<PAGE>
Registration No. 333-_____
Registration No. 333-_____
As filed with the Securities and Exchange Commission on May 6, 1999
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
QUAD CITY HOLDINGS, INC. QUAD CITY HOLDINGS CAPITAL TRUST I
(Exact name of the registrant and co-registrant as specified in their charters)
<S> <C> <C> <C>
DELAWARE 42-1397595 DELAWARE 51-6512630
(State or other jurisdiction of (I.R.S. Employer (State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.) of incorporation or Identification No.)
organization)
</TABLE>
3551 7TH STREET, SUITE 100 3551 7TH STREET, SUITE 100
MOLINE, ILLINOIS 61265 MOLINE, ILLINOIS 61265
(309) 736-3580 (309) 736-3580
(Addresses, including zip codes, and telephone numbers of registrant's and
co-registrant's principal executive offices)
DOUGLAS M. HULTQUIST
PRESIDENT
QUAD CITY HOLDINGS, INC.
3551 7TH STREET, SUITE 100
MOLINE, ILLINOIS 61265
(309) 736-3580
(Name, address and telephone number of agent for service)
WITH COPIES TO:
<TABLE>
<S> <C>
JOHN E. FREECHACK, ESQ. DAVID B. MILLER, ESQ.
DOUGLAS J. TUCKER, ESQ. FAEGRE & BENSON LLP
BARACK FERRAZZANO KIRSCHBAUM PERLMAN & NAGELBERG 2200 NORWEST CENTER
333 W. WACKER DRIVE, SUITE 2700 90 SOUTH SEVENTH STREET
CHICAGO, ILLINOIS 60606 MINNEAPOLIS, MINNESOTA 55402-3901
(312) 984-3100 (612) 336-3000
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. / /
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to
Item 11(a)(1) of this Form, check the following box. / /
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Title of Each Class of Securities to Amount to be Proposed Maximum Proposed Maximum Amount of Registration
be Registered Registered Price per Unit Aggregate Offering Price Fee(1)
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<S> <C> <C> <C> <C>
___% Capital Securities of Quad City 1,200,000 $10.00 $12,000,000 $3,336
Holdings Capital Trust I
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___% Junior Subordinated (2)
Debentures(2) of Quad City Holdings,
Inc.
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Guarantee(3) of Capital Securities (3)
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</TABLE>
(1) The registration fee is calculated in accordance with Rule 457 (a),
(i) and (n).
(2) The Debentures will be purchased by Quad City Holdings Capital Trust I
with the proceeds from the sale of Capital Securities. Such securities
may later be distributed for no additional consideration to the holders
of the Capital Securities of Quad City Holdings Capital Trust I upon
its dissolution.
(3) This Registration Statement is deemed to cover the Debentures of Quad
City Holdings, Inc., the rights of holders of Debentures of Quad City
Holdings, Inc. under the Indenture, and the rights of holders of the
Capital Securities under the Trust Agreement, the Guarantee and the
Expense Agreement entered into by Quad City Holdings, Inc. No separate
consideration will be received for the Guarantee.
THE REGISTRANTS HEREBY AMEND THE 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED _____, 1999
1,200,000 CAPITAL SECURITIES
QUAD CITY HOLDINGS CAPITAL TRUST I
[___]% CUMULATIVE CAPITAL SECURITIES
(LIQUIDATION AMOUNT $10 PER CAPITAL SECURITY)
GUARANTEED AS DESCRIBED IN THIS PROSPECTUS BY
QUAD CITY HOLDINGS, INC.
The capital securities represent undivided beneficial interests in
the assets of Quad City Holdings Capital Trust I. The trust will invest the
proceeds of this offering of capital securities in the __% junior
subordinated debentures of Quad City Holdings, Inc.
For each of the capital securities that you own, you are entitled to
receive cumulative cash distributions at an annual rate of [___]% on March
31, June 30, September 30 and December 31 of each year, beginning September
30, 1999 from payments on the debentures. Payment of distributions may be
deferred at any time for up to 20 consecutive quarters. The capital
securities are effectively subordinated to all senior and subordinated
indebtedness of Quad City Holdings, Inc. and its subsidiaries. The debentures
mature and the capital securities must be redeemed on June 30, 2029. The
trust may redeem the capital securities, at a redemption price of $10 per
capital security plus accrued and unpaid distributions, at any time on or
after June 30, 2004, or earlier under certain circumstances.
The trust intends to apply for listing of the capital securities on
the American Stock Exchange under the trading symbol ["______"].
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WE URGE YOU TO CAREFULLY READ THE "RISK FACTORS" SECTION BEGINNING
ON PAGE 8, WHERE WE DESCRIBE SPECIFIC RISKS RELATED TO AN INVESTMENT IN
THE CAPITAL SECURITIES AND RISKS RELATING TO QUAD CITY HOLDINGS, INC., ALONG
WITH THE REMAINDER OF THIS PROSPECTUS, BEFORE YOU MAKE YOUR INVESTMENT
DECISION.
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THESE SECURITIES ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OBLIGATIONS
OF ANY BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENTAL AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER CAPITAL
SECURITY TOTAL
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<S> <C> <C>
Public offering price $10.00 $12,000,000
Underwriting fees to be paid by Quad City Holdings, Inc. $ $
Proceeds to the trust $10.00 $12,000,000
</TABLE>
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DAIN RAUSCHER WESSELS HOWE BARNES INVESTMENTS, INC.
a division of Dain Rauscher Incorporated
The date of this prospectus is [_________________], 1999.
<PAGE>
TABLE OF CONTENTS
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PAGE
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<S> <C>
Cautionary Statements................................
Summary..............................................
Selected Consolidated Financial Data.................
Risk Factors.........................................
Use of Proceeds......................................
Accounting Treatment.................................
Capitalization.......................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................
Business.............................................
Management...........................................
Description of the Trust.............................
Description of the Capital Securities................
Description of the Debentures........................
Book-Entry Issuance..................................
Description of the Guarantee.........................
Relationship Among the Capital
Securities, the Debentures and
the Guarantee.....................................
Federal Income Tax Consequences......................
ERISA Considerations.................................
Underwriting.........................................
Legal Matters........................................
Where You Can Find Information.......................
Experts..............................................
Incorporation of Certain Documents
by Reference......................................
Index to Financial Statements........................ F-1
</TABLE>
You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not, authorized any other
person to provide you with different information. This prospectus is not an
offer to sell, nor is it an offer to buy, these securities in any state
where the offer or sale is not permitted. The information in this prospectus
is complete and accurate as of the date on the front cover, but the
information may have changed since that date.
CAUTIONARY STATEMENTS
Statements which are not historical facts contained or incorporated
by reference in this prospectus are forward-looking statements that involve
risks and uncertainties that could cause actual results to differ from
projected results. These statements can be identified by the use of
forward-looking terminology such as may, will, expect, anticipate, believe,
estimate, continue or comparable terminology. Factors that could cause actual
results to differ materially include the factors discussed in "Risk Factors"
as well as the continued success of Quad City's community banking strategy,
general economic conditions, economic conditions in the Quad Cities area, the
monetary policy of the Federal Reserve, changes in interest rates, changes in
inflation and changes in the state and federal regulatory regime applicable
to Quad City's operations.
<PAGE>
SUMMARY
THE ITEMS IN THE FOLLOWING SUMMARY ARE DESCRIBED IN MORE DETAIL
LATER IN THIS PROSPECTUS. THEREFORE, YOU SHOULD ALSO READ THE MORE DETAILED
INFORMATION SET FORTH IN THIS PROSPECTUS, OUR FINANCIAL STATEMENTS AND THE
OTHER INFORMATION THAT IS INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
UNLESS THE CONTEXT CLEARLY SUGGESTS OTHERWISE, REFERENCES IN THIS PROSPECTUS
TO "US," "WE," "QUAD CITY" OR "THE COMPANY" INCLUDE QUAD CITY HOLDINGS, INC.,
AND ITS WHOLLY OWNED SUBSIDIARIES QUAD CITY BANK AND TRUST COMPANY AND QUAD
CITY BANCARD, INC.
QUAD CITY HOLDINGS, INC.
We are a bank holding company that owns Quad City Bank & Trust
Company, a full-service commercial banking institution with three locations
in the Quad Cities area of Illinois and Iowa. The bank provides a broad range
of banking products and services, including credit, cash management, deposit,
asset management and trust products, to its targeted customer base of
individuals and small and medium-sized businesses. In addition, Quad City
Bancard, Inc. provides credit card processing services to merchants and other
commercial operations. At March 31, 1999, we had total assets of $299.8
million, loans of $191.7 million and deposits of $239.1 million.
Our company started operations in January 1994 with the goal of
building a locally-owned and managed financial institution to meet the
banking needs of individuals and small and medium-sized businesses in our
marketplace. As part of our operating strategy, we strive to offer customers
a high level of service on a consistent basis. Our growth over the past five
years has been largely a product of our ability to recruit and retain a
community-oriented management team with significant commercial banking
experience in the Quad Cites area. In addition, we have expanded and upgraded
our product offerings and added convenient banking locations in Davenport,
Iowa and Moline, Illinois to complement our original Bettendorf, Iowa
facility. Finally, we have taken advantage of the customer disruption caused
by the acquisition of a number of the area's other locally owned or locally
managed financial institutions by large regional bank holding companies. Some
of the mergers or acquisitions that have taken place in the Quad Cities area
include the Norwest acquisition of Davenport Bank and Trust, the Firstar
acquisition of First Trust and Savings Bank, the Bank One acquisition of the
First National Bank of Moline and the Mercantile acquisition of The Rock
Island Bank.
This strategy has resulted in significant growth for our company.
Our total assets have increased from $111.5 million as of June 30, 1996 to
$299.8 million as of March 31, 1999, which represents a 43% compounded annual
growth rate. This rapid growth has restrained our profitability to some
degree, as we have invested in the personnel, operational systems and
physical infrastructure required to support a much larger banking
organization. In the future, we intend to continue to pursue an aggressive
growth strategy focused on the addition of experienced banking personnel in
the Quad Cities area, while also maintaining strong asset quality and
improving our profitability. We may also add additional banking facilities,
expand into new markets or make strategic acquisitions of other financial
institutions.
The Quad Cities area includes the Illinois communities of Moline and
Rock Island and the Iowa communities of Davenport and Bettendorf. This region
has a total population in excess of 350,000 and is located approximately 180
miles west of Chicago and 170 miles east of Des Moines. It is home to
manufacturers of a wide range of industrial products, with Deere & Company,
Aluminum Company of America, J.I. Case, Oscar Mayer and the Rock Island
Arsenal among the largest employers. Wholesale and retail trade and services,
including health care, are among the region's other major industries.
Our original office is located at 2118 Middle Road in Bettendorf,
Iowa, and a second full service banking facility was opened at 4500 Brady
Street in Davenport, Iowa in July 1996. We have a third full service banking
facility at the Velie Plantation Mansion, 3551 Seventh Street, in Moline,
Illinois which was opened during the first calendar quarter of 1998. Our
principal executive offices are located at 3551 Seventh Street, Suite 100,
Moline, Illinois 61265, and our main telephone number is (309) 736-3580.
<PAGE>
QUAD CITY HOLDINGS CAPITAL TRUST I
The trust, which is the issuer of the capital securities, is a
statutory business trust we formed under the Delaware Business Trust Act.
Upon issuance of the capital securities offered by this prospectus, the
purchasers in this offering will own all of the issued and outstanding
capital securities of the trust. In exchange for our capital contribution to
the trust, we will own all of the common securities of the trust. The trust
exists for the sole purposes of:
- issuing the capital securities to the public for cash;
- issuing the common securities to us;
- investing the proceeds from the sale of the capital and common
securities in an equivalent amount of [__ ]% junior subordinated
debentures due June 30, 2029 issued by us; and
- engaging in other activities that are incidental to those listed
above.
The trust's address is 3551 Seventh Street, Suite 100, Moline,
Illinois 61265
4
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THE OFFERING
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<S> <C>
The issuer................................ Quad City Holdings Capital Trust I
Securities that are being offered......... 1,200,000 capital securities, which
represent preferred undivided
beneficial interests in the assets
of the trust. Those assets will
consist solely of the debentures and
interest paid under the debentures.
The trust will sell the capital
securities to the public for cash.
The trust will use that cash to
buy the debentures from us.
Payment of distributions.................. If you purchase the capital
securities, you are entitled to
receive cumulative cash
distributions at a [_]% annual rate.
Distributions will accumulate from
the date the trust issues the
capital securities and will be paid
quarterly on March 31, June 30,
September 30 and December 31 of each
year beginning September 30, 1999.
The record date for distributions on
the capital securities will be the
business day prior to the
distribution date. Please note that
we may defer the payment of cash
distributions, as more fully
described below.
Maturity.................................. The debentures will mature and the
capital securities must be redeemed
on June 30, 2029. We have the
option, however, to shorten the
maturity date to a date not earlier
than June 30, 2004. We will not
shorten the maturity date unless we
have received the prior approval of
the Board of Governors of the
Federal Reserve System, if required.
Redemption of the capital securities is
possible.............................. The trust must redeem the capital
securities when the debentures are
paid at maturity or upon any earlier
redemption of the debentures. We may
redeem all or part of the debentures
on or after June 30, 2004. In
addition, we may redeem, at any
time, all of the debentures if:
- the interest we pay on the
debentures is no longer
deductible by us for federal
tax purposes, or the trust
becomes subject to federal
income tax;
- there is a change in the
Investment Company Act of 1940
that requires the trust to
register under that law; or
- there is a change in the
capital adequacy guidelines of
the Federal Reserve that
results in the capital
securities not being counted as
Tier 1 capital.
Redemption of the debentures prior
to maturity will be subject to the
prior approval of the Federal
Reserve, if required. If the capital
securities are redeemed by the
trust, you will receive the
liquidation amount of $10 per
capital security plus any accrued
and unpaid distributions to the date
of redemption. At any time, we may
also redeem the debentures to the
extent that we purchase any capital
securities.
We have the option to extend the
interest payment period............... The trust will rely solely on
payments made by us under the
debentures to pay distributions on
the capital securities. So long as
no event of default under the
debentures has occurred and is
continuing, we may, at one or more
times, defer interest payments on
the debentures for up to 20
consecutive quarters, but not beyond
June 30, 2029. If we defer interest
payments on the debentures:
5
<PAGE>
- the trust will also defer
distributions on the capital
securities;
- distributions you are entitled
to will accumulate; and
- these accumulated distributions
will earn additional interest
at an annual rate of [__]%,
compounded quarterly.
At the end of any deferral period,
we will pay to the trust all
accumulated and unpaid amounts under
the debentures. The trust will then
pay all accumulated and unpaid
distributions to you.
You will still be taxed if distributions
on the capital securities are
deferred.............................. If a deferral of payment occurs, you
will still be required to recognize
the deferred amounts as income for
United States federal income tax
purposes in advance of receiving
these amounts, even if you are a
cash basis taxpayer.
Our guarantee of payment.................. We guarantee the trust will use its
assets to pay the distributions on
the capital securities. However, the
guarantee does not apply when the
trust does not have sufficient funds
to make the payments. In this event,
your remedy is to institute a legal
proceeding directly against us for
enforcement of payments under the
debentures.
We may distribute the debentures
directly to you....................... We may, at any time, dissolve the
trust and distribute the debentures
to you, subject to the prior
approval of the Federal Reserve, if
required. If we distribute the
debentures, we will use our best
efforts to list them on a national
securities exchange or comparable
automated quotation system.
How the securities will rank in right of
payment............................... Our obligations under the debentures
and the guarantee agreement are
unsecured and rank junior in
priority of payment to all of our
indebtedness and senior to our
capital stock.
Voting rights of the capital
securities............................ Except in limited circumstances,
holders of the capital securities
will have no voting rights.
American Stock Exchange symbol.......... [" "]
Book-entry................................ The capital 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 the capital
securities.
Use of proceeds........................... We plan to use approximately $2.5
million of the net proceeds from the
sale of the capital securities to
repay the outstanding balance on our
revolving credit note and
approximately $3.0 million of the
net proceeds to redeem all of our
outstanding preferred stock,
including the redemption premium.
We plan to use any remaining net
proceeds for general corporate
purposes, including investments in
and extensions of credit to Quad
City's subsidiaries.
</TABLE>
6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data presented below for, and as
of, the end of each of the fiscal years in the five year period ended June
30, 1998, are derived from our consolidated financial statements, which have
been audited by McGladrey & Pullen, LLP, independent certified public
accountants. The summary data presented below for the nine-month periods
ended March 31, 1999 and 1998, are unaudited. In our opinion, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of results as of or for the periods indicated have been
included. This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and the notes thereto included with
this prospectus. Results for past periods are not necessarily indicative of
results to be expected for any future period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEARS ENDED JUNE 30,
------------------------- ---------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA: (Dollars in thousands)
Interest income $ 14,684 $ 10,720 $ 15,077 $ 9,706 $ 6,529 $ 3,550 $ 737
Interest expense 8,085 5,879 8,342 4,994 3,486 1,896 254
Net interest income 6,599 4,841 6,735 4,712 3,043 1,654 483
Provision for loan losses 645 753 902 844 500 283 192
Noninterest income(1) 3,958 2,929 6,148 2,807 1,716 548 151
Other expense 7,151 5,361 7,910 5,291 3,576 2,293 1,564
Pre-tax income (loss) 2,761 1,656 4,071 1,384 683 (374) (1,122)
Income tax expense 1,089 647 1,678 165 --- --- ---
Net income (loss) 1,672 1,009 2,393 1,219 683 (374) (1,122)
BALANCE SHEET:
Total assets $ 299,815 $ 230,010 $ 250,151 $ 168,379 $ 111,475 $ 80,800 $ 38,963
Securities 47,923 29,481 34,619 31,812 34,189 26,051 15,735
Loans 191,679 153,465 162,975 108,365 56,810 31,508 12,767
Allowance for loan losses 2,704 2,309 2,350 1,633 853 472 192
Deposits 239,124 185,279 197,384 135,960 92,918 61,098 27,018
Stockholders' equity:
Common 18,602 14,711 16,602 13,613 11,669 11,590 11,695
Preferred 2,500 2,500 2,500 1,000 --- --- ---
KEY RATIOS:
Return on average assets(2) 0.81% 0.68% 1.14% 0.86% 0.70% (0.65)% (12.12)%
Return on average common equity(2) 12.62 9.48 16.40 9.85 5.82 (3.26) (12.21)
Net interest margin(2) 3.47 3.66 3.55 3.74 3.47 3.15 2.95
Efficiency ratio(3) 67.74 69.00 61.40 70.37 75.14 104.13 246.69
Nonperforming assets to total assets 0.52 0.65 0.51 0.27 0.28 --- ---
Allowance for loan losses to total
loans 1.41 1.50 1.44 1.51 1.50 1.50 1.50
Net charge-offs/average loans 0.30 0.10 0.15 0.08 0.27 0.01 ---
Average common stockholders' equity
to average assets 6.42 7.18 6.97 8.73 12.10 19.89 49.65
Average stockholders' equity to
average assets 7.33 8.19 7.97 9.15 12.10 19.89 49.65
Earnings to fixed charges:(4)
Excluding interest on deposits(5) 2.75x 2.64x 3.78x 3.17x 5.71x NA NA
Including interest on deposits(5) 1.33 1.28 1.48 1.28 1.20 NA NA
</TABLE>
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(1) Year ended June 30, 1998 noninterest income includes a pre-tax gain of
$2,168 from Bancard's restructuring of an ISO agreement. Nine months ended
March 31, 1999 noninterest income includes amortization of $549.
(2) The nine month ratios are annualized.
(3) Non-interest expense divided by the sum of net interest income before
provision for loan losses and non-interest income.
(4) Dividends are not payable on Quad City's Series A Preferred Stock.
(5) Earnings were inadequate to cover fixed charges in the amount of $374
and $1,122 for the years ended June 30, 1995 and June 30, 1994,
respectively.
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY READ THE FOLLOWING RISK FACTORS BEFORE
PURCHASING ANY CAPITAL SECURITIES.
RISKS RELATED TO AN INVESTMENT IN THE CAPITAL SECURITIES
IF WE DO NOT MAKE INTEREST PAYMENTS UNDER THE DEBENTURES, THE TRUST WILL BE
UNABLE TO PAY DISTRIBUTIONS AND LIQUIDATION AMOUNTS AND THE GUARANTEE WILL
NOT APPLY
The ability of the trust to pay distributions and the liquidation
amount on the capital securities is solely dependent on us making the related
payments on the debentures when due. If we default on our obligation to pay
the principal or interest on the debentures, the trust will not have
sufficient funds to pay distributions or the liquidation amount on the
capital securities. In that case, you will not be able to rely on the
guarantee for payment of these amounts because the guarantee only applies if
the trust has sufficient funds to make distributions on or pay the
liquidation amount of the capital securities. In this case, you have the
right to institute legal proceedings directly against us.
TO THE EXTENT WE MUST RELY ON DIVIDENDS FROM OUR SUBSIDIRIES TO MAKE INTEREST
PAYMENTS ON THE DEBENTURES TO THE TRUST, OUR AVAILABLE CASH FLOW MAY BE
RESTRICTED
We are a holding company and substantially all of our assets are
held by our subsidiaries. Our ability to make payments on the debentures when
due will depend primarily on available cash resources at the holding company
and, as needed, dividends from the bank and other subsidiaries. Dividend
payments from the bank are subject to regulatory limitations, generally based
on current and retained earnings, imposed by the various regulatory agencies
with authority over the bank. Payments of subsidiary dividends are also
subject to regulatory restrictions if such dividends would impair the capital
of the bank. Payments of subsidiary dividends are also subject to the
subsidiary's profitability, financial condition and capital expenditures and
other cash flow requirements. No assurance can be given that the bank will be
able to pay dividends in the future.
OUR HOLDING COMPANY STRUCTURE EFFECTIVELY SUBORDINATES ANY CLAIMS AGAINST US
TO THOSE OF CREDITORS OF OUR SUBSIDIARIES
Because we are a holding company, our right to participate in any
distribution of the assets of any subsidiary upon a subsidiary's liquidation
or reorganization or otherwise, is subject to the prior claims of creditors
of that subsidiary, except to the extent that we may be recognized as a
creditor of that subsidiary. Accordingly, the debentures and the guarantee
will be effectively subordinated to all existing and future liabilities of
our subsidiaries, and you should look only to our assets for payments on the
capital securities and the debentures.
WE HAVE THE OPTION TO DEFER INTEREST PAYMENTS ON THE DEBENTURES FOR
SUBSTANTIAL PERIODS, WHICH WOULD CAUSE DISTRIBUTIONS ON THE CAPITAL
SECURITIES TO BE DEFERRED AND YOU WOULD STILL HAVE TO DECLARE THESE AMOUNTS
AS INCOME FOR TAX PURPOSES
We may, at one or more times, defer interest payments on the
debentures for up to 20 consecutive quarters. If we defer interest payments
on the debentures, the trust would defer distributions on the capital
securities during any deferral period. During a deferral period, you will be
required to recognize as income for federal income tax purposes the amount
approximately equal to the interest that accrues on your proportionate share
of the debentures held by the trust in the tax year in which that interest
accrues, even though you will not receive these amounts until a later date.
8
<PAGE>
You will also not receive the cash related to any accrued and unpaid
interest from the trust if you sell the capital securities before the end of
any deferral period. During a deferral period, accrued but unpaid
distributions will increase your tax basis in the capital securities. If you
sell the capital securities during a deferral period, your increased tax
basis will decrease the amount of any capital gain or increase the amount of
any capital loss that you may have otherwise realized on the sale. A capital
loss, except in certain limited circumstances, cannot be applied to offset
ordinary income. As a result, deferral of distributions could result in
ordinary income, and a related tax liability for the holder, and a capital
loss that may only be used to offset a capital gain.
We do not currently intend to exercise our right to defer interest
payments on the debentures. However, if we exercise our right in the future,
the market price of the capital securities is likely to fall. The capital
securities may trade at a price that does not fully reflect the value of
accrued but unpaid interest on the debentures. If you sell the capital
securities during an interest deferral period, you may not receive the same
return on investment as someone who continues to hold the capital securities.
THE DEBENTURES AND THE GUARANTEE RANK LOWER THAN OUR OTHER INDEBTEDNESS
Our obligations under the debentures and the guarantee are unsecured
and will rank junior in priority of payment to our senior and subordinate
indebtedness and senior to our capital stock. At March 31, 1999, Quad City's
senior and subordinated indebtedness totaled approximately $2.5 million, which
we expect to pay off with the proceeds of this offering. However, we may incur
additional indebtedness in the future. The issuance of the debentures and the
capital securities does not limit our ability to incur additional
indebtedness, including indebtedness that ranks senior or equal in priority
of payment to the debentures or the guarantee.
If we default on our obligation to pay principal or interest on the
debentures, the trust will not have sufficient funds to pay distributions or
the liquidation amount. Because the guarantee does not cover payments when
the trust does not have sufficient funds, you will not be able to rely upon
the guarantee for payment of these amounts. Instead, you or the property
trustee may enforce the rights of the trust under the debentures directly
against us.
WE HAVE MADE ONLY LIMITED COVENANTS IN THE INDENTURE AND THE TRUST AGREEMENT
The indenture governing the debentures and the trust agreement
governing the trust do not require us to maintain any financial ratios or
specified levels of net worth, revenues, income, cash flow or liquidity. They
also do not limit the amount of indebtedness, guarantees or other liabilities
that may be incurred by us and our subsidiaries and will not prohibit us and
our subsidiaries from creating or assuming liens on our, and our
subsidiaries', properties. Additionally, we are not precluded from entering
into any merger, sale or other change of control transaction so long as the
successor entity recognizes and assumes our liability under the debentures,
the capital securities and the guarantee. We are also not required to have
the debentures or the capital securities rated by any credit rating agency,
and if they are rated, we are not required to achieve or maintain any
particular rating.
WE MAY REDEEM THE DEBENTURES BEFORE JUNE 30, 2029
We may redeem the debentures, in whole or in part, at any time on or
after June 30, 2004 or earlier under certain circumstances. You should assume
that we will exercise our redemption option if we are able to obtain capital
at a lower cost than we must pay on the debentures or if it is otherwise in
our interest to redeem the debentures. If the debentures are redeemed, the
trust must redeem capital securities having an aggregate liquidation amount
equal to the aggregate principal amount of debentures redeemed.
WE MAY REDEEM THE DEBENTURES PRIOR TO JUNE 30, 2004 OR DISTRIBUTE THEM
DIRECTLY TO YOU IN EXCHANGE FOR YOUR CAPITAL SECURITIES IF TAX OR OTHER
REGULATORY EVENTS OCCUR
From time to time, the Clinton Administration has proposed tax law
changes that would, among other things, generally deny interest deductions to
a corporate issuer if the debt instrument has a term exceeding 15 years and
if the debt instrument is not reflected as indebtedness on the issuer's
consolidated balance sheet. Other
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<PAGE>
proposed tax law changes would have denied interest deductions if the debt
instrument had a term exceeding 20 years. Although it is impossible to
predict future proposals, if a future proposal of this sort were to become
effective in a form applicable to already issued and outstanding securities,
we could be precluded from deducting interest on the subordinated debentures.
This would permit us to redeem the debentures and the trust to redeem the
capital securities.
Under current federal income tax law and interpretations, a
distribution of the debentures should not be a taxable event to holders of
the capital securities. If there is a change in law or in legal
interpretation, the distribution could be a taxable event to holders of the
capital securities.
THE MARKET PRICE OF THE CAPITAL SECURITIES OR THE DEBENTURES MAY GO DOWN
We cannot predict the market prices for the capital securities or
the debentures that may be distributed in exchange for capital securities
upon liquidation of the trust. The capital securities, or the debentures that
you may receive if the trust is liquidated, may trade at a discount to the
price that you paid to purchase the capital securities. As a result of our
right to defer interest payments, the market price of the capital securities
or the debentures may be more volatile than the market prices of other
securities that are not subject to these optional deferrals. In addition, the
capital securities or the debentures may trade at prices that do not fully
reflect the value of accumulated and unpaid distributions on the capital
securities or the debentures.
YOU ARE ALSO MAKING AN INVESTMENT DECISION CONCERNING THE DEBENTURES
Subject to the terms of the trust agreement, the trustees may
distribute the debentures to the capital securities holders in exchange for
their capital securities. Because you may receive debentures, you are also,
in effect, making an investment decision with regard to the debentures. You
should carefully review all of the information regarding the debentures
contained in this prospectus.
As described above, we cannot predict the market prices for the
debentures that may be distributed. Accordingly, the debentures that you
receive upon a distribution, or the capital securities you hold pending such
a distribution, may trade at a discount to the price that you paid to
purchase the capital securities. Although we have agreed to use our best
efforts to list the debentures on a national securities exchange or
comparable automated quotation system if this occurs, there can be no
assurance that the debentures will be approved for listing or that a liquid
trading market will exist for the debentures. This could also have a negative
impact on their trading price.
YOU MUST RELY ON THE PROPERTY TRUSTEE TO ENFORCE YOUR RIGHTS IF THERE IS AN
EVENT OF DEFAULT UNDER THE INDENTURE
You may not be able to directly enforce your rights against us if an
event of default under the indenture occurs. If an event of default under the
indenture occurs and is continuing, this event will also be an event of
default under the trust agreement. In that case, you would rely on the
enforcement by the property trustee of its rights as holder of the debentures
against us. The holders of a majority in liquidation amount of the capital
securities will have the right to direct the property trustee to enforce its
rights. If the property trustee does not enforce its rights following an
event of default and a request by the record holders to do so, any record
holder may take action directly against us to enforce the property trustee's
rights. If an event of default occurs under the trust agreement that is
attributable to our failure to pay interest or principal on the debentures,
or if we default under the guarantee, you may proceed directly against us.
You will not be able to exercise directly any other remedies available to the
holders of the debentures unless the property trustee fails to do so.
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THERE IS CURRENTLY NO MARKET FOR THE CAPITAL SECURITIES AND NO LIQUID MARKET
MAY DEVELOP
The capital securities will be a new issue of securities for which
there currently is no market. We intend to list the securities on the
American Stock Exchange under the symbol [_________]. No assurance can be
given as to the liquidity of the trading market for the capital securities.
AS A HOLDER OF CAPITAL SECURITIES YOU HAVE LIMITED VOTING RIGHTS
Holders of capital securities have limited voting rights. Your
voting rights pertain primarily to amendments to the trust agreement. In
general, only we can replace or remove any of the trustees. 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 capital
securities may replace the property trustee and the Delaware trustee.
RISKS RELATED TO AN INVESTMENT IN QUAD CITY
WE FACE LENDING RISKS AND LIMITS ON OUR ABILITY TO LOAN MONEY
The risk of nonpayment of loans is inherent in commercial banking,
and such nonpayment, if it occurs, may have a material adverse effect on our
earnings, overall financial condition and ability to make payments on the
capital securities. Moreover, we focus on lending to small to medium sized
businesses. As a result, we may assume greater lending risks than financial
institutions that have a lesser concentration of such loans and tend to make
loans to larger companies. Additionally, we have made many of these loans
recently, so there is no significant repayment history against which we can
fully assess the adequacy of our allowance for loan losses. We could be
adversely affected by these and other risks related to our loans. Borrower
defaults resulting in losses in excess of our allowance for loan losses could
have a material adverse effect on our profitability and financial condition.
The lending limit for the bank is approximately $3.5 million.
Accordingly, the size of the loans which we can offer to potential customers
is less than the size of loans which most of our competitors with larger
lending limits are able to offer. This limit affects our ability to seek
relationships with the area's larger businesses. Through previous experience
and relationships with a number of the region's other financial institutions,
we are generally able to accommodate loan volumes in excess of our lending
limit through the sale of participations in such loans to other banks.
However, there can be no assurance that we will be successful in attracting
or maintaining customers seeking larger loans or that we will be able to
engage in participations of such loans on terms favorable to us.
OUR BUSINESS IS CONCENTRATED IN THE QUAD CITIES AREA
Substantially all of our business is from the Quad Cities area.
Unfavorable or worsening economic conditions in the Quad Cities area could
have a material adverse effect on us in a number of ways. The number of
borrowers unable to timely repay their loans could significantly increase.
There could be a decline in the value of the properties securing our loans.
Customers may reduce the amount of their deposits. Finally, there could be a
reduction in the value of assets managed by our trust department. In
addition, the region is heavily dependent on the agricultural industry, which
has a history of fluctuating economic conditions.
INTEREST RATES AND OTHER CONDITIONS IMPACT OUR RESULTS OF OPERATIONS
Our profitability is in part a function of the spread between the
interest rates earned on investments and loans and the interest rates paid on
deposits and other interest-bearing liabilities. In the early 1990s, many
banking organizations experienced historically high interest rate spreads.
More recently, interest rate spreads have generally narrowed due to changing
market conditions and competitive pricing pressure, and these circumstances
may continue.
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Like most banking institutions, our net interest spread and margin
will be affected by general economic conditions and other factors, including
fiscal and monetary policies of the federal government, that influence market
interest rates and our ability to respond to changes in such rates. At any
given time, our assets and liabilities will be such that they are affected
differently by a given change in interest rates. As a result, an increase or
decrease in rates, the length of loan terms or the mix of adjustable and
fixed rate loans in our portfolio could have a positive or negative effect on
our net income, capital and liquidity. There can be no assurance that the
positive trends or developments discussed in this prospectus will continue or
that negative trends or developments will not have a material adverse effect
on us.
OUR BANCARD OPERATION FACES OTHER RISKS AS WELL
Bancard, our credit card processing subsidiary, is subject to
certain risks which could have a negative impact on its operations, including
loss of marketing relationships, competition, credit risks and the
possibility that merchants' willingness to accept credit cards will decline.
Many of Bancard's competitors have greater financial, technological,
marketing and personnel resources than Bancard and there can be no assurance
that Bancard will be able to compete effectively with such entities.
Historically, Bancard has been dependent on a single independent
sales organization (an "ISO") to recruit merchants for Bancard's processing
operations. Merchants recruited through this ISO accounted for 94.8%, 92.6%
and 91.0% of merchant processing volumes of Bancard in fiscal 1997, fiscal
1998 and the first nine months of fiscal 1999. Late in fiscal 1998, Bancard
restructured its exclusive processing relationship with this ISO to shorten
the term of the agreement, to shift greater responsibility for credit risk to
the ISO and to lower Bancard's share of processing fees. This restructuring
had the effect of reducing gross processing income from the ISO's merchants
in the first nine months of fiscal 1999 to $548,000 from $1.0 million in the
same period in fiscal 1998. The agreement as restructured automatically
renews for one year each June 1 unless either party provides the other party
with six months notice of its intention not to renew the agreement. As
neither party gave timely notice of termination, the amended agreement is
expected to renew June 1, 1999 for the one year period ending June 1, 2000.
