upon by Stevens & Lee,
PC, Reading, Pennsylvania. ^ The validity of the preferred securities, the
enforceability of the ^ trust agreement and the creation of the ^ trust, as each
of these issues relates to Delaware law, will be passed upon by Richards, Layton
& Finger, P.A.,Wilmington, Delaware, special Delaware counsel to First Star
Bancorp and the ^ trust. Malizia Spidi & Fisch, PC and Stevens & Lee, PC will
rely ^ on the opinion of Richards, Layton & Finger as to those matters of
Delaware law relating to the validity of the preferred securities, the
enforceability of the trust agreement and the creation of trust.
EXPERTS
The consolidated financial statements of First Star Bancorp, Inc. and
subsidiaries as of June 30, 1999 and 1998 and for each of the ^ three years in
the period ended June 30, 1999, appearing in this prospectus have been audited
by Beard & Company, Inc., independent auditors, as set forth in their report
thereon which appears elsewhere, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
CHANGE IN INDEPENDENT AUDITORS
On March 23, 1999, our Board of Directors unanimously determined that
it would discontinue the engagement of Deloitte & Touche, LLP as our independent
auditors and determined that we would engage Beard & Company, Inc., Certified
Public Accountants, Allentown, Pennsylvania, as our auditors for the fiscal year
ending June 30, 1999. Beard & Company, Inc. was also engaged to audit our
financial statements for the fiscal ^ years ended June 30, 1998 and 1997.
111
<PAGE>
For the fiscal years ended June 30, 1998 and 1997 through March 23, 1999,
there^ were no disagreements or reportable events with Deloitte & Touche, LLP as
to any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. The report of Deloitte & Touche, LLP
on the financial statements for the fiscal ^ years ended June 30, 1998 and 1997,
the last two fiscal ^ years audited by Deloitte & Touche, LLP, did not contain
an adverse opinion or disclaimer and was not modified as to uncertainty, audit
scope or accounting principles. We have been advised by Deloitte & Touche, LLP
that they have withdrawn their reports on our 1998 and 1997 financial
statements.
REPORTS OF FIRST STAR BANCORP
We intend to file with the SEC annual reports containing our audited
consolidated financial statements and quarterly reports fo rthe first three
quarters of each fiscal year containing unaudited financial information. We will
make copies of these reports available to any holder of the preferred securities
who makes an oral or written request for such reports to the Secretary of First
Star Bancorp at our executive office. Prior to this offering, we have not been a
reporting company with the SEC.
WHERE YOU CAN ^ OBTAIN ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form ^ S-1 under the
Securities Act of 1933, as amended, with respect to the preferred securities
offered in this document. As permitted by the rules and regulations of the SEC,
this document does not contain all the information set forth in the registration
statement. Such information can be examined without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of such material can be obtained from the SEC at
prescribed rates. The address for this Web site is "http://www.sec.gov". The
statements contained in this document as to the contents of any contract or
other document filed as an exhibit to the Form ^ S-1 are, of necessity, brief
descriptions and are not necessarily complete; each such statement is qualified
by reference to such contract or document.
A copy of the articles and bylaws of each of First Star Bancorp and First
Star Savings may be obtained promptly and without charge from First Star Savings
by contacting Ruth Doncsecz, Secretary, First Star Bancorp, Inc., 418 West Broad
Street, Bethlehem, Pennsylvania 18018 at (610) 691-2333.
112
<PAGE>
First Star Bancorp, Inc.
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Page
Independent Auditor's Report ......................................................... F-1
Consolidated Balance Sheets as of June 30, 1999 and 1998 ............................. F-2
Consolidated Statements of Income for the Years Ended June 30, 1999 ^, 1998 and 1997 . F-3
Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 1999 ^, 1998 and 1997 ..................................... F-4
Consolidated Statements of Cash Flows for the Years Ended June 30, 1999,
^ 1998 and 1997 ............................................................. F-5
Notes to Consolidated Financial Statements ........................................... F-7
Unaudited Consolidated Balance Sheets as of September 30, 1999 and June 30, 1999 ..... S-1
UnauditedConsolidated Statements of Income for the Three Months Ended September
30, 1999 and 1998 ........................................................... S-2
Unaudited Consolidated Statements of Stockholders' Equity for the
Three Months Ended September 30, 1999 and 1998 .............................. S-3
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1999 and 1998 .............................. S-4
Notes to Unaudited Consolidated Financial Statements ................................. S-7
</TABLE>
All schedules are omitted because the required information is either not
applicable or is included in the consolidated financial statements or related
notes.
113
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees
First Star Bancorp, Inc.
Bethlehem, Pennsylvania
We have audited the accompanying consolidated balance sheets of
First Star Bancorp, Inc. and its subsidiaries as of June 30, 1999 and 1998, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of First
Star Bancorp, Inc. and its subsidiaries as of June 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1999 in conformity with generally accepted accounting
principles.
/s/BEARD & COMPANY, INC.
Allentown, Pennsylvania
November 12, 1999
F-1
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
June 30, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Share Data)
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,352 $ 1,222
Interest-bearing demand deposits 1,726 858
------------------------------------
Cash and cash equivalents 3,078 2,080
Securities available for sale 160,438 123,759
Loans receivable, net of allowance for loan losses
1999 $ 1,772; 1998 $ 1,489 184,264 176,386
Bank premises and equipment, net 599 687
Foreclosed real estate 969 1,129
Accrued interest receivable 2,567 2,404
Federal Home Loan Bank stock, at cost 7,935 7,378
Deferred income taxes 1,625 23
Cash surrender value of life insurance 1,710 1,583
Prepaid expenses and other assets 521 373
------------------------------------
Total assets $ 363,706 $ 315,802
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 190,148 $ 145,096
Advances from Federal Home Loan Bank 146,180 144,485
Convertible subordinated debentures 5,480 5,480
Other borrowed funds 594 647
Advances by borrowers for taxes and insurance 3,418 3,168
Accrued interest payable 801 785
Accrued expenses and other liabilities 1,609 1,028
------------------------------------
Total liabilities 348,230 300,689
------------------------------------
Stockholders' equity:
Convertible preferred stock, no par value; authorized 2,500,000
shares; issued and outstanding 43,592 shares - -
Common stock, par value $ 1 per share; authorized 10,000,000
shares; issued and outstanding 1999 375,404 shares; 1998
372,084 shares 375 372
Surplus 8,465 8,451
Retained earnings 8,300 5,777
Employee Stock Ownership Plan debt (200) (300)
Accumulated other comprehensive income (loss) (1,464) 813
------------------------------------
Total stockholders' equity 15,476 15,113
------------------------------------
Total liabilities and stockholders' equity $ 363,706 $ 315,802
====================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Years Ended June 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Interest income:
Loans receivable, including fees $ 14,358 $ 13,234 $ 11,852
Securities 10,535 7,881 4,180
Other 171 125 161
-----------------------------------------------------
Total interest income 25,064 21,240 16,193
-----------------------------------------------------
Interest expense:
Deposits 8,442 6,638 5,469
Borrowings 8,892 7,935 4,920
Other 46 37 17
-----------------------------------------------------
Total interest expense 17,380 14,610 10,406
-----------------------------------------------------
Net interest income 7,684 6,630 5,787
Provision for loan losses 423 385 220
-----------------------------------------------------
Net interest income after provision for loan losses 7,261 6,245 5,567
-----------------------------------------------------
Other income:
Service fees 316 285 226
Realized gain on sale of:
Securities 156 1,151 283
Foreclosed real estate 77 101 73
Other 247 223 138
-----------------------------------------------------
Total other income 796 1,760 720
-----------------------------------------------------
Other expenses:
Salaries and employee benefits 2,202 1,865 1,589
Occupancy and equipment 424 470 406
Federal deposit insurance premium 89 78 107
SAIF assessment - - 745
Data processing costs 173 144 113
Professional fees 204 216 212
Terminated merger costs 111 - -
Advertising 103 121 138
Other 668 688 726
-----------------------------------------------------
Total other expenses 3,974 3,582 4,036
-----------------------------------------------------
Income before income taxes 4,083 4,423 2,251
Income taxes 1,517 1,607 742
-----------------------------------------------------
Net income 2,566 2,816 1,509
Dividends on preferred stock (43) (45) (44)
-----------------------------------------------------
Net income applicable to common stockholders $ 2,523 $ 2,771 $ 1,465
=====================================================
Basic earnings per share $ 6.90 $ 7.68 $ 4.00
=====================================================
Diluted earnings per share $ 3.76 $ 4.15 $ 2.53
=====================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended June 30, 1999, 1998 and 1997 (In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Employee Accumulated
Stock Other
Preferred Common Retained Ownership Comprehensive
Stock Stock Surplus Earnings Plan Debt Income (Loss) Total
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1996 $ - $ 258 $ 3,061 $ 7,117 $ - $ 134 $ 10,570
-------------
Comprehensive income:
Net income - - - 1,509 - - 1,509
Change in net unrealized
gains (losses) on
securities available
for sale - - - - - 421 421
-------------
Total comprehensive
income 1,930
-------------
Issuance of ESOP debt - - - - (400) - (400)
Cash dividends paid:
Preferred stock - - - (44) - - (44)
Common stock - - - (41) - - (41)
----------------------------------------------------------------------------------------------------
Balance, June 30, 1997 - 258 3,061 8,541 (400) 555 12,015
-------------
Comprehensive income:
Net income - - - 2,816 - - 2,816
Change in net unrealized
gains (losses) on
securities available
for sale - - - - - 258 258
-------------
Total comprehensive
income 3,074
-------------
Stock dividends - 114 5,390 (5,504) - - -
Repayment of ESOP debt - - - - 100 - 100
Cash dividends paid:
Preferred stock - - - (45) - - (45)
Common stock - - - (31) - - (31)
----------------------------------------------------------------------------------------------------
Balance, June 30, 1998 - 372 8,451 5,777 (300) 813 15,113
-------------
Comprehensive income:
Net income - - - 2,566 - - 2,566
Change in net unrealized
gains (losses) on
securities available
for sale - - - - - (2,277) (2,277)
-------------
Total comprehensive
income 289
-------------
Exercise of stock options - 3 14 - - - 17
Repayment of ESOP debt - - - - 100 - 100
Cash dividends paid on
preferred stock - - - (43) - - (43)
----------------------------------------------------------------------------------------------------
Balance, June 30, 1999 $ - $ 375 $ 8,465 $ 8,300 $ (200) $ (1,464) $ 15,476
====================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Years Ended June 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,566 $ 2,816 $ 1,509
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 423 385 220
Provision for depreciation and amortization 130 110 152
Net gain on foreclosed real estate (77) (101) (73)
Net realized gains on sales of securities (156) (1,151) (283)
Net accretion of securities premiums and discounts (865) (696) (122)
Deferred income taxes (189) 35 (35)
Change in assets and liabilities:
(Increase) decrease in:
Accrued interest receivable (163) 272 (1,256)
Prepaid expenses and other assets (148) (122) 145
Increase in:
Accrued expenses and other liabilities 581 68 (21)
Accrued interest payable 16 125 387
--------------------------------------------------
Net cash provided by operating activities 2,118 1,741 623
--------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale (84,872) (84,680) (101,538)
Proceeds from sale of securities available for sale 12,034 37,271 15,517
Proceeds from maturities of and principal repayments on
securities available for sale 37,518 36,204 8,466
Net increase in Federal Home Loan Bank stock (557) (408) (4,441)
Proceeds from the sale of foreclosed real estate 942 1,236 2,017
Net (increase) in loans (13,034) (34,758) (7,263)
Purchases of bank premises and equipment (42) (69) (229)
(Increase) decrease in cash surrender value of life insurance
policies (127) 197 (143)
--------------------------------------------------
Net cash used in investing activities (48,138) (45,007) (87,614)
--------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 45,052 26,434 4,396
Issuance of ESOP debt - - (400)
Repayment of ESOP debt 100 100 -
Proceeds from Federal Home Loan Bank advances 63,654 159,788 313,893
Repayment of Federal Home Loan Bank advances (61,959) (144,703) (235,065)
Proceeds from the issuance subordinated debentures - - 4,000
Repayment of other borrowed money (53) (25) (82)
Increase in advances from borrowers for taxes and insurance 250 518 (36)
Proceeds from the exercise of stock options 17 - -
Dividends paid (43) (76) (85)
--------------------------------------------------
Net cash provided by financing activities 47,018 42,036 86,621
--------------------------------------------------
Net increase (decrease) in cash and cash equivalents 998 (1,230) (370)
Cash and cash equivalents:
Beginning 2,080 3,310 3,680
--------------------------------------------------
Ending $ 3,078 $ 2,080 $ 3,310
==================================================
</TABLE>
F-5
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Years Ended June 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest on deposits, advances and other borrowed money $ 17,364 $ 14,485 $ 10,019
==============================================
Income taxes $ 1,079 $ 1,721 $ 653
==============================================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Loans swapped for mortgage-backed securities $ 4,028 $ 7,034 $ -
==============================================
Transfer of loans to foreclosed real estate $ 705 $ 1,497 $ 2,452
==============================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES
Nature of operations:
First Star Bancorp, Inc. (the "Company") is the parent holding
company and sole stockholder of First Star Savings Bank (the
"Bank"). The Bank is a Pennsylvania chartered stock savings bank
which provides lending and depository services to the Lehigh
Valley through its six branch locations (Bethlehem, Bath, Palmer,
Nazareth, Allentown and Alburtis). The Bank is supervised and
regulated by the Pennsylvania Department of Banking and the
Federal Deposit Insurance Corporation ("FDIC"). The Bank's
deposits are insured by the FDIC.
Principles of consolidation:
The consolidated financial statements of the Company include the
accounts of the Bank and Integrated Financial Corporation,
wholly-owned subsidiaries of the Company, and Integrated Abstract
Incorporated, a wholly-owned subsidiary of Integrated Financial
Corporation. All intercompany transactions and balances have been
eliminated in consolidation.
Estimates:
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Presentation of cash flows:
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and interest bearing
demand deposits.
Securities:
Securities classified as available for sale are those securities
that the Company intends to hold for an indefinite period of time
but not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various
factors, including significant movement in interest rates, changes
in maturity mix of the Company's assets and liabilities, liquidity
needs, regulatory capital considerations and other similar
factors. Securities available for sale are carried at fair value.
Unrealized gains or losses are reported as increases or decreases
in other comprehensive income, net of the related deferred tax
effect. Realized gains or losses, determined on the basis of the
cost of the specific securities sold, are included in earnings.
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
F-7
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Securities (continued):
Management determines the appropriate classification of debt
securities at the time of purchase and re-evaluates such
designation as of each balance sheet date.
Federal law requires a member institution of the Federal Home Loan
Bank System to hold stock of its district Federal Home Loan Bank
according to a predetermined formula. The stock is carried at
cost.
Loans receivable:
Loans receivable that management has the intent and ability to
hold for the foreseeable future or until maturity or payoff are
stated at their outstanding unpaid principal balances, net of an
allowance for loan losses and any deferred fees. Interest income
is accrued on the unpaid principal balance. Loan origination fees
are deferred and recognized as an adjustment of the yield
(interest income) of the related loans. The Company is generally
amortizing these amounts over the contractual life of the loan.
A loan is generally considered impaired when it is probable the
Company will be unable to collect all contractual principal and
interest payments due in accordance with the terms of the loan
agreement. Loans which are deemed to be impaired are reported at
the present value of expected future cash flows using the loans
effective interest rate, or as a practical expedient, at the fair
value of the collateral if the loan is collateral dependent.
The accrual of interest is generally discontinued when the
contractual payment of principal or interest has become 90 days
past due or management has serious doubts about further
collectibility of principal or interest, even though the loan is
currently performing. A loan may remain on accrual status if it is
in the process of collection and is either guaranteed or well
secured. When a loan is placed on nonaccrual status, unpaid
interest credited to income in the current year is reversed and
unpaid interest accrued in prior years is charged against the
allowance for loan losses. Interest received on nonaccrual loans
generally is either applied against principal or reported as
interest income, according to management's judgment as to the
collectibility of principal. Generally, loans are restored to
accrual status when the obligation is brought current, has
performed in accordance with the contractual terms for a
reasonable period of time and the ultimate collectibility of the
total contractual principal and interest is no longer in doubt.
F-8
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Allowance for loan losses:
The allowance for loan losses is established through provisions
for loan losses charged against income. Loans deemed to be
uncollectible are charged against the allowance for loan losses,
and subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is maintained at a level considered
adequate to provide for losses that can be reasonably anticipated.
Management's periodic evaluation of the adequacy of the allowance
is based on the Company's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may
affect the borrower's ability to repay, the estimated value of any
underlying collateral, composition of the loan portfolio, current
economic conditions and other relevant factors. This evaluation is
inherently subjective as it requires material estimates that may
be susceptible to significant change.
Bank premises and equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line method
over the assets' estimated useful lives.
Cash surrender value of life insurance:
The Bank is the beneficiary of insurance policies on the lives of
certain officers of the Bank.
Foreclosed real estate:
Foreclosed real estate is comprised of property acquired through a
foreclosure proceeding or acceptance of a deed-in-lieu of
foreclosure. Foreclosed assets initially are recorded at fair
value, net of estimated selling costs, at the date of foreclosure,
establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the assets are carried at
the lower of cost or fair value minus estimated costs to sell.
Revenues and expenses from operations and changes in the valuation
allowance are included in other expenses.
Advertising costs:
The Company follows the policy of charging the costs of
advertising to expense as incurred.
F-9
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes:
Deferred income taxes are provided on the liability method whereby
deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities
and their tax basis. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more
likely than not that some portion of the deferred tax assets will
not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of
enactment.
Off-balance sheet financial instruments:
In the ordinary course of business, the Company has entered into
off-balance sheet financial instruments consisting of commitments
to extend credit and letters of credit. Such financial instruments
are recorded in the balance sheet when they are funded.
Earnings per common share:
Basic earnings per share represents income available to common
stockholders divided by the weighted-average number of common
shares outstanding during the period, excluding unearned ESOP
shares. Diluted earnings per share reflects additional common
shares that would have been outstanding if dilutive potential
common shares had been issued, as well as any adjustment to income
that would result from the assumed issuance. Potential common
shares that may be issued by the Company relate to convertible
subordinated debentures, convertible preferred stock and
outstanding stock options. Potential common shares that may be
issued related to stock options are determined using the treasury
stock method. Per share amounts have been adjusted to give
retroactive effect to stock dividends declared in the year ended
June 30, 1998.
Segment reporting:
The Company acts as an independent community financial services
provider, and offers traditional banking and related financial
services to individual, business and government customers. Through
its branch and automated teller machine network, the Bank offers a
full array of commercial and retail financial services, including
the taking of time, savings and demand deposits; the making of
commercial, consumer and mortgage loans; and the providing of
other financial services.
Management does not separately allocate expenses, including the
cost of funding loan demand, between the commercial and retail
operations of the Company. As such, discrete financial information
is not available and segment reporting would not be meaningful.
Reclassifications:
Certain amounts in prior period financial statements have been
reclassified to conform with the presentation used in the 1999
financial statements. These reclassifications had no effect on net
income.
F-10
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New accounting standard:
The Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging
Activities", in June 1998. The Company is required to adopt the
Statement on July 1, 2001, as amended by Statement No. 137. The
adoption of the Statement is not expected to have a significant
impact on the financial condition or results of operations of the
Company.
2
- --------------------------------------------------------------------------------
SECURITIES
The amortized cost and approximate fair value of securities available
for sale as of June 30, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities:
June 30, 1999:
U.S. Government
corporations and
agencies securities $ 5,530 $ 17 $ (197) $ 5,350
State and municipal
securities 936 - (12) 924
Mortgage-backed securities 81,816 440 (1,039) 81,217
Corporate securities 27,345 81 (974) 26,452
Trust preferred securities 42,075 172 (978) 41,269
Marketable equity securities 5,217 138 (129) 5,226
-----------------------------------------------------------------
$ 162,919 $ 848 $ (3,329) $ 160,438
=================================================================
</TABLE>
F-11
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
- --------------------------------------------------------------------------------
SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities:
June 30, 1998:
U.S. Government
corporations and
agencies securities $ 15,710 $ 137 $ (84) $ 15,763
State and municipal
securities 15 - - 15
Mortgage-backed securities 75,067 980 (12) 76,035
Corporate securities 10,427 161 (224) 10,364
Trust preferred securities 19,826 - - 19,826
Marketable equity securities 1,505 251 - 1,756
-----------------------------------------------------------------
$ 122,550 $ 1,529 $ (320) $ 123,759
=================================================================
</TABLE>
The amortized cost and fair value of securities as of June 30, 1999, by
contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because the securities may be called or
prepaid with or without any penalties.
<TABLE>
<CAPTION>
Available For Sale
----------------------------------
Amortized Fair
Cost Value
----------------------------------
(In Thousands)
<S> <C> <C>
Due in one year or less $ 2,368 $ 2,365
Due after one year through five years 16,049 15,464
Due after five years through ten years 11,196 10,839
Due after ten years 46,273 45,327
----------------------------------
75,886 73,995
Mortgage-backed securities 81,816 81,217
Marketable equity securities 5,217 5,226
----------------------------------
$ 162,919 $ 160,438
==================================
</TABLE>
F-12
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
- --------------------------------------------------------------------------------
SECURITIES (CONTINUED)
Gross gains of $ 156,000 and gross losses of $ -0- were realized on
sales of securities in the year ended June 30, 1999. Gross gains of $
1,151,000 and gross losses of $ -0- were realized on sales of
securities in the year ended June 30, 1998. Gross gains of $ 283,000
and gross losses of $ -0- were realized on sales of securities in the
year ended June 30, 1997.
Securities with a carrying value of $ 33,633,000 at June 30, 1999
were pledged to secure advances from the Federal Home Loan Bank.
3
- --------------------------------------------------------------------------------
LOANS RECEIVABLE
The composition of net loans receivable at June 30, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------
(In Thousands)
<S> <C> <C>
First mortgage residential loans $ 153,089 $ 149,286
Construction loans 800 110
Commercial leases purchased 813 1,496
Consumer loans 656 728
Home equity loans 7,059 7,905
Automobile loans 301 329
Commercial real estate loans 25,344 19,360
------------------------------------
Total loans 188,062 179,214
------------------------------------
Less:
Loans in process (605) (66)
Unearned net loan fees and origination costs (1,421) (1,273)
Allowance for loan losses (1,772) (1,489)
------------------------------------
(3,798) (2,828)
------------------------------------
Net loans $ 184,264 $ 176,386
====================================
</TABLE>
F-13
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
- --------------------------------------------------------------------------------
LOANS RECEIVABLE (CONTINUED)
The following table presents changes in the allowance for loan losses
for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Balance, beginning $ 1,489 $ 1,156 $ 1,014
Provision for loan losses 423 385 220
Charge-offs (143) (57) (82)
Recoveries 3 5 4
-----------------------------------------------
Balance, ending $ 1,772 $ 1,489 $ 1,156
===============================================
</TABLE>
At June 30, 1999, 1998 and 1997, as a result of loan sales and swaps,
the Bank was servicing loans for others amounting to approximately $
31,584,000, $ 33,802,000 and $ 33,974,000, respectively. Servicing
loans for others generally consists of collecting mortgage payments,
maintaining escrow accounts, disbursing payments to investors and
foreclosure processing. Loan servicing income is recorded on the
accrual basis and includes servicing fees from investors and certain
charges collected from borrowers, such as late payment fees. Custodial
escrow balances maintained in connection with the foregoing loan
servicing and included in advances by borrowers for taxes and insurance
were approximately $ 578,000 and $ 602,000 at June 30, 1999 and 1998,
respectively.
Nonperforming loans (which include loans in excess of 90 days
delinquent) at June 30, 1999, 1998 and 1997 amounted to approximately $
2,289,000, $ 3,415,000 and $ 4,163,000, respectively. The reserve for
delinquent interest on loans totaled $ 217,000, $ 320,000 and $ 313,000
at June 30, 1999, 1998 and 1997, respectively. Revenue that would have
been earned if nonperforming loans were accruing interest approximated
$ 116,000, $ 217,000 and $ 177,000 for the years ended June 30, 1999,
1998 and 1997, respectively. None of these loans at June 30, 1999, 1998
and 1997 are considered impaired.
F-14
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
- --------------------------------------------------------------------------------
BANK PREMISES AND EQUIPMENT
The components of bank premises and equipment at June 30, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------
(In Thousands)
<S> <C> <C>
Land and buildings $ 963 $ 961
Furniture, fixtures and equipment 1,379 1,339
Leasehold improvements 241 241
-------------------------------
2,583 2,541
Less accumulated depreciation 1,984 1,854
-------------------------------
$ 599 $ 687
===============================
</TABLE>
5
- --------------------------------------------------------------------------------
DEPOSITS
Deposits and their respective effective rate of interest at June
30, 1999 and 1998 consist of the following major classifications:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------------------------
Effective Effective
Rate Of Rate Of
Amount Percent Interest Amount Percent Interest
----------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing checking $ 1,871 1.0 % - % $ 1,524 1.0 % - %
NOW accounts 14,089 7.4 2.37 12,691 8.8 2.12
Money market accounts 19,592 10.3 4.41 15,352 10.6 4.22
Passbook and club accounts 11,566 6.1 2.73 11,468 7.9 2.72
Certificates of deposit 143,030 75.2 5.34 104,061 71.7 5.83
------------------------------- -----------------------------
Total deposits $ 190,148 100.0 % $ 145,096 100.0 %
=============================== =============================
Weighted average cost 4.81 % 5.05 %
================== ================
</TABLE>
The aggregate amount of certificates of deposit with a minimum
denomination of $ 100,000 was approximately $ 18,484,000 and $
15,840,000 at June 30, 1999 and 1998, respectively.
At June 30, 1999 and 1998, the Bank had included in certificates of
deposit approximately $ 1,318,000 and $ 689,000, respectively, in
brokered deposits.
F-15
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
- --------------------------------------------------------------------------------
DEPOSITS (CONTINUED)
The scheduled maturities of certificates of deposit for fiscal years
subsequent to June 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Amount Percent
-----------------------------------
<S> <C> <C> <C>
2000 $ 110,168 77.0 %
2001 21,818 15.3
2002 3,439 2.4
2003 - 2004 6,791 4.7
Thereafter 814 0.6
-----------------------------------
$ 143,030 100.0 %
===================================
</TABLE>
A summary of interest expense on deposits is as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
1999 1998 1997
------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
NOW $ 320 $ 311 $ 267
Money market demand 788 572 420
Passbook and club 306 283 278
Certificates of deposit 7,028 5,472 4,504
------------------------------------------------
$ 8,442 $ 6,638 $ 5,469
================================================
</TABLE>
F-16
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
- --------------------------------------------------------------------------------
OTHER BORROWED FUNDS AND LONG-TERM DEBT
Federal Home Loan Bank advances at June 30, 1999 and 1998 consist of
short-term and long-term borrowings. The following table provides
information on short-term borrowings for the years ended June 30, 1999
and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------------------
<S> <C> <C>
Average balance outstanding $ 5,367 $ 9,625
Maximum balance at end of any month 20,000 18,000
Balance outstanding at end of year 11,000 11,000
Weighted average interest rate during the year 5.58 % 5.92 %
Interest rate at end of year 5.11 % 5.91 %
</TABLE>
Long-term advances at June 30, 1999 and 1998 consist of the following
(in thousands):
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------
Maturity Amount Rate Amount Rate
------------------------------ ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0-12 months $ 7,325 5.90 % $ 16,936 5.64 %
13-24 months 6,000 5.93 7,328 5.90
25-36 months 42,500 5.79 6,000 5.93
37-48 months 45,000 5.70 42,500 5.79
49-60 months 12,000 5.19 45,000 5.68
Over 60 months 22,355 6.03 15,721 6.44
-------------------- --------------------
Total $ 135,180 5.76 % $ 133,485 5.82 %
=====================================================================
</TABLE>
Included in above are three convertible notes which total $ 42,500,000
where the Federal Home Loan Bank has the option to convert the notes at
a rate equal to the three month libor plus .03 on a quarterly basis.
Also, included is a $ 30,000,000 convertible note where the Federal
Home Loan Bank has the option to convert to a three-month libor rate
plus .03 if the three-month libor exceeds 6.5%. If converted, the Bank
may prepay these notes without penalty.
The advances are secured by qualifying assets of the Bank which
includes the Federal Home Loan Bank stock, mortgage-backed securities
and first mortgage loans. The Bank has a maximum borrowing capacity
with the Federal Home Loan Bank of approximately $ 202,200,000, of
which $ 146,180,000 was outstanding at June 30, 1999.
F-17
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
- --------------------------------------------------------------------------------
SUBORDINATED DEBENTURES
During the year ended June 30, 1992, the Bank issued $ 1,590,000 of
Adjustable-Rate Mandatorily Convertible Subordinated Debentures due in
the year 2002 (the "Debentures"). At the formation of the holding
company, the Debentures were assumed by the Company. Interest on the
Debentures is 2% over the prime rate, adjustable monthly. Interest is
payable on the Debentures on the first day of each month. The
Debentures will automatically convert into Permanent Noncumulative
Convertible Preferred Stock, Series A ("Series A Preferred Stock" (see
Note 11)) of the Company on January 1, 2002, unless previously
converted. The Debentures may be converted into Series A Preferred
Stock at any time, at the option of either the Company or the holder of
the Debenture, unless previously redeemed, at a conversion price of one
share per $ 9.864 principal amount of Debenture subject to adjustment
in certain events. During the year ended June 30, 1992, $ 110,000 of
the Debentures were converted to the Series A Preferred Stock.
The Debentures are redeemable in whole or in part, on not less than 30
days' notice at the option of the Company at par. The Debentures are
subordinated in right of payment to all present and future Senior
Indebtedness of the Company.
On December 31, 1996, the Company sold $ 4,000,000 of Adjustable-Rate
Mandatorily Convertible Subordinated Debentures due in the year 2008
(the "1996 Debentures"). Interest on the 1996 Debentures is 1% under
the prime rate, adjustable monthly. Interest is payable on the 1996
Debentures on the first day of each month. The 1996 Debentures will
automatically convert into Permanent Noncumulative Convertible
Preferred Stock, Series B ("Series B Preferred Stock") of the Company
on December 31, 2008, unless previously converted. The 1996 Debentures
may be converted into Series B Preferred Stock at any time by the
holder or after two years by the Company, unless previously redeemed,
at a conversion price of one share per $ 24.281 principal amount of
1996 Debenture subject to adjustment in certain events.
The 1996 Debentures are redeemable at par value prior to maturity by
the Company only with the proceeds from the sale of common or perpetual
preferred stock, unless otherwise approved by the Board of Governors of
the Federal Reserve System. The 1996 Debentures are subordinated in
right of payment to all present and future Senior Indebtedness of the
Company.
F-18
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
- --------------------------------------------------------------------------------
SUBORDINATED DEBENTURES (CONTINUED)
At June 30, 1999 and 1998, $ 1,480,000 of the 1992 Debentures and $
4,000,000 of the 1996 Debentures remain outstanding. Substantially all
of the subordinated debentures are held by related parties which
includes directors, executive officers, principal stockholders, their
immediate families and affiliated companies.
All debentures are includable as Tier 2 capital for determining the
Company's compliance with regulatory capital requirements (see Note
19). Upon conversion, the Debentures become Tier 1 capital.
8
- --------------------------------------------------------------------------------
OTHER BORROWED MONEY
On December 31, 1987, the Bank entered into an agreement to transfer $
2,016,000 of loans with a weighted average interest rate of 8.07% to
another institution subject to certain recourse provisions. At June 30,
1999 and 1998, these loans had outstanding balances of $ 594,000 and $
647,000, respectively. The Bank is responsible for the collection of
principal and interest payments, for which it receives a servicing fee,
and remits the net proceeds to the transferee on a monthly basis. The
Bank is contingently liable for the collection of these loans and their
collectibility has been considered in the determination of the
provision for loan losses.
9
- --------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS)
The Bank adopted SFAS No. 130, "Reporting Comprehensive Income", as of
July 1, 1998. Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net income. Although
certain changes in assets and liabilities, such as unrealized gains and
losses on available for sale securities, are reported as a separate
component of the equity section of the balance sheet, such items, along
with net income, are components of comprehensive income. The adoption
of SFAS No. 130 had no effect on the Bank's net income or stockholders'
equity.
F-19
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9
- --------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) (CONTINUED)
The components of other comprehensive income (loss) and related tax
effects for the years ended June 30, 1999, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Unrealized holding gains (losses) on available for
sale securities $ (3,534) $ 1,541 $ 898
Less reclassification adjustment for gains included
in net income 156 1,151 283
--------------------------------------------------
Net unrealized gains (losses) (3,690) 390 615
Tax effect (1,413) 132 194
--------------------------------------------------
Net of tax amount $ (2,277) $ 258 $ 421
==================================================
</TABLE>
10
- --------------------------------------------------------------------------------
STOCK OPTION PLANS
The Company grants options under the Employee Stock Compensation
Program (the "Program") to certain officers and key employees. The
Program has reserved 34,662 shares of common stock for options. Options
granted under the Program are exercisable for a term no longer than 10
years from the date of grant, are generally not transferable and will
terminate within a period of time following termination of employment
with the Company.
A summary of options activity, adjusted for stock dividends, for the
years ended June 30, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Exercise Price
----------------------------------------------
$ 9.47 $ 5.37 Total
----------------------------------------------
<S> <C> <C> <C>
Options outstanding, June 30, 1996, 1997 and 1998 3,744 25,146 28,890
Options exercised - (3,319) (3,319)
----------------------------------------------
Options outstanding, June 30, 1999 3,744 21,827 25,571
==============================================
</TABLE>
All options were exercisable at June 30, 1999, 1998 and 1997. The
weighted average contractual life of stock options outstanding as of
June 30, 1999 is 2.3 years. The weighted average exercise price as of
June 30, 1999 is $ 5.97.
F-20
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
- --------------------------------------------------------------------------------
ISSUANCE OF PREFERRED STOCK
In December 1989, the Company issued 32,440 shares, of Permanent
Noncumulative Preferred Stock, Series A, for $ 9.864 per share pursuant
to the restated articles of incorporation of the Company, as adjusted
for stock dividends. During the year ended June 30, 1992, an additional
11,152 shares, as adjusted for stock dividends, of Series A Preferred
Stock were issued upon the conversion of subordinated debentures. Each
share of Preferred Stock is convertible into 1 share of common stock of
the Company subject to the limitations of the Company's restated
articles of incorporation. The dividend pay rate for Series A Preferred
Stock is 2% over the prime rate adjusted monthly. The dividend pay rate
for Series B Preferred Stock is 1% under the prime rate, adjusted
monthly.
12
- --------------------------------------------------------------------------------
LEASE COMMITMENTS AND TOTAL RENTAL EXPENSE
The Bank leases office space for certain branch offices. Future minimum
lease payments by year and in the aggregate, under noncancellable
operating leases with initial or remaining terms of one year or more,
consisted of the following at June 30, 1999 (in thousands):
2000 $ 72
2001 66
2002 48
2003 48
2004 48
Thereafter 192
---------------
$ 474
===============
The total rental expense included in the statements of income for the
years ended June 30, 1999, 1998 and 1997 is $72,000, $71,000 and
$70,000, respectively.
F-21
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13
- --------------------------------------------------------------------------------
EMPLOYEE BENEFIT PLANS
The Bank has an Employee Stock Ownership Plan ("ESOP") which covers all
employees who have met certain eligibility requirements. The Plan
requires the Bank to make a 15% contribution annually based on eligible
participants' compensation. The Bank's contribution to the ESOP was $
172,000, $ 152,000 and $ 149,000 for the years ended June 30, 1999,
1998 and 1997, respectively.
The ESOP borrowed $ 400,000 on December 31, 1996 from the Company. The
debt, which has a balance of $ 200,000 and $ 300,000 at June 30, 1999
and 1998, respectively, accrues interest at prime plus 1% and is due on
July 1, 2000. As of June 30, 1999 and 1998, the ESOP held 47,429 and
47,417 shares of the Company's common stock and $ 525,000 of the
Company's subordinated debentures due December 31, 2008 as described in
Note 7. In the event a terminated Plan participant desires to sell
their shares of the Bank's stock, or for certain employees who elect to
diversify their account balances, the Company may be required to
purchase the shares from the participant at their fair market value.
The loan obligation of the ESOP is considered unearned employee benefit
expense and, as such, is recorded as a reduction of the Company's
stockholders' equity. The Bank's contribution to the ESOP is used to
repay the loan principal and interest.
The Bank has a 401(k) savings plan (the "401(k) Plan") for all
qualified employees. Employees can contribute up to 5% of their
compensation and the Company provides discretionary matching
contributions. The Company's contribution to the 401(k) Plan was $
9,000, $ 12,000 and $ 7,000 for the years ended June 30, 1999, 1998 and
1997, respectively.
F-22
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
- --------------------------------------------------------------------------------
INCOME TAXES
The components of income tax expense for the years ended June 30, 1999,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Federal:
Current $ 1,429 $ 1,240 $ 600
Deferred (189) 35 (35)
----------------------------------------------
1,240 1,275 565
State, current 277 332 177
----------------------------------------------
$ 1,517 $ 1,607 $ 742
==============================================
</TABLE>
The provision for income taxes includes $ 64,000, $ 472,000 and $
116,000 in 1999, 1998 and 1997, respectively, of income taxes related
to gains on sales of securities.
A reconciliation of the statutory income tax at a rate of 34% to the
income tax expense included in the statements of income is as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
1999 1998 1997
-------------------------------------------------------------
% Of % Of % Of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
-------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate $ 1,388 34.0 % $ 1,504 34.0 % $ 765 34.0 %
State income taxes (net of
federal tax benefit) 183 4.5 219 5.0 117 5.2
Other (54) (1.3) (116) (2.7) (140) (6.3)
-------------------------------------------------------------
$ 1,517 37.2 % $ 1,607 36.3 % $ 742 32.9 %
==============================================================
</TABLE>
F-23
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
- --------------------------------------------------------------------------------
INCOME TAXES (CONTINUED)
The net deferred tax asset consisted of the following components as of
June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-----------------------------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Bank premises and equipment $ 57 $ 54
Deferred loan fees 160 216
Deferred compensation 104 79
Allowance for loan losses 357 210
Unrealized losses on securities available for sale 1,017 -
-----------------------------
1,695 559
-----------------------------
Deferred tax liabilities:
Unrealized gains on securities available for sale - (396)
Other (70) (140)
-----------------------------
(70) (536)
-----------------------------
Net deferred tax asset $ 1,625 $ 23
=============================
</TABLE>
Retained earnings include $ 636,000 at June 30, 1999 and 1998, for
which no provision for federal income tax has been made. These amounts
represent deductions for bad debt reserves for tax purposes which were
only allowed to savings institutions which met certain definitional
tests prescribed by the Internal Revenue Code of 1986, as amended. The
Small Business Job Protection Act of 1996 eliminates the special bad
debt deduction granted solely to thrifts. Under the terms of the Act,
there would be no recapture of the pre-1988 (base year) reserves.
However, these pre-1988 reserves would be subject to recapture under
the rules of the Internal Revenue Code if the Bank itself pays a cash
dividend in excess of earnings and profits, or liquidates. The Act
also provides for the recapture of deductions arising from "applicable
excess reserve" defined as the total amount of reserve over the base
year reserve. The Bank's total reserve exceeds the base year reserve
and deferred taxes have been provided for this excess.
F-24
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
- --------------------------------------------------------------------------------
EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Year Ended June 30, 1999
----------------------------------------------------
Per
Income Shares Share
(Numerator) (Denominator) Amount
----------------------------------------------------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Basic earnings per share:
Net income applicable to common
stockholders $ 2,523 365,904 $ 6.90
===============
Effect of dilutive securities:
Stock options - 24,282
Convertible preferred stock 43 43,592
Convertible subordinated debentures 252 314,772
--------------------------------------
Diluted earnings per share:
Net income applicable to common stock-
holders and assumed conversions $ 2,818 748,550 $ 3.76
====================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1998
----------------------------------------------------
Per
Income Shares Share
(Numerator) (Denominator) Amount
----------------------------------------------------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Basic earnings per share:
Net income applicable to common
stockholders $ 2,771 360,656 $ 7.68
===============
Effect of dilutive securities:
Stock options - 24,733
Convertible preferred stock 45 43,592
Convertible subordinated debentures 268 314,772
--------------------------------------
Diluted earnings per share:
Net income applicable to common stock-
holders and assumed conversions $ 3,084 743,753 $ 4.15
====================================================
</TABLE>
F-25
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
- --------------------------------------------------------------------------------
EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Year Ended June 30, 1997
----------------------------------------------------
Per
Income Shares Share
(Numerator) (Denominator) Amount
----------------------------------------------------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Basic earnings per share:
Net income applicable to common
stockholders $ 1,465 366,371 $ 4.00
===============
Effect of dilutive securities:
Stock options - 24,020
Convertible preferred stock 44 43,592
Convertible subordinated debentures 178 232,404
--------------------------------------
Diluted earnings per share:
Net income applicable to common stock-
holders and assumed conversions $ 1,687 666,387 $ 2.53
====================================================
</TABLE>
16
- --------------------------------------------------------------------------------
TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL
STOCKHOLDERS
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors,
executive officers, principal stockholders, their immediate families
and affiliated companies (commonly referred to as related parties), on
the same terms including interest rates and collateral, as those
prevailing at the time for comparable transactions with others. At June
30, 1999 and 1998, these persons were indebted to the Bank for loans
totaling $ 3,506,000 and $ 2,767,000, respectively. During the year
ended June 30, 1999, $ 1,298,000 of new loans were made and repayments
totaled $ 559,000.
F-26
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17
- --------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to
extend credit and letters of credit. Those instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheets.
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 letters of credit is represented by the contractual amount
of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
A summary of the Bank's financial instrument commitments at June 30,
1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------
(In Thousands)
<S> <C> <C>
Commitments to grant loans $ 6,743 $ 3,546
Unfunded commitments under lines of credit 5,357 5,671
Outstanding letters of credit 733 497
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a fee. The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on
management's credit evaluation. Collateral held varies, but includes
principally residential or commercial real estate.
Outstanding letters of credit written are conditional commitments
issued by the Bank to guarantee the performance of a customer to a
third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending other loan
commitments.
F-27
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18
- --------------------------------------------------------------------------------
CONCENTRATION OF CREDIT RISK
The Bank grants loans to customers primarily located in the eastern
part of the State of Pennsylvania. The concentration of credit by type
of loan is set forth in Note 3. Although the Bank has a diversified
loan portfolio, its debtors' ability to honor their contracts is
influenced by the region's economy. The Bank also has a concentration
in corporate bonds and both rated and unrated trust preferred
securities of financial institutions in their investment portfolio in
Note 2. To the extent general economic conditions effect financial
institutions, they may impact the credit quality of these investments.
19
- --------------------------------------------------------------------------------
REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's
consolidated 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
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
(set forth below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets, and of Tier 1 capital to average
assets. Management believes, as of June 30, 1999, that the Company
meets all capital adequacy requirements to which it is subject.
As of June 30, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. There are
no conditions or events since that notification that management
believes have changed the Bank's category.
F-28
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19
- --------------------------------------------------------------------------------
REGULATORY MATTERS (CONTINUED)
The Bank's actual capital amounts and ratios at June 30, 1999 and 1998
and the minimum amounts and ratios required for capital adequacy
purposes and to be well capitalized under the prompt corrective action
provisions are as follows:
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
----------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------
(Dollar Amounts In Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1999:
Total capital (to risk weighted assets) $ 21,522 10.18 % $ =>16,914 =>8.0 % $ =>21,143 =>10.0%
Tier I capital (to risk weighted assets) 19,750 9.34 => 8,457 =>4.0 =>12,686 => 6.0
Tier I capital (to average assets) 19,750 5.54 =>14,265 =>4.0 =>17,831 => 5.0
As of June 30, 1998:
Total capital (to risk weighted assets) $ 18,943 12.05 % $ =>12,577 =>8.0 % $ =>15,721 =>10.0%
Tier I capital (to risk weighted assets) 17,454 11.10 => 6,288 =>4.0 => 9,432 => 6.0
Tier I capital (to average assets) 17,454 5.95 =>11,740 =>4.0 =>14,675 => 5.0
</TABLE>
The Company's total risk-based capital, Tier 1 risk-based capital and
leverage capital ratios are 10.89%, 7.92% and 4.72%, respectively at
June 30, 1999 and 12.85%, 8.88% and 4.93%, respectively at June 30,
1998.
Under Pennsylvania banking law, the Bank is subject to certain
restrictions on the amount of dividends that it may declare without
prior regulatory approval. At June 30, 1999, $ 14,992,000 of retained
earnings were available for dividends without prior regulatory
approval, subject to the regulatory capital requirements discussed
above.
F-29
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20
- --------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair value of the
Company's financial instruments; however, there are inherent weaknesses
in any estimation technique. Therefore, for substantially all financial
instruments, the fair value estimates herein are not necessarily
indicative of the amounts the Company could have realized in a sales
transaction on the dates indicated. The estimated fair value amounts
have been measured as of their respective year ends, and have not been
reevaluated or updated for purposes of these financial statements
subsequent to those respective dates. As such, the estimated fair
values of these financial instruments subsequent to the respective
reporting dates may be different than the amounts reported at each year
end.
The following information should not be interpreted as an estimate of
the fair value of the entire Company since a fair value calculation is
only provided for a limited portion of the Company's assets. Due to a
wide range of valuation techniques and the degree of subjectivity used
in making the estimates, comparisons between the Company's disclosures
and those of other companies may not be meaningful. The following
methods and assumptions were used to estimate the fair values of the
Company's financial instruments at June 30, 1999 and 1998:
Cash and cash equivalents:
The carrying amounts of cash and cash equivalents approximate
their fair value.
Securities:
Fair values for securities are based on quoted market prices,
where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable
securities.
Loans receivable:
For variable-rate loans that reprice frequently and which
entail no significant changes in credit risk, fair values are
based on carrying values. The fair value of fixed rate loans
are estimated using discounted cash flow analyses, at interest
rates currently offered for loans with similar terms to
borrowers of similar credit quality.
Accrued interest receivable:
The carrying amount of accrued interest receivable
approximates fair value.
Deposit liabilities:
Fair values for demand deposits, savings accounts and certain
money market deposits are, by definition, equal to the amount
payable on demand at the reporting date. Fair values of
fixed-maturity certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates
currently being offered on similar instruments with similar
maturities.
F-30
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20
- --------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Advances from Federal Home Loan Bank, subordinated debentures and
other borrowed funds:
Fair values for these borrowings are estimated by
discounting future cash flows using interest rates currently
offered on borrowings with similar remaining maturities.
Accrued interest payable:
The carrying amount of accrued interest payable approximates
fair value.
Off-balance sheet instruments:
Fair value of commitments to extend credit and letters of
credit are estimated using the fees currently charged to enter
into similar agreements, taking into account market interest
rates, the remaining terms and present credit worthiness of
the counterparties.
The estimated fair values of the Company's financial instruments at
June 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 3,078 $ 3,078 $ 2,080 $ 2,080
Securities available for sale 160,438 160,438 123,759 123,759
Loans receivable 184,264 178,212 176,386 181,977
Federal Home Loan Bank stock 7,935 7,935 7,378 7,378
Accrued interest receivable 2,567 2,567 2,404 2,404
Liabilities:
Non-interest bearing checking 1,871 1,871 1,524 1,524
NOW accounts 14,089 14,089 12,691 12,691
Money market demand accounts 19,592 19,592 15,352 15,352
Passbook and club accounts 11,566 11,566 11,468 11,468
Certificates of deposit 143,030 144,337 104,061 104,741
Advances from Federal Home Loan Bank 146,180 142,616 144,485 145,412
Subordinated debentures 5,480 5,480 5,480 5,480
Other borrowed funds 594 594 647 647
Accrued interest payable 801 801 785 785
Off-balance sheet financial instruments - - - -
</TABLE>
F-31
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21
- --------------------------------------------------------------------------------
FIRST STAR BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION
<TABLE>
<CAPTION>
Balance Sheets
June 30,
1999 1998
-----------------------------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash on deposit in bank subsidiary $ 140 $ 14
Interest bearing deposit with another institution 23 97
Securities available for sale 1,932 1,572
Loans receivable, net 358 379
Investment in subsidiaries 18,474 18,349
Other assets 324 300
-----------------------------------
$ 21,251 $ 20,711
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued expenses and other liabilities $ 38 $ 37
Intercompany payables 257 81
Subordinated debentures 5,480 5,480
-----------------------------------
Total liabilities 5,775 5,598
STOCKHOLDERS' EQUITY 15,476 15,113
-----------------------------------
$ 21,251 $ 20,711
===================================
</TABLE>
F-32
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21
- --------------------------------------------------------------------------------
FIRST STAR BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Statements of Income
Year Ended June 30,
1999 1998 1997
----------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Income:
Dividends from bank subsidiary $ 300 $ 300 $ 300
Interest income 141 169 113
Rental income, intercompany 88 88 65
Gain on sale of securities 4 63 -
----------------------------------------------------
533 620 478
----------------------------------------------------
Expenses:
Interest 227 455 301
Other 29 27 22
----------------------------------------------------
256 482 323
----------------------------------------------------
Income before income taxes 277 138 155
Income tax expense 111 55 62
----------------------------------------------------
166 83 93
Equity in undistributed earnings of subsidiaries 2,400 2,733 1,416
----------------------------------------------------
Net income $ 2,566 $ 2,816 $ 1,509
====================================================
</TABLE>
F-33
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21
- --------------------------------------------------------------------------------
FIRST STAR BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Statements of Cash Flows
Year Ended June 30,
1999 1998 1997
----------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,566 $ 2,816 $ 1,509
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of subsidiaries (2,400) (2,733) (1,416)
Net realized gain on sale of securities (4) (63) -
Other, net 264 118 (113)
----------------------------------------------------
Net cash provided by operating activities 426 138 (20)
----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of securities available for sale 44 120 -
Purchase of securities available for sale (513) (1,460) (6)
Net (increase) decrease in loans - 1,465 (1,844)
Capital contribution to First Star Savings Bank 21 (400) (1,450)
----------------------------------------------------
Net cash used in investing activities (448) (275) (3,300)
----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of subordinated
debentures - - 4,000
Stock options exercised 17 - -
Issuance of ESOP debt - - (400)
Repayment of ESOP debt 100 100 -
Cash dividends paid (43) (76) (85)
----------------------------------------------------
Net cash provided by financing activities 74 24 3,515
----------------------------------------------------
Increase (decrease) in cash and cash equivalents 52 (113) 195
Cash and cash equivalents:
Beginning 111 224 29
----------------------------------------------------
Ending $ 163 $ 111 $ 224
====================================================
</TABLE>
F-34
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22
- --------------------------------------------------------------------------------
SAVINGS ASSOCIATION INSURANCE FUND
On September 30, 1996, an omnibus appropriation bill was enacted, which
included recapitalization of the Savings Association Insurance Fund
(SAIF). All SAIF insured depository institutions were charged a
one-time special assessment on their SAIF-assessable deposits as of
March 31, 1995 at the rate of 65.7 basis points. Accordingly, the Bank
incurred a pre-tax expense of $ 745,000 during the year ended June 30,
1997.
23
- --------------------------------------------------------------------------------
TERMINATED MERGER
On August 19, 1998, the Company and Nesquehoning Savings Bank,
Nesquehoning, Pennsylvania, signed an agreement to convert Nesquehoning
Savings Bank to a stock form of organization and simultaneously merge
it with the Bank. In 1999, the pending merger failed to obtain
regulatory approval and the merger agreement was terminated.
Accordingly, costs incurred related to the merger of $ 111,000 were
expensed in the year ended June 30, 1999.
24
- --------------------------------------------------------------------------------
CONTINGENCIES
The Company is involved in various claims and lawsuits, arising in the
normal course of business. Management believes that any financial
responsibility that may be incurred in settlement of such claims and
lawsuits would not be material to the Company's financial position.
25
- --------------------------------------------------------------------------------
SUBSEQUENT EVENT
The Company's securities available for sale portfolio includes
corporate debt securities issued by Singer Co. On September 13, 1999,
Singer Co. filed for Chapter 11 bankruptcy protection. At September 30,
1999, the Company wrote the bonds down to their estimated fair value of
$ 95,000, resulting in a reduction in net income for the quarter ended
September 30, 1999 of $ 222,000, net of income tax benefits of $
136,000.