In the event that the ISO chooses not to renew the agreement, Bancard would
cease processing for the merchants for which it currently processes
transactions under the agreement, resulting in a negative impact to our
revenue and income. In addition, if the agreement is not renewed, Bancard can
not compete with the ISO to provide merchant processing and settlement
services to those merchants until 2003 and would not be able to do business
with the ISO's agents for a period of two years after termination of the
agreement. Bancard may not be able to enter into new agreements with other
ISOs or recruit other merchants in numbers sufficient to replace that
business.
Bancard is also subject to credit risks. When a billing dispute
arises between a cardholder and a merchant, and if the dispute is not
resolved in favor of the merchant, the transaction is charged back to the
merchant. If Bancard is unable to collect such chargeback from the merchant's
account, and if the merchant refuses or is unable to reimburse Bancard for
the chargeback due to bankruptcy or other reasons, Bancard bears the loss for
the amount of the refund paid to the cardholder unless its agreement with the
ISO shifts that risk to the ISO. Bancard has such an agreement with its
current major ISO. Bancard, in general, handles processing for smaller, less
seasoned merchants, which may present greater risk of loss. Although Bancard
maintains a reserve against these losses, there is no assurance that it will
be adequate. Additionally, VISA and MasterCard have the ability to increase
the "interchange" rates charged to merchants for credit card transactions.
There can be no assurance that merchants will continue to accept credit cards
as payment if they feel rates are too high. Bancard is also subject to an
approval process by the VISA and MasterCard credit card associations. In the
event Bancard fails to comply with these standards, Bancard's designation as
a certified processor could be suspended or terminated. There can be no
assurance that VISA or MasterCard will maintain Bancard's registrations or
that the current VISA or MasterCard rules allowing Bancard to provide
transaction processing services will remain in effect.
WE RELY HEAVILY ON OUR MANAGEMENT
We are dependent upon the efforts and services of Douglas M.
Hultquist, Michael A. Bauer and our other senior officers. The loss of the
services of either Messrs. Hultquist or Bauer could have a material adverse
effect on
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our operations. Although we currently have employment agreements with Messrs.
Hultquist and Bauer, there can be no assurance that they will continue to be
employed with us into the future. The company is the beneficiary of a
$1,000,000 life insurance policy on each of Messrs. Hultquist and Bauer.
WE HAVE A CONTINUING NEED FOR TECHNOLOGICAL CHANGE
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology
increases efficiency and enables financial institutions to reduce costs. Our
future success will depend in part upon our ability to address the needs of
our customers by using technology to provide products and services that will
satisfy customer demands for convenience as well as to create additional
efficiencies in our operations. Many of our competitors have substantially
greater resources to invest in technological improvements. There can be no
assurance that we will be able to effectively implement new technology-driven
products and services or be successful in marketing such products and
services to our customers.
UNCERTAINTY EXISTS WITH RESPECT TO THE YEAR 2000
The year 2000 has posed a unique set of challenges to those
industries reliant on information technology. As a result of methods employed
by early programmers, many software applications and operational programs may
be unable to distinguish the year 2000 from the year 1900. If not effectively
addressed, this problem could result in the production of inaccurate data,
or, in the worst cases, the inability of the systems to continue to function
altogether. Financial institutions are particularly vulnerable due to the
industry's dependence on electronic data processing systems. In addition, the
bank's customers may withdraw their deposits due to uncertainty of the impact
of year 2000 issues, resulting in decreased liquidity of the bank. Due to the
uncertainty inherent in the year 2000 problem, resulting primarily from the
uncertainty of the year 2000 readiness of our customers and other third
parties, we are unable to determine at this time whether the consequences of
year 2000 failures will have a material adverse impact on our financial
condition and profitability.
THERE IS STRONG COMPETITION IN THE FINANCIAL SERVICES INDUSTRY
We compete for loan and deposit customers with other banks and
thrifts located in the Quad Cities area, as well as other financial services
organizations such as brokerage firms, insurance companies and money market
mutual funds, all of whom aggressively solicit customers within our market
area by advertising through direct mail, the electronic media and other
means. Many of these competitors have been in business for many years, have
established customer bases and are substantially larger than us. Many of the
financial institutions have substantially higher lending limits than we do
and are able to offer services, including international banking services,
that we can offer only through correspondents, if at all. In addition, many
of these entities have greater capital resources than we do, and some of
these are not subject to our same degree of regulation.
OUR GROWTH STRATEGY INVOLVES RISKS THAT MAY NEGATIVELY IMPACT OUR PROFITS
We have pursued and continue to pursue an internal growth strategy,
the success of which will depend primarily on generating an increasing level
of loans and deposits at acceptable risk levels without corresponding
increases in non-interest expenses. Our expansion strategy has included the
establishment of new branches and product areas, which required significant
upfront investments in technology, personnel and site locations. There can be
no assurance that we will be successful in continuing our growth strategy and
improving or maintaining our net income by leveraging our non-interest
expenses.
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WE ARE SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION
We are subject to extensive regulation by the Federal Reserve and
the Iowa Superintendent of Banking. Supervision, regulation and examination
of banks and bank holding companies by bank regulatory agencies are intended
primarily for the protection of depositors rather than stockholders of these
entities. These governmental agencies, examine bank holding companies and
commercial banks, establish capital and other financial requirements and
approve acquisitions or other changes of control of these financial
institutions. Our ability to establish new facilities or make acquisitions is
conditioned upon the receipt of required regulatory approvals from the
Federal Reserve and other applicable regulatory bodies. Changes in
legislation and regulations will continue to have a significant impact on the
banking industry. Although some of the legislative and regulatory changes may
benefit the bank, others will increase its costs of doing business and assist
competitors which are not subject to similar regulation.
OUR MORTGAGE BANKING OPERATIONS CAN BE HIGHLY SENSITIVE TO OUTSIDE FACTORS
Mortgage banking operations can be highly sensitive to changes in
interest rates and other factors. Mortgage banking is an important source of
noninterest income, consisting of loan origination fees and gains on sale of
residential real estate loans to the secondary market. The bank has benefited
in recent years from a historically low level of interest rates which have
affected mortgage lending for purposes of home purchase and refinance.
Mortgage loan activity, especially refinancings, is sensitive to changes in
interest rates. Increases in interest rates may materially reduce the demand
for loans originated and sold by us. The success of the bank's real estate
department is also dependent in part upon the efforts and services of the
bank's mortgage loan originators and the relationships of these persons with
real estate agents in the community.
USE OF PROCEEDS
The trust will use the money it receives for the capital securities
to purchase debentures from us in an amount equal to the aggregate
liquidation amount of the capital securities. Depending on certain factors,
all or a portion of the capital securities may be treated as capital for bank
regulatory purposes. We plan to use approximately $2.5 million of the net
proceeds of the approximately $11.2 million we receive from the sale of the
debentures, after payment of underwriting commissions and offering expenses,
to repay the outstanding balance on a revolving credit note and approximately
$3.0 million of the net proceeds to redeem all of our outstanding preferred
stock. We plan to use the remaining net proceeds for general corporate
purposes, including, among other things, investments in and extensions of
credit to our subsidiaries as needed to support asset growth and payment of
interest on the debentures. The revolving credit note is to a third party
financial institution with a maximum principal amount of $4.5 million. The
outstanding balance on the note at March 31, 1999 was $2.5 million. The note
matures on July 1, 2000, and has a floating interest rate of LIBOR plus 200
basis points. Pending their application, we currently intend to invest the
net proceeds in government and agency securities and loan participations.
ACCOUNTING TREATMENT
The trust will be treated, for financial reporting purposes, as our
subsidiary and, accordingly, the accounts of the trust will be included in
our consolidated financial statements. The capital securities will be
presented as a separate line item in our consolidated balance sheet under the
caption "Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Subordinated Debentures," and appropriate
disclosures about the capital securities, the guarantee and the debentures
will be included in the notes to consolidated financial statements. For
financial reporting purposes, we will record distributions payable on the
capital securities as interest expense in our Consolidated Statement of
Operations.
Our future reports filed under the Securities Exchange Act of 1934
will include a footnote to the consolidated financial statements stating that:
- the trust is wholly-owned;
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- the sole assets of the trust are the debentures and specifying
the debentures' principal amount, interest rate and maturity
date;
- our obligations described in this prospectus, in the aggregate,
constitute a full, irrevocable and unconditional guarantee on a
subordinated basis by us of the obligations of the trust under
the capital securities.
CAPITALIZATION
The following table sets forth our total deposits, indebtedness and
capitalization as of March 31, 1999, on an historical basis and as adjusted
for the offering and the application of the estimated net proceeds. This data
should be read in conjunction with the "Selected Consolidated Financial Data"
and the Consolidated Financial Statements and Notes thereto, included in this
prospectus.
<TABLE>
<CAPTION>
(Dollars rounded to the nearest thousand) March 31, 1999
-------------------------------------
Actual As Adjusted
---------------- -----------------
<S> <C> <C>
DEPOSITS:
Noninterest-bearing deposits............................................... $ 35,143,000 $ 35,143,000
Interest-bearing deposits.................................................. 203,981,000 203,981,000
-------------------------------------
Total deposits......................................................... $239,124,000 $239,124,000
------------ ------------
------------ ------------
INDEBTEDNESS:
Short-term borrowings...................................................... 7,468,000 7,468,000
Federal Home Loan Bank advances............................................ 25,884,000 25,884,000
Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Subordinated Debentures................ -- 12,000,000
Other borrowings........................................................... 2,500,000 --
------------------ ------------------
Total indebtedness..................................................... $ 35,852,000 $ 45,352,000
------------ ------------
------------ ------------
STOCKHOLDERS' EQUITY:
Series A Preferred Stock, $1.00 par value; 250,000 shares authorized; 25
shares issued and outstanding......................................... 25 --
Common Stock, $1.00 par value; 5,000,000 shares authorized; 2,295,876
shares issued and outstanding......................................... 2,296,000 2,296,000
Additional paid-in capital................................................. 14,452,000 11,952,000
Retained earnings.......................................................... 4,236,000 3,692,000
Accumulated other comprehensive income..................................... 118,000 118,000
------------------ ------------------
Total stockholders' equity............................................ $ 21,102,000 $ 18,058,000
------------ ------------
------------ ------------
CONSOLIDATED REGULATORY CAPITAL RATIOS:
Total capital to risk-weighted assets...................................... 11.22% 16.90%
Tier 1 capital to risk-weighted assets (1)................................. 9.97% 11.34%
Tier 1 capital to average tangible assets (1).............................. 7.16% 8.06%
</TABLE>
- ------------------
(1) The capital securities have been structured to qualify as Tier 1
capital. However, the capital securities cannot be used to constitute,
together with any outstanding cumulative preferred stock of Quad City,
more than 25% of Quad City's total Tier 1 capital. As adjusted for this
offering, Quad City's Tier 1 capital as of March 31, 1999 would have
been $23.9 million, of which $5.9 million would have been attributable
to the capital securities. Any future increases in other elements of
Quad City's Tier 1 capital, including retained earnings, will allow
Quad City to include greater portions of the capital securities offered
hereby in Tier 1 capital.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION PROVIDES ADDITIONAL INFORMATION REGARDING
OUR OPERATIONS AND FINANCIAL CONDITION FOR THE NINE MONTH PERIODS ENDED
MARCH 31, 1999 AND 1998, AND EACH OF THE THREE FISCAL YEARS ENDED JUNE 30, 1998.
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH "SELECTED CONSOLIDATED
FINANCIAL DATA" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE
ACCOMPANYING NOTES THERETO INCLUDED OR INCORPORATED BY REFERENCE ELSEWHERE IN
THIS PROSPECTUS.
OVERVIEW
Quad City was formed in February, 1993 for the purpose of organizing
the bank. The bank opened in January 1994 with $4.5 million in assets and
grew to approximately $299.8 million as of March 31, 1999. The bank expects
continued opportunities for growth, even though the rate of growth will
probably be slower than that experienced to date.
Quad City reported earnings of $1.7 million or $.73 basic earnings
per share for the first three quarters of fiscal 1999 as compared to $1.0
million and $.46 per share for the same period in fiscal 1998. This increase
resulted primarily from increased net interest income and increased volumes of
business for the bank, particularly in its mortgage and trust operations and
amortization of deferred income.
Quad City's results of operations are dependent primarily on net
interest income, which is the difference between the interest earned on its
loans and securities and the interest paid on deposits and borrowings. Quad
City's operating results are also affected by sources of non-interest income,
including merchant credit card fees, trust fees, deposit service charge fees,
fees from the sales of residential real estate loans and other income.
Operating expenses of Quad City include employee compensation and benefits,
occupancy and equipment expense and other administrative expenses. Quad
City's operating results are also affected by economic and competitive
conditions, particularly changes in interest rates, government policies and
actions of regulatory authorities. The majority of the bank's loan portfolio
is invested in commercial loans. Deposits from commercial customers represent
a significant funding source as well.
The bank has added facilities and employees to accommodate both its
historical growth and anticipated future growth. As such, overhead expenses
have had a significant impact on earnings. The primary challenge for the bank
currently, from a profitability standpoint, is to increase its net interest
margin. Large commercial depositors create a relatively high cost of funds
and this fact, along with a very competitive loan rate environment, have
resulted in the bank's interest margin being below its peer group. Management
is addressing this issue with alternative funding sources and pricing
strategies.
During 1994, the bank began to develop internally a merchant credit
card processing operation and in 1995 transferred this activity to Bancard, a
separate subsidiary of Quad City. Bancard initially had an arrangement to
provide processing services exclusively to clients of a single ISO. This ISO
was sold in 1998 and the purchaser requested a reduction in the term of the
contract. Bancard agreed to amend the contract to reduce the term and accept
a fixed monthly processing fee of $25,000 for existing merchants and a lower
transaction fee for new merchants in exchange for a payment of approximately
$3 million, the ability to transact business with other ISOs and the
assumption of the credit risk by the ISO. Approximately two thirds of the
income from this settlement, or $2.2 million, was reported in fiscal 1998,
with the remainder of $732,000 being recognized as an adjustment to the fixed
processing fee during fiscal 1999. Bancard's net income was $1.3 million in
fiscal 1998. For the nine months ended March 31, 1999, Bancard's net income
was $343,000. Bancard expects its merchant credit card fee income to remain
below previous levels until such time as Bancard can develop relationships
with additional ISOs or Allied Merchant Services, Bancard's newly formed
independent sales organization, can generate processing business revenues
comparable to those Bancard experienced prior to amendment of its ISO
contract. This reduction in processing fees and cessation of the settlement
income at Bancard is expected to adversely affect comparisons of
consolidated net income in fiscal 2000 with fiscal 1999.
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During fiscal 1998, the bank expanded its presence in the mortgage
banking market by hiring several experienced loan originators and an
experienced underwriter. The bank originates mortgage loans on personal
residences and sells the majority of these loans into the secondary market to
avoid the interest rate risk associated with long term fixed rate financing.
The bank realizes revenue from this mortgage banking activity from a
combination of loan origination fees and gain on sale of the loans in the
secondary market. During the nine months ended March 31, 1999 the bank
originated $69.0 million of real estate loans and sold $71.1 million of
loans, which resulted in gains of $830,000. In fiscal 1998 and 1997, the bank
originated $57.2 million and $6.9 million of real estate loans held for sale
and sold $53.3 million and $6.0 million of these loans, which resulted in
gains of $713,000 and $44,000, respectively. Mortgage banking operations have
benefited from significant refinancing activity as a result of the relatively
low interest rate environment in which it has been operating.
Trust department income has become a significant contributor to
noninterest income, growing from approximately $356,000 in fiscal 1996 to
$1,139,000 in fiscal 1998 and to $1,115,000 during the first nine months of
fiscal 1999. Income is generated primarily from fees charged based on assets
under management for corporate and personal trusts and for custodial
services. Assets under administration have grown from $236.4 at June 30,
1997, to $293.3 at June 30, 1998 to approximately $473 million at March 31,
1999. Growth in the current fiscal year primarily resulted from the
establishment of a custodial relationship with one pension fund.
Quad City's initial public offering during the fourth calendar
quarter of 1993 raised approximately $14 million. In order to provide
additional capital to support the growth of the bank, Quad City put
additional financing in place in the form of a line of credit and a preferred
stock offering. The line of credit was established with a correspondent bank
for up to $4.5 million and currently has a $2.5 million balance outstanding.
There is also preferred stock outstanding with redemption preferences
totaling $3.0 million. Quad City expects to redeem all of the preferred stock
following the completion of this offering. Although Quad City intends to use
the proceeds from this offering to pay its outstanding line of credit debt
and redeem the outstanding preferred stock, it may retain this line of credit
or seek to reestablish a new line of credit in the future to provide
additional capital for the bank and other corporate purposes.
18
<PAGE>
NET INTEREST INCOME
Quad City's net income is derived primarily from net interest income.
Net interest income is the difference between interest income, principally
from loans and investment securities, and interest expense, principally on
borrowings and customer deposits. Changes in net interest income result from
changes in volume, net interest spread and net interest margin. Volume refers
to the average dollar levels of interest earning assets and interest bearing
liabilities. Net interest spread refers to the difference between the average
yield on interest earning assets and the average cost of interest bearing
liabilities. Net interest margin refers to the net interest income divided by
average interest earning assets and is influenced by the level and relative
mix of interest earning assets and interest bearing liabilities.
The following tables set forth information for the periods indicated
with regard to average balances of assets and liabilities, as well as the
total dollar amounts of interest income from interest earnings asset and
interest expense on interest-bearing liabilities and resultant yields or
costs, net interest income, net interest spread, net interest margin, and the
ratio of average interest-earning assets to average interest-bearing
liabilities for Quad City:
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------------------------------------------------------
1999 1998
------------------------------------- -------------------------------------
Interest Average Interest Average
Average Earned Or Yield Or Average Earned Yield Or
Balance Paid Cost Balance Or Paid Cost
---------- ------------ ------------- ------------ ---------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earnings assets:
Federal funds sold $ 26,741 $ 1,044 5.21% $ 7,635 $ 305 5.33%
Certificates of deposit at financial
institutions 10,879 513 6.29 6,217 319 6.84
Investment securities (1) 39,011 1,617 5.53 31,455 1,454 6.16
Net loans receivable (2) 176,992 11,509 8.67 130,961 8,642 8.80
----------------------- -----------------------
Total interest earning assets 253,623 14,683 7.72 176,268 10,720 8.11
Noninterest-earning assets:
Cash and due from banks 9,550 11,748
Premises and equipment 7,546 6,165
Other 4,412 3,568
---------- ----------
Total assets $ 275,131 $ 197,749
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Interest-bearing demand deposits $ 72,111 $ 1,871 3.46% $ 54,952 $ 1,517 3.68%
Savings deposits 4,188 63 2.01 2,802 47 2.24
Time deposits 110,110 4,740 5.74 75,860 3,345 5.88
Short-term borrowings 3,682 134 4.85 -- -- --
Federal Home Loan Bank advances 24,561 1,157 6.28 18,516 872 6.28
Others borrowings 2,250 120 7.11 1,500 97 8.62
----------------------- -----------------------
Total Interest bearing liabilities 216,902 8,085 4.97 153,630 5,878 5.10
Noninterest-bearing demand 33,359 23,861
Other noninterest-bearing liabilities 4,710 4,069
---------- ----------
Total liabilities 254,971 181,560
Stockholders' equity 20,160 16,189
---------- ----------
Total liabilities and stockholders'
equity $ 275,131 $197,749
---------- ----------
---------- ----------
Net interest income $ 6,598 $ 4,842
---------- --------
---------- --------
Net interest spread 2.75% 3.01%
----- -----
----- -----
Net interest margin 3.47% 3.66%
----- -----
----- -----
Ratio of average interest earning
assets to average
interest-bearing liabilities 116.93% 114.74%
---------- ----------
---------- ----------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------- -------------------------------- ---------------------------------
Interest Average Interes Average Interest Average
Average Earned Yield Or Average Earned Yield Or Average Earned Yield Or
Balance Or Paid Cost Balance Or Paid Cost Balance Or Paid Cost
--------- --------- -------- --------- --------- -------- --------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earnings assets:
Federal funds sold $ 11,005 $ 646 5.87% $ 5,693 $ 286 5.02% $ 6,868 $ 382 5.56%
Certificates of deposit at
financial institutions 7,173 441 6.15 5,649 375 6.64 5,454 359 6.58
Investment securities (1) 31,457 1,906 6.06 34,574 2,139 6.19 31,202 1,869 5.99
Net loans receivable (2) 139,860 12,084 8.64 80,033 6,906 8.63 44,064 3,919 8.89
-------------------- -------------------- --------------------
Total Interest
earning assets 189,495 15,077 7.96 125,949 9,706 7.71 87,588 6,529 7.45
Noninterest-earning assets:
Cash and due from banks $ 9,595 $ 7,682 $ 4,910
Premises and equipment 6,527 5,114 2,635
Other 3,756 3,053 1,839
-------- -------- ---------
Total assets $209,373 $141,798 $ 96,972
-------- -------- ---------
-------- -------- ---------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Interest-bearing demand
deposits $ 56,612 2,053 3.63% $ 41,184 1,381 3.35% $ 27,172 947 3.49%
Savings deposits 2,954 65 2.20 2,322 53 2.28 1,516 39 2.57
Time deposits 83,790 4,853 5.79 52,511 2,925 5.57 40,512 2,363 5.83
Short-term borrowings 166 9 5.42 517 28 5.42 1,237 65 5.25
Federal Home Loan Bank
advances 20,220 1,234 6.10 7,718 484 6.27 1,248 70 5.61
Other borrowings 1,500 128 8.53 1,417 123 8.68 83 2 2.41
-------------------- -------------------- --------------------
Total Interest bearing
liabilities 165,242 8,342 5.05 105,669 4,994 4.73 71,768 3,486 4.86
Noninterest-bearing demand 23,545 19,263 12,339
Other noninterest-bearing
liabilities 3,896 3,887 1,135
-------- -------- ---------
Total liabilities 192,683 128,819 85,242
Stockholders' equity 16,690 12,979 11,730
-------- -------- ---------
Total liabilities and
stockholders' equity $209,373 $141,798 $ 96,972
-------- -------- ---------
-------- -------- ---------
Net interest income $ 6,735 $ 4,712 $ 3,043
-------- -------- --------
-------- -------- --------
Net interest spread 2.91% 2.98% 2.59%
----- ----- -----
----- ----- -----
Net interest margin 3.55% 3.74% 3.47%
----- ----- -----
----- ----- -----
Ratio of average interest earning
assets to average
interest-bearing liabilities 114.68% 119.19% 122.04%
-------- -------- ---------
-------- -------- ---------
</TABLE>
(1) Interest earned and yields on nontaxable investment securities are stated
at face rate.
(2) Loan fees are not material and are included in interest income from loans
receivable.
20
<PAGE>
The following table illustrates, for the periods indicated, the
changes in Quad City's net interest income due to changes in volume and
changes in interest rates. Changes in net interest income due to both volume
and rate have been proportionately allocated to rate and volume.
<TABLE>
<CAPTION>
Nine Months Ended March 31, 1999 vs. Year Ended June 30, 1998 vs.
Nine Months Ended March 31, 1998 Year Ended June 30, 1997
--------------------------------------------- ------------------------------------------------
Increase (Decrease) Due To Total Increase (Decrease) Due To Total
------------------------------ Increase ------------------------------ Increase
Volume Rate (Decrease) Volume Rate (Decrease)
-------------- -------------- ------------- ------------- ---------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Earnings Assets:
Federal funds sold $ 746 $ (7) $ 739 $ 305 $ 55 $ 360
Certificates of deposit at
financial institutions 222 (28) 194 96 (29) 67
Investment securities (1) 324 (161) 163 (190) (44) (234)
Net loans receivable (2) 2,995 (128) 2,867 5,169 9 5,178
-------------- -------------- ------------- ------------- ---------------- ----------------
Total Interest earning assets $ 4,287 $ (324) $ 3,963 $ 5,380 $ (9) $ 5,371
-------------- -------------- ------------- ------------- ---------------- ----------------
Interest Bearing Liabilities:
Interest bearing demand
deposits $ 450 $ (96) $ 354 $ 552 $ 120 $ 672
Savings deposits 21 (5) 16 14 (2) 12
Time deposits 1,476 (81) 1,395 1,807 121 1,928
Short-term borrowings 134 --- 134 (19) --- (19)
Federal Home Loan Bank
advances 285 --- 285 763 (13) 750
Other borrowings 42 (19) 23 7 (2) 5
-------------- -------------- ------------- ------------- ---------------- ----------------
Total Interest bearing
liabilities $ 2,408 $ (201) $ 2,207 $ 3,124 $ 224 $ 3,348
-------------- -------------- ------------- ------------- ---------------- ----------------
Total $ 1,879 $ (123) $ 1,756 $ 2,256 $ (233) $ 2,023
-------------- -------------- ------------- ------------- ---------------- ----------------
-------------- -------------- ------------- ------------- ---------------- ----------------
<CAPTION>
Year Ended June 30, 1998 vs.
Year Ended June 30, 1997
---------------------------------------------
Increase (Decrease) Due To Total
------------------------------ Increase
Volume Rate (Decrease)
-------------- -------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Interest Earnings Assets:
Federal funds sold $ (61) $ (35) $ (96)
Certificates of deposit at
financial institutions 13 2 15
Investment securities (1) 207 63 270
Net loans receivable (2) 3,138 (151) 2,987
-------------- -------------- -------------
Total Interest earning assets $ 3,297 $ (121) $ 3,176
-------------- -------------- -------------
Interest Bearing Liabilities:
Interest bearing demand
deposits $ 471 $ (37) $ 434
Savings deposits 19 (5) 14
Time deposits 672 (111) 561
Short-term borrowings (39) 2 (37)
Federal Home Loan Bank
advances 405 9 414
Other borrowings 99 22 121
-------------- -------------- -------------
Total Interest bearing
liabilities $ 1,627 $ (120) $ 1,507
-------------- -------------- -------------
Total $ 1,670 $ (1) $ 1,669
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
(1) Interest earned and yields on nontaxable investment securities are stated
at face rate.
(2) Loan fees are not material and are included in interest income from loans
receivable.
21
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1999 COMPARED WITH NINE MONTHS ENDED MARCH 31,
1998
OVERVIEW. Net income for the nine-month period ended March 31, 1999
was $1.7 million as compared to net income of $1.0 million for the same
period in 1998 for an increase of $663,000 or 66%. Basic earnings per share
for the first nine months of fiscal 1999 increased to $.73 from $.46 for the
first nine months of fiscal 1998. The increase in net income was comprised of
increases in both net interest income after provision for loan losses of $1.9
million and noninterest income of $1.0 million reduced by increases in both
noninterest expenses of $1.8 million and income tax expense of $442,000. The
increase in noninterest income included $549,000 due to the amortization of
deferred income resulting from the restructuring of Bancard's merchant broker
agreement in 1998.
INTEREST INCOME. Interest income increased by $4.0 million, from
$10.7 million for the nine-month period ended March 31, 1998 to $14.7 million
for the nine-month period ended March 31, 1999. The 37% rise in interest
income was basically attributable to greater average outstanding balances in
interest earning assets, principally loans receivable.
INTEREST EXPENSE. Interest expense increased by $2.2 million, from
$5.9 million for the nine-month period ended March 31, 1998 to $8.1 million
for the nine-month period ended March 31, 1999. The 37% increase in interest
expense was primarily attributable to greater average outstanding balances in
interest bearing liabilities.
PROVISION FOR LOAN LOSSES. The provision for loan losses is
established based on factors such as the local and national economy and the
risk associated with the loans in the portfolio. At both March 31, 1999 and
June 30, 1998 Quad City had an allowance for estimated losses on loans of
approximately 1.4% of total loans. The provision for loan losses decreased by
$109,000, from $753,000 for the nine-month period ended March 31, 1998 to
$644,000 for the nine-month period ended March 31, 1999. The primary loan
growth for the period ended March 31, 1999 was in our commercial loan
portfolio, as opposed to our consumer loan portfolio which has historically
carried a greater degree of risk, allowing a decrease in the provision
necessary for the period. For the nine-month period ended March 31, 1999,
commercial and real estate loans combined for total charge-offs of $130,000
and total recoveries of $50,000. Consumer loan charge-offs and recoveries
totaled $262,000 and $52,000, respectively, for the nine months ended March
31, 1999. Indirect auto loans accounted for a majority of the consumer loan
charge-offs. Because asset quality is a priority for Quad City and its
subsidiaries, management has made the decision to downscale indirect auto
loan activity based on charge-off history. The ability to grow profitably is,
in part, dependent upon the ability to maintain asset quality.
NONINTEREST INCOME. Noninterest income increased by $1.0 million,
from $2.9 million for the nine month period ended March 31, 1998 to $3.9
million for the nine month period ended March 31, 1999. Noninterest income at
March 31, 1999 and 1998 consisted of income from the merchant credit card
operation, the trust department, depository service fees, gains on the sale
of residential real estate mortgage loans, and other miscellaneous fees. The
35% increase was primarily due to increased loan sales activity in the
residential real estate department of the bank and the recognition of
$549,000 of deferred income resulting from a gain on the restructuring of
Bancard's merchant broker agreement.
In June 1998, Quad City recognized $2.2 million of gross income as a
result of the amendment of the merchant broker agreement with its current,
major ISO. The amended agreement is for a minimum term of one year and
revised a prior agreement that was to expire in the year 2002. In
consideration for the reduction in term from four years to one year, Quad
City received total compensation of $2.9 million, of which $732,000 was
deferred to be recognized in income during fiscal 1999. In the prior
agreement, Quad City and the ISO had shared both merchant servicing fees and
related merchant credit risk. The amended agreement exchanges a substantial
reduction in merchant servicing income for a like reduction in the related
merchant credit risk. With the amended agreement, Quad City receives a fixed,
monthly fee of $25,000 for servicing the current merchants and is relieved
22
<PAGE>
of responsibility for any merchant credit risk. In an effort to offset the
reduced merchant servicing income, Quad City has been actively pursuing other
ISO relationships and has recently begun processing for additional ISOs.
During the nine months ended March 31, 1999, merchant credit card
fees, net of processing costs, decreased by $281,000 to $781,000, from
approximately $1.1 million for the nine months ended March 31, 1998. The
reduction reflected terms of the amended merchant broker agreement. Also as a
result of the amended merchant broker agreement, Quad City recognized
$549,000 of the deferred income and earned $225,000 of merchant servicing
fees for the nine months ended March 31, 1999.
For the nine months ended March 31, 1999, trust department fees
increased $289,000, or 35%, to $1.1 million from $825,000 for the nine months
ended March 31, 1998. The increase was primarily a reflection of the
development of additional trust relationships during the period.
Gain on sales of loans, net was $830,000 for the nine months ended
March 31, 1999, which reflected an increase of 62%, or $318,000, from
$512,000 for the nine months ended March 31, 1998. The increase resulted from
low interest rates, which created large numbers of both home refinances and
first-time home purchases, and the subsequent sale of the majority of these
loans into the secondary market.
NONINTEREST EXPENSES. The main components of noninterest expenses
were primarily salaries and benefits, occupancy and equipment expenses, and
professional and data processing fees for both periods. Noninterest expenses
for the nine months ended March 31, 1999 were $7.2 million as compared to
$5.4 million for the same period in 1998, or an increase of $1.8 million.
The following table sets forth the various categories of noninterest
expenses for the nine months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1999 1998 % Change
------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $ 4,325,693 $ 3,109,580 39.11%
Professional and data processing fees 427,061 375,337 13.78
Advertising and marketing 266,677 236,033 12.98
Occupancy and equipment expense 1,064,869 689,784 54.38
Stationery and supplies 198,884 156,163 27.36
Provision for merchant credit card losses 5,625 83,426 (93.26)
Postage and telephone 224,145 161,696 38.62
Other 638,228 549,430 16.16
----------------------------
TOTAL NONINTEREST EXPENSES $ 7,151,182 $ 5,361,449 33.38
----------------------------
----------------------------
</TABLE>
Salaries and benefits experienced the most significant increase of
any noninterest expense component. For the nine months ended March 31, 1999,
total salaries and benefits increased to $4.3 million or $1.2 million over
the 1998 period total of $3.1 million. The change was primarily attributable
to the addition of new bank employees during the period and increased
commission expense in the residential real estate department proportionate to
the large volume of residential mortgage loan originations and subsequent
loan sales. For the nine month period ended March 31, 1999, occupancy and
equipment expense increased $375,000 or 54% over the first nine months of
fiscal 1998. The increase was largely due to rent expense for the new Moline
location. Postage and telephone expense increased $62,000 or 39% and
stationery and supplies expense increased $43,000 or 27%. The increases were
the result of the overall increase in business volume of the bank. The
provision for merchant credit card losses during the first nine months of
fiscal 1999 decreased $78,000 or 93% from the first nine months of fiscal
1998, which reflected Bancard's amended merchant broker agreement and the
resulting reduction in Bancard's responsibility for merchant credit risk.
23
<PAGE>
INCOME TAX EXPENSE. The provision for income taxes was $1.1 million
for the nine-month period ended March 31, 1999 compared to $647,000 for the
nine-month period ended March 31, 1998, an increase of $442,000 or 68%. The
increase was the result of an increase in income before income taxes of $1.1
million or 67% for the nine months ending March 31, 1999 compared to the nine
months ending March 31, 1998.
FISCAL 1998 COMPARED WITH FISCAL 1997
OVERVIEW. Net income for the year ended June 30, 1998 was $2.4
million, compared to $1.2 million for the year ended June 30,1997, for an
increase of 96%. Results improved primarily because of a $2.0 million
increase in net interest income after provision for loan losses, and a $3.3
million increase in noninterest income, of which $2.2 million related to a
one-time gain on the restructuring of a merchant broker agreement. These
increases were offset by a $2.6 million increase in other expenses due
primarily to the increased number of employees and higher operating costs
related to the increased volume of business, as well as an increase in income
taxes of $1.5 million.
INTEREST INCOME. Interest income increased to $15.1 million in
fiscal 1998 from $9.7 million in fiscal 1997, an increase of $5.4 million.
The 55% rise was primarily due to greater average outstanding balances in
interest bearing assets. Interest income is comprised primarily of interest
income on loans (including loan fees), securities, federal funds sold and
Quad City's own deposits maintained at other financial institutions. Interest
income should continue to grow as the loan portfolio and other assets
increase, and would also increase as a result of a rise in interest rates.
INTEREST EXPENSE. Interest expense increased to $8.3 million in
fiscal 1998 from $5.0 million in fiscal 1997, an increase of $3.3 million, or
67%, and represented interest paid primarily to depositors, as well as
interest paid on Federal Home Loan Bank advances and federal funds purchased.
The increase in interest expense was again primarily due to greater average
outstanding balances in interest bearing liabilities. Interest expense will
continue to increase as deposits and Federal Home Loan Bank advances and
other borrowings grow and would also increase as a result of a rise in
interest rates.
Net interest income for the years ended June 30, 1998 and June 30,
1997 amounted to $6.8 million and $4.7 million, respectively, and represented
the difference between interest income earned on earning assets and interest
expense paid on interest bearing liabilities.
PROVISION FOR LOAN LOSSES. The provision for loan losses is
established based on factors such as the local and national economy and the
risk associated with the loans in the portfolio. Quad City's provision for
loan losses was $902,000 for the year ended June 30, 1998, compared to
$844,000 for the year ended June 30, 1997. The $58,000, or 7%, increase in
the provision for loan losses was primarily in response to greater growth in
the loan portfolio during fiscal 1998.
NONINTEREST INCOME. Noninterest income increased by $3.3 million, or
119%, to $6.1 million in fiscal 1998 from $2.8 million in fiscal 1997.
In June 1998, Quad City recognized $2.2 million of income as a
result of signing an amendment to a merchant broker agreement with its
principal ISO. The term of the amended agreement is for a minimum one-year
period, and revised a prior agreement that had an expiration date in the year
2002. In consideration for reducing the term from four years to one year, Quad
City received total compensation of $2.9 million. The remaining $732,000 will
be recognized in income during the fiscal year ending June 30, 1999.
Additionally, Quad City will receive a monthly fee of $25,000 for servicing
the current merchants during the remaining twelve months of the agreement. In
future years, if an agreement with another ISO is not established, there
could be a significant reduction in income. It is Quad City's intent,
however, to actively pursue relationships with one or more ISOs.
Another component of noninterest income is gains on sales of loans,
which totaled $713,000 and $44,000 in fiscal 1998 and 1997, respectively. The
$669,000 increase experienced in fiscal 1998 reflected the increased volume
of residential mortgage loans originated for sale by the bank to be sold on
the secondary market.
24
<PAGE>
Trust income increased by 55% to $1.1 million in fiscal 1998 from
$736,000 in fiscal 1997. The $402,000 increase reflected the development of
new trust relationships and increased trust account balances, as well as
strong stock and bond markets.
Other noninterest income increased $162,000 in fiscal 1998 to
$434,000 from $272,000 in fiscal 1997. The 59% increase was primarily due
to the fees generated by the receipt of lease income on the second floor of
the Davenport building, the growth in the commission income generated by the
investment center and fees generated by the item processing department.
NONINTEREST EXPENSES. Concurrent with Quad City's growth,
noninterest expenses increased to $7.9 million in fiscal 1998 from $5.3
million in fiscal 1997. The $2.6 million, or 50%, increase was primarily due
to higher overhead expenses on the increased volume of business attained
during fiscal 1998.
The following table sets forth the various categories of noninterest
expenses for the years ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Year Ended June 30,
1998 1997 % Change
------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $ 4,571,126 $ 2,934,758 55.76%
Professional and data processing fees 504,344 437,259 15.34
Advertising and marketing 238,160 126,061 88.92
Occupancy and equipment expense 1,045,349 654,010 59.84
Stationery and supplies 219,523 191,682 14.52
Provision for merchant credit card losses 105,910 176,476 (39.99)
Postage and telephone 231,049 168,890 36.80
Other 994,354 601,667 65.27
---------------------------
TOTAL NONINTEREST EXPENSES $ 7,909,815 $ 5,290,803 49.50
---------------------------
---------------------------
</TABLE>
In fiscal 1998, salaries and employee benefits experienced the most
significant dollar increase of any noninterest expense component. For the
twelve months ended June 30,1998, total salaries and benefits increased to
$4.6 million or $1.7 million over the June 30, 1997 amount of $2.9 million.
The change was primarily attributable to the increase in the staff for the
new Moline location and increased incentive compensation based on business
volume.
In fiscal 1998, advertising and marketing expense experienced the
largest single percentage increase within the noninterest expense category.
For the twelve months ended June 30, 1998, total advertising and marketing
expense increased to $238,000 or $112,000 over the June 30, 1997 total of
$126,000. The change was primarily attributable to the promotional and
marketing efforts of Quad City's expansion to the new Moline Velie Plantation
location.
In fiscal 1998, provision for merchant credit card losses decreased
to $106,000 or $70,000 from the June 30, 1997 amount of $176,000. As
mentioned above, the decrease was primarily due to Bancard restructuring its
merchant portfolio to focus on smaller merchants with less corresponding
risk, and as a result experienced reduced losses.
INCOME TAX EXPENSE. Quad City's federal and state income tax expense
totaled $1.7 million and $165,000 in fiscal 1998 and 1997, respectively. The
$1.5 million increase was the result of higher income before income taxes.
Additionally, during the year ended June 30, 1997, Quad City was able to
reduce its income tax expense in the first three fiscal quarters due to
pre-opening expenses and initial loss carryforwards, therefore it was only
during the fiscal fourth quarter of 1997 that income tax expense was recorded.
25
<PAGE>
FISCAL 1997 COMPARED WITH FISCAL 1996
OVERVIEW. Net income for the year ended June 30, 1997 was $1.2
million, compared to $683,000 for the year ended June 30, 1996. Results
improved primarily because of a $1.3 million increase in net interest income
after provision for loan losses, and a $1.1 million increase in noninterest
income. These increases were offset by a $1.7 million increase in other
expenses due primarily to the increased number of employees and higher
operating costs related to the increased volume of business, as well as
income taxes of $165,000.
INTEREST INCOME. Interest income increased to $9.7 million in fiscal
1997 from $6.5 million in fiscal 1996, an increase of $3.2 million. This was
primarily due to greater average outstanding balances in interest bearing
assets. Interest income is comprised primarily of interest income on loans
(including loan fees), securities, federal funds sold and Quad City's own
deposits maintained at other financial institutions. Interest income should
continue to grow as the loan portfolio and other assets increase, and would
also increase as a result of a rise in interest rates.
INTEREST EXPENSE. Interest expense increased to $5.0 million in
fiscal 1997 from $3.5 million in fiscal 1996, an increase of $1.5 million,
and represented interest paid primarily to depositors, as well as interest
paid on Federal Home Loan Bank advances and federal funds purchased. The
increase in interest expense was again primarily due to greater average
outstanding balances in interest bearing liabilities. Interest expense will
continue to increase as deposits and Federal Home Loan Bank advances and
other borrowings grow and would also increase as a result of a rise in
interest rates.
Net interest income for the years ended June 30, 1997 and June 30,
1996 amounted to $4.7 million and $3.0 million, respectively, and represented
the difference between interest income earned on earning assets and interest
expense paid on interest bearing liabilities.
PROVISION FOR LOAN LOSSES. The provision for loan losses is
established based on factors such as the local and national economy and the
risk associated with the loans in the portfolio. Quad City's provision for
loan losses was $844,000 for the year ended June 30, 1997, compared to
$500,000 for the year ended June 30, 1996. The $344,000 increase in the
provision for loan losses was primarily in response to the growth in the loan
portfolio during fiscal 1997. The increase maintained Quad City's allowance
for estimated losses on loans at 1.5% of total loans at both June 30, 1997
and June 30, 1996.
NONINTEREST INCOME. Noninterest income increased by $1.1 million to
$2.8 million in fiscal 1997 from $1.7 million in fiscal year 1996. Management
plans to place increased importance on enhancing noninterest income by
establishing a profitability steering committee during fiscal 1998.
One of the most significant components of noninterest income is net
merchant credit card income, which totaled $1.5 million and $1.0 million in
fiscal 1997 and 1996, respectively. The $524,000 growth experienced in fiscal
1997 reflects the increase of over $167 million of transactions processed, as
well as the addition of approximately 1,500 new merchants.
Trust income increased to $736,000 in fiscal 1997 from $355,000 in
fiscal 1996. The $381,000 increase reflects the development of new trust
relationships, as well as a strong stock market.
Other noninterest income increased $143,000 in fiscal 1997 to
$272,000 from $129,000 in fiscal 1997. The increase was primarily due to
the fees generated by the item-processing department, receipt of lease
income on the second floor of the Davenport building and the growth in the
commission income generated by the investment center.
NONINTEREST EXPENSES. Other expenses consisted primarily of salaries
and benefits; bank service charges and trust related expenses; professional
fees; data processing fees; and occupancy and equipment expenses. Other
26
<PAGE>
expenses increased to $5.3 million in fiscal 1997 from $3.6 million in fiscal
1996. The $1.7 million increase was primarily due to higher overhead expenses
on the increased volume of business attained during fiscal 1997.
The following table sets forth the various categories of noninterest
expenses for the years ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 % Change
------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $ 2,934,758 $ 1,973,682 48.69%
Professional and data processing fees 437,259 282,640 54.71
Advertising and marketing 126,061 189,761 (33.57)
Occupancy and equipment expense 654,010 289,230 126.12
Stationery and supplies 191,682 100,672 90.40
Provision for merchant credit card losses 176,476 126,805 38.27
Postage and telephone 168,890 117,741 43.44
Other 601,667 495,858 21.34
---------------------------
TOTAL NONINTEREST EXPENSES $ 5,290,803 $ 3,576,389 47.94
---------------------------
---------------------------
</TABLE>
In fiscal 1997, salaries and benefits experienced the most
significant dollar increase of any noninterest expense component. For the
twelve months ended June 30, 1997, total salaries and benefits increased to
$2.9 million or $961,000 over the June 30, 1996 total of $2.0 million. The
change was primarily attributable to the increase in Quad City's number of
employees, as well as merit and cost of living raises.
In fiscal 1997, occupancy and equipment expense experienced the
largest single percentage increase within the noninterest expense category.
For the twelve months ended June 30, 1997, total occupancy and equipment
expense increased to $654,000 or $365,000 over the June 30, 1996 total of
$289,000. The change was primarily attributable to Quad City's expansion to a
second banking facility, located in Davenport.
INCOME TAX EXPENSE. Quad City's income taxes expense was $165,000
for the year ended June 30, 1997. During fiscal 1997 the tax loss carry
forwards associated with pre-opening and initial losses had been fully
utilized, therefore during the fiscal fourth quarter, income tax expense was
recorded, but at an effective rate of 11.9%, well below the statutory rate.
FINANCIAL CONDITION
Total assets of Quad City increased by $49.6 million or 20% to
$299.8 million at March 31, 1999 from $250.2 million at June 30, 1998. Total
assets of Quad City grew by $81.8 million, or 49%, to $250.2 million at
June 30, 1998 from $168.4 million at June 30, 1997. The growth primarily
resulted from an increase in the loan portfolio funded by deposits received
from customers, FHLB advances and short term borrowings. The largest increase
in Quad City's balance sheet as of March 31, 1999, was in deposits received
from customers. This was a result of an aggressive program to attract deposits
through higher deposit pricing, increased marketing efforts and the hiring of
new personnel to staff a business development department to fund the increase
in loans.
CASH AND CASH EQUIVALENT ASSETS. Cash and due from banks decreased
by $3.2 million or 27% to $8.4 million at March 31, 1999 from $11.6 million
at June 30, 1998. Cash and due from banks increased by $4.6 million, or 66%,
to $11.6 million at June 30, 1998 from $7.0 million at June 30, 1997. Cash
and due from banks represented both cash maintained at the bank, as well as
funds that the bank and Quad City had deposited in other banks in the form of
demand deposits.
27
<PAGE>
Federal funds sold are inter-bank funds with daily liquidity. At
March 31, 1999, the bank had $29.4 million invested in such funds. This
amount increased by $6.4 million or 28% from $23.0 million at June 30, 1998.
The $23.0 million, that Quad City had invested in such funds at June 30,
1998, was an increase of $13.8 million, or 150%, from $9.2 million at June 30,
1997. The increase was attributable to Quad City's increased liquidity at
the end of the fiscal year. Quad City made the decision to increase its
liquidity position in order to meet anticipated loan demand and large deposit
maturities.
Certificates of deposit at financial institutions increased by $4.1
million or 49% to $12.5 million at March 31, 1999 from $8.4 million at June
30, 1998 and $5.4 million at June 30, 1997. The bank continued to make new
deposits in other banks in the form of certificates of deposit.
INVESTMENTS. Securities increased by $13.3 million or 38% to $47.9
million at March 31, 1999 from $34.6 million at June 30, 1998. The increase
was the result of a number of transactions in the securities portfolio.
Paydowns of $1.3 million were received on mortgage-backed securities, and the
amortization of premiums, net of the accretion of discounts, was $19,000.
Maturities, calls, and sales of securities occurred in the amount of $12.6
million. These decreases were offset by the purchase of additional
securities, classified as available for sale, in the amount of $27.1 million,
and an increase in unrealized gains on securities available for sale, before
applicable income tax, of $162,000.
The following table presents the amortized cost and fair value of
investment securities held on March 31, 1999:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------------------------------------------------------
<S> <C> <C> <C> <C>
Securities held to maturity:
Municipal securities $ 749,240 $ 11,853 $ --- $ 761,093
Other bonds 25,000 1,235 --- 26,235
-------------------------------------------------------
Total $ 774,240 $ 13,088 $ --- $ 787,328
--------------------------------------------------------
--------------------------------------------------------
Securities available for sale:
U.S. treasury securities $11,003,731 $101,628 $ --- $11,105,359
U.S. agency securities 23,785,877 131,750 (88,974) 23,828,653
Mortgage-backed securities 8,781,718 12,193 (40,150) 8,753,761
Municipal securities 1,562,918 68,000 --- 1,630,918
Other securities 1,835,315 2,512 (8,013) 1,829,814
--------------------------------------------------------
Total $46,969,559 $316,083 $ (137,137) $47,148,505
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
The following table presents the maturity of securities held on
March 31, 1999 and the weighted average rates by range of maturity. The table
excludes $1,835,315 of securities with no maturity or stated face rate:
<TABLE>
<CAPTION>
After One Year After Five Years
Through Through After
Within One Year Five Years Ten Years Ten Years Total
---------------------------------------------------------------------------------
Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield Amount
---------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. treasury securities $ 5,001 5.89% $ 6,003 5.61% $ -- --% $ -- --% $ 11,004
U.S. agency securities -- -- 19,740 5.49 4,046 5.47 -- -- 23,786
Mortgage-backed
securities -- -- 1,669 6.19 2,655 5.78 4,458 5.92 8,782
Municipal securities 250 6.80 468 6.08 899 4.34 695 5.37 2,312
Other bonds -- -- 25 6.30 -- -- -- -- 25
------- ------- ------- ------- --------
Total $ 5,251 $27,905 $ 7,600 $ 5,153 $ 45,909
------- ------- ------- ------- --------
------- ------- ------- ------- --------
</TABLE>
28
<PAGE>
Portions of the investment securities of the bank are purchased with
the intent to hold the securities until they mature. These held to maturity
securities were recorded at amortized cost at March 31, 1999, June 30, 1998
and June 30, 1997. At March 31, 1999, municipal securities and other bonds
made up the $774,000 balance. This was a decrease of $1.6 million, or 67%,
from June 30, 1998, when mortgage-backed securities, municipal securities and
other bonds made up the $2.4 million balance. Market values at March 31,
1999, June 30, 1998 and June 30, 1997 were $787,000, $2.4 million and $2.9
million, respectively.
All of Quad City's and a portion of the bank's securities are placed
in the available for sale category as the securities may be liquidated to
provide cash for operating or financing purposes. These securities were
reported at fair value and increased by $14.9 million, or 46%, to $47.1
million at March 31, 1999, from $32.2 million at June 30, 1998. The amortized
cost of such securities at March 31, 1999, June 30, 1998 and June 30, 1997
was $47.0 million, $32.2 million and $29.0 million, respectively.
The following table presents the maturity of securities held on June
30, 1998 and the weighted average rates by range of maturity. The table
excludes $1,500,806 of securities with no maturity or stated face rate.
<TABLE>
<CAPTION>
After One Year After Five Years
Through Through After
Within One Year Five Years Ten Years Ten Years
---------------------------------------------------------------------------------
Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield Total
---------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. treasury securities $ 9,006 5.80% $ 8,001 5.77% $ --- ---% $ --- ---% $ 17,007
U.S. agency securities 498 4.47 8,749 6.04 2,001 6.29 --- --- 11,248
Mortgage-backed securities --- --- 1,442 6.27 1,613 6.41 299 6.00 3,354
Municipal securities 150 4.23 447 6.72 869 4.76 --- --- 1,466
Other bonds --- --- 25 6.30 --- --- --- --- 25
------- ------- ------- ------- --------
TOTAL $ 9,654 $ 18,664 $ 4,483 $ 299 $ 33,100
------- ------- ------- ------- --------
------- ------- ------- ------- --------
</TABLE>
Quad City does not use any financial instruments referred to as
derivatives to manage interest rate risk and as of March 31, 1999 there
existed no security in the investment portfolio (other than U.S. government
and U.S. government agencies) that exceeded 10% of stockholders' equity at
that date.
LOANS. Loans receivable increased by $28.7 million or 18% to $191.7
million at March 31, 1999 from $163.0 million at June 30, 1998. The increase
was the result of the origination or purchase of $207.1 million of commercial
business, consumer and real estate loans, less loan charge-offs, net of
recoveries, of $290,000, and loan repayments or sales of loans of $178.1
million. The majority of residential real estate loans originated by the bank
were sold on the secondary market to avoid the interest rate risk associated
with long term fixed rate loans.
The following table presents the composition of the loan portfolio
as of March 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Commercial $ 130,361,279
Real estate 29,926,782
Installment and other consumer 31,391,049
-----------------
TOTAL LOANS 191,679,110
Less allowance for estimated losses on loans 2,704,448
-----------------
NET LOANS $ 188,974,662
-----------------
-----------------
</TABLE>
29
<PAGE>
The following table presents consolidated maturities by yearly
ranges as of March 31, 1999. Also included for loans after one year are the
amounts that have predetermined interest rates and floating or adjustable
rates:
<TABLE>
<CAPTION>
Maturities After One Year
Due after One -----------------------------------
Due in One through Due after Predetermined Adjustable
Year or Less 5 Years 5 years Interest Rates Interest Rates
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
As of March 31, 1999:
Commercial $ 44,494,274 $ 60,155,105 $ 25,711,900 $ 72,987,062 $ 12,879,943
Real Estate 3,524,017 1,586,629 24,816,136 10,126,691 16,276,074
Installment and other
consumer 4,749,614 24,737,609 1,903,826 24,485,971 2,155,464
------------------------------------------------------------------------------------------
TOTAL $ 52,767,905 $ 86,479,343 $ 52,431,862 $ 107,599,724 $ 31,311,481
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
Loans receivable increased by $54.6 million, or 50%, to $163.0
million at June 30, 1998 from $108.4 million at June 30, 1997. As of June 30,
1998, the bank's legal lending limit was $3.1 million. The majority of
residential real estate loans originated by the bank were sold on the
secondary market to avoid the interest rate risk associated with long term
fixed rate loans. During the fiscal year ended June 30, 1998, the bank
originated $93.6 million of loans and received repayments of $42.7 million.
30
<PAGE>
The composition of the loan portfolio as of June 30, 1998, 1997,
1996, 1995, and 1994 was as follows:
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 99,097,297 $ 68,634,556 $ 40,338,645 $ 24,748,659 $ 10,509,745
Real estate 31,145,517 20,293,440 9,011,608 2,879,530 354,035
Installment and other
consumer 32,732,322 19,437,433 7,459,467 3,879,388 1,903,681
---------------------------------------------------------------------------------
TOTAL LOANS 162,975,136 108,365,429 56,809,720 31,507,577 12,767,461
Less allowance for loan
losses on loans 2,349,838 1,632,500 852,500 472,475 191,500
---------------------------------------------------------------------------------
NET LOANS $ 160,625,298 $ 106,732,929 $ 55,957,220 $ 31,035,102 $ 12,575,961
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</TABLE>
The following table presents consolidated maturities by yearly
ranges as of June 30, 1998. Also included for loans after one year are the
amounts that have predetermined interest rates and floating or adjustable
rates.
<TABLE>
<CAPTION>
After One
Maturities Year
Due after One --------------------------------
Due in One through Due after Predetermined Adjustable
Year or Less 5 Years 5 years Interest Rates Interest Rates
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
As of June 30, 1998
Commercial $ 34,796,849 $ 42,324,290 $ 21,976,158 $ 51,814,664 $ 12,485,784
Real estate 2,947,680 1,300,852 26,896,985 12,245,661 15,952,176
Installment and other
consumer 5,596,595 23,762,290 3,373,437 25,440,774 1,694,953
------------------------------------------------------------------------------------
TOTALS $ 43,341,124 $ 67,387,432 $ 52,246,580 $ 89,501,099 $ 30,132,913
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
ALLOWANCE FOR LOAN LOSSES. The allowance for estimated losses on
loans was $2.7 million at March 31, 1999 compared to $2.3 million at June 30,
1998 for an increase of $355,000 or 15%. The adequacy of the allowance for
estimated losses on loans was determined by management based on factors that
included the overall composition of the loan portfolio, types of loans, past
loss experience, loan delinquencies, potential substandard and doubtful
credits, and other factors that, in management's judgment, deserved
evaluation in estimating loan losses. The adequacy of the allowance for
estimated losses on loans was monitored by the loan review staff, and
reported to management and the Board of Directors.
Net charge-offs for the nine months ended March 31, were $290,000
and $77,000 in 1999 and 1998, respectively. The increase was primarily due to
the losses resulting from auto loans purchased from dealers. The Company has
since scaled back on this type of lending. One measure of the adequacy of the
allowance for estimated losses on loans is the ratio of the allowance to the
total loan portfolio. Provisions were made monthly to ensure that an adequate
level was maintained. The allowance for estimated losses on loans as a
percentage of total loans was 1.41% at March 31, 1999 and 1.44% at June 30,
1998.
31
<PAGE>
The following table presents the allowance for estimated losses on
loans by type of loans and the percentage of loans in each category to total
loans as of March 31, 1999.
<TABLE>
<CAPTION>
% of
Loans to
Total
Amount Loans
----------------------------
<S> <C> <C>
Commercial and industrial $ 2,023,749 68.00%
Real estate 95,694 15.60
Consumer 568,559 16.40
Unallocated 16,446 N/A
----------------------------
$ 2,704,448 100.00%
----------------------------
----------------------------
</TABLE>
Activity in the allowance for estimated losses on loans for the nine
months ended March 31, 1999 and 1998, was as follows:
<TABLE>
<CAPTION>
Nine Months Ended March 31,
------------------------------------
1999 1998
------------------------------------
<S> <C> <C>
Average amount of loans outstanding, before allowance
for estimated losses on loans $ 179,545,525 $132,959,130
------------------------------------
Allowance for estimated losses on loans:
Balance, beginning of fiscal year $ 2,349,838 $ 1,632,500
------------------------------------
Charge-offs:
Commercial (104,596) (12,763)
Real estate (25,142) --
Installment and other consumer (262,206) (81,012)
------------------------------------
SUBTOTAL CHARGE-OFFS (391,944) (93,775)
------------------------------------
Recoveries:
Commercial 50,150 13,147
Real estate -- --
Installment and other consumer 52,004 3,893
------------------------------------
SUBTOTAL RECOVERIES 102,154 17,040
------------------------------------
Net charge-offs (289,790) (76,735)
Provision charged to expense 644,400 753,258
------------------------------------
Balance, end of period $ 2,704,448 $ 2,309,023
------------------------------------
------------------------------------
Ratio of net charge-offs to average loans outstanding 0.16% 0.06%
</TABLE>
Quad City's allowance for estimated losses on loans was $2.3 million
at June 30, 1998 or 1.44% of total loans, compared to $1.6 million or 1.51%
at June 30, 1997. Although management believes that the allowance for
estimated losses on loans at June 30, 1998 was at a level adequate to absorb
losses on existing loans, there can be no assurance that such losses will not
exceed the estimated amounts or that Quad City will not be required to make
additional provisions for loan losses in the future. Asset quality is a
priority for Quad City and its subsidiaries. The ability to grow profitably
is in part dependent upon the ability to maintain that quality.
32
<PAGE>
The following table presents the allowance for estimated losses or
loans by type of loans and the percentage of loans in each category to total
loans as of June 30, 1998, 1997, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------------------------
% of % of % of % of % of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
industrial $1,213,439 60.81% $ 799,566 63.34% $ -- 71.01% $ -- 78.55% $ -- 82.32%
Real estate 79,198 19.11 66,742 18.73 -- 15.86 -- 9.14 -- 2.77
Consumer 515,489 20.08 387,096 17.93 -- 13.13 -- 12.31 -- 14.91
Unallocated 541,712 N/A 379,096 N/A 852,500 N/A 472,475 N/A 191,500 N/A
---------------------------------------------------------------------------------------------------------------
TOTAL $2,349,838 100.00% $1,632,500 100.00% 852,500 100.00% 472,475 100.00% $ 191,500 100.00%
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
Quad City experienced loan charge-offs of $205,000 during fiscal
1998 compared to $65,000 during fiscal 1997. Approximately 70% of the
charge-offs during fiscal 1998 were consumer loans, with the remainder
consisting of commercial loans. Approximately 60% of the charge-offs during
fiscal 1997 were consumer loans, and the remainder were commercial loans. At
June 30, 1997 and in prior years, much of the loan portfolio had been on the
books for a relatively short time, thus an increase in loan charge-offs was
likely as the portfolio matured. Loans charged off as a percentage of gross
loans receivable at June 30, 1998 increased to 0.13% from 0.08% at June 30,
1997.
33
<PAGE>
Activity in the allowance for estimated losses on loans for the
fiscal years ended June 30, 1998, 1997, 1996, 1995, and 1994, respectively,
is presented in the following table:
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding,
before allowance for estimated
losses on loans $141,974,417 $81,251,090 $44,749,454 $23,451,527 $3,433,648
Allowance for estimated losses on loans:
Balance, beginning of fiscal year $ 1,632,500 $ 852,500 $ 472,475 $ 191,500 --
-----------------------------------------------------------------------
Charge-offs:
Commercial (62,763) (26,141) (117,555) -- --
Real estate -- -- -- -- --
Installment and other consumer (142,471) (38,772) (2,817) (1,725) --
-------------------------------------------------------------------------
SUBTOTAL CHARGE-OFFS (205,234) (64,913) (120,372) (1,725) --
-------------------------------------------------------------------------
Recoveries:
Commercial 13,146 266 -- -- --
Real estate
Installment and other consumer 7,450 256 -- 100 --
-------------------------------------------------------------------------
SUBTOTAL RECOVERIES 20,596 522 -- 100 --
-------------------------------------------------------------------------
Net charge-offs (184,638) (64,391) (120,372) (1,625) --
Provision charged to expense 901,976 844,391 500,397 282,600 191,500
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance, end of fiscal year $ 2,349,838 $ 1,632,500 $ 852,500 $ 472,475 $ 191,500
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Ratio of net charge-offs to average
loans outstanding 0.13% 0.08% 0.27% 0.01% 0.00%
</TABLE>
NONPERFORMING ASSETS. The policy of Quad City is to place a loan on
nonaccrual status if: (a) payment in full of interest or principal is not
expected or (b) principal or interest has been in default for a period of 90
days or more unless the obligation is both in the process of collection and
well secured. Well secured is defined as collateral with sufficient market
value to repay principal and all accrued interest. A debt is in the process
of collection if collection of the debt is proceeding in due course either
through legal action, including judgment enforcement procedures, or in
appropriate circumstances, through collection efforts not involving legal
action which are reasonably expected to result in repayment of the debt or in
its restoration to current status.
Nonaccrual loans were $1.5 million at March 31, 1999 compared to
$1.0 million at June 30, 1998 for an increase of $484,000 or 47%. The
increase in nonaccrual loans was comprised of increases in commercial loans
of $422,000 and consumer loans of $100,000 offset by a decrease in real
estate loans of $38,000. A single loan accounted for 57% of the increase in
commercial loans having nonaccrual status. The maturity date of the loan
passed, requiring that the loan be classified as nonaccrual, but monthly
payments continued to be received. Nonaccrual loans at March 31, 1999
consisted primarily of loans that were well-collateralized and were not
expected to result in material losses.
34
<PAGE>
The following table presents nonaccrual, past due and renegotiated
loans and other real estate owned as of March 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Loans accounted for on nonaccrual basis $ 1,509,283
Accruing loans past due 90 days or more 58,709
Troubled debt restructurings --
-------------
TOTAL NONPERFORMING LOANS $ 1,567,992
-------------
Other real estate owned 119,600
-------------
TOTAL NONPERFORMING ASSETS $ 1,687,592
-------------
</TABLE>
As of March 31, 1999 past due loans of 30 days or more amounted to
$2.4 million and as of June 30, 1998 and 1997, past due loans of 30 days or
more amounted to $2.3 million and $929,000, respectively. Quad City
anticipated an increase in the dollar amount of this category in fiscal 1998
from the prior years. As of June 30, 1997 and in prior years, much of the
loan portfolio had been on the books for a relatively short time, thus an
increase in past due loans was likely as the portfolio matured. Past due
loans as a percentage of gross loans receivable was 1.3% at March 31, 1999,
1.4% at June 30, 1998 and 0.9% at June 30, 1997.
Nonaccrual, past due and renegotiated loans are as follows as of
June 30, 1998, 1997, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans accounted for on
nonaccrual basis $ 1,025,761 $ 230,591 $ -- $ -- $ --
Accruing loans past due
90 days or more 259,277 223,966 306,774 1,678 --
Troubled debt restructurings -- -- -- -- --
-------------------------------------------------------------------------
TOTAL NONPERFORMING LOANS $ 1,285,038 $ 454,557 $ 306,774 $ 1,678 $ --
Other real estate owned -- -- -- -- --
-----------------------------------------------------------------------
TOTAL NONPERFORMING
ASSETS $ 1,285,038 $ 454,557 $ 306,774 $ 1,678 $ --
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
OTHER ASSETS. Premises and equipment decreased by $248,000 or 3% to
$7.4 million at March 31, 1999 from $7.7 million at June 30, 1998. The decrease
resulted from depreciation expense offset by the purchase of additional
furniture, fixtures and equipment. Premises and equipment increased by $2.4
million, or 46%, to $7.7 million as of June 30, 1998 from $5.3 million as of
June 30, 1997. The increase resulted primarily from the purchase of additional
furniture, fixtures and equipment for the bank and Bancard, and leasehold
improvement costs for the new Moline banking location, offset by depreciation
expense. Additional information regarding the composition of this account and
related accumulated depreciation is described in footnote 5 to the consolidated
financial statements.
Accrued interest receivable on loans, securities and interest-bearing
cash accounts increased by $284,000 or 16% to $2.1 million at March 31, 1999
from $1.8 million at June 30, 1998. Accrued interest receivable on loans,
securities and interest-bearing cash accounts increased to $1.8 million, or 29%,
as of June 30, 1998 from
35
<PAGE>
$1.4 million as of June 30, 1997. The increases were primarily due to greater
average outstanding balances in interest-bearing assets.
Other assets increased by $637,000 or 25% to $3.1 million at March 31,
1999 from $2.5 million at June 30, 1998. The increase consisted primarily of an
increase in accrued trust department fees of $356,000. Other assets also
included miscellaneous receivables and prepaid expenses. Other assets as of June
30, 1998 and June 30, 1997 totaled $2.5 million and $1.7 million, respectively.
The $798,000, or 47%, increase was attributable to the increased volume of
business and the related prepaid expenses associated with the growth at the
bank.
DEPOSITS. Deposits increased by $41.7 million or 21% to $239.1 million
at March 31, 1999 from $197.4 million at June 30, 1998. The increase resulted
from a $27.8 million net increase in noninterest bearing, NOW, money market and
other savings accounts and a $13.9 million net increase in certificates of
deposit.
The average amount of and average rate paid for deposits as of and for
the nine months ended March 31, 1999 and 1998 are disclosed in the consolidated
average balance sheets and can be found on page 15.
Included in interest-bearing deposits as of March 31, 1999 were
certificates of deposit totaling $35.8 million, that were $100,000 or greater.
Maturities of these certificates are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
One to three months $ 11,463,416
Three to six months 7,387,209
Six to twelve months 8,875,357
Over twelve months 8,108,547
----------------
TOTAL CERTIFICATES OF DEPOSIT
GREATER THAN $100,000 $ 35,834,529
----------------
----------------
</TABLE>
Deposits grew to $197.4 million as of June 30, 1998 from $136.0 million
as of June 30, 1997, for an increase of $61.4 million, or 45%. The increase
consisted of a $4.5 million increase in noninterest bearing accounts and a $56.9
million increase in interest bearing accounts.
The increases for these periods were a result of periodic aggressive
pricing programs for deposits, increased marketing efforts and the hiring of new
personnel to staff a business development department. Management also believes
the increases were a reaction by customers to the acquisitions and mergers of
local banks by transferring their financial business to community banks that
have the ability to offer more personalized service.
The average amount of and average rate paid for deposits as of and for
the fiscal years ended June 30, 1998, 1997, and 1996 are disclosed in the
consolidated average balance sheets and can be found on page 19.
36
<PAGE>
Included in interest bearing deposits as of June 30, 1998, 1997, and
1996 were certificates of deposit totaling $31.9 million, $23.0 million, $13.7
million, respectively, that were $100,000 or greater. Maturities of these
certificates are summarized as follows:
<TABLE>
<CAPTION>
June 30,
------------------------------------------------
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C>
One to three months $ 8,633,273 $ 10,745,903 $ 5,984,277
Three to six months 9,647,980 4,324,058 1,931,085
Six to twelve months 10,997,407 4,131,882 3,494,877
Over twelve months 2,658,717 3,776,280 2,309,971
------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
GREATER THAN $100,000 $ 31,937,377 $ 22,978,123 $ 13,720,210
------------------------------------------------
------------------------------------------------
</TABLE>
SHORT-TERM BORROWINGS. Short-term borrowings increased $5.5 million
from $2.0 million as of June 30, 1998 to $7.5 million as of March 31, 1999. As
of June 30, 1998 short-term borrowings represented federal funds purchased from
correspondent banks. In recent months, the bank began offering short-term
repurchase agreements to some of its major customers. As of March 31, 1999
short-term borrowings were comprised entirely of these customer repurchase
agreements.
FHLB ADVANCES AND OTHER BORROWINGS. FHLB advances increased by $1.2
million or 5% to $25.9 million as of March 31, 1999 from $24.7 million at June
30, 1998. As of June 30, 1998 FHLB advances had increased to $24.7 million from
$10.8 million as of June 30, 1997, for an increase of $13.9 million, or 129%. As
of June 30, 1998, the bank held $1.2 million of FHLB stock. As a result of its
membership in the FHLB of Des Moines, the bank has the ability to borrow funds
for short or long-term purposes under a variety of programs. The increases
primarily resulted as the bank used FHLB advances for loan matching and for
hedging against the possibility of rising interest rates.