F-35
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
September 30, June 30,
1999 1999
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Share Data)
ASSETS
<S> <C> <C>
Cash and due from banks $ 1,639 $ 1,352
Interest-bearing demand deposits 2,644 1,726
------------------------------------
Cash and cash equivalents 4,283 3,078
Securities available for sale 159,253 160,438
Loans receivable, net of allowance for loan losses
September 30, 1999 $ 1,779; June 30, 1999 $ 1,772 186,581 184,264
Bank premises and equipment, net 602 599
Foreclosed real estate 991 969
Accrued interest receivable 2,728 2,567
Federal Home Loan Bank stock, at cost 7,935 7,935
Deferred income taxes 1,998 1,625
Cash surrender value of life insurance 1,728 1,710
Prepaid expenses and other assets 393 521
------------------------------------
Total assets $ 366,492 $ 363,706
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 192,039 $ 190,148
Advances from Federal Home Loan Bank 148,997 146,180
Convertible subordinated debentures 5,480 5,480
Other borrowed funds 588 594
Advances by borrowers for taxes and insurance 1,379 3,418
Accrued interest payable 721 801
Accrued expenses and other liabilities 1,627 1,609
------------------------------------
Total liabilities 350,831 348,230
------------------------------------
Stockholders' equity:
Convertible preferred stock, no par value; authorized 2,500,000 shares;
issued and outstanding 43,592 shares - -
Common stock, par value $ 1 per share; authorized 10,000,000 shares;
issued and outstanding 375,404 shares 375 375
Surplus 8,465 8,465
Retained earnings 8,850 8,300
Employee Stock Ownership Plan debt (100) (200)
Accumulated other comprehensive income (loss) (1,929) (1,464)
------------------------------------
Total stockholders' equity 15,661 15,476
------------------------------------
Total liabilities and stockholders' equity $ 366,492 $ 363,706
====================================
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
S-1
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C>
Interest income:
Loans receivable, including fees $ 3,836 $ 3,564
Securities 2,694 2,356
Other 50 32
------------------------------------
Total interest income 6,580 5,952
------------------------------------
Interest expense:
Deposits 2,323 1,881
Borrowings 2,239 2,283
------------------------------------
Total interest expense 4,562 4,164
------------------------------------
Net interest income 2,018 1,788
Provision for loan losses 47 98
------------------------------------
Net interest income after provision for loan losses 1,971 1,690
------------------------------------
Other income:
Service fees 64 73
Write-down of investment securities (358) -
Realized gain (loss) on sale of foreclosed real estate 12 (4)
Other 65 91
------------------------------------
Total other income (loss) (217) 160
------------------------------------
Other expenses:
Salaries and employee benefits 506 572
Occupancy and equipment 106 129
Federal deposit insurance premium 28 20
Data processing costs 40 40
Professional fees 24 44
Advertising 22 29
Other 171 167
------------------------------------
Total other expenses 897 1,001
------------------------------------
Income before income taxes 857 849
Income taxes 296 316
------------------------------------
Net income 561 533
Dividends on preferred stock (11) (11)
------------------------------------
Net income applicable to common stockholders $ 550 $ 522
====================================
Basic earnings per share $ 1.49 $ 1.43
====================================
Diluted earnings per share $ 0.83 $ 0.80
====================================
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
S-2
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 1998 (In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Employee Accumulated
Stock Other Total
Preferred Common Retained Ownership Comprehensive Stockholders'
Stock Stock Surplus Earnings Plan Debt Income (Loss) Equity
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 $ - $ 372 $ 8,451 $ 5,777 $ (300) $ 813 $ 15,113
-------------
Comprehensive income:
Net income - - - 533 - - 533
Change in net unrealized
gains (losses) on
securities available
for sale - - - - - 353 353
-------------
Total comprehensive
income 886
-------------
Repayment of ESOP debt - - - - - - -
Cash dividends paid on
preferred stock - - - (11) - - (11)
----------------------------------------------------------------------------------------------------
Balance, September 30, 1998 $ - $ 372 $ 8,451 $ 6,299 $ (300) $ 1,166 $ 15,988
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 1999 (In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Employee Accumulated
Stock Other Total
Preferred Common Retained Ownership Comprehensive Stockholders'
Stock Stock Surplus Earnings Plan Debt Income (Loss) Equity
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1999 $ - $ 375 $ 8,465 $ 8,300 $ (200) $ (1,464) $ 15,476
-------------
Comprehensive income:
Net income - - - 561 - - 561
Change in net unrealized
gains (losses) on
securities available
for sale - - - - - (465) (465)
-------------
Total comprehensive
income 96
-------------
Repayment of ESOP debt - - - - 100 - 100
Cash dividends paid on
preferred stock - - - (11) - - (11)
----------------------------------------------------------------------------------------------------
Balance, September 30, 1999 $ - $ 375 $ 8,465 $ 8,850 $ (100) $ (1,929) $ 15,661
====================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
S-3
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 561 $ 533
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 47 98
Provision for depreciation and amortization 35 33
Net (gain) loss on foreclosed real estate (12) 4
Write-down of investment securities 358 -
Net accretion of securities premiums and discounts (148) (117)
Deferred income taxes - 23
Change in assets and liabilities:
(Increase) decrease in:
Accrued interest receivable (161) (361)
Prepaid expenses and other assets 128 179
Increase (decrease) in:
Accrued expenses and other liabilities 18 423
Accrued interest payable (80) 94
--------------------------------
Net cash provided by operating activities 746 909
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale (4,787) (22,967)
Proceeds from maturities of and principal repayments on
securities available for sale 4,924 10,343
Net (increase) in Federal Home Loan Bank stock - (181)
Proceeds from the sale of foreclosed real estate 398 123
Net (increase) in loans (2,772) (3,293)
Purchases of bank premises and equipment (38) (2)
(Increase) in cash surrender value of life insurance policies (18) (28)
--------------------------------
Net cash used in investing activities (2,293) (16,005)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 1,891 9,928
Repayment of ESOP debt 100 -
Proceeds from Federal Home Loan Bank advances 10,021 20,500
Repayment of Federal Home Loan Bank advances (7,204) (14,338)
Repayment of other borrowed money (6) (6)
Decrease in advances from borrowers for taxes and insurance (2,039) (1,791)
Dividends paid (11) (11)
--------------------------------
Net cash provided by financing activities 2,752 14,282
--------------------------------
Net increase (decrease) in cash and cash equivalents 1,205 (814)
Cash and cash equivalents:
Beginning 3,078 2,080
--------------------------------
Ending $ 4,283 $ 1,266
================================
</TABLE>
S-4
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest on deposits, advances and other borrowed money $ 4,642 $ 4,070
=============================
Income taxes $ 348 $ -
=============================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Transfer of loans to foreclosed real estate $ 408 $ 259
=============================
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
S-5
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
The unaudited consolidated financial statements of the Company include the
accounts of the Bank and Integrated Financial Corporation, wholly-owned
subsidiaries of the Company, and Integrated Abstract Incorporated, a
wholly-owned subsidiary of Integrated Financial Corporation. All
intercompany transactions and balances have been eliminated in
consolidation. The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for fair presentation have
been included. Operating results for the three months period ended
September 30, 1999 are not necessarily indicative of the results that may
be expected for the year ended June 30, 2000.
2
- --------------------------------------------------------------------------------
EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
------------------------------------------------------
Per
Income Shares Share
(Numerator) (Denominator) Amount
------------------------------------------------------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Basic earnings per share:
Net income applicable to common
stockholders $ 550 369,690 $ 1.49
=================
Effect of dilutive securities:
Stock options - 22,795
Convertible preferred stock 11 43,592
Convertible subordinated debentures 63 314,772
--------------------------------------
Diluted earnings per share:
Net income applicable to common stock-
holders and assumed conversions $ 624 750,849 $ .83
======================================================
</TABLE>
S-6
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2
- --------------------------------------------------------------------------------
EARNINGS PER SHARE (CONTINUED)
The following table sets forth the computations of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
----------------------------------------------------
Per
Income Shares Share
(Numerator) (Denominator) Amount
----------------------------------------------------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Basic earnings per share:
Net income applicable to common
stockholders $ 522 364,475 $ 1.43
===============
Effect of dilutive securities:
Stock options - 25,539
Convertible preferred stock 11 43,592
Convertible subordinated debentures 67 314,772
--------------------------------------
Diluted earnings per share:
Net income applicable to common stock-
holders and assumed conversions $ 600 748,378 $ .80
====================================================
</TABLE>
3
- --------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) and related tax effects
for the three months ended September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------
1999 1998
---------------------------------------
(In Thousands)
<S> <C> <C>
Unrealized holding gains (losses) on available for sale securities $ (897) $ 533
Less reclassification adjustment for gains (losses) included in
net income (358) -
---------------------------------------
Net unrealized gains (losses) (539) 533
Tax effect 74 (180)
---------------------------------------
Net of tax amount $ (465) $ 353
=======================================
</TABLE>
S-7
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4
- --------------------------------------------------------------------------------
WRITEDOWN OF INVESTMENT SECURITIES
The Company's securities available for sale portfolio includes corporate
debt securities issued by Singer Co. On September 13, 1999, Singer Co.
filed for Chapter 11 bankruptcy protection. At September 30, 1999, the
Company wrote the bonds down to their estimated fair value of $95,000,
resulting in a reduction in net income for the quarter ended September 30,
1999 of $222,000, net of income tax benefits of $136,000.
5
- --------------------------------------------------------------------------------
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", in June
1998. The Statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. In addition, the
transition provisions of this Statement allow the Company to reclassify
held to maturity securities to an available-for-sale classification. During
1999, the Financial Accounting Standards Board deferred the effective date
of Statement No. 133. The Company is required to adopt the Statement on
July 1, 2001. The adoption of the Statement is not expected to have a
significant impact on the financial condition or results of operations of
the Company.
In October 1998, the FASB issued SFAS NO. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise." This statement
became effective for the Bank July 1, 1999. The adoption of this statement
did not have a significant impact on the financial condition or results of
operations of the Bank.
S-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
================================================= =================================================
You should rely only on the information contained
in this prospectus or that to which we have
referred you. We have not authorized anyone to
provide you with information that is different.
This prospectus does not constitute an offer to sell [Logo]
or the solicitation of an offer to buy, any of the
securities offered hereby to any person in any
jurisdiction in which the offer or solicitation would
be unlawful. You should not assume that the
information provided by this prospectus is
accurate as of any date after the date of this
prospectus. ^ Up to $12,000,000
--------------------
TABLE OF CONTENTS
Page First Star Capital Trust
Summary ........................................
The Offering ...................................
^ Summary Consolidated Financial Data .......... ^ Adjustable Rate Trust Preferred
Risk Factors ................................... Securities
Use of Proceeds ................................
Market for the Preferred Securities ............
Consolidated Ratios of Earnings to Fixed
Charges ......................................
Capitalization ................................. ^ Guaranteed By
Selected Consolidated Financial and Other Data
Management's Discussion and Analysis of First Star Bancorp, Inc.
Financial Condition and Results of Operation ...
Business of First Star Bancorp, Inc.
and First Star Savings Bank .................. -----------------
Management of First Star Bancorp, Inc........... PROSPECTUS
Principal Security Holders ..................... -----------------
Regulation .....................................
First Star Capital Trust .......................
Accounting Treatment ...........................
Description of Preferred Securities ............
Description of Junior Subordinated Debentures ..
Description of Guarantee ....................... Hopper Soliday
Relationship Among the Preferred Securities, A Division of Tucker Anthony
the Junior Subordinated Debentures and the Incorporated
Guarantee ....................................
United States Federal Income Tax Consequences .. __________ __, 1999
ERISA Considerations ...........................
Underwriting ...................................
Legal and Tax Matters ..........................
Experts ........................................
Reports of First Star Bancorp ..................
Where You Can ^ Obtain Additional Information ..
Index to Consolidated Financial Statements .....
Until the later of ____________________, 1999, or
90 days after commencement of the offering of
preferred securities, all dealers that buy, sell or trade
these securities, whether or not participating in this
distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
================================================= =================================================
</TABLE>
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 27. Exhibits:
The exhibits filed as part of this Registration Statement are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1 Form of Agency Agreement
3(i) Articles of Incorporation of First Star Bancorp, Inc.*
3(ii) Bylaws of First Star Bancorp, Inc.*
4.1 Form of Junior Subordinated Indenture
4.2 Form of Junior Subordinated Debenture Certificate (included in Exhibit 4.1)
4.3 Trust Agreement**
4.4 Form of Amended and Restated Trust Agreement
4.5 Form of Preferred Security (included in Exhibit 4.4)
4.6 Form of Guarantee Agreement
5.1 Opinion of Richards, Layton & Finger, P.A.**
5.2 Opinion of Malizia Spidi & Fisch, PC
8 Tax Opinion of Malizia Spidi & Fisch, PC
10 Form of Employment Agreement of Joseph T. Svetik and Paul J. Sebastian**
12.1 Statement regarding computation of ratios
16 Letter of Deloitte & Touche, LLP
23.1 Consent of Beard & Company, Inc.
23.2 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.1)**
23.3 Consent of Malizia Spidi & Fisch, PC (contained in its opinions filed as Exhibits 5.2
and 8)
24 Power of Attorney (reference is made to the signature page)**
27 Financial Data Schedule***
* Incorporated by reference to the identically numbered
exhibits to the Registration Statement on Form SB-2 filed
with the Commission on September 28, 1998.
** Previously filed
*** Electronic filing only
</TABLE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in Bethlehem,
Pennsylvania, on November 19, 1999.
FIRST STAR BANCORP, INC.
By: /s/ Joseph T. Svetik
--------------------------------
Joseph T. Svetik
President and Director
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated as of November 19, 1999.
<TABLE>
<CAPTION>
<S> <C>
/s/ Joseph T. Svetik /s/ Paul J. Sebastian
- ----------------------------------------------- ----------------------------------
Joseph T. Svetik Paul J. Sebastian
President, Chief Executive Officer and Director Chairman of the Board and Director
(Principal Executive Officer)
/s/ Mark Parseghian, Jr.* /s/ Tighe J. Scott*
- ----------------------------------------------- ----------------------------------
Mark Parseghian, Jr. Tighe J. Scott
Director Director
/s/ Harold J. Suess* /s/ Stephen M. Szy*
- ----------------------------------------------- ----------------------------------
Harold J. Suess Stephen M. Szy
Director Director
/s/ Michael Styer
- -----------------------------------------------
Michael Styer
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
- ---------------
* Signed pursuant to a Power of Attorney.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, First Star
Capital Trust certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Wilmington, Delaware on November 19, 1999.
FIRST STAR CAPITAL TRUST
By: /s/Joseph T. Svetik
-------------------------------------
Joseph T. Svetik
(Duly Authorized Representative)
By: /s/Paul J. Sebastian
-------------------------------------
Paul J. Sebastian
(Duly Authorized Representative)
EXHIBIT 1
<PAGE>
$12,000,000
FIRST STAR CAPITAL TRUST
% CAPITAL SECURITIES
(Liquidation Amount $__.00 per Capital Security)
Fully Guaranteed by
FIRST STAR BANCORP, INC.
(a Pennsylvania corporation)
AGENCY AGREEMENT
_______________, 1999
Hopper Soliday, a Division of Tucker Anthony Incorporated
1703 Oregon Pike
Lancaster, Pennsylvania 17604-4548
Ladies and Gentlemen:
First Star Bancorp, Inc., a Pennsylvania corporation (the
"Corporation"), and First Star Capital Trust, a business trust organized under
the laws of the State of Delaware (the "Trust"), hereby confirm their agreement
with Hopper Soliday, a Division of Tucker Anthony Incorporated ("Hopper Soliday"
or the "Placement Agent"), effective as of ______________, 1999, with respect to
the issue and sale by the Trust of the ____% Capital Securities, Liquidation
Amount $10.00 per security, described herein (coupon to be determined at a later
date prior to closing) (the "Capital Securities"). As of the date hereof, the
Corporation and the Trust have authorized the issuance and sale of up to
$12,000,000 in aggregate liquidation amount of Capital Securities through the
Placement Agent pursuant to the terms of this Agreement.
The Capital Securities will be issued by the Trust pursuant to (i) the
Amended and Restated Declaration of Trust (the "Declaration") to be dated as of
the Closing Time among the Corporation, as sponsor, Bankers Trust Company
("Delaware"), as Delaware Trustee, Bankers Trust Company, as Property Trustee,
and the Administrative Trustees named therein. The Capital Securities will
evidence preferred beneficial interests in the assets of the Trust. The
Corporation will be the owner of all of the beneficial interests represented by
the common securities of the Trust (the "Common Securities," and together with
the Capital Securities, the "Trust Securities"). The Trust exists for the sole
purpose of issuing the Trust Securities and investing the proceeds thereof in
___% Junior Subordinated Deferrable Interest Debentures (the "Subordinated
Debentures") to be issued by the Corporation pursuant to an Indenture (the
"Indenture") to be dated as of the Closing Time between the Corporation and
Bankers Trust Company as Debenture Trustee. The Subordinated Debentures will
mature on _____________, 2029. Holders of the Trust Securities will be entitled
to receive cumulative cash distributions,
1
<PAGE>
accumulating from the date of original issuance and payable quarterly in arrears
on _______________, ________________, ________________ and ________________ of
each year, commencing on ________________, 2000, at the annual rate of ____% of
the liquidation amount of $10.00 per Capital Security ("Distributions"). The
Subordinated Debentures will be the sole assets of the Trust and payments under
the Subordinated Debentures will be the sole revenues of the Trust. All of the
Common Securities will be owned directly or indirectly by the Corporation. The
Common Securities will rank pari passu, and payments thereon with be made pro
rata, with the Capital Securities, except that upon the occurrence and during
the continuance of an event of default under the Declaration resulting from a
Debenture event of default under the Indenture, the rights of the Corporation as
holder of the Common Securities to payments in respect of Distributions and
payments upon liquidation, redemption, or otherwise will be subordinated and
rank junior to the rights of holders of the Capital Securities. The Corporation
will, pursuant to: (i) the Declaration; (ii) the Subordinated Debentures; (iii)
the Indenture; and (iv) the Capital Securities Guarantee Agreement to be dated
as of the Closing Time, between the Corporation and Bankers Trust Company as
Guarantee Trustee, relating to the Capital Securities (the "Guarantee"), fully,
irrevocably, and unconditionally guarantee all of the Trust's obligations under
the Capital Securities.
Concurrently with the execution of this Agreement, the Corporation is
delivering to the Placement Agent copies of a Preliminary Prospectus of the
Corporation to be used in the offering of the Capital Securities. The
Corporation will deliver to the Placement Agent copies of a Final Prospectus at
a date mutually agreeable to the Corporation and the Placement Agent. Such
Prospectus contains more detailed information with respect to the offering of
the Capital Securities. Unless otherwise stated herein, the term "Prospectus" is
used in this Agreement to refer to such Preliminary Prospectus and Final
Prospectus, as the same may be amended after it is first provided to the
Placement Agent for such use.
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE TRUST.
The Corporation and the Trust, jointly and severally, represent and
warrant to the Placement Agent as of the date hereof as follows:
(a) Copies of the Preliminary Prospectus have been delivered by the
Corporation to the Placement Agent. Copies of the Final Prospectus will be
delivered by the Corporation to the Placement Agent at a date mutually agreeable
to the Corporation and the Placement Agent. As of the date hereof and at the
Closing Time referred to in Section 2 hereof, the Prospectus 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.
(b) Except as described in the Prospectus, since the respective dates
as of which information is given in the Prospectus, (i) there has not been any
material adverse change, or any development involving a prospective material
adverse change, in the general affairs, business management, financial
condition, or results of operations of the Corporation, the Bank (as hereinafter
defined) and any subsidiary thereof, and (ii) there have been no transactions
entered into by the Corporation or the Bank, other than those in the ordinary
course of business, or otherwise than as set forth or contemplated in the
Prospectus as supplemented or amended as of the Closing Time.
2
<PAGE>
(c) First Star Savings Bank (the "Bank") and Integrated Financial Corp.
are the only subsidiaries of the Corporation, other than the Trust. The Bank has
no subsidiaries. The Corporation owns all of the outstanding capital stock of
the Bank and Integrated Financial Corp. free and clear of all liens and
encumbrances.
(d) The Corporation is subsisting as a corporation under the laws of
the Commonwealth of Pennsylvania with 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;
the Corporation is duly qualified as a foreign corporation to transact business
and is in good standing in all jurisdictions 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 to so qualify would not have a
material adverse effect on the financial condition, results of operations or
business of the Corporation and its subsidiaries, taken as a whole. The
Corporation is a bank holding company and is registered as such under the Bank
Holding Company Act of 1956, as amended.
(e) The Bank is subsisting as a Pennsylvania chartered stock savings
bank, with full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and is
qualified to do business in any jurisdiction in which the failure to so qualify
would have a material adverse effect on the financial condition, results of
operations or business of the Bank. The Bank is a member of the Federal Home
Loan Bank of Pittsburgh.
(f) Each of the Corporation and the Bank have obtained all licenses,
permits and other governmental authorizations currently required for the conduct
of their respective businesses, except where the failure to obtain such
licenses, permits or other governmental authorizations would not have a material
adverse effect on the financial condition, results of operations or business of
the Corporation and the Bank taken as a whole; all such licenses, permits and
other governmental authorizations are in full force and effect and the
Corporation and the Bank are in all material respects in compliance therewith;
neither the Corporation nor the Bank has received notice of any proceeding or
action relating to the revocation or modification of any such license, permit or
other governmental authorization which, singly or in the aggregate, is the
subject of an unfavorable decision, ruling or finding, which might have a
material adverse effect on the financial condition, results of operations or
business of the Corporation and the Bank taken as a whole.
(g) The activities of the Bank are permitted by the rules, regulations,
resolutions and practices of the Board of Governors of the Federal Reserve
System ("FRB"), the Federal Deposit Insurance Corporation ("FDIC") and the
Pennsylvania Department of Banking (the "Department"); all of the issued and
outstanding capital stock of the Bank has been duly authorized and validly
issued, is fully paid and nonassessable and is owned by the Corporation, free
and clear of any security interest, mortgage, pledge, lien, encumbrance, claim
or equitable claim.
(h) The deposit accounts of the Bank are insured by the Savings
Association Insurance Fund (the "SAIF") of the FDIC up to the applicable limits.
3
<PAGE>
(i) Upon consummation of the offering, the authorized, issued and
outstanding capitalization of the Corporation will be as set forth in the
Prospectus under "Capitalization".
(j) None of the Capital Securities have been or will be issued and
outstanding prior to the Closing Time referred to in Section 2; at the Closing
Time, the Capital Securities will have been duly authorized for issuance and,
issued, authenticated and delivered pursuant to the provisions of this
Agreement, the Declaration and the Indenture against payment of the
consideration therefor, will constitute valid and legally binding obligations of
the Trust; the terms and provisions of the Capital Securities in all material
respects conform to all statements relating thereto contained in the Prospectus;
the certificates representing the shares of Capital Securities in all material
respects will conform with any applicable requirements of Delaware law; and the
issuance of the Capital Securities is not subject to preemptive or other similar
rights.
(k) The Corporation and the Trust have taken all corporate or trust
action, as the case may be, necessary for them to execute, deliver and perform
this Agreement, and this Agreement has been duly executed and delivered by, and
is the valid and binding agreement of, the Corporation and the Trust,
enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency or other laws affecting the enforceability of the rights
of creditors generally and judicial limitations on the right of the specific
performance and except as the enforceability of indemnification and contribution
provisions may be limited by applicable securities laws.
(l) The Corporation has taken all corporate action necessary for it to
execute, deliver and perform; (i) the Indenture; (ii) the Declaration; (iii) the
Subordinated Debentures and (iv) the Guarantee (together, the "Constituent
Documents"), and the Constituent Documents have been duly executed and delivered
by, and are the valid and binding agreements of, the Corporation, enforceable in
accordance with their terms, except as may be limited by bankruptcy, insolvency
or other laws affecting the enforceability of the rights of creditors generally
and judicial limitations on the right of specific performance and except as the
enforceability of indemnification and contribution provisions may be limited by
applicable securities laws.
(m) Subsequent to the respective dates as of which information is given
in the Prospectus and prior to the Closing Time, except as otherwise may be
indicated or contemplated therein, none of the Corporation, the Bank or the
Trust will have (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, except deposits or other
borrowings in the ordinary course of business from the same or similar sources
and in similar amounts indicated in the Prospectus, or (ii) entered into any
transaction or series of transactions which is material in light of the business
of the Corporation, the Bank and the Trust, taken as a whole, excluding the
origination, purchase and sale of loans or the purchase or sale of investment
securities or mortgaged-backed securities in the ordinary course of business.
(n) No approval of any regulatory or supervisory or other public
authority is required in connection with the execution and delivery of this
Agreement or the issuance of the Capital Securities which has not been obtained
and a copy of which has been delivered to the Placement Agent, except as may be
required under the securities laws of various jurisdictions.
4
<PAGE>
(o) Neither the Corporation nor the Bank is in violation of its charter
or bylaws; the Trust is not in violation of its certificate of trust; and
neither the Corporation, the Bank nor the Trust is in default (nor has any event
occurred which, with notice or lapse of time or both, would constitute a
default) in the performance or observance of any obligation, agreement, covenant
or condition contained in any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which the Corporation, the Bank or the Trust
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 Corporation, the Bank or the Trust is subject, except
for such defaults that would not, individually or in the aggregate, have a
material adverse effect on the financial condition, results of operations or
business of the Corporation, the Bank and the Trust, taken as a whole.
(p) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein do not and will not
conflict with or constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Corporation, the Bank or the Trust pursuant to any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to which
the Corporation, the Bank or the Trust 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 Corporation, the
Bank or the Trust is subject, except for such defaults that would not,
individually or in the aggregate, have a material adverse effect on the
financial condition, results of operations or business of the Corporation, the
Bank and the Trust, taken as whole, nor will such action result in any violation
of the provisions of the charter or other organizational document or by-laws of
the Corporation, the Bank or the Trust, or any applicable law, regulation or
administrative or court decree.
(q) No labor dispute with the employees of the Corporation or the Bank
exists or, to the knowledge of the Corporation or the Bank, is imminent or
threatened.
(r) The Corporation and the Bank have good and marketable title to all
properties and assets for which ownership is material to the business of the
Corporation or the Bank and to those properties and assets described in the
Prospectus as owned by them, free and clear of all liens, charges, encumbrances
or restrictions, except such as are described in the Prospectus or are not
material in relation to the business of the Corporation and the Bank taken as a
whole; and all of the leases and subleases material to the business of the
Corporation and the Bank taken as a whole under which the Corporation or the
Bank hold properties, including those described in the Prospectus, are valid and
binding agreements of the Corporation or the Bank, enforceable in accordance
with their terms, subject, as to enforceability, to bankruptcy, insolvency,
reorganization, moratorium and other laws of general applicability relating to
or affecting creditors' rights, and to general principles of equity.
(s) Neither the Corporation nor the Bank is in violation of any
directive from the FRB, the FDIC or the Department to make any material change
in the method of conducting their respective businesses; the Bank has conducted
and is conducting its business so as to comply with all applicable statutes,
regulations and administrative and court decrees (including, without limitation,
all regulations, decisions, directives and orders of the FRB, the FDIC or the
Department) except in such respects as would not have a material adverse effect
upon the Corporation and the Bank taken as a whole.
5
<PAGE>
(t) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Corporation or the Bank, threatened, against or affecting the
Corporation, the Bank or the Trust (other than as disclosed in the Prospectus)
which might result in any material adverse change in the financial condition,
results of operations or business of the Corporation, the Bank and the Trust,
taken as a whole, or which might materially and adversely affect the properties
or assets thereof or which might materially and adversely affect the
consummation of the offering; all pending legal or governmental proceedings to
which the Corporation, the Bank or the Trust is a party or of which any of their
respective property or assets is the subject which are not described in the
Prospectus, including ordinary routine litigation incidental to the business,
are, in the aggregate, not material.
(u) Neither the Corporation nor the Trust are required to be registered
under the Investment Company Act of 1940, as amended.
(v) All of the loans represented as assets on the most recent financial
statements or selected financial information of the Bank included or
incorporated by reference in the Prospectus meet or are exempt from all
requirements of federal, state or local law pertaining to lending, including
without limitation truth in lending, real estate settlement procedures, consumer
credit protection, equal credit opportunity and all disclosure laws applicable
to such loans, except for violations which, if asserted, would not result in a
material adverse effect on the financial condition, results of operations or
business of the Corporation and the Bank taken as a whole.
(w) Neither the Corporation nor the Bank nor any properties owned or
operated by the Corporation or the Bank nor, to the Corporation's knowledge, any
properties leased by the Corporation or the Bank is in violation of or liable
under any Environmental Law (as defined below), except for such violations or
liabilities that, individually or in the aggregate, would not have a material
adverse effect on the business, financial condition or results of operations of
the Corporation and the Bank taken as a whole. There are no actions, suits or
proceedings, or demands, claims, or notices (including, without limitation,
notices, demand letters or requests for information from any environmental
agency) instituted or pending, or to the knowledge of the Corporation or the
Bank threatened, relating to the liability of any property owned or operated by
the Corporation or the Bank, under any Environmental Law. For purposes of this
subsection, the term "Environmental Law" means any federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction or
agreement with any regulatory authority relating to (i) the protection,
preservation or restoration of the environment (including, without limitation,
air, water, vapor, surface water, groundwater, drinking water supply, surface
soil, subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of any substance
presently listed, defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, whether by type or by
quantity, including any material containing any such substance as a component.
(x) The Corporation and the Bank, and all subsidiaries thereof, have
filed all federal and state income tax returns required to be filed, and have
filed all state and local franchise tax returns required to be filed except for
such omissions as would not individually or in the aggregate have a material
adverse impact on the financial condition or results of operations of
6
<PAGE>
the Corporation or the Bank and have made timely payments of all taxes shown as
due and payable in respect of such returns, and no deficiency has been asserted
with respect thereto by any taxing authority.
(y) Any certificate signed by any officer of the Corporation or the
Bank or an administrator of the Trust and delivered to either of the Placement
Agent or counsel for the Placement Agent shall be deemed a representation and
warranty by the Corporation, or Bank or the Trust to each as to the matters
covered thereby.
(z) The Constituent Documents and the Capital Securities conform in all
material respects to the descriptions thereof contained in the Prospectus.
(aa) The Corporation and the Trust have filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-B2
(Nos. 333-_____ and 333-_____) and a related preliminary prospectus for the
registration of the Preferred Securities, the Guarantee and the Subordinated
Debentures under the Securities Act of 1933, as amended (the "Securities Act"),
and the rules and regulations thereunder (the "Securities Act Regulations"). The
Corporation and the Trust have prepared and filed such amendments thereto, if
any, and such amended preliminary prospectuses, if any, as may have been
required to the date hereof, and will file such additional amendments thereto
and such amended prospectuses as may hereafter be required. The registration
statement has been declared effective under the Securities Act by the
Commission. The registration statement as amended at the time it became
effective (including the Prospectus and all information deemed to be a part of
the registration statement at the time it became effective pursuant to Rule
430A(b) of the Securities Act Regulations) is hereinafter called the
"Registration Statement," except that, if the Corporation files a post-effective
amendment to such registration statement which becomes effective prior to the
Closing Time (as defined below), "Registration Statement" shall refer to such
registration statement as so amended.
(bb) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus complies
in all material respects with the requirements of the Securities Act and the
Securities Act Regulations. As of the effective date of the Registration
Statement, and at all times subsequent thereto up to the Closing Time, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained or will contain all material statements that are required to
be stated therein in accordance with the Securities Act and the Securities Act
Regulations and conformed or will conform in all material respects to the
requirements of the Securities Act and the Securities Act Regulations, and
neither the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto included or will include any untrue statement of a material
fact or omitted or will omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that no representation or warranty is made as to information contained
in or omitted from the Registration Statement, the Prospectus or any amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company and the Trust by or on behalf of the Underwriters.
7
<PAGE>
SECTION 2. APPOINTMENT OF HOPPER SOLIDAY; SALE AND DELIVERY OF THE SECURITIES;
CLOSING.
(a) On the basis of the representations and warranties herein contained
and subject to the terms and conditions herein set forth, the Corporation and
the Trust hereby appoint Hopper Soliday as its Placement Agent to assist in the
solicitation of subscriptions and purchase orders for Capital Securities on
behalf of the Corporation and the Trust, in connection with the Trust's sale of
the Capital Securities. On the basis of the representations and warranties
herein contained, and subject to the terms and conditions herein set forth,
Hopper Soliday accepts such appointment and agrees to use its best efforts to
assist the Corporation and the Trust with the solicitation of subscriptions and
purchase orders for Capital Securities in accordance with this Agreement;
provided, however, that the Placement Agent shall not be obligated to take any
action which is inconsistent with any applicable laws, regulations, decisions or
orders. The services to be rendered by Hopper Soliday pursuant to this
appointment include the following: (i) consulting with the Corporation as to the
securities marketing implications of any aspect of the offering of the Capital
Securities; (ii) reviewing the Prospectus and related offering materials (it
being understood that preparation and filing of such documents is the sole
responsibility of the Corporation and the Trust and their counsel); (iii)
assisting in the design and implementation of a marketing strategy for the
offering of the Capital Securities; (iv) assisting Corporation management in
preparing for meetings with potential investors and broker-dealers; and (v)
providing such other general advice and assistance as may be reasonably
requested to promote the completion of the offering of the Capital Securities.
The Corporation and the Trust agree that, during the period the Placement Agent
is acting hereunder, unless otherwise agreed in writing, the Corporation and the
Trust will not appoint any other agent or agents in connection with the
placement of the Capital Securities.
(b) The appointment of the Placement Agent hereunder shall terminate
upon the earliest to occur of (i) five (5) business days after the Closing Time,
unless the Corporation, the Trust and the Placement Agent agree in writing to
extend such period, or (ii) the receipt and acceptance of subscriptions and
purchase orders for all of the Capital Securities and payment to the Placement
Agent of all compensation payable hereunder.
(c) The Placement Agent, acting solely as agent for the Corporation and
the Trust and not as principal, will solicit purchases of the Capital
Securities. The Placement Agent will communicate to the Corporation, orally,
each offer to purchase Capital Securities solicited by the Placement Agent on an
agency basis, other than those offers rejected by the Placement Agent. The
Placement Agent shall have the right, in its discretion reasonably exercised, to
reject any proposed purchase of Capital Securities, as a whole or in part, and
any such rejection shall not be deemed a breach of the Placement Agent's
agreement contained herein. The Corporation, on behalf of the Trust, may accept
or reject any proposed purchase of Capital Securities in whole or in part. The
Placement Agent shall make reasonable efforts to assist the Corporation in
obtaining performance by each purchaser whose offer to purchase Capital
Securities has been solicited by the Placement Agent and accepted by the
Corporation. The Placement Agent shall have no liability to the Corporation in
the event any such purchase is not consummated for any reason. If the
Corporation shall default on its obligation to deliver Capital Securities to a
purchaser whose offer it has accepted, the Corporation shall (i) hold the
Placement Agent harmless against any loss, claim or damage arising from or as a
result of such default by the Corporation and (ii)
8
<PAGE>
notwithstanding such default, pay to the Placement Agent any commission to which
it would be entitled in connection with such sale.
(d) In the event the Trust is unable to sell $12,000,000, or such
lesser amount as shall be acceptable to the Corporation, in aggregate
liquidation amount of Capital Securities prior to _____________, 1999, or such
later date as to which the Corporation shall extend the offering, this Agreement
shall terminate and the Trust shall refund or cause its escrow agent to refund
to any persons who have subscribed for any of the Capital Securities the full
amount which it may have received from them, and no party to this Agreement
shall have any obligation to the others hereunder, except for the obligations of
the Corporation and the Bank as set forth in Sections 4, 6(a) and 7 hereof and
the obligations of the Placement Agent as provided in Sections 6(b) and 7
hereof.
(e) The Trust agrees to issue or have issued the Capital Securities
sold and to release for delivery certificates for such Capital Securities at the
Closing Time against payment therefor. The closing shall be held at the offices
of Stevens & Lee, Valley Forge, Pennsylvania, or at such other place and time as
shall be agreed upon by the parties hereto, on a business day to be agreed upon
by the parties hereto. Certificates for Capital Securities shall be delivered
directly to the purchasers thereof in accordance with their written directions.
The hour and date upon which the Trust shall release for delivery all of the
Capital Securities, in accordance with the terms hereof, are herein called the
"Closing Time."
(f) The Corporation will pay any stock issue and transfer taxes which
may be payable with respect to the sale of the Capital Securities.
(g) In addition to reimbursement of the expenses specified in Section 4
hereof, the Placement Agent will receive $0.35 for each Capital Security sold
and an advisory fee of $25,000 if the Offering is completed.
All amounts payable to the Placement Agent hereunder shall be
payable in immediately available funds at Closing Time, or upon the termination
of this Agreement, as the case may be.
(h) If this Agreement is terminated by the Placement Agent in
accordance with the provisions of Section 9(a) hereof, no fees shall be payable
by the Corporation hereunder; however, the Corporation shall reimburse Hopper
Soliday for its reasonable out-of-pocket expenses incurred in connection with
its engagement hereunder in accordance with Section 4 hereof.
(i) The Corporation, the Trust and the Placement Agent agree that any
Capital Securities the placement of which the Placement Agent arranges shall be
placed by the Placement Agent in reliance on the representations, warranties,
covenants and agreements of the Corporation and the Trust contained herein and
on the terms and conditions and in the manner provided herein.
Attached hereto as Exhibit A is a copy of the Escrow Agreement to be
dated _________________, 1999, (the "Escrow Agreement") between _______________
(the "Escrow Agent"), Hopper Soliday, the Corporation and the Trust, pursuant to
which
9
<PAGE>
_________________________________ shall act as escrow agent with respect to the
deposit of funds from subscribers for the Capital Securities. In accordance with
the terms of the Escrow Agreement, the Escrow Agent shall deliver to the Trust
the proceeds of the offering of Capital Securities upon receiving joint written
instructions from the Company, the Trust and the Placement Agent that a closing
has occurred.
SECTION 3. COVENANTS OF THE CORPORATION AND THE TRUST.
The Corporation and the Trust covenant with the Placement Agent as
follows:
(a) The Corporation and the Trust will prepare such amendments or
supplements to the Prospectus, as may hereafter be reasonably requested by the
Placement Agent. The Corporation and the Trust will give the Placement Agent
notice of their intention to prepare any amendment to the Prospectus, will
furnish the Placement Agent with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed use, and will not use any such
Prospectus to which the Placement Agent or counsel for the Placement Agent may
reasonably object.
(b) The Corporation and the Trust will deliver to the Placement Agent
as many copies of the Prospectus and of each amendment thereto as the Placement
Agent may reasonably request, and from time to time such number of copies of the
Prospectus as the Placement Agent may reasonably request.
(c) If any event or circumstance shall occur as a result of which it is
necessary, in the opinion of counsel for the Placement Agent, to amend or
supplement the Prospectus in order to make the Prospectus not misleading in the
light of the circumstances existing at the time it is delivered to a purchaser,
the Corporation and the Trust will forthwith amend or supplement the Prospectus
(in form and substance reasonably satisfactory to counsel for the Placement
Agent) so that, as so amended or supplemented, the Prospectus will not include
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to a purchaser, not
misleading, and the Corporation and the Trust will furnish to the Placement
Agent a reasonable number of copies of such amendment or supplement. For the
purpose of this subsection, the Corporation and the Trust will each furnish such
information with respect to itself as the Placement Agent may from time to time
reasonably request.
(d) The Corporation and the Trust will take all necessary action to
qualify the Capital Securities for offering and sale under the applicable
securities laws of such states of the United States and other jurisdictions as
may be required by such state securities laws, and as the Placement Agent and
the Corporation have agreed, or to obtain exemption from the qualification
requirements of such laws; provided, however, that the Corporation and the Trust
shall not be obligated to file any general consent to service of process or to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified. In each jurisdiction in which the Capital Securities have been so
qualified or exempted, the Corporation and the Trust will file such statements
and reports as may be required by the laws of such jurisdiction to continue such
qualification or exemption, as the case may be, until completion of the
offering.
10
<PAGE>
(e) The Trust will use the proceeds of the offering of the Capital
Securities to purchase the Junior Subordinated Debentures in the manner
described in the Prospectus.
(f) The Corporation will use the net proceeds received by it from the
sale of the Subordinated Debentures in the manner specified in the Prospectus
under "Use of Proceeds."
(g) If any information shall have been omitted from the Registration
Statement in reliance upon Rule 430A, the Corporation, at the earliest possible
time, will furnish the Placement Agent with copies of the Prospectus to be filed
by the Corporation with the Commission to comply with Rule 424(b) and Rule 430A
under the Securities Act, and will file such Prospectus with the Commission in
compliance with such Rules. Upon compliance with such Rules, the Corporation
will so advise the Placement Agent promptly. The Corporation will advise the
Placement Agent and its counsel promptly of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or of
the institution of any proceedings for that purpose, or of any notification
received by the Corporation of the suspension of qualification of the Preferred
Securities for sale in any jurisdiction or the initiation or threatening of any
proceedings for that purpose, or of any notification received by the Corporation
of the suspension of qualification of the Preferred Securities for sale in any
jurisdiction or the initiation or threatening of any proceedings for that
purpose. The Corporation also will advise the Placement Agent and its counsel
promptly of any request of the Commission for amendment or supplement of the
Registration Statement, of any Preliminary Prospectus, or of the Prospectus, or
for additional information, and the Corporation will not file any amendment or
supplement to the Registration Statement (either before or after it becomes
effective), to any Preliminary Prospectus, or to the Prospectus (including a
prospectus filed pursuant to Rule 424(b)) if the Placement Agent has not been
furnished with copies prior to such filing or if the Placement Agent reasonably
objects to such filing.
(h) For the period during which a Prospectus relating to the Preferred
Securities is required to be delivered under the Securities Act, the Corporation
shall comply with all requirements imposed on it by the Securities Act, as now
and hereafter amended, and by the Securities Act Regulations, as from time to
time in force, so far as is necessary to permit the continuance of sales or
dealings in the Preferred Securities as contemplated by the provisions hereof
and the Prospectus. If any event occurs as a result of which the Prospectus,
including any subsequent amendment or supplement, would include an untrue
statement of a material fact, or would omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or if it
becomes necessary at any time to amend the Prospectus, including any amendment
or supplement thereto, to comply with the Securities Act, the Corporation
promptly will advise the Placement Agent and its counsel thereof and the
Corporation will promptly prepare and file with the Commission an amendment or
supplement that will correct such statement or omission or an amendment that
will effect such compliance.
(i) The Corporation will make generally available to its security
holders and the Placement Agent an earnings statement of the Corporation as soon
as practicable, but in no event later than fifteen (15) months after the end of
the Corporation's current fiscal quarter, covering a period of twelve (12)
consecutive calendar months beginning after the effective date of the
Registration Statement, but beginning not later than four (4) months after such
effective date,
11
<PAGE>
which will satisfy the provisions of the last subsection of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder.
(j) During such period as a prospectus is required by law to be
delivered in connection with sales by an underwriter or dealer, the Corporation
will furnish to the Placement Agent, at the expense of the Corporation, copies
of the Registration Statement, the Prospectus, any Preliminary Prospectus, and
all amendments and supplements to any such documents, in each case as soon as
available and in such quantities as the Placement Agent may reasonably request,
for the purposes contemplated by the Securities Act.
SECTION 4. PAYMENT OF EXPENSES.
(a) The Corporation agrees to pay all reasonable expenses incident to
the performance of its and the Trust's obligations under this Agreement,
including but not limited to (i) the preparation, issuance and delivery of the
certificates for the Capital Securities to the purchasers in the offering, (ii)
the fees and disbursements of the Corporation's and the Trust's counsel,
accountants, and other advisors, (iii) the filing of all notices with the
Commission and qualification of the Capital Securities under securities laws in
accordance with the provisions of Section 3(d) hereof, including filing fees and
the fees and disbursements of counsel to the Corporation and the Trust in
connection therewith and in connection with the preparation of a blue sky
survey, and (iv) the printing and delivery of copies of the Prospectus and any
amendments or supplements thereto to the purchasers in the offering and the
Placement Agent.
(b) In the event the offering is not consummated for any reason
whatsoever, the Corporation agrees to pay certain expenses incident to the
performance of the Placement Agent's obligations under this Agreement up to a
maximum reimbursement amount of $40,000 in the aggregate, including all
reasonable out-of-pocket expenses incurred by the Placement Agent relating to
the offering of the Capital Securities, including, without limitation,
advertising, promotional, and travel expenses, provided that the Placement Agent
shall document all such expenses to the reasonable satisfaction of the
Corporation. The provisions of this paragraph are not intended to apply to or in
any way impair the indemnifications provisions contained in this Agreement. All
fees and expenses to which the Placement Agent is entitled to reimbursement
under this Section 4(b) shall be due and payable upon receipt by the Corporation
of a written accounting therefor setting forth in reasonable detail the expenses
incurred by the Placement Agent.
SECTION 5. CONDITIONS OF PLACEMENT AGENT'S OBLIGATIONS.
(a) The Corporation, the Trust and the Placement Agent agree that the
issuance and sale of the Capital Securities and the obligations of the Placement
Agent hereunder are subject to the accuracy of the representations and
warranties of the Corporation and the Trust herein contained as of the date
hereof and the Closing Time, to the accuracy of the statements of officers and
directors of the Corporation and the Trust made pursuant to the provisions
hereof, to the performance by the Corporation and the Trust of their obligations
hereunder, and to the following further conditions.
12
<PAGE>
(b) At the Closing Time referred to in Section 2, the Corporation and
the Trust will have completed in all material respects the conditions precedent
to the offering and all applicable laws, regulations, decisions and orders.
(c) At Closing Time, the Placement Agent shall have received:
The favorable opinion, dated as of Closing Time, of Malizia
Spidi & Fisch, PC ("Malizia & Spidi"), counsel for the Corporation and the
Trust, in form and substance reasonably satisfactory to counsel for the
Placement Agent, and substantially to the effect that:
(A) Based on a recently dated subsistence certificate for the
Corporation issued by the Department of State, the Corporation is subsisting as
a corporation under the laws of the Commonwealth of Pennsylvania, and has
requisite 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, to such counsel's knowledge,
the Corporation has not failed to qualify as a foreign corporation in any other
jurisdiction, in which failure to so qualify would have a materially adverse
effect on the Corporation or any property it owns, leases or operates or the
conducting of its business.
(B) The Capital Securities and the Subordinated Debentures, have been
duly authorized for issuance, offer and sale and, when issued, authenticated and
delivered pursuant to the provisions of this Agreement, the Declaration and the
Indenture against payment of the consideration therefor, will constitute valid
and legally binding obligations of the Trust or Corporation, as the case may be,
enforceable against them in accordance with their terms except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other laws relating to or affecting enforcement of creditors' rights generally,
or by general equity principles (whether considered in a proceeding in equity or
at law) and based on the assumptions of such counsel that the holders of Capital
Securities and the Subordinated Debentures, in exercising any rights and
remedies under the Capital Securities or Subordinated Debentures, be required to
act in good faith and in a commercially reasonable manner.
(C) The Constituent Documents have been duly and validly authorized,
executed and delivered by the Corporation and (assuming the Constituent
Documents have been duly authorized, executed and delivered by the other parties
thereto) constitute legal, valid, and binding agreements of the Corporation,
enforceable in accordance with their terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting enforcement of creditors' rights generally, or by
general equity principles (whether considered in a proceeding in equity or at
law). Such opinions may be based on assumptions of such counsel that the holders
of Capital Securities and the Subordinated Debentures, in exercising any rights
and remedies under the Capital Securities or Subordinated Debentures, be
required to act in good faith and in a commercially reasonable manner. Such
counsel need not give any opinion on the enforceability of any indemnity or
contribution right provided for in the Constituent Documents.
13
<PAGE>
(D) Based on a recently dated certificate from the Department of
Banking, the Bank is subsisting under the laws of the Commonwealth of
Pennsylvania as a Pennsylvania chartered stock savings bank with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus; and the Bank is duly qualified as a
foreign corporation in each jurisdiction in which it owns or leases property or
conducts business.
(E) All of the issued and outstanding capital stock of the Bank is duly
authorized and validly issued and fully paid and nonassessable, and all such
capital stock is owned of record by the Corporation and, to such counsel's
actual knowledge, free and clear of any security interest, mortgage, pledge,
lien, encumbrance or claim.
(F) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate or trust action on the part of each of the Corporation
and the Trust, and this Agreement constitutes the legal, valid and binding
agreement of each of the Corporation and the Trust, enforceable in accordance
with its terms, except as rights to indemnity and contribution hereunder may be
limited under applicable law (it being understood that such counsel may avail
itself of customary exceptions concerning the effect of bankruptcy, insolvency
or similar laws and the availability of equitable remedies); and, to the actual
knowledge of such counsel, the execution and delivery of this Agreement and the
Constituent Documents, the incurrence of the obligations herein set forth and
the consummation of the transactions contemplated herein and therein by the
Corporation and the Trust will not conflict with or constitute a breach of, or
default under any material agreement to which the Corporation and the Trust is a
party nor will such execution or delivery result in any violation of the
provisions of the Constituent Documents.
(G) No further approval, authorization, consent or other order of any
public board or body is required in connection with the execution and delivery
of this Agreement, the issuance of the Capital Securities and the consummation
of the offering, except as may be required under the securities or Blue Sky laws
of various jurisdictions as to which no opinion need be rendered.
(H) The Registration Statement was declared effective under the
Securities Act as of the date and time specified in such opinion and, to such
counsel's knowledge and information, no stop order suspending the effectiveness
of the Registration Statement has been issued under the Securities Act and no
proceedings therefor have been initiated or threatened by the Commission.
(I) The Registration Statement and the Prospectus and any amendment or
supplement thereto made by the Company prior to the Closing Time (other than the
financial statements and financial and statistical data included therein, as to
which no opinion need be rendered), when it or they became effective or were
filed with the Commission, as the case may be, and in each case at the Closing
Time, complied as to form in all material respects with the requirements of the
Securities Act, the Trust Indenture Act and the applicable rules and regulations
under said acts, and such counsel has no reason to believe that: (i) the
Registration Statement (other than the financial
14
<PAGE>
statements and financial and statistical data included therein, as to which no
opinion need be rendered), at the time it became effective, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements contained therein, not misleading, or (ii) the
Prospectus (other than the financial statements and financial and statistical
data included therein, as to which no opinion need be rendered), at the time it
was filed with the Commission or at the Closing Time, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
(J) The description of the Capital Securities and the Subordinated
Debentures contained in the Prospectus is accurate in all material respects and
the form of certificate used to evidence the Capital Securities and the
Subordinated Debentures are in due and proper form and comply with all
applicable statutory requirements.
(d) Malizia & Spidi shall additionally state that nothing has come to
their attention that would lead them to believe that the Prospectus (except for
financial or statistical data included therein, as to which counsel need make no
statement), 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 (except for the
financial or statistical data included therein, as to which counsel need make no
statement), included an untrue statement of a material fact or omitted to state
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they are made, not misleading. Malizia & Spidi
may state that, without limiting the generality of the foregoing, it assumes no
responsibility for the accuracy, completeness or fairness of any statements
contained in the Prospectus, other than statements insofar as they relate to
legal matters under the captions "Description of Capital Securities,"
"Description of Guarantee," "Description of Subordinated Debentures" and
"Relationship Among the Capital Securities, the Subordinated Debentures and the
Guarantee." Such statement by Malizia & Spidi shall not constitute an opinion or
guarantee that no such fact exists. In giving their opinions, Malizia & Spidi
may rely as to matters of fact on certificates of officers and directors of the
Corporation and the Bank, administrators of the Trust and certificates of public
officials, which opinions shall be in form and substance satisfactory to the
Placement Agent. Certain matters identified above which are governed by Delaware
law may be addressed in an opinion of Richards, Layton & Finger, rather than
Malizia & Spidi.
(e) 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 financial condition, results of
operations, or business of the Corporation and the Bank taken as a whole,
whether or not arising in the ordinary course of business, and the Placement
Agent shall have received a certificate of the Chief Executive Officer of the
Corporation and of the Bank and the chief financial or chief accounting officer
of the Corporation and of the Bank, dated as of Closing Time, to the effect that
(i) there has been no such material adverse change, (ii) there shall have been
no material transaction entered into by the Corporation or the Bank from the
latest date as of which the financial condition of the Corporation or the Bank
as set forth in the Prospectus other than transactions referred to or
contemplated therein and transactions in the ordinary course of business, (iii)
neither the Corporation nor the Bank shall have received from any regulatory
agency any direction (oral or written) to make any material change in the
15
<PAGE>
method of conducting its business with which it has not complied (which
direction, if any, shall have been disclosed to the Placement Agent) or which
materially and adversely would affect the financial condition, results of
operations or business of the Corporation or the Bank taken as a whole, (iv) the
representations and warranties in Section 1 hereof are true and correct with the
same force and effect as though expressly made at and as of the Closing Time,
and (v) the Corporation and the Trust have complied with all agreements and
satisfied all conditions on their part to be performed or satisfied at or prior
to Closing Time.
(f) The Registration Statement and all post-effective amendments
thereto shall have been declared effective by the Commission no later than 5:30
p.m. Eastern Time, on the date of this Agreement, or such later time as shall
have been consented to by the Placement Agent, but in any event not later than
5:30 p.m., Eastern Time, on the third full business day following the date
hereof; if the Corporation omitted information from the Registration Statement
at the time it became effective in reliance on Rule 430A under the Securities
Act, the Prospectus shall have been filed with the Commission in compliance with
Rule 424(b) and Rule 430A under the Securities Act; no stop order suspending the
effectiveness of the Registration Statement or any amendment or supplement
thereto shall have been issued; no proceeding for the issuance of such an order
shall have been initiated or shall be pending or, to the knowledge of the
Corporation or the Placement Agent, threatened or contemplated by the
Commission; and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been disclosed to the Placement Agent and complied with to the Placement
Agent's satisfaction.
(g) At the time this Agreement is executed and also on the day of the
Closing Time, as the case may be, there shall be delivered to the Placement
Agent a letter from Beard & Company, Inc., the Corporation's independent
accountants, the first letter to be dated the date of this Agreement, the second
letter to be dated the Closing Date, which shall be in form and substance
reasonably satisfactory to the Placement Agent and shall contain information as
of a date within five days of the date of such letter. There shall not have been
any change set forth in any letter referred to in this subsection (e) that makes
it impracticable or inadvisable in the judgment of the Placement Agent to
proceed with the offering of the Preferred Securities as contemplated hereby.
SECTION 6. INDEMNIFICATION.
(a) Placement Agent Indemnification.
(A) The Corporation and the Trust, jointly and severally, agree to
indemnify and hold harmless the Placement Agent, each person, if any, who
controls the Placement Agent, within the meaning of Section 15 of the Securities
Act or Section 20 of the Securities Exchange Act of 1934 (the "Exchange Act"),
and its affiliates, their respective, directors, officers, employees and agents
(hereinafter the "Placement Agent Indemnified Parties") as follows:
(i) from and against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, related to or arising out of the offering
of the Capital Securities or any action taken by the Placement Agent where
acting as agent of the Corporation and the Trust or otherwise as described
in Section 2 hereof;
16
<PAGE>
provided, however, that this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense found in a final judgment by a
court of competent jurisdiction to have resulted primarily from the bad
faith, willful misconduct or gross negligence of the Placement Agent;
(ii) from and against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, based upon or arising out of any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (or any amendment thereto), or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the indemnification
provided for in this paragraph (A) shall not apply to any loss, liability,
claim, damage or expense to the extent arising out of any untrue statement
or alleged untrue statement of a material fact or omission or alleged
omission of a material fact required to be stated therein or necessary to
make not misleading any statements contained in the Prospectus (or any
amendment thereto) made in reliance upon and in conformity with written
information relating to the Placement Agent furnished to the Corporation or
the Trust by the Placement Agent expressly for use in the Prospectus (or
any amendment thereto), which information is included in the sections
captioned "Private Placement Offering" (the "Placement Agent Information");
(iii) from and 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 described in clauses (i) or (ii) above, if such settlement is
effected with the written consent of the Corporation or the Trust, which
consent shall not be unreasonably withheld; and
(iv) from and against any and all expenses whatsoever, as incurred
(including, subject to Section 6(c) hereof, the fees and disbursements of
counsel chosen by the Placement Agent), reasonably incurred in
investigating, preparing or defending against any litigation, or any
investigation, proceeding or inquiry by any governmental agency or body,
commenced or threatened, or any pending or threatened claim whatsoever
described in clauses (i) or (ii) above, to the extent that any such expense
is not paid under (i), (ii), or (iii) above.
(B) In addition to, and without limiting the provisions of Section
(6)(a)(A)(iv) hereof, in the event that the Placement Agent or any Placement
Agent Indemnified Party is requested or required to provide documentary evidence
or to appear as a witness or otherwise give testimony in any action, proceeding,
investigation or inquiry brought by or on behalf of or against the Corporation
or the Trust or any of its affiliates or any participant in the transactions
contemplated hereby in which the Placement Agent or any Placement Agent
Indemnified Party is not named as a defendant or subject to an investigation or
inquiry, the Corporation and the Trust jointly and severally agree to reimburse
the Placement Agent for all reasonable and necessary out-of-pocket expenses
incurred by it in connection with providing any documentary evidence or
preparing or
17
<PAGE>
appearing as a witness or otherwise giving testimony and to compensate the
Placement Agent in the amount of $2,000 per day for any sworn testimony.