Other borrowings increased by $1.0 million or 67% to $2.5 million at
March 31, 1999 from $1.5 million as of June 30, 1998. Other borrowings were $1.5
million as of both June 30, 1998 and 1997. Other borrowings consisted of the
amount outstanding on a revolving credit note with a third party lender, which
is secured by all the outstanding stock of the bank. On July 1, 1998, Quad City
increased the amount available under the credit note to $4.5 million and
extended the expiration date to July 1, 2000. The borrowed funds were utilized
to provide additional capital to the bank to maintain a 7.5% aggregate capital
ratio.
Other liabilities decreased by $1.8 million or 33% to $3.7 million as
of March 31, 1999 from $5.5 million as of June 30, 1998. Other liabilities
remained constant at $5.5 million at both June 30, 1998 and 1997. Other
liabilities were comprised of unpaid amounts for various products and services,
and accrued but unpaid interest on deposits.
STOCKHOLDERS' EQUITY. At both March 31, 1999 and June 30, 1998, Quad
City had 25 shares of perpetual, nonvoting, Series A preferred stock, par value
$1.00 per share, issued and outstanding. In anticipation of continued asset
growth, Quad City had privately placed these 25 shares of preferred stock with a
limited number of institutional investors at a price of $100,000 per share, for
an aggregate of $2,500,000. Additional commitments to purchase the Series A
preferred stock, evidenced by signed subscription agreements, totaled $4.0
million at March 31, 1999. The Series A preferred stock pays no dividends, and
carries a cumulative liquidation and redemption value equal to the original
purchase price plus an annual premium of 9.75%. At June 30, 1999, the
approximate redemption value at which Quad City expects to redeem the
outstanding shares of Series A preferred stock upon the closing of this offering
for aggregate consideration is $3.0 million.
Common stock increased by $786,000 or 52% to $2.3 million as of March
31, 1999 from $1.5 million as of June 30, 1998. The increase was caused by (i)
exercises of stock warrants and options resulting in the issuance
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of 30,345 additional shares of common stock, and (ii) a 3 for 2 stock split,
effected in the form of a stock dividend, effective November 30, 1998, which
resulted in the issuance of an additional 760,262 shares of common stock.
Additional paid-in capital decreased by $563,000 or 4% to $14.4 million
as of March 31, 1999 from $15.0 million as of June 30, 1998. The decrease
resulted from the transfer of $760,000 from additional paid-in capital to common
stock representing the issuance of additional common shares from the 3 for 2
stock split. The decrease was offset by $197,000 received in excess of the $1.00
per share par value for 30,345 shares of common stock issued as the result of
the exercise of stock warrants and options.
Retained earnings increased by $1.7 million or 68% to $4.2 million as
of March 31, 1999 from $2.5 million as of June 30, 1998. The increase reflected
net income for the nine months offset by an immaterial payment to stockholders
which represented the cash value of fractional shares created by the 3 for 2
stock split.
Unrealized gains and losses on securities available for sale, net of
related income taxes, was a $118,000 gain as of March 31, 1999 as compared to a
$12,000 gain as of June 30, 1998. The increase was attributable to the increase
during the period in fair value of the securities identified as available for
sale.
Stockholders' equity increased by $2.0 million, or 11.0%, to $21.1
million as of March 31, 1999 from $19.1 million as of June 30, 1998. The
increase resulted from the combination of the net income for the period, the
exercise of warrants held by the private placement stockholders, the exercise of
stock options, and the change in the unrealized gains on securities available
for sale.
ASSET/LIABILITY MANAGEMENT
LIQUIDITY
Liquidity measures the ability of Quad City to meet maturing
obligations and its existing commitments, to withstand fluctuations in deposit
levels, to fund its operations, and to provide for customers' credit needs. The
liquidity of Quad City primarily depends upon cash flows from operating
activities, cash flows from investing activities, and cash flows from financing
activities. Net cash provided by operating activities, consisting primarily of
proceeds on loan sales, was $2.2 million for the nine months ended March 31,
1999 compared to $8.1 million of cash used, primarily for loans originated for
sale, for the same period in 1998. Net cash used in investing activities,
consisting principally of loan funding, was $55.0 million for the nine months
ended March 31, 1999 and $44.8 million for the nine months ended March 31, 1998.
Net cash provided by financing activities, consisting primarily of deposit
growth and proceeds from short-term borrowings, for the nine-months ended March
31, 1999 was $49.6 million and for the same period in 1998 was $63.3 million,
consisting principally of deposit growth and proceeds from Federal Home Loan
Bank advances.
Net outflows used in operating activities were $4.4 million for the
year ended June 30, 1998 compared to providing cash of $4.7 million for the year
ended June 30, 1997. The decrease of cash flow during the year resulted
primarily from an increase in loans originated for sale, but not yet sold at the
end of the fiscal year. Net cash outflows from investing activities totaled
$70.3 million for the year ended June 30, 1998, compared to cash outflows of
$55.3 million for the year ended June 30, 1997. The net outflows of cash were
largely associated with the growth in the loan portfolio. Net cash inflows from
financing activities totaled $79.3 million for the year ended June 30, 1998,
compared to cash inflows of $51.0 million for the year ended June 30, 1997. The
components of the net cash inflows were primarily from the growth of deposit
accounts as well as the increase in FHLB advances and other borrowings.
Net cash inflows from operating activities provided cash of $4.7
million for the year ended June 30, 1997 compared to $836,000 for the year ended
June 30, 1996. The improvement in cash flow during the year resulted primarily
from an increase in merchant accounts payable at Bancard. Net cash outflows from
investing activities totaled $55.3 million for the year ended June 30, 1997,
compared to cash outflows of $28.3 million for the year ended June 30, 1996. The
net outflows of cash were largely associated with the growth in the loan
portfolio. Net cash
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inflows from financing activities totaled $51 million for the year ended
June 30, 1997, compared to cash inflows of $30.2 million for the year ended
June 30, 1996. The components of the net cash inflows were primarily from the
growth of deposit accounts as well as the increase in FHLB advances and other
borrowings.
INTEREST RISK MANAGEMENT
Quad City's net income is dependent on its net interest income. Net
interest income is susceptible to interest rate risk to the degree that
interest-bearing liabilities mature or reprice on a different basis than
interest-earning assets. When interest-bearing liabilities mature or reprice
more quickly than interest-earning assets in a given period, a significant
increase in market rates of interest could adversely affect net interest income.
Similarly, when interest-earning assets mature or reprice more quickly than
interest-bearing liabilities, falling interest rates could result in a decrease
in net income.
In an attempt to manage its exposure to changes in interest rates,
management monitors Quad City's interest rate risk. The asset/liability
committee meets periodically to review Quad City's interest rate risk position
and profitability, and to make or recommend adjustments for consideration by the
Board of Directors. Management also reviews the bank's securities portfolio,
formulates investment strategies, and oversees the timing and implementation of
transactions to assure attainment of the Board's objectives in the most
effective manner. Notwithstanding Quad City's interest rate risk management
activities, the potential for changing interest rates is an uncertainty that can
have an adverse effect on net income.
In adjusting Quad City's asset/liability position, the Board and
management attempt to manage Quad City's interest rate risk while maintaining or
enhancing net interest margins. At times, depending on the level of general
interest rates, the relationship between long- and short-term interest rates,
market conditions and competitive factors, the Board and management may
determine to increase Quad City's interest rate risk position somewhat in order
to increase its net interest margin. Quad City's results of operations and net
portfolio values remain vulnerable to increases in interest rates and to
fluctuations in the difference between long- and short-term interest rates.
One approach used to quantify interest rate risk is the net portfolio
value ("NPV") analysis. In essence, this analysis calculates the difference
between the present value of liabilities and the present value of expected cash
flows from assets and off-balance-sheet contracts. The following table sets
forth, at June 30, 1998 and March 31, 1999, an analysis of Quad City's interest
rate risk as measured by the estimated changes in NPV resulting from
instantaneous and sustained parallel shifts in the yield curve (+ or - 200 basis
points).
<TABLE>
<CAPTION>
Estimated Increase
Change in (Decrease) in NPV
Interest Estimated --------------------------------------------------------------------
Rates NPV Amount Amount Percent
- ------------------ ---------------------------------- ----------------------------------- --------------------------------
(Basis points) June 30, 1998 March 31, 1999 June 30, 1998 March 31, 1999 June 30, 1998 March 31, 1999
- ------------------ ---------------- ----------------- ----------------- ----------------- --------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
+200 $22,717 $27,667 $(349) $(861) (1.51)% (3.02)%
--- 23,066 28,528
-200 22,742 28,868 $(324) $ 340 (1.40)% 1.19%
</TABLE>
39
<PAGE>
Quad City does not currently engage in trading activities or use
derivative instruments to control interest rate risk. Even though such
activities may be permitted with the approval of the Board of Directors, Quad
City does not intend to engage in such activities in the immediate future.
Interest rate risk is the most significant market risk affecting Quad
City. Other types of market risk, such as foreign currency exchange rate risk
and commodity price risk, do not arise in the normal course of Quad City's
business activities.
IMPACT OF INFLATION AND CHANGING PRICES
Unlike most industries, essentially all of the assets and liabilities
of a bank are monetary in nature. As such, the level of prices has less of an
effect than do interest rates. Prices and interest rates do not always move in
the same direction. Quad City's financial statements and notes are generally
prepared in terms of historical dollars without considering the changes in the
relative purchasing power of money over time due to inflation.
IMPACT OF NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information" and SFAS
No. 132 "Employer's Disclosures about Pensions and Other Postretirement
Benefits". These statements are discussed in footnote 1 to the consolidated
financial statements.
YEAR 2000
The Year 2000 has posed a unique set of challenges to those industries
reliant on information technology. As a result of methods employed by early
programmers, many software applications and operational programs may be unable
to distinguish the Year 2000 from the Year 1900. If not effectively addressed,
this problem could result in the production of inaccurate data, or, in the worst
cases, the inability of the systems to continue to function altogether.
Financial institutions are particularly vulnerable due to the industry's
dependence on electronic data processing systems. In 1997, Quad City started the
process of identifying the hardware and software issues required to be addressed
to assure Year 2000 compliance. Quad City began by assessing the issues related
to the Year 2000 and the potential for those issues to adversely affect Quad
City's operations and those of its subsidiaries.
Since that time, Quad City has established a Year 2000 committee to
deal with this issue. The committee meets with and utilizes various
representatives from key areas throughout the organization to aid in analysis
and testing. It is the mission of this committee to identify areas subject to
complications related to the Year 2000 and to initiate remedial measures
designed to eliminate any adverse effects on Quad City's operations. The
committee has identified all mission-critical software and hardware that may be
adversely affected by the Year 2000 and has requested vendors to represent that
the systems and products provided are or will be Year 2000 compliant.
Quad City licenses all software used in conducting its business from
third party vendors. None of Quad City's software has been internally developed.
Quad City has developed a comprehensive list of all software, all hardware and
all service providers used by Quad City. Every vendor has been contacted
regarding the Year 2000 issue, and Quad City continues to closely track the
progress each vendor is making in resolving the problems associated with the
issue. The vendor of the primary software in use at Quad City released its Year
2000 compliant software in May 1998. Testing standards were formulated and
comprehensive testing is now underway with an estimated completion date for
testing of June 30, 1999. Quad City actively takes part in a peer users group to
aid the testing process. Users of the primary software meet regularly to discuss
Year 2000 testing issues and results. In addition, Quad City continues to
monitor all other major vendors of services to Quad City for Year 2000 issues in
order to avoid shortages of supplies and services in the coming months. Quad
City has not had any material delay regarding its information systems projects
as a result of the Year 2000 project.
There are four third party utilities with which Quad City has an
important relationship, i.e. Ameritech, McLeod and US West (phone service), and
MidAmerican Energy Corporation (electricity and natural gas). Quad
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City has not identified any practical, long-term alternatives to relying on
these companies for basic utility services. In the event that the utilities
significantly curtail or interrupt their services to Quad City, it would have
a significant adverse effect on Quad City's ability to conduct business.
Information received from these utilities indicates that they have
significantly completed remediation and validation of their mission critical
applications.
Quad City also has tested such things as vault doors, alarm systems,
networks, etc. for Year 2000 functionality and is not aware of any significant
problems with such systems.
Quad City's cumulative costs of the Year 2000 project through the third
quarter of fiscal 1999 were $91,000. The estimated total cost of the Year 2000
project is $250,000. This includes costs to upgrade equipment specifically for
the purpose of Year 2000 compliance and certain administrative expenditures. At
the present time, no situations that will require material cost expenditures to
become fully compliant have been identified. However, the Year 2000 problem is
pervasive and complex and can potentially affect any computer process.
Accordingly, no assurance can be given that Year 2000 compliance can be achieved
without additional unanticipated expenditures and uncertainties that might
affect future financial results.
It is not possible at this time to quantify the estimated future costs
due to possible business disruption caused by vendors, suppliers, customers, or
even the possible loss of electric power or phone service; however, such costs
could be substantial.
Quad City is committed to a plan for achieving compliance, focusing not
only on its own data processing systems, but also on its loan and depository
customers. The Year 2000 committee has taken steps to educate and assist its
customers with identifying their Year 2000 compliance problems, if any. In
addition, the management committee has proposed policy and procedure changes to
help identify potential risks to Quad City and to gain an understanding of how
customers are managing the risks associated with the Year 2000. Quad City is
assessing the impact, if any, of the Year 2000 risk in its credit analysis. Quad
City also utilizes loan agreements and other legal documentation to ensure large
corporate borrowers acknowledge Year 2000 compliance requirements. In connection
with potential credit risk related to the Year 2000 issue, Quad City has
contacted its large commercial loan and depository customers regarding their
level of preparedness for the Year 2000. Through these questionnaires and
resulting assessments, Quad City believes that overall credit and liquidity risk
to its large corporate borrowers and depositors is not excessive.
Quad City has developed contingency plans for various Year 2000
problems and continues to revise those plans based on testing results and vendor
notifications.
The federal banking regulators recently issued guidelines establishing
minimum safety and soundness standards for achieving Year 2000 compliance. The
guidelines, which took effect October 15, 1998 and apply to all FDIC-insured
depository institutions, establish standards for developing and managing Year
2000 project plans, testing remediation efforts and planning for contingencies.
The guidelines are based upon guidance previously issued by the agencies under
the auspices of the Federal Financial Institutions Examination Council but are
not intended to replace or supplant the Federal Financial Institutions
Examination Council guidance which will continue to apply to all federally
insured depository institutions.
The guidelines were issued under section 39 of the Federal Deposit
Insurance Act, which requires the federal banking regulators to establish
standards for the safe and sound operation of federally insured depository
institutions. Under section 39 of the Federal Deposit Insurance Act, if an
institution fails to meet any of the standards established in the guidelines,
the institution's primary federal regulator may require the institution to
submit a plan for achieving compliance. If an institution fails to submit an
acceptable compliance plan, or fails in any material respect to implement a
compliance plan that has been accepted by its primary federal regulator, the
regulator is required to issue an order directing the institution to cure the
deficiency. Such an order is enforceable in court in the same manner as a cease
and desist order. Until the deficiency cited in the regulator's order is cured,
the regulator may restrict the institution's rate of growth, require the
institution to increase its capital, restrict the rates the institution pays on
deposits or require the institution to take any action the regulator deems
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<PAGE>
appropriate under the circumstances. In addition to the enforcement procedures
established in section 39 of the Federal Deposit Insurance Act, noncompliance
with the standards established by the guidelines may also be grounds for other
enforcement action by the federal banking regulators, including cease and desist
orders and civil money penalty assessments. Quad City's management believes its
Year 2000 planning has been consistent with regulatory guidelines.
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BUSINESS
GENERAL
We are a bank holding company that owns Quad City Bank & Trust
Company, a full-service commercial banking institution with three locations
in the Quad Cities area of Illinois and Iowa. The bank provides a broad range
of banking products and services, including credit, cash management, deposit,
asset management and trust products, to its targeted customer base of
individuals and small and medium-sized businesses. In addition, Quad City
Bancard, Inc. provides credit card processing services to merchants and other
commercial operations. At March 31, 1999, we had total assets of $299.8
million, loans of $191.7 million and deposits of $239.1 million.
Our company started operations in January 1994 with the goal of
building a locally-owned and managed financial institution to meet the
banking needs of individuals and small and medium-sized businesses in our
marketplace. As part of our operating strategy, we strive to offer customers
a high level of service on a consistent basis. Our growth over the past five
years has been largely a product of our ability to recruit and retain a
community-oriented management team with significant commercial banking
experience in the Quad Cites area. In addition, we have expanded and upgraded
our product offerings and added convenient banking locations in Davenport,
Iowa and Moline, Illinois to complement our original Bettendorf, Iowa
facility. Finally, we have taken advantage of the customer disruption caused
by the acquisition of a significant number of the area's other locally owned
or locally managed financial institutions by large regional bank holding
companies.
This strategy has resulted in significant growth for our company.
Our total assets have increased from $111.5 million as of June 30, 1996 to
$299.8 million as of March 31, 1999, which represents a 43% compounded annual
growth rate. This rapid growth has restrained our profitability to some
degree, as we have invested in the personnel, operational systems and
physical infrastructure required to support a much larger banking
organization. In the future, we intend to continue to pursue an aggressive
growth strategy focused on the addition of experienced banking personnel in
the Quad Cities area, while also maintaining strong asset quality and
improving our profitability. We may also add additional banking facilities,
expand into new markets or make strategic acquisitions of other financial
institutions.
Quad City owns 100% of the bank and Bancard, and in addition invests
its capital in stocks of financial institutions and mutual funds. From time
to time, Quad City also participates in loans with the bank. Quad City, the
bank, Bancard and Allied Merchant Services, Inc., a subsidiary of Bancard,
have fiscal years ending on June 30th.
THE BANK
The bank engages in general full service banking within the Quad
Cities area. Deposit products include certificates of deposit, individual
retirement accounts and other time deposits, checking and other demand
deposit accounts, NOW accounts, savings accounts and money market accounts.
Loans include commercial and industrial, real estate mortgage, consumer, home
equity and lines of credit. Other products and services include credit cards,
automatic teller machines, safe deposit boxes and trust, investment and
retirement plan services. While the bank serves a variety of types of
customers, a significant portion of its deposit and non-residential loan
relationships are with small to medium size businesses. No one customer
accounts for 10% or more of loans, revenues or deposits. Quad City continues
to explore new products and services to meet the needs and demands of its
customer base and to remain competitive with other financial institutions
operating in its market area.
Construction of a banking facility commenced in June 1993 in
Bettendorf, Iowa and was completed in December of that year. Bettendorf was
selected as the initial site due to its lack of a locally chartered bank with
headquarters there at the time, its growth and its high per capita income.
Locations were added in Davenport, Iowa (1996) and Moline, Illinois (1998) to
greater capitalize on the market opportunity in the Quad Cities area.
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MARKET AREA
Quad City's primary market area is the Quad Cities area, located
approximately 180 miles west of Chicago, Illinois and 170 miles east of Des
Moines, Iowa. The Quad Cities area has a total population in excess of
350,000. The region is home to manufacturers of a wide range of industrial
products, with Deere & Company, the Rock Island Arsenal, Aluminum Company of
America, J.I. Case and Oscar Mayer among the largest employers. Wholesale and
retail trade and services (including health care) are among the region's
other major employers.
GROWTH STRATEGY
Quad City seeks to grow its asset base by developing strong
community relationships which it believes will result in increased loans and
deposits. Quad City also expects to improve operating efficiency as it grows
into the infrastructure it has developed. Quad City may in the future
establish additional branches, loan production offices or other business
facilities as a means of expanding its presence in current or new market
areas. Quad City may also expand into other lines of business closely related
to banking if it believes these lines could be profitable without undue risk
to Quad City and if Quad City can be competitive.
Although not actively seeking acquisitions at this time, Quad City
intends to explore opportunities for acquisitions and expansion as they may
arise. Any interest Quad City would have in acquisitions or expansion would
most likely be focused on traditional community banks and thrifts located
within a 120 mile radius of the Quad Cities. At this time, a large number of
independent financial institutions are located within this geographic area.
It is possible, however, that as a result of consolidation within the banking
industry generally, as well as in Quad City's current market areas, Quad City
may in the future look beyond these geographic areas for acquisition
opportunities. In addition to price and terms, other factors Quad City would
consider in determining the desirability of an acquisition candidate would be
financial condition, capital and liquidity positions, earnings potential,
quality of management, market area and competitive environment.
OPERATING STRATEGY
Corporate policy, strategy and goals are established by Quad City's
board of directors for Quad City and the bank, although significant
operational latitude is provided to management of the bank. Within this
framework, the bank focuses on providing personalized services and quality
products to its customers to meet the needs of the communities that it serves.
Quad City operates its banking subsidiary as a business-oriented
community bank with full service facilities and a professional, highly
motivated staff which is active in the communities in which they are located.
Quad City focuses on long-term relationships with customers and strives to
provide individualized quality service. Officers of the bank regularly call
on customers and potential customers to maintain and develop loan, deposit
and other special service relationships. As part of its community banking
approach, Quad City encourages officers of the bank to actively participate
in community organizations. In addition, within credit and rate of return
parameters, Quad City attempts to ensure that the bank meets the credit needs
of its communities and invests in local municipal obligations.
LENDING ACTIVITIES
The bank provides a broad range of commercial and retail lending and
investment services to corporations, partnerships, individuals and government
agencies. The bank actively markets its services to qualified lending
customers. Lending officers actively solicit the business of new borrowers
entering their market areas as well as long-standing members of the local
business community. The bank has established lending policies which include a
number of underwriting factors to be considered in making a loan, including
location, loan to value ratio, cash flow, interest rate and the credit
history of the borrower.
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The bank's current lending limit is approximately $3.5 million. Its
loan portfolio is comprised primarily of loans in the areas of commercial,
residential real estate and consumer lending. As of March 31, 1999,
commercial loans made up approximately 68% of the loan portfolio, while
residential mortgages comprised approximately 16%. At the same date, consumer
lending comprised 16%. Interest income for fiscal 1998 was $15.1 million,
which was approximately 71% of total income for that period. For the nine
month period ended March 31, 1999, interest income was approximately $14.7
million, or approximately 79% of total income for that period.
As part of the loan monitoring activity at the bank, loan review
personnel interact with senior bank management weekly. The bank's Loan Review
Committee meets on a monthly basis to review the loan portfolio. Quad
City has also instituted a separate loan review function to analyze credits
of the bank. Management has attempted to identify problem loans at an early
stage and to aggressively seek a resolution of these situations.
COMMERCIAL LOANS
The bank is an active commercial lender in the Quad Cities. The
bank's areas of emphasis include, but are not limited to, loans to
wholesalers, manufacturers, building contractors, developers, business
services companies and retailers. The bank provides a wide range of business
loans, including lines of credit for working capital and operational purposes
and term loans for the acquisition of equipment and other purposes.
Collateral for these loans generally includes accounts receivable, inventory,
equipment and real estate. In addition, the bank has taken personal
guarantees to help assure repayment. Loans may be made on an unsecured basis
if warranted by the overall financial condition of the borrower. Terms of
commercial business loans generally range from one to five years. A
significant portion of the bank's commercial business loans have floating
interest rates or reprice within one year. Commercial real estate loans are
also made. Collateral for these loans generally includes the underlying real
estate and improvements, and may include additional assets of the borrower.
RESIDENTIAL REAL ESTATE MORTGAGE LOANS
Residential mortgage lending has been a focal point of the bank as
it continues to build its real estate lending business. As a result of this
focus, the bank's real estate loan portfolio has experienced rapid growth,
increasing from approximately $350,000 at the end of the 1994 fiscal year, to
approximately $31.1 million at the end of fiscal 1998. The bank currently has
four mortgage originators.
The bank sells a significant portion of its real estate loans in the
secondary market. The bank typically sells virtually all of its fixed rate
loans. During fiscal year 1998 the bank originated $57.2 million of real
estate loans and sold $53.3 million of these loans. The bank originated $6.9
million of real estate loans and sold $6.0 million of these loans during
fiscal 1997. This rapid growth has in part been due to the fact that
comparably low interest rates over the past few years have induced a large
number of home owners to refinance existing homes and an equally large number
of first time buyers to acquire or construct homes. The bank has historically
sold these loans to one purchaser. Generally, the bank's residential mortgage
loans conform to the underwriting requirements of Freddie Mac and Fannie Mae
to allow the bank to resell loans in the secondary market. The bank
structures most loans that will not conform to those underwriting
requirements as adjustable rate mortgages that mature in one to three years.
The bank generally retains these loans in its portfolio. Servicing rights are
not presently retained on the loans sold in the secondary market.
CONSUMER LENDING
The bank's consumer lending department provides all types of
consumer loans including motor vehicle, home improvement, home equity,
signature loans and small personal credit lines. The bank has reduced its
involvement in indirect automobile loans, and intends to actively seek to
increase its home equity loans.
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CREDIT CARD PROCESSING
Quad City Bancard, Inc., was capitalized on April 3, 1995 as a
Delaware corporation that provides merchant credit card processing services.
This operation had previously been a division of the bank since July 1994.
Bancard has contracted with ISOs that market credit card services to merchants
throughout the country.
Bancard focuses on small and medium size retail businesses
introduced to it through its marketing alliances with ISOs. Revenues are
generated mainly by charging a fee based on a percentage of the dollar volume
of each transaction it processes and by charging fees for related services.
As of March 31, 1999, Bancard had processing agreements covering
approximately 14,000 merchants. Approximately 91% Bancard's processing
business for the first nine months of fiscal 1999 were provided by one ISO.
Under Bancard's agreements with its ISOs, Bancard reviews
applications from merchants for processing services obtained by the ISO and
accepts merchants which it believes possess stable business operations. When
a credit transaction is processed by Bancard, Visa or Mastercard will remit
the amount of the transaction, net of its fee, to Bancard. Bancard then
deducts its processing fee and the ISO's fee, and transfers the balance of
the funds to the merchant and pays the ISO its commission. When a billing
dispute arises between a cardholder and a merchant and is not resolved in
favor of the merchant, the transaction is charged back to the merchant. If
Bancard is unable to collect the chargeback from the merchant's account, and
if the merchant refuses or is unable due to bankruptcy or other reasons to
reimburse Bancard for the chargeback, either Bancard or the ISO bears the
loss for the amount of the refund paid to the cardholder, depending on the
terms of Bancard's agreement with the ISO. In certain cases the ISO agreement
may provide for an allocation of risk between Bancard and the ISO for
chargebacks which are uncollectible from the merchant. Bancard has such an
agreement with its current major ISO. Bancard maintains a cash reserve from
some merchants to help absorb these losses. Bancard's decision to request a
cash reserve to be established for a particular merchant is typically made
during the merchant's application process, and is based upon a review of the
nature of the merchant's business. If Bancard believes a cash reserve would
be appropriate, it will negotiate with the merchant to determine the
percentage of each transaction amount that Bancard will holdback in the cash
reserve account or will request a lump sum reserve to be placed up front.
Bancard initially had an exclusive arrangement to provide processing
services to clients of a single ISO. This ISO was sold in 1998 and the
purchaser requested a reduction in the term of the contract. Bancard agreed
to the reduction in term and accepted a fixed processing fee for transactions
with existing merchants and a lower fee for transactions processed for newly
recruited merchants in exchange for a payment of approximately $3 million,
the assumption of the credit risk by the ISO and the elimination of the
exclusive nature of the agreement. Approximately two thirds of the income
from this settlement was reported in June 1998, with the remainder being
recognized as an adjustment to the fixed processing fee during fiscal 1999.
The amended agreement has a one year term that automatically renews for
successive one year terms unless either party provides the other party with
six months notice of its intention not to renew the agreement. Neither party
having given timely notice relative to termination upon expiration of the
agreement's current term expiring June 1, 1999, the agreement will renew for
a one year period ending June 1, 2000.
Bancard began processing for an additional ISO in November 1998, and
has also recently formed Allied Services as its own ISO to market credit card
services to merchants in the Quad Cities area and nationally. Allied Services
will seek to generate additional credit card processing business for Bancard.
Allied Services is currently expected to commence marketing operations in the
third calendar quarter of 1999.
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<PAGE>
TRUST SERVICES
The bank's trust department has been providing trust services to the
community since the bank's inception in 1994. Currently, the trust department
has over $470 million of assets under administration and offers a variety of
trust and investment tools for individuals and corporations. The bank
continues to target the trust department as one of its primary areas of
growth.
The bank believes it has earned a reputation of offering trust
services of the highest quality. The department is comprised of a team of
qualified professionals that have over 200 years of financial management
experience. The individuals have specialized backgrounds in trust related
areas, such as financial law, investment management, tax and accounting. All
trust department employees have the ability to provide immediate, on-line,
real time information regarding customers' accounts.
Management's focus in the trust area is to continue to build
financial relationships within the community bank environment. Quad City
expects that the future needs of its customers may fall within broadly
defined areas such as investment management, estate administration,
retirement/financial planning and fiduciary responsibilities.
COMPETITION
Quad City encounters competition in all areas of its business. In
order to compete effectively, to develop its market base, to maintain
flexibility and to move in pace with changing economic and social conditions,
Quad City continuously refines and develops its products and services. The
principal methods of competition in the financial services industry are price
and service levels. Quad City competes for loans principally through the
range and quality of the services it provides and interest rates. Quad City
believes that its reputation in the communities it serves and personal
service philosophy enhance its ability to compete favorably in attracting and
retaining individual and business customers. Quad City actively solicits
deposit-related clients and competes for deposits by offering customers
personal attention, professional service and competitive interest rates.
The Quad Cities market area is highly competitive. There are
approximately 17 other commercial banks, 23 credit unions and 30 finance and
mortgage companies, along with other financial institutions, that currently
operate in the primary market area of the bank. In addition, many other
financial institutions based in the communities surrounding these areas also
actively compete for customers within these market areas. The bank also faces
competition from insurance companies, securities brokerage firms, money
market funds, loan production offices and other providers of financial
services.
EMPLOYEES
At March 31, 1999, Quad City employed 133 full-time equivalent
employees. New employees are selected on the basis of both technical skills
and customer service capabilities. None of Quad City's employees are covered
by a collective bargaining agreement with Quad City.
PROPERTIES
The original office of the bank is in a 6,700 square foot facility
which was completed in January 1994. In March 1994, the bank acquired that
facility, which is located at 2118 Middle Road in Bettendorf.
Construction of a second full service banking facility was completed
in July 1996 to provide for the convenience of customers and to expand Quad
City's market territory. The bank also owns a portion of that facility, which
is located at 4500 Brady Street in Davenport. The two-story building is in
two segments that are separated by an atrium. The bank owns the south half of
the building, while the northern portion is owned by the developer. Each
floor comprises 6,000 square feet. The bank occupies the first floor of its
portion of the building and utilizes the basement for operational functions,
item processing and storage. The entire second floor has been leased to two
professional services firms. In addition, the residential real estate
department of the bank leases approximately 2,500 square feet in the north
half of the building.
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Renovation of a third full banking facility was completed in
February of 1998 at the historic Velie Plantation Mansion in Moline, Illinois
at 3551 7th Street, which is near the intersection of 7th Street and John
Deere Road near the Rock Island/Moline border. The building is owned by
limited liability company and the bank and Bancard are its major tenants.
Quad City owns a 20% interest in the entity that owns the building. Bancard
relocated its operations to the lower level of the 30,000 square foot
building in late 1997. The bank began operations and Quad City relocated its
corporate headquarters to the first floor of the building on February 17,
1998.
SUPERVISION AND REGULATION
The discussion below updates the disclosure in Quad City's Annual
Report on Form 10-KSB for the fiscal year ended June 30, 1998 that is
incorporated by reference into this prospectus.
BRANCHING AUTHORITY
Iowa law strictly regulates the establishment of bank offices.
Generally speaking, under Iowa law, a state bank may not establish a bank
office outside the boundaries of the counties contiguous to or cornering upon
the county in which the principal place of business of the state bank is
located or in a city or town with an existing state or national bank or bank
office. These general prohibitions are subject to certain exceptions,
including one allowing banks headquartered in an urban area to establish
branches without regard to the presence of other banks' offices and one
allowing an acquiring bank to operate all offices of an acquired bank,
without regard to the presence of other banks' offices.
FEDERAL RESERVE SYSTEM
Federal Reserve regulations, as presently in effect, require
depository institutions to maintain non-interest earning reserves against
their transaction accounts (primarily NOW and regular checking accounts), as
follows: for transaction accounts aggregating $46.5 million or less, the
reserve requirement is 3% of total transaction accounts; and for transaction
accounts aggregating in excess of $46.5 million, the reserve requirement is
$1.4 million plus 10% of the aggregate amount of total transaction accounts
in excess of $46.5 million. The first $4.9 million of otherwise reservable
balances are exempted from the reserve requirements. These reserve
requirements are subject to annual adjustment by the Federal Reserve. The
bank is in compliance with the foregoing requirements.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Quad City Holdings, Inc. are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Michael A. Bauer.................... 50 Chairman of the Board and Director
Douglas M. Hultquist................ 43 President, Chief Executive and Financial Officer,
Treasurer and Director
James J. Brownson................... 53 Director
Richard R. Horst.................... 47 Secretary and Director
Ronald G. Peterson.................. 54 Director
John W. Schricker................... 52 Director
Robert A. Van Vooren................ 65 Director
Shellee R. Showalter................ 30 Vice President and Controller of the bank
</TABLE>
There are no family relationships among any of the executive officers
and directors of Quad City.
MICHAEL A. BAUER, prior to co-founding Quad City, was employed from
1971 to 1992 by the Davenport Bank and Trust Company ("DB&T"), a bank located in
Davenport, Iowa with assets as of December 31, 1992 of approximately $1.8
billion. In January, 1992 he was named DB&T's President and Chief Operating
Officer, while from 1989 to 1992 he served as Senior Vice President in charge of
all lending. Mr. Bauer served as Vice President in charge of Correspondent
Banking for DB&T from 1981 to 1989. Mr. Bauer has served as a director and past
President of Junior Achievement of the Quad Cities Area, director and past
President of the Illowa Council for the Boy Scouts of America, director and past
President of the Friendly House in Davenport, and past director and Vice
Chairman of United Way. He is a director of St. Ambrose University and the Quad
City Sports Center, and a director and President of Genesis Health Services
Foundation. Mr. Bauer is also a member of Crow Valley Golf Club and Rotary Club
of Davenport, a director and Vice President of the Iowa Independent Bankers
Association and a director of the Kahl Home for the Aged and Infirm in
Davenport. Along with Mr. Hultquist, Mr. Bauer received the 1998 Ernst & Young
"Entrepreneur of the Year" award for the Iowa and Nebraska region.
DOUGLAS M. HULTQUIST is a certified public accountant and previously
served as a tax partner with two major accounting firms. He began his career
with KPMG Peat Marwick in 1977 and was named a partner in 1987. In 1991, the
Quad Cities office of KPMG Peat Marwick merged with McGladrey & Pullen. Mr.