(C) In any case in which it is finally judicially determined that
indemnification or reimbursement, as set forth above, may not be enforced or is
otherwise unavailable, then the Corporation and the Trust agree to jointly and
severally contribute to the aggregate claims, liabilities, losses, damages or
expenses to which the Placement Agent and each Placement Agent Indemnified Party
may be subject in such proportion as is appropriate to reflect the relative
benefits received by the Corporation and the Trust on the one hand, and the
Placement Agent on the other, from the offering provided for in this Agency
Agreement. Such relative benefits shall be determined by reference to the total
value of the proposed offering in relation to the fee received or that would be
received if the offering was consummated by the Placement Agent, provided,
however, that the Corporation and the Trust shall contribute any additional
amount necessary to assure that the contribution by the Placement Agent does not
exceed the amount of the fee actually received by the Placement Agent under this
Agency Agreement.
(D) The rights to indemnification and contribution under this Section
6(a) are cumulative and in addition to (and not exclusive of) any right, power
or remedy provided by law or equity, and shall apply whether or not the
Placement Agent or any Placement Agent Indemnified Party is named or threatened
to be named as a party in any action, suit or proceeding, brought or to be
brought, The Corporation and the Trust hereby consent to personal jurisdiction
and to service and venue in any court in which any claim subject to this
indemnification is brought against the Placement Agent or any Placement Agent
Indemnified Party.
(b) The Placement Agent agrees to indemnify and hold harmless the
Corporation, the Trust, their affiliates, and their respective directors,
administrators, trustees, officers, and each person, if any, who controls the
Corporation within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act against any and all loss, liability, claim, damage, and
expense described in the indemnity contained in subsection (a)(A) of this
Section, as incurred, but only with respect to untrue statements or alleged
untrue statements of a material fact or omissions or alleged omissions of a
material fact, made in the Prospectus (or any amendment or supplement thereto)
in reliance upon and in conformity with the Placement Agent Information.
(c) Each indemnified party shall give written notice as promptly as
reasonably practicable to each indemnifying party of any pending or threatened
claim, or any action or proceeding arising therefrom or commenced against it in
respect of which indemnity is being sought under this Section 6, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability which it may have on account of this indemnity agreement or
otherwise. If it so elects, the indemnifying party may assume the defense of any
such action or proceeding with counsel chosen by it, unless the indemnified
party reasonably objects to such assumption on the grounds that there are legal
defenses available to the indemnified party which are different from or in
addition to those available to the indemnifying party, in which case the
indemnifying party shall pay the reasonable fees and expenses of separate
counsel for the indemnified party, provided, however, that in no event shall the
indemnifying party be liable for the fees and expenses of more than one counsel
for the indemnified parties. The indemnifying party may participate at its own
expense in the defense of any such action.
18
<PAGE>
SECTION 7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Corporation, the
Trust or the Bank submitted pursuant hereto, shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of the
Placement Agent or any controlling person, or by or on behalf of the
Corporation, and shall survive delivery of the Capital Securities.
SECTION 8. TERMINATION OF AGREEMENT.
(a) The Placement Agent may terminate this Agreement, by notice to the
Corporation and the Trust, at any time at or prior to Closing Time (i) if there
has been, since the date of this Agreement or since the respective dates as of
which information is given in the Prospectus, any material adverse change, in
the Placement Agent's good faith opinion, in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Corporation or the Bank, or the Corporation and the Bank taken as a whole,
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 elsewhere or any outbreak of hostilities or escalation thereof or
other calamity or crisis the effects of which, in the reasonable judgment of the
Placement Agent, are so material and adverse as to make it impracticable to
market the Capital Securities or to enforce contracts, including subscriptions
or orders, for the sale of the Capital Securities, (iii) or if trading generally
on either the American Stock Exchange, the New York Stock Exchange or NASDAQ has
been suspended, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices for securities have been required, by either of said
Exchanges or by order of the Commission or any other governmental authority, or
if a banking moratorium has been declared by either Federal or Pennsylvania
authorities, or (iv) if any condition specified in Section 5 shall not have been
fulfilled when and as required to be fulfilled.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except
that the provisions of Section 4 relating to reimbursement of expenses and the
provisions of Sections 6 and 7 hereof shall survive any termination of this
Agreement.
(c) If not earlier terminated, this Agreement shall terminate as of the
Closing Time provided that the provisions of Section 2(g), 4, 6 and 7 shall
survive termination.
SECTION 9. 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 Placement Agent shall be directed to
the Placement Agent at Hopper Soliday, a Division of Tucker Anthony
Incorporated, 1703 Oregon Pike, Lancaster, Pennsylvania 17604-4548, attention of
Eric G. Hoerner, Senior Vice President, with a copy to Jeffrey P. Waldron, Esq.,
Stevens & Lee, One Glenhardie Corporate Center, 1275 Drummers Lane, Wayne,
Pennsylvania 19087; notices to the Corporation, the Bank and/or the Trust shall
be directed to any of them at First Star Bancorp, Inc., 418 West Broad Street,
Bethlehem, Pennsylvania 18018, attention of Paul J. Sebastion, Executive Vice
President and CFO, with a copy to John J. Spidi,
19
<PAGE>
Esq., Malizia Spidi & Fisch, PC, One Franklin Square, 1301 K Street, N.W. Suite
700, Washington, D.C. 20005.
SECTION 10. PARTIES.
This Agreement shall inure to the benefit of and be binding upon the
Placement Agent, the Corporation and the Trust 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 Placement
Agent, the Corporation and the Trust 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 or
therein contained. This Agreement and all conditions and provisions hereof and
thereof are intended to be for the sole and exclusive benefit of the Placement
Agent, the Corporation and the Trust 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 persons, firm or corporation.
SECTION 11. ENTIRE AGREEMENT, AMENDMENT.
This Agreement represents the entire understanding of the parties
hereto with reference to the transactions contemplated hereby and supersedes any
and all other oral or written agreements heretofore made. No waiver, amendment
or other modification of this Agreement shall be effective unless in writing and
signed by the parties hereto. In the event of any conflict between the terms of
this Agreement and the terms of such engagement letter, the terms of this
Agreement will govern.
SECTION 12. GOVERNING LAW AND TIME.
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania applicable to agreements made and
to be performed in said Commonwealth without regard to the conflicts of laws
provisions thereof. Specified times of day refer to Eastern time.
SECTION 13. SEVERABILITY.
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
SECTION 14. HEADINGS.
Sections headings are not to be considered part of this Agreement, are
for convenience and reference only, and are not to be deemed to be full or
accurate descriptions of the contents of any paragraph or subparagraph.
20
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Corporation a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Placement Agent, the Corporation and the Trust in
accordance with its terms.
Very truly yours,
FIRST STAR BANCORP, INC.
By:___________________________________
FIRST STAR CAPITAL TRUST I
By:____________________________________
Administrative Trustee
CONFIRMED AND ACCEPTED as of the date first above written:
HOPPER SOLIDAY, a Division of Tucker Anthony Incorporated
By:_____________________________
EXHIBIT 4.1
<PAGE>
================================================================================
FORM OF
JUNIOR SUBORDINATED INDENTURE
Between
FIRST STAR BANCORP, INC.
and
BANKERS TRUST COMPANY
(as Trustee)
dated as of
___________, __ 1999
================================================================================
<PAGE>
FIRST STAR CAPITAL TRUST
Certain Sections of this Junior Subordinated Indenture relating
to Sections 310 through 318 of the
Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Junior Subordinated
Act Section Indenture Section
----------- -----------------
<S> <C> <C>
Section 310 (a)(1)................................................ 6.9
(a)(2)................................................ 6.9
(a)(3)................................................ Not Applicable
(a)(4)................................................ Not Applicable
(a)(5)................................................ 6.9
(b)................................................... 6.8, 6.10
Section 311 (a)................................................... 6.13
(b)................................................... 6.13
(b)(2)................................................ 7.3(a)
Section 312 (a)................................................... 7.1, 7.2(a)
(b)................................................... 7.2(b)
(c)................................................... 7.2(c)
Section 313 (a)................................................... 7.3(a)
(a)(4)................................................ 7.3(a)
(b)................................................... 7.3(b)
(c)................................................... 7.3(a)
(d)................................................... 7.3(c)
Section 314 (a)................................................... 7.4
(b)................................................... 7.4
(c)(1)................................................ 1.2
(c)(2)................................................ 1.2
(c)(3)................................................ Not Applicable
(e)................................................... 1.2
Section 315 (a)................................................... 6.1(a)
(b)................................................... 6.2, 7.3
(c)................................................... 6.1(b)
(d)................................................... 6.1(c)
(e)................................................... 5.14
Section 316 (a)................................................... 5.12
(a)(1)(A)............................................. 5.12
(a)(1)(B)............................................. 5.13
(a)(2)................................................ Not Applicable
(b)................................................... 5.8
(c)................................................... 1.4(f)
Section 317 (a)(1)................................................ 5.3
(a)(2)................................................ 5.4
(b)................................................... 10.3
Section 318 (a)................................................... 1.7
</TABLE>
Note:This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF
GENERAL APPLICATION
<S> <C> <C>
SECTION 1.1. Definitions.................................................................. 1
SECTION 1.2. Compliance Certificate and Opinions..........................................[^] [11]
=== ====
SECTION 1.3. Forms of Documents Delivered to Trustee...................................... 12
SECTION 1.4. Acts of Holders.............................................................. 13
SECTION 1.5. Notices, Etc. to Trustee and Company......................................... 15
SECTION 1.6. Notice to Holders; Waiver....................................................[^] [15]
=== ====
SECTION 1.7. Conflict with Trust Indenture Act............................................ 16
SECTION 1.8. Effect of Headings and Table of Contents..................................... 16
SECTION 1.9. Successors and Assigns....................................................... 16
SECTION 1.10. Separability Clause..........................................................[^] [16]
=== ====
SECTION 1.11. Benefits of Indenture........................................................[^] [16]
=== ====
SECTION 1.12. Governing Law................................................................[^] [16]
=== ====
SECTION 1.13. Non-Business Days............................................................ 17
ARTICLE II. SECURITY FORMS
SECTION 2.1. Forms Generally.............................................................. 17
SECTION 2.2. Form of Face of Security.....................................................[^] [17]
=== ====
SECTION 2.3. Form of Reverse of Security..................................................[^] [22]
=== ====
SECTION 2.4. Additional Provisions Required in Global Security............................ 26
SECTION 2.5. Form of Trustee's Certificate of Authentication .............................[^] [25]
=== ====
ARTICLE III. THE SECURITIES...............................................................
SECTION 3.1. Title and Terms..............................................................[^] [25]
=== ====
SECTION 3.2. Denominations................................................................[^] [26]
=== ====
SECTION 3.3. Execution, Authentication, Delivery and Dating...............................[^] [26]
=== ====
SECTION 3.4. Temporary Securities.........................................................[^] [27]
=== ====
SECTION 3.5. Global Securities............................................................ 29
SECTION 3.6. Registration, Transfer and Exchange Generally; Certain
Transfers and Exchanges; Securities Act Legends.........................[^] [28]
SECTION 3.7. Mutilated, Lost and Stolen Securities........................................[^] [29]
=== ====
SECTION 3.8. Payment of Interest and Additional Interest; Interest
Rights Preserved........................................................[^] [30]
SECTION 3.9. Persons Deemed Owners........................................................[^] [32]
=== ====
SECTION 3.10. Cancellation.................................................................[^] [32]
=== ====
SECTION 3.11. Computation of Interest......................................................[^] [32]
=== ====
SECTION 3.12. Deferrals of Interest Payment Dates..........................................[^] [32]
=== ====
SECTION 3.13. Right of Set-Off.............................................................[^] [34]
=== ====
SECTION 3.14. Agreed Tax Treatment.........................................................[^] [34]
=== ====
SECTION 3.15. CUSIP Numbers................................................................[^] [34]
SECTION 3.16. Shortening of Stated Maturity................................................[^] [34]
=== ====
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE IV. SATISFACTION AND DISCHARGE...................................................
SECTION 4.1. Satisfaction and Discharge of Indenture......................................[^] [35]
=== ====
SECTION 4.2. Application of Trust Money...................................................[^] [36]
=== ====
ARTICLE V. REMEDIES
SECTION 5.1. Events of Default............................................................[^] [36]
=== ====
SECTION 5.2. Acceleration of Maturity; Rescission and Annulment...........................[^] [37]
=== ====
SECTION 5.3. Collection of Indebtedness and Suits for
Enforcement by Trustee..................................................[^] [38]
SECTION 5.4. Trustee May File Proofs of Claim.............................................[^] [39]
=== ====
SECTION 5.5. Trustee May Enforce Claim Without Possession of Securities...................[^] [40]
=== ====
SECTION 5.6. Application of Money Collected...............................................[^] [40]
=== ====
SECTION 5.7. Limitation on Suits..........................................................[^] [41]
=== ====
SECTION 5.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest; Direct Action by Holders
of Preferred Securities.................................................[^] [41]
SECTION 5.9. Restoration of Rights and Remedies...........................................[^] [42]
=== ====
SECTION 5.10. Rights and Remedies Cumulative...............................................[^] [42]
=== ====
SECTION 5.11. Delay or Omission Not Waiver.................................................[^] [42]
=== ====
SECTION 5.12. Control by Holders...........................................................[^] [43]
=== ====
SECTION 5.13. Waiver of Past Defaults......................................................[^] [43]
=== ====
SECTION 5.14. Undertaking for Costs........................................................ [^] [44]
=== ====
SECTION 5.15. Waiver of Usury, Stay or Extension Laws......................................[^] [44]
=== ====
ARTICLE VI. THE TRUSTEE
SECTION 6.1. Certain Duties and Responsibilities..........................................[^] [44]
=== ====
SECTION 6.2. Notice of Defaults...........................................................[^] [45]
=== ====
SECTION 6.3. Certain Rights of Trustee....................................................[^] [46]
=== ====
SECTION 6.4. Not Responsible for Recitals or Issuance of Securities.......................[^] [47]
=== ====
SECTION 6.5. May Hold Securities..........................................................[^] [47]
=== ====
SECTION 6.6. Money Held in Trust..........................................................[^] [47]
=== ====
SECTION 6.7. Compensation and Reimbursements..............................................[^] [47]
=== ====
SECTION 6.8. Disqualification; Conflicting Interests......................................[^] [49]
=== ====
SECTION 6.9. Corporate Trustee Required; Eligibility......................................[^] [49] SECTION
=== ====
6.10. Resignation and Removal; Appointment of Successor...................................................[^] [49]
=== ====
SECTION 6.11. Acceptance of Appointment by Successor.......................................[^] [51]
=== ====
SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business..................[^] [51]
=== ====
SECTION 6.13. Preferential Collection of Claims Against Company............................[^] [52]
=== ====
SECTION 6.14. Appointment of Authenticating Agent..........................................[^] [52]
=== ====
ARTICLE VII. HOLDERS LISTS AND REPORTS BY TRUSTEE,
PAYING AGENT AND COMPANY
SECTION 7.1. Company to Furnish Trustee Names and Addresses of Holders....................[^] [53]
=== ====
SECTION 7.2. Preservation of Information, Communications to Holders ......................[^] [54]
=== ====
SECTION 7.3. Reports by Trustee and Paying Agent..........................................[^] [54]
=== ====
SECTION 7.4. Reports by Company........................................................... 59
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VIII. CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
SECTION 8.1. Company May Consolidate, Etc., Only on Certain Terms.........................[^] [55]
=== ====
SECTION 8.2. Successor Company Substituted................................................[^] [56]
=== ====
ARTICLE IX. SUPPLEMENTAL INDENTURES
SECTION 9.1. Supplemental Indentures Without Consent of Holders...........................[^] [56]
=== ====
SECTION 9.2. Supplemental Indentures With Consent of Holders..............................[^] [57]
=== ====
SECTION 9.3. Execution of Supplemental Indentures.........................................[^] [59]
=== ====
SECTION 9.4. Effect of Supplemental Indentures............................................[^] [59]
=== ====
SECTION 9.5. Conformity with Trust Indenture Act..........................................[^] [59]
=== ====
SECTION 9.6. Reference in Securities to Supplemental Indentures...........................[^] [59]
=== ====
ARTICLE X. COVENANTS
SECTION 10.1. Payment of Principal, Premium and Interest...................................[^] [59]
=== ====
SECTION 10.2. Maintenance of Office or Agency..............................................[^] [60]
=== ====
SECTION 10.3. Money for Security Payments to be Held in Trust..............................[^] [60]
=== ====
SECTION 10.4. Statement as to Compliance...................................................[^] [62]
=== ====
SECTION 10.5. Waiver of Certain Covenants..................................................[^] [62]
=== ====
SECTION 10.6. Additional Sums..............................................................[^] [62]
=== ====
SECTION 10.7. Additional Covenants.........................................................[^] [63]
=== ====
SECTION 10.8. Federal Tax Reports..........................................................[^] [64]
=== ====
ARTICLE XI. REDEMPTION OF SECURITIES
SECTION 11.1. Applicability of This Article................................................[^] [64]
=== ====
SECTION 11.2. Election to Redeem; Notice to Trustee........................................[^] [64]
=== ====
SECTION 11.3. Selection of Securities to be Redeemed.......................................[^] [65]
=== ====
SECTION 11.4. Notice of Redemption.........................................................[^] [65]
=== ====
SECTION 11.5. Deposit of Redemption Price..................................................[^] [66]
=== ====
SECTION 11.6. Payment of Securities Called for Redemption..................................[^] [66]
=== ====
SECTION 11.7. Right of Redemption of Securities Initially Issued
to the Issuer Trust.....................................................[^] [67]
ARTICLE XII. SINKING FUNDS
Sinking Funds................................................................[^] [67]
ARTICLE XIII. SUBORDINATION OF SECURITIES
SECTION 13.1. Securities Subordinate to Senior Indebtedness................................[^] [68]
=== ====
SECTION 13.2. No Payment When Senior Indebtedness in Default;
Payment Over of Proceeds Upon Dissolution, Etc..........................[^] [68]
SECTION 13.3 Payment Permitted If No Default..............................................[^] [70]
=== ====
SECTION 13.4. Subrogation to Rights of Holders of Senior Indebtedness......................[^] [70]
=== ====
SECTION 13.5. Provisions Solely to Define Relative Rights..................................[^] [70]
=== ====
SECTION 13.6. Trustee to Effectuate Subordination..........................................[^] [71]
=== ====
SECTION 13.7. No Waiver of Subordination Provisions........................................[^] [71]
=== ====
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 13.8. Notice to Trustee............................................................[^] [72]
=== ====
SECTION 13.9. Reliance on Judicial Order or Certificate of Liquidating Agent...............[^] [72]
=== ====
SECTION 13.10. Trustee Not Fiduciary for Holders of Senior Indebtedness.....................[^] [73]
SECTION 13.11. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights........................................[^] [73]
SECTION 13.12. Article Applicable to Paying Agents..........................................[^] [73]
SECTION 13.13. Certain Conversions or Exchanges Deemed Payment..............................[^] [73]
ANNEX A Form of Restricted Securities Certificate [^]
</TABLE>
v
<PAGE>
JUNIOR SUBORDINATED INDENTURE
-----------------------------
THIS JUNIOR SUBORDINATED INDENTURE, dated as of ____________ __, 1999,
between FIRST STAR BANCORP, INC., a Pennsylvania Corporation (the "Company"),
having its principal office at 418 West Broad Street, Bethlehem, Pennsylvania
18018 and BANKERS TRUST COMPANY, as Trustee, having its principal office at Four
Albany Street, 4th Floor, New York, New York 10006 (the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance of its unsecured junior subordinated
deferrable interest debentures due _______________ __, 2029 (hereinafter called
the "Securities") of substantially the tenor hereinafter provided, including
Securities issued to evidence loans made to the Company from the proceeds from
the issuance from time to time by First Star Capital Trust, a Delaware business
trust (the "Issuer Trust")[,] of undivided preferred beneficial interests in the
assets of such Issuer Trust (the "Preferred Securities") and common undivided
interests in the assets of such Issuer Trust (the "Common Securities" and,
collectively with the Preferred Securities, the "Trust Securities"), and to
provide the terms and conditions upon which the Securities are to be
authenticated, issued and delivered; and
WHEREAS, all things necessary to make this Indenture a valid agreement
of the Company, in accordance with its terms, have been done.
NOW THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders (as such term is defined in Section 1.1 hereof)
thereof, it is mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Securities or of any series thereof, and intending
to be legally bound hereby, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article I have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
<PAGE>
(c) the words "include", "includes" and "including" shall be deemed to
be followed by the phrase "without limitation";
(d) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles as
in effect at the time of computation;
(e) whenever the context may require, any gender shall be deemed to
include the other;
(f) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may be,
of this Indenture; and
(g) the words "hereby", "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"25% Capital Limitation" means the limitation imposed by the Federal
Reserve that the proceeds of certain qualifying securities similar to the Trust
Securities will qualify as Tier 1 capital of the Company up to an amount not to
exceed, when taken together with all cumulative preferred stock of the Company,
if any, 25% of the Company's Tier 1 capital, or any subsequent limitation
adopted by the Federal Reserve.
"Act" when used with respect to any Holder has the meaning specified in
Section 1.4.
"Additional Interest" means the interest, if any, that shall accrue on
any interest on the Securities of any series the payment of which has not been
made on the applicable Interest Payment Date and which shall accrue at the rate
per annum specified or determined as specified in such Security.
"Additional Sums" has the meaning specified in Section 10.6.
"Additional Taxes" means any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject from time to
time as a result of a Tax Event.
"Administrator" means, in respect of the Issuer Trust, each Person
appointed in accordance with the Trust Agreement, solely in such Person's
capacity as Administrator of the Issuer Trust and not in such Person's
individual capacity, or any successor Administrator appointed as therein
provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or
2
<PAGE>
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agent Member" means any member of, or participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Global Security, in each case to
the extent applicable to such transaction and as in effect from time to time.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 6.14 to act on behalf of the Trustee to authenticate
Securities.
"Board of Directors" means the board of directors of the Company or the
executive committee of the board of directors of the Company (or any other
committee of the board of directors of the Company performing similar functions)
or, for purposes of this Indenture, a committee designated by the board of
directors of the Company (or such committee), comprised of two or more members
of the board of directors of the Company or officers of the Company, or both.
"Board Resolution" means a copy of a resolution certified by the
Secretary or any Assistant Secretary of the Company to have been duly adopted by
the Board of Directors, or such committee of the Board of Directors or officers
of the Company to which authority to act on behalf of the Board of Directors has
been delegated, and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day other than (a) a Saturday or Sunday, (b) a
day on which banking institutions in the Commonwealth of Pennsylvania or the
City of New York are authorized or required by law or executive order to remain
closed, or (c) a day on which the Corporate Trust Office of the Trustee, or,
with respect to the Securities initially issued to the Issuer Trust, the
"Corporate Trust Office" (as defined in the Trust Agreement) of the Property
Trustee or the Delaware Trustee under the Trust Agreement, is closed for
business.
"Capital Treatment Event" means, in respect of the Issuer Trust, the
reasonable determination by the Company that, as a result of the occurrence of
any amendment to, or change (including any announced prospective change) in, the
laws (or any rules or regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such pronouncement, action or decision is announced on or after the date of the
issuance of the Preferred Securities of the Issuer Trust, there is more than an
insubstantial risk that the Company will not be entitled to treat an amount
equal to the Liquidation Amount (as such term is defined in the Trust Agreement)
of such Preferred Securities as "Tier 1 Capital" (or the then
3
<PAGE>
equivalent thereof), except as otherwise restricted under the 25% Capital
Limitation, for purposes of the risk-based capital adequacy guidelines of the
Federal Reserve, as then in effect and applicable to the Company.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this instrument such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties on such date.
"Common Securities" has the meaning specified in the first recital of
this Indenture.
"Common Stock" means the common stock, $1.00 par value per share, of
the Company.
"Company" means the Person named as the "Company" in the preamble of
this instrument until a successor entity shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor entity.
"Company Request" and "Company Order" mean, respectively, the written
request or order signed in the name of the Company by any Chairman of the Board
of Directors, any Vice Chairman of the Board of Directors, its President or a
Vice President, and by its Chief Financial Officer, its Treasurer, its Secretary
or an Assistant Secretary, and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered,
which office at the date hereof is located at Four Albany Street, 4th Floor, New
York, New York 10006.
["Adjusted Interest Ratet" has the meaning assigned in the Trust
Agreement.]
"Creditor" has the meaning specified in Section 6.7.
"Defaulted Interest" has the meaning specified in Section 3.8.
"Delaware Trustee" means, with respect to the Issuer Trust, the Person
identified as the "Delaware Trustee" in the Trust Agreement, solely in its
capacity as Delaware Trustee of the Issuer Trust under the Trust Agreement and
not in its individual capacity, or its successor in interest in such capacity,
or any successor Delaware trustee appointed as therein provided.
"Depositary" means, with respect to the Securities issuable or issued
in whole or in part in the form of one or more Global Securities, the Person
designated as Depositary by the Company pursuant to Section 3.1 (or any
successor thereto).
4
<PAGE>
"Discount Security" means any security that provides for an amount less
than the principal amount thereof to be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 5.2.
"Dollar" or "$" means the currency of the United States of America
that, as at the time of payment, is legal tender for the payment of public and
private debts.
[^]["Entity]" includes a bank, corporation, association, company,
limited liability company, joint-stock company or business trust.
"Event of Default[^]" has the meaning specified in Article V.
"Exchange Act" means the Securities Exchange Act of 1934 and any
successor statute thereto, in each case as amended from time to time.
"Expiration Date" has the meaning specified in Section 1.4.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"Extension Period" has the meaning specified in Section 3.12.
"Global Security" means a Security in the form prescribed in Section
2.4 evidencing all or part of the Securities, issued to the Depositary or its
nominee, and registered in the name of such Depositary or its nominee.
"Guarantee" means, with respect to the Issuer Trust, the Guarantee
Agreement, dated ___________ __, 1999, executed by the Company for the benefit
of the Holders of the Preferred Securities issued by the Issuer Trust as
modified, amended or supplemented from time to time.
"Holder" means a Person in whose name a Security is registered in the
Securities Register.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
["Initial Interest Rate" has the meaning assigned in the Trust Agreement.]
"Institutional Accredited Investor" means an institutional accredited
investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act.
5
<PAGE>
"Interest Payment Date" means the Stated Maturity of an installment of
interest on Securities.
"Investment Company Act" means the Investment Company Act of 1940 and
any successor statute thereto, in each case as amended from time to time.
"Investment Company Event" means the receipt by the Issuer Trust of an
Opinion of Counsel rendered by counsel experienced in such matters, to the
effect that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change or
prospective change becomes effective or would become effective, as the case may
be, on or after the date of the issuance of the Preferred Securities of the
Issuer Trust.
"Issuer Trust" has the meaning specified in the first recital of this
Indenture.
"Liquidation Amount" has the meaning assigned in the Trust Agreement.
"Maturity" when used with respect to any Security means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Notice of Default" means a written notice of the kind specified in
Section 5.1(3).
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chairman of the Board, Chief Executive Officer,
President or a Vice President, and by the Chief Financial Officer, Treasurer, an
Associate Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of such Person, and delivered to the Trustee. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Indenture shall include;
(a) a statement by each officer signing the Officers'
Certificate that such officer has read the covenant or condition and the
definitions relating thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by such officer in rendering the
Officers' Certificate;
(c) a statement that such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
6
<PAGE>
(d) a statement as to whether, in the opinion of such officer,
such condition or covenant has been complied with;
provided, however, that the Officers' Certificate delivered pursuant to the
provisions of Section 10.4 hereof shall comply with the provisions of Section
314 of the Trust Indenture Act.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for or an employee of the Company or any Affiliate of the Company.
"Original Issue Date" means the date of issuance specified as such in
each Security.
"Outstanding" means, when used in reference to any Securities, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(a) Securities theretofore canceled by the Trustee or delivered
to the Trustee for cancellation;
(b) Securities for whose payment money in the necessary amount
has been theretofore deposited with the Trustee or any Paying Agent in
trust for the Holders of such Securities; and
(c) Securities in substitution for or in lieu of other
Securities which have been authenticated and delivered or that have
been paid pursuant to Section 3.6, unless proof satisfactory to the
Trustee is presented that any such Securities are held by Holders in
whose hands such Securities are valid, binding and legal obligations of
the Company;
provided, however, that in determining whether the Holders of the
requisite principal amount of Outstanding Securities have given any
request, demand, authorization, direction, notice, consent or waiver
hereunder, Securities owned by the Company or any other obligor upon
the Securities or any Affiliate of the Company or such other obligor
(other than, for the avoidance of doubt, the Issuer Trust to which
Securities of the applicable series were initially issued) shall be
disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or
waiver, only Securities that the Trustee knows to be so owned shall be
so disregarded. Securities so owned that have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect
to such Securities and that the pledgee is not the Company or any other
obligor upon the Securities or any Affiliate of the Company or such
other obligor (other than, for the avoidance of doubt, the Issuer
Trust). Upon the written request of the Trustee, the Company shall
furnish to the Trustee promptly an Officers' Certificate listing and
identifying all Securities, if any, known by the Company to be
7
<PAGE>
owned or held by or for the account of the Company, or any other
obligor on the Securities or any Affiliate of the Company or such
obligor (other than, for the avoidance of doubt, the Issuer Trust),
and, subject to the provisions of Section 6.1, the Trustee shall be
entitled to accept such Officers' Certificate as conclusive evidence
of the facts therein set forth and of the fact that all Securities not
listed therein are Outstanding for the purpose of any such
determination.
"Paying Agent" means the Trustee or any Person authorized by the
Company to pay the principal of (or premium, if any) or interest on, or other
amounts in respect of any Securities on behalf of the Company.
"Person" means any individual, partnership, trust, unincorporated
organization or entity (as defined herein) or government or any agency or
political subdivision thereof.
"Place of Payment" means, with respect to the Securities, the place or
places where the principal of (and premium, if any) and interest on the
Securities are payable pursuant to Section 3.1.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security. For the purposes of this definition, any security
authenticated and delivered under Section 3.7 in lieu of a mutilated, destroyed,
lost or stolen Security shall be deemed to evidence the same debt as the
mutilated, destroyed, lost or stolen Security.
"Preferred Securities" has the meaning specified in the first recital
of this Indenture.
"Principal Subsidiary Bank" means each of (a) First Star Savings Bank,
(b) any other banking subsidiary of the Company the consolidated assets of which
constitute 20% or more of the consolidated assets of the Company and its
consolidated subsidiaries, (c) any other banking subsidiary designated as a
Principal Subsidiary Bank pursuant to a Board Resolution and set forth in an
Officers' Certificate delivered to the Trustee, and (d) any subsidiary of the
Company that owns, directly or indirectly, any voting securities, or options,
warrants or rights to subscribe for or purchase voting securities, of any
Principal Subsidiary Bank under clause (a), (b) or (c), and in the case of
clause (a), (b), (c) or (d) their respective successors (whether by
consolidation, merger, conversion, transfer of substantially all their assets
and business or otherwise) so long as any such successor is a banking subsidiary
(in the case of clause (a), (b) or (c)) or a subsidiary (in the case of clause
(d)) of the Company.
"Proceeding" has the meaning specified in Section 13.2.
"Property Trustee" means, with respect to the Issuer Trust, the Person
identified as the "Property Trustee" in the Trust Agreement, solely in its
capacity as Property Trustee of the
8
<PAGE>
Issuer Trust under the Trust Agreement and not in its individual capacity, or
its successor in interest in such capacity, or any successor property trustee
appointed as therein provided.
"Redemption Date[^][,"] when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture or the terms of such Security.
"Redemption Price[^][,"] when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date with respect to the Securities means, unless otherwise provided pursuant to
Section 3.1 with respect to the Securities, the close of business on March 15,
June 15, September 15 or December 15 next preceding such Interest Payment Date
(whether or not a Business Day).
"Responsible Officer"[^] when used with respect to the Property Trustee
means any officer assigned to the Corporate Trust Office, including any managing
director, principal, vice president, assistant vice president, assistant
treasurer, assistant secretary [associate, director] or any other officer of the
Trustee customarily performing functions similar to those performed by any of
the above designated officers and having direct responsibility for the
administration of this Indenture, and also, with respect to a particular matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
"Restricted Security" means each Security required pursuant to Section
3.6(c) to bear a Restricted Securities Legend.
"Restricted Securities Certificate" means a certificate substantially
in the form set forth in Annex A.
"Restricted Securities Legend" means a legend substantially in the form
of the legend required in the form of Security set forth in Section 2.2 to be
placed upon a Restricted Security.
"Rights Plan" means any plan of the Company providing for the issuance
by the Company to all holders of its Common Stock, $1.00 par value per share, of
rights entitling the holders thereof to subscribe for or purchase shares of any
class or series of capital stock of the Company which rights (a) are deemed to
be transferred with such shares of such Common Stock, (b) are not exercisable,
and (c) are also issued in respect of future issuances of such Common Stock, in
each case until the occurrence of a specified event or events.
"Securities" or "Security" means any debt securities or debt security,
as the case may be, authenticated and delivered under this Indenture.
9
<PAGE>
"Securities Act" means the Securities Act of 1933 and any successor
statute thereto, in each case as amended from time to time.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 3.6.
"Senior Indebtedness" means, whether recourse is to all or a portion of
the assets of the Company and whether or not contingent, (a) every obligation of
the Company for money borrowed; (b) every obligation of the Company evidenced by
bonds, debentures, notes or other similar instruments, including obligations
incurred in connection with the acquisition of property, assets or businesses
and including all sums payable to the Trustee under Section 6.7 hereunder; (c)
every reimbursement obligation of the Company with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of the
Company; (d) every obligation of the Company issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business); (e) every
capital lease obligation of the Company; (f) every obligation of the Company for
claims (as defined in Section 101(4) of the United States Bankruptcy Code of
1978, as amended) in respect of derivative products such as interest and foreign
exchange rate contracts, commodity contracts and similar arrangements; and (g)
every obligation of the type referred to in clauses (a) through (f) of another
person and all dividends of another person the payment of which, in either case,
the Company has guaranteed or is responsible or liable, directly or indirectly,
as obligor or otherwise. Senior Indebtedness shall not include (a) any
obligations which, by their terms, are expressly stated to rank pari passu in
right of payment with, or to not be superior in right of payment to, the [^]
[Securities], (b) any Senior Indebtedness of the Company which when incurred and
without respect to any election under Section 1111(b) of the United States
Bankruptcy Code of 1978, as amended, was without recourse to the Company, (c)
any indebtedness of the Company to any of its subsidiaries, (d) indebtedness to
any executive officer or director of the Company, or (e) any indebtedness in
respect of debt securities issued to any trust, or a trustee of such trust,
partnership or other entity affiliated with the Company that is a financing
entity of the Company in connection with the issuance [^] [by] such financing
entity of securities that are similar to the Preferred Securities.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.8.
"Stated Maturity," when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
pursuant to the terms of such Security as the fixed date on which the principal
of such Security or such installment of principal or interest is due and
payable, as such date may, in the case of such principal, be shortened or
extended as provided pursuant to the terms of such Security and this Indenture.
10
<PAGE>
"Subsidiary" means an entity more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
For purposes of this definition, "voting stock" means stock that ordinarily has
voting power for the election of directors, whether at all times or only so long
as no senior class of stock has such voting power by reason of any contingency.
"Successor Security" of any particular Security means every Security
issued after, and evidencing all or a portion of the same debt as that evidenced
by, such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 3.7 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Tax Event" means the receipt by the Issuer Trust of an Opinion of
Counsel rendered by counsel experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Preferred Securities of the Issuer Trust, there is more than
an insubstantial risk that (a) the Issuer Trust is, or will be within 90 days of
the delivery of such Opinion of Counsel, subject to United States federal income
tax with respect to income received or accrued on the corresponding series of
Securities issued by the Company to the Issuer Trust, (b) interest payable by
the Company on the Securities is not, or within 90 days of the delivery of such
Opinion of Counsel will not be, deductible by the Company, in whole or in part,
for United States federal income tax purposes, or (c) the Issuer Trust is, or
will be within 90 days of the delivery of such Opinion of Counsel, subject to
more than a de minimis amount of other taxes, duties or other governmental
charges.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
as of ___________ __, 1999, as amended, modified or supplemented from time to
time, among the trustees of the Issuer Trust named therein, [and] the Company,
as depositor[^].
"Trustee" means the Person named as the "Trustee" in the preamble of
this Indenture, solely in its capacity as such and not in its individual
capacity, until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder and, if at any time there is
more than one such Person, "Trustee" as used with respect to the Securities
shall mean the Trustee with respect to Securities.
11
<PAGE>
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended
by the Trust Indenture Reform Act of 1990, or any successor statute, in each
case as amended from time to time, except as provided in Section 9.5.
"Trust Securities" has the meaning specified in the first recital of
this Indenture.
"Vice President," when used with respect to the Company, means any duly
appointed vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
SECTION 1.2. Compliance Certificate and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent
(including covenants compliance with which constitutes a condition precedent),
if any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent (including covenants compliance with
which constitutes a condition precedent), if any, have been complied with,
except that in the case of any such application or request as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than the
certificates provided pursuant to Section 10.4) shall include:
(a) a statement by each individual signing such certificate or
opinion that such individual has read such covenant or condition and
the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions of
such individual contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such individual, he or
she has made such examination or investigation as is necessary to
enable him or her to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of such
individual, such condition or covenant has been complied with.
12
<PAGE>
SECTION 1.3. Forms of Documents Delivered to Trustee.
(a) 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.
(b) Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to matters upon which his or her certificate or opinion is based
are erroneous. Any such certificate or Opinion of Counsel may be based, insofar
as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
(c) Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions, or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given, made or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments is or are
delivered to the Trustee, and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 6.1) conclusive in favor of
the Trustee and the Company, if made in the manner provided in this Section 1.4.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him or her the
13
<PAGE>
execution thereof. Where such execution is by a Person acting in other than his
or her individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his or her authority.
(c) The fact and date of the execution by any Person of any such
instrument or writing, or the authority of the Person executing the same, may
also be provided in any other manner that the Trustee deems sufficient and in
accordance with such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities
Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done or suffered to be done by the Trustee or the Company in reliance
thereon, whether or not notation of such action is made upon such Security.
(f) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given, made or taken by
Holders of Securities, provided that the Company may not set a record date for,
and the provisions of this Section 1.4(f) shall not apply with respect to, the
giving or making of any notice, declaration, request or direction referred to in
Section 1.4(g). If any record date is set pursuant to this Section 1.4(f), the
Holders of Outstanding Securities on such record date, and no other Holders,
shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date, provided, however, that no such action
shall be effective hereunder unless taken on or prior to the applicable
Expiration Date (as defined below) by Holders of the requisite principal amount
of Outstanding Securities on such record date. Nothing in this Section 1.4(f)
shall be construed to prevent the Company from setting a new record date for any
action for which a record date has previously been set pursuant to this Section
1.4(f) (whereupon the record date previously set shall automatically and with no
action by any Person be canceled and of no effect), and nothing in this Section
1.4(f) shall be construed to render ineffective any action taken by Holders of
the requisite principal amount of Outstanding Securities on the date such action
is taken. Promptly after any record date is set pursuant to this Section 1.4(f),
the Company, at its own expense, shall cause notice of such record date, the
proposed action by Holders and the applicable Expiration Date to be given to the
Trustee in writing and to each Holder of Securities in the manner set forth in
Section 1.6.
(g) The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the giving
or making of (i) any Notice of Default, (ii) any declaration of acceleration
referred to in Section 5.2, (iii) any request to institute proceedings referred
to in Section 5.7(b), or (iv) any direction referred to in
14
<PAGE>
Section 5.12, in each case with respect to Securities. If any record date is set
pursuant to this Section 1.4(g), the Holders of Outstanding Securities on such
record date, and no other Holders, shall be entitled to join in such notice,
declaration, request or direction, whether or not such Holders remain Holders
after such record date, provided, however, that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
by Holders of the requisite principal amount of Outstanding Securities on such
record date. Nothing in this Section 1.4(g) shall be construed to prevent the
Trustee from setting a new record date for any action for which a record date
has previously been set pursuant to this Section 1.4(g) (whereupon the record
date previously set shall automatically and with no action by any Person be
canceled and of no effect) and nothing in this Section 1.4(g) shall be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities on the date such action is taken. Promptly
after any record date is set pursuant to this Section 1.4(g), the Trustee, at
the Company's expense, shall cause notice of such record date, the proposed
action by Holders and the applicable Expiration Date to be given to the Company
in writing and to each Holder of Securities in the manner set forth in Section
1.6.
(h) With respect to any record date set pursuant to this Section 1.4,
the party hereto that sets such record date may designate any day as the
"Expiration Date" and from time to time may change the Expiration Date to any
earlier or later day, provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto in
writing, and to each Holder of Securities in the manner set forth in Section 1.6
on or prior to the existing Expiration Date. If an Expiration Date is not
designated with respect to any record date set pursuant to this Section, the
party hereto that set such record date shall be deemed to have initially
designated the 180th day after such record date as the Expiration Date with
respect thereto, subject to its right to change the Expiration Date as provided
in this Section 1.4(h). Notwithstanding the foregoing, no Expiration Date shall
be later than the 180th day after the applicable record date.
(i) Without limiting the foregoing, a Holder entitled hereunder to take
any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any part of such principal amount.
SECTION 1.5. Notices, Etc. to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder, any holder of Preferred
Securities or the Company shall be sufficient for every purpose
hereunder if made, given, furnished or filed in writing to or with the
Trustee at its Corporate Trust Office, or
15
<PAGE>
(b) the Company by the Trustee, any Holder or any holder of
Preferred Securities shall be sufficient for every purpose (except as
otherwise provided in Section 5.1) hereunder if in writing and mailed,
first class, postage prepaid, to the Company addressed to it at the
address of its principal office specified in the first paragraph of
this instrument or at any other address previously furnished in writing
to the Trustee by the Company.
SECTION 1.6. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first class postage prepaid, to each Holder affected
by such event, at the address of such Holder as it appears in the Securities
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. If, by reason of the suspension
of or irregularities in regular mail services or for any other reason, it shall
be impossible or impracticable to mail notice of any event to Holders when said
notice is required to be given pursuant to any provision of this Indenture or of
the Securities, then any manner of giving such notice as shall be satisfactory
to the Trustee shall be deemed to be a sufficient giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
SECTION 1.7. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act that is required thereunder to be a part of and
govern this Indenture, the provision of the Trust Indenture Act shall control.
If any provision of this Indenture modifies or excludes any provision of the
Trust Indenture Act that may be so modified or excluded, the latter provision
shall be deemed to apply to this Indenture as so modified or to be excluded, as
the case may be.
SECTION 1.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
16
<PAGE>
SECTION 1.9. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 1.10. Separability Clause.
If any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.11. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors and
assigns, the holders of Senior Indebtedness, the Holders of the Securities and,
to the extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.1 and
9.2, the holders of Preferred Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 1.12. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 1.13. Non-Business Days.
If any Interest Payment Date, Redemption Date or Stated Maturity of any
Security shall not be a Business Day, then (notwithstanding any other provision
of this Indenture or the Securities) payment of interest or principal (and
premium, if any) or other amounts in respect of such Security need not be made
on such date, but may be made on the next succeeding Business Day (and no
interest shall accrue in respect of the amounts whose payment is so delayed for
the period from and after such Interest Payment Date, Redemption Date or Stated
Maturity, as the case may be, until such next succeeding Business Day) except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day (in each case with the
same force and effect as if made on the Interest Payment Date or Redemption Date
or at the Stated Maturity).
17
<PAGE>
ARTICLE II
SECURITY FORMS
SECTION 2.1. Forms Generally.
(a) The Securities and the Trustee's certificate of authentication
shall be in substantially the forms set forth in this Article, or in such other
form or forms as shall be established by or pursuant to a Board Resolution or in
one or more indentures supplemental hereto, in each case with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with applicable tax laws or [^] as may, consistently
herewith, be determined by the officers executing such securities, as evidenced
by their execution of the Securities. If the form of Securities is established
by action taken pursuant to a Board Resolution, a copy of an appropriate record
of such action shall be certified by the Secretary or an Assistant Secretary of
the Company and delivered to the Trustee at or prior to the delivery of the
Company Order contemplated by Section 3.3 with respect to the authentication and
delivery of such Securities.
(b)[^] Securities distributed to holders of Global Preferred Securities
(as defined in the Trust Agreement) upon the dissolution of the Issuer Trust
shall be distributed in the form of one or more Global Securities registered in
the name of a Depositary or its nominee, and deposited with the Securities
Registrar, as custodian for such Depositary, or with such Depositary, for credit
by the Depositary to the respective accounts of the beneficial owners of the
Securities represented thereby (or such other accounts as they may direct).
Securities distributed to holders of Preferred Securities other than Global
Preferred Securities upon the dissolution of the Issuer Trust shall not be
issued in the form of a Global Security or any other form intended to facilitate
book-entry trading in beneficial interests in such Securities.
SECTION 2.2. Form of Face of Security.
FIRST STAR BANCORP, INC.
[^] [Adjustable Rate] Junior Subordinated Deferrable Interest Debentures
due _________ __, 2029
[If the Security is a Restricted Security, insert -- THE SECURITIES
EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT (A) BY AN INITIAL INVESTOR THAT IS NOT A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT,
(I) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF
18
<PAGE>
RULE 144A, (II) IN AN OFFSHORE TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (III) PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE), OR (B) BY AN INITIAL INVESTOR THAT IS A QUALIFIED
INSTITUTIONAL BUYER OR BY ANY SUBSEQUENT INVESTOR, AS SET FORTH IN (A) ABOVE
AND, IN ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND, IN EACH
CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER
JURISDICTIONS OF THE UNITED STATES. THE HOLDER OF THIS SECURITY AGREES THAT IT
WILL COMPLY WITH THE FOREGOING RESTRICTIONS. SECURITIES OWNED BY AN INITIAL
INVESTOR THAT IS NOT A QUALIFIED INSTITUTIONAL BUYER MAY NOT BE HELD IN GLOBAL
FORM AND MAY NOT BE TRANSFERRED WITHOUT CERTIFICATION THAT THE TRANSFER COMPLIES
WITH THE FOREGOING RESTRICTIONS, AS PROVIDED IN THE INDENTURE REFERRED TO BELOW.
NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED
BY RULE 144 FOR RESALES OF THE SECURITIES.]
No. $
FIRST STAR BANCORP, INC., a Pennsylvania corporation (hereinafter called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to First
Star Capital Trust, or registered assigns, the principal sum of _________
Dollars on ___________, 2029, or such other principal amount represented hereby
as may be set forth in the records of the Securities Registrar hereinafter
referred to in accordance with the Indenture[,] provided that the Company may
shorten the Stated Maturity of the principal of this Security to a date not
earlier than _________ __, 2004. The Company further promises to pay interest on
said principal from _______________, 1999, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, quarterly
(subject to deferral as set forth herein) in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing ____________________, 1999
at the [^] [Initial Interest Rate or Adjusted Interest Rate, as the case may
be], together with Additional Sums, if any, as provided in Section 10.6 of the
Indenture, until the principal hereof is paid or duly provided for or made
available for payment; provided that any overdue principal, premium or
Additional Sums and any overdue installment of interest shall bear Additional
Interest at the [^] [Initial Interest Rate or Adjusted Interest Rate, as the
case may be,] (to the extent that the payment of such interest shall be legally
enforceable), compounded quarterly from the dates such amounts are due until
they are paid or made available for payment, and such interest shall be payable
on demand. The amount of interest payable for any period less than a full
interest period shall be computed on the basis of a 360-day year of twelve
30-day months and the actual days elapsed in a partial month in such period. The
amount of interest payable for any full interest period shall be computed by
dividing the
19
<PAGE>
applicable rate per annum by four. The interest so payable, and punctually paid
or duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest installment, which shall be the 15th day of March,
June, September and December (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date. Any such interest not so
punctually paid or duly provided for shall forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities of this series not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in said Indenture.
So long as no Event of Default has occurred and is continuing, the
Company shall have the right, at any time during the term of this Security, from
time to time to defer the payment of interest on this Security for up to 20
consecutive quarterly interest payment periods with respect to each deferral
period (each an "Extension Period"), during which Extension Periods the Company
shall have the right to make partial payments of interest on any Interest
Payment Date, and at the end of which the Company shall pay all interest then
accrued and unpaid including Additional Interest, as provided below; provided
however, that no Extension Period shall extend beyond the Stated Maturity of the
principal of this Security, as then in effect, and no such Extension Period may
end on a date other than an Interest Payment Date; and provided further,
however, that during any such Extension Period, the Company shall not (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Company's capital
stock, or (ii) make any payment of principal of or interest or premium, if any,
on or repay, repurchase or redeem any debt securities of the Company that rank
pari passu in all respects with or junior in interest to this Security, (other
than (a) repurchases, redemptions or other acquisitions of shares of capital
stock of the Company in connection with any employment contract, benefit plan or
other similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period, (b) as a result of a reclassification, an
exchange or conversion of any class or series of the Company's capital stock (or
any capital stock of a Subsidiary of the Company) for any class or series of the
Company's capital stock or of any class or series of the Company's indebtedness
for any class or series of the Company's capital stock, (c) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged, (d) any declaration of a dividend in connection with any
Rights Plan, or the issuance of rights, stock or other property under any Rights
Plan, or the redemption or
20
<PAGE>
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Extension Period
shall exceed 20 consecutive quarterly interest payment periods, extend beyond
the Stated Maturity of the principal of this Security or end on a date other
than an Interest Payment Date. Upon the termination of any such Extension Period
and upon the payment of all accrued and unpaid interest and any Additional
Interest then due on any Interest Payment Date, the Company may elect to begin a
new Extension Period, subject to the above conditions. No interest shall be due
and payable during an Extension Period, except at the end thereof, but each
installment of interest that would otherwise have been due and payable during
such Extension Period shall bear Additional Interest (to the extent that the
payment of such interest shall be legally enforceable) at the [^] [Initial
Interest Rate or Adjusted Interest Rate, as the case may be], compounded
quarterly and calculated as set forth in the first paragraph of this Security,
from the date on which such amounts would otherwise have been due and payable
until paid or made available for payment. The Company shall give the Holder of
this Security and the Trustee notice of its election to begin any Extension
Period at least one Business Day prior to the next succeeding Interest Payment
Date on which interest on this Security would be payable but for such deferral
or so long as such securities are held by [^] [the Issuer] Trust, or at least
one Business Day prior to the earlier of (i) the next succeeding date on which
Distributions on the Preferred Securities of the Issuer Trust would be payable
but for such deferral, and (ii) the date on which the Property Trustee of the
Issuer Trust is required to give notice to holders of such Preferred Securities
of the record date or the date such Distributions are payable, but in any event
not less than one Business Day prior to such record date.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the United States, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided however, that at the option of the Company payment of
interest may be made (i) by check mailed to the address of the Person entitled
thereto as such address shall appear in the Securities Register, or (ii) if to a
Holder of $1,000,000 or more in aggregate principal amount of this Security, by
wire transfer in immediately available funds upon written request to the Trustee
not later than 15 calendar days prior to the date on which the interest is
payable.
The indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and subject in right of payments to the prior
payment in full of all Senior Indebtedness, and this Security is issued subject
to the provisions of the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his or her behalf to take
such actions as may be necessary or appropriate to effectuate the subordination
so provided, and (c) appoints the Trustee his or her attorney-in-fact for any
and all such purposes. Each Holder
21
<PAGE>
hereof, by his or her acceptance hereof, waives all notice of the acceptance of
the subordination provisions contained herein and in the Indenture by each
holder of Senior Indebtedness, whether now outstanding or hereafter incurred,
and waives reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual or facsimile 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.
FIRST STAR BANCORP, INC.
By:
-----------------------
Name:
Title:
Attest:
- --------------------------------
Secretary or Assistant Secretary
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
Dated:
BANKERS TRUST COMPANY,
as Trustee
By:
-----------------------
Name:
Title:
SECTION 2.3. Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued under the
Junior Subordinated Indenture, dated as of ___________ __, 1999 (herein called
the "Indenture"), between the Company and
22
<PAGE>
Bankers Trust Company, as Trustee (herein called the "Trustee," which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee, the holders of Senior Indebtedness and the Holders of
the Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered. This security is one of the series designated on
the face hereof, limited in aggregate principal amount to $_______________.
All terms used in this Security that are defined in the Indenture or,
if not defined in the Indenture, in the Amended and Restated Trust Agreement
dated as of ___________ __, 1999 (as modified, amended or supplemented from time
to time the "Trust Agreement"), relating to First Star Capital Trust (the
"Issuer Trust") among the Company, as Depositor, the Trustees named therein and
the Holders from time to time of the Trust Securities issued pursuant thereto[,]
shall have the meanings assigned to them in the Indenture or the Trust
Agreement, as the case may be.
The Company has the right to redeem this Security (a) on or after
_________, 2004 in whole at any time or in part from time to time, or (b) in
whole (but not in part), at any time within 90 days following the occurrence and
during the continuation of a Tax Event, Investment Company Event, or Capital
Treatment Event, in each case at the Redemption Price described below, and
subject to possible regulatory approval. The Redemption Price shall equal 100%
of the principal amount hereof being redeemed, together with accrued interest to
but excluding the date fixed for redemption.
In the event of redemption of this Security in part only, a new
Security or Securities for the unredeemed portion hereof will be issued in the
name of the Holder hereof upon the cancellation hereof.
[If applicable, insert--The Indenture contains provisions for
defeasance at any time [of the entire indebtedness of this Security] [or]
[certain restrictive covenants and Events of Default with respect to this
Security] [, in each case] upon compliance by the Company with certain
conditions set forth in the Indenture.]
The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and obligations
of the Company and of the Holders of the Securities, with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities to be affected by such supplemental indenture. The Indenture also
contains provisions permitting Holders of specified percentages in principal
amount of the Securities at the time Outstanding, on behalf of the Holders of
all Securities, to waive compliance by the Company with certain provisions of
the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
23
<PAGE>
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof, whether or not notation of such consent
or waiver is made upon this Security.
[If the Security is not a Discount Security, insert--As provided in and
subject to the provisions of the Indenture, if an Event of Default with respect
to the Securities at the time Outstanding occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Securities may declare the principal amount
of all the Securities to be due and payable immediately, by a notice in writing
to the Company (and to the Trustee if given by Holders), provided that, if upon
an Event of Default, the Trustee or such Holders fail to declare the principal
of all the Outstanding Securities to be immediately due and payable, the holders
of at least 25% in aggregate Liquidation Amount of the Preferred Securities then
outstanding shall have the right to make such declaration by a notice in writing
to the Company and the Trustee; and upon any such declaration the principal
amount of and the accrued interest (including any Additional Interest) on all
the Securities shall become immediately due and payable, provided that the
payment of principal and interest (including any Additional Interest) on such
Securities shall remain subordinated to the extent provided in Article XIII of
the Indenture.]