Hultquist served as a tax partner in the Illinois Quad Cities office of
McGladrey & Pullen from 1991 until co-founding Quad City in 1993. During his
public accounting career, Mr. Hultquist specialized in bank taxation and mergers
and acquisitions. Mr. Hultquist serves on the Board of Directors of the PGA John
Deere Classic and is its Vice
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Chairman of Marketing and Administration. He is a member of the Augustana
College Board of Trustees and serves on its Planned Giving Council. He
recently served on the Board of Directors of Short Hills Country Club and
Junior Achievement of the Quad Cities. Mr. Hultquist is also a member of the
American Institute of CPAs, the Iowa Society of CPAs, the Trinity Medical
Center Planned Giving Council and the Quad City Estate Planning Council.
Along with Mr. Bauer, Mr. Hultquist received the 1998 Ernst & Young
"Entrepreneur of the Year" award for the Iowa and Nebraska region.
JAMES J. BROWNSON is the President of W.E. Brownson Co., a
manufacturers' representative agency located in Davenport, Iowa, and has been in
that position since 1978. Mr. Brownson began his career in 1967 as a staff
auditor with Arthur Young & Co., CPA's, of Chicago, Illinois. From 1969 until
1978, Mr. Brownson was employed by DB&T, where he left as Senior Vice President
and Cashier. Mr. Brownson has been director and Secretary of the bank since
October, 1993. He also serves on the National Sales Representative Council of
Crane Plastics, Columbus, Ohio, and is a past member of the National Sales
Representative Council of Dayton Rogers Manufacturing Co., Minneapolis,
Minnesota.
RICHARD R. HORST has been a portfolio manager with Thompson, Plumb &
Associates since March, 1994. He was the Executive Vice President of Electronic
Exchange and Transfer Corporation, an on-line transaction processing business
headquartered in Rock Island, Illinois, from November, 1992 to August, 1993.
From 1981 to 1992, Mr. Horst was the Senior Vice President and Cashier of DB&T,
having joined DB&T in 1980 as a correspondent banking officer. Prior to such
time he was with the Farmers Savings Bank of Princeton, Iowa. Mr. Horst is the
President of the Scott Community College Foundation.
RONALD G. PETERSON is the President and Chief Executive Officer of the
First State Bank of Western Illinois, located in La Harpe, Illinois, and has
served in that position since 1982. Mr. Peterson is also President of that
bank's holding company, Lamoine Bancorp, Inc. In addition, he is a member of the
Board of Directors, Chairman of the State Legislative Committee and a member of
the Policy Committee of the Illinois Bankers Association. Mr. Peterson is also a
member of the American Bankers Association Community Bankers Council. As a
member of the Western Illinois Development Corporation, he serves as President.
He is also President of the LaHarpe Educational Foundation, Treasurer of the
Western Illinois University Foundation and a member of the McDonough District
Hospital Development Council.
JOHN W. SCHRICKER has been the President of Bancard since March, 1995.
From April, 1994, until Bancard was organized in March, 1995, he was the manager
of the Bank's Credit Card Division. Prior to that, he was a Vice President with
Electronic Exchange and Transfer Corporation. Mr. Schricker has served with DB&T
from 1975 to 1992 as Vice President in charge of the Credit Card Division.
ROBERT A. VAN VOOREN is a senior partner with the law firm of Lane and
Waterman, which has offices in Davenport, Iowa and Rock Island, Illinois. Mr.
Van Vooren graduated from Marquette University and the Northwestern University
School of Law. He is admitted to the Bar in both Iowa and Illinois, and is a
past President of the Iowa State Bar Association. Mr. Van Vooren is a Fellow of
the American College of Trial Lawyers and is listed in the `Best Lawyers of
America' publication. He is very active in community affairs and has held
leadership positions in many of the civic organizations of the Quad Cities.
SHELLEE R. SHOWALTER is a certified public accountant who has been with
Quad City since April, 1994. Prior to joining Quad City, Ms. Showalter was a Tax
Staff Accountant in the Illinois Quad Cities office of McGladrey & Pullen from
May, 1991 to April, 1994. From December, 1990 to May 1991, Ms. Showalter was a
Tax Staff Accountant with KPMG Peat Marwick. Ms. Showalter is a member of the
American Institute of CPAs, the Illinois Society of CPAs, the Executive Women's
Golf Association and the Rotary Club of Rock Island.
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DESCRIPTION OF THE TRUST
The trust is a statutory business trust formed pursuant to the Delaware
Business Trust Act under a trust agreement executed by us, as sponsor for the
trust, and the trustees, and a certificate of trust filed with the Delaware
Secretary of State. The trust agreement will be amended and restated in its
entirety in the form filed as an exhibit to the registration statement of which
the prospectus is a part, as of the date the capital securities are initially
issued. The trust agreement will be qualified under the Trust Indenture Act of
1939.
Upon issuance of the capital securities, the holders will own all of
the issued and outstanding capital securities. We will acquire common securities
in an amount equal to at least 3% of the total capital of the trust and will
own, directly or indirectly, all of the issued and outstanding common securities
(together with the capital securities, the "trust securities"). The trust exists
for the purposes of:
- issuing the capital securities to the public for cash;
- issuing its common securities to us in exchange for our
capitalization of the trust;
- investing the proceeds in an equivalent amount of debentures; and
- engaging in other activities that are necessary, convenient or
incidental to those listed above.
The rights of the holders of the trust securities are as set forth in
the trust agreement, the Delaware Business Trust Act and the Trust Indenture
Act. The trust agreement does not permit the incurrence by the trust of any
indebtedness for borrowed money or the making of any investment other than in
the debentures. Other than with respect to the trust securities, Quad City has
agreed to pay for all debts and obligations and all costs and expenses of the
trust, including the fees and expenses of the trustees and any income taxes,
duties and other governmental charges, and all costs and expenses related to
these charges, to which the trust may become subject, except for United States
withholding taxes that are properly withheld.
Pursuant to the trust agreement, the number of trustees of the trust
will initially be five. Three of the trustees will be persons who are employees
or officers of or who are affiliated with Quad City (the "administrative
trustees"). The fourth trustee will be an institution that maintains its
principal place of business in the State of Delaware (the "Delaware trustee").
Initially, First Union Trust Company, National Association, a national banking
association ("First Union"), will act as Delaware trustee. The fifth trustee
will be a financial institution that is unaffiliated with Quad City and will
serve as institutional trustee under the trust agreement and as indenture
trustee for the purposes of compliance with the provisions of the Trust
Indenture Act (the "property trustee"). Initially, First Union will also be the
property trustee. For the purpose of compliance with the provisions of the Trust
Indenture Act, First Union will also act as guarantee trustee and indenture
trustee under the guarantee agreement and the indenture. Quad City, as holder of
all of the common securities, will have the right to appoint, remove or replace
any trustee unless an event of default under the indenture shall have occurred
and be continuing, in which case only the holders of the capital securities may
remove the indenture trustee or the property trustee. The trust has a term of
approximately 35 years but may terminate earlier as provided in the trust
agreement.
The property trustee will hold the debentures for the benefit of the
holders of the trust securities and will have the power to exercise all rights,
powers and privileges under the indenture as the holder of the debentures. In
addition, the property trustee will maintain exclusive control of a segregated
noninterest-bearing "property account" to hold all payments made in respect of
the debentures for the benefit of the holders of the trust securities. The
property trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the trust securities out
of funds from the property account. The guarantee trustee will hold the
guarantee for the benefit of the holders of the capital securities. Quad City
will pay all fees and expenses related to the trust and the offering of the
capital securities, including the fees and expenses of the trustees.
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DESCRIPTION OF THE CAPITAL SECURITIES
The capital securities will be issued pursuant to the trust agreement,
which will be qualified as an indenture under the Trust Indenture Act. First
Union will act as property trustee for the capital securities under the trust
agreement for purposes of complying with the provisions of the Trust Indenture
Act. The terms of the capital securities will include those stated in the trust
agreement and those made part of the trust agreement by the Trust Indenture Act.
A form of the trust agreement has been filed as an exhibit to the registration
statement of which this prospectus forms a part.
GENERAL
The trust agreement authorizes the administrative trustees, on behalf
of the trust, to issue the trust securities, which are comprised of the capital
securities to be sold to the public and the common securities. We will own all
of the common securities issued by the trust. The capital securities will
represent preferred undivided beneficial interests in the assets of the trust,
and the holders of the capital securities will be entitled to a preference upon
an event of default with respect to distributions and amounts payable on
redemption or liquidation over the common securities. The trust is not permitted
to issue any securities other than the trust securities or incur any other
indebtedness.
The capital securities will rank equally, and payments on the capital
securities will be made proportionally, with the common securities, except as
described under "--Subordination of Common Securities of the Trust" below.
The property trustee will hold legal title to the debentures in trust
for the benefit of the holders of the trust securities. We guarantee the payment
of distributions out of money held by the trust, and payments upon redemption of
the capital securities or liquidation of the trust, to the extent described
under "Description of the Guarantee." The guarantee agreement does not cover the
payment of any distribution or the liquidation amount when the trust does not
have sufficient funds available to make these payments.
DISTRIBUTIONS
SOURCE OF DISTRIBUTIONS. The funds of the trust available for
distribution to holders of the capital securities will be limited to payments
made under the debentures, which the trust will purchase with the proceeds from
the sale of the trust securities. Distributions will be paid through the
property trustee, who will hold the amounts received from our interest payments
on the debentures in the property account for the benefit of the holders of the
trust securities. If we do not make interest payments on the debentures, the
property trustee will not have funds available to pay distributions on the
capital securities.
PAYMENT OF DISTRIBUTIONS. Distributions on the capital securities will
be payable at the annual rate of [__]% of the $10 stated liquidation amount,
payable quarterly on March 31, June 30, September 30 and December 31 of each
year, to the holders of the capital securities on the relevant record dates. The
record date will be the business day immediately preceding the relevant
distribution date. The first distribution date for the capital securities will
be September 30, 1999.
Distributions will accumulate from the date of issuance, will be
cumulative and the amount payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. If the distribution date is not a
business day, then payment of the distributions will be made on the next day
that is a business day, without any additional interest or other payment in
respect of the delay. However, if the next business day is in the next calendar
year, payment of the distribution will be made on the immediately preceding
business day. "Business day" means any day other than a Saturday, a Sunday, a
day on which banking institutions in The City of New York or Wilmington,
Delaware are authorized or required by law or executive order to remain closed
or a day on which the corporate trust office of the property trustee or the
indenture trustee is closed for business.
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EXTENSION PERIOD. As long as no event of default under the indenture
has occurred and is continuing, we have the right to defer the payment of
interest on the debentures at any time for a period not exceeding 20 consecutive
quarters. However, no extension period may extend beyond June 30, 2029 or end on
a date other than an interest payment date, which dates are the same as the
distribution dates. If we defer the payment of interest, quarterly distributions
on the capital securities will also be deferred during any such extension
period. Any deferred distributions under the capital securities will accumulate
additional amounts at the annual rate of [ ]%, compounded quarterly from the
relevant distribution date. The term "distributions" as used in this prospectus
includes those accumulated amounts.
During an extension period, we may not:
- 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 (other than the reclassification of any
class of our capital stock into another class of capital stock);
- make any payment of principal, interest or premium on or repay,
repurchase or redeem any debt securities that rank equally with or
junior in interest to the debentures;
- make any guarantee payments with respect to any other guarantee by
us of any other debt securities of any of our subsidiaries if the
guarantee ranks equally with or junior to the debentures; or
- redeem, purchase or acquire less than all of the debentures or any
of the capital securities.
After 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
requirements.
We have no current intention of exercising our right to defer
distributions on the capital securities by extending the interest payment period
on the debentures.
REDEMPTION OR EXCHANGE
GENERAL. We will have the right to redeem the debentures:
- in whole at any time, or in part from time to time, on or after
June 30, 2004;
- at any time, in whole, within 180 days following the occurrence of
a Tax Event, an Investment Company Event or a Capital Treatment
Event as defined below. Redemptions in these cases are subject to
the prior approval by the Federal Reserve, if required; or
- at any time, to the extent of any capital securities we
repurchase.
MANDATORY REDEMPTION. Upon our repayment or redemption, in whole or in
part, of any debentures, whether on June 30, 2029 or earlier, the property
trustee will apply the proceeds to redeem a like amount of the trust securities,
upon not less than 30 days' nor more than 60 days' notice, at the redemption
price. The redemption price will equal 100% of the aggregate liquidation amount
of the trust securities plus accumulated but unpaid distributions and Additional
Interest (as defined below) to the date of redemption. If less than all of the
debentures are to be repaid or redeemed on a date of redemption, then the
proceeds from such repayment or redemption will be allocated to redemption of
the capital securities and the common securities proportionally.
"Additional Interest" means the additional amounts as may be necessary
to be paid by us in order that the amount of distributions then due and payable
by the trust on the outstanding trust securities will not be reduced as a result
of any additional taxes, duties and other governmental charges to which the
trust has become subject.
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DISTRIBUTION OF DEBENTURES. Upon prior approval of the Federal Reserve,
if required, we will have the right at any time to dissolve, wind-up or
terminate the trust and, after satisfaction of the liabilities of creditors of
the trust as provided by applicable law, including, without limitation, amounts
due and owing the trustees of the trust, cause the debentures to be distributed
directly to the holders of trust securities in liquidation of the trust. See
"--Liquidation Distribution Upon Termination."
After the liquidation date fixed for any distribution of debentures in
exchange for capital securities:
- those capital securities will no longer be deemed to be
outstanding;
- any certificates representing capital securities will be deemed to
represent debentures with a principal amount equal to the
liquidation amount of those capital securities, and bearing
accrued and unpaid interest in an amount equal to the accumulated
and unpaid distributions on the capital securities until the
certificates are presented to the administrative trustees or their
agent for transfer or reissuance.
There can be no assurance as to the market prices for the capital
securities or the debentures that may be distributed if a dissolution and
liquidation of the trust were to occur. The capital securities that an investor
may purchase, or the debentures that an investor may receive on dissolution and
liquidation of the trust, may trade at a discount to the price that the investor
paid to purchase the capital securities.
REDEMPTION UPON A TAX EVENT, INVESTMENT COMPANY EVENT OR CAPITAL
TREATMENT EVENT. If a Tax Event, an Investment Company Event or a Capital
Treatment Event (each as defined below) occurs, we have the right to redeem the
debentures in whole and thereby cause a mandatory redemption of the trust
securities in whole at the redemption price. If one of these events occurs and
we do not elect to redeem the debentures, or to dissolve the trust and cause the
debentures to be distributed to holders of the trust securities, then the
capital securities will remain outstanding and Additional Interest may be
payable on the debentures. See "Description of Debentures--Redemption or
Exchange."
"Tax Event" means the receipt by the trust and us of an opinion of
counsel experienced in such matters stating that there is more than an
insubstantial risk that:
- interest payable by us on the debentures is not, or within 90 days
of the date of the opinion will not be, deductible by us, in whole
or in part, for federal income tax purposes;
- the trust is, or will be within 90 days after the date of the
opinion, subject to federal income tax with respect to income
received or accrued on the debentures; or
- the trust is, or will be within 90 days after the date of opinion,
subject to more than an immaterial amount of other taxes, duties,
assessments or other governmental charges,
as a result of any amendment to any tax laws or regulations.
"Investment Company Event" means the receipt by the trust and us of an
opinion of counsel experienced in such matters to the effect that the trust is
or will be considered an "investment company" that is required to be registered
under the Investment Company Act, as a result of the occurrence of a change in
law or regulation or a change in interpretation or application of law or
regulation.
"Capital Treatment Event" means the receipt by the trust and us of an
opinion of counsel experienced in such matters to the effect that there is more
than an insubstantial risk of impairment of our ability to treat the capital
securities as Tier 1 capital for purposes of the current capital adequacy
guidelines of the Federal Reserve, as a result of any amendment to any laws or
any regulations.
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For all of the events described above, Quad City or the trust must
request and receive an opinion with regard to the event within a reasonable
period of time we became aware of the possible occurrence of an event of this
kind.
REDEMPTION PROCEDURES
Capital securities may be redeemed at the redemption price with the
applicable proceeds from our contemporaneous redemption of the debentures.
Redemptions of the capital securities will be made and the redemption price will
be payable on each date of redemption only to the extent that the trust has
funds available for the payment of the redemption price. See "--Subordination of
Common Securities."
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the date of redemption to each holder of trust securities to
be redeemed at its registered address. Unless we default in payment of the
redemption price on the debentures, interest will cease to accumulate on the
debentures called for redemption on and after the date of redemption.
If the trust gives notice of redemption of its trust securities, then
the property trustee, to the extent funds are available, will irrevocably
deposit with the depositary for the trust securities funds sufficient to pay the
aggregate redemption price and will give the depositary for the trust securities
irrevocable instructions and authority to pay the redemption price to the
holders upon surrender of their certificates evidencing the trust securities.
See "Book-Entry Issuance." If the capital securities are no longer in book-entry
form, the property trustee, to the extent funds are available, will deposit with
the designated paying agent for such capital securities funds sufficient to pay
the aggregate redemption price and will give the paying agent irrevocable
instructions and authority to pay the redemption price to the holders upon
surrender of their certificates evidencing the capital securities.
Notwithstanding the foregoing, distributions payable on or prior to the date of
redemption for any trust securities called for redemption will be payable to the
holders of the trust securities on the relevant record dates for the related
distribution dates.
If notice of redemption has been given and we have deposited funds as
required, then on the date of the deposit all rights of the holders of the trust
securities called for redemption will cease, except the right to receive the
redemption price, but without interest on such redemption price after the date
of redemption. The trust securities will also cease to be outstanding on the
date of the deposit. If any date fixed for redemption of trust securities is not
a business day, then payment of the redemption price payable on that date will
be made on the next day that is a business day without any additional interest
or other payment in respect of the delay. However, if the next business day is
in the next succeeding calendar year, payment of the interest will be made on
the immediately preceding business day.
If payment of the redemption price in respect of trust securities
called for redemption is improperly withheld or refused and not paid by the
trust, or by us pursuant to the guarantee, distributions on the trust securities
will continue to accumulate at the applicable rate from the date of redemption
originally established by the trust for the trust securities to the date the
redemption price is actually paid. In this case, the actual payment date will be
considered the date fixed for redemption for purposes of calculating the
redemption price. See "Description of the Guarantee."
Subject to applicable law, and if we are not exercising our right to
defer interest payments on the debentures, we may, at any time, purchase
outstanding capital securities.
Payment of the redemption price on the capital securities and any
distribution of debentures to holders of capital securities will be made to the
applicable recordholders as they appear on the register for the capital
securities on the relevant record date. The record date will be the business day
immediately preceding the date of redemption or liquidation date, as applicable.
If less than all of the trust securities are to be redeemed, then the
aggregate liquidation amount of the trust securities to be redeemed will be
allocated proportionately to those trust securities based upon the relative
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liquidation amounts. The particular capital securities to be redeemed will be
selected by the property trustee from the outstanding capital securities not
previously called for redemption by a method the property trustee deems fair and
appropriate. This method may provide for the redemption of portions equal to $10
or an integral multiple of $10 of the liquidation amount of the capital
securities. The property trustee will promptly notify the registrar for the
capital securities in writing of the capital securities selected for redemption
and, in the case of any capital securities selected for partial redemption, the
liquidation amount to be redeemed. For all purposes of the trust agreement,
unless the context otherwise requires, all provisions relating to the redemption
of capital securities will relate to the portion of the aggregate liquidation
amount of capital securities which has been or is to be redeemed.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the redemption price of, the capital
securities and common securities will be made based on the liquidation amount of
these securities. However, if an event of default under the indenture has
occurred and is continuing, no distributions on or redemption of the common
securities may be made. Further, no payments may be made on the common
securities unless payment in full in cash of all accumulated and unpaid
distributions (including Additional Interest, if any is required) on all of the
outstanding capital securities for all distribution periods terminating on or
before that time, or in the case of payment of the redemption price, payment of
the full amount of the redemption price on all of the outstanding capital
securities then called for redemption, has been made or provided. All funds
available to the property trustee will first be applied to the payment in full
in cash of all distributions (including Additional Interest, if any is required)
on, or the redemption price of, the capital securities then due and payable.
In the case of the occurrence and continuance of any event of default
under the trust agreement resulting from an event of default under the
indenture, Quad City, as holder of the common securities, will be deemed to have
waived any right to act with respect to that event of default under the trust
agreement until the effect of the event of default has been cured, waived or
otherwise eliminated. Until the event of default under the trust agreement has
been so cured, waived or otherwise eliminated, the property trustee will act
solely on behalf of the holders of the capital securities and not on our behalf,
and only the holders of the capital securities will have the right to direct the
property trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
We will have the right at any time to dissolve, wind-up or terminate
the trust and cause the debentures to be distributed to the holders of the
capital securities. This right is subject, however, to us receiving approval of
the Federal Reserve, if required.
In addition, the trust will automatically terminate upon expiration of
its term and will terminate earlier on the first to occur of:
- Quad City's bankruptcy, dissolution or liquidation;
- the distribution of a like amount of the debentures to the holders
of its trust securities, if Quad City has given written direction
to the property trustee to terminate the trust;
- redemption of all of the capital securities as described under
"--Redemption or Exchange--Mandatory Redemption;" or
- the entry of an order for the dissolution of the trust by a court
of competent jurisdiction.
With the exception of a redemption as described under "--Redemption
or Exchange--Mandatory Redemption," if an early termination occurs, the trust
will be liquidated by the administrative trustees as expeditiously as they
determine to be possible. After satisfaction of liabilities to creditors of
the trust as provided by applicable law, the trustees will distribute to the
holders of trust securities debentures:
- in an aggregate stated principal amount equal to the aggregate
stated liquidation amount of the capital securities;
- with an interest rate identical to the distribution rate on
the capital securities; and
- with accrued and unpaid interest equal to accumulated and upaid
distributions on the capital securities.
However, if the property trustee determines that the distribution is
not practical, then the holders will be entitled
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to receive a proportionate amount of the liquidation distribution. The
liquidation distribution will be the amount equal to the aggregate of the
liquidation amount plus accumulated and unpaid distributions to the date of
payment. If the liquidation distribution can be paid only in part because the
trust has insufficient assets available to pay in full the aggregate
liquidation distribution, then the amounts payable directly by the trust on
the trust securities will be paid to us, as the holder of the common
securities, and the holders of the capital securities on a proportional basis
based on liquidation amounts. However, if an event of default under the
indenture has occurred and is continuing, the capital securities will have a
priority over the common securities. See "--Subordination of Common
Securities."
Under current United States federal income tax law and interpretations
and assuming that the trust is treated as a grantor trust, as is expected, a
distribution of the debentures should not be a taxable event to holders of the
capital securities. Should there be a change in law, a change in legal
interpretation, a Tax Event or another circumstance, however, the distribution
could be a taxable event to holders of the capital securities. See "Federal
Income Tax Consequences--Receipt of Debentures or Cash Upon Liquidation of the
Trust." If we do not elect to redeem the debentures prior to maturity or to
liquidate the trust and distribute the debentures to holders of the capital
securities, the capital securities will remain outstanding until the repayment
of the debentures.
If we elect to dissolve the trust and thus cause the debentures to be
distributed to holders of the capital securities in liquidation of the trust, we
will continue to have the right to shorten the maturity of the debentures. See
"Description of the Debentures--General."
LIQUIDATION VALUE
The amount of the liquidation distribution payable on the capital
securities in the event of any liquidation of the trust is $10 per capital
security plus accumulated and unpaid distributions to the date of payment,
which may be in the form of a distribution of debentures having a liquidation
value and accrued interest of an equal amount. See "--Liquidation
Distribution Upon Termination."
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an event of default under
the trust agreement with respect to the capital securities:
- the occurrence of an event of default under the indenture (see
"Description of the Debentures--Debenture Events of Default");
- a default by the trust in the payment of any distribution when it
becomes due and payable, and continuation of the default for a
period of 30 days;
- a default by the trust in the payment of any redemption price of
any of the trust securities when it becomes due and payable;
- a default in the performance, or breach, in any material respect,
of any covenant or warranty of the trustees in the trust
agreement, other than those defaults covered in the previous two
points, and continuation of the default or breach for a period of
60 days after there has been given, by registered or certified
mail, to the trustee(s) by the holders of at least 25% in
aggregate liquidation amount of the outstanding capital
securities, a written notice specifying the default or breach and
requiring it to be remedied and stating that the notice is a
"Notice of Default" under the trust agreement; or
- the occurrence of events of bankruptcy or insolvency with respect
to the property trustee and our failure to appoint a successor
property trustee within 60 days.
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 the holders of the capital securities, the
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administrative trustees and to us, unless the event of default has been cured or
waived. Quad City and the administrative trustees are required to file annually
with the property trustee a certificate as to whether or not they are in
compliance with all the conditions and covenants applicable to them under the
trust agreement.
If an event of default under the indenture has occurred and is
continuing, the capital securities will have preference over the common
securities upon termination of the trust. See "--Subordination of Common
Securities" and "--Liquidation Distribution Upon Termination." The existence of
an event of default under the trust agreement does not entitle the holders of
capital securities to accelerate the maturity thereof, unless the event of
default is caused by the occurrence of an event of default under the indenture
and both the indenture trustee and holders of at least 25% in principal amount
of the debentures fail to accelerate the maturity thereof.
REMOVAL OF THE TRUSTEES
Unless an event of default under the indenture has occurred and is
continuing, any trustee may be removed at any time by us. If an event of default
under the indenture has occurred and is continuing, only the holders of a
majority in liquidation amount of the outstanding capital securities may remove
the property trustee or the Delaware trustee. The holders of the capital
securities have no right to vote to appoint, remove or replace the
administrative trustees. These rights are vested exclusively with us as the
holder of the common securities. No resignation or removal of a trustee and no
appointment of a successor trustee will be effective until the successor trustee
accepts the appointment in accordance with the trust agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an event of default under the indenture has occurred and is
continuing, 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, we will have the power to appoint at any time or times,
and upon written request of the property trustee will appoint, one or more
persons or entity either (1) to act as a co-trustee, jointly with the property
trustee, of all or any part of the trust property, or (2) to act as separate
trustee of any trust property. In either case these trustees will have the
powers that may be provided in the instrument of appointment, and will have
vested in them any property, title, right or power deemed necessary or
desirable, subject to the provisions of the trust agreement. In case an event of
default under the indenture has occurred and is continuing, the property trustee
alone will have power to make the appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Generally, any person or successor to any of the trustees may be a
successor trustee to any of the trustees, including a successor resulting from a
merger or consolidation. However, any successor trustee must meet all of the
qualifications and eligibility standards to act as a trustee.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below. The trust may, at our request, with the consent of the
administrative trustees and without the consent of the holders of the capital
securities, the property trustee or the Delaware trustee, undertake a
transaction listed above if the following conditions are met:
- the successor entity either (a) expressly assumes all of the
obligations of the trust with respect to the capital securities,
or (b) substitutes for the capital securities other securities
having substantially the same terms as the capital securities
(referred to as "successor securities") so long as the successor
securities rank the same in priority as the capital securities
with respect to distributions and payments upon liquidation,
redemption and otherwise;
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- Quad City expressly appoints a trustee of the successor entity
possessing substantially the same powers and duties as the
property trustee in its capacity as the holder of the debentures;
- the successor securities are listed or will be listed upon
notification of issuance, on any national securities exchange or
other organization on which the capital securities are then
listed, if any;
- the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the capital
securities (including any successor securities) in any material
respect;
- the successor entity has a purpose substantially identical to that
of the trust;
- prior to the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, Quad City has received an opinion
from independent counsel to the effect that (a) any transaction of
this kind does not adversely affect the rights, preferences and
privileges of the holders of the capital securities (including any
successor securities) in any material respect, and (b) following
the transaction, neither the trust nor the successor entity will
be required to register as an "investment company" under the
Investment Company Act; and
- we own all of 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
holders of 100% in liquidation amount of the capital securities, enter into any
transaction of this kind or permit any other person to consolidate, amalgamate,
merge with or into, or replace it if the transaction would cause the trust or
the successor entity to be classified as other than a grantor trust for United
States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of the
Guarantee--Amendments and Assignment" and as otherwise required by the Trust
Indenture Act and the trust agreement, the holders of the capital securities
will have no voting rights.
The trust agreement may be amended from time to time by us and the
trustees, without the consent of the holders of the capital securities, in the
following circumstances:
- with respect to acceptance of appointment by a successor trustee;
- to cure any ambiguity, correct or supplement any provisions in the
trust agreement that may be inconsistent with any other provision,
or to make any other provisions with respect to matters or
questions arising under the trust agreement, as long as the
amendment is not inconsistent with the other provisions of the
trust agreement and does have a material adverse effect on the
interests of any holder of trust securities; or
- to modify, eliminate or add to any provisions of the trust
agreement if necessary to ensure that the trust will be classified
for federal income tax purposes as a grantor trust at all times
that any trust securities are outstanding or to ensure that the
trust will not be required to register as an "investment company"
under the Investment Company Act.
With the consent of the holders of a majority of the aggregate
liquidation amount of the outstanding trust securities, Quad City and the
trustees may amend the trust agreement if the trustees receive an opinion of
counsel to the effect that the amendment or the exercise of any power granted to
the trustees in accordance with the amendment will not affect the trust's status
as a grantor trust for federal income tax purposes or the trust's exemption from
status as an "investment company" under the Investment Company Act. However,
without the
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consent of each holder of trust securities, the trust agreement may
not be amended to (a) 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 (b) restrict the right of a holder of trust securities to institute suit for
the enforcement of the payment on or after that date.
As long as the property trustee holds any debentures, the trustees will
not:
- direct the time, method and place of conducting any proceeding for
any remedy available to the indenture trustee, or executing any
trust or power conferred on the property trustee with respect to
the debentures;
- waive any past default that is waivable under the indenture;
- exercise any right to rescind or annul a declaration that the
principal of all the debentures will be due and payable; or
- consent to any amendment, modification or termination of the
indenture or the debentures, where the consent is required,
without obtaining the prior approval of the holders of a majority
in aggregate liquidation amount of all outstanding trust
securities. However, where a consent under the indenture requires
the consent of each holder of the affected debentures, no consent
will be given by the property trustee without the prior consent of
each holder of the trust securities.
The trustees may not revoke any action previously authorized or approved by a
vote of the holders of the trust securities except by subsequent vote of the
holders of the trust securities. The property trustee will notify each holder of
trust securities of any notice of default with respect to the debentures. In
addition to obtaining the foregoing approvals of the holders of the trust
securities, prior to taking any of the foregoing actions the trustees must
obtain an opinion of counsel experienced in these matters to the effect that the
trust will not be classified as an association taxable as a corporation for
federal income tax purposes on account of the action.
Any required approval of holders of trust securities may be given at a
meeting of holders of the trust securities convened for the purpose or pursuant
to written consent. The property trustee will cause a notice of any meeting at
which holders of the trust securities are entitled to vote, or of any matter
upon which action by written consent of the holders is to be taken, to be given
to each holder of record of trust securities.
No vote or consent of the holders of capital securities will be
required for the trust to redeem and cancel its capital securities in accordance
with the trust agreement.
Notwithstanding the fact that holders of capital securities are
entitled to vote or consent under any of the circumstances described above, any
of the capital securities that are owned by Quad City, the trustees or any
affiliate of Quad City or any trustee, will, for purposes of the vote or
consent, be treated as if they were not outstanding.
GLOBAL CAPITAL SECURITIES
The capital securities will be represented by one or more global
capital securities registered in the name of The Depository Trust Company, New
York, New York ("DTC") or its nominee. A global capital security is a security
representing interests of more than one beneficial holder. Beneficial interests
in the global capital securities will be shown on, and transfers will be
effected only through, records maintained by participants. Participants are
brokers, dealers, or others with accounts with DTC. Except as described below,
capital securities in definitive form will not be issued in exchange for the
global capital securities. See "Book-Entry Issuance."
No global capital security may be exchanged for capital securities
registered in the names of persons other than DTC or its nominee unless:
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- DTC notifies the indenture trustee that it is unwilling or unable
to continue as a depositary for the global capital security and we
are unable to locate a qualified successor depositary;
- we execute and deliver to the indenture trustee a written order
stating that we elect to terminate the book-entry system through
DTC; or
- there shall have occurred and be continuing an event of default
under the indenture.
Any global capital security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for definitive certificates registered in the
names as DTC shall direct. It is expected that the instructions will be based
upon directions received by DTC with respect to ownership of beneficial
interests in the global capital security. If capital securities are issued in
definitive form, the capital securities will be in denominations of $10 and
integral multiples of $10 and may be transferred or exchanged at the offices
described below.
Unless and until it is exchanged in whole or in part for the individual
capital securities represented thereby, a global capital security may not be
transferred except as a whole by DTC to a nominee of DTC, by a nominee of DTC to
DTC or another nominee of DTC or by DTC or any nominee to a successor depositary
or any nominee of the successor.
Payments on global capital securities will be made to DTC, as the
depositary for the global capital securities. If the capital securities are
issued in definitive form, distributions will be payable, the transfer of the
capital securities will be registrable, and capital securities will be
exchangeable, for capital securities of other denominations of a like aggregate
liquidation amount, at the corporate office of the property trustee, or at the
offices of any paying agent or transfer agent appointed by the administrative
trustees. However, payment of any distribution may be made at the option of the
administrative trustees by check mailed to the address of record of the persons
entitled to the distribution or by wire transfer. In addition, if the capital
securities are issued in definitive form, the record dates for payment of
distributions will be the 15th day of the month in which the relevant
distribution date occurs. For a description of the terms of DTC arrangements
relating to payments, transfers, voting rights, redemptions and other notices
and other matters, see "Book-Entry Issuance."
Upon the issuance of one or more global capital securities, and the
deposit of the global capital security with or on behalf of DTC or its nominee,
DTC or its nominee will credit, on its book-entry registration and transfer
system, the respective aggregate liquidation amounts of the individual capital
securities represented by the global capital security to the accounts of persons
that have accounts with DTC. These accounts shall be designated by the dealers,
underwriters or agents with respect to the capital securities. Ownership of
beneficial interests in a global capital security will be limited to persons or
entities with an account with DTC or who may hold interest through any person or
entity with an account that may hold interests through participants. With
respect to interests of any person or entity with an account with DTC, ownership
of beneficial interests in a global capital security will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the applicable depositary or its nominee. With respect to persons or entities
who hold interest in a global capital security through a participant, the
interest and any transfer of the interest will be shown on the participant's
records. The laws of some states require that certain purchasers of securities
take physical delivery of these securities in definitive form. These laws may
impair the ability to transfer beneficial interests in a global capital
security.
So long as DTC or another depositary, or its nominee, is the registered
owner of the global capital security, the depositary or the nominee, as the case
may be, will be considered the sole owner or holder of the capital securities
represented by the global capital security for all purposes under the trust
agreement. Except as described in this prospectus, owners of beneficial
interests in a global capital security will not be entitled to have any of the
individual capital securities represented by the global capital security
registered in their names, will not receive or be entitled to receive physical
delivery of any the capital securities in definitive form and will not be
considered the owners or holders of the capital securities under the trust
agreement.
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None of us, the property trustee, any paying agent or the securities
registrar for the capital securities will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests of the global capital security representing the
capital securities or for maintaining, supervising or reviewing any records
relating to the beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of the
liquidation amount or distributions in respect of a global capital security,
immediately will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interest in the aggregate
liquidation amount of the global capital security as shown on the records of DTC
or its nominee. We also expect that payments by participants to owners of
beneficial interests in the global capital security held through the
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." The payments will be the responsibility of
the participants. See "Book-Entry Issuance."
PAYMENT AND PAYING AGENCY
Payments in respect of the capital securities shall be made to DTC,
which shall credit the relevant accounts of participants on the applicable
distribution dates, or, if any of the capital securities are not held by DTC,
the payments shall be made by check mailed to the address of the holder as
listed on the register of holders of the capital securities. The paying agent
for the capital securities will initially be the property trustee and any
co-paying agent chosen by the property trustee and acceptable to Quad City and
the administrative trustees. The paying agent for the capital securities may
resign as paying agent upon 30 days' written notice to the administrative
trustees, the property trustee and us. If the property trustee no longer is the
paying agent for the capital securities, the administrative trustees will
appoint a successor to act as paying agent. The successor must be a bank or
trust company acceptable to Quad City and the property trustee.
REGISTRAR AND TRANSFER AGENT
The property trustee will act as the registrar and the transfer agent
for the capital securities. Registration of transfers of capital securities will
be effected without charge by or on behalf of the trust, but upon payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. The trust and its registrar and transfer agent will not be
required to register or cause to be registered the transfer of capital
securities after they have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee, until the occurrence and continuance of an event
of default under the trust agreement, undertakes to perform only the duties set
forth in the trust agreement. After an event of default under the trust
agreement, the property trustee must exercise the same degree of care and skill
as a prudent person exercises or uses in the conduct of its own affairs. Subject
to this provision, the property trustee is under no obligation to exercise any
of the powers vested in it by the trust agreement at the request of any holder
of capital securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred. If no event of default
under the trust agreement has occurred and is continuing and the property
trustee is required to decide between alternative causes of action, construe
ambiguous provisions in the trust agreement or is unsure of the application of
any provision of the trust agreement, and the matter is not one on which holders
of capital securities are entitled to vote upon, then the property trustee will
take the action directed in writing by us. If the property trustee is not so
directed, then it will take the action it deems advisable and in the best
interests of the holders of the trust securities and will have no liability
except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The administrative trustees are authorized and directed to conduct the
affairs of and to operate the trust in such a way that:
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- the trust will not be deemed to be an "investment company"
required to be registered under the Investment Company Act;
- the trust will not be classified as an association taxable as a
corporation for federal income tax purposes; and
- the debentures will be treated as indebtedness of Quad City for
federal income tax purposes.
In this regard, Quad City and the administrative trustees are authorized to take
any action not inconsistent with applicable law, the certificate of trust or the
trust agreement, that Quad City and the administrative trustees determine to be
necessary or desirable for these purposes.
Holders of the capital securities have no preemptive or similar rights.
The trust agreement and the capital securities will be governed by Delaware law.
DESCRIPTION OF THE DEBENTURES
Concurrently with the issuance of the capital securities, the trust
will invest the proceeds from the sale of the trust securities in the debentures
issued by us. The debentures will be issued as unsecured debt under the
indenture between us and First Union, as trustee (the "indenture trustee"). The
indenture will be qualified under the Trust Indenture Act.
The following discussion is subject to, and is qualified in its
entirety by reference to, the indenture and to the Trust Indenture Act. We urge
prospective investors to read the form of the indenture, which is filed as an
exhibit to the registration statement of which this prospectus forms a part.
GENERAL
The debentures will be limited in aggregate principal amount to $12.38
million, this amount being the sum of the aggregate stated liquidation amounts
of the trust securities. The debentures will bear interest at the annual rate of
[_]% of the principal amount. The interest will be payable quarterly on March
31, June 30, September 30 and December 31 of each year, beginning September 30,
1999, to the person in whose name each debenture is registered at the close of
business on the business day immediately preceding the day interest is due. It
is anticipated that, until the liquidation, if any, of the trust, the debentures
will be held in the name of the property trustee in trust for the benefit of the
holders of the trust securities.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. If any date on which interest
is payable on the debentures is not a business day, then payment of interest
will be made on the next day that is a business day without any additional
interest or other payment in respect of the delay. However, if the next business
day is in the next calendar year, payment of the interest 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 due
at the annual rate of [ ]%, compounded quarterly. The term "interest," includes
quarterly interest payments, interest on quarterly interest payments not paid on
the applicable interest payment date and additional interest, as applicable.
The debentures will mature on June 30, 2029, the stated maturity date.
We may shorten this date once at any time to any date not earlier than June 30,
2004, subject to the prior approval of the Federal Reserve, if required.
We will give notice to the indenture trustee and the holders of the
debentures, no more than 180 days and no less than 90 days prior to the
effectiveness of any change in the stated maturity date. We will not have the
right to redeem the debentures from the trust until after June 30, 2004, except
if a Tax Event, an Investment Company Event or a Capital Treatment Event has
occurred, or to the extent we have repurchased capital securities.
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The debentures will be unsecured and will rank junior to all of our
senior and subordinate indebtedness. Because we are a holding company, our right
to participate in any distribution of assets of any of our subsidiaries, upon
any subsidiary's liquidation or reorganization or otherwise, and thus the
ability of holders of the debentures to benefit indirectly from any distribution
by a subsidiary, is subject to the prior claim of creditors of the subsidiary,
except to the extent that we may be recognized as a creditor of the subsidiary.
The debentures will, therefore, be effectively subordinated to all existing and
future liabilities of our subsidiaries, and holders of debentures should look
only to our assets for payment. The indenture does not limit our ability to
incur or issue secured or unsecured senior and junior debt. See
"--Subordination."
The indenture does not contain provisions that afford holders of the
debentures protection in the event of a highly leveraged transaction or other
similar transaction involving Quad City, nor does it require us to maintain or
achieve any financial performance levels or to obtain or maintain any credit
rating on the debentures.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
As long as no event of default under the indenture has occurred and is
continuing, we have the right under the indenture to defer the payment of
interest on the debentures at any time for a period not exceeding 20 consecutive
quarters. However, no extension period may extend beyond the stated maturity of
the debentures or end on a date other than a date interest is normally due. At
the end of an extension period, we must pay all interest then accrued and
unpaid, together with interest thereon at the annual rate of [___]% compounded
quarterly. During an extension period, interest will continue to accrue and
holders of debentures, or the holders of capital securities if they are then
outstanding, will be required to accrue and recognize as income for federal
income tax purposes the accrued but unpaid interest amounts in the year in which
such amounts accrued. See "Federal Income Tax Consequences--Interest Payment
Period and Original Issue Discount."
During an extension period, we may not:
- 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;
- make any payment of principal, interest or premium on, or repay,
repurchase or redeem any debt securities that rank equally with or
junior to the debentures or make any guarantee payments with
respect to any other guarantee by us of any other debt securities
of any of our subsidiaries if the guarantee ranks equally with or
junior to the debentures; or
- redeem, purchase or acquire less than all of the debentures or any
of the capital securities.
However, we may reclassify any class of our capital stock into another class of
capital stock during an extension period.
Prior to the termination of any extension period, so long as no event
of default under the indenture is continuing, we may further defer the payment
of interest subject to the above stated requirements. Upon the termination of
any extension period and the payment of all amounts then due, we may elect to
begin a new extension period at any time. We have no present intention of
exercising our right to defer payments of interest on the debentures.
We must give the property trustee, the administrative trustees and the
indenture trustee notice of our election of an extension period at least two
business days prior to the earlier of (a) the next date on which distributions
on the trust securities would have been payable except for the election to begin
an extension period, or (b) the date we are required to give notice of the
record date, or the date the distributions are payable, to the American Stock
Exchange, or other applicable self-regulatory organization, or to holders of the
capital securities, but in any event at least one business day prior to the
record date.
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Subject to the foregoing, there is no limitation on the number of times
that we may elect to begin an extension period.
ADDITIONAL SUMS TO BE PAID AS A RESULT OF ADDITIONAL TAXES
If the trust is required to pay any additional taxes, duties or other
governmental charges as a result of the occurrence of a Tax Event, we will pay
as additional amounts on the debentures any amounts which may be required so
that the net amounts received and retained by the trust after paying any
additional taxes, duties or other governmental charges will not be less than the
amounts the trust would have received had the additional taxes, duties or other
governmental charges not been imposed.
REDEMPTION OR EXCHANGE
Subject to prior approval of the Federal Reserve, if required, we may
redeem the debentures prior to maturity:
- on or after June 30, 2004, in whole at any time or in part from
time to time;
- in whole at any time within 180 days following the occurrence of a
Tax Event, an Investment Company Event or a Capital Treatment
Event;
- at any time, to the extent of any capital securities we
repurchase.
In each case we will pay a redemption price equal to the accrued and unpaid
interest on the debentures so redeemed to the date fixed for redemption, plus
100% of the principal amount of the debentures.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each holder of debentures to be
redeemed at its registered address. Redemption of less than all outstanding
debentures shall be effected proportionately, by lot or in any other manner
deemed to be fair by the indenture trustee. Unless we default in payment of the
redemption price for the debentures, on and after the redemption date interest
shall cease to accrue on the debentures or portions thereof called for
redemption.
The debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Capital Securities--Liquidation
Distribution Upon Termination," under certain circumstances and with the Federal
Reserve's approval, the debentures may be distributed to the holders of the
capital securities in liquidation of the trust after satisfaction of liabilities
to creditors of the trust. If this occurs, we will use our reasonable efforts to
list the debentures on the American Stock Exchange or other stock exchange or
national quotation service, on which the capital securities are then listed, if
any. There can be no assurance as to the market price of any debentures that may
be distributed to the holders of capital securities.
RESTRICTIONS ON PAYMENTS
We are restricted from making certain payments (as described below) if
at that time:
- an event of default is continuing under the indenture;
- we are in default with respect to our obligations under the
guarantee; or
- we have given notice of our election to extend an interest payment
period with respect to the debentures and the notice has not been
rescinded or the extension period is continuing.
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If any of the above events have occurred, we will not:
- 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;
- make any payment of principal, interest or premium on, or repay or
repurchase or redeem any of our debt securities that rank equally
with or junior to the debentures;
- make any guarantee payments with respect to any guarantee by us of
the debt securities of any of our subsidiaries if the guarantee
ranks equally with or junior to the debentures (other than
payments under the guarantee); or
- redeem, purchase or acquire less than all of the debentures or any
of the capital securities.
However, we may reclassify any class of our capital stock into another class of
capital stock during any of the above events.
SUBORDINATION
Under the indenture, the debentures are subordinated and junior in
right of payment to all of our senior and subordinated debt. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution, winding
up, reorganization, assignment for the benefit of creditors, marshaling of
assets or any bankruptcy, insolvency, debt restructuring or similar proceedings
in connection with any insolvency or bankruptcy proceedings of Quad City, the
holders of senior and subordinated debt will first be entitled to receive
payment in full of principal (and premium, if any) and interest before the
holders of debentures will be entitled to receive or retain any payment in
respect of the debentures.
In the event of the acceleration of the maturity of any debentures, the
holders of all or our senior and subordinated debt outstanding at the time of
the acceleration will also be entitled to first receive payment in full of all
amounts due, including any amounts due upon acceleration, before the holders of
the debentures will be entitled to receive or retain any payment in respect of
the principal of or interest on the debentures.
No payments of principal or interest in respect of the debentures may
be made if there has occurred and is continuing a default in any payment with
respect to any of our senior or subordinated debt or an event of default with
respect to any of our senior or subordinated debt resulting in the acceleration
of the maturity of the debentures, or if any judicial proceeding is pending with
respect to any default.
The term "debt" means, with respect to any entity, whether recourse is
to all or a portion of the assets of an entity and whether or not contingent:
- every obligation of the entity for money borrowed;
- every obligation of the entity evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred
in connection with the acquisition of property, assets or
businesses;
- every reimbursement obligation of the entity with respect to
letters of credit, bankers' acceptances or similar facilities
issued for the account of the entity;
- every obligation of the entity issued or assumed as the deferred
purchase price of property or services, excluding trade accounts
payable or accrued liabilities arising in the ordinary course of
business;
- every capital lease obligation of the entity; and
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- every obligation of the type referred to in the first five points
of another person and all dividends of another person the payment
of which, in either case, the entity has guaranteed or is
responsible or liable, directly or indirectly, as obligor or
otherwise.
The term "senior debt" means, with respect to Quad City, the principal
of and premium and interest, including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to us whether or
not a claim for post-petition interest is allowed in the proceeding, on debt,
whether incurred on or prior to the date of the indenture or incurred after the
date. Senior debt also includes all indebtedness, whether incurred on or prior
to the date of the indenture or thereafter incurred, for claims in respect of
derivative products such as interest and foreign exchange rate contracts,
commodity contracts and similar arrangements. However, senior debt will not be
deemed to include:
- any debt where it is provided in the instrument creating the debt
that the obligations are not superior in right of payment to the
debentures or to other debt which is equal with, or subordinated
to, the debentures;
- any of our debt that when incurred and without respect to any
election under section 1111(b) of the United States Bankruptcy
Code of 1978, was without recourse to us;
- any debt of Quad City to any of Quad City's subsidiaries;
- any debt to any employee of Quad City;
- any debt that by its terms is subordinated to trade accounts
payable or accrued liabilities arising in the ordinary course of
business to the extent that payments made to the holders of the
debt by the holders of the debentures as a result of the
subordination provisions of the indenture would be greater than
they otherwise would have been as a result of any obligation of
the holders to pay amounts over to the obligees on the trade
accounts payable or accrued liabilities arising in the ordinary
course of business as a result of subordination provisions to
which the debt is subject; and
- debt which constitutes subordinated debt.
The term "subordinated debt" means, with respect to us, the principal
of, premium and interest, including interest accruing on or after the filing of
any petition in bankruptcy or for reorganization relating to Quad City whether
or not the claim for post-petition interest is allowed in the proceeding, on
debt. Subordinated debt includes debt incurred on or prior to the date of the
indenture or thereafter incurred, which is by its terms expressly provided to be
junior and subordinate to other debt of ours, other than the debentures.
However, subordinated debt will not be deemed to include:
- any debt of Quad City which when incurred and without respect to
any election under section 1111(b) of the United States Bankruptcy
Code of 1978, was without recourse to us;
- any debt of Quad City to any of Quad City's subsidiaries;
- any debt to any employee of Quad City;
- any debt which by its terms is subordinated to trade accounts
payable or accrued liabilities arising in the ordinary course of
business to the extent that payments made to the holders of the
debt by the holders of the debentures as a result of the
subordination provisions of the indenture would be greater than
they otherwise would have been as a result of any obligation of
the holders to pay amounts over to the obligees on the trade
accounts payable or accrued liabilities arising in the ordinary
course of business as a result of subordination provisions to
which the debt is subject;
- debt which constitutes senior debt; and
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- any debt of Quad City under debt securities (and guarantees in
respect of these debt securities) initially issued to any trust,
or a trustee of a trust, partnership or other entity affiliated
with the Quad City that is, directly or indirectly, a financing
vehicle of Quad City in connection with the issuance by that
entity of preferred securities or other securities which are
intended to qualify for "Tier 1" capital treatment.
We expect from time to time to incur additional indebtedness, and there
is no limitation on the amount we may incur. At March 31, 1999, we had
consolidated senior debt and subordinated debt of approximately $2.5 million.
Although these amounts are expected to be repaid with a portion of the proceeds
from the sale of the debentures, additional senior or subordinated debt can be
expected to be incurred in the future.
PAYMENT AND PAYING AGENTS
Generally, payment of principal of and any interest on the debentures
will be made at the office of the indenture trustee in Wilmington, Delaware.
However, we have the option to make payment of any interest by (a) check mailed
to the address of the person entitled to payment at the address listed in the
register of holders of the debentures, or (b) transfer to an account maintained
by the person entitled thereto as specified in the register of holders of the
debentures, provided that proper transfer instructions have been received by the
regular record date. Payment of any interest on debentures will be made to the
person in whose name the debenture is registered at the close of business on the
regular record date for the interest payment, except in the case of defaulted
interest. We may at any time designate additional paying agents for the
debentures or rescind the designation of any paying agent for the debentures.
However, we will at all times be required to maintain a paying agent in
Wilmington, Delaware, and each place of payment for the debentures.
Any moneys deposited with the indenture trustee or any paying agent for
the debentures, or then held by us in trust, for the payment of the principal of
or interest on the debentures and remaining unclaimed for two years after the
principal or interest has become due and payable, will be repaid to us on May 31
of each year. If we hold any of this money in trust, then it will be discharged
from the trust to us and the holder of the debenture will thereafter look, as a
general unsecured creditor, only to us for payment.
REGISTRAR AND TRANSFER AGENT
The indenture trustee will act as the registrar and the transfer agent
for the debentures. Debentures may be presented for registration of transfer,
with the form of transfer endorsed thereon, or a satisfactory written instrument
of transfer, duly executed, at the office of the registrar. Provided that we
maintain a transfer agent in Wilmington, Delaware, we may rescind the
designation of any transfer agent or approve a change in the location through
which any transfer agent acts. We may at any time designate additional transfer
agents with respect to the debentures.
In the event of any redemption, neither Quad City nor the indenture
trustee will be required to (a) issue, register the transfer of or exchange
debentures during a period beginning at the opening of business 15 days before
the day of selection for redemption of debentures and ending at the close of
business on the day of mailing of the relevant notice of redemption, or (b)
transfer or exchange any debentures so selected for redemption, except, in the
case of any debentures being redeemed in part, any portion not to be redeemed.
MODIFICATION OF INDENTURE
Quad City and the indenture trustee may, from time to time without the
consent of the holders of the debentures, amend, waive or supplement the
indenture for purposes which do not materially adversely affect the rights of
the holders of the debentures. Other changes may be made by Quad City and the
indenture trustee with the consent of the holders of a majority in principal
amount of the outstanding debentures. However, without the consent of the holder
of each outstanding debenture affected by the proposed modification, no
modification may:
- extend the fixed maturity of the debentures; or
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- reduce the principal amount or the rate or extend the time of
payment of interest; or
- reduce the percentage of principal amount of debentures
required to amend the indenture.
As long as any of the capital securities remain outstanding, no modification may
be made that requires the consent of the holders of the debentures, no
termination of the indenture may occur, and no waiver of any event of default
under the indenture may be effective, without the prior consent of the holders
of a majority of the aggregate liquidation amount of the capital securities.
DEBENTURE EVENTS OF DEFAULT
The indenture provides that any one or more of the following described
events with respect to the debentures that has occurred and is continuing
constitutes an event of default under the indenture:
- failure for 30 days to pay any interest on the debentures, when
due, subject to deferral of any due date in the case of an
extension period;
- failure to pay any principal on the debentures when due whether at
maturity, upon redemption by declaration or otherwise;
- failure to observe or perform in any material respect other
covenants contained in the indenture for 90 days after written
notice to us from the indenture trustee or the holders of at least
25% in aggregate outstanding principal amount of the debentures;
or
- our bankruptcy, insolvency or reorganization or dissolution of
the trust.
The holders of a majority of the aggregate outstanding principal amount
of the debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the indenture trustee. The
indenture trustee, or the holders of at least 25% in aggregate outstanding
principal amount of the debentures, may declare the principal due and payable
immediately upon an event of default under the indenture. The holders of a
majority of the outstanding principal amount of the debentures may annul the
declaration and waive the default if the 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 indenture trustee.
The holders may not annul the declaration and waive a default if the default is
the non-payment of the principal of the debentures which has become due solely
by the acceleration. Should the holders of the debentures fail to annul the
declaration and waive the default, the holders of at least 25% in aggregate
liquidation amount of the capital securities will have this right.
If an event of default under the indenture has occurred and is
continuing, the property trustee will have the right to declare the principal of
and the interest on the debentures, and any other amounts payable under the
indenture, to be forthwith due and payable and to enforce its other rights as a
creditor with respect to the debentures.
We are required to file annually with the indenture trustee a
certificate as to whether or not we are in compliance with all of the conditions
and covenants applicable to us under the indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE CAPITAL SECURITIES
If an event of default under the indenture has occurred and is
continuing and the event is attributable to the failure of us to pay interest on
or principal of the debentures on the payment date on which the payment is due
and payable, then a holder of capital securities may institute a direct action
against us. In connection with a direct action, we will have a right to counter
the amount of the direct action to the extent of any payment made by us to the
holder of capital securities with respect to the direct action. We may not amend
the indenture to remove the foregoing right to bring a direct action without the
prior written consent of all of the holders of the capital
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securities. If the right to bring a direct action is removed, the trust may
become subject to the reporting obligations under the Securities Exchange Act
of 1934.
The holders of the capital securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the debentures unless there has been an event of
default under the trust agreement. See "Description of the Capital
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 or
transfer our properties and assets substantially as an entirety to any entity,
and no entity may be consolidated with or merged into Quad City or sell, convey,
transfer or otherwise dispose of its properties and assets substantially as an
entirety to Quad City, unless:
- if we consolidate with or merge into another person or convey or
transfer our properties and assets substantially as an entirety to
any person, the successor person is organized under the laws of
the United States or any State or the District of Columbia, and
the successor person expressly assumes by supplemental indenture
our obligations on the debentures, or substitutes securities
having substantially similar terms;
- immediately after giving effect, no event of default under the
indenture, and no event which, after notice or lapse of time, or
both, would become an event of default under the indenture, has
occurred and is continuing; and
- other conditions as prescribed in the indenture are met.
SATISFACTION AND DISCHARGE
The indenture will cease to be of further effect and we will be deemed
to have satisfied and discharged the indenture when all debentures not
previously delivered to the indenture trustee for cancellation:
- have become due and payable, or
- will become due and payable at their stated maturity within
one year or are to be called for redemption within one year,
and we deposit or cause to be deposited with the indenture
trustee funds, in trust, for the purpose and in an amount
sufficient to pay and discharge the entire indebtedness on the
debentures not previously delivered to the indenture trustee
for cancellation, for the principal and interest due to the
date of the deposit or to the stated maturity or redemption
date, as the case may be.
We may still be required to provide officers' certificates, opinions of
counsel and pay fees and expenses due after these events occur.
GOVERNING LAW
The indenture and the debentures will be governed by and construed in
accordance with the laws of the State of Illinois.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The indenture trustee is subject to all the duties and responsibilities
specified with respect to an indenture trustee under the Trust Indenture Act.
Subject to these provisions, the indenture trustee is under no obligation to
exercise any of the powers vested in it by the indenture at the request of any
holder of debentures, unless offered reasonable indemnity by the holder against
the costs, expenses and liabilities which might be incurred. The
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indenture trustee is not required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties
if the indenture trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
MISCELLANEOUS
We have agreed, pursuant to the indenture, for so long as capital
securities remain outstanding:
- to maintain directly or indirectly 100% ownership of the common
securities of the trust except that certain successors that are
permitted pursuant to the indenture may succeed to our ownership
of the common securities;
- not to voluntarily terminate, wind up or liquidate the trust
without prior approval of the Federal Reserve, if required;
- to use our reasonable efforts to cause the trust (a) to remain a
business trust (and to avoid involuntary termination, winding up
or liquidation), except in connection with a distribution of
debentures, the redemption of all of the trust securities of the
trust or mergers, consolidations or amalgamations, each as
permitted by the trust agreement; and (b) to otherwise continue
not to be treated as an association taxable as a corporation or
partnership for federal income tax purposes; and
- to use our reasonable efforts to cause each holder of trust
securities to be treated as owning an individual beneficial
interest in the debentures.
BOOK-ENTRY ISSUANCE
GENERAL
DTC will act as securities depositary for the capital securities and
may act as securities depositary for all of the debentures in the event of the
distribution of the debentures to the holders of capital securities. Except as
described, the capital securities will be issued only as registered securities
in the name of Cede & Co. (DTC's nominee). One or more global capital securities
will be issued for the Capital Securities and will be deposited with DTC.
DTC is a limited purpose trust company organized under New York banking
law, a "banking organization" within the meaning of the New York banking law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to Section 17A of the Securities Exchange Act of 1934. DTC
holds securities that its participants deposit with DTC. DTC also facilitates
the settlement among participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. DTC is owned by a number of its direct participants and by
the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to indirect participants, such as securities brokers and dealers,
banks and trust companies that clear through or maintain custodial relationships
with direct participants, either directly or indirectly. The rules applicable to
DTC and its participants are on file with the SEC.
Purchases of capital securities within the DTC system must be made by
or through direct participants, which will receive a credit for the capital
securities on DTC's records. The ownership interest of each actual purchaser of
each capital security ("beneficial owner") is in turn to be recorded on the
direct and indirect participant's records. Beneficial owners will not receive
written confirmation from DTC of their purchases, but beneficial owners are
expected to receive written confirmations providing details of the transactions,
as well as
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periodic statements of their holdings, from the direct or indirect
participants through which the beneficial owners purchased capital
securities. Transfers of ownership interests in the capital securities are to
be accomplished by entries made on the books of participants acting on behalf
of beneficial owners. Beneficial owners will not receive certificates
representing their ownership interest in capital securities, except if use of
the book-entry system for the capital securities is discontinued.
DTC will have no knowledge of the actual beneficial owners of the
capital securities; DTC's records reflect only the identity of the direct
participants to whose accounts the capital securities are credited, which may or
may not be the beneficial owners. The participants will remain responsible for
keeping account of their holdings on behalf of their customers.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that we believe to be accurate, but Quad
City and the trust assume no responsibility for the accuracy thereof. Neither
Quad City nor the trust have any responsibility for the performance by DTC or
its participants of their respective obligations as described in this prospectus
or under the rules and procedures governing their respective operations.
NOTICES AND VOTING
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct and
indirect participants to beneficial owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder
of the capital securities. If less than all of the capital securities are being
redeemed, the amount to be redeemed will be determined in accordance with the
trust agreement.
Although voting with respect to the capital securities is limited to
the holders of record of the capital securities, in those instances in which a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to capital securities. Under its usual procedures, DTC would mail an
omnibus proxy to the property trustee as soon as possible after the record date.
The omnibus proxy assigns Cede & Co.'s consenting or voting rights to those
direct participants to whose accounts the capital securities are credited on the
record date.
DISTRIBUTION FUNDS
The property trustee will make distribution payments on the capital
securities to DTC. DTC's practice is to credit direct participants' accounts on
the relevant payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payments
on the payment date. Payments by participants to beneficial owners will be
governed by standing instructions and customary practices and will be the
responsibility of the participant and not of DTC, the property trustee, the
trust or Quad City, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of distributions to DTC is the
responsibility of the property trustee, disbursement of the payments to direct
participants is the responsibility of DTC, and disbursements of the payments to
the beneficial owners is the responsibility of direct and indirect participants.
SUCCESSOR DEPOSITARIES AND TERMINATION OF BOOK-ENTRY SYSTEM
DTC may discontinue providing its services with respect to any of the
capital securities at any time by giving reasonable notice to the property
trustee and Quad City. If no successor securities depositary is obtained,
definitive capital securities representing the capital securities are required
to be printed and delivered. We also have the option to discontinue use of the
system of book-entry transfers through DTC (or a successor depositary). After an
event of default under the indenture, the holders of a majority in liquidation
amount of capital securities may determine to discontinue the system of
book-entry transfers through DTC. In these events, definitive certificates for
the capital securities will be printed and delivered.
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DESCRIPTION OF THE GUARANTEE
The capital securities guarantee agreement will be executed and
delivered by us concurrently with the issuance of the capital securities for the
benefit of the holders of the capital securities. The guarantee agreement will
be qualified as an indenture under the Trust Indenture Act. First Union, the
guarantee trustee, will act as trustee for purposes of complying with the
provisions of the Trust Indenture Act, and will also hold the guarantee for the
benefit of the holders of the capital securities. Prospective investors are
urged to read the form of the guarantee, which has been filed as an exhibit to
the registration statement of which this prospectus forms a part.
GENERAL
We agree to pay in full on a subordinated basis, to the extent
described in the guarantee agreement, the guarantee payments (as defined below)
to the holders of the capital securities, as and when due, regardless of any
defense or counterclaim that the trust may have or assert other than the defense
of payment.
The following payments with respect to the capital securities are
called the "guarantee payments" and, to the extent not paid or made by the trust
and to the extent that the trust has funds available for those distributions,
will be subject to the guarantee:
- any accrued and unpaid distributions required to be paid on the
capital securities;
- with respect to any capital securities called for redemption,
the redemption price; and
- upon a voluntary or involuntary dissolution, winding up or
liquidation of the trust (other than in connection with the
distribution of debentures to the holders of capital securities or
a redemption of all of the capital securities), the lesser of:
(a) the amount of the liquidation distribution; and
(b) the amount of assets of the trust remaining available for
distribution to holders of capital securities in liquidation
of the trust.
We may satisfy our obligations to make a guarantee payment by making a direct
payment of the required amounts to the holders of the capital securities or by
causing the trust to pay the amounts to the holders.
The guarantee agreement is a guarantee, on a subordinated basis, of the
guarantee payments, but the guarantee only applies to the extent the trust has
funds available for those distributions. If we do not make interest payments on
the debentures purchased by the trust, the trust will not have funds available
to make the distributions and will not pay distributions on the capital
securities.
STATUS OF THE GUARANTEE
The guarantee constitutes our unsecured obligation that ranks junior in
right of payment to all of our senior and subordinated debt in the same manner
as the debentures. We expect to incur additional indebtedness in the future,
although we have no specific plans in this regard presently, and neither the
indenture nor the trust agreement limits the amounts of the obligations that we
may incur.
The guarantee constitutes a guarantee of payment and not of collection.
If we fail to make guarantee payments when required, holders of capital
securities may institute a legal proceeding directly against us to enforce their
rights under the guarantee without first instituting a legal proceeding against
any other person or entity.
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The guarantee will not be discharged except by payment of the guarantee
payments in full to the extent not paid by the trust or upon distribution of the
debentures to the holders of the capital securities. Because we are a holding
company, our right to participate in any distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization or otherwise is
subject to the prior claims of creditors of that subsidiary, except to the
extent we may be recognized as a creditor of that subsidiary. Our obligations
under the guarantee, therefore, will be effectively subordinated to all existing
and future liabilities of our subsidiaries, and claimants should look only to
our assets for payments under the guarantee.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely
affect the rights of holders of the capital securities, in which case no vote
will be required, the guarantee may be amended only with the prior approval of
the holders of a majority of the aggregate liquidation amount of the outstanding
capital securities. See "Description of the Capital Securities--Voting Rights;
Amendment of Trust Agreement."
EVENTS OF DEFAULT; REMEDIES
An event of default under the guarantee agreement will occur upon our
failure to make any required guarantee payments or to perform any other
obligations under the guarantee. The holders of a majority in aggregate
liquidation amount of the capital securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
guarantee trustee in respect of the guarantee and may direct the exercise of any
power conferred upon the guarantee trustee under the guarantee agreement.
Any holder of capital securities may institute and prosecute a legal
proceeding directly against us to enforce its rights under the guarantee without
first instituting a legal proceeding against the trust, the guarantee trustee or
any other person or entity.
We are required to provide to the guarantee trustee annually a
certificate as to whether or not we are in compliance with all of the conditions
and covenants applicable to us under the guarantee agreement.
TERMINATION OF THE GUARANTEE
The guarantee will terminate and be of no further force and effect
upon:
- full payment of the redemption price of the capital securities;
- full payment of the amounts payable upon liquidation of the
trust; or
- distribution of the debentures to the holders of the capital
securities.
If at any time any holder of the capital securities must restore payment of any
sums paid under the capital securities or the guarantee, the guarantee will
continue to be effective or will be reinstated with respect to such amounts.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee, other than during the occurrence and continuance
of our default in performance of the guarantee, undertakes to perform only those
duties as are specifically set forth in the guarantee. When an event of default
has occurred and is continuing, the guarantee trustee 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 those provisions, the guarantee
trustee is under no obligation to exercise any of the powers vested in it by the
guarantee at the request of any holder of any capital securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
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EXPENSE AGREEMENT
We will, pursuant to the Agreement as to Expenses and Liabilities
entered into by us and the trust under the trust agreement, irrevocably and
unconditionally guarantee to each person or entity to whom the trust becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
the trust, other than obligations of the trust to pay to the holders of the
capital securities or other similar interests in the trust of the amounts due
to the holders pursuant to the terms of the capital securities or other
similar interests, as the case may be. Third party creditors of the trust may
proceed directly against us under the Expense Agreement, regardless of
whether they had notice of the expense agreement.
GOVERNING LAW
The guarantee will be governed by the laws of the State of Illinois.
RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE
DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
We irrevocably guarantee, as and to the extent described in this
prospectus, payments of distributions and other amounts due on the capital
securities, to the extent the trust has funds available for the payment of these
amounts. Quad City and the trust believe that, taken together, our obligations
under the debentures, the indenture, the trust agreement, the expense agreement
and the guarantee agreement provide, in the aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated basis, of payment of distributions
and other amounts due on the capital securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes a guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the obligations of the trust under the capital securities.
If and to the extent that we do not make payments on the debentures,
the trust will not pay distributions or other amounts due on the capital
securities. The guarantee does not cover payment of distributions when the trust
does not have sufficient funds to pay the distributions. In this event, the
remedy of a holder of capital securities is to institute a legal proceeding
directly against us for enforcement of payment of the distributions to the
holder. Our obligations under the guarantee are subordinate and junior in right
of payment to all of our other indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on
the debentures, these payments will be sufficient to cover distributions and
other payments due on the capital securities, primarily because:
- the aggregate principal amount of the debentures will be equal to
the sum of the aggregate stated liquidation amount of the trust
securities;
- the interest rate and interest and other payment dates on the
debentures will match the distribution rate and distribution and
other payment dates for the capital securities;
- we will pay for any and all costs, expenses and liabilities of the
trust, except the obligations of the trust to pay to holders of
the capital securities the amounts due to the holders pursuant to
the terms of the capital securities; and
- the trust will not engage in any activity that is not consistent
with the limited purposes of the trust.
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ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any capital security may institute a legal proceeding
directly against us to enforce its rights under the guarantee without first
instituting a legal proceeding against the guarantee trustee, the trust or any
other person. A default or event of default under any of our senior or
subordinated debt would not constitute a default or event of default under the
trust agreement. In the event, however, of payment defaults under, or
acceleration of, our senior or subordinated debt, the subordination provisions
of the indenture provide that no payments may be made in respect of the
debentures until the obligations have been paid in full or any payment default
has been cured or waived. Failure to make required payments on the debentures
would constitute an event of default under the trust agreement.