[If the Security is a Discount Security, insert--As provided in and
subject to the provisions of the Indenture, if an Event of Default with respect
to the Securities at the time Outstanding occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Securities may declare an amount of
principal of the Securities to be due and payable immediately, by a notice in
writing to the Company (and to the Trustee if given by Holders), provided that,
if upon an Event of Default, the Trustee or such Holders fail to declare such
principal amount of the Outstanding Securities to be immediately due and
payable, the Holders of at least 25% in aggregate Liquidation Amount of the
Preferred Securities then outstanding shall have the right to make such
declaration by a notice in writing to the Company and the Trustee. The principal
amount payable upon such acceleration shall be equal to [insert formula for
determining the amount]. Upon any such declaration, such amount of the principal
of and the accrued interest (including any Additional Interest) on all the
Securities shall become immediately due and payable, provided that the payment
of such principal and interest (including any Additional Interest) on all the
Securities shall remain subordinated to the extent provided in Article XIII of
the Indenture. Upon payment (a) of the amount of principal so declared due and
payable and (b) of interest on any overdue principal, premium and interest (in
each case to the extent that the payment of such interest shall be legally
enforceable), all of the Company's obligations in respect of the payment of the
principal of and premium and interest, if any, on this Security shall
terminate.]
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest (including Additional
24
<PAGE>
Interest) on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Securities
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained under Section 10.2 of the Indenture
for such purpose, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Securities Registrar duly
executed by, the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Securities, of like tenor, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
As provided in the Indenture and subject to certain limitations therein
set forth, Securities are exchangeable for a like aggregate principal amount of
Securities and of like tenor of a different authorized denomination, as
requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Company and, by its acceptance of this Security or a beneficial
interest therein, the Holder of, and any Person that acquires a beneficial
interest in, this Security agrees that for United States federal, state and
local tax purposes it is intended that this Security constitute indebtedness.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
THIS SECURITY IS A DIRECT AND UNSECURED OBLIGATION OF THE COMPANY, DOES
NOT EVIDENCE DEPOSITS AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
25
<PAGE>
SECTION 2.4. Additional Provisions Required in Global Security.
Unless otherwise specified as contemplated by Section 3.1, any Global
Security issued hereunder shall, in addition to the provisions contained in
Sections 2.2 and 2.3, bear a legend in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY
OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR
SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY
OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE AND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY,
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
SECTION 2.5. Form of Trustee's Certificate of Authentication.
The Trustee's certificates of authentication shall be in substantially
the following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated:
-------------------------------
BANKERS TRUST COMPANY,
as Trustee
By: [
-----------------------------------=
]Authorized Signatory
ARTICLE III
THE SECURITIES
SECTION 3.1. Title and Terms.
(a) The aggregate principal amount of Securities that may be
authenticated and delivered under this Indenture is [^][[$12,360,000]].
(b) Subject to Section 3.16, the Securities' Stated Maturity shall be
____________ __, 2029.
26
<PAGE>
(c) The Securities, established pursuant to a Board Resolution, shall bear
interest at a per annum rate equal to [^] [the Initial Interest Rate or the
Adjusted Interest Rate, as the case may be,] from _______ __, 1999 or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, as the case may be, payable quarterly (subject to deferral as set
forth in Section 3.12), in arrears, on March 31, June 30, September 30 and
December 31 of each year, commencing _________ __, 1999, until the principal
thereof is paid or made available for payment. Interest will compound quarterly
and will accrue at a per annum rate equal to [^] [the Initial Interest Rate or
Adjusted Interest Rate, as the case may be,] to the extent permitted by
applicable law, on any interest installment in arrears for more than one
quarterly period or during an extension of an interest payment period as set
forth below in Section 3.12.
(d) The principal of (and premium, if any) and interest on the
Securities shall be payable at the office or agency of the Paying Agent in the
United States maintained for such purpose and at any other office or agency
maintained by the Company for such 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 (i) by check mailed to the address of
the Person entitled thereto as such address shall appear in the Security
Register or (ii) if to a Holder of $1,000,000 or more in aggregate principal
amount of this Security, by wire transfer in immediately available funds upon
written report from the trustee not later than 15 calendar days prior to the
date on which the interest is payable, [^] at such place and to such account as
may be designated by the Person entitled thereto as specified in the Security
Register.
(e) Securities may be issuable in whole or in part in the form of one
or more Global Securities and, in such case, the Depositary for such Global
Securities shall be The Depository Trust Company.
(f) The securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XIII.
SECTION 3.2. Denominations.
The Securities shall be in registered form without coupons and shall be
issuable in denominations of $10 and any integral multiple thereof.
SECTION 3.3. Execution, Authentication, Delivery and Dating.
(a) 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, and attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Securities may be
manual or facsimile.
27
<PAGE>
(b) Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities. At any time and from
time to time after the [^] execution and delivery of this Indenture, the Company
may deliver Securities executed by the Company to the Trustee for
authentication, together with a Company Order for the authentication and
delivery of such Securities, and the Trustee in accordance with the Company
Order shall authenticate and deliver such Securities. If the form or terms of
the Securities have been established by or pursuant to one or more Board
Resolutions as permitted by Sections 2.1 and 3.1, in authenticating such
Securities, and accepting the additional responsibilities under this Indenture
in relation to such Securities, the Trustee shall be entitled to receive, and
(subject to Section 6.1) shall be fully protected in relying upon, an Opinion of
Counsel stating,
(i) if the form of such Securities has been established by or pursuant
to Board Resolution as permitted by Section 2.1, that such form has
been established in conformity with the provisions of this Indenture;
(ii) if the terms of such Securities have been established by or
pursuant to Board Resolution as permitted by Section 3.1, that such
terms have been established in conformity with the provisions of this
Indenture; and
(iii) that such Securities, when authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any
conditions specified in such Opinion of Counsel, will constitute valid
and legally binding obligations of the Company enforceable in
accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to
general equity principles.
(c) If such form or terms have been so established, the Trustee shall
not be required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner that
is not reasonably acceptable to the Trustee.
(d) Notwithstanding the provisions of Section 3.1 and Section 3.3 (b),
if all Securities are not to be originally issued at one time, it shall not be
necessary to deliver the Officers' Certificate otherwise required pursuant to
Section 3.1 or the Company Order and Opinion of Counsel otherwise required
pursuant to Section 3.3(b) at or prior to the authentication of each Security if
such documents are delivered at or prior to the authentication upon original
issuance of the first Security to be issued.
(e) Each Security shall be dated the date of its authentication.
28
<PAGE>
(f) No Security shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose, unless there appears on such Security
a certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
officers, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such security has been duly authenticated and
delivered hereunder. Notwithstanding the foregoing, if any Security shall have
been authenticated and delivered hereunder but never issued and sold by the
Company, and the Company shall deliver such Security to the Trustee for
cancellation as provided in Section 3.10, for all purposes of this Indenture
such Security shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits of this Indenture.
SECTION 3.4. Temporary Securities.
(a) Pending the preparation of definitive Securities, the Company may
execute, and upon receipt of a Company Order the Trustee shall authenticate and
deliver, temporary Securities that are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any 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.
(b) If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for that purpose
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor one or more definitive securities,
of any authorized denominations having the same Original Issue Date and Stated
Maturity and having the same terms as such temporary Securities. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
SECTION 3.5. Global Securities.
(a) Each Global Security issued under this Indenture shall be
registered in the name of the Depositary designated by the Company for such
Global Security or a nominee thereof and delivered to such Depositary or a
nominee thereof or custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.
(b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (i) such Depositary advises the Trustee in
29
<PAGE>
writing that such Depositary is no longer willing or able to properly discharge
its responsibilities as Depositary with respect to such Global Security, and the
Company is unable to locate a qualified successor within 90 days of receipt of
such notice from the Depositary, (ii) the Company executes and delivers to the
Trustee a Company Order stating that the Company elects to terminate the
book-entry system through the Depositary, or (iii) there shall have occurred and
be continuing an Event of Default.
(c) If any Global Security is to be exchanged for other Securities or
canceled in whole, it shall be surrendered by or on behalf of the Depositary or
its nominee to the Securities Registrar for exchange or cancellation as provided
in this Article III. If any Global Security is to be exchanged for other
Securities or canceled in part, or if another Security is to be exchanged in
whole or in part for a beneficial interest in any Global Security, then either
(i) such Global Security shall be so surrendered for exchange or cancellation as
provided in this Article III or (ii) the principal amount thereof shall be
reduced, or increased by an amount equal to the portion thereof to be so
exchanged or canceled, or equal to the principal amount of such other Security
to be so exchanged for a beneficial interest therein, as the case may be, by
means of an appropriate adjustment made on the records of the Securities
Registrar, whereupon the Trustee, in accordance with the Applicable Procedures,
shall instruct the Depositary or its authorized representative to make a
corresponding adjustment to its records. Upon any such surrender or adjustment
of a Global Security by the Depositary, accompanied by registration
instructions, the Trustee shall, subject to Section 3.6(b) and as otherwise
provided in this Article III, authenticate and deliver any Securities issuable
in exchange for such Global Security (or any portion thereof) in accordance with
the instructions of the Depositary. The Trustee shall not be liable for any
delay in delivery of such instructions and may conclusively rely on, and shall
be fully protected in relying on, such instructions.
(d) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article III, Section 9.6 or 11.6 or otherwise,
shall be authenticated and delivered in the form of, and shall be, a Global
Security, unless such Security is registered in the name of a Person other than
the Depositary for such Global Security or a nominee thereof.
(e) The Depositary or its nominee, as the registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under
this Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security shall be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depositary or its nominee or agent. Neither the
Trustee nor the Securities Registrar shall have any liability in respect of any
transfers effected by the Depositary.
(f) The rights of owners of beneficial interests in a Global Security
shall be exercised only through the Depositary and shall be limited to those
established by law and agreements between such owners and the Depositary and/or
its Agent Members.
30
<PAGE>
SECTION 3.6. Registration, Transfer and Exchange Generally; Certain
Transfers and Exchanges; Securities Act Legends.
(a) The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register in which, subject to such reasonable regulations as it
may prescribe, the Company shall provide for the registration of Securities and
transfers of Securities. Such register is herein sometimes referred to as the
"Securities Register." The Trustee is hereby appointed "Securities Registrar"
for the purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security at the
offices or agencies of the Company designated for that purpose, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of any
authorized denominations of like tenor and aggregate principal amount and
bearing such restrictive legends as may be required by this Indenture.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations, of like tenor and aggregate
principal amount and bearing such restrictive legends as may be required by this
Indenture, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
that the Holder making the exchange is entitled to receive.
All Securities issued upon any transfer or exchange of Securities shall
be the valid obligations of the Company, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the Securities surrendered upon
such transfer or exchange.
Every Security presented or surrendered for transfer or exchange shall
(if so required by the Company or the Trustee) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Securities Registrar, duly executed by the Holder thereof or
such Holder's attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any transfer or exchange of Securities.
Neither the Company nor the Trustee shall be required, pursuant to the
provisions of this Section, (i) to issue, exchange or register the transfer of
any Security during a period beginning at the opening of business 15 days before
the day of selection for redemption of Securities pursuant to Article XI and
ending at the close of business on the day of mailing of the notice of
redemption, or (ii) to register the transfer of or exchange any Security so
selected
31
<PAGE>
for redemption in whole or in part, except, in the case of any such Security to
be redeemed in part, any portion thereof not to be redeemed.
(b) Certain Transfers and Exchanges. Notwithstanding any other
provision of this Indenture, transfers and exchanges of Securities and
beneficial interests in a Global Security shall be made only in accordance with
this Section 3.6(b).
(i) Restricted Non-Global Security to Global Security. If the Holder of
a Restricted Security (other than a Global Security) wishes at any time
to transfer all or any portion of such Security to a Person who wishes
to take delivery thereof in the form of a beneficial interest in a
Global Security, such transfer may be effected only in accordance with
the provisions of this clause (b)(i) and subject to the Applicable
Procedures. Upon receipt by the Securities Registrar of (A) such
Security as provided in Section 3.6(a) and instructions satisfactory to
the Securities Registrar directing that a beneficial interest in the
Global Security in a specified principal amount not greater than the
principal amount of such Security be credited to a specified Agent
Member's account and (B) a Restricted Securities Certificate duly
executed by such Holder or such Holder's attorney duly authorized in
writing, then the Securities Registrar shall cancel such Security (and
issue a new Security in respect of any untransferred portion thereof)
as provided in Section 3.6(a) and increase the aggregate principal
amount of the Global Security by the specified principal amount as
provided in Section 3.5(c).
(ii) Non-Global Security to Non-Global Security. A Security that is not
a Global Security may be transferred, in whole or in part, to a Person
who takes delivery in the form of another Security that is not a Global
Security as provided in Section 3.6(a), provided that if the Security
to be transferred in whole or in part is a Restricted Security, the
Securities Registrar shall have received a Restricted Securities
Certificate duly executed by the transferor Holder or such Holder's
attorney duly authorized in writing.
(iii) Exchanges Between Global Security and Non-Global Security. A
beneficial interest in a Global Security may be exchanged for a
Security that is not a Global Security as provided in Section 3.5.
(iv) Certain Initial Transfers of Non-Global Securities. In the case of
Securities initially issued other than in global form, an initial
transfer or exchange of such Securities that does not involve any
change in beneficial ownership may be made to an Institutional
Accredited Investor or Investors as if such transfer or exchange were
not an initial transfer or exchange; provided, however, that written
certification shall be provided by the transferee and transferor of
such Securities to the Securities Registrar that such transfer or
exchange does not involve a change in beneficial ownership.
32
<PAGE>
(c) Restricted Securities Legend. Except as set forth below, all
Securities shall bear a Restricted Securities Legend:
(i) subject to the following clauses of this Section 3.6(c), a Security
or any portion thereof that is exchanged, upon transfer or otherwise,
for a Global Security or any portion thereof shall bear the Restricted
Securities Legend while represented thereby;
(ii) subject to the following clauses of this Section 3.6(c), a new
Security which is not a Global Security and is issued in exchange for
another Security (including a Global Security) or any portion thereof,
upon transfer or otherwise, shall, if such new Security is required
pursuant to Section 3.6(b)(ii) or (iii) to be issued in the form of a
Restricted Security, bear a Restricted Securities Legend;
(iii) a new Security (other than a Global Security) that does not bear a
Restricted Security Legend may be issued in exchange for or in lieu of
a Restricted Security or any portion thereof that bears such a legend
if, in the Company's judgement, placing such a legend upon such new
Security is not necessary to ensure compliance with the registration
requirements of the Securities Act, and the Trustee, at the written
direction of the Company in the form of an Officer's Certificate,
shall authenticate and deliver such a new Security as provided in this
Article III:
(iv) notwithstanding the foregoing provisions of this Section 3.6(c), a
Successor Security of a Security that does not bear a Restricted
Securities Legend shall not bear such form of legend unless the Company
has reasonable cause to believe that such Successor Security is a
"restricted security" within the meaning of Rule 144, in which case the
Trustee, at the written direction of the Company in the form of an
Officer's Certificate, shall authenticate and deliver a new Security
bearing a Restricted Securities Legend in exchange for such successor
Security as provided in this Article III; and
(v) Securities distributed to a holder of Preferred Securities upon
dissolution of an Issuer Trust shall bear a Restricted Securities
Legend if the Preferred Securities so held bear a similar legend.
SECTION 3.7. Mutilated, Lost and Stolen Securities.
(a) If any mutilated Security, including any temporary Securities, is
surrendered to the Trustee together with such security or indemnity as may be
required by the Company or the Trustee to save each of them harmless, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security, of like tenor and aggregate principal amount, bearing
the same legends, and bearing a number not contemporaneously outstanding.
33
<PAGE>
(b) If there shall be delivered to the Company and to the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any
Security, and (ii) such security or indemnity as may be required by them to save
each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser or a
protected purchaser, the Company shall execute and upon its request the Trustee
shall authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security, of like tenor and aggregate principal amount and
bearing the same legends as such destroyed, lost or stolen Security, and bearing
a number not contemporaneously outstanding.
(c) If any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
(d) Upon the issuance of any new Security under this Section 3.7, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
(e) Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
(f) The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.8. Payment of Interest and Additional Interest; Interest
Rights Preserved.
(a) Interest and Additional Interest on any Security that is payable,
and is punctually paid or duly provided for, on any Interest Payment Date, shall
be paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest in respect of Securities, except that, unless otherwise
provided in the Securities, interest payable on the Stated Maturity of the
principal of a Security shall be paid to the Person to whom principal is paid.
The initial payment of interest on any Security that is issued between a Regular
Record Date and the related Interest Payment Date shall be payable as provided
in such Security or in the Board Resolution pursuant to Section 3.1 with respect
to the Securities.
(b) Any interest on any Security that is due and payable, but is not
timely paid or duly provided for, on any Interest Payment Date for Securities
(herein called "Defaulted Interest"), shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record
34
<PAGE>
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 (i) or
(ii) below:
(i) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities in respect of which interest
is in default (or their respective Predecessor Securities) are
registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and which shall be fixed at the same
time the Company shall deposit with the Trustee an amount of money equal
to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this clause provided. Thereupon, the
Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest, which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less than
10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special
Record Date and, in the name and at the expense of the Company, shall
cause notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be mailed, first class, postage prepaid,
to each Holder of a Security at the address of such Holder as it appears
in the Securities Register not less than 10 days prior to such Special
Record Date. The Trustee may, in its discretion, in the name and at the
expense of the Company, cause a similar notice to be published at least
once in a newspaper, customarily published in the English language on
each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, but such publication shall not be a
condition precedent to the establishment of such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose names the
Securities (or their respective Predecessor Securities) are registered
on such Special Record Date and shall no longer be payable pursuant to
the following clause (ii).
(ii) The Company may make payment of any Defaulted Interest in any other
lawful manner [^] [and ]upon such notice as may be required by [^] the
Trustee [^], if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause (ii), such payment shall be
deemed practicable by the Trustee.
(c) Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Security shall carry the rights to interest accrued and unpaid, and to
accrue interest, that were carried by such other Security.
35
<PAGE>
SECTION 3.9. Persons Deemed Owners.
(a) The Company, the Trustee and any agent of the Company or the Trustee
shall treat the Person in whose name any Security is registered as the owner of
such Security for the purpose of receiving payment of principal of and (subject
to Section 3.8) any interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and none of the Company,
the Trustee or any agent of the Company or the Trustee shall be affected by
notice to the contrary.
(b) No holder of any beneficial interest in any Global Security held on
its behalf by a Depositary shall have any rights under this Indenture with
respect to such Global Security, and such Depositary may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the owner of
such Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by a Depositary or impair, as between a Depositary
and such holders of beneficial interests, the operation of customary practices
governing the exercise of the rights of the Depositary (or its nominee) as
Holder of any Security.
SECTION 3.10. Cancellation.
All Securities surrendered for payment, redemption, transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee, and any such Securities and Securities surrendered directly to the
Trustee for any such purpose shall be promptly canceled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder that the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly canceled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Securities shall be destroyed by the
Trustee[,] and the Trustee shall deliver to the Company a certificate of such
destruction.
SECTION 3.11. Computation of Interest.
Interest on the Securities for any period shall be computed on the basis
of a 360-day year of twelve 30-day months and the actual number of days elapsed
in any partial month in such period, and interest on the Securities for a full
period shall be computed by dividing the rate per annum by the number of
interest periods that together constitute a full twelve months.
36
<PAGE>
SECTION 3.12. Deferrals of Interest Payment Dates.
(a) So long as no Event of Default has occurred and is continuing, the
Company shall have the right, at any time during the term of the Securities,
from time to time to defer the payment of interest on such Securities for such
period or periods (each an "Extension Period") not to exceed the number of
consecutive interest periods that equal 20 consecutive quarterly periods with
respect to each Extension Period, during which Extension Periods the Company
shall have the right to make partial payments of interest on any Interest
Payment Date. No Extension Period shall end on a date other than an Interest
Payment Date. At the end of any such Extension Period, the Company shall pay all
interest then accrued and unpaid on the Securities (together with Additional
Interest thereon, if any, at the rate specified for the Securities to the extent
permitted by applicable law); provided, however, that no Extension Period shall
extend beyond the Stated Maturity of the principal of the Securities; and
provided further, however, that, during any such Extension Period, the Company
shall not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock, or (ii) make any payment of principal of or interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu in all respects with or junior in interest to the
Securities, (other than (A) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the Company (or securities convertible
into or exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (B) as a
result of a reclassification, an exchange or conversion of any class or series
of the Company's capital stock (or any capital stock of a Subsidiary of the
Company) for any class or series of the Company's capital stock or of any class
or series of the Company's indebtedness for any class or series of the Company's
capital stock, (C) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (D) any
declaration of a dividend in connection with any Rights Plan, or the issuance of
rights, stock or other property under any Rights Plan, or the redemption or
repurchase of rights pursuant thereto, or (E) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Event of Default has
occurred and is continuing and provided further, that no Extension Period shall
exceed the period or periods specified in such Securities, extend beyond the
Stated Maturity of the principal of such Securities or end on a date other than
an Interest Payment Date. Upon the termination of any such Extension Period and
upon the payment of all accrued and unpaid interest and any Additional Interest
then due on any Interest Payment Date, the Company may elect to begin a new
Extension Period, subject to the above conditions. No
37
<PAGE>
interest or Additional Interest shall be due and payable during an Extension
Period, except at the end thereof, but each installment of interest that would
otherwise have been due and payable during such Extension Period shall bear
Additional Interest. The Company shall give the Holders of the Securities and
the Trustee notice of its election to begin any such Extension Period at least
one Business Day prior to the next succeeding Interest Payment Date on which
interest on Securities would be payable but for such deferral or, with respect
to any Securities issued to the Issuer Trust, so long as any such Securities are
held by the Issuer Trust, at least one Business Day prior to the earlier of (x)
the next succeeding date on which Distributions (as defined in the Trust
Agreement) on the Preferred Securities of the Issuer Trust would be payable but
for such deferral, and (y) the date on which the Property Trustee of the Issuer
Trust is required to give notice to holders of such Preferred Securities of the
record date or the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date.
(b) The Trustee shall promptly give notice of the Company's election to
begin any such Extension Period to the Holders of the Outstanding Securities.
SECTION 3.13. Right of Set-Off.
With respect to the Securities initially issued to the Issuer Trust,
notwithstanding anything to the contrary herein, the Company shall have the
right to set off any payment it is otherwise required to make in respect of any
such Security to the extent the Company has theretofore made, or is concurrently
on the date of such payment making, a payment under the Guarantee or to a holder
of Preferred Securities pursuant to an action undertaken under Section 5.8 of
this Indenture.
SECTION 3.14. Agreed Tax Treatment.
Each Security issued hereunder shall provide that the Company and, by
its acceptance of a Security or a beneficial interest therein, the Holder of,
and any Person that acquires a beneficial interest in, such Security agree that
for United States federal, state and local tax purposes it is intended that such
Security constitutes indebtedness.
SECTION 3.15. CUSIP Numbers.
The Company, in issuing the Securities, may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notice
of redemption and other similar or related materials as a convenience to
Holders; provided that any such notice or other materials may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of redemption or other materials
and that reliance may be placed only on the other identification numbers printed
on the Securities, and any such redemption shall not be affected by any defect
in or omission of such numbers.
38
<PAGE>
SECTION 3.16. Shortening of Stated Maturity.
The Company shall have the right to shorten the Stated Maturity of the
principal of the Securities at any time to any date not earlier than _________
__, 2004, provided that the Company shall give notice to the Holders, the
Trustee and, in the case of Securities issued to an Issuer Trust, the Issuer
Trust of such shortening no less than 90 days prior to the effectiveness,
thereof.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1. Satisfaction and Discharge of Indenture.
This Indenture shall, upon Company Request, cease to be of further
effect (except as to any surviving rights of registration of transfer or
exchange of Securities herein expressly provided for and as otherwise provided
in this Section 4.1) and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(a) either
(i) all Securities theretofore authenticated and delivered
(other than (A) Securities that have been destroyed, lost or
stolen and that have been replaced or paid as provided in
Section 3.7 and (B) Securities for whose payment money has
theretofore been deposited in trust or segregated and held
in trust by the Company and thereafter repaid to the Company
or discharged from such trust, as provided in Section 10.3)
have been delivered to the Trustee for cancellation; or
(ii) all such Securities not theretofore delivered to the
Trustee for cancellation
(A) have become due and payable, or
(B) will become due and payable at their Stated
Maturity within one year of the date of deposit, or
(C) are to be called for redemption within
one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company,and the Company, in
the case of subclause (ii)(A), (B) or (C) above, has
deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount in the
currency or currencies in which the Securities are payable
sufficient to pay and discharge the entire indebtedness on
such Securities not
39
<PAGE>
theretofore delivered to the Trustee for cancellation, for
the principal (and premium, if any) and interest (including
any Additional Interest) to the date of such deposit (in the
case of Securities that have become due and payable) or to
the Stated Maturity or Redemption Date, as the case may be;
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company including all sums payable to the Trustee under Section
6.7 hereunder;[^]
(c) 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[; and][^]
(d) notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 6.7, the obligations
of the Company to any Authenticating Agent under Section 6.14 and, if money
shall have been deposited with the Trustee pursuant to subclause (ii) of clause
(a) of this Section, the obligations of the Trustee under Section 4.2 and the
last paragraph of Section 10.3 shall survive.
SECTION 4.2. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all
money deposited with the Trustee pursuant to Section 4.1 shall be held in trust
and applied by the Trustee, in accordance with the provisions of the Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent), to the Persons entitled
thereto, of the principal (and premium, if any) and interest and Additional
Interest for the payment of which such money or obligations have been deposited
with or received by the Trustee.
ARTICLE V
REMEDIES
SECTION 5.1. Events of Default.
"Event of Default", wherever used herein with respect to the Securities,
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of any interest upon any
Security, including any Additional Interest in respect thereof, when it
becomes due and payable and continuance of such default for a period of
30 days (subject to the deferral of any due date in the case of an
Extension Period); or
40
<PAGE>
(b) default in the payment of the principal of (or premium,
if any, on) any Security at its Stated Maturity;
(c) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on the part of the
Company in the Securities or in this Indenture for a period of 90 days
after the date on which written notice of such failure (a "Notice of
Default"), requiring the Company to remedy the same, shall have been
given to the Company by the Trustee by registered or certified mail or
to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Outstanding Securities; or
(d) the occurrence of the appointment of a receiver or other
similar official in any liquidation, insolvency or similar proceeding
with respect to the Company or all or substantially all of its property;
or a court or other governmental agency shall enter a decree or order
appointing a receiver or similar official and such decree or order shall
remain unstayed and undischarged for a period of 60 days.
SECTION 5.2. Acceleration of Maturity; Rescission and Annulment.
(a) If an Event of Default (other than an Event of Default specified in
Section 5.1(d)) with respect to Securities at the time Outstanding occurs and is
continuing, then, and in every such case, the Trustee or the Holders of not less
than 25% in aggregate principal amount of the Outstanding Securities may declare
the principal amount (or, if the Securities are Discount Securities, such
portion of the principal amount as may be specified in the terms) of all the
Securities to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), provided, however, that, if,
upon an Event of Default, the Trustee or the Holders of not less than 25% in
principal amount of the Outstanding Securities fail to declare the principal of
all the Outstanding Securities to be immediately due and payable, the holders of
at least 25% in aggregate Liquidation Amount (as defined in the Trust Agreement)
of the Preferred Securities issued by the Issuer Trust then outstanding shall
have the right to make such declaration by a notice in writing to the Company
and the Trustee; and upon any such declaration such principal amount (or
specified portion thereof) of and the accrued interest (including any Additional
Interest) on all the Securities shall become immediately due and payable. If an
Event of Default specified in Section 5.1(d) with respect to Securities at the
time Outstanding occurs, the principal amount of all the Securities (or, if the
Securities are Discount Securities, such portion of the principal amount of such
Securities as may be specified by the terms) shall automatically, and without
any declaration or other action on the part of the Trustee or any Holder, become
immediately due and payable. Payment of principal and interest (including any
Additional Interest) on such Securities shall remain subordinated to the extent
provided in Article XIII notwithstanding that such amount shall become
immediately due and payable as herein provided.
41
<PAGE>
(b) At any time after such a declaration of acceleration with respect to
the Securities 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 V
provided, the Holders of a majority in aggregate 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:
(i) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(A) all overdue installments of interest on all Securities;
(B) any accrued Additional Interest on all Securities;
(C) the principal of (and premium, if any, on) any Securities
that have become due otherwise than by such declaration of
acceleration and interest and Additional Interest thereon at
the rate borne by the Securities; and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel; and
(ii) all Events of Default with respect to Securities, other than the
non-payment of the principal of Securities that has become due solely
by such acceleration, have been cured or waived as provided in Section
5.13.
If the Holders of Securities fail to annul such declaration and waive
such default, the holders of a majority in aggregate Liquidation Amount (as
defined in the Trust Agreement) of Preferred Securities issued by the Issuer
Trust then outstanding shall also have the right to rescind and annul such
declaration and its consequences by written notice to the Company and the
Trustee, subject to the satisfaction of the conditions set forth in clauses
[^][(i)] and [^][(ii)] above of this Section 5.2[(b)].
[^][(c)] No such rescission shall affect any subsequent default or
impair any right consequent thereon.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if:
(i) default is made in the payment of any installment of
interest (including any Additional Interest) on any Security when such
interest becomes due and payable and such default continues for a period
of 30 days, or
42
<PAGE>
(ii) default is made in the payment of the principal of (and
premium, if any, on) any Security at the Stated Maturity thereof, then
the Company will, upon demand of the Trustee, pay to the Trustee, for
the benefit of the Holders of the Securities, the whole amount then due
and payable on the Securities for principal (and premium, if any) and
interest (including any Additional Interest), and, in addition thereto,
all amounts owing the Trustee under Section 6.7.
(b) If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Securities and collect the
monies adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
(c) If an Event of Default with respect to Securities occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Holders of Securities by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
such rights, whether for the specific enforcement of any covenant or agreement
in this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
SECTION 5.4. Trustee May File Proofs of Claim.
In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial or
administrative proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors,
(a) the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal (and premium, if any) or
interest (including any Additional Interest)) shall be entitled and empowered,
by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest (including any Additional
Interest) owing and unpaid in respect to the Securities and to file such
other papers or documents as may be necessary or advisable and to take
any and all actions as are authorized under the Trust Indenture Act in
order to have the claims of the Holders and any predecessor to the
Trustee under Section 6.7 allowed in any such judicial or administrative
proceedings; and
43
<PAGE>
(ii) in particular, the Trustee shall be authorized to
collect and receive any monies or other property payable or deliverable
on any such claims and to distribute the same in accordance with Section
5.6; and
(b) any custodian, receiver, assignee, trustee, liquidator,
sequestrator, conservator (or other similar official) in any such judicial or
administrative proceeding is hereby authorized by each Holder to make such
payments to the Trustee for distribution in accordance with Section 5.6, and in
the event that the Trustee shall consent to the making of such payments directly
to the Holders, to pay to the Trustee any amount due to it and any predecessor
Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
SECTION 5.5. Trustee May Enforce Claim Without Possession of
Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, subject to
Article XIII and after provision for the payment of all the amounts owing the
Trustee and any predecessor Trustee under Section 6.7, its agents and counsel,
be for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
SECTION 5.6. Application of Money Collected.
Any money or property collected or to be applied by the Trustee with
respect to the Securities pursuant to this Article V shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money or property on account of principal (and premium, if
any) or interest (including any Additional Interest), upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 6.7;
44
<PAGE>
SECOND: Subject to Article XIII, to the payment of the amounts then due
and unpaid upon Securities for principal (and premium, if any) and interest
(including any Additional Interest) in respect of which or for the benefit of
which such money has been collected, ratably, without preference or priority of
any kind, according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest (including any Additional
Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
SECTION 5.7. Limitation on Suits.
Subject to Section 5.8, no Holder of any Securities shall have any right
to institute any proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver, assignee, trustee, liquidator,
sequestrator (or other similar official) or for any other remedy hereunder,
unless:
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the Securities
as herein before provided;
(b) the Holders of not less than 25% in aggregate 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;
(c) 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;
(d) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and
(e) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in aggregate principal amount of the Outstanding Securities; it
being understood and intended that no one or more of such Holders shall
have any right in any manner whatever by virtue of, or by availing
itself of, any provision of this Indenture to affect, disturb or
prejudice the rights of any other Holders of Securities, or to obtain or
to seek to obtain priority or preference over any other of such Holders
or to enforce any right under this Indenture, except in the manner
herein provided and for the equal and ratable benefit of all such
Holders.
SECTION 5.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest; Direct Action by Holders of Preferred Securities.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and
45
<PAGE>
premium, if any) and (subject to Sections 3.8 and 3.12) interest (including any
Additional Interest) on such Security on the Stated Maturity (or in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement of
any such payment, and such right shall not be impaired without the consent of
such Holder. Any registered holder of the Preferred Securities issued by the
Issuer Trust shall have the right, upon the occurrence of an Event of Default
described in Section 5.1(a) or 5.1(b), to institute a suit directly against the
Company for enforcement of payment to such holder of principal of (and premium,
if any) and (subject to Sections 3.8 and 3.12) interest (including any
Additional Interest) on the Securities having a principal amount equal to the
aggregate Liquidation Amount (as defined in the Trust Agreement) of such
Preferred Securities held by such holder.
SECTION 5.9. Restoration of Rights and Remedies.
If the Trustee, any Holder or any holder of Preferred Securities issued
by the Issuer Trust has instituted any proceeding to enforce any right or remedy
under this Indenture and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to the Trustee, such Holder or such
holder of Preferred Securities, then, and in every such case, the Company, the
Trustee, such Holders and such holder of Preferred Securities shall, subject to
any determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee, such Holder and such holder of Preferred Securities shall continue as
though no such proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative.
Except as otherwise provided in the last paragraph of Section 3.7, no
right or remedy herein conferred upon or reserved to the Trustee or the Holders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver.
(a) No delay or omission of the Trustee, any Holder of any Security with
respect to the Securities or any holder of any Preferred Security to exercise
any right or remedy accruing upon any Event of Default with respect to the
Securities shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence therein.
(b) Every right and remedy given by this Article V or by law to the
Trustee or to the Holders and the right and remedy given to the holders of
Preferred Securities by Section 5.8
46
<PAGE>
may be exercised from time to time, and as often as may be deemed expedient, by
the Trustee, the Holders or the holders of Preferred Securities, as the case may
be.
SECTION 5.12. Control by Holders.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee, with respect to the
Securities, provided that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture,
(b) the Trustee may take any other action deemed proper by the Trustee
that is not inconsistent with such direction, and
(c) subject to the provisions of Section 6.1, the Trustee shall have
the right to decline to follow such direction if a Responsible Officer or
Officers of the Trustee shall, in good faith, determine that the proceeding so
directed would be unjustly prejudicial to the Holders not joining in any such
direction or would involve the Trustee in personal liability.
SECTION 5.13. Waiver of Past Defaults.
(a) The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities affected thereby and, the holders of a
majority in aggregate Liquidation Amount (as defined in the Trust Agreement) of
the Preferred Securities issued by the Issuer Trust[,] may waive any past
default hereunder and its consequences except a default:
(i) in the payment of the principal of (or premium, if any)
or interest (including any Additional Interest) on any Security (unless
such default has been cured and the Company has paid to or deposited
with the Trustee a sum sufficient to pay all matured installments of
interest (including Additional Interest) and all principal of (and
premium, if any, on) all Securities due otherwise than by acceleration),
or
(ii) in respect of a covenant or provision hereof that under
Article IX cannot be modified or amended without the consent of each
Holder of any Outstanding Security affected thereby.
Any such waiver shall be deemed to be on behalf of the Holders of all
the Securities, or in the case of waiver by holders of Preferred Securities
issued by the Issuer Trust, by all holders of Preferred Securities issued by the
Issuer Trust.
47
<PAGE>
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture, but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may, in
its discretion, require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may, in its
discretion, assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant, but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in aggregate principal amount of the Outstanding
Securities, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of (or premium, if any) or interest (including any
Additional Interest) on any Security on or after the Stated Maturity.
SECTION 5.15. Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
SECTION 6.1. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
48
<PAGE>
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct except that
(i) this subsection shall not be construed to limit the
effect of subsection (a) of this Section 6.1(a);
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it shall be
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with the direction of Holders pursuant to Section 5.12 relating to the
time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture with respect to the Securities.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if there shall be reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section [6.1].
SECTION 6.2. Notice of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Securities, the Trustee shall transmit by mail to all Holders of Securities, as
their names and addresses appear in the Securities Register, notice of such
default, unless such default shall have been cured or waived; provided,
49
<PAGE>
however, that, except in the case of a default in the payment of the principal
of (or premium, if any) or interest (including any Additional Interest) on any
Security, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determines
that the withholding of such notice is in the interests of the Holders of
Securities; and provided further, that, in the case of any default of the
character specified in Section 5.1(c), no such notice to Holders of Securities
shall be given until at least 30 days after the occurrence thereof. For the
purpose of this Section 6.2, the term "default" means any event that is, or
after notice or lapse of time or both would become, an Event of Default with
respect to the Securities.
SECTION 6.3. Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, Security or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its choice and the advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities that might be incurred by it in compliance with such
request or direction; provided, however, that nothing herein shall relieve the
Trustee of its obligations upon the occurrence of an Event of Default that has
not been cured or waived to exercise with respect to the Securities such of the
rights and powers vested in the Trustee by this Indenture, and to use the same
degree of care and skill in exercising such rights and
50
<PAGE>
powers as a reasonably prudent person would use under the circumstances in the
conduct of his own affairs.
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, indenture,
Security or other paper or document, but the Trustee in its discretion may make
such inquiry or investigation into such facts or matters as it may see fit, and,
if the Trustee shall determine to make such inquiry or investigation, it shall
be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 6.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Securities. Neither the
Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of the Securities or the proceeds thereof.
SECTION 6.5. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Securities
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
6.8 and 6.13, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Securities
Registrar or such other agent.
SECTION 6.6. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
SECTION 6.7. Compensation and Reimbursement.
(a) The Company agrees to pay to the Trustee from time to time
reasonable compensation for all services rendered by it hereunder in such
amounts as the Company and
51
<PAGE>
the Trustee shall agree from time to time (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust).
(b) The Company agrees to reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense disbursement or advance as may be attributable to its
negligence, bad faith or willful misconduct.
(c) Since the Issuer Trust is being formed solely to facilitate an
investment in the Preferred Securities, the Company, as Holder of the Common
Securities, hereby covenants to pay all debts and obligations (other than with
respect to the Preferred Securities and the Common Securities) and all
reasonable costs and expenses of the Issuer Trust (including without limitation
all costs and expenses relating to the organization of the Issuer Trust, the
fees and expenses of the trustees and all reasonable costs and expenses relating
to the operation of the Issuer Trust) and to pay any and all taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed on the Issuer Trust by the United States, or any taxing
authority, so that the net amounts received and retained by the Issuer Trust and
the Property Trustee after paying such expenses will be equal to the amounts the
Issuer Trust and the Property Trustee would have received had no such costs or
expenses been incurred by or imposed on the Issuer Trust. The foregoing
obligations of the Company are for the benefit of, and shall be enforceable by,
any person to whom any such debts, obligations, costs, expenses and taxes are
owed (each, a "Creditor") whether or not such Creditor has received notice
thereof. Any such Creditor may enforce such obligations directly against the
Company, and the Company irrevocably waives any right or remedy to require that
any such Creditor take any action against the Issuer Trust or any other person
before proceeding against the Company. The Company shall execute such additional
agreements as may be necessary or desirable to give full effect to the
foregoing.
(d) The Company shall indemnify the Trustee, its directors, officers,
employees and agents for, and hold them harmless against, any loss, liability or
expense (including the reasonable compensation and the expenses and
disbursements of its agents and counsel) incurred without negligence, bad faith
or willful misconduct, arising out of or in connection with the acceptance or
administration of this trust or the performance of its duties hereunder,
including the reasonable costs and expenses of defending against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder. This indemnification shall survive the termination of this
Indenture or the resignation or removal of the Trustee.
(e) The Holders and the Company agree that the Trustee shall have a
first priority lien against all monies and property held by the Trustee prior to
the Holders to secure the obligations of the Company to the Trustee under this
Section 6.7.
52
<PAGE>
(f) When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 5.1(d) occurs, the expenses and the compensation
for the services are intended to constitute expenses of administration under the
Bankruptcy Reform Act of 1978 or any successor statute.
SECTION 6.8. Disqualification; Conflicting Interests.
The Trustee for the Securities issued hereunder shall be subject to, and
shall comply fully with, the provisions of Section 310(b) of the Trust Indenture
Act. Nothing herein shall prevent the Trustee from filing with the Commission
the application referred to in the second to last paragraph of said Section
310(b).
SECTION 6.9. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee with respect to the Securities
issued hereunder which shall be:
(a) a Person organized and doing business under the laws of the United
States of America or of any state or territory thereof or of the District of
Columbia, authorized under such laws to exercise corporate trust powers and
subject to supervision or examination by federal, state, territorial or District
of Columbia authority, or
(b) an entity organized and doing business under the laws of a foreign
government that is permitted to act as Trustee pursuant to a rule, regulation or
order of the Commission, authorized under such laws to exercise corporate trust
powers, and subject to supervision or examination by authority of such foreign
government or a political subdivision thereof substantially equivalent to
supervision or examination applicable to United States institutional trustees;
in either case having a combined capital and surplus of at least $50,000,000,
subject to supervision or examination by federal or state authority. If such
entity publishes reports of condition at least annually, pursuant to law or to
the requirements of the aforesaid supervising or examining authority, then, for
the purposes of this Section, the combined capital and surplus of such entity
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time the Trustee shall cease
to be eligible in accordance with the provisions of this Section, it shall
resign immediately in the manner and with the effect hereinafter specified in
this Article. Neither the Company nor any Person directly or indirectly
controlling, controlled by or under common control with the Company shall serve
as Trustee for the Securities issued hereunder.
SECTION 6.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
53
<PAGE>
(b) The Trustee may resign at any time with respect to the Securities by
giving written notice thereof to the Company. If an instrument of acceptance by
a successor Trustee shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) [^] [After the occurrence of an Event of Default and while such
Event of Default continues uncured and unwaived, the] Trustee may be removed,
with reasonable notice, at any time with respect to the Securities by Act of the
Holders of a majority in aggregate principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 6.8 after
written request therefor by the Company or by any Holder who
has been a bona fide Holder of a Security for at least six
months, or
(ii) the Trustee shall cease to be eligible under Section
6.9 and shall fail to resign after written request therefor
by the Company or by any such Holder, or
(iii) 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, (x) the Company, acting pursuant to the authority of a
Board Resolution, may remove the Trustee with respect to the Securities issued
hereunder, or (y) subject to Section 5.14, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of such Holder and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee with respect to the Securities issued hereunder and
the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause with
respect to the Securities, the Company, by a Board Resolution, shall promptly
appoint a successor Trustee with respect to the Securities. If, within one year
after such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee with respect to the Securities [^] [is] appointed
by Act of the Holders of a majority in aggregate principal amount of the
Outstanding Securities[,] delivered to the Company and the retiring Trustee,
[then] the successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment, become the successor
54
<PAGE>
Trustee with respect to the Securities and supersede the successor Trustee
appointed by the Company. If no successor Trustee with respect to the Securities
shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Security for at least six months may, subject to Section 5.14,
on behalf of such Holder and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor Trustee with
respect to the Securities.
(f) The Company shall give notice of each resignation and each removal
of the Trustee with respect to the Securities and each appointment of a
successor Trustee with respect to the Securities by mailing written notice of
such event by first-class mail, postage prepaid, to the Holders of Securities as
their names and addresses appear in the Securities Register. Each notice shall
include the name of the successor Trustee with respect to the Securities and the
address of its Corporate Trust Office.
SECTION 6.11. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor Trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder.
(b) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all rights, powers and trusts referred to
in Section 6.11(a).
(c) No successor Trustee shall accept its appointment unless, at the
time of such acceptance, such successor Trustee shall be qualified and eligible
under this Article VI.
SECTION 6.12. Merger, Conversion, Consolidation or Succession to
Business.
Any entity into which the Trustee may be merged or converted or with
which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any entity
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such entity
shall be otherwise qualified and eligible under this Article VI, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto. In case any
55
<PAGE>
Securities shall have been authenticated, but not delivered, by the Trustee then
in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Securities
so authenticated, and in case any Securities shall not have been authenticated,
any successor to the Trustee may authenticate such Securities either in the name
of any predecessor Trustee or in the name of such successor Trustee, and in all
cases the certificate of authentication shall have the full force which it is
provided anywhere in the Securities or in this Indenture that the certificate of
the Trustee shall have.
SECTION 6.13. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 6.14. Appointment of Authenticating Agent.
(a) The Trustee may appoint an Authenticating Agent or Agents with
respect to the Securities, which shall be authorized to act on behalf of the
Trustee to authenticate Securities issued upon original issue and upon exchange,
registration of transfer or partial redemption thereof or pursuant to Section
3.6, and Securities so authenticated shall be entitled to the benefits of this
Indenture and shall be valid and obligatory for all purposes as if authenticated
by the Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be an entity organized and doing business under the laws of the United
States of America, or of any state or territory thereof or of the District of
Columbia, authorized under such laws to act as Authenticating Agent, having a
combined capital and surplus of not less than $50,000,000 and subject to
supervision or examination by federal or state authority. If such Authenticating
Agent publishes reports of condition at least annually, pursuant to law or to
the requirements of said supervising or examining authority, then for the
purposes of this Section the combined capital and surplus of such Authenticating
Agent shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published. If at any time an Authenticating
Agent shall cease to be eligible in accordance with the provisions of this
Section 6.14, such Authenticating Agent shall resign immediately in the manner
and with the effect specified in this Section 6.14.
(b) Any entity into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any entity resulting from any
merger, conversion or consolidation to which such Authenticating Agent shall be
a party, or any entity succeeding to all or substantially all of the corporate
trust business of an Authenticating Agent shall be the successor Authenticating
Agent hereunder, provided such entity shall be otherwise eligible
56
<PAGE>
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.
(c) An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent, which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 1.6 to all Holders of Securities.
Any successor Authenticating Agent upon acceptance hereunder shall become vested
with all the rights, powers and duties of its predecessor hereunder, with like
effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provision of
this Section.
(d) The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payment, subject to the
provisions of Section 6.7.
(e) If an appointment is made pursuant to this Section 6.14, the
Securities may have endorsed thereon, in addition to the Trustee's certificate
of authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities referred to in the within mentioned
Indenture.
Dated: [
------------------------------ =
]BANKERS TRUST COMPANY,
as Trustee
By: [^]
---------------------------- ===
As Authenticating Agent
Name:
Title:
By: [^]
---------------------------- ===
As Authenticating Agent
Name:
Title:
57
<PAGE>
ARTICLE VII
HOLDERS LISTS AND REPORTS BY TRUSTEE,
PAYING AGENT AND COMPANY
SECTION 7.1. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) quarterly, not more than 15 days after March 15, June 15, September
15, and December 15 in each year, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders as of such dates,
excluding from any such list names and addresses received by the Trustee in its
capacity as Securities Registrar, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished, excluding from any such list names and addresses received by the
Trustee in its capacity as Securities Registrar.
SECTION 7.2. Preservation of Information, Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and privileges of the Trustee, shall be as provided in the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of the
disclosure of information as to the names and addresses of the Holders made
pursuant to the Trust Indenture Act.
SECTION 7.3. Reports by Trustee and Paying Agent.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act, at the times and in the manner provided pursuant thereto.
58
<PAGE>
(b) Reports so required to be transmitted at stated intervals of not
more than 12 months shall be transmitted within 60 days of January 31 in each
calendar year, commencing with January 31, 2001.
(c) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each securities exchange upon which any
Securities are listed and also with the Commission. The Company will notify the
Trustee when any Securities are listed on any securities exchange.
(d) The Paying Agent shall comply with all withholding, backup
withholding, tax and information reporting requirements under the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations issued thereunder
with respect to payments on, or with respect to, the Securities.
SECTION 7.4. Reports by Company.
The Company shall file or cause to be filed with the Trustee and with
the Commission, and transmit to Holders, such information, documents and other
reports, and such summaries thereof, as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided in the Trust Indenture
Act. In the case of information, documents or reports required to be filed with
the Commission pursuant to Section 13(a) or Section 15(d) of the Exchange Act,
the Company shall file or cause the filing of such information documents or
reports with the Trustee within 15 days after the same is required to be filed
with the Commission.
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and no Person shall consolidate with or merge into the
Company or convey, transfer or lease its properties and assets substantially as
an entirety to the Company, unless:
(a) if the Company shall consolidate with or merge into another Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, the entity formed by such consolidation or into which
the Company is merged or the Person that acquires by conveyance or transfer, or
that leases, the properties and assets of the Company substantially as an
entirety shall be an entity organized and existing under the laws of the United
States of America or any state thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and delivered to
the Trustee, in form satisfactory to the Trustee, the due and punctual payment
of the principal of (and premium, if any), and interest (including any
Additional Interest) on all the Securities of every series and
59
<PAGE>
the performance of every covenant of this Indenture on the part of the Company
to be performed or observed; provided, however, that nothing herein shall be
deemed to restrict or prohibit, and no supplemental indenture shall be required
in the case of, [(i)] the merger of a Principal Subsidiary Bank with and into a
Principal Subsidiary Bank or the Company, [(ii)] the consolidation of Principal
Subsidiary Banks into a Principal Subsidiary Bank or the Company, or the sale or
[(iii)] other disposition of all or substantially all of the assets of any
Principal Subsidiary Bank (and of any other Principal Subsidiary Bank and any
voting securities of which are owned, directly or indirectly, by such Principal
Subsidiary Bank) surviving such merger, resulting from such consolidation or
acquiring such assets;
(b) immediately after giving effect to such transaction, no Event of
Default, [^] and no event that, after notice or lapse of time, or both, would
constitute an Event of Default, shall have occurred and be continuing; and
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and any such supplemental indenture comply with
this Article and that all conditions precedent herein provided for relating to
such transaction have been complied with and, in the case of a transaction
subject to this Section 8.1 but not requiring a supplemental indenture under
paragraph (a) of this Section 8.1, an Officer's Certificate or Opinion of
Counsel to the effect that the surviving, resulting or successor entity is
legally bound by the Indenture and the Securities; and the Trustee, subject to
Section 6.1, may rely upon such Officers' Certificates and Opinions of Counsel
as conclusive evidence that such transaction complies with this Section 8.1.
SECTION 8.2. Successor Company Substituted.
(a) Upon any consolidation or merger by the Company with or into any
other Person, or any conveyance, transfer or lease by the Company of its
properties and assets substantially as an entirety to any Person in accordance
with Section 8.1, the successor entity formed by such consolidation or into
which the Company is merged or to which such conveyance, transfer or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; and in the event of any
such conveyance, transfer or lease the Company shall be discharged from all
obligations and covenants under the Indenture and the Securities.
(b) Such successor Person may cause to be executed, and may issue
either in its own name or in the name of the Company, any or all of the
Securities issuable hereunder that theretofore shall not have been signed by the
Company and delivered to the Trustee; and, upon the order of such successor
Person instead of the Company and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee shall authenticate and
shall deliver any Securities that previously shall have been signed and
delivered by the officers of
60
<PAGE>
the Company to the Trustee for authentication pursuant to such provisions and
any Securities that such successor Person thereafter shall cause to be executed
and delivered to the Trustee on its behalf for the purpose pursuant to such
provisions. All the Securities so issued shall in all respects have the same
legal rank and benefit under this Indenture as the Securities theretofore or
thereafter issued in accordance with the terms of this Indenture.
(c) In case of any such consolidation, merger, sale, conveyance or
lease, such changes in phraseology and form may be made in the Securities
thereafter to be issued as may be appropriate.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may amend
or waive any provision of this Indenture or enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any of the
following purposes:
(a) to evidence the succession of another Person to the Company, and
the assumption by any such successor of the covenants of the Company herein and
in the Securities contained;
(b) to convey, transfer, assign, mortgage or pledge any property to or
with the Trustee or to surrender any right or power herein conferred upon the
Company;
(c) to facilitate the issuance of Securities in certificated or other
definitive form;
(d) to add to the covenants of the Company for the benefit of the
Holders of the Securities or to surrender any right or power herein conferred
upon the Company;
(e) to add any additional Events of Default for the benefit of the
Holders of the Securities;
(f) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall not apply to any Outstanding
Securities;
(g) to cure any ambiguity, to correct or supplement any provision
herein that may be defective or inconsistent with any other provision herein, or
to make any other provisions with respect to matters or questions arising under
this Indenture, provided that such action pursuant to this clause (g) shall not
adversely affect the interest of the Holders of Securities in any material
respect or, in the case of the Securities issued to the Issuer Trust and for so
long
61
<PAGE>
as any of the Preferred Securities issued by the Issuer Trust shall remain
outstanding, the holders of such Preferred Securities;
(h) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee with respect to the Securities and to add to or change
any of the provisions of this Indenture as shall be necessary to provide for or
facilitate the administration of the trusts hereunder by more than one Trustee,
pursuant to the requirements of Section 6.11(b); or
(i) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust Indenture
Act.
SECTION 9.2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Securities under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby,
(a) change the Stated Maturity of the principal of, or any installment
of interest (including any Additional Interest) on, any Security, or reduce the
principal amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or reduce the amount of principal of a Discount
Security that would be due and payable upon a declaration of acceleration of the
Stated Maturity thereof pursuant to Section 5.2, or change the place of payment
where, or the coin or currency in which, any Security or interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof (or, in the case of redemption,
on or after the Redemption Date), or
(b) reduce the percentage in aggregate 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
(c) modify any of the provisions of this Section 9.2, Section 5.13 or
Section 10.5, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Security affected thereby;
62
<PAGE>
provided, further, that, in the case of the Securities issued to the
Issuer Trust, so long as any of the Preferred Securities issued by the
Issuer Trust remains outstanding, (i) no such amendment shall be made
that adversely affects the holders of such Preferred Securities in any
material respect, and no termination of this Indenture shall occur, and
no waiver of any Event of Default or compliance with any covenant under
this Indenture shall be effective, without the prior consent of the
holders of at least a majority of the aggregate Liquidation Amount (as
defined in the Trust Agreement) of such Preferred Securities then
outstanding unless and until the principal of (and premium, if any, on)
the Securities and all accrued and (subject to Section 3.8) unpaid
interest (including any Additional Interest) thereon have been paid in
full, and (ii) no amendment shall be made to Section 5.8 of this
Indenture that would impair the rights of the holders of Preferred
Securities issued by the Issuer Trust provided therein without the
prior consent of the holders of each such Preferred Security then
outstanding unless and until the principal of (and premium, if any, on)
the Securities of such series and all accrued and (subject to Section
3.8) unpaid interest (including any Additional Interest) thereon have
been paid in full.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 9.3. Execution of Supplemental Indentures.
In executing or accepting the additional trusts created by any
supplemental indenture permitted by this Article IX or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 6.1) shall be fully protected in relying upon,
an Officers' Certificate and an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture, and
that all conditions precedent herein provided for relating to such action have
been complied with. The Trustee may, but shall not be obligated to, enter into
any such supplemental indenture that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article IX,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article IX shall
conform to the requirements of the Trust Indenture Act as then in effect.
63
<PAGE>
SECTION 9.6. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article IX may, and shall if required by
the Company, bear a notation in form approved by the Company as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
ARTICLE X
COVENANTS
SECTION 10.1. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of the Securities that
it will duly and punctually pay the principal of (and premium, if any) and
interest (including any Additional Interest) on the Securities in accordance
with the terms of such Securities and this Indenture.
SECTION 10.2. Maintenance of Office or Agency.
(a) The Company will maintain in each Place of Payment an office or
agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company initially appoints the Trustee, acting
through its Corporate Trust Office, as its agent for said purposes. The Company
will give prompt written notice to the Trustee of any change in the location of
any such office or agency. If at any time the Company shall fail to maintain
such office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
(b) The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all of such purposes, and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in each
Place of Payment for Securities for such purposes. The Company will give prompt
written notice to the Trustee of any such designation and any change in the
location of any such office or agency.
64
<PAGE>
SECTION 10.3. Money for Security Payments to be Held in Trust.
(a) If the Company shall at any time act as its own Paying Agent with
respect to the Securities, it will, on or before each due date of the principal
of (and premium, if any) or interest (including Additional Interest) on any of
the Securities, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal (and premium, if any) or
interest (including Additional Interest) so becoming due until such sums shall
be paid to such Persons or otherwise disposed of as herein provided, and will
promptly notify the Trustee of its failure so to act.
(b) Whenever the Company shall have one or more Paying Agents, it will,
prior to 10:00 a.m., New York City time, on each due date of the principal of
(or premium, if any) or interest, including Additional Interest on any
Securities, deposit with a Paying Agent a sum sufficient to pay the principal
(and premium, if any) or interest, including Additional Interest so becoming
due, such sum to be held in trust for the benefit of the Persons entitled to
such principal (and premium, if any) or interest, including Additional Interest,
and (unless such Paying Agent is the Trustee) the Company will promptly notify
the Trustee of its failure so to act.
(c) 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) hold all sums held by it for the payment of the principal
of (and premium, if any, or interest (including Additional
Interest) on the Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(ii) give the Trustee notice of any default by the Company (or
any other obligor upon such Securities) in the making of any
payment of principal (and premium, if any) or interest
(including Additional Interest) in respect of any Security;
(iii) at any time during the continuance of any default with
respect to the Securities, upon the written request of the
Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(iv) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent.
(d) The Company may, at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same terms as those upon which such
65
<PAGE>
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.
(e) Any money deposited with the Trustee or any Paying Agent, or then
held by the Company in trust for the payment of the principal of (and premium,
if any) or interest (including Additional Interest) on any Security and
remaining unclaimed for two years after such principal (and premium, if any) or
interest (including Additional Interest) has become due and payable shall
(unless otherwise required by mandatory provision of applicable escheat or
abandoned or unclaimed property law) be paid on Company Request to the Company,
or (if then held by the Company) shall (unless otherwise required by mandatory
provision of applicable escheat or abandoned or unclaimed property law) be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, the City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 10.4. Statement as to Compliance.
The Company shall deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officers'
Certificate covering the preceding calendar year, stating whether or not to the
best knowledge of the signers thereof of the Company is in default in the
performance, observance or fulfillment of or compliance with any of the terms,
provisions, covenants and conditions of this Indenture, and if the Company shall
be in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge. For the purpose of this Section 10.4, compliance
shall be determined without regard to any grace period or requirement of notice
provided pursuant to the terms of this Indenture.
SECTION 10.5. Waiver of Certain Covenants.
Subject to the rights of holders of Preferred Securities specified in
Section 9.2, if any, the Company may omit in any particular instance to comply
with any covenant or condition provided pursuant to Section 3.1, 9.1(c) or
9.1(d) with respect to the Securities, if before or after the time for such
compliance the Holders of at least a majority in aggregate 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,
66
<PAGE>
but no such waiver shall extend to or affect such covenant or condition except
to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company in respect of any such covenant or
condition shall remain in full force and effect.
SECTION 10.6. Additional Sums.
So long as no Event of Default has occurred and is continuing and
except as otherwise specified as contemplated by Section 2.1 or Section 3.1, if:
(a) the Issuer Trust is the Holder of all of the Outstanding Securities, and (b)
a Tax Event described in clause (a) or (c) of the definition of "Tax Event" in
Section 1.1 hereof has occurred and is continuing in respect of the Issuer
Trust, the Company shall pay the Issuer Trust (and its permitted successors or
assigns under the Trust Agreement) for so long as the Issuer Trust (or its
permitted successor or assignee) is the registered holder of the Outstanding
Securities, such additional sums as may be necessary in order that the amount of
Distributions (including any Additional Amount (as defined in the Trust
Agreement)) then due and payable by the Issuer Trust on the Preferred Securities
and Common Securities that at any time remain outstanding in accordance with the
terms thereof shall not be reduced as a result of such Additional Taxes (the
"Additional Sums"). Whenever in this Indenture or the Securities there is a
reference in any context to the payment of principal of or interest on the
Securities, such mention shall be deemed to include mention of the payments of
the Additional Sums provided for in this paragraph to the extent that, in such
context, Additional Sums are, were or would be payable in respect thereof
pursuant to the provisions of this paragraph and express mention of the payment
of Additional Sums (if applicable) in any provisions hereof shall not be
construed as excluding Additional Sums in those provisions hereof where such
express mention is not made; provided, however, that the deferral of the payment
of interest pursuant to Section 3.12 or the Securities shall not defer the
payment of any Additional Sums that may be due and payable.
SECTION 10.7. Additional Covenants.
The Company covenants and agrees with each Holder of Securities that it
shall not (a) declare or pay any dividends or distributions on, or redeem
purchase, acquire or make a liquidation payment with respect to, any shares of
the Company's capital stock, or (b) make any payment of principal of or interest
or premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu in all respects with or junior in interest to the
Securities, (other than (i) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the Company (or securities convertible
into or exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period or other event
referred to below, (ii) as a result of a reclassification, exchange or
conversion of any class or series of the Company's capital stock (or any capital
stock of a Subsidiary of the Company) for any class or
67
<PAGE>
series of the Company's capital stock or of any class or series of the Company's
indebtedness for any class or series of the Company's capital stock, (iii) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (iv) any declaration of a dividend in
connection with any Rights Plan, or the issuance of rights, stock or other
property under any Rights Plan, or the redemption or repurchase of rights
pursuant thereto, or (v) any dividend in the form of stock, warrants, options or
other rights where the dividend stock or the stock issuable upon exercise of
such warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks pari passu with or junior to such stock) if at
such time (A) there shall have occurred any event (x) of which the Company has
actual knowledge that with the giving of notice or the lapse of time, or both,
would constitute an Event of Default with respect to the Securities, and (y)
which the Company shall not have taken reasonable steps to cure, (B) if the
Securities are held by the Issuer Trust, the Company shall be in default with
respect to its payment of any obligations under the Guarantee relating to the
Preferred Securities issued by the Issuer Trust, or (C) the Company shall have
given notice of its election to begin an Extension Period with respect to the
Securities as provided herein and shall not have rescinded such notice, or such
Extension Period, or any extension thereof, shall be continuing.
The Company also covenants with each Holder of Securities issued to the
Issuer Trust (a) to hold, directly or indirectly, 100% of the Common Securities
of the Issuer Trust, provided that any permitted successor of the Company as
provided under Section 8.2 may succeed to the Company's ownership of such Common
Securities, (b) as holder of such Common Securities, not to voluntarily
terminate, windup or liquidate the Issuer Trust, other than (i) in connection
with a distribution of the Securities to the holders of the Preferred Securities
in liquidation of the Issuer Trust, or (ii) in connection with certain mergers,
consolidations or amalgamations permitted by the Trust Agreement, and (c) to use
its reasonable efforts, consistent with the terms and provisions of the Trust
Agreement, to cause the Issuer Trust to continue not to be taxable as a
corporation for United States federal income tax purposes.
SECTION 10.8. Federal Tax Reports.
On or before December 15 of each year during which any Securities are
outstanding, the Company shall furnish to each Paying Agent such information as
may be reasonably requested by each Paying Agent in order that each Paying Agent
may prepare the information which it is required to report for such year on
Internal Revenue Service Forms 1096 and 1099 pursuant to Section 6049 of the
Internal Revenue Code of 1986, as amended. Such information shall include the
amount of original issue discount includible in income for each authorized
minimum denomination of principal amount at Stated Maturity of outstanding
Securities during such year.
68
<PAGE>
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.1. Applicability of this Article.
Redemption of Securities as permitted or required by any form of
Security issued pursuant to this Indenture shall be made in accordance with such
form of Security and this Article; provided, however, that, if any provision of
any such form of Security shall conflict with any provision of this Article XI,
the provision of such form of Security shall govern.
SECTION 11.2. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced
by or pursuant to a Board Resolution. In case of any redemption at the election
of the Company, the Company shall, not less than 30 nor more than 60 days prior
to the Redemption Date (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee and, in the case of Securities held by the Issuer
Trust, the Property Trustee under the Trust Agreement, of such date and of the
principal amount of Securities to be redeemed and provide the additional
information required to be included in the notice or notices contemplated by
Section 11.4; provided that, for so long as such Securities are held by the
Issuer Trust, such notice shall be given not less than 45 nor more than 75 days
prior to such Redemption Date (unless a shorter notice shall be satisfactory to
the Property Trustee under the Trust Agreement). In the case of any redemption
of Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities, the Company shall furnish the Trustee
with an Officers' Certificate and an Opinion of Counsel evidencing compliance
with such restriction.
SECTION 11.3. Selection of Securities to be Redeemed.
(a) 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 lot or by such other method as the Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of a
portion of the principal amount of any Security, provided that the unredeemed
portion of the principal amount of any Security shall be in an authorized
denomination (which shall not be less than the minimum authorized denomination)
for such Security.
(b) The Trustee shall promptly notify the Company in writing of the
Securities selected for partial redemption and the principal amount thereof to
be redeemed. For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Security redeemed or to be redeemed only in part, to the
portion of the principal amount of such Security that has been or is to be
redeemed.
69
<PAGE>
SECTION 11.4. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not later than the thirtieth day, and not earlier than the
sixtieth day, prior to the Redemption Date, to each Holder of Securities to be
redeemed, at the address of such Holder as it appears in the Securities
Register.
With respect to Securities to be redeemed, each notice of redemption
shall state:
(a) the Redemption Date;
(b) the Redemption Price or, if the Redemption Price cannot be
calculated prior to the time the notice is required to be sent, the estimate of
the Redemption Price provided pursuant to the Indenture together with a
statement that it is an estimate and that the actual Redemption Price will be
calculated on the third Business Day prior to the Redemption Date (if such an
estimate of the Redemption Price is given, a subsequent notice shall be given as
set forth above setting forth the Redemption Price promptly following the
calculation thereof);
(c) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of partial redemption, the respective principal
amounts) of the particular Securities to be redeemed;
(d) that, on the Redemption Date, the Redemption Price will become due
and payable upon each such Security or portion thereof, and that interest
thereon, if any, shall cease to accrue on and after said date;
(e) the place or places where such Securities are to be surrendered for
payment of the Redemption Price;
(f) such other provisions as may be required in respect of the terms of
the Securities; and
(g) that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall be irrevocable.
The notice, if mailed in the manner provided above, shall be conclusively
presumed to have been duly given, whether or not the Holder receives such
notice. In any case, a failure to give such notice by mail or any defect in the
notice to the Holder of any Security designated for redemption as a whole or in
part shall not affect the validity of the proceedings for the redemption of any
other Security.
70
<PAGE>
SECTION 11.5. Deposit of Redemption Price.
Prior to 10:00 a.m., New York City time, on the Redemption Date
specified in the notice of redemption given as provided in Section 11.4, the
Company will deposit with the Trustee or with one or more Paying Agents (or if
the Company is acting as its own Paying Agent, the Company will segregate and
hold in trust as provided in Section 10.3) an amount of money sufficient to pay
the Redemption Price of, and any accrued interest (including Additional
Interest) on, all the Securities (or portions thereof) that are to be redeemed
on that date.
SECTION 11.6. Payment of Securities Called for Redemption.
(a) If any notice of redemption has been given as provided in Section
11.4, the Securities or portion of Securities with respect to which such notice
has been given shall become due and payable on the date and at the place or
places stated in such notice at the applicable Redemption Price, together with
accrued interest (including any Additional Interest) to the Redemption Date. On
presentation and surrender of such Securities at a Place of Payment [specified]
in said notice [^], the said Securities or the specified portions thereof shall
be paid and redeemed by the Company at the applicable Redemption Price, together
with accrued interest (including any Additional Interest) to the Redemption
Date; provided, however, that, installments of interest (including Additional
Interest) whose Stated Maturity is on or prior to the Redemption Date will be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant record
dates according to their terms and the provisions of Section 3.8.
(b) Upon presentation of any Security redeemed in part only, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder thereof, at the expense of the Company, a new Security or Securities, of
authorized denominations, in aggregate principal amount equal to the unredeemed
portion of the Security so presented and having the same Original Issue Date,
Stated Maturity and terms.
(c) If any Security called for redemption shall not be so paid under
surrender thereof for redemption, the principal of and premium, if any, on such
Security shall, until paid, bear interest from the Redemption Date at the rate
prescribed therefor in the Security.
SECTION 11.7. Right of Redemption of Securities Initially Issued to the
Issuer Trust.
(a) The Company, at its option, may redeem such Securities (i) on or
after _________ __, 2004, in whole at any time or in part from time to time, or
(ii) upon the occurrence and during the continuation of a Tax Event, an
Investment Company Event or a Capital Treatment Event, at any time within 90
days following the occurrence and during the continuation of such Tax Event,
Investment Company Event or Capital Treatment Event, in whole (but not in part),
71
<PAGE>
in each case at a Redemption Price specified in such Security, together with
accrued interest (including Additional Interest) to the Redemption Date.
(b) If less than all the Securities are to be redeemed, the aggregate
principal amount of such Securities remaining Outstanding after giving effect to
such redemption shall be sufficient to satisfy any provisions of the Trust
Agreement.
ARTICLE XII
SINKING FUNDS
Except as may be provided in any supplemental or amended indenture, no
sinking fund shall be established or maintained for the retirement of
Securities.
ARTICLE XIII
SUBORDINATION OF SECURITIES
SECTION 13.1. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article, the payment of the principal
of (and premium, if any) and interest (including any Additional Interest) on
each and all of the Securities are hereby expressly made subordinate and subject
in right of payment to the prior payment in full of all Senior Indebtedness.
SECTION 13.2. No Payment When Senior Indebtedness in Default; Payment
Over of [^] Proceeds Upon Dissolution, Etc.
(a) If the Company shall default in the payment of any principal of (or
premium, if any) or interest on any Senior Indebtedness when the same becomes
due and payable, whether at maturity or at a date fixed for prepayment or by
declaration of acceleration or otherwise, then, upon written notice of such
default to the Company by the holders of Senior Indebtedness or any trustee
therefor, unless and until such default shall have been cured or waived or shall
have ceased to exist, no direct or indirect payment (in cash, property,
securities, by set-off or otherwise) shall be made or agreed to be made on
account of the principal of (or premium, if any) or interest (including
Additional Interest) on any of the Securities, or in respect of any redemption,
repayment, retirement, purchase or other acquisition of any of the Securities.
(b) In the event of (i) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to the Company, its creditors or its property, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of
72
<PAGE>
creditors or (iv) any other marshalling of the assets of the Company (each such
event, if any, herein sometimes referred to as a "Proceeding"), all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) shall first be paid in full before any payment or
distribution, whether in cash, securities or other property, shall be made to
any Holder on account thereof. Any payment or distribution, whether in cash,
securities or other property (other than securities of the Company or any other
entity provided for by a plan of reorganization or readjustment, the payment of
which is subordinate, at least to the extent provided in these subordination
provisions with respect to the indebtedness evidenced by the Securities, to the
payment of all Senior Indebtedness at the time outstanding and to any securities
issued in respect thereof under any such plan of reorganization or
readjustment), which would otherwise (but for these subordination provisions) be
payable or deliverable in respect of the Securities shall be paid or delivered
directly to the holders of Senior Indebtedness in accordance with the priorities
then existing among such holders until all Senior Indebtedness (including any
interest thereon accruing after the commencement of any Proceeding) shall have
been paid in full.
(c) In the event of any Proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the Holders of the Securities,
together with the holders of any obligations of the Company ranking on a parity
with the Securities, shall be entitled to be paid from the remaining assets of
the Company the amounts at the time due and owing on account of unpaid principal
of (and premium, if any) and interest on the Securities and such other
obligations before any payment or other distribution, whether in cash, property
or otherwise, shall be made on account of any capital stock or any obligations
of the Company ranking junior to the Securities, and such other obligations. If,
notwithstanding the foregoing, any payment or distribution of any character or
any security, whether in cash, securities or other property (other than
securities of the Company or any other entity provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at least to
the extent provided in these subordination provisions with respect to the
indebtedness evidenced by the Securities, to the payment of all Senior
Indebtedness at the time outstanding and to any securities issued in respect
thereof under any plan of reorganization or readjustment), shall be received by
the Trustee or any Holder in contravention of any of the terms hereof and before
all Senior Indebtedness shall have been paid in full, such payment or
distribution or security shall be received in trust for the benefit of, and
shall be paid over or delivered and transferred to, the holders of the Senior
Indebtedness at the time outstanding in accordance with the priorities then
existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all such Senior
Indebtedness in full. In the event of the failure of the Trustee or any Holder
to endorse or assign any such payment, distribution or security, each holder of
Senior Indebtedness is hereby irrevocably authorized to endorse or assign the
same.
(d) The Trustee and the Holders shall take such action (including,
without limitation, the delivery of this Indenture to an agent for the holders
of Senior Indebtedness or consent to the filing of a financing statement with
respect hereto) as may, in the opinion of counsel
73
<PAGE>
designated by the holders of a majority in principal amount of the Senior
Indebtedness at the time outstanding, be necessary or appropriate to assure the
effectiveness of the subordination effected by these provisions.
(e) The provisions of this Section 13.2 shall not impair any rights,
interests, remedies or powers of any secured creditor of the Company in respect
of any security interest the creation of which is not prohibited by the
provisions of this Indenture.
(f) The securing of any obligations of the Company, otherwise ranking
on a parity with the Securities or ranking junior to the Securities shall not be
deemed to prevent such obligations from constituting, respectively, obligations
ranking on a parity with the Securities or ranking junior to the Securities.
SECTION 13.3. Payment Permitted If No Default.
Nothing contained in this Article XIII or elsewhere in this Indenture
or in any of the Securities shall prevent (a) the Company, at any time, except
during the pendency of the conditions described in the first paragraph of
Section 13.2 or of any Proceeding referred to in Section 13.2, from making
payments at any time of principal of (and premium, if any) or interest
(including Additional Interest) on the Securities, or (b) the application by the
Trustee of any monies deposited with it hereunder to the payment of or on
account of the principal of (and premium, if any) or interest (including any
Additional Interest) on the Securities or the retention of such payment by the
Holders, if, at the time of such application by the Trustee, it did not have
knowledge that such payment would have been prohibited by the provisions of this
Article.
SECTION 13.4. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all amounts due or to become due on
all Senior Indebtedness, or the provision for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, the Holders of the Securities shall be subrogated to the extent of
the payments or distributions made to the holders of such Senior Indebtedness
pursuant to the provisions of this Article (equally and ratably with the holders
of all indebtedness of the Company that by its express terms is subordinated to
Senior Indebtedness of the Company to substantially the same extent as the
Securities are subordinated to the Senior Indebtedness and is entitled to like
rights of subrogation by reason of any payments or distributions made to holders
of such Senior Indebtedness) to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of (and
premium if any) and interest (including Additional Interest) on the Securities
shall be paid in full. For purposes of such subrogation, no payments or
distributions to the holders of the Senior Indebtedness of any cash, property or
securities to which the Holders of the Securities or the Trustee would be
entitled except for the provisions of this Article, and no payments over
pursuant to the
74
<PAGE>
provisions of this Article to the holders of Senior Indebtedness by Holders of
the Securities or the Trustee, shall, as among the Company, its creditors other
than holders of Senior Indebtedness, and the Holders of the Securities, be
deemed to be a payment or distribution by the Company to or on account of the
Senior Indebtedness.
SECTION 13.5. Provisions Solely to Define Relative Rights.
The provisions of this Article XIII are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article XIII or elsewhere in this Indenture or in the
Securities is intended to or shall (a) impair, as between the Company and the
Holders of the Securities, the obligations of the Company, which are absolute
and unconditional, to pay to the Holders of the Securities the principal of (and
premium, if any) and interest (including any Additional Interest) on the
Securities as and when the same shall become due and payable in accordance with
their terms; or (b) affect the relative rights against the Company of the
Holders of the Securities and creditors of the Company other than their rights
in relation to the holders of Senior Indebtedness; or (c) prevent the Trustee or
the Holder of any Security (or to the extent expressly provided herein, the
holder of any Preferred Security) from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, including filing
and voting claims in any Proceeding, subject to the rights, if any, under this
Article XIII of the holders of Senior Indebtedness to receive cash, property and
securities otherwise payable or deliverable to the Trustee or such Holder.
SECTION 13.6. Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance thereof authorizes
and directs the Trustee on his or her behalf to take such action as may be
necessary or appropriate to acknowledge or effectuate the subordination provided
in this Article XIII and appoints the Trustee his or her attorney-in-fact for
any and all such purposes.
SECTION 13.7. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior Indebtedness
to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof that any such holder may have or
be otherwise charged with.
(b) Without in any way limiting the generality of Section 13.7(a), 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 such Holders of the Securities and without
impairing or releasing the subordination provided in this Article XIII or
75
<PAGE>
the obligations hereunder of such Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the manner,
place or terms of payment or [^] [extend] the time of payment of, or renew or
alter, Senior Indebtedness, or otherwise amend or supplement in any manner
Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
SECTION 13.8. Notice to Trustee.
(a) The Company shall give prompt written notice to a Responsible
Officer of the Trustee of any fact known to the Company that would prohibit the
making of any payment to or by the Trustee in respect of the Securities.
Notwithstanding the provisions of this Article XIII or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the existence
of any facts that would prohibit the making of any payment to or by the Trustee
in respect of the Securities, unless and until the Trustee shall have received
written notice thereof from the Company or a holder of Senior Indebtedness or
from any trustee, agent or representative therefor; provided, however, that if
the Trustee shall not have received the notice provided for in this Section at
least two Business Days prior to the date upon which by the terms hereof any
monies may become payable for any purpose (including, the payment of the
principal of (and premium, if any, on) or interest (including any Additional
Interest) on any Security), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
monies and to apply the same to the purpose for which they were received and
shall not be affected by any notice to the contrary that may be received by it
within two Business Days prior to such date.
(b) Subject to the provisions of Section 6.1, the Trustee shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself or herself to be a holder of Senior Indebtedness (or a
trustee or attorney-in-fact therefor) to establish that such notice has been
given by a holder of Senior Indebtedness (or a trustee or attorney-in-fact
therefor). In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
76
<PAGE>
SECTION 13.9. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee, subject to the provisions of Section 6.1, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, conservator,
liquidating trustee, custodian, assignee for the benefit of creditors, agent or
other Person making such payment or distribution, delivered to the Trustee or to
the Holders of Securities, for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article XIII.
SECTION 13.10. Trustee Not Fiduciary for Holders of Senior
Indebtedness.
The Trustee, in its capacity as trustee under this Indenture, shall not
be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and
shall not be liable to any such holders if it shall in good faith mistakenly pay
over or distribute to Holders of Securities or to the Company or to any other
Person cash, property or securities to which any holders of Senior Indebtedness
shall be entitled by virtue of this Article or otherwise.
SECTION 13.11. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness that
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
SECTION 13.12. Article Applicable to Paying Agents.
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 XIII shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee.
SECTION 13.13. Certain Conversions or Exchanges Deemed Payment.
For purposes of this Article only, (a) the issuance and delivery of
junior securities upon conversion or exchange of Securities shall not be deemed
to constitute a payment or distribution on account of the principal of (or
premium, if any, on) or interest (including any Additional Interest) on such
Securities or on account of the purchase or other acquisition of
77
<PAGE>
such Securities, and (b) the payment, issuance or delivery of cash, property or
securities (other than junior securities) upon conversion or exchange of a
Security 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 that are subordinated in right of payment to all Senior Indebtedness
that may be outstanding at the time of issuance or delivery of such securities
to substantially the same extent as, or to a greater extent than, the Securities
are so subordinated as provided in this Article.
* * * *
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
78
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
Attest: FIRST STAR BANCORP, INC.
-------------------------------
By:
--------------------------------
Name:
Title:
Attest: BANKERS TRUST COMPANY, as
------------------------------- Trustee
By:
--------------------------------
Name:
Title:
79
<PAGE>
ANNEX A
FORM OF RESTRICTED SECURITIES CERTIFICATE
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to Section 3.6(b) of
the Indenture referred to below)
[ ],
as Securities Registrar
[address]
RE:Junior Subordinated Debentures of First Star Bancorp, Inc. (the "Securities")
Reference is made to the Junior Subordinated Indenture, dated as of ______
__, 1999 (the "Indenture"), between First Star Bancorp, Inc., a Pennsylvania
corporation, and Bankers Trust Company, as Trustee. Terms used herein and
defined in the Indenture or in Regulation S, Rule 144A or Rule 144 under the
U.S. Securities Act of 1933, as amended (the "Securities Act") are used here as
so defined.
This certificate relates to $________ aggregate principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities"):
CUSIP No(s).
CERTIFICATE No(s).
CURRENTLY IN GLOBAL FORM: Yes ___ No ___ (check one)
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (a) it is the sole beneficial owner
of the Specified Securities or (b) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner."
If the Specified Securities are represented by a Global Security, they are held
through a Depositary or an Agent Member in the name of the Undersigned, as or on
behalf of the Owner. If the Specified Securities are not represented by a Global
Security, they are registered in the name of the Undersigned, as or on behalf of
the Owner.
80
<PAGE>
The Owner has requested that the Specified Securities be transferred to a
person (the "Transferee") who will take delivery in the form of a Restricted
Security. In connection with such transfer, the Owner hereby certifies that,
unless such transfer is being effected pursuant to an effective registration
statement under the Securities Act, it is being effected in accordance with Rule
144A, Rule 904 of Regulation S or Rule 144 under the Securities Act and all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies that:
(a) Rule 144A Transfers. If the transfer is being effected in accordance
with Rule 144A:
(i) the Specified Securities are being transferred to a person that the
Owner and any person acting on its behalf reasonably believe is a "qualified
institutional buyer" within the meaning of Rule 144A, acquiring for its own
account or for the account of a qualified institutional buyer; and
(ii) the owner and any person acting on its behalf have taken reasonable
steps to ensure that the Transferee is aware that the Owner may be relying on
Rule 144A in connection with the transfer; and
(b) Rule 904 Transfer. If the transfer is being effected in accordance with
Rule 904:
(i) the Owner is not a distributor of the Securities, an affiliate of the
Company or any such distributor or a person acting in behalf of any of the
foregoing;
(ii) the offer of the Specified Securities was not made to a person in the
United States;
(iii) either;
(A) at the time the buy order was originated, the Transferee was
outside the United States or the Owner and any person acting on its
behalf reasonably believed that the Transferee was outside the United
States, or
(B) the transaction is being executed in, on or through the
facilities of the Eurobond market, as regulated by the Association of
International Bond Dealers, or another designated offshore securities
market and neither the Owner nor any person acting on its behalf know
that the transaction has been prearranged with a buyer in the United
States;
(iv) no directed selling efforts within the meaning of Rule 902 of
Regulation S have been made in the United States by or on behalf of the Owner or
any affiliate thereof; and
(v) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
81
<PAGE>
(c) Rule 144 Transfers. If the transfer is being effected pursuant to Rule
144[^][:]
(i) the transfer is occurring after a holding period of at least one year
(computed in accordance with paragraph (d) of Rule 144) has elapsed since the
date the Specified Securities were acquired from the Company or from an
affiliate (as such term is defined in Rule 144) of the Company, whichever is
later, and is being effected in accordance with the applicable amount, manner of
sale and notice requirements of paragraphs (e), (f) and (h) of Rule 144;
(ii) the transfer is occurring after a holding period by the Owner of at
least three years has elapsed since the date the Specified Securities were
acquired from the Company or from an affiliate (as such term is defined in Rule
144) of the Company, whichever is later, and the Owner is not, and during the
preceding three months has not been, an affiliate of the Company; or
(iii) the Owner is a Qualified Institutional Buyer under Rule 144A or has
acquired the Securities otherwise in accordance with Sections (1), (2) or (3)
hereof and is transferring the Securities to an institutional accredited
investor in a transaction exempt from the requirements of the Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Underwriters (as defined in the
Trust Agreement relating to the Issuer Trust to which the Securities were
initially issued).
(Print the name of the Undersigned, as such term is defined in the
second paragraph of this certificate)
Dated: By:
------------------------ ----------------------------
Name:
Title:
(If the Undersigned is a corporation, partnership of fiduciary, the title of the
person signing on behalf of the Undersigned must be stated.)
82
EXHIBIT 4.4
<PAGE>
FORM OF
AMENDED AND RESTATED
TRUST AGREEMENT
Among
FIRST STAR BANCORP, INC.
BANKERS TRUST COMPANY
(as Property Trustee [and as Calculation Agent)][^]
and
BANKERS TRUST (DELAWARE)
(as Delaware Trustee)
dated as of
______________ ___, 1999
FIRST STAR CAPITAL TRUST
<PAGE>
FIRST STAR CAPITAL TRUST
Certain Sections of this Trust Agreement relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Trust Agreement
Section Section
<S> <C> <C>
Section 310(a)(1)............................................. 8.7
(a)(2)............................................. 8.7
(a)(3)............................................. 8.9
(a)(4)............................................. 2.7(a)(ii)
(b)................................................ 8.8, 10.10(b)
Section 311(a)................................................ 8.13, 10.10(b)
(b)................................................ 8.13, 10.10(b)
Section 312(a)................................................ 10.10(b)
(b)................................................ 10.10(b), (f)
(c)................................................ 5.7
Section 313(a)................................................ 8.15(a)
(a)(4)............................................. 10.10(c)
(b)................................................ 8.15(c), 10.10(c)
(c)................................................ 10.8, 10.10(c)
(d)................................................ 10.10(c)
Section 314(a)................................................ 8.16, 10.10(d)
(b)................................................ Not Applicable
(c)(1)............................................. 8.17, 10.10(d), (e)
(c)(2)............................................. 8.17, 10.10(d), (e)
(c)(3)............................................. 8.17, 10.10(d), (e)
(e)................................................ 8.17, 10.10(e)
Section 315(a)................................................ 8.1(d)
(b)................................................ 8.2
(c)................................................ 8.1(c)
(d)................................................ 8.1(d)
(e)................................................ Not Applicable
Section 316(a)................................................ Not Applicable
(a)(1)(A).......................................... Not Applicable
(a)(1)(B).......................................... Not Applicable
(a)(2)............................................. Not Applicable
(b)................................................ 5.13
(c)................................................ 6.7
Section 317(a)(1)............................................. Not Applicable
(a)(2)............................................. 8.14
(b)................................................ 5.10
Section 318(a)................................................ 10.10(a)
</TABLE>
Note:This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Trust Agreement.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ARTICLE I. DEFINED TERMS
<S> <C> <C>
SECTION 1.1. Defined Terms.......................................................... 1
ARTICLE II. CONTINUATION OF THE ISSUER TRUST
SECTION 2.1. Name ..........................................................[^] [10]
=== ====
SECTION 2.2. Office of the Delaware Trustee;
Principal Place of Business....................................... [^] [11]
SECTION 2.3. Initial Contribution of Trust Property,
Organizational Expenses........................................... [^] [11]
SECTION 2.4. Issuance of the Preferred Securities................................... [^] [11]
=== ====
SECTION 2.5. Issuance of the Common Securities;
Subscription and Purchase of Junior
Subordinated Debentures........................................... [^] [11]
SECTION 2.6. Declaration of Trust................................................... [^] [12]
=== ====
SECTION 2.7. Authorization to Enter into Certain Transactions....................... [^] [12]
=== ====
SECTION 2.8. Assets of Trust........................................................ [^] [15]
=== ====
SECTION 2.9. Title to Trust Property................................................ [^] [15]
=== ====
ARTICLE III. PAYMENT ACCOUNT
SECTION 3.1. Payment Account........................................................ [^] [15]
=== ====
ARTICLE IV. DISTRIBUTIONS; REDEMPTION
SECTION 4.1. Distributions.......................................................... [^] [16]
=== ====
SECTION 4.2. Redemption............................................................. [^] [17]
=== ====
SECTION 4.3. Subordination of Common Securities..................................... [^] [19]
=== ====
SECTION 4.4. Payment Procedures..................................................... [^] [19]
=== ====
SECTION 4.5. Tax Returns and Reports................................................ [^] [19]
=== ====
SECTION 4.6. Payment of Taxes, Duties, Etc. of the Issuer Trust..................... [^] [20]
=== ====
SECTION 4.7. Payments under Indenture or Pursuant to Direct Actions................. [^] [20]
=== ====
SECTION 4.8. Liability of the Holder of Common Securities........................... [^] [20]
=== ====
ARTICLE V. TRUST SECURITIES CERTIFICATES
SECTION 5.1. Initial Ownership...................................................... [^] [20]
=== ====
SECTION 5.2. The Trust Securities Certificates...................................... [^] [20]
=== ====
SECTION 5.3. Execution and Delivery of Trust Securities Certificates................ [^] [21]
=== ====
SECTION 5.4. Global Preferred Security.............................................. [^] [21]
=== ====
SECTION 5.5. Registration of Transfer and Exchange Generally;
Certain Transfers and Exchanges; Preferred
Securities Certificates........................................... [^] [21
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
]
SECTION 5.6. Mutilated, Destroyed, Lost or Stolen
Trust Securities Certificates..................................... [^] [23]
SECTION 5.7. Persons Deemed Holders................................................. [^] [23]
=== ====
SECTION 5.8. Access to List of Holders' Names and Addresses......................... [^] [24]
=== ====
SECTION 5.9. Maintenance of Office or Agency........................................ [^] [24]
=== ====
SECTION 5.10. Appointment of Paying Agent............................................ [^] [24]
=== ====
SECTION 5.11. Ownership of Common Securities by Depositor............................ [^] [25]
=== ====
SECTION 5.12. Notices to Clearing Agency............................................. [^] [25]
=== ====
SECTION 5.13. Rights of Holders...................................................... [^] [25]
=== ====
ARTICLE VI. ACTS OF HOLDERS; MEETINGS; VOTING
SECTION 6.1. Limitations on Holder's Voting Rights.................................. [^] [27]
=== ====
SECTION 6.2. Notice of Meetings..................................................... [^] [28]
=== ====
SECTION 6.3. Meetings of Holders.................................................... [^] [28]
=== ====
SECTION 6.4. Voting Rights.......................................................... [^] [28]
=== ====
SECTION 6.5. Proxies, etc........................................................... [^] [29]
=== ====
SECTION 6.6. Holder Action by Written Consent....................................... [^] [29]
=== ====
SECTION 6.7 Record Date for Voting and Other Purposes............................. [^] [29]
=== ====
SECTION 6.8. Acts of Holders........................................................ [^] [29]
=== ====
SECTION 6.9. Inspection of Records.................................................. [^] [30]
=== ====
ARTICLE VII. REPRESENTATIONS AND WARRANTIES
SECTION 7.1. Representations and Warranties of the Property Trustee
and the Delaware Trustee.......................................... [^] [30]
SECTION 7.2. Representations and Warranties of the Depositor........................ [^] [32]
=== ====
ARTICLE VIII. THE ISSUER TRUSTEES; THE ADMINISTRATORS
SECTION 8.1. Certain Duties and Responsibilities.................................... [^] [32]
=== ====
SECTION 8.2. Certain Notices........................................................ [^] [34]
=== ====
SECTION 8.3. Certain Rights of Property Trustee..................................... [^] [35]
=== ====
SECTION 8.4. Not Responsible for Recitals or Issuance of Securities................. [^] [36]
=== ====
SECTION 8.5. May Hold Securities.................................................... [^] [36]
=== ====
SECTION 8.6. Compensation; Indemnity; Fees.......................................... [^] [36]
=== ====
SECTION 8.7. Corporate Property Trustee Required;
Eligibility of Trustees and Administrators........................ [^] [37]
SECTION 8.8. Conflicting Interests.................................................. [^] [38]
=== ====
SECTION 8.9. Co-Trustees and Separate Trustee....................................... [^] [38]
=== ====
SECTION 8.10. Resignation and Removal; Appointment of Successor...................... [^] [39]
=== ====
SECTION 8.11. Acceptance of Appointment by Successor................................. [^] [40]
=== ====
SECTION 8.12. Merger, Conversion, Consolidation or
Succession to Business............................................ [^] [41]
SECTION 8.13. Preferential Collection of Claims
Against Depositor or Issuer Trust................................. [^] [41]
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 8.14. Trustee May File Proofs of Claim....................................... [^] [41]
=== ====
SECTION 8.15. Reports by the Property Trustee........................................ [^] [42]
=== ====
SECTION 8.16. Reports to the Property Trustee........................................ [^] [42]
=== ====
SECTION 8.17. Evidence of Compliance with Conditions Precedent....................... [^] [43]
=== ====
SECTION 8.18. Number of Issuer Trustees.............................................. [^] [43]
=== ====
SECTION 8.19. Delegation of Power.................................................... [^] [43]
=== ====
SECTION 8.20. Appointment of Administrators.......................................... [^] [43]
=== ====
ARTICLE IX. DISSOLUTION, LIQUIDATION AND MERGER
SECTION 9.1. Dissolution Upon Expiration Date....................................... [^] [44]
=== ====
SECTION 9.2. Early Dissolution...................................................... [^] [44]
=== ====
SECTION 9.3. Termination............................................................ [^] [45]
=== ====
SECTION 9.4. Liquidation............................................................ [^] [45]
=== ====
SECTION 9.5. Mergers, Consolidations, Amalgamations
or Replacements of the Issuer Trust............................... [^] [46]
ARTICLE X. MISCELLANEOUS PROVISIONS
SECTION 10.1. Limitation of Rights of Holders........................................ [^] [47]
=== ====
SECTION 10.2. Amendment.............................................................. [^] [47]
=== ====
SECTION 10.3. Separability........................................................... [^] [49]
=== ====
SECTION 10.4. Governing Law.......................................................... [^] [49]
=== ====
SECTION 10.5. Payments Due on Non-Business Day....................................... [^] [49]
=== ====
SECTION 10.6. Successors............................................................. [^] [49]
=== ====
SECTION 10.7. Headings............................................................... [^] [49]
=== ====
SECTION 10.8. Reports, Notices and Demands........................................... [^] [49]
=== ====
SECTION 10.9. Agreement Not to Petition.............................................. [^] [50]
=== ====
SECTION 10.10. Trust Indenture Act; Conflict with Trust Indenture Act................. [^] [50]
=== ====
SECTION 10.11. Acceptance of Terms of Trust Agreement,
Guarantee and Indenture........................................... [^] [51]
SECTION 10.12. Counterparts........................................................... [^] [52]
=== ====
Exhibit A Certificate of Trust....................................................... [^]
===
Exhibit B Form of Certificate Depositary Agreement [^]
===
Exhibit C Form of Common Securities Certificate.......................................[^]
===
Exhibit D Form of Preferred Securities Certificate [^]
</TABLE>
-iii-
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT
This Amended and Restated Trust Agreement, dated as of ____________
__, 1999, (this "Trust Agreement"), is among (i) First Star Bancorp, Inc., a
Pennsylvania corporation (including any successors or assigns, the "Depositor"),
(ii) Bankers Trust Company, a New York banking corporation, as property trustee
[and as calculation agent], (in such [^] [capacities], the "Property Trustee"
and[^] [the "Calculation Agent," and] in its separate corporate capacity and not
in its [^] [capacities] as Property Trustee [or Calculation Agent], the "Bank"),
(iii) Bankers Trust (Delaware), a Delaware banking corporation, as Delaware
trustee (the "Delaware Trustee") (the Property Trustee and the Delaware Trustee
are referred to collectively herein as the "Issuer Trustees") and (iv) the
several Holders, as hereinafter defined.
WITNESSETH
WHEREAS, the Depositor and the Delaware Trustee have heretofore
duly declared and established a business trust pursuant to the Delaware Business
Trust Act by the entering into a certain Trust Agreement, dated as of August 24,
1999 (the "Original Trust Agreement"), and by the execution and filing by the
Delaware Trustee with the Secretary of State of the State of Delaware of the
Certificate of Trust, filed on August 24, 1999 (the "Certificate of Trust"), a
copy of which is attached hereto as Exhibit A; and
WHEREAS, the Depositor and the Delaware Trustee desire to amend and
restate the Original Trust Agreement in its entirety as set forth herein to
provide for, among other things, (i) the issuance of the Common Securities by
the Issuer Trust to the Depositor, (ii) the issuance and sale of the Preferred
Securities by the Issuer Trust pursuant to the [^] [Agency] Agreement, (iii) the
acquisition by the Issuer Trust from the Depositor of all of the right, title
and interest in the Junior Subordinated Debentures, and (iv) the appointment of
the Property Trustee and the Administrators.
NOW THEREFORE, in consideration of the agreements and obligations
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each party, for the benefit of the
other parties and for the benefit of the Holders, hereby amends and restates the
Original Trust Agreement in its entirety and agrees, intending to be legally
bound, as follows:
ARTICLE I
DEFINED TERMS
SECTION 1.1. Definitions.
For all purposes of this Trust Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(a) The terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
<PAGE>
(b) All other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) The words "include," "includes" and "including" shall be deemed
to be followed by the phrase "without limitation";
(d) All accounting terms used but not defined herein have the
meanings assigned to them in accordance with United States generally accepted
accounting principles as in effect at the time of computation;
(e) Unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may be,
of this Trust Agreement;
(f) The words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision; and
(g) all references to the date the Preferred Securities were
originally issued shall refer to the date the [^] [Adjustable Rate Trust]
Preferred Securities were originally issued.
"25% Capital Limitation" means the limitation imposed by the
Federal Reserve that the proceeds of certain qualifying securities similar to
the Trust Securities will qualify as Tier 1 capital of the issuer up to an
amount not to exceed, when taken together with all cumulative preferred stock of
the Depositor, if any, 25% of the Depositor's Tier 1 capital, or any subsequent
limitation adopted by the Federal Reserve.
"Act" has the meaning specified in Section 6.8.
"Additional Amount" means, with respect to Trust Securities of a
given Liquidation Amount and/or for a given period, the amount of Additional
Interest (as defined in the Indenture) paid by the Depositor on a Like Amount of
Junior Subordinated Debentures for such period.
"Additional Sums" has the meaning specified in Section 10.6 of the
Indenture.
"Administrators" means each Person appointed in accordance with
Section 8.20 solely in such Person's capacity as Administrator of the Issuer
Trust heretofore formed and continued hereunder and not in such Person's
individual capacity, or any successor Administrator appointed as herein
provided; with the initial Administrators being Joseph T. Svetik and Paul J.
Sebastian.
"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.
2
<PAGE>
["Agency Agreement" means the Agency Agreement, dated as of _______
__, 1999, among the Issuer Trust, the Depositor and the Placement Agent, as the
same may be amended from time to time.]
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Preferred Security or beneficial interest
therein, the rules and procedures of the Depositary for such Preferred Security,
in each case to the extent applicable to such transaction and as in effect from
time to time.
["Average" means the arithmetic mean.]
"Bank" has the meaning specified in the preamble to this Trust
Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction
in the premises judging such Person a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjudication or
composition of or in respect of such Person under any applicable federal or
State bankruptcy, insolvency, reorganization or other similar law, or appointing
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of such Person or of any substantial part of its property or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive days; or
(b) the institution by such Person of proceedings to be adjudicated
a bankrupt or insolvent, or the consent by it to the institution of bankruptcy
or insolvency proceedings against it, or the filing by it of a petition or
answer or consent seeking reorganization or relief under any applicable federal
or State bankruptcy, insolvency, reorganization or other similar law, or the
consent by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or similar official) of
such Person or of any substantial part of its property or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due and its willingness
to be adjudicated a bankrupt, or the taking of corporate action by such Person
in furtherance of any such action.
"Bankruptcy Laws" has the meaning specified in Section 10.9.
"Board of Directors" means the board of directors of the Depositor
or the Executive Committee of the board of directors of the Depositor (or any
other committee of the board of directors of the Depositor performing similar
functions) or for purposes of this Trust Agreement, a committee designated by
the board of directors of the Depositor (or any such committee), comprised of
two or more members of the board of directors of the Depositor or officers of
the Depositor, or both.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Depositor to have been duly adopted
by the Depositor's Board of Directors, or such committee of the Board of
Directors or officers of the Depositor to which authority to act on behalf of
the Board of Directors has been delegated, and to be in full force and effect on
the date of such certification, and delivered to the Issuer Trustees.
3
<PAGE>
"Business Day" means a day other than (a) a Saturday or Sunday, (b)
a day on which banking institutions in the Commonwealth of Pennsylvania or in
the City of New York, are authorized or required by law or executive order to
remain closed or (c) a day on which the Property Trustee's Corporate Trust
Office or the Delaware Trustee's Corporate Trust Office or the Corporate Trust
Office of the Debenture Trustee is closed for business.
["Calculation Agent" means the Person identified as the
"Calculation Agent" in the preamble to this Trust Agreement solely in its
capacity as Calculation Agent for the Issuer Trust formed and continued
hereunder and not in its individual capacity, or its successor in interest in
such capacity, or any successor property trustee appointed as herein provided.]
"Capital Treatment Event" means, in respect of the Issuer Trust,
the reasonable determination by the Depositor that, as a result of the
occurrence of any amendment to, or change (including any announced prospective
change) in, the laws (or any rules or regulations thereunder) of the United
States or any political subdivision thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such pronouncement, action or decision is announced on or after the
date of the issuance of the Preferred Securities of the Issuer Trust, there is
more than an insubstantial risk that the Depositor will not be entitled to treat
an amount equal to the Liquidation Amount of such Preferred Securities as "Tier
1 Capital" (or the then equivalent thereof)[,] except as otherwise restricted
under the 25% Capital Limitation, for purposes of the risk-based capital
adequacy guidelines of the Federal Reserve, as then in effect and applicable to
the Depositor.
"Cede" means Cede & Co.
"Certificate Depositary Agreement" means the agreement among the
Issuer Trust, the Depositor and the Depositary, as the initial Clearing Agency,
dated as of the Closing Date, substantially in the form attached hereto as
Exhibit B, as the same may be amended and supplemented from time to time.
"Certificate of Trust" has the meaning specified in the preamble to
this Trust Agreement.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act. The Depositary shall be the
initial Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means the Time of Delivery for the [^] [Preferred]
Securities, which date is also the date of execution and delivery of this Trust
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended or any
successor statute, in each case as amended from time to time.
4
<PAGE>
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Securities Certificate" means a certificate evidencing
ownership of Common Securities, substantially in the form attached hereto as
Exhibit C.
"Common Security" means an undivided beneficial interest in the
assets of the Issuer Trust, having a Liquidation Amount of $10 and having the
rights provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
["Constant Maturity" means the definition of the five-year U.S.
Treasury Note Constant Maturity for a business day as shown in the Federal
Reserve Statistical Release H. 15 Daily Update, or such successor reports as
such reports may change over time.]
"Corporate Trust Office" means (a) with respect to the Property
Trustee or the Debenture Trustee, the principal office of the Property Trustee
located in the City of New York, New York, which at the time of the execution of
this Trust Agreement is located at Four Albany Street, New York, New York 10006;
Attention: Corporate Trust and Agency Group - Corporate Market Services, and (b)
with respect to the Delaware Trustee, the principal office of the Delaware
Trustee located at E.A. Delle Donne Corporate Center, Montgomery Building, 1011
Centre Road, Suite 200, Wilmington, Delaware 19805-1266.
["Adjusted Interest Rate" means a rate expressed as a percentage
per annum equal to the Average Yield on the Five-Year U.S. Treasury Note
Constant Maturity for a twenty Business Day period preceding the Reset Date plus
_.__%, as calculated by the Calculation Agent using the Federal Reserve
Statistical Release H. 15 Daily Update, or such successor reports as such
reports may change over time, rounding, if necessary to the nearest one hundred
thousandth of a percentage point, with five-one-millionths of a percentage point
rounded upward.]
"Debenture Event of Default" means an "Event of Default" as defined
in the Indenture.
"Debenture Redemption Date" means, with respect to any Junior
Subordinated Debentures to be redeemed under the Indenture, the date fixed for
redemption of such Junior Subordinated Debentures under the Indenture.
"Debenture Trustee" means Bankers Trust Company, a New York banking
corporation and any successor, as trustee under the Indenture.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C. 3801, et seq., as it may be amended from time to time.
"Delaware Trustee" means the [^] [Person] identified as the
"Delaware Trustee" in the preamble to this Trust Agreement solely in its
capacity as Delaware Trustee of the Issuer Trust
5
<PAGE>
continued hereunder and not in its individual capacity, or its successor in
interest in such capacity, or any successor trustee appointed as herein
provided.
"Depositary" means The Depository Trust Company or any successor
thereto.
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
"Direct Action" has the meaning specified in Section 5.13(c).
"Distribution Date" has the meaning specified in Section 4.1(a).
"Distributions" means amounts payable in respect of the Trust
Securities as provided in Section 4.1.
"Early Termination Event" has the meaning specified in Section 9.2.
"Event of Default" means any one of the following events (whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the occurrence of a Debenture Event of Default;
(b) default by the Issuer Trust in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a period
of 30 days;
(c) default by the Issuer Trust in the payment of any Redemption
Price of any Trust Security when it becomes due and payable;
(d) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Issuer Trust in this Trust Agreement (other
than a covenant or warranty a default in the performance of which or the breach
of which is dealt with in clause (b) or (c) above) and continuation of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the Issuer Trustees and the Depositor by the
Holders of at least 25% in aggregate Liquidation Amount of the Outstanding
Preferred Securities, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(e) the occurrence of any Bankruptcy Event with respect to the
Property Trustee or all or substantially all of its property if a successor
Property Trustee has not been appointed within a period of 90 days thereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and any successor statute thereto, in each case as amended from time to
time.
"Expiration Date" has the meaning specified in Section 9.1.
6
<PAGE>
"Extension Period" has the meaning specified in Section 4.1.
"Federal Reserve" means the Board of Governors of the Federal
Reserve System.
[^]["Five-Year U.S. Treasury Note" means the five-year U.S.
Treasury Note Constant Maturity for a business day as shown in the Federal
Reserve Statistical Release H. 15 Daily Update, or such successor reports as
such reports may change over time].
"Global Preferred Securities Certificate" means a Preferred
Securities Certificate evidencing ownership of Global Preferred Securities.
"Global Preferred Security" means a Preferred Security, the
ownership and transfers of which shall be made through book entries by a
Clearing Agency as described in Section 5.4.
"Guarantee Agreement" means the Guarantee Agreement executed and
delivered by the Depositor and Bankers Trust Company, as guarantee trustee,
contemporaneously with the execution and delivery of this Trust Agreement, for
the benefit of the Holders of the Preferred Securities, as amended from time to
time.
"Holder" means a Person in whose name a Trust Security or Trust
Securities is/are registered in the Securities Register; any such Person shall
be a beneficial owner within the meaning of the Delaware Business Trust Act.
"Indenture" means the Junior Subordinated Indenture, dated as of
_______ __, 1999, between the Depositor and the Debenture Trustee (as amended or
supplemented from time to time) relating to the issuance of the Junior
Subordinated Debentures.
["Initial Interest Rate" means a rate expressed as a percentage per
annum equal to the average yield on the Five-Year U.S. Treasury Note Constant
Maturity for a twenty Business Day period preceding the Closing Date plus _.__%,
as calculated by the Calculation Agent using the Federal Reserve Statistical
Release H. 15 Daily Update, or such successor reports as such report may change
over time, rounding, if necessary to the nearest one hundred thousandth of a
percentage point, with five-one-millionths of a percentage point rounded
upward.]
"Investment Company Act" means the Investment Company Act of 1940,
as amended or any successor statute, in each case as amended from time to time.
"Investment Company Event" means the receipt by the Issuer Trust of
an Opinion of Counsel, rendered by counsel experienced in such matters to the
effect that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change or
prospective change becomes effective or would become effective, as the case may
be, on or after the date of the issuance of the Preferred Securities.
7
<PAGE>
"Issuer Trust" means First Star Capital Trust.
"Issuer Trustees" means, collectively, the Property Trustee and the
Delaware Trustee.
"Junior Subordinated Debentures" means the aggregate principal
amount of the Depositor's [^] [adustable rate] junior subordinated deferrable
interest debentures, due ___________ __, 2029, which date may be shortened once
at any time by the Depositor to any date not earlier than ____________ __, 2004
issued pursuant to the Indenture.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed
of trust, adverse ownership interest, hypothecation, assignment, security
interest or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount equal to that portion
of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Preferred Securities based upon the relative
Liquidation Amounts of such classes and (b) with respect to a distribution of
Junior Subordinated Debentures to Holders of Trust Securities in connection with
a dissolution or liquidation of the Issuer Trust, Junior Subordinated Debentures
having a principal amount equal to the Liquidation Amount of the Trust
Securities of the Holder to whom such Junior Subordinated Debentures are
distributed.
"Liquidation Amount" means the stated amount of $10 per Trust
Security.
"Liquidation Date" means the date on which Junior Subordinated
Debentures or the Liquidation Distributions are to be distributed to Holders of
Trust Securities in connection with a dissolution and liquidation of the Issuer
Trust pursuant to Section 9.4.
"Liquidation Distribution" has the meaning specified in Section
9.4(d).
"Majority in Liquidation Amount of the Preferred Securities" or
"Majority in Liquidation Amount of the Common Securities" means, except as
provided by the Trust Indenture Act, Preferred Securities or Common Securities,
as the case may be, representing more than 50% of the aggregate Liquidation
Amount of all then Outstanding Preferred Securities or Common Securities, as the
case may be.
"Officers' Certificate" means a certificate signed by the Chairman
of the Board, Chief Executive Officer, President or a Vice President, and by the
Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary or
an Assistant Secretary, of the Depositor, and delivered to the appropriate
Issuer Trustee. Any Officers' Certificate delivered with respect to compliance
with a condition or covenant provided for in this Trust Agreement shall include:
(a) a statement by each officer signing the Officers' Certificate
that such officer has read the covenant or condition and the definitions
relating thereto;
8
<PAGE>
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by such officer in rendering the Officers' Certificate;
(c) a statement that such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for or an employee of the Depositor or any Affiliate of the Depositor.
[^]
"Original Trust Agreement" has the meaning specified in the
preamble to this Trust Agreement.