LIMITED PURPOSE OF THE TRUST
The capital securities evidence preferred undivided beneficial
interests in the assets of the trust. The trust exists for the exclusive
purposes of issuing the trust securities, investing the proceeds thereof in
debentures and engaging in only those other activities necessary, advisable or
incidental thereto. A principal difference between the rights of a holder of a
capital security and the rights of a holder of a debenture is that a holder of a
debenture is entitled to receive from us the principal amount of and interest
accrued on debentures held, while a holder of capital securities is entitled to
receive distributions from the trust (or from us under the guarantee) if and to
the extent the trust has funds available for the payment of the distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or
liquidation of the trust involving the liquidation of the debentures, the
holders of the capital securities will be entitled to receive, out of assets
held by the trust, the liquidation distribution in cash. See "Description of the
Capital Securities--Liquidation Distribution Upon Termination."
Upon our voluntary or involuntary liquidation or bankruptcy, the
property trustee, as holder of the debentures, would be a subordinated creditor
of ours. Therefore, the property trustee would be subordinated in right of
payment to all of our senior and subordinated debt, but is entitled to receive
payment in full of principal and interest before any of our stockholders receive
payments or distributions. Since we are the guarantor under the guarantee and
have agreed to pay for all costs, expenses and liabilities of the trust other
than the obligations of the trust to pay to holders of the capital securities
the amounts due to the holders pursuant to the terms of the capital securities,
the positions of a holder of the capital securities and a holder of the
debentures relative to our other creditors and to our stockholders in the event
of liquidation or bankruptcy are expected to be substantially the same.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary of the material federal income tax
considerations that may be relevant to the purchasers of capital securities
represents the opinion of Barack Ferrazzano Kirschbaum Perlman & Nagelberg,
counsel to Quad City and the trust insofar as it relates to matters of law
and legal conclusions. The conclusions expressed herein are based upon current
provisions of the Internal Revenue Code of 1986, regulations thereunder and
current administrative rulings and court decisions, all of which are subject
to change at any time, with possible retroactive effect. Subsequent changes
may cause tax consequences to vary substantially from the consequences
described below. Furthermore, the authorities on which the following summary
is based are subject to various interpretations, and it is therefore possible
that the federal income tax treatment of the purchase, ownership and
disposition of capital securities may differ from the treatment described below.
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No attempt has been made in the following discussion to comment on all
federal income tax matters affecting purchasers of capital securities. Moreover,
the discussion generally focuses on holders of capital securities who are
individual citizens or residents of the United States and who acquire capital
securities on their original issue at their offering price and hold capital
securities as capital assets. The discussion has only limited application to
dealers in securities, corporations, estates, trusts or nonresident aliens and
does not address all the tax consequences that may be relevant to holders who
may be subject to special tax treatment, such as, for example, banks, thrifts,
real estate investment trusts, regulated investment companies, insurance
companies, dealers in securities or currencies, tax-exempt investors or persons
that will hold the capital securities as a position in a "straddle," as part of
a "synthetic security" or "hedge," as part of a "conversion transaction" or
other integrated investment, or as other than a capital asset. The following
summary also does not address the tax consequences to persons that have a
functional currency other than the U.S. dollar or the tax consequences to
shareholders, partners or beneficiaries of a holder of capital securities.
Further, it does not include any description of any alternative minimum tax
consequences or the tax laws of any state or local government or of any foreign
government that may be applicable to the capital securities. Accordingly, each
prospective investor should consult, and should rely exclusively on, the
investor's own tax advisors in analyzing the federal, state, local and foreign
tax consequences of the purchase, ownership or disposition of capital
securities.
CLASSIFICATION OF THE DEBENTURES
In accordance with the opinion of Barack Ferrazzano Kirschbaum
Perlman & Nagelberg, we intend to take the position that the debentures will
be classified for federal income tax purposes as indebtedness of Quad City
under current law, and, by acceptance of a capital security, each holder
covenants to treat the debentures as indebtedness and the capital securities
as evidence of an indirect beneficial ownership interest in the debentures.
No assurance can be given, however, that this position will not be challenged
by the Internal Revenue Service or, if challenged, that it will not be
successful. The remainder of this discussion assumes that the debentures will
be classified for federal income tax purposes as indebtedness of Quad City.
CLASSIFICATION OF THE TRUST
With respect to the capital securities, Barack Ferrazzano Kirschbaum
Perlman & Nagelberg, tax counsel for Quad City and the trust, has rendered
its opinion generally to the effect that, under then current law and assuming
full compliance with the terms of the trust agreement and indenture, the
trust will be classified for federal income tax purposes as a grantor trust
and not as an association taxable as a corporation. Accordingly, for federal
income tax purposes, each holder of capital securities generally will be
treated as owning an undivided beneficial interest in the debentures, and
each holder will be required to include in its gross income any interest with
respect to the debentures at the time such interest is accrued or is
received, in accordance with the holder's method of accounting. If the
debentures were determined to be subject to the original issue discount
("OID") rules, each holder would instead be required to include in its gross
income any OID accrued with respect to its allocable share of the debentures
whether or not cash were actually distributed to the holder.
INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
United States persons (including cash basis taxpayers) that hold debt
instruments issued with OID must generally include such OID in income as it
accrues on a constant yield method even if there is not a corresponding receipt
of cash attributable to such income. A debt instrument such as the debentures
will generally be treated as issued with OID if the stated interest on the
instrument does not constitute "qualified stated interest." Qualified stated
interest is generally any one of a series of stated interest payments on an
instrument that are unconditionally payable at least annually at a single fixed
rate. In determining whether stated interest on an instrument is unconditionally
payable and thus constitutes qualified stated interest, remote contingencies as
to the timely payment of stated interest are ignored. In the case of the
debentures, we have concluded that the likelihood of exercising our option to
defer payments of interest is remote.
If the option to defer any payment of interest was determined not to be
"remote" or if Quad City actually exercises its option to defer the payment of
interest, the debentures would be treated as issued with OID at the time of
issuance or at the time of such exercise, as the case may be, and all stated
interest would thereafter be treated as OID as long as the debentures remained
outstanding. In such event, all of a United States person's taxable interest
income in respect of the debentures would constitute OID that would have to be
included in
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income on a constant yield method before the receipt of the cash attributable
to such income, regardless of such person's method of tax accounting, and
actual distributions of stated interest would not be reported as taxable
income. Consequently, a holder of capital securities would be required to
include such OID in gross income even though Quad City would not make any
actual cash payments during an Extension Period.
The above information is based on recently promulgated Treasury
Regulations, which have not been interpreted by any court decisions or
addressed in any ruling or other pronouncements of the IRS, and it is
possible that the IRS could take a position contrary to the conclusions
herein.
Because income on the capital securities will constitute interest,
corporate holders of capital securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the capital securities.
MARKET DISCOUNT AND ACQUISITION PREMIUM
Holders of capital securities other than a holder who purchased the
capital securities upon original issuance may be considered to have acquired
their undivided interests in the debentures with "market discount" or
"acquisition premium" as these phrases are defined for federal income tax
purposes. Such holders are advised to consult their tax advisors as to the
income tax consequences of the acquisition, ownership and disposition of the
capital securities.
RECEIPT OF DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under the circumstances described under "Description of the Capital
Securities--Redemption or Exchange" and "--Liquidation Distribution Upon
Termination," the debentures may be distributed to holders of capital securities
upon a liquidation of the trust. Under current federal income tax law, such a
distribution would be treated as a nontaxable event to the holder and would
result in the holder having an aggregate tax basis in the debentures received in
the liquidation equal to the holder's aggregate tax basis in the capital
securities immediately before the distribution. A holder's holding period in
debentures received in liquidation of the trust would include the period for
which the holder held the capital securities.
If, however, a Tax Event occurs which results in the trust being
treated as an association taxable as a corporation, the distribution would
likely constitute a taxable event to holders of the capital securities. Under
certain circumstances described herein, the debentures may be redeemed for cash
and the proceeds of the redemption distributed to holders in redemption of their
capital securities. Under current law, such a redemption should, to the extent
that it constitutes a complete redemption, constitute a taxable disposition of
the redeemed capital securities, and a holder for federal income tax purposes,
should recognize gain or loss as if the holder sold the capital securities for
cash.
DISPOSITION OF CAPITAL SECURITIES
A holder that sells capital securities will recognize gain or loss
equal to the difference between the amount realized on the sale of the capital
securities and the holder's adjusted tax basis in the capital securities. A
holder's adjusted tax basis in the capital securities generally will be its
initial purchase price increased by OID previously includible in the holder's
gross income to the date of disposition and decreased by payments received on
the capital securities to the date of disposition. A gain or loss of this kind
will generally be a capital gain or loss and will be a long-term capital gain or
loss if the capital securities have been held for more than one year at the time
of sale.
The capital securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
debentures. A holder that disposes of its capital securities between record
dates for payments of distributions thereon will be required to include accrued
but unpaid interest on the debentures through the date of disposition in income
as ordinary income, and to add the amount to its adjusted tax basis in its
proportionate share of the underlying debentures deemed disposed of. To the
extent the selling price is
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less than the holder's adjusted tax basis a holder will recognize a capital
loss. The adjusted basis would include, in the form of OID, all accrued but
unpaid interest. Subject to certain limited exceptions, capital losses cannot
be applied to offset ordinary income for federal income tax purposes.
EFFECT OF POSSIBLE CHANGES IN TAX LAWS
Congress and the Clinton Administration have considered certain
proposed tax law changes in the past that would, among other things, generally
deny corporate issuers a deduction for interest in respect of certain debt
obligations if the debt obligations have a maximum term in excess of 15 years
and are not shown as indebtedness on the issuer's applicable consolidated
balance sheet. Other proposed tax law changes would have denied interest
deductions if the term was in excess of 20 years. Although these proposed
tax law changes have not been enacted into law, there can be no assurance
that tax law changes will not be reintroduced into future legislation which,
if enacted after the date hereof, may adversely affect the federal income tax
deductibility of interest payable on the debentures. Accordingly, there can
be no assurance that a Tax Event will not occur. A Tax Event would permit us,
upon approval of the Federal Reserve if then required to cause a redemption of
the capital securities before, as well as after, June 30, 2004. See
"Description of the Debentures--Redemption or Exchange" and "Description of
the Capital Securities--Redemption or Exchange--Redemption upon a Tax Event,
Investment Company Event or Capital Treatment Event."
BACKUP WITHHOLDING AND INFORMATION REPORTING
The amount of qualified stated interest, or, if applicable, OID,
accrued on the capital securities held of record by individual citizens or
residents of the United States, or certain trusts, estates and partnerships,
will be reported to the Internal Revenue Service on Forms 1099-INT, or, where
applicable, forms 1099-OID, which forms should be mailed to the holders by
January 31 following each calendar year. Payments made on, and proceeds from
the sale of, the capital securities may be subject to a "backup" withholding
tax (currently at 31%) unless the holder complies with certain identification
and other requirements. Any amounts withheld under the backup withholding
rules will be allowed as a credit against the holder's federal income tax
liability, provided the required information is provided to the Internal
Revenue Service.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON THE PARTICULAR
SITUATION OF A HOLDER OF CAPITAL SECURITIES. HOLDERS OF CAPITAL SECURITIES
SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CAPITAL SECURITIES, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement
Income Security Act of 1974, or Section 4975 of the Internal Revenue Code,
generally may purchase capital securities, subject to the investing fiduciary's
determination that the investment in capital securities satisfies ERISA's
fiduciary standards and other requirements applicable to investments by the
plan.
In any case, we and/or any of our affiliates may be considered a "party
in interest" (within the meaning of ERISA) or a "disqualified person" (within
the meaning of Section 4975 of the Internal Revenue Code) with respect to
certain plans. These plans generally include plans maintained or sponsored by,
or contributed to by, any such persons with respect to which we or any of our
affiliates are a fiduciary or plans for which we or any of our affiliates
provide services. The acquisition and ownership of capital securities by a plan
(or by an individual retirement arrangement or other plans described in Section
4975(e)(1) of the Internal Revenue Code) with respect to which we or any of our
affiliates are considered a party in interest or a disqualified person may
constitute or result in a prohibited transaction under ERISA or Section 4975 of
the Internal Revenue Code, unless the capital securities are acquired pursuant
to and in accordance with an applicable exemption.
As a result, plans with respect to which we or any of our affiliates or
any of its affiliates is a party in interest or a disqualified person should not
acquire capital securities unless the capital securities are acquired
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pursuant to and in accordance with an applicable exemption. Any other plans
or other entities whose assets include plan assets subject to ERISA or
Section 4975 of the Internal Revenue Code proposing to acquire capital
securities should consult with their own counsel.
UNDERWRITING
Quad City, the trust, and the underwriters named below have entered
into an underwriting agreement with respect to the capital securities. The
underwriters, and the amount of capital securities that each of them has agreed
to purchase, are as follows:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER CAPITAL SECURITIES
----------- ------------------
<S> <C>
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated --
Howe Barnes Investments, Inc. --
---------
Total 1,200,000
---------
---------
</TABLE>
The underwriters have agreed to purchase the capital securities on a
firm-commitment basis. That means that they will purchase all of the capital
securities if they purchase any of them. If one underwriter defaults under the
underwriting agreement, the purchase commitment of the other underwriter may be
increased or the underwriting agreement may be terminated.
The underwriters have agreed to purchase the capital securities at the
price stated on the cover page of this prospectus. Because the trust will use
the proceeds from the sale of the capital securities to purchase the debentures
from us, we have agreed to pay the underwriters the following fees:
<TABLE>
<CAPTION>
Underwriting Fees
<S> <C>
Per Capital Security $
Total $
</TABLE>
In addition to the underwriting fees, we estimate that we will spend
approximately $150,000 for printing, depository and trustees' fees, legal and
accounting fees, and other expenses of the offering.
The underwriters will initially offer the capital securities to the
public at the price stated on the cover page. The underwriters may offer capital
securities to selected dealers at the public-offering price less a concession of
up to $.__ per capital security. Those dealers may offer the capital securities
to other brokers and dealers at a price up to $.__ less than the price paid by
them. After the initial offering of the capital securities, the underwriters may
change the offering price, concession, discount and other selling terms.
In connection with the offering, the underwriters and their affiliates
may engage in transactions, effected in accordance with Rule 104 of the SEC's
Regulation M, that are intended to stabilize, maintain or otherwise affect the
market price of the capital securities. These transactions may include
transactions in which the underwriters create a short position for their own
account by selling more capital securities than they are committed to purchase
from the trust. In such a case, to cover all or part of the short position, the
underwriters may purchase capital securities in the open market following
completion of the initial offering. The underwriters also may engage in
stabilizing transactions in which they bid for, and purchase, the capital
securities at a level above that which might otherwise prevail in the open
market for the purpose of preventing or retarding a decline in the market price
of the capital securities. Any of these transactions may result in the
maintenance of a price for the capital securities at a level above that which
might otherwise prevail in the open market. Neither Quad City
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nor the underwriters make any representation or prediction as to the
direction or magnitude of any effect that the transactions described above
may have on the market price of the capital securities. The underwriters are
not required to engage in any of these transactions. These transactions may
be effected on the American Stock Exchange, and, if commenced, may be
discontinued at any time without notice.
Quad City and the trust have agreed to indemnify the underwriters
against liabilities arising from the offering of the capital securities,
including civil liabilities under the Securities Act of 1933, or to contribute
to payments that the underwriters may be required to make in connection with
those liabilities.
The underwriters have advised the trust that they do not intend to
confirm any sales of capital securities to any discretionary accounts. In
connection with the offer and sale of the capital securities, the underwriters
will comply with Rule 2810 under the NASD Conduct Rules. Dain Rauscher Wessels
served as the underwriter in the initial public offering of our common stock in
1993, for which it was paid customary compensation. The underwriters and their
affiliates may be our customers, engage in transactions with us, or perform
services for us in the ordinary course of business.
LEGAL MATTERS
Legal matters, including matters relating to federal income tax
considerations, for Quad City and the trust will be passed upon by Barack
Ferrazzano Kirschbaum Perlman & Nagelberg, Chicago, Illinois, counsel to Quad
City and the trust. Certain legal matters will be passed upon for the
underwriters by Faegre & Benson LLP, Minneapolis, Minnesota. Barack
Ferrazzano Kirschbaum Perlman & Nagelberg and Faegre & Benson LLP may rely on
the opinion of Richards, Layton & Finger, P.A. as to matters of Delaware law.
WHERE YOU CAN FIND INFORMATION
This prospectus is a part of a Registration Statement on Form S-2 filed
by Quad City and the trust with the Securities and Exchange Commission under the
Securities Act, with respect to the capital securities, the debentures and the
guarantee. This prospectus does not contain all the information set forth in the
registration statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. For further information with respect to
Quad City and the securities offered by this prospectus, reference is made to
the registration statement, including the exhibits to the registration statement
and documents incorporated by reference. Statements contained in this prospectus
concerning the provisions of such documents are necessarily summaries of such
documents and each such statement is qualified in its entirety by reference to
the copy of the applicable document filed with the Securities and Exchange
Commission.
We file periodic reports, proxy statements and other information with
the SEC. Our filings are available to the public over the Internet at the SEC's
web site. The address of that site is http://www.sec.gov. You may also inspect
and copy these materials at the public reference facilities of the SEC at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 75 Park Place, Room
1400, New York, New York 10007. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information.
The trust is not currently subject to the information reporting
requirements of the Securities Exchange Act of 1934 and although the trust will
become subject to such requirements upon the effectiveness of the Registration
Statement, it is not expected that the trust will be required to file separate
reports under the Securities Exchange Act of 1934.
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We have not included separate financial statements of the trust in this
prospectus. We do not consider that separate financial statements would be
material to holders of capital securities because we will own all of the trust's
voting securities, the trust has no independent operations and we guarantee the
payments on the capital securities to the extent described in this prospectus.
EXPERTS
The consolidated financial statements of Quad City and its subsidiaries
included or incorporated by reference in this prospectus have been audited by
McGladrey & Pullen, LLP, independent certified public accountants. These
statements are included and incorporated by reference in reliance upon the
authority of McGladrey & Pullen, LLP as experts in accounting and auditing.
INCORPORATION OF DOCUMENTS BY REFERENCE
We "incorporate by reference" into this prospectus the information in
documents we file with the Securities and Exchange Commission, which means that
we can disclose important information to you through those documents. The
information incorporated by reference is an important part of this prospectus,
and some information that we file subsequently with the SEC will automatically
update this prospectus. We incorporate by reference the documents listed below:
(a) our Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1998, filed with the SEC on September
28, 1998;
(b) our Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, filed with the SEC on
November 16, 1998;
(c) our Form 8-K, filed with the SEC on November 24, 1998;
(d) our Quarterly Report on Form 10-Q for the quarter
ended December 31, 1998, filed with the SEC on
February 12, 1999; and
(e) our Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, filed with the SEC on
May 5, 1999.
We also incorporate by reference any filings we make with the SEC under
sections 13(a), or 15(d) of the Securities Exchange Act of 1934 after the
initial filing of the registration statement that contains this prospectus and
before the time that all of the securities offered in this prospectus are sold.
You may request a copy of these filings at no cost by contacting us at
the following address:
Quad City Holdings, Inc.
3551 7th Street, Suite 100
Moline, Illinois 61265
Attn: Shellee R. Showalter
(309) 736-3580.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITOR'S REPORT F-2
FINANCIAL STATEMENTS
Consolidated balance sheets as of March 31, 1999 (unaudited)
and as of June 30, 1998 and 1997 (audited) F-3
Consolidated statements of income for the nine months ended March 31, 1999 and
1998 (unaudited) and for the years ended June 30, 1998, 1997, and 1996 (audited) F-4
Consolidated statements of changes in stockholders' equity for the nine months
ended March 31, 1999 (unaudited) and the years ended June 30, 1998, 1997, and
1996 (audited) F-5
Consolidated statements of cash flows for the nine months ended March 31, 1999 and
1998 (unaudited) and for the years ended June 30, 1998, 1997, and 1996 (audited) F-6
Notes to consolidated financial statements F-7 - F-31
</TABLE>
F-1
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Quad City Holdings, Inc.
Moline, Illinois
We have audited the accompanying consolidated balance sheets of Quad City
Holdings, Inc. and subsidiaries as of June 30, 1998 and 1997, and the related
statements of income, changes in stockholders' equity, and cash flows for the
years ended June 30, 1998, 1997, and 1996. 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 tests 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 Quad City Holdings,
Inc. and subsidiaries as of June 30, 1998 and 1997, and the results of their
operations and their cash flows for the years ended June 30, 1998, 1997, and
1996, in conformity with generally accepted accounting principles.
McGladrey & Pullen, LLP
Davenport, Iowa
August 7, 1998
F-2
<PAGE>
QUAD CITY HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
March 31, June 30,
1999 -------------------------------
ASSETS (Unaudited) 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $ 8,454,698 $ 11,640,813 $ 6,953,463
Federal funds sold 29,380,000 22,960,000 9,190,000
Certificates of deposit at financial institutions 12,469,754 8,366,123 5,359,124
Securities held to maturity, at amortized cost (Note 3) 774,240 2,380,309 2,914,129
Securities available for sale, at fair value (Note 3) 47,148,505 32,238,245 28,897,629
-----------------------------------------------
47,922,745 34,618,554 31,811,758
-----------------------------------------------
Loans receivable (Note 4) 191,679,110 162,975,136 108,365,429
Less allowance for estimated losses on loans (Note 4) 2,704,448 2,349,838 1,632,500
-----------------------------------------------
188,974,662 160,625,298 106,732,929
-----------------------------------------------
Premises and equipment, net (Note 5) 7,412,053 7,660,268 5,248,689
Accrued interest receivable 2,057,075 1,773,223 1,374,307
Other assets 3,144,037 2,506,710 1,708,481
-----------------------------------------------
$ 299,815,024 $ 250,150,989 $ 168,378,751
-----------------------------------------------
-----------------------------------------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
- -------------------------------------------------------------------------------------------------------------
Liabilities:
Deposits:
Noninterest-bearing deposits $ 35,142,927 $ 26,605,138 $ 22,103,036
Interest-bearing deposits 203,981,572 170,778,826 113,857,159
-----------------------------------------------
TOTAL DEPOSITS (Note 6) 239,124,499 197,383,964 135,960,195
Short-term borrowings (Note 7) 7,467,668 2,000,000 -
Federal Home Loan Bank advances (Note 8) 25,883,714 24,667,174 10,777,712
Other borrowings (Note 9) 2,500,000 1,500,000 1,500,000
Other liabilities 3,736,789 5,497,633 5,527,618
-----------------------------------------------
278,712,670 231,048,771 153,765,525
-----------------------------------------------
Commitments and Contingencies (Note 17)
Stockholders' Equity (Note 15):
Preferred stock, $1 par value; shares authorized
250,000; shares issued and outstanding
March 31, 1999 - 25; June 30, 1998 - 25;
June 30, 1997 - 10 (Note 14) 25 25 10
Common stock, $1 par value; shares authorized
5,000,000; shares issued and outstanding
March 31, 1999 - 2,295,876; June 30, 1998 -
2,265,561; 1997 - 2,194,236 (Note 1) 2,295,876 1,510,374 1,462,824
Additional paid-in capital 14,452,187 15,014,884 13,039,406
Retained earnings 4,235,777 2,564,443 171,171
Accumulated other comprehensive income (loss) 118,489 12,492 (60,185)
-----------------------------------------------
21,102,354 19,102,218 14,613,226
-----------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 299,815,024 $ 250,150,989 $ 168,378,751
-----------------------------------------------
-----------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
QUAD CITY HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED MARCH 31, 1999 AND 1998 AND YEARS ENDED JUNE 30, 1998, 1997,
AND 1996
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1999 1998 Year Ended June 30,
--------------------------- ------------------------------------------
(Unaudited) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 11,508,963 $ 8,642,021 $ 12,083,990 $ 6,905,590 $ 3,918,817
Interest and dividends on securities 1,617,493 1,454,024 1,905,668 2,139,263 1,868,976
Interest on federal funds sold 1,044,093 305,467 645,929 286,264 382,226
Other interest 513,181 318,810 440,980 374,527 359,409
------------------------------------------------------------------------
TOTAL INTEREST INCOME 14,683,730 10,720,322 15,076,567 9,705,644 6,529,428
------------------------------------------------------------------------
Interest expense:
Interest on deposits 6,674,433 4,909,441 6,971,153 4,358,476 3,349,548
Interest on borrowings 1,410,911 969,225 1,370,868 635,392 136,832
------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 8,085,344 5,878,666 8,342,021 4,993,868 3,486,380
------------------------------------------------------------------------
NET INTEREST INCOME 6,598,386 4,841,656 6,734,546 4,711,776 3,043,048
Provision for loan losses (Note 4) 644,400 753,258 901,976 844,391 500,397
------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,953,986 4,088,398 5,832,570 3,867,385 2,542,651
------------------------------------------------------------------------
Noninterest income:
Merchant credit card fees, net of
processing costs 780,668 1,061,550 1,395,574 1,531,728 1,007,830
Trust department fees 1,114,540 825,389 1,138,502 736,461 355,360
Deposit service fees 305,551 203,143 290,721 201,163 147,678
Gains on sales of loans, net 830,113 512,387 713,121 44,441 54,039
Investment securities gains, net 1,614 8,734 8,734 21,938 22,272
Amortization of deferred income resulting from
restructuring of merchant broker agreement (Note 10) 549,000 - - - -
Gain on restructuring of merchant
broker agreement (Note 10) - - 2,168,000 - -
Other 376,588 317,512 433,765 272,023 129,147
------------------------------------------------------------------------
TOTAL NONINTEREST INCOME 3,958,074 2,928,715 6,148,417 2,807,754 1,716,326
------------------------------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 4,325,693 3,109,580 4,571,126 2,934,758 1,973,682
Professional and data processing fees 427,061 375,337 504,344 437,259 282,640
Advertising and marketing 266,677 236,033 238,160 126,061 189,761
Occupancy and equipment expense 1,064,869 689,784 1,045,349 654,010 289,230
Stationery and supplies 198,884 156,163 219,523 191,682 100,672
Provision for merchant credit card losses 5,625 83,426 105,910 176,476 126,805
Postage and telephone 224,145 161,696 231,049 168,890 117,741
Other 638,228 549,430 994,354 601,667 495,858
------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSES 7,151,182 5,361,449 7,909,815 5,290,803 3,576,389
------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 2,760,878 1,655,664 4,071,172 1,384,336 682,588
Federal and state income taxes (Note 11) 1,088,654 646,700 1,677,900 165,000
------------------------------------------------------------------------
NET INCOME $ 1,672,224 $ 1,008,964 $ 2,393,272 $ 1,219,336 $ 682,588
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings per common share (Notes 1 and 16):
Basic $ 0.73 $ 0.46 $ 1.09 $ 0.56 $ 0.31
Diluted $ 0.69 $ 0.42 $ 1.02 $ 0.54 $ 0.31
Weighted average common shares outstanding 2,286,863 2,194,236 2,196,297 2,162,490 2,156,736
Weighted average common and common equivalent
shares outstanding 2,406,896 2,378,271 2,353,932 2,250,368 2,183,390
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
QUAD CITY HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 1999 AND YEARS ENDED JUNE 30, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
Additional Retained
Preferred Common Paid-In Earnings
Stock Stock Capital (Deficit)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, year ended June 30, 1995 $ - $ 1,437,824 $ 11,764,416 $ (1,730,753)
--------------------------------------------------------
Comprehensive income:
Net income - - - 682,588
Other comprehensive income, net of tax (Note 2) - - - -
COMPREHENSIVE INCOME
--------------------------------------------------------
Balance, year ended June 30, 1996 - 1,437,824 11,764,416 (1,048,165)
--------------------------------------------------------
Comprehensive income:
Net income - - - 1,219,336
Other comprehensive income, net of tax (Note 2)
COMPREHENSIVE INCOME - - - -
Proceeds from sale of 10 shares of preferred stock 10 - 999,990 -
Proceeds from issuance of 37,500 shares of common stock
as a result of warrants exercised (Notes 1 and 13) - 25,000 275,000 -
--------------------------------------------------------
Balance, year ended June 30, 1997 10 1,462,824 13,039,406 171,171
--------------------------------------------------------
Comprehensive income:
Net income - - - 2,393,272
Other comprehensive income, net of tax (Note 2) - - - -
COMPREHENSIVE INCOME
Proceeds from sale of 15 shares of preferred stock 15 - 1,499,985 -
Proceeds from issuance of 71,325 shares of
common stock as a result of warrants and stock
options exercised (Notes 1 and 13) - 47,550 475,493 -
--------------------------------------------------------
Balance, year ended June 30, 1998 25 1,510,374 15,014,884 2,564,443
--------------------------------------------------------
Comprehensive income:
Net income (unaudited) - - - 1,672,224
Other comprehensive income, net of tax (unaudited)
(Note 2)
- - - -
COMPREHENSIVE INCOME (UNAUDITED) - - - -
Stock split (3 for 2) (unaudited) (Note 1) - 760,262 (760,262) (890)
Proceeds from issuance of 30,345 shares of common stock
as a result of warrants and stock options exercised
(unaudited) (Notes 1 and 13) - 25,240 197,565 -
--------------------------------------------------------
Balance, nine months ended March 31, 1999 (unaudited) $ 25 $ 2,295,876 $ 14,452,187 $ 4,235,777
--------------------------------------------------------
--------------------------------------------------------
<CAPTION>
Accumulated
Other
Comprehensive
Income (Loss) Total
------------------------------
<C> <C>
Balance, year ended June 30, 1995 $ 118,253 $ 11,589,740
-----------------------------
Comprehensive income:
Net income - 682,588
Other comprehensive income, net of tax (Note 2) (603,722) (603,722)
--------------
COMPREHENSIVE INCOME 78,866
-----------------------------
Balance, year ended June 30, 1996 (485,469) 11,668,606
-----------------------------
Comprehensive income:
Net income - 1,219,336
Other comprehensive income, net of tax (Note 2) 425,284 425,284
--------------
COMPREHENSIVE INCOME 1,644,620
--------------
Proceeds from sale of 10 shares of preferred stock - 1,000,000
Proceeds from issuance of 37,500 shares of common stock
as a result of warrants exercised (Notes 1 and 13) - 300,000
-----------------------------
Balance, year ended June 30, 1997 (60,185) 14,613,226
-----------------------------
Comprehensive income:
Net income - 2,393,272
Other comprehensive income, net of tax (Note 2) 72,677 72,677
--------------
COMPREHENSIVE INCOME - 2,465,949
--------------
Proceeds from sale of 15 shares of preferred stock - 1,500,000
Proceeds from issuance of 71,325 shares of
common stock as a result of warrants and stock
options exercised (Notes 1 and 13) - 523,043
-----------------------------
Balance, year ended June 30, 1998 12,492 19,102,218
-----------------------------
Comprehensive income:
Net income (unaudited) - 1,672,224
Other comprehensive income, net of tax (unaudited)
(Note 2) 105,997 105,997
--------------
COMPREHENSIVE INCOME (UNAUDITED) 1,778,221
--------------
Stock split (3 for 2) (unaudited) (Note 1) - (890)
Proceeds from issuance of 30,345 shares of common stock
as a result of warrants and stock options exercised
(unaudited) (Notes 1 and 13) - 222,805
-----------------------------
Balance, nine months ended March 31, 1999 (unaudited) $ 118,489 $ 21,102,354
-----------------------------
-----------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
QUAD CITY HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1999 AND 1998 AND YEARS ENDED JUNE 30, 1998,
1997, AND 1996
<TABLE>
<CAPTION>
Nine Months Ended March 31,
-------------------------------------
1999 1998
------------------------------------------
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,672,224 $ 1,008,964
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 463,521 330,521
Provision for loan losses 644,400 753,258
Provision for merchant credit card losses 5,625 83,426
Amortization of premiums (accretion of
discounts) on securities, net 19,354 (14,329)
Federal Home Loan Bank stock dividends - -
Investment securities gains, net (1,614) (8,734)
Loans originated for sale (68,986,640) (38,142,945)
Proceeds on sales of loans 71,954,396 32,137,607
Net gains on sales of loans (830,113) (512,387)
Amortization of deferred income resulting from
restructuring of merchant broker agreement (549,000) -
Gains on restructuring of merchant broker agreement - -
Increase in accrued interest receivable (283,852) (376,276)
Increase in other assets (637,327) (469,927)
Increase (decrease) in other liabilities (1,285,318) (2,846,105)
------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 2,185,656 (8,056,927)
------------------------------------------
Cash Flows from Investing Activities:
Net (increase) decrease in federal funds sold (6,420,000) (3,595,000)
Net (increase) decrease in certificates of deposit at
financial institutions (4,103,631) (2,423,779)
Purchase of securities available for sale (27,114,462) (5,751,974)
Purchase of securities held to maturity - (251,413)
Proceeds from calls and maturities of securities 12,350,000 7,500,000
Proceeds from paydowns on securities 1,340,345 974,220
Proceeds from sales of securities available for sale 276,032 14,020
Proceeds from restructuring of merchant broker agreement - -
Net loans originated (31,131,407) (38,658,194)
Purchase of premises and equipment, net (215,306) (2,618,325)
------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (55,018,429) (44,810,445)
------------------------------------------
Cash Flows from Financing Activities:
Net increase in deposit accounts 41,740,535 49,319,068
Net increase (decrease) in short-term borrowings 5,467,668 -
Proceeds from Federal Home Loan Bank advances 1,480,000 20,400,000
Payments on Federal Home Loan Bank advances (263,460) (7,936,780)
Net increase in other borrowings 1,000,000 -
Proceeds from issuance of preferred stock - 1,500,000
Proceeds from issuance of common stock 221,915 -
------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 49,646,658 63,282,288
------------------------------------------
NET INCREASE (DECREASE) IN CASH AND DUE
FROM BANKS (3,186,115) 10,414,916
Cash and due from banks:
Beginning 11,640,813 6,953,463
------------------------------------------
Ending $ 8,454,698 $ 17,368,379
------------------------------------------
------------------------------------------
Supplemental Disclosure of Cash Flow Information,
cash payments for:
Interest $ 8,031,509 $ 5,495,988
Income/franchise taxes 1,234,378 1,324,000
Supplemental Schedule of Noncash Investing Activities:
Change in accumulated other comprehensive income, unrealized
gains (losses) on securities available for sale, net 105,997 88,656
Investment securities transferred from held to maturity portfolio
to available for sale portfolio, at fair value 1,030,743 -
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,393,272 $ $1,219,336 $ $682,588
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 422,357 334,409 143,173
Provision for loan losses 901,976 844,391 500,397
Provision for merchant credit card losses 105,910 176,476 126,805
Amortization of premiums (accretion of
discounts) on securities, net (16,742) 899 (16,920)
Federal Home Loan Bank stock dividends - - (3,000)
Investment securities gains, net (8,734) (21,938) (22,272)
Loans originated for sale (57,206,140) (6,851,715) (6,371,085)
Proceeds on sales of loans 54,008,203 6,040,971 6,425,124
Net gains on sales of loans (713,121) (44,441) (54,039)
Amortization of deferred income resulting from
restructuring of merchant broker agreement - - -
Gains on restructuring of merchant broker agreement (2,168,000) - -
Increase in accrued interest receivable (398,916) (253,039) (435,388)
Increase in other assets (826,685) (847,702) (397,684)
Increase (decrease) in other liabilities (872,533) 4,064,359 258,394
--------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (4,379,153) 4,662,006 836,093
--------------------------------------------------------
Cash Flows from Investing Activities:
Net (increase) decrease in federal funds sold (13,770,000) (6,462,000) 10,222,000
Net (increase) decrease in certificates of deposit at
financial institutions (3,006,999) 112,888 (1,489,154)
Purchase of securities available for sale (16,444,294) (5,926,816) (18,947,247)
Purchase of securities held to maturity (276,398) - (2,873,782)
Proceeds from calls and maturities of securities 9,500,000 2,250,000 4,000,000
Proceeds from paydowns on securities 4,531,123 1,250,667 4,483,584
Proceeds from sales of securities available for sale 14,020 5,249,967 4,637,700
Proceeds from restructuring of merchant broker agreement 2,900,000 - -
Net loans originated (50,883,287) (50,764,915) (25,422,515)
Purchase of premises and equipment, net (2,833,936) (1,052,060) (2,872,372)
--------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (70,269,771) (55,342,269) (28,261,786)
--------------------------------------------------------
Cash Flows from Financing Activities:
Net increase in deposit accounts 61,423,769 43,042,077 31,820,432
Net increase (decrease) in short-term borrowings 2,000,000 (1,190,000) (6,021,072)
Proceeds from Federal Home Loan Bank advances 25,955,000 11,961,000 7,270,000
Payments on Federal Home Loan Bank advances (12,065,538) (4,594,758) (3,858,530)
Net increase in other borrowings - 500,000 1,000,000
Proceeds from issuance of preferred stock 1,500,000 1,000,000 -
Proceeds from issuance of common stock 523,043 300,000 -
--------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 79,336,274 51,018,319 30,210,830
--------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND DUE
FROM BANKS 4,687,350 338,056 2,785,137
Cash and due from banks:
Beginning 6,953,463 6,615,407 3,830,270
--------------------------------------------------------
Ending $ 11,640,813 $ 6,953,463 $ 6,615,407
--------------------------------------------------------
--------------------------------------------------------
Supplemental Disclosure of Cash Flow Information,
cash payments for:
Interest $ 7,769,512 $ 4,861,558 $ 3,384,353
Income/franchise taxes 1,974,000 249,000 18,500
Supplemental Schedule of Noncash Investing Activities:
Change in accumulated other comprehensive income, unrealized
gains (losses) on securities available for sale, net 72,677 425,284 (603,722)
Investment securities transferred from held to maturity portfolio
to available for sale portfolio, at fair value - - 8,004,543
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
Quad City Holdings, Inc. (Company) is a bank holding company providing
bank and bank related services through its subsidiaries, Quad City Bank
and Trust Company (Bank) and Quad City Bancard, Inc. (Bancard). The
Bank is a commercial bank that services the Quad Cities area, is
chartered and regulated by the state of Iowa, is insured and subject to
regulation by the Federal Deposit Insurance Corporation and is a member
of and regulated by the Federal Reserve System. Bancard is an entity
formed in April 1995 to conduct the Company's merchant credit card
operation and is regulated by the Federal Reserve System. This activity
was previously conducted by the Bank.