"Outstanding," with respect to Trust Securities, means, as of the
date of determination, all Trust Securities theretofore executed and delivered
under this Trust Agreement, except:
(a) Trust Securities theretofore canceled by the Property Trustee
or delivered to the Property Trustee for cancellation;
(b) Trust Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee or any
Paying Agent for the Holders of such Preferred Securities, provided that if such
Trust Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Trust Agreement; and
(c) Trust Securities which have been paid or in exchange for or in
lieu of which other Trust Securities have been executed and delivered pursuant
to Sections 5.4, 5.5 and 5.6; provided, however, that in determining whether the
Holders of the requisite Liquidation Amount of the Outstanding Preferred
Securities have given any request, demand, authorization, direction, notice,
consent or waiver hereunder, Preferred Securities owned by the Depositor, any
Issuer Trustee, any Administrator or any Affiliate of the Depositor or any
Issuer Trustee shall be disregarded and deemed not to be Outstanding, except
that (i) in determining whether any Issuer Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Preferred Securities that such Issuer Trustee or such
Administrator, as the case may be, knows to be so owned shall be so disregarded
and (ii) the foregoing shall not apply at any time when all of the outstanding
Preferred Securities are owned by the Depositor, one or more of the Issuer
Trustees, one or more of the Administrators and/or any such Affiliate. Preferred
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Administrators
the pledgee's right so to act with respect to such Preferred Securities and that
the pledgee is not the Depositor or any Affiliate of the Depositor.
9
<PAGE>
"Owner" means each Person who is the beneficial owner of Global
Preferred Securities as reflected in the records of the Clearing Agency or, if a
Clearing Agency Participant is not the Owner, then as reflected in the records
of a Person maintaining an account with such Clearing Agency, directly or
indirectly, in accordance with the rules of such Clearing Agency.
"Paying Agent" means any paying agent or co-paying agent appointed
pursuant to Section 5.10 and shall initially be the Property Trustee.
"Payment Account" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee in its trust department for the
benefit of the Holders in which all amounts paid in respect of the Junior
Subordinated Debentures will be held and from which the Property Trustee,
through the Paying Agent, shall make payments to the Holders in accordance with
Sections 4.1 and 4.2.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, company, limited liability company, trust, unincorporated organization
or government or any agency or political subdivision thereof, or any other
entity of whatever nature.
["Placement Agent" has the meaning specified in the Agency
Agreement.]
"Preferred Securities Certificate" means a certificate evidencing
ownership of Preferred Securities, substantially in the form attached hereto as
Exhibit D.
"Preferred Security" means a [^] preferred undivided beneficial
interest in the assets of the Issuer Trust, having a Liquidation Amount of $10
and having the rights provided therefor in this Trust Agreement, including the
right to receive Distributions and a Liquidation Distribution as provided
herein.
"Property Trustee" means the Person identified as the "Property
Trustee" in the preamble to this Trust Agreement solely in its capacity as
Property Trustee of the Issuer Trust formed and continued hereunder and not in
its individual capacity, or its successor in interest in such capacity, or any
successor property trustee appointed as herein provided.
"Prospectus" means the final prospectus covering the Preferred
Securities, Junior Subordinated Debentures and the Guarantee Agreement.
"Redemption Date" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Junior Subordinated Debenture Redemption Date and
the stated maturity of the Junior Subordinated Debentures shall be a Redemption
Date for a Like Amount of Trust Securities, including but not limited to any
date of redemption pursuant to the occurrence of any Special Event.
"Redemption Price" means with respect to a redemption of any Trust
Security, the Liquidation Amount of such Trust Security, together with
accumulated but unpaid Distributions to but
10
<PAGE>
excluding the date fixed for redemption, plus the related amount of the premium,
if any, paid by the Depositor upon the concurrent redemption of a Like Amount of
Junior Subordinated Debentures.
"Relevant Trustee" has the meaning specified in Section 8.10.
["Reset Date" has the meaning specified in Section 4.1(a).]
"Responsible Officer" when used with respect to the Property
Trustee means any officer assigned to the Corporate Trust Office, including any
managing director, vice president, assistant vice president, assistant
treasurer, assistant secretary[, associate, director] or any other officer of
the Property Trustee customarily performing functions similar to those performed
by any of the above designated officers and having direct responsibility for the
administration of the Indenture, and also, with respect to a particular matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
"Securities Act" means the Securities Act of 1933, as amended, and
any successor statute thereto, in each case as amended from time to time.
"Securities Register" and "Securities Registrar" have the
respective meanings specified in Section 5.5.
"Special Event" means any Tax Event, Capital Treatment Event or
Investment Company Event.
"Successor Preferred Securities Certificate" of any particular
Preferred Securities Certificate means every Preferred Securities Certificate
issued after, and evidencing all or a portion of the same beneficial interest in
the Issuer Trust as that evidenced by, such particular Preferred Securities
Certificate; and, for the purposes of this definition, any Preferred Securities
Certificate executed and delivered under Section 5.6 in exchange for or in lieu
of a mutilated, destroyed, lost or stolen Preferred Securities Certificate shall
be deemed to evidence the same beneficial interest in the Issuer Trust as the
mutilated, destroyed, lost or stolen Preferred Securities Certificate.
"Successor Preferred Security" has the meaning specified in Section
9.5.
"Tax Event" means the receipt by the Issuer Trust of an Opinion of
Counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement, action or decision is announced on or after
the date of issuance of the Preferred Securities, there is more than an
insubstantial risk that (a) the Issuer Trust is, or will be within 90 days of
the delivery of such Opinion of Counsel, subject to United States federal income
tax with respect to income received or accrued on the Junior Subordinated
Debentures, (b) interest payable by the Depositor on the Junior Subordinated
Debentures is not, or within 90 days of the delivery of such Opinion of Counsel
will not be, deductible by the Depositor, in whole or in part, for United States
federal income tax purposes, or (c) the Issuer Trust is, or will be
11
<PAGE>
within 90 days of the delivery of such Opinion of Counsel, subject to more than
a de minimis amount of other taxes, duties or other governmental charges.
"Time of Delivery" means 9:00 a.m. Eastern Standard Time, [^] on
the fourth Business Day (unless postponed in accordance with the provisions of
Section 4 of the [^] [Agency] Agreement) following the date of execution of the
[^] [Agency] Agreement, or such other time not later than ten Business Days
after such date as shall be agreed upon by the [^] [Placement Agent], the Issuer
Trust and the Company[^].
"Trust Agreement" means this Amended and Restated Trust Agreement,
as the same may be modified, amended or supplemented in accordance with the
applicable provisions hereof, including (a) all Exhibits hereto, and (b) for all
purposes of this Amended and Restated Trust Agreement and any such modification,
amendment or supplement, the provisions of the Trust Indenture Act that are
deemed to be a part of and govern this Amended and Restated Trust Agreement and
any modification, amendment or supplement, respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990, or any successor statute, in
each case as amended from time to time.
"Trust Property" means (a) the Junior Subordinated Debentures, (b)
any cash on deposit in, or owing to, the Payment Account, and (c) all proceeds
and rights in respect of the foregoing and any other property and assets for the
time being held or deemed to be held by the Property Trustee pursuant to the
trusts of this Trust Agreement.
"Trust Securities Certificate" means any one of the Common
Securities Certificates or the Preferred Securities Certificates.
"Trust Security" means any one of the Common Securities or the
Preferred Securities.
[^]["Yield for Five-Year U.S. Treasury Note Constant Maturity"
means the Average yield for the Five-Year U.S. Treasury Note Constant Maturity
(expressed as a percentage per annum) as quoted in the Federal Reserve
Statistical Release H. 15 Daily Update, or such successor reports as such
reports may change over] time.
ARTICLE II
CONTINUATION OF THE ISSUER TRUST
SECTION 2.1. Name.
The Issuer Trust continued hereby shall be known as "First Star
Capital Trust", as such name may be modified from time to time by the
Administrators following written notice to the Holders of Trust Securities and
the other Issuer Trustees, in which name the Administrators and the Issuer
Trustees may engage in the transactions contemplated hereby, make and execute
contracts and other instruments on behalf of the Issuer Trust and sue and be
sued.
12
<PAGE>
SECTION 2.2. Office of the Delaware Trustee; Principal Place of
Business.
The address of the Delaware Trustee in the State of Delaware is
Bankers Trust (Delaware), E. A. Delle Donne Corporate Center, Montgomery
Building, 1011 Centre Road, Suite 200, Wilmington, DE 19805-1266, Attention:
Lisa Wilkins, or such other address in the State of Delaware as the Delaware
Trustee may designate by written notice to the Holders and the Depositor. The
principal executive office of the Issuer Trust is in care of Bankers Trust
(Delaware), E. A. Delle Donne Corporate Center, Montgomery Building, 1011 Centre
Road, Suite 200, Wilmington, DE 19805-1266, Attention: Lisa Wilkins.
SECTION 2.3. Initial Contribution of Trust Property, Organizational
Expenses.
The Issuer Trustees acknowledge receipt in trust from the Depositor
in connection with this Trust Agreement of the sum of $1, which constitutes the
initial Trust Property. The Depositor shall pay all organizational expenses of
the Issuer Trust as they arise or shall, upon request of any Issuer Trustee,
promptly reimburse such Issuer Trustee for any such reasonable expenses paid by
such Issuer Trustee. The Depositor shall make no claim upon the Trust Property
for the payment of such expenses.
SECTION 2.4. Issuance of the Preferred Securities.
On _______ __, 1999, the Depositor, both on its own behalf and on
behalf of the Issuer Trust pursuant to the Original Trust Agreement, executed
and delivered the [^] [Agency] Agreement. Contemporaneously with the execution
and delivery of this Trust Agreement, an Administrator, on behalf of the Issuer
Trust, shall manually execute in accordance with Section 5.3 and the Property
Trustee shall authenticate in accordance with Section 5.3 and deliver to the [^]
[Placement Agent, Preferred] Securities Certificates, registered in the names
requested by the [^] [Placement Agent], in an aggregate amount of [[]1,200,000
[^][] Preferred] Securities having an aggregate Liquidation Amount of
[[]$12,000,000[].][^]
SECTION 2.5. Issuance of the Common Securities; Subscription and
Purchase of Junior Subordinated Debentures.
Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrator, on behalf of the Issuer Trust, shall execute in
accordance with Section 5.3 and the Property Trustee shall authenticate in
accordance with Section 5.3 and deliver to the Depositor, Common Securities
Certificates, registered in the name of the Depositor, in an aggregate amount of
[[]36,000[]] Common Securities having an aggregate Liquidation Amount of
[[]$360,000[],] against receipt by the Property Trustee of the aggregate
purchase price of such Common Securities of [[]$360,000[]] by the Property
Trustee. [^] Contemporaneously with the executions, and deliveries of Common
Securities Certificates and any Preferred Securities Certificates, an
Administrator, on behalf of the Issuer Trust, shall subscribe for and purchase
from the Depositor corresponding amounts of Junior Subordinated Debentures,
registered in the name of the Issuer Trust and having an aggregate principal
amount equal to [[]$12,360,000[^][]]; and, in satisfaction of the purchase price
for such Junior Subordinated Debentures, the Property Trustee, on behalf of the
Issuer Trust, shall[, upon the direction of the Administrator and upon receipt
of applicable funds,] deliver to the Depositor the
13
<PAGE>
sum of [[]$12,360,000[^][],] and receive the Junior Subordinated Debentures on
behalf of the Issuer Trust.
SECTION 2.6. Declaration of Trust.
The exclusive purposes and functions of the Issuer Trust are to (a)
issue and sell Trust Securities and use the proceeds from such sale to acquire
the Junior Subordinated Debentures, and (b) engage in only those other
activities necessary, convenient or incidental thereto. The Depositor hereby
appoints the Issuer Trustees as trustees of the Issuer Trust, to have all the
rights, powers and duties to the extent set forth herein, and the Issuer
Trustees hereby accept such appointment. The Property Trustee hereby declares
that it will hold the Trust Property in trust upon and subject to the conditions
set forth herein for the benefit of the Issuer Trust and the Holders. The
Depositor hereby appoints the Administrators (as agents of the Issuer Trust),
with such Administrators having all rights, powers and duties set forth herein
with respect to accomplishing the purposes of the Issuer Trust, and the
Administrators hereby accept such appointment, provided, however, that it is the
intent of the parties hereto that such Administrators shall not be trustees or
fiduciaries with respect to the Issuer Trust and this Trust Agreement shall be
construed in a manner consistent with such intent. The Property Trustee shall
have the right, power and authority to perform those duties assigned to the
Administrators. The Delaware Trustee shall not be entitled to exercise any
powers, nor shall the Delaware Trustee have any of the duties and
responsibilities, of the Property Trustee or the Administrators set forth
herein. The Delaware Trustee shall be one of the trustees of the Issuer Trust
for the sole and limited purpose of fulfilling the requirements of Section 3807
of the Delaware Business Trust Act and for taking such actions as are required
to be taken by a Delaware trustee under the Delaware Business Trust Act.
SECTION 2.7. Authorization to Enter into Certain Transactions.
(a) The Issuer Trustees and the Administrators shall conduct the
affairs of the Issuer Trust in accordance with the terms of this Trust
Agreement. Subject to the limitations set forth in paragraph (b) of this Section
2.7 and in accordance with the following provisions (i) and (ii), the Issuer
Trustees and the Administrators shall act as follows:
(i) Each Administrator shall have the power and authority and is
hereby authorized and directed to act on behalf of the Issuer Trust with respect
to the following:
(A) the compliance with the [^] [Agency] Agreement
regarding the issuance and sale of the Trust Securities;
(B) the compliance with the Securities Act, applicable
state securities or blue sky laws, and the Trust Indenture Act;
(C) execute the Trust Securities on behalf of the Issuer
Trust in accordance with this Trust Agreement;
(D)[^] the application for a taxpayer identification number for the
Issuer Trust;
14
<PAGE>
[^][(E)]the preparation of a registration statement and a
prospectus in relation to the Preferred Securities, including any
amendments thereto and the taking of any action necessary or
desirable to sell the Preferred Securities in a transaction or
series of transactions subject to the registration requirements of
the Securities Act;
[^][(F)]cause the Issuer Trust to enter into, and execute,
deliver and perform on behalf of the Issuer Trust all agreements,
instruments, certificates or other documents as such Administrator
deems necessary or incidental to the purposes and functions of the
Issuer Trust; and
[^][(G)]any action incidental to the foregoing as the
Administrators may from time to time determine is necessary or
advisable to give effect to the terms of this Trust Agreement.
(ii) The Property Trustee shall have the power and authority, and
is hereby authorized and directed, to act on behalf of the Issuer Trust with
respect to the following matters:
(A) establish and maintain the Payment Account;
(B) receive, hold and exercise all of the rights, powers
and privileges of the holder of the Junior Subordinated Debentures;
(C) receive and collect interest, principal and any other
payments made in respect of the Junior Subordinated Debentures in
the Payment Account;
(D) distribute amounts owed to the Holders in respect of
the Trust Securities in accordance with the terms of this Trust
Agreement;
(E) act as Paying Agent and/or Securities Registrar to the
extent appointed as such hereunder;
(F) send notices of default and other information
regarding the Trust Securities and the Junior Subordinated
Debentures to the Holders in accordance with this Trust Agreement;
(G) distribute the Trust Property in accordance with the
terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement,
wind-up the affairs of and liquidate the Issuer Trust and prepare,
execute and file the certificate of cancellation with the Secretary
of State of the State of Delaware;
(I) after an Event of Default (other than under paragraph
(b), (c) or (d) of the definition of such term if such Event of
Default is by or with respect to the Property Trustee), comply with
the provisions of this Trust Agreement and take any action to give
effect to the terms of this Trust Agreement and protect and
conserve the Trust Property for
15
<PAGE>
the benefit of the Holders (without consideration of the effect
of any such action on any particular Holder); [^] and
(J) take any action incidental or convenient to the
foregoing as the Property Trustee may from time to time determine
is necessary or advisable to give effect to the terms of this Trust
Agreement;
provided, however, that nothing in this Section 2.7(a)(ii) shall require the
Property Trustee to take any action that is not otherwise required in this Trust
Agreement.
(b) So long as this Trust Agreement remains in effect, the Issuer
Trust (or the Issuer Trustees or Administrators acting on behalf of the Issuer
Trust) shall not undertake any business, activities or transaction except as
expressly provided herein or contemplated hereby. In particular, neither the
Issuer Trustees nor the Administrators (in each case acting on behalf of the
Issuer Trust) shall (i) acquire any investments or engage in any activities not
authorized by this Trust Agreement, (ii) sell, assign, transfer, exchange,
mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or
interests therein, including to Holders, except as expressly provided herein,
(iii) take any action that would reasonably be expected to cause the Issuer
Trust to become taxable as a corporation for United States federal income tax
purposes, (iv) incur any indebtedness for borrowed money or issue any other
debt, or (v) take or consent to any action that would result in the placement of
a Lien on any of the Trust Property. The Property Trustee shall defend all
claims and demands of all Persons at any time claiming any Lien on any of the
Trust Property adverse to the interest of the Issuer Trust or the Holders in
their capacity as Holders.
(c) In connection with the issue and sale of the Preferred
Securities, the Depositor shall have the power and authority to assist the
Issuer Trust with respect to, or effect on behalf of the Issuer Trust, the
following (and any actions taken by the Depositor in furtherance of the
following prior to the date of this Trust Agreement are hereby ratified and
confirmed in all respects):
(i) the preparation and filing by the Issuer Trust with
the Commission, and the execution and delivery, on behalf of the
Issuer Trust, of a registration statement, and a prospectus in
relation to the Preferred Securities, including any amendments
thereto and the taking of any action necessary or desirable to sell
the Preferred Securities in a transaction or a series of
transactions subject to the registration requirements of the
Securities Act;
(ii) the determination of the states in which to take
appropriate action to [exempt from registration, or] qualify or
register for sale[,] all or part of the Preferred Securities and
the determination of any and all such acts, other than actions that
must be taken by or on behalf of the Issuer Trust, and the advice
to the Issuer Trustees of actions they must take on behalf of the
Issuer Trust, and the preparation for execution and filing of any
documents to be executed and filed by the Issuer Trust or on behalf
of the Issuer Trust, as the Depositor deems necessary or advisable
in order to comply with the applicable laws of any such states in
connection with the offer and sale of the Preferred Securities;
(iii) the negotiation of the terms of, and the execution
and delivery of, the [^] [Agency] Agreement providing for the sale
of the Preferred Securities;
16
<PAGE>
(iv)[^] the taking of any other actions necessary or
desirable to carry out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the
Administrators and the Property Trustee are authorized and directed to conduct
the affairs of the Issuer Trust and to operate the Issuer Trust so that the
Issuer Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act, and will not be taxable as a
corporation for the United States federal income tax purposes and so that the
Junior Subordinated Debentures will be treated as indebtedness of the Depositor
for United States federal income tax purposes. In this connection, the Property
Trustee, the Administrators and the Holders of Common Securities are authorized
to take any action, not inconsistent with applicable law, the Certificate of
Trust or this Trust Agreement, that the Property Trustee, the Administrators and
Holders of Common Securities determine in their discretion to be necessary or
desirable for such purposes, as long as such action does not adversely affect in
any material respect the interests of the Holders of the Outstanding Preferred
Securities. In no event shall the Administrators or the Issuer Trustees be
liable to the Issuer Trust or the Holders for any failure to comply with this
section that results from a change in law or regulations or in the
interpretation thereof.
SECTION 2.8. Assets of Trust.
The assets of the Issuer Trust shall consist solely of the Trust
Property.
SECTION 2.9. Title to Trust Property.
Legal title to all Trust Property shall be vested at all times in
the Issuer Trust and shall be held and administered by the Property Trustee (in
its capacity as such) for the benefit of the Issuer Trust and the Holders in
accordance with this Trust Agreement.
ARTICLE III
PAYMENT ACCOUNT
SECTION 3.1. Payment Account.
(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. The Property Trustee and its agents shall have
exclusive control and sole right of withdrawal with respect to the Payment
Account for the purpose of making deposits in and withdrawals from the Payment
Account in accordance with this Trust Agreement. All monies and other property
deposited or held from time to time in the Payment Account shall be held by the
Property Trustee in the Payment Account for the exclusive benefit of the Holders
and for distribution as herein provided, including (and subject to) any priority
of payments provided for herein.
(b) The Property Trustee shall deposit in the Payment Account,
promptly upon receipt, all payments of principal of or interest on, and any
other payments or proceeds with respect to, the Junior Subordinated Debentures.
Amounts held in the Payment Account shall not be invested by the Property
Trustee pending distribution thereof.
17
<PAGE>
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
SECTION 4.1. Distributions.
(a) The Trust Securities represent undivided beneficial interests
in the Trust Property, and Distributions (including Distributions of Additional
Amounts) will be made on the Trust Securities at the rate and on the dates that
payments of interest (including payments of Additional Interest, as defined in
the Indenture) are made on the Junior Subordinated Debentures.
Accordingly:
(i) Distributions on the Trust Securities shall be
cumulative and will accumulate whether or not there are funds of
the Issuer Trust available for the payment of Distributions.
Distributions shall accumulate from _________ __, 1999, and, except
in the event (and to the extent) that the Depositor exercises its
right to defer the payment of interest on the Junior Subordinated
Debentures pursuant to the Indenture, shall be payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each
year, commencing on ___________ ___, 1999. If any date on which a
Distribution is otherwise payable on the Trust Securities is not a
Business Day, then the payment of such Distribution shall be made
on the next succeeding day that is a Business Day (without any
interest or other payment in respect of any such delay), except
that if such Business Day is in the next succeeding calendar year,
payment of such Distributions shall be made on the immediately
preceding Business Day, in either case with the same force and
effect as if made on the date on which such payment was originally
payable (each date on which distributions are payable in accordance
with this Section 4.1(a), a "Distribution Date").
(ii) The Trust Securities shall be entitled to
Distributions payable at [^] [the Initial Interest Rate] of the
Liquidation Amount of the Trust Securities[, until the five-year
anniversary of the Closing Date (each five-year anniversary of the
Closing Date, a "Reset Date," with up to five Reset Dates occurring
between the Closing Date and the Expiration Date ), at which time
the Trust Securities shall become entitled to Distributions payable
at the Adjusted Interest Rate of the Liquidation Amount of the
Trust Securities. Thereafter, the Trust Securities shall be
entitled to Distributions payable at the Adjusted Interest Rate of
the Liquidation Amount of the Trust Securities for the applicable
five-year period]. The amount of Distributions payable for any
period less than a full Distribution period shall be computed on
the basis of a 360-day year of twelve 30-day months and the actual
number of days elapsed in a partial month in a period.
Distributions payable for each full Distribution period will be
computed by dividing the rate per annum by four. The amount of
Distributions payable for any period shall include any Additional
Amounts in respect of such period.
(iii) So long as no Debenture Event of Default has
occurred and is continuing, the Depositor has the right under the
Indenture to defer the payment of interest on the Junior
Subordinated Debentures at any time and from time to time for a
period not exceeding 20 consecutive quarterly periods (an
"Extension Period"), provided that no Extension Period may extend
beyond ____________ ___, 2029. As a consequence of any such
deferral,
18
<PAGE>
quarterly Distributions on the Trust Securities by the Issuer
Trust will also be deferred (and the amount of Distributions to
which Holders of the Trust Securities are entitled will
accumulate additional Distributions thereon at the [^] [Initial
Interest Rate or Adjusted Interest Rate, as the case may be],
compounded quarterly) from the relevant payment date for such
Distributions, computed on the basis of a 360-day year of twelve
30-day months and the actual days elapsed in a partial month in
such period. Additional Distributions payable for each full
Distribution period will be computed by dividing the rate per
annum by four. The term "Distributions" as used in Section 4.1
shall include any such additional Distributions provided pursuant
to this Section 4.1(a)(iii).
(iv) Distributions on the Trust Securities shall be made
by the Property Trustee from the Payment Account and shall be
payable on each Distribution Date only to the extent that the
Issuer Trust has funds then on hand and available in the Payment
Account for the payment of such Distributions.
(b) Distributions on the Trust Securities with respect to a
Distribution Date shall be payable to the Holders thereof as they appear on the
Securities Register for the Trust Securities at the close of business on the
relevant record date, which shall be at the close of business on the 15th day of
March, June, September or December (whether or not a Business Day).
SECTION 4.2. Redemption.
(a) On each Debenture Redemption Date and on the stated maturity of
the Junior Subordinated Debentures, the Issuer Trust will be required to redeem
a Like Amount of Trust Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date to each Holder of Trust Securities to be redeemed,
at such Holder's address appearing in the Securities Register. All notices of
redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price, or if the Redemption Price
cannot be calculated prior to the time the notice is required to be
sent, the estimate of the Redemption Price provided pursuant to the
Indenture together with a statement that it is an estimate and that
the actual Redemption Price will be calculated on the third
Business Day prior to the Redemption Date (and if an estimate is
provided, a further notice shall be sent of the actual Redemption
Price on the date, or as soon as practicable thereafter, that
notice of such actual Redemption Price is received pursuant to the
Indenture);
(iii) the CUSIP number or CUSIP numbers of the Preferred
Securities affected;
(iv) if less than all the Outstanding Trust Securities are
to be redeemed, the identification and the total Liquidation Amount
of the particular Trust Securities to be redeemed;
19
<PAGE>
(v) that on the Redemption Date the Redemption Price will
become due and payable upon each such Trust Security to be redeemed
and that Distributions thereon will cease to accumulate on and
after said date, except as provided in Section 4.2(d) below; and
(vi) the place or places where Trust Securities are to be
surrendered for the payment of the Redemption Price.
The Issuer Trust in issuing the Trust Securities shall use "CUSIP"
numbers, and the Property Trustee shall indicate the "CUSIP" numbers of the
Trust Securities in notices of redemption and related materials as a convenience
to Holders; provided that any such notice may state that no representation is
made as to the correctness of such numbers either as printed on the Trust
Securities or as contained in any notice of redemption and related material.
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the applicable proceeds from the
contemporaneous redemption of Junior Subordinated Debentures. Redemptions of the
Trust Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds then on hand
and available in the Payment Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect
of any Preferred Securities, then, [^] [in accordance with the Clearing Agency's
normal operating procedures], on the Redemption Date, subject to Section 4.2(c),
the Property Trustee will, with respect to Preferred Securities held in global
form, irrevocably deposit with the Clearing Agency for such Preferred
Securities, to the extent available therefor, funds sufficient to pay the
applicable Redemption Price [^]. With respect to Preferred Securities that are
not held in global form, the Property Trustee, subject to Section 4.2(c), will
irrevocably deposit with the Paying Agent, to the extent available therefor,
funds sufficient to pay the applicable Redemption Price and will give the Paying
Agent irrevocable instructions and authority to pay the Redemption Price to the
Holders of the Preferred Securities upon surrender of their Preferred Securities
Certificates. Notwithstanding the foregoing, Distributions payable on or prior
to the Redemption Date for any Trust Securities called for redemption shall be
payable to the Holders of such Trust Securities as they appear on the Securities
Register for the Trust Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then, upon the date of such deposit, all rights of
Holders holding Trust Securities so called for redemption will cease, except the
right of such Holders to receive the Redemption Price and any Distributions
payable in respect of the Trust Securities on or prior to the Redemption Date,
but without interest, and such Trust Securities will cease to be Outstanding. In
the event that any date on which any applicable Redemption Price is payable is
not a Business Day, then payment of the applicable Redemption Price payable on
such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case, with the
same force and effect as if made on such date. In the event that payment of the
Redemption Price in respect of any Trust Securities called for redemption is
improperly withheld or refused and not paid either by the Issuer Trust or by the
Depositor pursuant to the Guarantee Agreement, Distributions on such Trust
Securities will continue to accumulate, as set forth in Section 4.1, from the
Redemption Date originally established by the Issuer Trust for such Trust
Securities to the date such applicable Redemption Price is
20
<PAGE>
actually paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the applicable Redemption Price.
(e) Subject to Section 4.3(a), if less than all the Outstanding
Trust Securities are to be redeemed on a Redemption Date, then the particular
Preferred Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Property Trustee from the Outstanding
Preferred Securities not previously called for redemption in such a manner as
the Property Trustee shall deem fair and appropriate.
SECTION 4.3. Subordination of Common Securities.
(a) Payment of Distributions (including Additional Amounts, if
applicable) on, the Redemption Price of, and the Liquidation Distribution in
respect of, the Trust Securities, as applicable, shall be made, subject to
Section 4.2(e), pro rata among the Common Securities and the Preferred
Securities based on the Liquidation Amount of such Trust Securities; provided,
however, that if on any Distribution Date or Redemption Date any Event of
Default resulting from a Debenture Event of Default in Section 5.1(a) or 5.1(b)
of the Indenture shall have occurred and be continuing, no payment of any
Distribution (including any Additional Amounts, if applicable) on, or Redemption
Price of, or Liquidation Distribution in respect of, any Common Security, and no
other payment on account of the redemption, liquidation or other acquisition of
Common Securities, shall be made unless payment in full in cash of all
accumulated and unpaid Distributions (including Additional Amounts, if
applicable) on all Outstanding Preferred Securities for all Distribution periods
terminating on or prior thereto, or, in the case of payment of the Redemption
Price, the full amount of such Redemption Price on all Outstanding Preferred
Securities then called for redemption, or in the case of payment of the
Liquidation Distribution the full amount of such Liquidation Distribution on all
Outstanding Preferred Securities, shall have been made or provided for, and all
funds immediately available to the Property Trustee shall first be applied to
the payment in full in cash of all Distributions (including any Additional
Amounts) on, or the Redemption Price of, or Liquidation Distribution in respect
of Preferred Securities then due and payable. The existence of an Event of
Default does not entitle the Holders of Preferred Securities to accelerate the
maturity thereof.
(b) In the case of the occurrence of any Event of Default resulting
from any Debenture Event of Default, the Holder of the Common Securities shall
have no right to act with respect to any such Event of Default under this Trust
Agreement until the effects of all such Events of Default with respect to the
Preferred Securities have been cured, waived or otherwise eliminated. Until all
such Events of Default under this Trust Agreement with respect to the Preferred
Securities have been so cured, waived or otherwise eliminated, the Property
Trustee shall act solely on behalf of the Holders of the Preferred Securities
and not on behalf of the Holder of the Common Securities, and only the Holders
of the Preferred Securities will have the right to direct the Property Trustee
to act on their behalf.
SECTION 4.4. Payment Procedures.
Payments of Distributions (including any Additional Amounts, if
applicable) in respect of the Preferred Securities shall be made by check mailed
to the address of the Person entitled thereto as such address shall appear on
the Securities Register or, if the Preferred Securities are held by a
21
<PAGE>
Clearing Agency, such Distributions shall be made to the Clearing Agency in
immediately available funds, which will credit the relevant accounts on the
applicable Distribution Dates. Payments of Distributions to Holders of
$1,000,000 or more in aggregate Liquidation Amount of Preferred Securities may
be made by wire transfer of immediately available funds upon written request of
such Holder of Preferred Securities to the Securities Registrar not later than
15 calendar days prior to the date on which the Distribution is payable.
SECTION 4.5. Tax Returns and Reports.
The Administrators shall prepare and file (or cause to be prepared
and filed), at the Depositor's expense, [^] all United States federal, state and
local tax and information returns and reports required to be filed by or in
respect of the Issuer Trust. In this regard, the Administrators shall (i)
prepare and file (or cause to be prepared and filed) all Internal Revenue
Service forms required to be filed in respect of the Issuer Trust in each
taxable year of the Issuer Trust and (ii) prepare and furnish (or cause to be
prepared and furnished) to each Holder all Internal Revenue Service forms
required to be provided by the Issuer Trust. The Administrators shall provide
the Depositor and the Property Trustee with a copy of all such returns and
reports promptly after such filing or furnishing. The Issuer Trustees and the
Administrators shall comply with United States federal withholding and backup
withholding tax laws and information reporting requirements with respect to any
payments to Holders under the Trust Securities.
On or before December 15 of each year during which any Preferred
Securities are outstanding, the Administrators shall furnish to the Paying Agent
such information as may be reasonably requested by the Property Trustee in order
that the Property Trustee may prepare the information which it is required to
report for such year on Internal Revenue Service Forms 1096 and 1099 pursuant to
Section 6049 of the Code, as amended. Such information shall include the amount
of original issue discount includible in income for each outstanding Preferred
Security during such year.
SECTION 4.6. Payment of Taxes; Duties, Etc. of the Issuer Trust.
Upon receipt under the Junior Subordinated Debentures of Additional
Sums, the Property Trustee, at the written direction of an Administrator or the
Depositor, shall promptly pay any taxes, duties or governmental charges of
whatsoever nature (other than withholding taxes) imposed on the Issuer Trust by
the United States or any other taxing authority.
SECTION 4.7. Payments under Indenture or Pursuant to Direct
Actions.
Any amount payable hereunder to any Holder of Preferred Securities
shall be reduced by the amount of any corresponding payment such Holder (or any
Owner related thereto) has directly received pursuant to Section 5.8 of the
Indenture or Section 5.13 of this Trust Agreement.
SECTION 4.8. Liability of the Holder of Common Securities.
The Holder of Common Securities shall be liable for the debts and
obligations of the Issuer Trust as set forth in Section 6.7(c) of the Indenture
regarding allocation of expenses.
22
<PAGE>
ARTICLE V
TRUST SECURITIES CERTIFICATES
SECTION 5.1. Initial Ownership.
Until the issuance of the Trust Securities, and at any time during
which no Trust Securities are outstanding, the Depositor shall be the sole
beneficial owner of the Issuer Trust.
SECTION 5.2. The Trust Securities Certificates.
(a) The Trust Securities Certificates shall be executed on behalf
of the Issuer Trust by manual or facsimile signature of at least one
Administrator except as provided in Section 5.3. Trust Securities Certificates
bearing the signatures of individuals who were, at the time when such signatures
shall have been affixed, authorized to sign on behalf of the Issuer Trust, shall
be validly issued and entitled to the benefits of this Trust Agreement,
notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the delivery of such Trust Securities Certificates or did
not hold such offices at the date of delivery of such Trust Securities
Certificates. A transferee of a Trust Securities Certificate shall become a
Holder, and shall be entitled to the rights and subject to the obligations of a
Holder hereunder, upon due registration of such Trust Securities Certificate in
such transferee's name pursuant to Section 5.5.
(b) Upon their original issuance, Preferred Securities Certificates
shall be issued in the form of one or more fully registered Global Preferred
Securities Certificates which will be deposited with or on behalf of Cede & Co.
as the Depositary's nominee and registered in the name of the Depositary's
nominee. Unless and until it is exchangeable in whole or in part for the
Preferred Securities in definitive form, a 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 of such
Depositary or a nominee of such successor.
(c) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
SECTION 5.3. Execution and Delivery of Trust Securities
Certificates.
On the Closing Date[^] an Administrator shall cause Trust
Securities Certificates, in an aggregate Liquidation Amount as provided in
Sections 2.4 and 2.5, as the case may be, to be executed on behalf of the Issuer
Trust and delivered to the Property Trustee and upon such delivery the Property
Trustee shall authenticate such Trust Securities Certificates and deliver such
Trust Securities Certificates upon the written order of the Issuer Trust,
executed by an Administrator thereof, without further corporate action by the
Issuer Trust, in authorized denominations, and whereupon the Trust Securities
evidenced by such Trust Securities Certificates shall be duly and validly issued
undivided beneficial interests in the assets of the Issuer Trust and entitled to
the benefits of this Trust Agreement.
23
<PAGE>
SECTION 5.4. Global Preferred Security.
(a) Any Global Preferred Security issued under this Trust Agreement
shall be registered in the name of the nominee of the Clearing Agency and
delivered to such custodian therefor, and such Global Preferred Security shall
constitute a single Preferred Security for all purposes of this Trust Agreement.
(b) Notwithstanding any other provision in this Trust Agreement, a
Global Preferred Security may not be exchanged in whole or in part for Preferred
Securities registered, and no transfer of the Global Preferred Security in whole
or in part may be registered, in the name of any Person other than the Clearing
Agency for such Global Preferred Security, Cede, or other nominee thereof unless
(i) such Clearing Agency advises the Depositor and the Issuer Trustees in
writing that such Clearing Agency is no longer willing or able to properly
discharge its responsibilities as Clearing Agency with respect to such Global
Preferred Security, and the Depositor is unable to locate a qualified successor,
within 90 days of receipt of such notice from the Depositary, (ii) the Depositor
at its option advises the Depositary in writing that it elects to terminate the
book-entry system through the Clearing Agency, or (iii) there shall have
occurred and be continuing an Event of Default.
(c) If a Preferred Security is to be exchanged in whole or in part
for a beneficial interest in a Global Preferred Security, then either (i) such
Global Preferred Security shall be so surrendered for exchange or cancellation
as provided in this Article V or (ii) the Liquidation Amount thereof shall be
reduced or increased by an amount equal to the portion thereof to be so
exchanged or canceled, or equal to the Liquidation Amount of such other
Preferred Security to be so exchanged for a beneficial interest therein, as the
case may be, by means of an appropriate adjustment made on the records of the
Security Registrar, whereupon the Property Trustee, in accordance with the
Applicable Procedures, shall instruct the Clearing Agency or its authorized
representative to make a corresponding adjustment to its records. Upon any such
surrender or adjustment of a Global Preferred Security by the Clearing Agency,
accompanied by registration instructions, the Property Trustee shall, subject to
Section 5.4(b) and as otherwise provided in this Article V, authenticate and
deliver and an Administrator shall execute any Preferred Securities issuable in
exchange for such Global Preferred Security (or any portion thereof) in
accordance with the instructions of the Clearing Agency. The Property Trustee
shall not be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be fully protected in relying on, such
instructions.
(d) Every Preferred Security registered, executed, authenticated
and delivered upon registration of transfer of, or in exchange for or in lieu
of, a Global Preferred Security or any portion thereof, whether pursuant to this
Article V or Article IV or otherwise, shall be executed, authenticated and
delivered in the form of, and shall be, a Global Preferred Security, unless such
Global Preferred Security is registered in the name of a Person other than the
Clearing Agency for such Global Preferred Security or a nominee thereof.
(e) The Clearing Agency or its nominee, as the registered owner of
a Global Preferred Security, shall be considered the Holder of the Preferred
Securities represented by such Global Preferred Security for all purposes under
this Trust Agreement and the Preferred Securities, and owners of beneficial
interests in such Global Preferred Security shall hold such interests pursuant
to the Applicable Procedures and, except as otherwise provided herein, shall not
be entitled to receive
24
<PAGE>
physical delivery of any such Preferred Securities in definitive form and shall
not be considered the Holders thereof under this Trust Agreement. Accordingly,
any such Owner's beneficial interest in the Global Preferred Security shall be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Clearing Agency or its nominee. Neither the Property
Trustee, the Securities Registrar nor the Depositor shall have any liability in
respect of any transfers effected by the Clearing Agency.
(f) The rights of Owners of beneficial interests in a Global
Preferred Security shall be exercised only through the Clearing Agency and shall
be limited to those established by law and agreements between such Owners and
the Clearing Agency.
SECTION 5.5. Registration of Transfer and Exchange Generally;
Certain Transfers and Exchanges; Preferred Securities Certificates.
(a) The Property Trustee shall keep or cause to be kept at its
Corporate Trust Office a register or registers for the purpose of registering
Preferred [^] Securities Certificates and transfers and exchanges of Preferred
Securities Certificates in which the registrar and transfer agent with respect
to the Preferred Securities (the "Securities Registrar"), subject to such
reasonable regulations as it may prescribe, shall provide for the registration
of Preferred Securities Certificates and Common Securities Certificates (subject
to Section 5.11 in the case of Common Securities Certificates) and registration
of transfers and exchanges of Preferred Securities Certificates as herein
provided. Such register is herein sometimes referred to as the "Securities
Register." The Property Trustee is hereby appointed "Securities Registrar" for
the purpose of registering Preferred Securities and transfers of Preferred
Securities as herein provided.
Upon surrender for registration of transfer of any Preferred
Security at the offices or agencies of the Property Trustee designated for that
purpose, an Administrator shall execute and the Property Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Preferred Securities of the same series of any
authorized denominations of like tenor and aggregate Liquidation Amount and
bearing such legends as may be required by this Trust Agreement.
At the option of the Holder, Preferred Securities may be exchanged
for other Preferred Securities of any authorized denominations, of like tenor
and aggregate Liquidation Amount and bearing such legends as may be required by
this Trust Agreement, upon surrender of the Preferred Securities to be exchanged
at such office or agency. Whenever any Preferred Securities are so surrendered
for exchange, an Administrator shall execute and the Property Trustee shall
authenticate and deliver the Preferred Securities that the Holder making the
exchange is entitled to receive.
All Preferred Securities issued upon any transfer or exchange of
Preferred Securities shall be the valid obligations of the Issuer Trust,
evidencing the same interest, and entitled to the same benefits under this Trust
Agreement, as the Preferred Securities surrendered upon such transfer or
exchange.
Every Preferred Security presented or surrendered for transfer or
exchange shall (if so required by the Property Trustee) be duly endorsed, or be
accompanied by a written instrument of
25
<PAGE>
transfer in form satisfactory to the Property Trustee and the Securities
Registrar, duly executed by the Holder thereof or such Holder's attorney duly
authorized in writing.
No service charge shall be made to a Holder for any transfer or
exchange of Preferred Securities, but the Property Trustee may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any transfer or exchange of Preferred Securities.
Neither the Issuer Trust nor the Property Trustee shall be
required, pursuant to the provisions of this Section, (i) to issue, register the
transfer of or exchange any Preferred Security during a period beginning at the
opening of business 15 days before the day of selection for redemption of
Preferred Securities pursuant to Article IV and ending at the close of business
on the day of mailing of the notice of redemption, or (ii) to register the
transfer of or exchange any Preferred Security so selected for redemption in
whole or in part, except, in the case of any such Preferred Security to be
redeemed in part, any portion thereof not to be redeemed.
(b) Certain Transfers and Exchanges. Trust Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Trust Agreement. Any transfer or purported transfer of any
Trust Security not made in accordance with this Trust Agreement shall be null
and void.
(i) Non-Global Security to Non-Global Security. A Trust
Security that is not a Global Preferred Security may be
transferred, in whole or in part, to a Person who takes delivery in
the form of another Trust Security that is not a Global Preferred
Security as provided in Section 5.5(a).
(ii) Free Transferability. Subject to this Section 5.5,
Preferred Securities shall be freely transferable.
(iii) Exchanges Between Global Preferred Security and
Non-Global Preferred Security. A beneficial interest in a Global
Preferred Security may be exchanged for a Preferred Security that
is not a Global Preferred Security as provided in Section 5.4.
SECTION 5.6. Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates.
If (a) any mutilated Trust Securities Certificate shall be
surrendered to the Securities Registrar, or if the Securities Registrar shall
receive evidence to its satisfaction of the destruction, loss or theft of any
Trust Securities Certificate and (b) there shall be delivered to the Securities
Registrar and the Administrators such security or indemnity as may be required
by them to save each of them harmless, then in the absence of notice that such
Trust Securities Certificate shall have been acquired by a bona fide purchaser
or a protected purchaser, the Administrators, or any one of them, on behalf of
the Issuer Trust shall execute and make available for delivery, and the Property
Trustee shall authenticate, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities
Certificate of like class, tenor and denomination. In connection with the
issuance of any new Trust Securities Certificate under this Section, the
Administrators or the Securities Registrar may require the payment of a sum
sufficient to cover any tax or other
26
<PAGE>
governmental charge that may be imposed in connection therewith. Any duplicate
Trust Securities Certificate issued pursuant to this Section shall constitute
conclusive evidence of an undivided beneficial interest in the assets of the
Issuer Trust corresponding to that evidenced by the lost, stolen or destroyed
Trust Securities Certificate, as if originally issued, whether or not the lost,
stolen or destroyed Trust Securities Certificate shall be found at any time.
SECTION 5.7. Persons Deemed Holders.
The Issuer Trustees, the Administrators, the Securities Registrar
or the Depositor shall treat the Person in whose name any Trust Securities are
registered in the Securities Register as the owner of such Trust Securities for
the purpose of receiving Distributions and for all other purposes whatsoever,
and none of the Issuer Trustees, the Administrators, the Securities Registrar
nor the Depositor shall be bound by any notice to the contrary.
SECTION 5.8. Access to List of Holders' Names and Addresses.
Each Holder and each Owner shall be deemed to have agreed not to
hold the Depositor, the Property Trustee, or the Administrators accountable by
reason of the disclosure of its name and address, regardless of the source from
which such information was derived.
SECTION 5.9. Maintenance of Office or Agency.
The Property Trustee shall designate, with the consent of the
Administrators, which consent shall not be unreasonably withheld, an office or
offices or agency or agencies where Preferred Securities Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Issuer Trustees in respect of the Trust Securities
Certificates may be served. The Property Trustee initially designates its
Corporate Trust Office for such purposes. The Property Trustee shall give prompt
written notice to the Depositor, the Administrators and the Holders of any
change in the location of the Securities Register or any such office or agency.
SECTION 5.10. Appointment of Paying Agent.
The Paying Agent shall make Distributions to Holders from the
Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrators. Any Paying Agent shall have the
revocable power to withdraw funds from the Payment Account solely for the
purpose of making the Distributions referred to above.[^] The Paying Agent shall
initially be the Property Trustee. Any Person acting as Paying Agent shall be
permitted to resign as Paying Agent upon 30 days' written notice to the
Administrators, and the Property Trustee. In the event that the Property Trustee
shall no longer be the Paying Agent or a successor Paying Agent shall resign or
its authority to act be revoked, the [^] [Administrators] shall appoint a
successor (which shall be a bank or trust company) [^] to act as Paying Agent.
Such successor Paying Agent appointed by the [^] [Administrators], or any
additional Paying Agent appointed by the Administrators, shall execute and
deliver to the Issuer Trustees an instrument in which such successor Paying
Agent or additional Paying Agent shall agree with the Issuer Trustees that as
Paying Agent, such successor Paying Agent or additional Paying Agent will hold
all sums, if any, held by it for payment to the Holders in trust for the benefit
of the Holders entitled thereto until such sums shall be paid to such Holders.
The Paying Agent
27
<PAGE>
shall return all unclaimed funds to the Property Trustee and upon removal of a
Paying Agent such Paying Agent shall also return all funds in its possession to
the Property Trustee. The provisions of Sections 8.1, 8.3 and 8.6 herein shall
apply to the Bank also in its role as Paying Agent, for so long as the Bank
shall act as Paying Agent and, to the extent applicable, to any other paying
agent appointed hereunder. Any reference in this Trust Agreement to the Paying
Agent shall include any co-paying agent chosen by the Property Trustee unless
the context requires otherwise.
SECTION 5.11. Ownership of Common Securities by Depositor.
On the Closing Date, and on the Option Closing Date if applicable,
the Depositor shall acquire and retain beneficial and record ownership of the
Common Securities. Neither the Depositor nor any successor Holder of the Common
Securities may transfer less than all of the Common Securities, and the
Depositor or any Successor Holder may transfer the Common Securities only (a) in
connection with a consolidation or merger of the Depositor into another
corporation or any conveyance, transfer or lease by the Depositor of its
properties and assets substantially as an entirety to any Person, pursuant to
Section 8.1 of the Indenture, or (b) a transfer to an Affiliate of the Depositor
in compliance with applicable law (including the Securities Act and applicable
state securities and blue sky laws). To the fullest extent permitted by law, any
other attempted transfer of the Common Securities shall be void. The
Administrators shall cause each Common Securities Certificate issued to the
Depositor to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE
EXCEPT TO A SUCCESSOR IN INTEREST TO THE DEPOSITOR OR AN AFFILIATE OF THE
DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW AND SECTION 5.11 OF THE TRUST
AGREEMENT."
SECTION 5.12. Notices to Clearing Agency.
To the extent that a notice or other communication to the Holders
is required under this Trust Agreement, for so long as Preferred Securities are
represented by a Global Preferred Securities Certificate, the Administrators and
the Property Trustee shall give all such notices and communications specified
herein to [^] the Clearing Agency, and shall have no obligations to the Owners.
SECTION 5.13. Rights of Holders.
(a) The legal title to all Trust Property shall be vested at all
times in the Issuer Trust and shall be held and administered by the Property
Trustee (in its capacity as such) in accordance with Section 2.9, and the
Holders shall not have any right or title therein other than the undivided
beneficial interest in the assets of the Issuer Trust conferred by their Trust
Securities and they shall have no right to call for any partition or division of
property, profits or rights of the Issuer Trust except as described below. The
Trust Securities shall be personal property giving only the rights specifically
set forth therein and in this Trust Agreement. The Trust Securities shall have
no preemptive or similar rights and when issued and delivered to Holders against
payment of the purchase price therefor will be validly issued, fully paid and
nonassessable undivided beneficial interests in the Trust Property. Subject to
Section 4.8 hereof the Holders of the Trust Securities, in their capacities as
such, shall be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware.
28
<PAGE>
(b) For so long as any Preferred Securities remain Outstanding, if,
upon a Debenture Event of Default, the Debenture Trustee fails or the holders of
not less than 25% in principal amount of the outstanding Junior Subordinated
Debentures fail to declare the principal of all of the Junior Subordinated
Debentures to be immediately due and payable, the Holders of at least 25% in
Liquidation Amount of the Preferred Securities then Outstanding shall have such
right to make such declaration by a notice in writing to the Property Trustee,
the Depositor and the Debenture Trustee.
At any time after such a declaration of acceleration with respect
to the Junior Subordinated Debentures has been made and before a judgment or
decree for payment of the money due has been obtained by the Debenture Trustee
as provided in the Indenture, the Holders of a Majority in Liquidation Amount of
the Preferred Securities, by written notice to the Property Trustee, the
Depositor and the Debenture Trustee, may rescind and annul such declaration and
its consequences if:
(i) the Depositor has paid or deposited with the Debenture
Trustee a sum sufficient to pay
(A) all overdue installments of interest on
all of the Junior Subordinated Debentures,
(B) any accrued Additional Interest on all of the
Junior Subordinated Debentures,
(C) the principal of (and premium, if any, on) any
Junior Subordinated Debentures which have become due
otherwise than by such declaration of acceleration and
interest and Additional Interest thereon at the rate borne
by the Junior Subordinated Debentures, and
(D) all sums paid or advanced by the Debenture
Trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the
Debenture Trustee and the Property Trustee, their agents
and counsel; and
(ii) all Events of Default with respect to the Junior
Subordinated Debentures, other than the non-payment of the
principal of the Junior Subordinated Debentures which has become
due solely by such acceleration, have been cured or waived as
provided in Section 5.13 of the Indenture.
The Holders of at least a Majority in Liquidation Amount of the
Preferred Securities may, on behalf of the Holders of all the Preferred
Securities, waive any past default under the Indenture, except a default in the
payment of principal or interest (unless such default has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee) or
a default in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each outstanding
Junior Subordinated Debentures affected thereby. No such rescission shall affect
any subsequent default or impair any right consequent thereon.
29
<PAGE>
Upon receipt by the Property Trustee of written notice declaring
such an acceleration, or rescission and annulment thereof, by Holders of the
Preferred Securities all or part of which is represented by Global Preferred
Securities, a record date shall be established for determining Holders of
Outstanding Preferred Securities entitled to join in such notice, which record
date shall be at the close of business on the day the Property Trustee receives
such notice. The Holders on such record date, or their duly designated proxies,
and only such Persons, shall be entitled to join in such notice, whether or not
such Holders remain Holders after such record date; provided, that, unless such
declaration of acceleration, or rescission and annulment, as the case may be,
shall have become effective by virtue of the requisite percentage having joined
in such notice prior to the day which is 90 days after such record date, such
notice of declaration of acceleration, or rescission and annulment, as the case
may be, shall automatically and without further action by any Holder be canceled
and of no further effect. Nothing in this paragraph shall prevent a Holder, or a
proxy of a Holder, from giving, after expiration of such 90-day period, a new
written notice of declaration of acceleration, or rescission and annulment
thereof, as the case may be, that is identical to a written notice which has
been canceled pursuant to the proviso to the preceding sentence, in which event
a new record date shall be established pursuant to the provisions of this
Section 5.13(b).
(c) For so long as any Preferred Securities remain Outstanding, to
the fullest extent permitted by law and subject to the terms of this Trust
Agreement and the Indenture, upon a Debenture Event of Default specified in
Section 5.1(a) or 5.1(b) of the Indenture, any Holder of Preferred Securities
shall have the right to institute a proceeding directly against the Depositor,
pursuant to Section 5.8 of the Indenture, for enforcement of payment to such
Holder of the principal amount of or interest on Junior Subordinated Debentures
having an aggregate principal amount equal to the aggregate Liquidation Amount
of the Preferred Securities of such Holder (a "Direct Action"). Except as set
forth in Sections 5.13(b) and 5.13 (c) of this Trust Agreement, the Holders of
Preferred Securities shall have no right to exercise directly any right or
remedy available to the holders of, or in respect of, the Junior Subordinated
Debentures.
ARTICLE VI
ACTS OF HOLDERS; MEETINGS; VOTING
SECTION 6.1. Limitations on Holder's Voting Rights.
(a) Except as provided in this Trust Agreement and in the Indenture
and as otherwise required by law, no Holder of Preferred Securities shall have
any right to vote or in any manner otherwise control the administration,
operation and management of the Issuer Trust or the obligations of the parties
hereto, nor shall anything herein set forth or contained in the terms of the
Trust Securities Certificates be construed so as to constitute the Holders from
time to time as members of an association.
(b) So long as any Junior Subordinated Debentures are held by the
Property Trustee on behalf of the Issuer Trust, the Property Trustee shall not
(i) direct the time, method and place of conducting any proceeding for any
remedy available to the Property Trustee, or executing any trust or power
conferred on the Debenture Trustee with respect to such Junior Subordinated
Debentures, (ii) waive any past default that may be waived under Section 5.13 of
the Indenture, (iii) exercise any right
30
<PAGE>
to rescind or annul a declaration that the principal of all the Junior
Subordinated Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Indenture or the Junior
Subordinated Debentures, where such consent shall be required, without, in each
case, obtaining the prior approval of the Holders of at least a Majority in
Liquidation Amount of the Preferred Securities, provided, however, that where a
consent under the Indenture would require the consent of each holder of Junior
Subordinated Debentures affected thereby, no such consent shall be given by the
Property Trustee without the prior written consent of each Holder of Preferred
Securities. The Property Trustee shall not revoke any action previously
authorized or approved by a vote of the Holders of Preferred Securities, except
by a subsequent vote of the Holders of Preferred Securities. The Property
Trustee shall notify all Holders of the Preferred Securities of any notice of
default received with respect to the Junior Subordinated Debentures. In addition
to obtaining the foregoing approvals of the Holders of the Preferred Securities,
prior to taking any of the foregoing actions, the Property Trustee shall, at the
expense of the Depositor, [^] [receive] an Opinion of Counsel experienced in
such matters to the effect that such action will not cause the Issuer Trust to
be taxable as a corporation for United States federal income tax purposes.
(c) If any proposed amendment to the Trust Agreement provides for,
or the Issuer Trust otherwise proposes to effect, (i) any action that would
adversely affect in any material respect the interests, powers, preferences or
special rights of the Preferred Securities, whether by way of amendment to the
Trust Agreement or otherwise, or (ii) the dissolution of the Issuer Trust, other
than pursuant to the terms of this Trust Agreement, then the Holders of
Outstanding Trust Securities as a class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of the Holders of at least a Majority in Liquidation
Amount of the Preferred Securities. Notwithstanding any other provision of this
Trust Agreement, no amendment to this Trust Agreement may be made if, as a
result of such amendment, it would cause the Issuer Trust to be taxable as a
corporation for United States federal income tax purposes.
SECTION 6.2. Notice of Meetings.
Notice of all meetings of the Holders, stating the time, place and
purpose of the meeting, shall be given by the Property Trustee pursuant to
Section 10.8 to each Holder of record, at his registered address, at least 15
days and not more than 90 days before the meeting. At any such meeting, any
business properly before the meeting may be so considered whether or not stated
in the notice of the meeting. Any adjourned meeting may be held as adjourned
without further notice.
SECTION 6.3. Meetings of Holders.
No annual meeting of Holders is required to be held. The Property
Trustee, however, shall call a meeting of Holders to vote on any matter upon the
written request of the Holders of record of 25% of the aggregate Liquidation
Amount of the Preferred Securities and the Administrators or the Property
Trustee may, at any time in their discretion, call a meeting of Holders of
Preferred Securities to vote on any matters as to which Holders are entitled to
vote.
Holders of at least a Majority in Liquidation Amount of the
Preferred Securities, present in person or represented by proxy, shall
constitute a quorum at any meeting of Holders of the Preferred Securities.
31
<PAGE>
If a quorum is present at a meeting, an affirmative vote by the
Holders of record present, in person or by proxy, holding Preferred Securities
representing at least a Majority in Liquidation Amount of the Preferred
Securities held by the Holders present, either in person or by proxy, at such
meeting shall constitute the action of the Holders of Preferred Securities,
unless this Trust Agreement requires a greater number of affirmative votes.
SECTION 6.4. Voting Rights.
Holders shall be entitled to one vote for each $10 of Liquidation
Amount represented by their Outstanding Trust Securities in respect of any
matter as to which such Holders are entitled to vote.
SECTION 6.5. Proxies, etc.
At any meeting of Holders, any Holder entitled to vote thereat may
vote by proxy, provided that no proxy shall be voted at any meeting unless it
shall have been placed on file with the Property Trustee, or with such other
officer or agent of the Issuer Trust as the Property Trustee may direct, for
verification prior to the time at which such vote shall be taken. Pursuant to a
resolution of the Property Trustee, proxies may be solicited in the name of the
Property Trustee or one or more officers of the Property Trustee. Only Holders
of record shall be entitled to vote. When Trust Securities are held jointly by
several persons, any one of them may vote at any meeting in person or by proxy
in respect of such Trust Securities, but if more than one of them shall be
present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Trust Securities. A proxy purporting to be executed
by or on behalf of a Holder shall be deemed valid unless challenged at or prior
to its exercise, and the burden of proving invalidity shall rest on the
challenger. No proxy shall be valid more than three years after its date of
execution.
SECTION 6.6. Holder Action by Written Consent.
Any action which may be taken by Holders at a meeting may be taken
without a meeting if Holders holding at least a Majority in Liquidation Amount
of all Trust Securities entitled to vote in respect of such action (or such
larger proportion thereof as shall be required by any other provision of this
Trust Agreement) shall consent to the action in writing.
SECTION 6.7. Record Date for Voting and Other Purposes.
For the purposes of determining the Holders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate in
any Distribution on the Trust Securities in respect of which a record date is
not otherwise provided for in this Trust Agreement, or for the purpose of any
other action, the Administrators (or the Property Trustee if the Administrators
are unable or unwilling to act) may from time to time fix a date, not more than
90 days prior to the date of any meeting of Holders or the payment of a
Distribution or other action, as the case may be, as a record date for the
determination of the identity of the Holders of record for such purposes.
32
<PAGE>
SECTION 6.8. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided or permitted by this Trust Agreement to be
given, made or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by an agent duly appointed in writing; and, except as otherwise expressly
provided herein, such action shall become effective when such instrument or
instruments are delivered to the Property Trustee. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as 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 Trust
Agreement and (subject to Section 8.1) conclusive in favor of the Issuer
Trustees, if made in the manner provided in this Section 6.8.
(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 any Issuer Trustee or Administrator receiving the same
deems sufficient.
(c) The ownership of Trust Securities shall be proved by the
Securities Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Trust Security shall bind every future
Holder of the same Trust Security and the Holder of every Trust Security issued
upon the registration of transfer thereof or in exchange therefor or in lieu
thereof in respect of anything done, omitted or suffered to be done by the
Issuer Trustees, the Administrators or the Issuer Trust in reliance thereon,
whether or not notation of such action is made upon such Trust Security.
(e) Without limiting the foregoing, a Holder entitled hereunder to
take any action hereunder with regard to any particular Trust Security may do so
with regard to all or any part of the Liquidation Amount of such Trust Security
or by one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
(f) If any dispute shall arise among the Holders, the
Administrators or the Issuer Trustees with respect to the authenticity, validity
or binding nature of any request, demand, authorization, direction, consent,
waiver or other Act of such Holder or Issuer Trustee under this Article VI, then
the determination of such matter by the Property Trustee shall be conclusive
with respect to such matter.
33
<PAGE>
SECTION 6.9. Inspection of Records.
Upon reasonable notice to the Administrators and the Property
Trustee, the records of the Issuer Trust shall be open to inspection by Holders
during normal business hours for any purpose reasonably related to such Holder's
interest as a Holder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
SECTION 7.1. Representations and Warranties of the Property Trustee
and the Delaware Trustee.
The Property Trustee and the Delaware Trustee (and any successors
thereto at the time of their appointment), each severally on behalf of and as to
itself, hereby represents and warrants for the benefit of the Depositor and the
Holders that:
(a) The Property Trustee is a banking corporation, duly organized,
validly existing and in good standing under the laws of New York, with trust
power and authority to execute and deliver, and to carry out and perform its
obligations under the terms of this Trust Agreement.
(b) The execution, delivery and performance by the Property Trustee
of this Trust Agreement has been duly authorized by all necessary corporate
action on the part of the Property Trustee; and this Trust Agreement has been
duly executed and delivered by the Property Trustee, and constitutes a legal,
valid and binding obligation of the Property Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' rights
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law).
(c) The execution, delivery and performance of this Trust Agreement
by the Property Trustee does not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Property Trustee.
(d) At the Time of Delivery, the Property Trustee has not knowingly
created any Liens or encumbrances on the Trust Securities.
(e) No consent, approval or authorization of, or registration with
or notice to, any New York State or federal banking authority is required for
the execution, delivery or performance by the Property Trustee, of this Trust
Agreement.
(f) The Delaware Trustee is duly organized, validly existing and in
good standing under the laws of the State of Delaware, with trust power and
authority to execute and deliver, and to carry out and perform its obligations
under the terms of, the Trust Agreement.
34
<PAGE>
(g) The execution, delivery and performance by the Delaware Trustee
of this Trust Agreement has been duly authorized by all necessary corporate
action on the part of the Delaware Trustee; and this Trust Agreement has been
duly executed and delivered by the Delaware Trustee, and constitutes a legal,
valid and binding obligation of the Delaware Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' right
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law).
(h) The execution, delivery and performance of this Trust Agreement
by the Delaware Trustee does not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Delaware Trustee.
(i) No consent, approval or authorization of, or registration with
or notice to any state or Federal banking authority is required for the
execution, delivery or performance by the Delaware Trustee, of this Trust
Agreement.
(j) The Delaware Trustee is an entity which has its principal place
of business in the State of Delaware.
SECTION 7.2. Representations and Warranties of the Depositor.
The Depositor hereby represents and warrants for the benefit of the
Holders that:
(a) the Trust Securities Certificates issued at the Time of
Delivery on behalf of the Issuer Trust have been duly authorized and will have
been duly and validly executed, and, subject to payment therefor, issued and
delivered by the Issuer Trustees pursuant to the terms and provisions of, and in
accordance with the requirements of, this Trust Agreement, and the Holders will
be, as of each such date, entitled to the benefits of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable
by the Issuer Trust (or the Issuer Trustees on behalf of the Issuer Trust) under
the laws of the State of Delaware or any political subdivision thereof in
connection with the execution, delivery and performance by either the Property
Trustee or the Delaware Trustee, as the case may be, of this Trust Agreement.
ARTICLE VIII
THE ISSUER TRUSTEES; THE ADMINISTRATORS
SECTION 8.1. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Issuer Trustees and the
Administrators shall be as provided by this Trust Agreement and, in the case of
the Property Trustee, by the Trust Indenture Act. Notwithstanding the foregoing,
no provision of this Trust Agreement shall require the Issuer Trustees or the
Administrators to expend or risk their own funds or otherwise incur any
financial liability in the performance of any of their duties hereunder, or in
the exercise of any of their rights or
35
<PAGE>
powers, if they shall have reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it or them. Whether or not therein expressly so provided,
every provision of this Trust Agreement relating to the conduct or affecting the
liability of or affording protection to the Issuer Trustees or the
Administrators shall be subject to the provisions of this Section. Nothing in
this Trust Agreement shall be construed to release an Administrator or the
Issuer Trustees from liability for his or its own negligent action, his or its
own negligent failure to act, or his or its own willful misconduct. To the
extent that, at law or in equity, an Issuer Trustee or Administrator has duties
and liabilities relating to the Issuer Trust or to the Holders, such Issuer
Trustee or Administrator shall not be liable to the Issuer Trust or to any
Holder for such Issuer Trustee's or Administrator's good faith reliance on the
provisions of this Trust Agreement. The provisions of this Trust Agreement, to
the extent that they restrict the duties and liabilities of the Issuer Trustees
and Administrators otherwise existing at law or in equity, are agreed by the
Depositor and the Holders to replace such other duties and liabilities of the
Issuer Trustees and Administrators.
(b) All payments made by the Property Trustee or a Paying Agent in
respect of the Trust Securities shall be made only from the revenue and proceeds
from the Trust Property and only to the extent that there shall be sufficient
revenue or proceeds from the Trust Property to enable the Property Trustee or a
Paying Agent to make payments in accordance with the terms hereof. Each Holder,
by his or its acceptance of a Trust Security, agrees that he or it will look
solely to the revenue and proceeds from the Trust Property to the extent legally
available for distribution to it or him as herein provided and that neither the
Issuer Trustees nor the Administrators are personally liable to it or him for
any amount distributable in respect of any Trust Security or for any other
liability in respect of any Trust Security. This Section 8.1(b) does not limit
the liability of the Issuer Trustees expressly set forth elsewhere in this Trust
Agreement or, in the case of the Property Trustee, in the Trust Indenture Act.
(c) The Property Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Trust Agreement (including pursuant to Section 10.10), and no implied
covenants shall be read into this Trust Agreement against the Property Trustee.
If an Event of Default has occurred (that has not been cured or waived pursuant
to Section 5.13 of the Indenture), the Property Trustee shall enforce this Trust
Agreement for the benefit of the Holders and shall exercise such of the rights
and powers vested in it by this Trust Agreement, and use the same degree of care
and skill in its exercise thereof, as a prudent person would exercise or use
under the circumstances in the conduct of his or her own affairs.
(d) No provision of this Trust Agreement shall be construed to
relieve the Property Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and
after the curing or waiving of all such Events of Default that may
have occurred:
(A) the duties and obligations of the Property
Trustee shall be determined solely by the express
provisions of this Trust Agreement (including pursuant to
Section 10.10), and the Property Trustee shall not be
liable except for
36
<PAGE>
the performance of such duties and obligations as are
specifically set forth in this Trust Agreement (including
pursuant to Section 10.10); and
(B) in the absence of bad faith on the part of the
Property Trustee, the Property Trustee may conclusively
rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Property Trustee
and conforming to the requirements of this Trust
Agreement; but in the case of any such certificates or
opinions that by any provision hereof or of the Trust
Indenture Act are specifically required to be furnished to
the Property Trustee, the Property Trustee shall be under
a duty to examine the same to determine whether or not
they conform to the requirements of this Trust Agreement;
(ii) the Property Trustee shall not be liable for any
error of judgment made in good faith by an authorized officer of
the Property Trustee, unless it shall be proved that the Property
Trustee was negligent in ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good
faith in accordance with the direction of the Holders of at least a
Majority in Liquidation Amount of the Preferred Securities relating
to the time, method and place of conducting any proceeding for any
remedy available to the Property Trustee, or exercising any trust
or power conferred upon the Property Trustee under this Trust
Agreement;
(iv) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Junior
Subordinated Debentures and the Payment Account shall be to deal
with such Property in a similar manner as the Property Trustee
deals with similar property for its own account, subject to the
protections and limitations on liability afforded to the Property
Trustee under this Trust Agreement and the Trust Indenture Act;
(v) the Property Trustee shall not be liable for any
interest on any money received by it except as it may otherwise
agree with the Depositor; and money held by the Property Trustee
need not be segregated from other funds held by it except in
relation to the Payment Account maintained by the Property Trustee
pursuant to Section 3.1 and except to the extent otherwise required
by law;
(vi) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrators or the Depositor
with their respective duties under this Trust Agreement, nor shall
the Property Trustee be liable for the default or misconduct of any
other Issuer Trustee, the Administrators or the Depositor; and
(vii) no provision of this Trust Agreement shall require
the Property Trustee to expend or risk its own funds or otherwise
incur personal financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers, if the
Property Trustee shall have reasonable grounds for believing that
the repayment of such
37
<PAGE>
funds or liability is not reasonably assured to it under the terms
of this Trust Agreement or adequate indemnity against such risk or
liability is not reasonably assured to it.
(e) The Administrators shall not be responsible for monitoring the
compliance by the Issuer Trustees or the Depositor with their respective duties
under this Trust Agreement, nor shall either Administrator be liable for the
default or misconduct of any other Administrator, the Issuer Trustees or the
Depositor.
SECTION 8.2. Certain Notices.
Within five Business Days after the occurrence of any Event of
Default actually known to a Responsible Officer of the Property Trustee, the
Property Trustee shall transmit, in the manner and to the extent provided in
Section 10.8, notice of such Event of Default to the Holders and the
Administrators, unless such Event of Default shall have been cured or waived.
Within five Business Days after the receipt of notice of the
Depositor's exercise of its right to defer the payment of interest on the Junior
Subordinated Debentures pursuant to the Indenture, the Property Trustee shall
transmit, in the manner and to the extent provided in Section 10.8, notice of
such exercise to the Holders and the Administrators, unless such exercise shall
have been revoked.
In the event the Property Trustee receives notice of the
Depositor's exercise of its right to shorten the stated maturity of the Junior
Subordinated Debentures as provided in Section 3.16 of the Indenture, the
Property Trustee shall give notice of such shortening of the stated maturity to
the Holders at least 30 but not more than 60 days before the effective date
thereof.
SECTION 8.3. Certain Rights of Property Trustee.
Subject to the provisions of Section 8.1:
(a) the Property Trustee may rely and shall be fully protected in
acting or refraining from acting in good faith upon any resolution, Opinion of
Counsel, certificate, written representation of a Holder or transferee,
certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(b) any direction or act of the Depositor contemplated by this
Trust Agreement shall be sufficiently evidenced by an Officers' Certificate [and
upon request by the Property Trustee, an Opinion of Counsel to the effect that
the Property Trustee's compliance with such direction or action is permitted or
authorized under the terms of this Trust Agreement and that all conditions
precedent herewith have been satisfied];
(c) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any financing or
continuation statement or any filing under tax or securities laws) or any
re-recording, refiling or registration thereof;
38
<PAGE>
(d) the Property Trustee may consult with counsel of its own
choosing (which counsel may be counsel to the Depositor or any of its
Affiliates, and may include any of its employees) and the advice of such counsel
shall be full and complete authorization and protection in respect of any action
taken[,] suffered or omitted by it hereunder in good faith and in reliance
thereon and in accordance with such advice; the Property Trustee shall have the
right at any time to seek instructions concerning the administration of this
Trust Agreement from any court of competent jurisdiction;
(e) the Property Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Trust Agreement at the request
or direction of any of the Holders pursuant to this Trust Agreement, unless such
Holders shall have offered to the Property Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction; provided that,
nothing contained in this Section 8.3(e) shall be taken to relieve the Property
Trustee, upon the occurrence of an Event of Default, of its obligation to
exercise the rights and powers vested in it by this Trust Agreement;
(f) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval, bond, debenture, note or other evidence of indebtedness or other paper
or document, unless requested in writing to do so by one or more Holders, but
the Property Trustee may make such further inquiry or investigation into such
facts or matters as it may see fit [including the inspection of the books and
records of the Issuer Trust];
(g) the Property Trustee may execute any of the trusts or powers
hereunder or perform any of its duties hereunder either directly or by or
through its agents or attorneys, provided that the Property Trustee shall not be
responsible for any misconduct or negligence on the part of any agent or
attorney appointed with due care by it hereunder;
(h) whenever in the administration of this Trust Agreement the
Property Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder, the Property
Trustee (i) may request instructions from the Holders (which instructions may
only be given by the Holders of the same proportion in Liquidation Amount of the
Trust Securities as would be entitled to direct the Property Trustee under the
terms of the Trust Securities in respect of such remedy, right or action), (ii)
may refrain from enforcing such remedy or right or taking such other action
until such instructions are received, and (iii) shall be fully protected in
acting in accordance with such instructions; and
(i) except as otherwise expressly provided by this Trust Agreement,
the Property Trustee shall not be under any obligation to take any action that
is discretionary under the provisions of this Trust Agreement.
No provision of this Trust Agreement shall be deemed to impose any
duty or obligation on any Issuer Trustee or Administrator to perform any act or
acts or exercise any right, power, duty or obligation conferred or imposed on
it, in any jurisdiction in which it shall be illegal, or in which the Property
Trustee shall be unqualified or incompetent in accordance with applicable law,
to perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to any Issuer Trustee or
Administrator shall be construed to be a duty.
39
<PAGE>
SECTION 8.4. Not Responsible for Recitals or Issuance of
Securities.
The recitals contained herein and in the Trust Securities
Certificates shall be taken as the statements of the Issuer Trust, and the
Issuer Trustees and the Administrators do not assume any responsibility for
their correctness. The Issuer Trustees and the Administrators shall not be
accountable for the use or application by the Depositor of the proceeds of the
Junior Subordinated Debentures.
SECTION 8.5. May Hold Securities.
Except as provided in the definition of the term "Outstanding" in
Article I, the Administrators, any Issuer Trustee or any other agent of any
Issuer Trustee or the Issuer Trust, in its individual or any other capacity, may
become the owner or pledgee of Trust Securities and, subject to Sections 8.8 and
8.13, may otherwise deal with the Issuer Trust with the same rights it would
have if it were not an Administrator, Issuer Trustee or such other agent.
SECTION 8.6. Compensation; Indemnity; Fees.
The Depositor agrees:
(a) to pay to the Issuer Trustees from time to time reasonable
compensation for all services rendered by them hereunder (which compensation
shall not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) to reimburse the Issuer Trustees and the Administrators upon
request for all reasonable expenses, disbursements and advances incurred or made
by the Issuer Trustees in accordance with any provision of this Trust Agreement
(including the reasonable compensation, expenses and disbursements of its agents
and counsel), except any such expense, disbursement or advance as may be
attributable to their negligence or willful misconduct; and
(c) to the fullest extent permitted by applicable law, to indemnify
and hold harmless (i) each Issuer Trustee, (ii) each Administrator, (iii) any
Affiliate of any Issuer Trustee, (iv) any officer, director, shareholder,
employee, representative or agent of any Issuer Trustee, and (v) any employee or
agent of the Issuer Trust, (referred to herein as an "Indemnified Person") from
and against any loss, damage, liability, tax (excluding income taxes, other than
taxes referred to in Sections 4.5 and 4.6 hereunder), penalty, expense or claim
of any kind or nature whatsoever incurred by such Indemnified Person arising out
of or in connection with the creation, operation or dissolution of the Issuer
Trust or any act or omission performed or omitted by such Indemnified Person in
good faith on behalf of the Issuer Trust and in a manner such Indemnified Person
reasonably believed to be within the scope of authority conferred on such
Indemnified Person by this Trust Agreement, except that no Indemnified Person
shall be entitled to be indemnified in respect of any loss, damage or claim
incurred by such Indemnified Person by reason of bad faith, negligence or
willful misconduct with respect to such acts or omissions. The indemnification
provided to an Indemnified Party in this Trust Agreement shall not be exclusive
and nothing in this Trust Agreement shall limit any indemnification for actions
taken in connection with this Trust Agreement or otherwise which may be
available or provided to such Indemnified Party under other sources.
40
<PAGE>
The provisions of this Section 8.6 shall survive the termination of
this Trust Agreement.
No Issuer Trustee may claim any lien or charge on any Trust
Property as a result of any amount due pursuant to this Section 8.6.
The Depositor, any Administrator and any Issuer Trustee may engage
in or possess an interest in other business ventures of any nature or
description, independently or with others, similar or dissimilar to the business
of the Issuer Trust, and the Issuer Trust and the Holders of Trust Securities
shall have no rights by virtue of this Trust Agreement in and to such
independent ventures or the income or profits derived therefrom, and the pursuit
of any such venture, even if competitive with the business of the Issuer Trust,
shall not be deemed wrongful or improper. Neither the Depositor, any
Administrator, nor any Issuer Trustee shall be obligated to present any
particular investment or other opportunity to the Issuer Trust even if such
opportunity is of a character that, if presented to the Issuer Trust, could be
taken by the Issuer Trust, and the Depositor, any Administrator or any Issuer
Trustee shall have the right to take for its own account (individually or as a
partner or fiduciary) or to recommend to others any such particular investment
or other opportunity. Any Issuer Trustee may engage or be interested in any
financial or other transaction with the Depositor or any Affiliate of the
Depositor, or may act as depository for, trustee or agent for, or act on any
committee or body of holders of, securities or other obligations of the
Depositor or its Affiliates.
SECTION 8.7. Corporate Property Trustee Required; Eligibility of
Trustees and Administrators.
(a) There shall at all times be a Property Trustee hereunder with
respect to the Trust Securities. The Property Trustee shall be a Person that is
a national or state chartered bank and eligible pursuant to the Trust Indenture
Act to act as such and has a combined capital and surplus of at least
$50,000,000. If any such Person publishes reports of condition at least
annually, pursuant to law or to the requirements of its supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Property Trustee with respect to the Trust Securities shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article VIII. At the time of appointment, the Property Trustee must have
securities rated in one of the three highest rating categories by a nationally
recognized statistical rating organization.
(b) There shall at all times be one or more Administrators
hereunder. Each Administrator shall be either a natural person who is at least
21 years of age or a legal entity that shall act through one or more persons
authorized to bind that entity. An employee, officer or Affiliate of the
Depositor may serve as an Administrator.
(c) There shall at all times be a Delaware Trustee. The Delaware
Trustee shall either be (i) a natural person who is at least 21 years of age and
a resident of the State of Delaware or (ii) a legal entity with its principal
place of business in the State of Delaware and that otherwise meets the
requirements of applicable Delaware law that shall act through one or more
persons authorized to bind such entity.
41
<PAGE>
SECTION 8.8. Conflicting Interests.
(a) If the Property Trustee has or shall acquire a conflicting
interest within the meaning of the Trust Indenture Act, the Property Trustee
shall either eliminate such interest or resign, to the extent and in the manner
provided by, and subject to the provisions of, the Trust Indenture Act and this
Trust Agreement.
(b) The Guarantee Agreement and the Indenture shall be deemed to be
specifically described in this Trust Agreement for the purposes of clause (i) of
the first [^] [provision] contained in Section 310(b) of the Trust Indenture
Act.
SECTION 8.9. Co-Trustees and Separate Trustee.
(a) Unless an Event of Default shall have occurred and be
continuing, at any time or times, for the purpose of meeting the legal
requirements of the Trust Indenture Act or of any jurisdiction in which any part
of the Trust Property may at the time be located, the Property Trustee shall
have power to appoint, and upon the written request of the Property Trustee, the
Depositor and the Administrators shall for such purpose join with the Property
Trustee in the execution, delivery, and performance of all instruments and
agreements necessary or proper to appoint, one or more Persons approved by the
Property Trustee either to act as co-trustee, jointly with the Property Trustee,
of all or any part of such Trust Property, or to the extent required by law to
act as separate trustee of any such property, in either case with such powers as
may be provided in the instrument of appointment, and to vest in such Person or
Persons in the capacity aforesaid, any property, title, right or power deemed
necessary or desirable, subject to the other provisions of this Section. Any
co-trustee or separate trustee appointed pursuant to this Section shall either
be (i) a natural person who is at least 21 years of age and a resident of the
United States or (ii) a legal entity with its principal place of business in the
United States that shall act through one or more persons authorized to bind such
entity.
(b) Should any written instrument from the Depositor be required by
any co-trustee or separate trustee so appointed for more fully confirming to
such co-trustee or separate trustee such property, title, right, or power, any
and all such instruments shall, on request, be executed, acknowledged and
delivered by the Depositor.
(c) Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the following
terms, namely:
(i) The Trust Securities shall be executed and delivered
by one or more Administrators and authenticated by the Property Trustee, and all
rights, powers, duties, and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Property Trustees specified hereunder, shall be
exercised, solely by the Property Trustee and not by such co-trustee or separate
trustee.
(ii) The rights, powers, duties, and obligations hereby
conferred or imposed upon the Property Trustee in respect of any property
covered by such appointment shall be conferred or imposed upon and exercised or
performed by the Property Trustee and such co-trustee or separate trustee
jointly, as shall be provided in the instrument appointing such co-trustee or
separate trustee,
42
<PAGE>
except to the extent that under any law of any jurisdiction in which any
particular act is to be performed, the Property Trustee shall be incompetent or
unqualified to perform such act, in which event such rights, powers, duties and
obligations shall be exercised and performed by such co-trustee or separate
trustee.
(iii) The Property Trustee at any time, by an instrument
in writing executed by it, with the written concurrence of the Depositor, may
accept the resignation of or remove any co-trustee or separate trustee appointed
under this Section, and, in case a Debenture Event of Default has occurred and
is continuing, the Property Trustee shall have power to accept the resignation
of, or remove, any such co-trustee or separate trustee without the concurrence
of the Depositor. Upon the written request of the Property Trustee, the
Depositor shall join with the Property Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to effectuate
such resignation or removal. A successor to any co-trustee or separate trustee
so resigned or removed may be appointed in the manner provided in this Section
8.9.
(iv) No co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Property Trustee or
any other trustee hereunder.
(v) The Property Trustee shall not be liable by reason of
any act of a co-trustee or separate trustee.
(vi) Any Act of Holders delivered to the Property Trustee
shall be deemed to have been delivered to each
such co-trustee and separate trustee.
SECTION 8.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of any Issuer Trustee (the "Relevant
Trustee") and no appointment of a successor Issuer Trustee pursuant to this
Article VIII shall become effective until the acceptance of appointment by the
successor Issuer Trustee in accordance with the applicable requirements of
Section 8.11.
(b) Subject to Section 8.10(a), a Relevant Trustee may resign at
any time by giving written notice thereof to the Holders. The [^]
[Administrators] shall appoint a successor by requesting from at least three
Persons meeting the eligibility requirements its expenses and charges to serve
as the successor Issuer Trustee on a form provided by the Administrators, and
selecting the Person who agrees to the lowest expenses and charges subject to
the prior consent of the Depositor which consent shall not be unreasonably
withheld. If the instrument of acceptance by the successor Issuer Trustee
required by Section 8.11 shall not have been delivered to the Relevant Trustee
within 60 days after the giving of such notice of resignation, the Relevant
Trustee may petition, at the expense of the Issuer Trust, any court of competent
jurisdiction for the appointment of a successor Issuer Trustee.
(c) The Property Trustee or the Delaware Trustee may be removed at
any time by Act of the Holders of at least a Majority in Liquidation Amount of
the Preferred Securities, delivered to the Relevant Trustee (in its individual
capacity and on behalf of the Issuer Trust) (i) for cause, or (ii) if a
Debenture Event of Default shall have occurred and be continuing at any time.
43
<PAGE>
(d) If a resigning Relevant Trustee shall fail to appoint a
successor, or if a Relevant Trustee shall be removed or become incapable of
acting as Issuer Trustee, or if any vacancy shall occur in the office of any
Issuer Trustee for any cause, the Holders of the Preferred Securities, by Act of
the Holders of record of not less than 25% aggregate Liquidation Amount of the
Preferred Securities than Outstanding delivered to such Relevant Trustee, shall
promptly appoint a successor Issuer Trustee or Trustees, and such successor
Issuer Trustee shall comply with the applicable requirements of Section 8.11. If
no successor Issuer Trustee shall have been so appointed by the Holders of the
Preferred Securities and accepted appointment in the manner required by Section
8.11, any Holder, on behalf of himself and all others similarly situated, or any
other Issuer Trustee, may petition any court in the State of Delaware for the
appointment of a successor Issuer Trustee.
(e) The Property Trustee shall give notice of each resignation and
each removal of a Relevant Trustee and each appointment of a successor Issuer
Trustee to all Holders in the manner provided in Section 10.8 and shall give
notice to the Depositor and to the Administrators. Each notice shall include the
name of the Relevant Trustee and the address of its Corporate Trust Office if it
is the Property Trustee.
(f) Notwithstanding the foregoing or any other provision of this
Trust Agreement, in the event any Delaware Trustee who is a natural person dies
or becomes, in the opinion of the Holders of the Common Securities, incompetent
or incapacitated, the vacancy created by such death, incompetence or incapacity
may be filled by the Property Trustee following the procedures regarding
expenses and charges set forth above (with the successor in each case being a
Person who satisfies the eligibility requirement for Delaware Trustee, set forth
in Section 8.7).
SECTION 8.11. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Issuer
Trustee, the retiring Relevant Trustee and each such successor Issuer Trustee
with respect to the Trust Securities shall execute, acknowledge and deliver an
instrument wherein each successor Issuer Trustee shall accept such appointment
and which shall contain such provisions as shall be necessary or desirable to
transfer and confirm to, and to vest in, each successor Issuer Trustee all the
rights, powers, trusts and duties of the retiring Relevant Trustee with respect
to the Trust Securities and the Issuer Trust, and upon the execution and
delivery of such instrument the resignation or removal of the retiring Relevant
Trustee shall become effective to the extent provided therein and each such
successor Issuer Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the Relevant
Trustee; but, on request of the Issuer Trust or any successor Issuer Trustee
such Relevant Trustee shall duly assign, transfer and deliver to such successor
Issuer Trustee all Trust Property, all proceeds thereof and money held by such
Relevant Trustee hereunder with respect to the Trust Securities and the Issuer
Trust.
(b) Upon request of any such successor Issuer Trustee, the Issuer
Trust shall execute any and all instruments for more fully and certainly vesting
in and confirming to such successor Issuer Trustee all such rights, powers and
trusts referred to in the first or second preceding paragraph, as the case may
be.
44
<PAGE>
(c) No successor Issuer Trustee shall accept its appointment unless
at the time of such acceptance such successor Issuer Trustee shall be qualified
and eligible under this Article VIII.
SECTION 8.12. Merger, Conversion, Consolidation or Succession to
Business.
Any Person into which the Property Trustee or the Delaware Trustee
may be merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Relevant
Trustee shall be a party, or any Person succeeding to all or substantially all
the corporate trust business of such Relevant Trustee, shall be the successor of
such Relevant Trustee hereunder, provided that such Person shall be otherwise
qualified and eligible under this Article VIII, without the execution or filing
of any paper or any further act on the part of any of the parties hereto.
SECTION 8.13. Preferential Collection of Claims Against Depositor
or Issuer Trust.
If and when the Property Trustee shall be or become a creditor of
the Depositor (or any other obligor upon Junior Subordinated Debentures or the
Trust Securities), the Property Trustee shall be subject to the provisions of
the Trust Indenture Act regarding the collection of claims against the Depositor
or the Issuer Trust (or any such other obligor) as is required by the Trust
Indenture Act.
SECTION 8.14. Trustee May File Proofs of Claim.
In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other similar judicial
proceeding [^] [relating] to the Issuer Trust or any other obligor upon the
Trust Securities or the property of the Issuer Trust or of such other obligor,
the Property Trustee (irrespective of whether any Distributions on the Trust
Securities shall then be due and payable and irrespective of whether the
Property Trustee shall have made any demand on the Issuer Trust for the payment
of any past due Distributions) shall be entitled and empowered, to the fullest
extent permitted by law, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of any
Distributions owing and unpaid in respect of the Trust Securities and to file
such other papers or documents as may be necessary or advisable in order to have
the claims of the Property Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Property Trustee, its
agents and counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Property Trustee and, in the event the Property Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Property Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Property Trustee, its agents and counsel, and
any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement,
45
<PAGE>
adjustment or compensation affecting the Trust Securities or the rights of any
Holder thereof or to authorize the Property Trustee to vote in respect of the
claim of any Holder in any such proceeding.
SECTION 8.15. Reports by the Property Trustee.
(a) Within 60 days of January 31 of each year commencing with
January 31, 2001, the Property Trustee shall transmit to all Holders in
accordance with Section 10.8, and to the Depositor, a brief report dated as of
the immediately preceding January 31 with respect to:
(i) its eligibility under Section 8.7 or, in lieu thereof,
if to the best of its knowledge it has continued to be eligible
under said Section, a written statement to such effect; and
(ii) any change in the property and funds in its
possession as Property Trustee since the date of its last report
and any action taken by the Property Trustee in the performance of
its duties hereunder which it has not previously reported and which
in its opinion materially affects the Trust Securities.
(b) In addition the Property Trustee shall transmit to Holders such
reports concerning the Property Trustee and its actions under this Trust
Agreement as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant thereto as set forth in Section 10.10 of
this Trust Agreement.
(c) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Property Trustee with the Depositor.
SECTION 8.16. Reports to the Property Trustee.
The Depositor and the Administrators on behalf of the Issuer Trust
shall provide to the Property Trustee such documents, reports and information as
required by Section 314 of the Trust Indenture Act and the compliance
certificate required by Section 314(a) of the Trust Indenture Act in the form,
in the manner and at the times required by Section 314 of the Trust Indenture
Act, as set forth in Section 10.10 of this Trust Agreement. The Depositor and
the Administrators shall annually file with the Property Trustee a certificate
specifying whether such Person is in compliance with all the terms and covenants
applicable to such Person hereunder.
SECTION 8.17. Evidence of Compliance with Conditions Precedent.
Each of the Depositor and the Administrators on behalf of the
Issuer Trust shall provide to the Property Trustee such evidence of compliance
with any conditions precedent, if any, provided for in this Trust Agreement that
relate to any of the matters set forth in Section 314(c) of the Trust Indenture
Act as set forth in Section 10.10 of this Trust Agreement. Any certificate or
opinion required to be given by an officer pursuant to Section 314(c)(1) of the
Trust Indenture Act shall be given in the form of an Officers' Certificate.
46
<PAGE>
SECTION 8.18. Number of Issuer Trustees.
(a) The number of Issuer Trustees shall be two. The Property
Trustee and the Delaware Trustee may be the same Person, in which event the
number of Issuer Trustees shall be one.
(b) If an Issuer Trustee ceases to hold office for any reason, a
vacancy shall occur. The vacancy shall be filled with an Issuer Trustee
appointed in accordance with Section 8.10.
(c) The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of an Issuer Trustee shall not
operate to dissolve, terminate or annul the Issuer Trust or terminate this Trust
Agreement.
SECTION 8.19. Delegation of Power.
(a) Any Administrator may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in Section
2.7(a) or making any governmental filing.
(b) The Administrators shall have power to delegate from time to
time to such of their number the doing of such things and the execution of such
instruments either in the name of the Issuer Trust or the names of the
Administrators or otherwise as the Administrators may deem expedient, to the
extent such delegation is not prohibited by applicable law or contrary to the
provisions of this Trust Agreement.
SECTION 8.20. Appointment of Administrators.
(a) The Administrators (other than the initial Administrators)
shall be appointed by the Holders of a Majority in Liquidation Amount of the
Common Securities and all Administrators (including the initial Administrators)
may be removed by the Holders of a Majority in Liquidation Amount of the Common
Securities or may resign at any time. Each Administrator shall sign an agreement
agreeing to comply with the terms of this Trust Agreement. If at any time there
is no Administrator, the Property Trustee or any Holder who has been a Holder of
Trust Securities for at least six months may petition any court of competent
jurisdiction for the appointment of one or more Administrators.
(b) Whenever a vacancy in the number of Administrators shall occur,
until such vacancy is filled by the appointment of an Administrator in
accordance with this Section 8.20, the Administrators in office, regardless of
their number (and notwithstanding any other provision of this Trust Agreement),
shall have all the powers granted to the Administrators and shall discharge all
the duties imposed upon the Administrators by this Trust Agreement.
(c) Notwithstanding the foregoing, or any other provision of this
Trust Agreement, in the event any Administrator or a Delaware Trustee who is a
natural person dies or becomes, in the opinion of the Holders of a Majority in
Liquidation Amount of the Common Securities, incompetent, or incapacitated, the
vacancy created by such death, incompetence or incapacity may be filled by the
remaining Administrators, if there were at least two of them prior to such
vacancy, and by the
47
<PAGE>
Depositor, if there were not two such Administrators immediately prior to such
vacancy (with the successor in each case being a Person who satisfies the
eligibility requirement for Administrators or Delaware Trustee, as the case may
be, set forth in Section 8.7).
(d) Except as otherwise provided in this Trust Agreement, or by
applicable law, any one Administrator may execute any document or otherwise take
any action which the Administrators are authorized to take under this Trust
Agreement.
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER
SECTION 9.1. Dissolution Upon Expiration Date.
Unless earlier dissolved, the Issuer Trust shall automatically
dissolve on _______ __, 2034 (the "Expiration Date").
SECTION 9.2. Early Dissolution.
The first to occur of any of the following events is an "Early
Termination Event", upon the occurrence of which the Issuer Trust shall
dissolve:
(a) the occurrence of any Bankruptcy Event with respect to the
Depositor unless the Depositor shall transfer the Common Securities as provided
by Section 5.11, in which case this provision shall refer instead to any
Bankruptcy Event with respect to the successor Holder of the Common Securities;
(b) delivery of the written direction to the Property Trustee from
the Holder of the Common Securities at any time to dissolve the Issuer Trust
and, after satisfaction of liabilities to creditors of the Issuer Trust as
provided by applicable law, to distribute the Junior Subordinated Debentures to
Holders in exchange for the Preferred Securities (which direction, subject to
Section 9.4(a), is optional and wholly within the discretion of the Holder of
the Common Securities);
(c) the redemption of all of the Preferred Securities in connection
with the redemption of all the Junior Subordinated Debentures; and
(d) the entry of an order for dissolution of the Issuer Trust by a
court of competent jurisdiction.
SECTION 9.3. Termination.
The respective obligations and responsibilities of the Issuer
Trustees, the Administrators and the Issuer Trust created and continued hereby
shall terminate upon the latest to occur of the following: (a) the distribution
by the Property Trustee to Holders of all amounts required to be distributed
hereunder upon the liquidation of the Issuer Trust pursuant to Section 9.4, or
upon the redemption of all of the Trust Securities pursuant to Section 4.2, (b)
the payment of any expenses owed by the Issuer
48
<PAGE>
Trust, (c) the discharge of all administrative duties of the Administrators,
including the performance of any tax reporting obligations with respect to the
Issuer Trust or the Holders and (d) the filing of a certificate of cancellation
with the Delaware Secretary of State pursuant to Section 3810 of the Delaware
Business Trust Act.
SECTION 9.4. Liquidation.
(a) If an Early Termination Event specified in clause (a), (b) or
(d) of Section 9.2 occurs or upon the Expiration Date, the Issuer Trust shall be
liquidated by the Property Trustee as expeditiously as the Property Trustee
determines to be possible by distributing, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, to each Holder a
Like Amount of Junior Subordinated Debentures, subject to Section 9.4(d). Notice
of liquidation shall be given by the Property Trustee by first-class mail,
postage prepaid, mailed not later than 15 nor more than 45 days prior to the
Liquidation Date to each Holder of Trust Securities at such Holder's address
appearing in the Securities Register. All notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that, from and after the Liquidation Date, the
Trust Securities will no longer be deemed to be
Outstanding and any Trust Securities Certificates not surrendered for exchange
will be deemed to represent a Like Amount of Junior Subordinated Debentures; and
(iii) provide such information with respect to the
mechanics by which Holders may exchange Trust Securities
Certificates for Junior Subordinated Debentures, or if Section 9.4(d) applies
receive a Liquidation Distribution, as the Administrators or the Property
Trustee shall deem appropriate.
(b) Except where Section 9.2(c) or 9.4(d) applies, in order to
effect the liquidation of the Issuer Trust and distribution of the Junior
Subordinated Debentures to Holders, the Property Trustee shall establish a
record date for such distribution (which shall be not more than 30 days prior to
the Liquidation Date) and, either itself acting as exchange agent or through the
appointment of a separate exchange agent, shall establish such procedures as it
shall deem appropriate to effect the distribution of Junior Subordinated
Debentures in exchange for the Outstanding Trust Securities Certificates.
(c) Except where Section 9.2(c) or 9.4(d) applies, after the
Liquidation Date, (i) the Trust Securities will no longer be deemed to be
Outstanding[^] (ii) the Clearing Agency for the Preferred Securities or its
nominee, as the registered Holder of the Global Preferred Securities
Certificate, shall receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Preferred Securities held by the Clearing Agency or
its nominee, and, (iii) any Trust Securities Certificates not held by the
Clearing Agency for the Preferred Securities or its nominee as specified in
clause (ii) above will be deemed to represent Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the Trust
Securities represented thereby and bearing accrued and unpaid interest in an
amount equal to the accumulated and unpaid Distributions on such Trust
Securities until such certificates are presented to the Securities Registrar for
transfer or reissuance.
49
<PAGE>
(d) If, notwithstanding the other provisions of this Section 9.4,
whether because of an order for dissolution entered by a court of competent
jurisdiction or otherwise, distribution of the Junior Subordinated Debentures is
not practical, or if any Early Termination Event specified in clause (c) of
Section 9.2 occurs, the Trust Property shall be liquidated, and the Issuer Trust
shall be liquidated by the Property Trustee in such manner as the Property
Trustee determines. In such event, on the date of the dissolution of the Issuer
Trust, Holders will be entitled to receive out of the assets of the Issuer Trust
available for distribution to Holders, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, an amount equal to
the aggregate of the Liquidation Amount per Trust Security plus accumulated and
unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If, upon any such dissolution, the Liquidation
Distribution can be paid only in part because the Issuer Trust has insufficient
assets available to pay in full the aggregate Liquidation Distribution, then,
subject to the next succeeding sentence, the amounts payable by the Issuer Trust
on the Trust Securities shall be paid on a pro rata basis (based upon
Liquidation Amounts). The Holders of the Common Securities will be entitled to
receive Liquidation Distributions upon any such liquidation pro rata (determined
as aforesaid) with Holders of Preferred Securities, except that, if a Debenture
Event of Default has occurred and is continuing, the Preferred Securities shall
have a priority over the Common Securities as provided in Section 4.3.
(e) Following the dissolution of the Issuer Trust and after the
completion of the winding up of the affairs of the Issuer Trust, the Delaware
Trustee shall file a certificate of cancellation with the Delaware Secretary of
State.
SECTION 9.5. Mergers, Consolidations, Amalgamations or Replacements
of the Issuer Trust.
The Issuer Trust may not merge with or into, consolidate,
amalgamate, or be replaced by, or convey, transfer or lease its properties and
assets substantially as an entirety to, any entity, except pursuant to this
Section 9.5 and Section 9.4. At the request of the Holders of the Common
Securities, and with the consent of the Holders of at least a Majority in
Liquidation Amount of the Preferred Securities, but without the consent of the
Delaware Trustee or the Property Trustee, the Issuer Trust may merge with or
into, consolidate, amalgamate, or be replaced by or convey, transfer or lease
its properties and assets substantially as an entirety to a trust organized as
such under the laws of any state; provided, however, that (a) such successor
entity either (i) expressly assumes all of the obligations of the Issuer Trust
with respect to the Preferred Securities or (ii) substitutes for the Preferred
Securities other securities having substantially the same terms as the Preferred
Securities (the "Successor Preferred Securities") so long as the Successor
Securities have the same priority as the Preferred Securities with respect to
distributions and payments upon liquidation, redemption and otherwise, (b) a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee is appointed to hold the Junior Subordinated Debentures, (c)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization if the Preferred Securities were rated by any nationally recognized
statistical rating organization immediately prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, (d) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
Preferred Securities (including any Successor Securities) in any material
respect, (e)
50
<PAGE>
such successor entity has a purpose substantially identical to that of the
Issuer Trust, (f) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Issuer Trustee has received an
Opinion of Counsel from independent counsel experienced in such matters to the
effect that (i) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights[,]
preferences and privileges of the holders of the Preferred Securities (including
any Successor Preferred Securities) in any material respect, and (ii) following
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, neither the Issuer Trust nor such successor entity will be required to
register as an "investment company" under the Investment Company Act and (g) the
Depositor or any permitted transferee to whom it has transferred the Common
Securities hereunder owns all of the common securities of such successor entity
and guarantees the obligations of such successor entity under the Successor
Preferred Securities at least to the extent provided by the Guarantee Agreement.
Notwithstanding the foregoing, the Issuer Trust shall not, except with the
consent of Holders of 100% in Liquidation Amount of the Preferred Securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Issuer Trust or the successor
entity to be taxable as a corporation for United States federal income tax
purposes. Any merger or similar agreement shall be executed by the
Administrators on behalf of the Issuer Trust.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Limitation of Rights of Holders.
Except as set forth in Section 9.2, the bankruptcy, dissolution,
termination, death or incapacity of any Person having an interest, beneficial or
otherwise, in Trust Securities shall not operate to terminate this Trust
Agreement or dissolve, terminate or annul the Issuer Trust, nor entitle the
legal representatives or heirs of such person or any Holder for such Person, to
claim an accounting, take any action or bring any proceeding in any court for a
partition or winding-up of the arrangements contemplated hereby, nor otherwise
affect the rights, obligations and liabilities of the parties hereto or any of
them.
SECTION 10.2. Amendment.
(a) This Trust Agreement may be amended from time to time by the
Property Trustee, the Administrators and the Holders of a Majority in
Liquidation Amount of the Common Securities, without the consent of any Holder
of the Preferred Securities, (i) to cure any ambiguity, correct or supplement
any provision herein which may be inconsistent with any other provision herein,
or to make any other provisions with respect to matters or questions arising
under this Trust Agreement; provided, however, that such amendment shall not
adversely affect in any material respect the interests of any Holder or (ii) to
modify, eliminate or add to any provisions of this Trust Agreement to such
extent as shall be necessary to ensure that the Issuer Trust will not be taxable
as a corporation for United States federal income tax purposes at any time that
any Trust Securities are Outstanding or to
51
<PAGE>
ensure that the Issuer Trust will not be required to register as an investment
company under the Investment Company Act.
(b) Except as provided in Section 6.1(c) or Section 10.2(c), any
provision of this Trust Agreement may be amended by the Property Trustee, the
Administrators, and the Holders of a Majority in Liquidation Amount of the
Common Securities with (i) the consent of Holders of at least a Majority in
Liquidation Amount of the Preferred Securities and (ii) receipt by the Issuer
Trustees of an Opinion of Counsel to the effect that such amendment or the
exercise of any power granted to the Issuer Trustees in accordance with such
amendment will not cause the Issuer Trust to be taxable as a corporation for
United States federal income tax purposes or affect the Issuer Trust's exemption
from status of an "investment company" under the Investment Company Act.
(c) In addition to and notwithstanding any other provision in this
Trust Agreement, without the consent of each affected Holder (such consent being
obtained in accordance with Section 6.3 or 6.6 hereof), this Trust Agreement may
not be amended to (i) change the amount or timing of any Distribution on the
Trust Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Trust Securities as of a specified date or
(ii) restrict the right of a Holder to institute suit for the enforcement of any
such payment on or after such date. Notwithstanding any other provision herein,
without the unanimous consent of the Holders (such consent being obtained in
accordance with Section 6.3 or 6.6) this Section 10.2(c) may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement,
no Issuer Trustee shall enter into or consent to any amendment to this Trust
Agreement which would cause the Issuer Trust to fail or cease to qualify for the
exemption from status as an "investment company" under the Investment Company
Act or be taxable as a corporation for United States federal income tax
purposes.
(e) Notwithstanding anything in this Trust Agreement to the
contrary, without the consent of the Depositor and the Administrators, this
Trust Agreement may not be amended in a manner which imposes any additional
obligation on the Depositor or the Administrators.
(f) In the event that any amendment to this Trust Agreement is
made, the Administrators or the Property Trustee shall promptly provide to the
Depositor a copy of such amendment.
(g) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects its
own rights, duties or immunities under this Trust Agreement. The Property
Trustee shall be entitled to receive an Opinion of Counsel and an Officers'
Certificate stating that any amendment to this Trust Agreement is in compliance
with this Trust Agreement.
(h) Any amendments to this Trust Agreement pursuant to Section
10.2(a) shall become effective when notice of such amendment is given to the
Holders of the Trust Securities.
52
<PAGE>
SECTION 10.3. Separability.
In case any provision in this Trust Agreement or in the Trust
Securities Certificates shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 10.4. Governing Law.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
HOLDERS, THE ISSUER TRUST, THE DEPOSITOR, THE ISSUER TRUSTEES AND THE [^]
[ADMINISTRATORS] WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
SECTION 10.5. Payments Due on Non-Business Day.
If the date fixed for any payment on any Trust Security shall be a
day that is not a Business Day, then such payment need not be made on such date
but may be made on the next succeeding day that is a Business Day (except as
otherwise provided in [^] [Section] 4.2(d)), except that,if such Business Day is
in the next succeeding calendar year, payment on any Trust Security shall be
made on the immediately preceding Business Day, in each case, with the same
force and effect as though made on the date fixed for such payment, and no
Distributions shall accumulate on such unpaid amount for the period after such
date.
SECTION 10.6. Successors.
This Trust Agreement shall be binding upon and shall inure to the
benefit of any successor to the Depositor, the Issuer Trust, the Administrators
and any Issuer Trustee, including any successor by operation of law. Except in
connection with a consolidation, merger or sale involving the Depositor that is
permitted under Article VIII of the Indenture and pursuant to which the assignee
agrees in writing to perform the Depositor's obligations hereunder, the
Depositor shall not assign its obligations hereunder.
SECTION 10.7. Headings.
The Article and Section headings are for convenience only and shall
not affect the construction of this Trust Agreement.
SECTION 10.8. Reports, Notices and Demands.
(a) Any report, notice, demand or other communication that by any
provision of this Trust Agreement is required or permitted to be given or served
to or upon any Holder or the Depositor may be given or served in writing by
deposit thereof, first class postage prepaid, in the United States mail, hand
delivery or facsimile transmission, in each case, addressed, (i) in the case of
a Holder of Preferred Securities, to such Holder as such Holder's name and
address may appear on the Securities
53
<PAGE>
Register; and (ii) in the case of the Holder of Common Securities or the
Depositor, to First Star Bancorp, Inc., 418 West Broad Street, Pennsylvania
18018, Attention: Office of the Secretary, facsimile no.: (610) 691-5658 or to
such other address as may be specified in a written notice by the Depositor to
the Property Trustee. Such notice, demand or other communication to or upon a
Holder shall be deemed to have been sufficiently given or made, for all
purposes, upon hand delivery, mailing or transmission. Such notice, demand or
other communication to or upon the Depositor shall be deemed to have been
sufficiently given or made only upon actual receipt of the writing by the
Depositor.
(b) Any notice, demand or other communication which by any
provision of this Trust Agreement is required or permitted to be given or served
to or upon the Issuer Trust, the Property Trustee, the Delaware Trustee, the
Administrators, or the Issuer Trust shall be given in writing addressed (until
another address is published by the Issuer Trust) as follows: (a) with respect
to the Property Trustee to Bankers Trust Company, Four Albany Street, 4th Floor,
New York, NY 10006, Attention: Corporate Trust and Agency Group Corporate Market
Services; (b) with respect to the Delaware Trustee to Bankers Trust (Delaware),
1001 Jefferson Street, Suite 550, Wilmington, Delaware 19801, Attention: Lisa
Wilkins; and (c) with respect to the Administrators, to them at the address
above for notices to the Depositor, marked "Attention: Office of the Secretary".
Such notice, demand or other communication to or upon the Issuer Trust or the
Property Trustee shall be deemed to have been sufficiently given or made only
upon actual receipt of the writing by the Issuer Trust, the Property Trustee, or
such Administrator.
SECTION 10.9. Agreement Not to Petition.
Each of the Issuer Trustees, the Administrators and the Depositor
agree for the benefit of the Holders that, until at least one year and one day
after the Issuer Trust has been terminated in accordance with Article IX, they
shall not file, or join in the filing of, a petition against the Issuer Trust
under any bankruptcy, insolvency, reorganization or other similar law
(including, without limitation, the United States Bankruptcy Code)
(collectively, "Bankruptcy Laws") or otherwise join in the commencement of any
proceeding against the Issuer Trust under any Bankruptcy Law. In the event the
Depositor takes action in violation of this Section 10.9, the Property Trustee
agrees, for the benefit of Holders, that at the expense of the Depositor, it
shall file an answer with the bankruptcy court or otherwise properly contest the
filing of such petition by the Depositor against the Issuer Trust or the
commencement of such action and raise the defense that the Depositor has agreed
in writing not to take such action and should be estopped and precluded
therefrom and such other defenses, if any, as counsel for the Issuer Trustee or
the Issuer Trust may assert. If any Issuer Trustee or Administrator takes action
in violation of this Section 10.9, the Depositor agrees, for the benefit of the
Holders, that at the expense of the Depositor, it shall file an answer with the
bankruptcy court or otherwise properly contest the filing of such petition by
such Person against the [^] [Issuer Trust] or the commencement of such action
and raise the defense that such Person has agreed in writing not to take such
action and should be estopped and precluded therefrom and such other defenses,
if any, as counsel for the Depositor or the Issuer Trust may assert. The
provisions of this Section 10.9 shall survive the termination of this Trust
Agreement.
54
<PAGE>
SECTION 10.10. Trust Indenture Act; Conflict with Trust Indenture
Act.
(a) Trust Indenture Act; Application. (i) This Trust Agreement is
subject to the provisions of the Trust Indenture Act that are required to be a
part of this Trust Agreement and shall, to the extent applicable, be governed by
such provisions; (ii) if and to the extent that any provision of this Trust
Agreement limits, qualifies or conflicts with the duties imposed by Sections 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control; (iii) for purposes of this Trust Agreement, the Property Trustee, to
the extent permitted by applicable law and/or the rules and regulations of the
Commission, shall be the only Issuer Trustee which is a trustee for the purposes
of the Trust Indenture Act; and (iv) the application of the Trust Indenture Act
to this Trust Agreement shall not affect the nature of the Preferred Securities
and the Common Securities as equity securities representing undivided beneficial
interests in the assets of the Issuer Trust.
(b) Lists of Holders of Preferred Securities. (i) Each of the
Depositor and the Administrators on behalf of the Issuer Trust shall provide the
Property Trustee with such information as is required under Section 312(a) of
the Trust Indenture Act at the times and in the manner provided in Section
312(a) and (ii) the Property Trustee shall comply with its obligations under
Sections 310(b), 311 and 312(b) of the Trust Indenture Act.
(c) Reports by the Property Trustee. Within 60 days after January
31 of each year, commencing January 31, [^] [2001], the Property Trustee shall
provide to the Holders of the Trust Securities such reports as are required by
Section 313 of the Trust Indenture Act, if any, in the form, in the manner and
at the times provided by Section 313 of the Trust Indenture Act. The Property
Trustee shall also comply with the requirements of Section 313(d) of the Trust
Indenture Act.
(d) Periodic Reports to Property Trustee. Each of the Depositor and
the Administrators on behalf of the Issuer Trust shall provide to the Property
Trustee, the Commission and the Holders of the Trust Securities, as applicable,
such documents, reports and information as required by Section 314(a)(1)-(3) (if
any) of the Trust Indenture Act and the compliance certificates required by
Section 314(a)(4) and (c) of the Trust Indenture Act (provided that any
certificate to be provided pursuant to Section 314(a)(4) of the Trust Indenture
Act shall be provided within 120 days of the end of each fiscal year of the
Issuer Trust).
(e) Evidence of Compliance with Conditions Precedent. Each of the
Depositor and the Administrators on behalf of the Issuer Trust shall provide to
the Property Trustee such evidence of compliance with any conditions precedent,
if any, provided for in this Trust Agreement which relate to any of the matters
set forth in Section 314(c) of the Trust Indenture Act. Any certificate or
opinion required to be given pursuant to Section 314(c) shall comply with
Section 314(e) of the Trust Indenture Act.
(f) Disclosure of Information. The disclosure of information as to
the names and addresses of the Holders of Trust Securities in accordance with
Section 312 of the Trust Indenture Act, regardless of the source from which such
information was derived, shall not be deemed to be a violation of any existing
law or any law hereafter enacted which does not specifically refer to Section
312 of the Trust Indenture Act, nor shall the Property Trustee be held
accountable by reason of mailing any material pursuant to a request made under
Section 312(b) of the Trust Indenture Act.
55
<PAGE>
SECTION 10.11. Acceptance of Terms of Trust Agreement, Guarantee
and Indenture.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST
THEREIN BY OR ON BEHALF OF A HOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY
SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL
ACCEPTANCE BY THE HOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH
TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT, THE
GUARANTEE AGREEMENT AND THE INDENTURE, AND THE AGREEMENT TO THE SUBORDINATION
PROVISIONS AND OTHER TERMS OF THE GUARANTEE AGREEMENT AND THE INDENTURE, AND
SHALL CONSTITUTE THE AGREEMENT OF THE ISSUER TRUST, SUCH HOLDER AND SUCH OTHERS
THAT THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING,
OPERATIVE AND EFFECTIVE AS BETWEEN THE ISSUER TRUST AND SUCH HOLDER AND SUCH
OTHERS.
SECTION 10.12. Counterparts.
This Trust Agreement may contain more than one counterpart of the
signature page and this Trust Agreement may be executed by the affixing of the
signature of each of the Issuer Trustees to one of such counterpart signature
pages. All of such counterpart signature pages shall be read as though one, and
they shall have the same force and effect as though all of the signers had
signed a single signature paper.
56
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Trust Agreement to
be executed as of the day and year first above written.
FIRST STAR BANCORP, INC.
as Depositor
By:
----------------------------------------
Name:
Title:
BANKERS TRUST COMPANY,
as Property Trustee
By:
----------------------------------------
Name:
Title:
BANKERS TRUST (DELAWARE),
as Delaware Trustee and not
in its individual capacity
By:
----------------------------------------
Name:
Title:
Subscribed to and Accepted by, as the Initial Administrators:
- --------------------------
Joseph T. Svetik
- --------------------------
Paul J. Sebastian
57
<PAGE>
EXHIBIT A
[INSERT CERTIFICATE OF TRUST FILED WITH DELAWARE SECRETARY OF STATE]
<PAGE>
EXHIBIT B
[INSERT FORM OF CERTIFICATE DEPOSITARY AGREEMENT]
<PAGE>
EXHIBIT C
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO A SUCCESSOR IN INTEREST
TO THE DEPOSITOR OR AN AFFILIATE OF THE DEPOSITOR IN COMPLIANCE WITH
APPLICABLE LAW AND SECTION 5.11 OF THE TRUST AGREEMENT
Certificate Number Number of Common Securities
C-__
Certificate Evidencing Common Securities
of
First Star Capital Trust
[^] [Adjustable Rate] Common Securities
(liquidation amount $10 per Common Security)
First Star Capital Trust, a statutory business trust
created under the laws of the State of Delaware (the "Issuer Trust"), hereby
certifies that First Star Bancorp, Inc. (the "Holder") is the registered owner
of _________ (_____) common securities of the Issuer Trust representing
undivided beneficial interests in the assets of the Issuer Trust and [^]
designated the [^] [Adjustable Rate] Common Securities (liquidation amount $10
per Common Security) (the "Common Securities"). Except in accordance with
Section 5.11 of the Trust Agreement (as defined below) the Common Securities are
not transferable and any attempted transfer hereof other than in accordance
therewith shall be void. The designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Common Securities are set
forth in, and this certificate and the Common Securities represented hereby are
issued and shall in all respects be subject to the terms and provisions of, the
Amended and Restated Trust Agreement of the Issuer Trust, dated as of
_______________, 1999, as the same may be amended from time to time (the "Trust
Agreement") among First Star Bancorp, Inc. as Depositor, Bankers Trust Company,
as Property Trustee, [and] Bankers Trust (Delaware), as Delaware Trustee,[^]
including the designation of the terms of the Common Securities as set forth
therein. The Issuer Trust will furnish a copy of the Trust Agreement to the
Holder without charge upon written request to the Issuer Trust at its principal
place of business.
Upon receipt of this certificate, the Holder is bound by
the Trust Agreement and is entitled to the benefits thereunder.
Terms used but not defined herein have the meanings set
forth in the Trust Agreement.
3
<PAGE>
IN WITNESS WHEREOF, one of the Administrators of the Issuer Trust
has executed this certificate this ___ day of ______________, ____.
FIRST STAR CAPITAL TRUST
By:
-----------------------
Name:
Administrator
AUTHENTICATED AND REGISTERED:
BANKERS TRUST COMPANY,
as Property Trustee and Securities Registrar
By:
--------------------------
Name:
Signatory Officer
4
<PAGE>
EXHIBIT D
[IF THE PREFERRED SECURITY CERTIFICATE IS TO BE A GLOBAL PREFERRED
SECURITY CERTIFICATE, INSERT -- This Preferred Security Certificate is a Global
Preferred Security Certificate within the meaning of the Trust Agreement
hereinafter referred to and is registered in the name of a Depositary or a
nominee of a Depositary. This Preferred Security Certificate is exchangeable for
Preferred Security Certificates registered in the name of a person other than
the Depositary or its nominee only in the limited circumstances described in the
Trust Agreement and may not be transferred except as a whole by the Depositary
to a nominee of the Depositary or by a nominee of the Depositary to the
Depositary or another nominee of the Depositary, except in the limited
circumstances described in the Trust Agreement.
Unless this Preferred Security Certificate is presented by an
authorized representative of The Depository Trust Company, a New York
Corporation ("DTC"), to First Star Capital Trust or its agent for registration
of transfer, exchange or payment, and any Preferred Security Certificate issued
is registered in the name of such nominee as is requested by an authorized
representative of DTC (and any payment is made to such entity as is requested by
an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO A PERSON IS WRONGFUL inasmuch as the registered
owner hereof, has an interest herein.]
CERTIFICATE NUMBER NUMBER OF PREFERRED SECURITIES
P-__
CUSIP NO. ________________________
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF
FIRST STAR CAPITAL TRUST
[^] [ADJUSTABLE RATE TRUST] PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
First Star Capital Trust, a statutory business trust created under the
laws of the State of Delaware (the "Issuer Trust"), hereby certifies that
_______________ (the "Holder") is the registered owner of ( ) preferred
securities of the Issuer Trust representing a preferred undivided beneficial
interest in the assets of the Issuer Trust and designated the First Star Capital
Trust [^] [Adjustable Rate Trust] Preferred Securities (liquidation amount $10
per Preferred Security) (the "Preferred Securities"). The Preferred Securities
are transferable on the books and records of the Issuer Trust, in person or by a
duly authorized attorney, upon surrender of this certificate duly endorsed and
in proper form for transfer as provided in Section 5.5 of the Trust Agreement
(as defined below). The designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Preferred Securities are set
forth in, and this certificate and the Preferred Securities represented hereby
are issued and shall in all respects be subject to the terms and provisions of,
the Amended and Restated Trust Agreement of the Issuer Trust, dated as of
________, 1999, as the same may be amended from time to time (the "Trust
Agreement"), among First Star Bancorp, Inc. as Depositor, Bankers Trust Company,
as Property Trustee, [and] Bankers Trust (Delaware), as Delaware Trustee,[^]
including the designation of the terms of the Preferred Securities as set forth
therein. The Holder is entitled to the benefits of the Guarantee Agreement
entered into by First Star Bancorp, Inc., a Pennsylvania corporation, and
Bankers Trust Company, as guarantee trustee, dated as of ____________, 1999, as
the same may be amended from time to time, (the "Guarantee Agreement"), to the
extent provided therein. The Issuer Trust will furnish a copy of the Trust
Agreement and the Guarantee Agreement to the Holder without charge upon written
request to the Issuer Trust at its principal place of business or registered
office.
<PAGE>
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, one of the Administrators of the Issuer Trust has executed
this certificate this [^][___day] of ____________, 1999.
FIRST STAR CAPITAL TRUST
By:
-----------------------
Name:
Administrator
AUTHENTICATED AND REGISTERED:
BANKERS TRUST COMPANY,
as Property Trustee and Securities Registrar
By:
--------------------------
Name:
Authorized Signatory
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Preferred Security Certificate to:
[------------------------------------------------------------------------------]
(Insert assignee's social security or tax [^] identification number)
[------------------------------------------------------------------------------]
(Insert address and zip code of assignee)
and irrevocably appoints _______________________________________________________
agent to transfer this Preferred Security Certificate on the books of the Issuer
Trust. The agent may substitute another to act for him or her.
Date:
-----------------------
Signature:
----------------------------------------
(Sign exactly as your name appears on
the other side of this Preferred Security Certificate)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
7
EXHIBIT 4.6
<PAGE>
================================================================================
FORM OF
GUARANTEE AGREEMENT
Between
FIRST STAR BANCORP, INC.
(as Guarantor)
and
BANKERS TRUST COMPANY
(as Trustee)
dated as of
____________ __, 1999
================================================================================
<PAGE>
FIRST STAR CAPITAL TRUST
Certain Sections of this Guarantee Agreement relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Guarantee Agreement
Act Section Section
- --------------- -------------------
<S> <C> <C>
Section 310 (a) (1)........................ 4.1 (a)
(a) (2)........................ 4.1 (a)
(a) (3)........................ Not Applicable
(a) (4)........................ Not Applicable
(b)............................ 2.8, 4.1 (c)
Section 311 (a)............................ Not Applicable
(b)............................ Not Applicable
Section 312 (a)............................ 2.2 (a)
(b)............................ 2.2 (b)
(c)............................ Not Applicable
Section 313 (a)............................ 2.3
(a) (4)........................ 2.3
(b)............................ 2.3
(c)............................ 2.3
(d)............................ 2.3
Section 314 (a)............................ 2.4
(b)............................ 2.4
(c) (1)........................ 2.5
(c) (2)........................ 2.5
(c) (3)........................ 2.5
(e)............................ 1.1, 2.5, 3.2
Section 315 (a)............................ 3.1 (d)
(b)............................ 2.7
(c)............................ 3.1 (c)
(d)............................ 3.1 (d)
(e)............................ Not Applicable
Section 316 (a)............................ 1.1, 2.6, 5.4
(a) (1) (A).................... 5.4
(a) (1) (B).................... 5.4
(a) (2)........................ Not Applicable
(b)............................ 5.3
(c)............................ Not Applicable
Section 317 (a) (1)........................ Not Applicable
(a) (2)........................ Not Applicable
(b)............................ Not Applicable
Section 318 (a)............................ 2.1
</TABLE>
Note:This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Guarantee Agreement.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE I. DEFINITIONS
Section 1.1. Definitions............................................................ 2
ARTICLE II. TRUST INDENTURE ACT
Section 2.1. Trust Indenture Act; Application....................................... 5
Section 2.2. List of Holders........................................................ 5
Section 2.3. Reports by the Guarantee Trustee....................................... 6
Section 2.4. Periodic Reports to the Guarantee Trustee.............................. 6
Section 2.5. Evidence of Compliance with Conditions Precedent....................... 6
Section 2.6. Events of Default; Waiver.............................................. 6
Section 2.7. Event of Default; Notice............................................... 7
Section 2.8. Conflicting Interests.................................................. 7
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
Section 3.1. Powers and Duties of the Guarantee Trustee............................. 7
Section 3.2. Certain Rights of the Guarantee Trustee................................ 9
Section 3.3. Indemnity.............................................................. 10
Section 3.4. Expenses............................................................... 11
ARTICLE IV. GUARANTEE TRUSTEE
Section 4.1. Guarantee Trustee; Eligibility......................................... 11
Section 4.2. Appointment, Removal and Resignation
of the Guarantee Trustee.......................................... 11
ARTICLE V. GUARANTEE
Section 5.1. Guarantee.............................................................. 12
Section 5.2. Waiver of Notice and Demand............................................ 13
Section 5.3. Obligations Not Affected............................................... 13
Section 5.4. Rights of Holders...................................................... 14
Section 5.5. Guarantee of Payment................................................... 14
Section 5.6. Subrogation............................................................ 14
Section 5.7. Independent Obligations................................................ 15
ARTICLE VI. COVENANTS AND SUBORDINATION
Section 6.1. Subordination.......................................................... 15
Section 6.2. Pari Passu Guarantees.................................................. 15
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE VII. TERMINATION
Section 7.1. Termination............................................................ 15
ARTICLE VIII. MISCELLANEOUS
Section 8.1. Successors and Assigns................................................. 16
Section 8.2. Amendments............................................................. 16
Section 8.3. Notices................................................................ 16
Section 8.4. Benefit................................................................ 17
Section 8.5. Interpretation......................................................... 17
Section 8.6. Governing Law.......................................................... 18
Section 8.7. Counterparts........................................................... 18
</TABLE>
-ii-
<PAGE>
GUARANTEE AGREEMENT
-------------------
This GUARANTEE AGREEMENT, dated as of ____________ __, 1999 (this
"Guarantee Agreement") is executed and delivered by FIRST STAR BANCORP, INC., a
Pennsylvania corporation (the "Guarantor"), having its principal office at 418
West Broad Street, Bethlehem, Pennsylvania 18018, and BANKERS TRUST COMPANY, a
New York banking corporation, as trustee (the "Guarantee Trustee"), for the
benefit of the Holders (as defined herein) from time to time of the Preferred
Securities (as defined herein) of First Star Capital Trust, a Delaware statutory
business trust (the "Issuer Trust").
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
"Trust Agreement"), dated as of ____________ __, 1999, among First Star Bancorp,
Inc., as Depositor, Bankers Trust Company, as Property Trustee (the "Property
Trustee"), [and] Bankers Trust (Delaware), as Delaware Trustee (the "Delaware
Trustee") (collectively, the "Issuer Trustees") [^], the Issuer Trust is issuing
up to [^][[$12,000,000]] aggregate Liquidation Amount (as defined herein) of its
[^] [Adjustable Rate] Preferred Securities, Liquidation Amount $10 per preferred
security (the "Preferred Securities"), representing preferred undivided
beneficial ownership interests in the assets of the Issuer Trust and having the
terms set forth in the Trust Agreement;
WHEREAS, the Preferred Securities will be issued by the Issuer
Trust and the proceeds thereof, together with the proceeds from the issuance of
the Issuer Trust's Common Securities (as defined herein), will be used to
purchase the Junior Subordinated Debentures due ___________ __, 2029 (as defined
in the Trust Agreement) (the "Junior Subordinated Debentures") of the Guarantor
which will be deposited with Bankers Trust Company, as Property Trustee under
the Trust Agreement, as trust assets; and
WHEREAS, as incentive for the Holders to purchase the Preferred
Securities the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth herein, to pay to the Holders of the Preferred Securities
the Guarantee Payments (as defined herein) and to make certain other payments on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase of the Preferred
Securities by each Holder, which purchase the Guarantor hereby acknowledges
shall benefit the Guarantor, and intending to be legally bound hereby, the
Guarantor executes and delivers this Guarantee Agreement for the benefit of the
Holders from time to time of the Preferred Securities.
<PAGE>
ARTICLE I. DEFINITIONS
SECTION 1.1. Definitions.
As used in this Guarantee Agreement, the terms set forth below
shall, unless the context otherwise requires, have the following meanings.
Capitalized terms used but not otherwise defined herein shall have the meanings
assigned to such terms in the Trust Agreement as in effect on the date hereof.
"Additional Amount" has the meaning specified in the Trust Agreement.
"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.
"Delaware Trustee" shall have the meaning specified in the first
recital of this Guarantee Agreement.
"Common Securities" means the securities representing common
undivided beneficial interests in the assets of the Issuer Trust.
["Adjusted Interest Rate" has the meaning assigned in the Trust Agreement.]
"Distributions" means preferential cumulative cash distributions
accumulating from ____________ __, 1999 and payable quarterly in arrears on
March 31, June 30, September 30, and December 31 of each year, commencing
_____________ __, 1999, at the [^] [Initial Interest Rate] of the Liquidation
Amount [or at the Adjusted Interest Rate of the Liquidation Amount, as the case
may be].
"Event of Default" means (a) a default by the Guarantor in any of
its payment obligations under this Guarantee Agreement, or (b) a default by the
Guarantor in any other obligation hereunder that remains unremedied for 30 days.
"Guarantee Agreement" means this Guarantee Agreement, as modified,
amended or supplemented from time to time.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by or on behalf of the Issuer Trust: (a) any accrued and unpaid
Distributions (as defined in the Trust Agreement) required to be paid on the
Preferred Securities, to the extent the Issuer Trust shall
2
<PAGE>
have funds on hand available therefor at such time, (b) the Redemption Price[^]
with respect to the Preferred Securities called for redemption by the Issuer
Trust to the extent that the Issuer Trust shall have funds on hand available
therefor at such time, and (c) upon a voluntary or involuntary termination,
winding-up or liquidation of the Issuer Trust, unless the Junior Subordinated
Debentures are distributed to the Holders, the lesser of (i) the aggregate of
the Liquidation Amount and all accumulated and unpaid Distributions to the date
of payment to the extent the Issuer Trust shall have funds on hand available to
make such payment at such time and (ii) the amount of assets of the Issuer Trust
remaining available for distribution to Holders in liquidation of the Issuer
Trust (in either case, the "Liquidation Distribution").
"Guarantee Trustee" means Bankers Trust Company, until a Successor
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Guarantee Agreement and thereafter means each such
Successor Guarantee Trustee.
"Guarantor" shall have the meaning specified in the preamble of this
Guarantee Agreement.
"Holder" means any holder, as registered on the books and records
of the Issuer Trust, of any Preferred Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor, the Guarantee Trustee, or any Affiliate of the
Guarantor or the Guarantee Trustee.
"Indenture" means the Junior Subordinated Indenture dated as of
__________ __, 1999, between First Star Bancorp, Inc. and Bankers Trust Company,
as trustee, as [^] modified, amended or supplemented from time to time.
["Initial Interest Rate" has the meaning assigned in the
Trust Agreement.]
"Issuer Trust" shall have the meaning specified in the preamble of
this Guarantee Agreement.
"Issuer Trustees" shall have the meaning specified in the first
recital of this Guarantee Agreement.
"Junior Subordinated Debentures" shall have the meaning specified
in the first recital of this Guarantee Agreement.
"Like Amount" means (a) with respect to a redemption of Preferred
Securities, Preferred Securities having a Liquidation Amount equal to the
principal amount of Junior Subordinated Debentures to be contemporaneously
redeemed in accordance with the Indenture, the proceeds of which will be used to
pay the Redemption Price of such Preferred Securities, (b) with respect to a
distribution of Junior Subordinated Debentures to Holders of Preferred
3
<PAGE>
Securities in connection with a dissolution or liquidation of the Issuer Trust,
Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Preferred Securities of the Holder to whom such Junior
Subordinated Debentures are distributed, and (c) with respect to any
distribution of an Additional Amount to Holders of Preferred Securities, Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Preferred Securities in respect of which such distribution is
made.
"Liquidation Amount" means the stated amount of $10 per Preferred
Security.
"Majority in Liquidation Amount of the Preferred Securities" means,
except as provided by the Trust Indenture Act, Preferred Securities representing
more than 50% of the aggregate Liquidation Amount of all then outstanding
Preferred Securities issued by the Issuer Trust.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chairman of the Board and Chief Executive Officer,
President or a Vice President, and by the Chief Financial Officer, the
Treasurer, an Associate Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary of such Person, and delivered to the Guarantee Trustee. Any
Officers' Certificate delivered with respect to compliance with a condition or
covenant provided for in this Guarantee Agreement shall include:
(a) a statement by each officer signing the Officers'
Certificate that such officer has read the covenant or condition and the
definitions relating thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by such officer in rendering the
Officers' Certificate;
(c) a statement that such officer has made such
examination or investigation as, in such officer's opinion, is necessary to
enable such officer to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of such
officer, such condition or covenant has been complied with.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Preferred Securities" shall have the meaning specified in the
first recital of this Guarantee Agreement.
4
<PAGE>
"Property Trustee" shall have the meaning specified in the first
recital of this Guarantee Agreement.
"Redemption Date" means, with respect to any Preferred Security to
be redeemed, the date fixed for such redemption by or pursuant to the Trust
Agreement; provided that each Junior Subordinated Debenture Redemption Date (as
such term is defined in the Indenture) and the stated maturity of the Junior
Subordinated Debentures shall be a Redemption Date for a Like Amount of
Preferred Securities.
"Redemption Price" shall have the meaning specified in the Trust
Agreement.
"Responsible Officer" means, when used with respect to the
Guarantee Trustee, any officer assigned to the Corporate Trust Office, including
any managing director, principal, vice president, assistant vice president,
assistant treasurer, assistant secretary or any other officer of the Guarantee
Trustee customarily performing functions similar to those performed by any of
the above designated officers and having direct responsibility for the
administration of this Guarantee Agreement, and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
"Senior Indebtedness" shall have the meaning specified in the
Indenture.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Trust Agreement" shall have the meaning specified in the recitals
to this Guarantee Agreement.
"Trust Indenture Act" means the Trust Indenture Act of 1939,as
amended by the Trust Indenture Reform Act of 1990, or any successor statute, in
each case as amended from time to time.
ARTICLE II. TRUST INDENTURE ACT
SECTION 2.1. Trust Indenture Act; Application.
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required to be a part of and govern
this Guarantee Agreement, the provision of the Trust Indenture Act shall
control. If any provision of this Guarantee Agreement modifies or excludes any
provision of the Trust Indenture Act that may be so modified or excluded, the
latter provision shall be deemed to apply to this Guarantee Agreement as so
modified or excluded, as the case may be.
5
<PAGE>
SECTION 2.2. List of Holders.
(a) The Guarantor will furnish or cause to be furnished to
the Guarantee Trustee:
(i) quarterly, not more than 15 days after March
15, June 15, September 15 and December 15 in each year, a list, in such form as
the Guarantee Trustee may reasonably require, of the names and addresses of the
Holders as of such date; and
(ii) at such other times as the Guarantee Trustee
may request in writing, within 30 days after the receipt by the Guarantor of any
such request, a list of similar form and content as of a date not more than 15
days prior to the time such list is furnished.
(b) The Guarantee Trustee shall comply with the
requirements of Section 312(b) of the Trust Indenture Act.
SECTION 2.3. Reports by the Guarantee Trustee.
Within 60 days of January 31 of each year, commencing January 31,
2001, the Guarantee Trustee shall provide to the Holders such reports, if any,
as are required by Section 313 of the Trust Indenture Act in the form and in the
manner provided by Section 313 of the Trust Indenture Act. The Guarantee Trustee
shall also comply with the requirements of Section 313(d) of the Trust Indenture
Act.
SECTION 2.4. Periodic Reports to the Guarantee Trustee.
The Guarantor shall provide to the Guarantee Trustee[^] and the
Holders such documents, reports and information, if any, as required by Section
314 of the Trust Indenture Act and the compliance certificate required by
Section 314 of the Trust Indenture Act, in the form, in the manner and at the
times required by Section 314 of the Trust Indenture Act.
SECTION 2.5. Evidence of Compliance with Conditions
Precedent.
The Guarantor shall provide to the Guarantee Trustee such evidence
of compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of an
Officers' Certificate.
6
<PAGE>
SECTION 2.6. Events of Default; Waiver.
The Holders of a Majority in Liquidation Amount of the Preferred
Securities may, by vote, on behalf of the Holders, waive any past Event of
Default and its consequences. Upon such waiver, any such Event of Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Guarantee Agreement, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent therefrom.
SECTION 2.7. Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders, notices of all Events of Default known to the Guarantee
Trustee, unless such Events of Default have been cured before the giving of such
notice; provided that, except in the case of a default in the payment of a
Guarantee Payment, the Guarantee Trustee shall be protected in withholding such
notice if and so long as the Board of Directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Guarantee
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders.
(b) The Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless (i) a Responsible Officer charged with
the administration of this Guarantee Agreement shall have received written
notice of such Event of Default, or (ii) a Responsible Officer of the Guarantee
Trustee charged with administration of the Trust Agreement shall have obtained
actual knowledge thereof.
SECTION 2.8. Conflicting Interests.
The Trust Agreement shall be deemed to be specifically described in
this Guarantee Agreement for the purposes of clause (i) of the first [^]
[provision] contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE
GUARANTEE TRUSTEE
SECTION 3.1. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee Agreement shall be held by the
Guarantee Trustee for the benefit of the Holders, and the Guarantee Trustee
shall not transfer this Guarantee Agreement to any Person except to a Holder
exercising his or her rights pursuant to Section 5.4(d) or to a Successor
Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its
appointment to act as Successor Guarantee Trustee hereunder. The right, title
and interest of the Guarantee Trustee, as such, hereunder shall automatically
vest in any Successor Guarantee
7
<PAGE>
Trustee, upon acceptance by such Successor Guarantee Trustee of its appointment
hereunder, and such vesting and cessation of title shall be effective whether or
not conveyancing documents have been executed and delivered pursuant to the
appointment of such Successor Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing,
the Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of
the Holders.
(c) The Guarantee Trustee, before the occurrence of any
Event of Default and after the curing of all Events of Default that may have
occurred, shall be obligated to perform only such duties as are specifically set
forth in this Guarantee Agreement (including pursuant to Section 2.1), and no
implied covenants shall be read into this Guarantee Agreement against the
Guarantee Trustee. If an Event of Default has occurred (that has not been cured
or waived pursuant to Section 2.6), the Guarantee Trustee shall exercise such of
the rights and powers vested in it by this Guarantee Agreement, and use the same
degree of care and skill in its exercise thereof, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(d) No provision of this Guarantee Agreement shall be
construed to relieve the Guarantee Trustee from liability for its own negligent
action, its own negligent failure to act or its own bad faith or willful
misconduct, except that:
(i) prior to the occurrence of any Event of Default
and after the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the
Guarantee Trustee shall be determined solely by the express provisions of this
Guarantee Agreement (including pursuant to Section 2.1), and the Guarantee
Trustee shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Guarantee Agreement (including
pursuant to Section 2.1); and
(B) in the absence of bad faith on the
part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as
to the truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Guarantee Trustee
and conforming to the requirements of this Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for
any error of judgment made in good faith by a Responsible Officer of the
Guarantee Trustee, unless it shall be proved that the Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment was made;
(iii) the Guarantee Trustee shall not be liable
with respect to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the
8
<PAGE>
Holders of not less than a Majority in Liquidation Amount of the Preferred
Securities relating to the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee, or exercising any trust or
power conferred upon the Guarantee Trustee under this Guarantee Agreement; and
(iv) no provision of this Guarantee Agreement
shall require the Guarantee Trustee to expend or risk its own funds or otherwise
incur personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers if the Guarantee Trustee shall have
reasonable grounds for believing that the repayment of such funds or liability
is not assured to it under the terms of this Guarantee Agreement or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 3.2. Certain Rights of the Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) the Guarantee Trustee may conclusively rely
and shall be fully protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document reasonably believed by it to be genuine
and to have been signed, sent or presented by the proper party or parties.
(ii) any direction or act of the Guarantor
contemplated by this Guarantee Agreement shall be sufficiently evidenced by an
Officers' Certificate unless otherwise prescribed herein.
(iii) whenever, in the administration of this
Guarantee Agreement, the Guarantee Trustee shall deem it desirable that a matter
be proved or established before taking, suffering or omitting to take any action
hereunder, the Guarantee Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and
conclusively rely upon an Officers' Certificate which, upon receipt of such
request from the Guarantee Trustee, shall be promptly delivered by the
Guarantor.
(iv) the Guarantee Trustee may consult with legal
counsel, and the written advice or opinion of such legal counsel with respect to
legal matters shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted to be taken by it hereunder in good
faith and in accordance with such advice or opinion. Such legal counsel may be
legal counsel to the Guarantor or any of its Affiliates and may be one of its
employees. The Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Guarantee Agreement from any
court of competent jurisdiction.
9
<PAGE>
(v) the Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Guarantee Agreement at the request or direction of any Holder, unless such
Holder shall have provided to the Guarantee Trustee such security and indemnity
as would satisfy a reasonable person in the position of the Guarantee Trustee,
against the costs, expenses (including attorneys' fees and expenses) and
liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Guarantee Trustee; provided, however, that nothing herein shall relieve the
Guarantee Trustee of its obligations upon the occurrence of an Event of Default
that has not been cured or waived to exercise the rights and powers vested in
the Guarantee Trustee by this Guarantee, and to use the same degree of care and
skill in exercising such rights and powers as a reasonably prudent person would
use under the circumstances in the conduct of his own affairs.
(vi) the Guarantee Trustee shall not be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or other
paper or document, but the Guarantee Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see fit.
(vii) the Guarantee Trustee may execute any of the
trusts or powers hereunder or perform any duties hereunder either directly or by
or through its agents or attorneys, and the Guarantee Trustee shall not be
responsible for any negligence or willful misconduct on the part of any such
agent or attorney appointed with due care by it hereunder. Nothing herein shall
be construed as limiting or restricting the right of the Guarantor to bring any
action directly against any agent or attorney appointed by the Guarantee Trustee
for any negligence or willful misconduct on the part of such agent or attorney.
(viii) whenever in the administration of this
Guarantee Agreement the Guarantee Trustee shall deem it desirable to receive
instructions with respect to enforcing any remedy or right or taking any other
action hereunder, the Guarantee Trustee (A) may request instructions from the
Holders, (B) may refrain from enforcing such remedy or right or taking such
other action until such instructions are received and (C) shall be fully
protected in acting in accordance with such instructions.
(b) No provision of this Guarantee Agreement shall be
deemed to impose any duty or obligation on the Guarantee Trustee to perform any
act or acts or exercise any right, power, duty or obligation conferred or
imposed on it in any jurisdiction in which it shall be illegal, or in which the
Guarantee Trustee shall be unqualified or incompetent in accordance with
applicable law, to perform any such act or acts or to exercise any such right,
power, duty or obligation. No permissive power or authority available to the
Guarantee Trustee shall be construed to be a duty to act in accordance with such
power and authority.
10
<PAGE>
SECTION 3.3. Indemnity.
The Guarantor agrees to indemnify the Guarantee Trustee (which, for
purposes of this Section 3.3 shall include its directors, officers, employees
and agents) for, and to hold the Guarantee Trustee harmless against, any loss,
liability or expense, including reasonable attorney fees and expenses, incurred
without negligence, willful misconduct or bad faith on the part of the Guarantee
Trustee, arising out of or in connection with the acceptance or administration
of this Guarantee Agreement, including the reasonable costs and expenses of
defending against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
SECTION 3.4. Expenses.
The Guarantor shall promptly reimburse the Guarantee Trustee for
its reasonable expenses and costs (including reasonable attorneys' or agents'
fees and expenses) incurred in connection with the performance of its duties
hereunder.
ARTICLE IV. GUARANTEE TRUSTEE
SECTION 4.1. Guarantee Trustee; Eligibility.
(a) There shall at all times be a Guarantee Trustee which
shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the
Trust Indenture Act to act as such and has a combined capital and surplus of at
least $50,000,000, and shall be a corporation meeting the requirements of
Section 310(a) of the Trust Indenture Act. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of the
supervising or examining authority, then, for the purposes of this Section and
to the extent permitted by the Trust Indenture Act, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
(b) If at any time the Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Guarantee Trustee shall immediately
resign in the manner and with the effect set out in Section 4.2(b).
(c) If the Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Guarantee Trustee and Guarantor shall in all respects comply
with the provisions of Section 310(b) of the Trust Indenture Act.
11
<PAGE>
SECTION 4.2. Appointment, Removal and Resignation of the
Guarantee Trustee.
(a) No resignation or removal of the Guarantee Trustee and
no appointment of a Successor Guarantee Trustee pursuant to this Article IV
shall become
effective until the acceptance of appointment by the Successor Guarantee Trustee
by written instrument executed by the Successor Guarantee Trustee and delivered
to the Holders and the Guarantee Trustee.
(b) Subject to Section 4.2(a), a Guarantee Trustee may
resign at any time by giving written notice thereof to the Holders. The
Guarantee Trustee shall appoint a successor by requesting from at least three
Persons meeting the eligibility requirements such Person's expenses and charges
to serve as the Guarantee Trustee, and selecting the Person who agrees to the
lowest expenses and charges. If the instrument of acceptance by the Successor
Guarantee Trustee shall not have been delivered to the Guarantee Trustee within
60 days after the giving of such notice of resignation, the Guarantee Trustee
may petition, at the expense of the Guarantor, any court of competent
jurisdiction for the appointment of a Successor Guarantee Trustee.
(c) The Guarantee Trustee may be removed for cause at any
time by Act (within the meaning of Section 6.8 of the Trust Agreement) of the
Holders of at least a Majority in Liquidation Amount of the Preferred
Securities, delivered to the Guarantee Trustee.
(d) If a resigning Guarantee Trustee shall fail to appoint
a successor, or if a Guarantee Trustee shall be removed or become incapable of
acting as Guarantee Trustee, or if any vacancy shall occur in the office of any
Guarantee Trustee for any cause, the Holders of the Preferred Securities, by Act
of the Holders of record of not less than 25% in aggregate Liquidation Amount of
the Preferred Securities then outstanding delivered to such Guarantee Trustee,
shall promptly appoint a successor Guarantee Trustee. If no Successor Guarantee
Trustee shall have been so appointed by the Holders of the Preferred Securities
and such appointment accepted by the Successor Guarantee Trustee, any Holder, on
behalf of himself and all others similarly situated, may petition any court of
competent jurisdiction for the appointment of a Successor Guarantee Trustee.
12
<PAGE>
ARTICLE V. GUARANTEE
SECTION 5.1. Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay in full
on a subordinated basis as set forth in Section 6.1 hereof to the Holders the
Guarantee Payments (without duplication of amounts theretofore paid by or on
behalf of the Issuer Trust), as and when due, regardless of any defense, right
of set-off or counterclaim which the Issuer Trust may have or assert, except the
defense of payment. The Guarantor's obligation to make a Guarantee Payment may
be satisfied by direct payment of the required amounts by the Guarantor to the
Holders or by causing the Issuer Trust to pay such amounts to the Holders. The
Guarantor shall give prompt written notice to the Guarantee Trustee in the event
it makes any direct payment hereunder.
SECTION 5.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of the Guarantee
Agreement and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the
Guarantee Trustee, the Issuer Trust or any other Person before proceeding
against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice
of redemption and all other notices and demands.
SECTION 5.3. Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor
under this Guarantee Agreement shall in no way be affected or impaired by reason
of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise,
of the performance or observance by the Issuer Trust of any express or implied
agreement, covenant, term or condition relating to the Preferred Securities to
be performed or observed by the Issuer Trust;
(b) the extension of time for the payment by the Issuer Trust
of all or any portion of the Distributions (other than an extension of time for
payment of Distributions that results from the extension of any interest payment
period on the Junior Subordinated Debentures as so provided in the Indenture),
Redemption Price, Liquidation Distribution or any other sums payable under the
terms of the Preferred Securities or the extension of time for the performance
of any other obligation under, arising out of, or in connection with, the
Preferred Securities;
(c) any failure, omission, delay or lack of diligence on
the part of the Holders to enforce, assert or exercise any right, privilege,
power or remedy conferred on the
13
<PAGE>
Holders pursuant to the terms of the Preferred Securities, or any action on the
part of the Issuer Trust granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution,
sale of any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or readjustment
of debt of, or other similar proceedings affecting, the Issuer Trust or any of
the assets of the Issuer Trust;
(e) any invalidity of, or defect or deficiency in, the
Preferred Securities;
(f) the settlement or compromise of any obligation
guaranteed hereby or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor (other than
payment of the underlying obligation), it being the intent of this Section 5.3
that the obligations of the Guarantor hereunder shall be absolute and
unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain the consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.4. Rights of Holders.
The Guarantor expressly acknowledges that: (a) this Guarantee
Agreement will be deposited with the Guarantee Trustee to be held for the
benefit of the Holders; (b) the Guarantee Trustee has the right to enforce this
Guarantee Agreement on behalf of the Holders; (c) the Holders of a Majority in
Liquidation Amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee in respect of this Guarantee Agreement or exercising any
trust or power conferred upon the Guarantee Trustee under this Guarantee
Agreement; and (d) any Holder may institute a legal proceeding directly against
the Guarantor to enforce its rights under this Guarantee Agreement, without
first instituting a legal proceeding against the Guarantee Trustee, the Issuer
Trust or any other Person.
SECTION 5.5. Guarantee of Payment.
This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment of
the Guarantee Payments in full (without duplication of amounts theretofore paid
by the Issuer Trust) or upon the distribution of Junior Subordinated Debentures
to Holders as provided in the Trust Agreement.
14
<PAGE>
SECTION 5.6. Subrogation.
The Guarantor shall be subrogated to all rights (if any) of the
Holders against the Issuer Trust in respect of any amounts paid to the Holders
by the Guarantor under this Guarantee Agreement; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any rights which it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Guarantee Agreement, if at the time of any
such payment, any amounts are due and unpaid under this Guarantee Agreement. If
any amount shall be paid to the Guarantor in violation of the preceding
sentence, the Guarantor agrees to hold such amount in trust for the Holders and
to pay over such amount to the Holders.
SECTION 5.7. Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer Trust with respect to the Preferred
Securities and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Guarantee
Agreement notwithstanding the occurrence of any event referred to in subsections
(a) through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI. COVENANTS AND SUBORDINATION
SECTION 6.1. Subordination.
This Guarantee Agreement will constitute an unsecured obligation of
the Guarantor and will rank subordinate and junior in right of payment to all
Senior Indebtedness of the Guarantor to the extent and in the manner set forth
in the Indenture with respect to the Junior Subordinated Debentures, and the
provisions of Article XIII of the Indenture will apply, mutatis mutandis, to the
obligations of the Guarantor hereunder. The obligations of the Guarantor
hereunder do not constitute Senior Indebtedness of the Guarantor.
SECTION 6.2. Pari Passu Guarantees.
The obligations of the Guarantor under this Guarantee Agreement
shall rank pari passu with any similar guarantee agreements issued by the
Guarantor on behalf of the holders of preferred or capital securities issued by
the Issuer Trust and with any other security, guarantee or other obligation that
is expressly stated to rank pari passu with the obligations of the Guarantor
under this Guarantee Agreement.
15
<PAGE>
ARTICLE VII. TERMINATION
SECTION 7.1. Termination.
This Guarantee Agreement shall terminate and be of no further force
and effect upon (a) full payment of the Redemption Price of all Preferred
Securities, (b) the distribution of Junior Subordinated Debentures to the
Holders in exchange for all of the Preferred Securities or (c) full payment of
the amounts payable in accordance with Article IX of the Trust Agreement upon
liquidation of the Issuer Trust. Notwithstanding the foregoing, this Guarantee
Agreement will continue to be effective or will be reinstated, as the case may
be, if at any time any Holder is required to repay any sums paid with respect to
the Preferred Securities or this Guarantee Agreement.
ARTICLE VIII. MISCELLANEOUS
SECTION 8.1. Successors and Assigns.
All guarantees and agreements contained in this Guarantee Agreement
shall bind the successors, assigns, receivers, trustees and representatives of
the Guarantor and shall inure to the benefit of the Holders of the Preferred
Securities then outstanding. Except in connection with a consolidation, merger
or sale involving the Guarantor that is permitted under Article VIII of the
Indenture and pursuant to which the assignee agrees in writing to perform the
Guarantor's obligations hereunder, the Guarantor shall not assign its
obligations hereunder, and any purported assignment that is not in accordance
with these provisions shall be void.
SECTION 8.2. Amendments.
Except with respect to any changes that do not materially adversely
affect the rights of the Holders (in which case no consent of the Holders will
be required), this Guarantee Agreement may only be amended with the prior
approval of the Holders of not less than a Majority in Liquidation Amount of the
Preferred Securities. The provisions of Article VI of the Trust Agreement
concerning meetings of the Holders shall apply to the giving of such approval.
SECTION 8.3. Notices.
Any notice, request or other communication required or permitted to
be given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied (confirmed by delivery of the original) or
mailed by first class mail as follows:
(a) if given to the Guarantor, to the address or telecopy
number set forth below or such other address or telecopy number or to the
attention of such other Person as the Guarantor may give notice to the Holders:
16
<PAGE>
First Star Bancorp, Inc.
418 West Broad Street
Bethlehem, Pennsylvania 18018
Facsimile No.: (610) 691-5658
Attention: Office of the Secretary
(b) if given to the Issuer Trust, in care of the Guarantee
Trustee, at the Issuer Trust's (and the Guarantee Trustee's) address set forth
below or such other address or telecopy number or to the attention of such other
Person as the Guarantee Trustee on behalf of the Issuer Trust may give notice to
the Holders:
c/o First Star Bancorp, Inc.
418 West Broad Street
Bethlehem, Pennsylvania 18018
Facsimile No.: (610) 691-5658
Attention: Office of the Secretary
with a copy to:
Bankers Trust Company
Four Albany Street - 4th Floor
New York, New York 10006
Facsimile No.: (212) 250-6392
Attention: Corporate Trust and Agency Services
(c) if given to the Guarantee Trustee:
Bankers Trust Company
Four Albany Street - 4th Floor
New York, New York 10006
Facsimile No.: (212) 250-6392
Attention: Corporate Trust and Agency Services
(d) if given to any Holder, at the address set forth on
the books and records of the Issuer Trust.
All notices hereunder shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid, except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
17
<PAGE>
SECTION 8.4. Benefit.
This Guarantee Agreement is solely for the benefit of the Holders
and is not separately transferable from the Preferred Securities.
SECTION 8.5. Interpretation.
In this Guarantee Agreement, unless the context otherwise requires:
(a) capitalized terms used in this Guarantee Agreement but
not defined in the preamble hereto have the respective meanings assigned to them
in Section 1.1;
(b) a term defined anywhere in this Guarantee Agreement
has the same meaning throughout;
(c) all references to "the Guarantee Agreement" or "this
Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented
or amended from time to time;
(d) all references in this Guarantee Agreement to Articles
and Sections are to Articles and Sections of this Guarantee Agreement unless
otherwise specified;
(e) a term defined in the Trust Indenture Act has the same
meaning when used in this Guarantee Agreement unless otherwise defined in this
Guarantee Agreement or unless the context otherwise requires;
(f) a reference to the singular includes the plural and
vice versa; and
(g) the masculine, feminine or neuter genders used herein
shall include the masculine, feminine and neuter genders.
SECTION 8.6. Governing Law.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
SECTION 8.7. Counterparts.
This instrument may be executed in any number of counterparts, each
of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
18
<PAGE>
THIS GUARANTEE AGREEMENT is executed as of the day and year first above written.
FIRST STAR BANCORP, INC.
By:____________________________
Name:
Title:
BANKERS TRUST COMPANY,
as Guarantee Trustee
and not in its individual
capacity
By:____________________________
Name:
Title:
EXHIBIT 5.2
<PAGE>
MALIZIA SPIDI & FISCH, PC
ATTORNEYS AT LAW
1301 K STREET, N.W. 637 KENNARD ROAD
SUITE 700 EAST STATE COLLEGE, PENNSYLVANIA 16801
WASHINGTON, D.C. 20005 (814) 466-6625
(202) 434-4660 FACSIMILE: (814) 466-6703
FACSIMILE: (202) 434-4661
November 18, 1999
Board of Trustees
First Star Bancorp, Inc.
418 West Broad Street
Bethlehem, Pennsylvania 18018
Ladies and Gentlemen:
We have acted as counsel to First Star Bancorp, Inc. (the "Company") in
connection with the preparation and filing by the Company and First Star Capital
Trust (the "Trust") of a registration statement (the "Registration Statement")
on Form S-1 under the Securities Act of 1933, as amended (the "Act"), with
respect to the offer and sale of certain of the Trust's Preferred Securities
(liquidation amount $10 per Preferred Security) (the "Preferred Securities") and
certain of the Company's Junior Subordinated Debentures (the "Debentures") and
the related Guarantee Agreement by and between the Company and Bankers Trust
Company, as trustee (the "Guarantee"). In connection therewith, you have
requested our opinion as to certain matters referred to below.
In our capacity as such counsel, we have familiarized ourselves with
the actions taken by the Company in connection with the registration of the
Debentures and the Guarantee. We have examined the originals or certified copies
of such records, agreements, certificates of public officials and others, and
such other documents, including the Registration Statement, as we have deemed
relevant and necessary as a basis for the opinions hereinafter expressed. In
such examination, we have assumed the genuineness of all signatures on original
documents and the authenticity of all documents submitted to us as originals,
the conformity to original documents of all copies submitted to us as conformed
or photostatic copies, and the authenticity of the originals of such latter
documents. We are attorneys admitted to practice before the courts of the United
States and the courts of the Commonwealth of Pennsylvania and, accordingly, we
express no opinion with respect to matters governed by the laws of any
jurisdiction other than the federal laws of the United States or the internal
laws of the Commonwealth of Pennsylvania.
Based upon and subject to the foregoing, we are of the opinion that,
when issued (with respect to the Debentures), or executed and delivered (with
respect to the Guarantee), as set forth in the Registration Statement, the
Debentures and the Guarantee will be the valid and binding obligations of the
Company, enforceable in accordance with their terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws
<PAGE>
Board of Trustees
November 18, 1999
Page Two
relating to or affecting the enforcement of creditors' rights generally or the
rights of creditors of bank holding companies the accounts of whose subsidiaries
are insured by the Federal Deposit Insurance Corporation or by general equity
principles, regardless of whether such enforceability is considered in a
proceeding in equity or at law.
We consent to the references to this opinion and to Malizia Spidi &
Fisch, PC in the Prospectus included as part of the Registration Statement under
the caption "Legal and Tax Matters" and to the inclusion of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
/s/Malizia Spidi & Fisch, PC
----------------------------
MALIZIA SPIDI & FISCH, PC
EXHIBIT 8
<PAGE>
MALIZIA SPIDI & FISCH, PC
ATTORNEYS AT LAW
1301 K STREET, N.W. 637 KENNARD ROAD
SUITE 700 EAST STATE COLLEGE, PENNSYLVANIA 16801
WASHINGTON, D.C. 20005 (814) 466-6625
(202) 434-4660 FACSIMILE: (814) 466-6703
FACSIMILE: (202) 434-4661
November 18, 1999
Board of Directors
First Star Bancorp, Inc.
418 West Broad Street
Bethlehem, Pennsylvania 18018
Dear Board Members:
We have acted as special tax counsel to First Star Bancorp, Inc. (the
"Company") and to First Star Capital Trust (the "Trust") in connection with the
registration statement of the Company and the Trust on Form S-1, for the Company
and the Trust, respectively), as amended ("Registration Statement"), of which a
prospectus ("Prospectus") is a part, filed by the Company and the Trust with the
United States Securities and Exchange Commission under the Securities Act of
1933, as amended. This opinion is furnished pursuant to the requirements of Item
601(b)(8) of Regulation S-1.
For the purposes of rendering this opinion, we have reviewed and relied
upon the Registration Statement and such other documents and instruments as we
deemed necessary for the rendering of this opinion. In our examination of
relevant documents, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as copies, the authenticity
of such copies and the accuracy and completeness of all corporate records made
available to us by the Company and the Trust.
Based solely upon our review of such documents and the Officer
Affidavit attached to this opinion, and upon such information as the Company has
provided to us (which we have not attempted to verify in any respect), and
reliance upon such documents and information, subject to the limitations,
qualifications, and assumptions set forth herein, our opinion is set forth in
the Prospectus under the caption "United States Federal Income Tax
Consequences."
Our opinion is limited to the federal income tax matters described
above and does not address any other federal income tax considerations or any
state, local, foreign, or other tax considerations. If any of the information on
which we have relied is incorrect, or if changes in the relevant facts occur
after the date hereof, our opinion could be affected thereby. Moreover, our
opinion is based on the Internal Revenue Code of 1986, as amended, applicable
<PAGE>
Board of Directors
First Star Bancorp, Inc.
November 18, 1999
Page 2
Treasury regulations promulgated thereunder, and Internal Revenue Service
rulings, procedures, and other pronouncements published by the United States
Internal Revenue Service. These authorities are all subject to change, and such
change may be made with retroactive effect. We can give no assurance that, after
such change, our opinion would not be different. We undertake no responsibility
to update or supplement our opinion. This opinion is not binding on the Internal
Revenue Service, and there can be no assurance, and none is hereby given, that
the Internal Revenue Service will not take a position contrary to one or more of
the positions reflected in the foregoing opinion, or that our opinion will be
upheld by the courts if challenged by the Internal Revenue Service.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the use of our name in the Prospectus
under the captions "United States Federal Income Tax Consequences" and "Legal
and Tax Matters." In giving such consent, we do not thereby admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Sincerely,
/s/Malizia Spidi & Fisch, PC
------------------------------------
MALIZIA SPIDI & FISCH, PC
EXHIBIT 12.1
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
September 30, Years Ended June 30,
-------------------- ----------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Interest on deposits ........... $ 2,323 $ 1,881 $ 8,442 $ 6,638 $ 5,469 $ 6,087 $ 4,760
Interest on borrowings ......... 2,239 2,283 8,938 7,972 4,937 2,820 3,130
Portion of rent expense
representative of interest ... 9 9 36 36 35 62 50
------- ------- ------- ------- ------- ------- -------
Total fixed charges ....... $ 4,571 $ 4,173 $17,416 $14,646 $10,441 $ 8,969 $ 7,940
======= ======= ======= ======= ======= ======= =======
Income before taxes ............ 857 849 4,083 4,423 2,251 1,928 2,085
Total fixed charges ....... 4,571 4,173 17,416 14,646 10,441 8,969 7,940
------- ------- ------- ------- ------- ------- -------
Total earnings ............ $ 5,428 $ 5,022 $21,499 $19,069 $12,692 $10,897 $10,025
======= ======= ======= ======= ======= ======= =======
Earnings/Fixed Charges:
Including interest on deposits 1.19% 1.20% 1.23% 1.30% 1.22% 1.22% 1.26%
Excluding interest on deposits 1.38% 1.37% 1.45% 1.55% 1.45% 1.67% 1.66%
</TABLE>
The ratios of earnings to fixed charges were calculated as follows: divide
income, before income taxes, plus fixed charges by fixed charges.
EXHIBIT 16
<PAGE>
Deloitte &
Touche
- ----------- -----------------------------------------------------------------
[LOGO] Deloitte & Touche LLP Telephone: (215) 246-2300
Twenty-Fourth Floor Facsimile: (215) 569-2441
1700 Market Street
Philadelphia, Pennsylvania 19103-3984
October 15, 1999
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, N.W.
Washington, DC 20549
Dear Sirs/Madams:
We have read the two paragraphs under the caption "Change in Independent
Auditors" in the Registration Statement on Form SB-2 of First Star Bancorp,
filed with the Securities and Exchange Commission on October 6, 1999 and have
the following comments:
1. We have no basis for agreeing or disagreeing with the statements made in
the first sentence of the first paragraph as it relates to Beard & Company,
Inc., and the second sentence of the first paragraph.
2. We agree with the statements made in the first sentence of the first
paragraph as they relate to Deloitte & Touche LLP and the second paragraph.
Yours truly,
/s/Deloitte & Touche LLP
cc: Mr. Joseph T. Svetik
President, First Star Bancorp
- ----------------
Deloitte Touche
Tohmatsu
- ----------------
EXHIBIT 23.1
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Pre-effective Amendment No. 2 to the
Registration Statement (Form S-1 No. 333-87357) of First Star Capital Trust and
First Star Bancorp, Inc. and the related prospectus of our report, dated
November 12, 1999, relating to the consolidated financial statements of First
Star Bancorp, Inc. and its subsidiaries included therein. We also consent to the
reference to our Firm under the caption "Experts" in the prospectus.
/s/BEARD & COMPANY, INC.
Allentown, Pennsylvania
November 18, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
REGISTRATION STATEMENT ON FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<CIK> 0000900625
<NAME> FIRST STAR BANCORP INC
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 1,639
<INT-BEARING-DEPOSITS> 2,644
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 159,253
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 188,360
<ALLOWANCE> 1,779
<TOTAL-ASSETS> 366,492
<DEPOSITS> 192,039
<SHORT-TERM> 6,000
<LIABILITIES-OTHER> 3,727
<LONG-TERM> 149,065
0
0
<COMMON> 375
<OTHER-SE> 15,286
<TOTAL-LIABILITIES-AND-EQUITY> 366,492
<INTEREST-LOAN> 3,836
<INTEREST-INVEST> 2,694
<INTEREST-OTHER> 50
<INTEREST-TOTAL> 6,580
<INTEREST-DEPOSIT> 2,323
<INTEREST-EXPENSE> 4,562
<INTEREST-INCOME-NET> 2,018
<LOAN-LOSSES> 47
<SECURITIES-GAINS> (358)
<EXPENSE-OTHER> 897
<INCOME-PRETAX> 857
<INCOME-PRE-EXTRAORDINARY> 561
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 561
<EPS-BASIC> 1.49
<EPS-DILUTED> .83
<YIELD-ACTUAL> 2.23
<LOANS-NON> 1,778
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,772
<CHARGE-OFFS> 40
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,779
<ALLOWANCE-DOMESTIC> 1,779
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