SIGNIFICANT ACCOUNTING POLICIES:
ACCOUNTING ESTIMATES: The preparation of financial statements, in
conformity with generally accepted accounting principles, requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The allowance for estimated
losses on loans is inherently subjective as it requires material
estimates that are susceptible to significant change.
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All material intercompany accounts and transactions have
been eliminated in consolidation.
PRESENTATION OF CASH FLOWS: For purposes of reporting cash flows, cash
and due from banks includes cash on hand and amounts due from banks.
Cash flows from federal funds sold, certificates of deposit at financial
institutions, loans, deposits, short-term borrowings, and other
borrowings are treated as net increases or decreases.
INVESTMENT SECURITIES: Investment securities held to maturity are those
debt securities that the Company has the ability and intent to hold
until maturity regardless of changes in market conditions, liquidity
needs, or changes in general economic conditions. Such securities are
carried at cost adjusted for amortization of premiums and accretion of
discounts. If the ability or intent to hold to maturity is not present
for certain specified securities, such securities are considered
available for sale as the Company intends to hold them 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 movements in interest rates, changes in
the 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 accumulated
other comprehensive income. Realized gains or losses, determined on the
basis of the cost of specific securities sold, are included in earnings.
Pursuant to SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" the Company transferred at fair value $1,030,743
(unaudited) of investment securities from held to maturity to available
for sale on January 1, 1999.
Pursuant to a Financial Accounting Standards Board (FASB) Special Report
"A Guide to Implementation of Statement No. 115 on Accounting for
Certain Investments in Debt and Equity Securities" the Company
transferred at fair value $8,004,543 of investment securities from held
to maturity to available for sale in December 1995.
F-7
<PAGE>
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS HELD FOR SALE: Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of cost or estimated
market value in the aggregate.
LOANS AND ALLOWANCE FOR ESTIMATED LOSSES ON LOANS: Loans are stated at
the amount of unpaid principal, reduced by an allowance for estimated
losses on loans. The allowance for estimated losses on loans is
maintained at the level considered adequate by management of the Company
and the Bank to provide for losses that can be reasonably anticipated.
The allowance is increased by provisions charged to expense and reduced
by net charge-offs. In determining the adequacy of the allowance, the
Company and the Bank make continuous elevations of the loan portfolio
and related off-balance sheet commitments, and consider current economic
conditions and other factors that may affect a borrower's ability to
repay.
In accordance with FASB Statement No. 114 "Accounting for Creditors for
Impairment of a Loan" loans are considered impaired when, based on
current information and events, it is probable the Company and the Bank
will not be able to collect all amounts due. The portion of the
allowance for loan losses applicable to an impaired loan is computed
based on the present value of the estimated future cash flows of
interest and principal discounted at the loan's effective interest rate
or on the fair value of the collateral for collateral dependent loans.
The entire change in present value of expected cash flows of impaired
loans is reported as bad debt expense in the same manner in which
impairment initially was recognized or as a reduction in the amount of
bad debt expense that otherwise would be reported. The Company and the
Bank recognize interest income on impaired loans on a cash basis.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed primarily by the
straight-line method over the estimated useful lives.
INCOME TAXES: The Company files its tax return on a consolidated basis
with its subsidiaries. The entities follow the direct reimbursement
method of accounting for income taxes under which income taxes or
credits which result from the inclusion of the subsidiaries in the
consolidated tax return are paid to or received from the parent company.
Deferred income taxes are provided under the liability method whereby
deferred tax assets are recognized for deductible temporary differences
and net operating loss and tax credit carryforwards 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 or all 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.
TRUST ASSETS: Trust assets held by the Bank in a fiduciary, agency, or
custody capacity for its customers, other than cash on deposit at the
Bank, are not included in the accompanying consolidated financial
statements since such items are not assets of the Bank.
EARNINGS PER COMMON SHARE: Basic earnings per share are computed by
dividing net income by the weighted average number of common stock
shares outstanding for the respective period. Diluted earnings per
share are computed by dividing net income by the weighted average number
of common stock and common stock equivalents outstanding for the
respective period.
COMMON STOCK SPLIT: On November 30, 1998 the Company issued an
additional 760,262 shares necessary to effect a 3 for 2 common stock
split. All share and per share data has been retroactively adjusted to
reflect the split.
F-8
<PAGE>
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CURRENT ACCOUNTING DEVELOPMENT: The FASB has issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information"
which is effective for fiscal years beginning after December 15, 1997.
This Statement establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued
to stockholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers.
Management believes that adoption of this Statement will not have a
material effect on the consolidated financial statements.
The FASB has issued SFAS No. 132 "Employers' Disclosures about Pensions
and Other Postretirement Benefits" which is effective for fiscal years
beginning after December 15, 1997. This Statement standardizes
employers' disclosures about pensions and other postretirement benefit
plans, requires certain additional information, and eliminates other
existing disclosures. It does not change the measurement or recognition
of these benefit plans. Management believes that adoption of this
Statement will not have a material affect on the consolidated financial
statements.
UNAUDITED FINANCIAL INFORMATION: The unaudited information reflects all
adjustments, consisting of normal recurring accruals, which are, in the
opinion of management, necessary to a fair presentation of the financial
position as of March 31, 1999 and the results of operations and cash
flows for the nine months ended March 31, 1999 and 1998. The results of
the nine month periods are not necessarily indicative of the results
which may be expected for the entire year.
NOTE 2. COMPREHENSIVE INCOME
Effective July 1, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income". This Statement establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. The Statement requires that all items
that are required to be recognized under accounting standards as components
of comprehensive income be disclosed in the financial statements.
Comprehensive income is defined as the change in equity during a period from
transactions and other events from nonowner sources. Comprehensive income is
the total of net income and other comprehensive income, which for the Company
is comprised entirely of unrealized gains and losses on securities available
for sale.
Other comprehensive income is comprised as follows:
<TABLE>
<CAPTION>
Tax
Before Expense Net
Tax (Benefit) of Tax
-----------------------------------------------------
<S> <C> <C> <C>
NINE MONTHS ENDED MARCH 31, 1999 (UNAUDITED):
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the year $ 163,430 $ 56,324 $ 107,106
Less reclassification adjustment for gains
included in net income 1,614 505 1,109
-----------------------------------------------------
OTHER COMPREHENSIVE INCOME $ 161,816 $ 55,819 $ 105,997
-----------------------------------------------------
-----------------------------------------------------
NINE MONTHS ENDED MARCH 31, 1998 (UNAUDITED):
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the year $ 139,429 $ 44,772 $ 94,657
Less reclassification adjustment for gains
included in net income 8,734 2,733 6,001
-----------------------------------------------------
OTHER COMPREHENSIVE INCOME $ 130,695 $ 42,039 $ 88,656
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
F-9
<PAGE>
NOTE 2. COMPREHENSIVE INCOME (CONTINUED)
<TABLE>
<CAPTION>
Tax
Before Expense Net
Tax (Benefit) of Tax
----------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED JUNE 30, 1998:
Unrealized gains on securities available for sale:
Unrealized holding gains arising during the year $ 114,505 $ 35,827 $ 78,678
Less, reclassification adjustment for gains
included in net income 8,734 2,733 6,001
----------------------------------------------------
OTHER COMPREHENSIVE INCOME $ 105,771 $ 33,094 $ 72,677
----------------------------------------------------
----------------------------------------------------
YEAR ENDED JUNE 30, 1997:
Unrealized gains (losses) on securities available
for sale:
Unrealized holding gains arising during
the year $ 418,766 $ (21,592) $ 440,358
Less, reclassification adjustment for gains
included in net income 21,938 6,864 15,074
----------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS) $ 396,828 $ (28,456) $ 425,284
----------------------------------------------------
----------------------------------------------------
YEAR ENDED JUNE 30, 1996:
Unrealized gains (losses) on securities available
for sale:
Unrealized holding (losses) arising during
the year $ (581,450) $ - $ (581,450)
Less, reclassification adjustment for gains
included in net income 22,272 - 22,272
----------------------------------------------------
OTHER COMPREHENSIVE (LOSS) $ (603,722) $ - $ (603,722)
----------------------------------------------------
----------------------------------------------------
</TABLE>
F-10
<PAGE>
NOTE 3. INVESTMENT SECURITIES
The amortized cost and fair value of investment securities as of March 31,
1999 and June 30, 1998, 1997, and 1996 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, 1999 (UNAUDITED):
Securities held to maturity:
Municipal securities $ 749,240 $ 11,853 $ - $ 761,093
Other bonds 25,000 1,235 - 26,235
-------------------------------------------------------------------------------
$ 774,240 $ 13,088 $ - $ 787,328
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Securities available for sale:
U.S. treasury securities $ 11,003,731 $ 101,628 $ - $ 11,105,359
U.S. agency securities 23,785,877 131,750 (88,974) 23,828,653
Mortgage-backed securities 8,781,718 12,193 (40,150) 8,753,761
Municipal securities 1,562,918 68,000 - 1,630,918
Other securities 1,835,315 2,512 (8,013) 1,829,814
-------------------------------------------------------------------------------
$ 46,969,559 $ 316,083 $ (137,137) $ 47,148,505
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
JUNE 30, 1998:
Securities held to maturity:
Mortgage-backed securities $ 1,506,569 $ - $ (5,534) $ 1,501,035
Municipal securities 848,740 1,704 (13,557) 836,887
Other bonds 25,000 776 - 25,776
-------------------------------------------------------------------------------
$ 2,380,309 $ 2,480 $ (19,091) $ 2,363,698
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Securities available for sale:
U.S. treasury securities $ 17,007,239 $ 54,811 $ (3,867) $ 17,058,183
U.S. agency securities 11,247,822 4,020 (31,050) 11,220,792
Mortgage-backed securities 1,847,496 1,265 (346) 1,848,415
Municipal securities 617,752 - (11,193) 606,559
Other securities 1,500,806 6,733 (3,243) 1,504,296
-------------------------------------------------------------------------------
$ 32,221,115 $ 66,829 $ (49,699) $ 32,238,245
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
F-11
<PAGE>
3. INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JUNE 30, 1997:
Securities held to maturity:
Mortgage-backed securities $ 2,317,513 $ 673 $ (15,871) $ 2,302,315
Municipal securities 596,616 1,581 (12,450) 585,747
-------------------------------------------------------------------------------
$ 2,914,129 $ 2,254 $ (28,321) $ 2,888,062
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Securities available for sale:
U.S. treasury securities $ 14,496,366 $ 45,514 $ (20,226) $ 14,521,654
U.S. agency securities 9,742,495 8,462 (120,306) 9,630,651
Mortgage-backed securities 2,357,376 9,388 (6,526) 2,360,238
Other securities 2,390,033 8,971 (13,918) 2,385,086
-------------------------------------------------------------------------------
$ 28,986,270 $ 72,335 $ (160,976) $ 28,897,629
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
JUNE 30, 1996:
Securities held to maturity:
Mortgage-backed securities $ 2,560,793 $ 2,513 $ (48,911) $ 2,514,395
Municipal securities 595,808 1,355 (14,443) 582,720
-------------------------------------------------------------------------------
$ 3,156,601 $ 3,868 $ (63,354) $ 3,097,115
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Securities available for sale:
U.S. treasury securities $ 14,504,449 $ 42,191 $ (156,912) $ 14,389,728
U.S. agency securities 12,612,166 8,759 (355,026) 12,265,899
Mortgage-backed securities 2,851,340 12,930 (20,365) 2,843,905
Other securities 1,550,166 9,079 (26,125) 1,533,120
-------------------------------------------------------------------------------
$ 31,518,121 $ 72,959 $ (558,428) $ 31,032,652
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
All sales of securities during the nine months ended March 31, 1999 and 1998
and the years ended June 30, 1998, 1997, and 1996 were from securities
identified as available for sale. Information on proceeds received, as well
as the gains and losses from the sale of those securities is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------------
1999 1998 Year Ended June 30,
---------------------------------- -------------------------------------------------------
(Unaudited) 1998 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Proceeds from sales of
securities $ 276,032 $ 14,020 $ 14,020 $ 5,249,967 $ 4,637,700
Gross losses from sales of
securities 1,717 - - 8,486 18,848
Gross gains from sales of
securities 3,331 8,734 8,734 30,424 41,120
</TABLE>
F-12
<PAGE>
NOTE 3. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and fair value of securities as of June 30, 1998 by
contractual maturity are shown below. Expected maturities of mortgage-backed
securities may differ from contractual maturities because the mortgages
underlying the mortgage-backed securities may be called or prepaid without
any penalties. Therefore, these securities are not included in the maturity
categories in the following summary. Other securities are excluded from the
maturity categories as there is no fixed maturity date.
<TABLE>
<CAPTION>
Amortized
Cost Fair Value
-----------------------------------
<S> <C> <C>
Securities held to maturity:
Due in one year or less $ 150,000 $ 149,477
Due after one year through five years 472,434 472,256
Due after five years 251,306 240,930
Mortgage-backed securities 1,506,569 1,501,035
-----------------------------------
$ 2,380,309 $ 2,363,698
-----------------------------------
-----------------------------------
Securities available for sale:
Due in one year or less $ 9,504,013 $ 9,512,590
Due after one year through five years 16,749,829 16,768,880
Due after five years 2,618,971 2,604,064
Mortgage-backed securities 1,847,496 1,848,415
Other securities 1,500,806 1,504,296
-----------------------------------
$ 32,221,115 $ 32,238,245
-----------------------------------
-----------------------------------
</TABLE>
As of June 30, 1998 and 1997, investment securities with a carrying value of
$19,024,656 and $21,928,921, respectively, were pledged on public deposits
and for other purposes as required or permitted by law.
The Company transferred securities with an amortized cost of $1,029,096 and
$7,992,513 and an unrealized gain of $1,647 and $12,030 from the held to
maturity portfolio to the available for sale portfolio on January 1, 1999 and
in December 1995, respectively, based on management's reassessment of their
previous designations of securities giving consideration of liquidity needs,
management of interest rate risk, and other factors.
NOTE 4. LOANS RECEIVABLE
The composition of the loan portfolio as of March 31, 1999 and June 30, 1998
and 1997 is presented as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1999 ---------------------------------------
(Unaudited) 1998 1997
-------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 130,361,279 $ 99,097,297 $ 68,634,556
Real estate 29,926,782 31,145,517 20,293,440
Installment and other consumer 31,391,049 32,732,322 19,437,433
-------------------------------------------------------
191,679,110 162,975,136 108,365,429
Less allowance for estimated losses on loans 2,704,448 2,349,838 1,632,500
-------------------------------------------------------
$ 188,974,662 $ 160,625,298 $ 106,732,929
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
F-13
<PAGE>
NOTE 4. LOANS RECEIVABLE (CONTINUED)
Real estate loans include loans held for sale with a carrying value of
$2,628,600 (unaudited), $4,766,243, and $855,185 as of March 31, 1999 and
June 30, 1998 and 1997, respectively. The market value of these loans
exceeded its carrying value at those dates.
Loans on nonaccrual status amounted to $1,509,283 (unaudited), $1,025,761,
and $230,591 as of March 31, 1999 and June 30, 1998 and 1997, respectively.
Foregone interest income and cash interest collected on nonaccrual loans was
not material during the nine months ended March 31, 1999 and 1998 (unaudited)
and the years ended June 30, 1998, 1997, and 1996.
Changes in the allowance for estimated losses on loans for the nine months
ended March 31, 1999 and 1998 and the years ended June 30, 1998, 1997, and
1996 are presented as follows:
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------------
1999 1998 Year Ended June 30,
--------------------------------- -----------------------------------------------------
(Unaudited) 1998 1997 1996
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning $ 2,349,838 $ 1,632,500 $ 1,632,500 $ 852,500 $ 472,475
Provisions charged to
expense 644,400 753,258 901,976 844,391 500,397
Loans charged off (391,944) (93,775) (205,234) (64,913) (120,372)
Recoveries on loans
previously charged off 102,154 17,040 20,596 522 -
-----------------------------------------------------------------------------------------
Balance, ending $ 2,704,448 $ 2,309,023 $ 2,349,838 $ 1,632,500 $ 852,500
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
Impaired loans were not material as of March 31, 1999 (unaudited) and June
30, 1998 and 1997.
Loans are made in the normal course of business to directors, officers, and
their related interests. The terms of these loans, including interest rates
and collateral, are similar to those prevailing for comparable transactions
with other persons. An analysis of the changes in the aggregate amount of
these loans during the nine months ended March 31, 1999 and the years ended
June 30, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
March 31, Year Ended June 30,
1999 ------------------------------------
(Unaudited) 1998 1997
-------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning $ 4,831,491 $ 2,027,150 $ 1,013,874
Advances 1,719,556 4,016,294 1,858,974
Repayments (1,593,121) (1,211,953) (845,698)
-------------------------------------------------------
Balance, ending $ 4,957,926 $ 4,831,491 $ 2,027,150
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
F-14
<PAGE>
NOTE 5. PREMISES AND EQUIPMENT
The following summarizes the components of premises and equipment as of March
31, 1999 and June 30, 1998 and 1997:
<TABLE>
<CAPTION>
March 31, June 30,
1999 --------------------------------------
(Unaudited) 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Land $ 554,379 $ 554,379 $ 554,379
Buildings 4,487,975 4,476,425 3,503,851
Furniture and equipment 3,873,325 3,669,569 1,808,207
------------------------------------------------------
8,915,679 8,700,373 5,866,437
Less accumulated depreciation 1,503,626 1,040,105 617,748
------------------------------------------------------
$ 7,412,053 $ 7,660,268 $ 5,248,689
------------------------------------------------------
------------------------------------------------------
</TABLE>
Certain Company facilities are leased under various operating leases. Rental
expense was $326,178 (unaudited), $72,581 (unaudited), $176,057, $9,971, and
$20,000 for the nine months ended March 31, 1999 and 1998 and the years ended
June 30, 1998, 1997, and 1996, respectively.
Future minimum rental commitments under noncancelable leases on a fiscal year
basis are as follows as of June 30, 1998:
<TABLE>
<S> <C>
1,999 $ 413,904
2,000 413,904
2,001 413,904
2,002 413,904
2,003 413,904
Thereafter 1,769,768
----------------
$ 3,839,288
----------------
----------------
</TABLE>
NOTE 6. DEPOSITS
The aggregate amount of certificates of deposit each with a minimum
denomination of $100,000, was $31,937,377 and $22,978,1123 as of June 30,
1998 and 1997, respectively.
As of March 31, 1999 and June 30, 1998 the scheduled maturities of
certificates of deposit were as follows:
<TABLE>
<CAPTION>
March 31,
1999 June 30,
(Unaudited) 1998
--------------------------------------
<S> <C> <C>
In one year or less $ 87,841,495 $ 93,224,489
After one year through two years 18,158,615 6,139,765
After two years through three years 6,783,049 2,230,003
After three years through four years 3,603,318 1,541,006
After four years 1,906,193 1,331,905
--------------------------------------
$ 118,292,670 $ 104,467,168
--------------------------------------
--------------------------------------
</TABLE>
F-15
<PAGE>
NOTE 7. SHORT-TERM BORROWINGS
Short-term borrowings as of March 31, 1999 of $7,467,668 consist of overnight
repurchase agreements with customers. As of June 30, 1998 short-term
borrowings of $2,000,000 represent federal funds purchased. There were no
short-term borrowings as of June 30, 1997.
Information concerning repurchase agreements is summarized as follows as of
March 31, 1999 (unaudited):
<TABLE>
<S> <C>
Average daily balance during the nine months $ 2,270,093
Average daily interest rate during the nine months 4.28%
Maximum month-end balance during the nine months 7,467,668
Securities underlying the agreements as of March 31, 1999:
Carrying value $ 10,031,650
Fair value 10,031,650
</TABLE>
The securities underlying the agreements as of March 31, 1999 were under the
Company's control.
ITEM 8. FEDERAL HOME LOAN BANK ADVANCES
The Bank is a member of the Federal Home Loan Bank of Des Moines (FHLB). As
of March 31, 1999 and June 30, 1998 the Bank held $1,299,100 (unaudited) and
$1,234,600, respectively, of FHLB stock. Maturity and interest rate
information on advances from the FHLB as of March 31, 1999 and June 30, 1998
is as follows:
<TABLE>
<CAPTION>
March 31, 1999
----------------------------------
(Unaudited)
Amount Due Interest Rate
----------------------------------
<S> <C> <C>
2000 $ 2,000,000 5.80% to 5.95%
2001 4,750,000 5.43% to 6.02%
2002 2,064,224 6.51% to 7.06%
2003 7,029,597 5.33% to 6.44%
2004 and thereafter 10,039,893 4.88% to 7.11%
----------------
TOTAL FHLB ADVANCES $ 25,883,714
----------------
----------------
<CAPTION>
June 30, 1998
----------------------------------
Amount Due Interest Rate
----------------------------------
<S> <C> <C>
1999 $ -
2000 2,000,000 5.80% to 5.95%
2001 5,750,000 5.43% to 6.02%
2002 2,085,004 6.51% to 7.06%
2003 and thereafter 14,832,170 4.88% to 7.11%
----------------
TOTAL FHLB ADVANCES $ 24,667,174
----------------
----------------
</TABLE>
F-16
<PAGE>
NOTE 8. FEDERAL HOME LOAN BANK ADVANCES (CONTINUED)
Advances from the FHLB are collateralized by 1 to 4 unit residential
mortgages equal to 150% of total outstanding notes. Additionally, securities
with a carrying value of approximately $8.0 million (unaudited) as of March
31, 1999 and $12.5 million as of June 30, 1998 were pledged as collateral on
these advances.
As of June 30, 1997, the Bank had advances from the FHLB totaling
$10,777,712. These advances matured in varying amounts between 1998 and 2012
and carried interest at varying rates between 5.95% and 7.11%. Securities
with a carrying value of approximately $13,434,707 as of June 30, 1997 were
pledged as collateral on these advances. As of June 30, 1997, the Bank also
had an open line of credit with the FHLB for $5,000,000, which was
collateralized by residential real estate mortgages. No amounts were
outstanding on the line of credit as of June 30, 1997. The line of credit
expired on June 26, 1998.
NOTE 9. OTHER BORROWINGS
The Company has a revolving credit note for $4,500,000, which is secured by
all the outstanding stock of the Bank. The outstanding balance on this note
as of March 31, 1999 was $2,500,000 (unaudited) and as of June 30, 1998 and
1997 was $1,500,000. The revolving credit note expired on July 1, 1998. An
amendment to the loan agreement has extended the expiration date to July 1,
2000. Interest is payable quarterly at the adjusted LIBOR rate. Adjusted
LIBOR rate is defined as a rate of interest equal to 2% per annum in excess
of the per annum rate of interest at which U.S. dollar deposits in an amount
comparable to the amount of the relevant LIBOR Loan are offered generally to
the Bank in the London Interbank Eurodollar market at 11:00 a.m. (London
time) two banking days prior to the commencement of each interest period.
The rate was 7% as of March 31, 1999.
The revolving credit note agreement contains certain covenants that place
restrictions on additional debt and stipulate minimum capital and various
operating ratios. The Company complied with all of the covenants as of March
31, 1999 (unaudited) and June 30, 1998 and 1997.
NOTE 10. RESTRUCTURING OF MERCHANT BROKER AGREEMENT
In June 1998, the Company recognized $2,168,000 of income as a result of
signing a new merchant broker agreement with its current ISO. The term of
the new agreement is for a minimum one-year period, and replaced a prior
agreement that had an expiration date in the year 2002. In consideration for
reducing the term from four years to one year, the Company received total
compensation of $2,900,000. The Company recognized $549,000 (unaudited) of
the income during the nine months ended March 31, 1999. The remaining
$183,000 (unaudited) will be recognized in income during the fourth quarter
of the fiscal year ending June 30, 1999. In addition, the Company will
receive monthly fees of $25,000 for servicing the current merchants during
the remaining term of the agreement. In future years, if an agreement with
another ISO is not established, there could be a significant reduction in
income. The Company is actively pursuing relationships with other ISO's.
F-17
<PAGE>
NOTE 11. FEDERAL AND STATE INCOME TAXES
Federal and state income tax expense was comprised of the following
components for the years ended June 30, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------
1998 1997 1996
-----------------------------------------------------
<S> <C> <C> <C>
Current $ 2,231,183 $ 472,385 $ -
Deferred $ (553,283) $ (307,385) $ -
-----------------------------------------------------
$ 1,677,900 $ 165,000 $ -
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
A reconciliation of the expected federal income tax expense to the income tax
expense included in the statements of income was as follows for the years ended
June 30, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------------------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected"
tax expense $ 1,424,910 35.0% $ 484,517 35.0% $ 238,906 35.0%
Effect of graduated tax rates (40,712) (1.0) (13,843) (1.0) (6,826) (1.0)
Tax exempt income, net (19,759) (0.5) (3,853) (0.3) (2,115) (0.3)
State income taxes, net of
federal benefit 268,796 6.6 44,320 3.2 26,489 3.9
Change in valuation allowance - - (358,934) (25.9) (262,849) (38.5)
Other 44,665 1.1 12,793 0.9 6,395 0.9
----------------------------------------------------------------------------------------
$ 1,677,900 41.2% $ 165,000 11.9% $ - - %
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
F-18
<PAGE>
NOTE 11. FEDERAL AND STATE INCOME TAXES (CONTINUED)
The net deferred tax assets included with other assets on the balance sheet
consisted of the following as of June 30, 1998 and 1997:
<TABLE>
<CAPTION>
June 30,
-----------------------------------
1998 1997
-----------------------------------
<S> <C> <C>
Deferred tax assets:
Organization and startup costs $ 27,183 $ 80,618
Net unrealized losses on securities available for sale - 28,456
Capital loss carryforwards 13,830 12,686
Deferred income 292,800 -
Loan and credit card losses 792,127 467,755
Other 7,460 11,087
-----------------------------------
1,133,400 600,602
-----------------------------------
Deferred tax liabilities:
Accrual to cash conversion 58,818 173,747
Premises and equipment 199,035 86,167
Net unrealized gains on securities available
for sale 4,638 -
Other 14,879 4,847
-----------------------------------
277,370 264,761
-----------------------------------
NET DEFERRED TAX ASSET $ 856,030 $ 335,841
-----------------------------------
-----------------------------------
</TABLE>
The change in deferred income taxes was reflected in the financial statements as
follows for the years ended June 30, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------
1998 1997 1996
------------------------------------------------------
<S> <C> <C> <C>
Provision for income taxes $ (553,283) $ (307,385) $ -
Statement of stockholders' equity-
accumulated other comprehensive
income, unrealized gains (losses)
on securities available for sale, net 33,094 (28,456) -
------------------------------------------------------
$ (520,189) $ (335,841) $ -
------------------------------------------------------
------------------------------------------------------
</TABLE>
F-19
<PAGE>
NOTE 12. EMPLOYEE BENEFIT PLAN
On February 1, 1994, the Company implemented a profit sharing plan, which
includes a provision designed to qualify under Section 401(k) of the Internal
Revenue Code of 1986, as amended, to allow for participant contributions.
All employees are eligible to participate in the plan. The Company matches
100% of the first 2% of employee contributions, 50% of the next 2% of
employee contributions, and 25% of the next 2% of employee contributions, up
to a maximum amount of 3.5% of an employee's compensation. Additionally, at
its discretion, the Company may make additional contributions to the plan
which are allocated to the accounts of participants in the plan based on
relative compensation. Company contributions for the years ended June 30,
1998, 1997, and 1996 were as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------
1998 1997 1996
---------------------------------
<S> <C> <C> <C>
Matching contribution $100,164 $64,535 $47,233
Discretionary contribution 45,000 30,000 20,000
---------------------------------
$145,164 $94,535 $67,233
---------------------------------
---------------------------------
</TABLE>
NOTE 13. WARRANTS AND STOCK BASED COMPENSATION
WARRANTS:
As part of the underwriting agreement for its initial public offering,
the Company issued warrants to the underwriters for the purchase of
37,500 shares of common stock at $8 per share. The underwriters
exercised all of the warrants on May 6, 1997. The warrants became
exercisable on October 13, 1994 (the date commencing one year from the
date of the public offering) and would have remained exercisable for a
period of four years after such date.
Common stock of $75,000 as of June 30, 1993 represented 112,500 shares
of the Company's common stock issued in a private placement in 1993.
Each stockholder who purchased stock in the private placement received a
unit (at a price of $6.67 per unit) which consisted of one and one half
shares of the Company's common stock and one and one half warrants.
Each warrant entitled the holder to purchase an additional share of
Company common stock for $7.33, exercisable during a five year period
commencing October 13, 1994 (one year after completion of the public
offering). As of June 30, 1998 71,250 of the private placement warrants
had been exercised, leaving 41,250 remaining. As of March 31, 1999
101,250 of the warrants had been exercised, leaving 11,250 remaining.
STOCK OPTION AND INCENTIVE PLANS:
The Company's Board of Directors and its stockholders adopted in June
1993 the Quad City Holdings, Inc. Stock Option Plan (Stock Option Plan).
Up to 150,000 shares of common stock may be issued to employees and
directors of the Company and its subsidiaries pursuant to the exercise
of incentive stock options or nonqualified stock options granted under
the Stock Option Plan. The Company's Board of Directors adopted in
November 1996 the Quad City Holdings, Inc. 1997 Stock Incentive Plan
(Stock Incentive Plan). Up to 60,000 shares of common stock may be
issued to employees and directors of the Company and its subsidiaries
pursuant to the exercise of nonqualified stock options and restricted
stock granted under the Stock Incentive Plan. The Stock Option Plan and
the Stock Incentive Plan are administered by the compensation committee
appointed by the Board of Directors (Committee).
F-20
<PAGE>
NOTE. 13. WARRANTS AND STOCK BASED COMPENSATION (CONTINUED)
The number and exercise price of options granted under the Stock Option
Plan and the Stock Incentive Plan is determined by the Committee at the
time the option is granted. In no event can the exercise price be less
than the value of the common stock at the date of the grant for
incentive stock options. The stock options will generally vest 20% per
year. The term of an incentive stock option may not exceed 10 years
from the date of the grant.
In the case of nonqualified stock options, the Stock Option Plan and the
Stock Incentive Plan provide for the granting of "Tax Benefit Rights" to
certain participants at the same time as these participants are awarded
nonqualified options. Each Tax Benefit Right entitles a participant to
a cash payment equal to the excess of the fair market value of a share
of common stock on the exercise date over the exercise price of the
related option multiplied by the difference between the rate of tax on
ordinary income over the rate of tax on capital gains (federal and
state).
As permitted under generally accepted accounting principles, grants
under the plan are accounted for following the provisions of APB Opinion
No. 25 and its related interpretations. Accordingly, no compensation
cost has been recognized for grants made to date. Had compensation cost
been determined based on the fair value method prescribed in FASB
Statement No. 123, reported net income would not have changed by a
material amount and earnings per share would not have changed by more
than 1 CENT for the nine months ended March 31, 1999 and 1998 and the
years ended June 30, 1998, 1997, and 1996.
In determining compensation cost using the fair value method prescribed
in Statement No. 123, the value of each grant is estimated at the grant
date with the following weighted-average assumptions for grants during
the nine months ended March 31, 1999 and the years ended June 30, 1998,
1997, and 1996: dividend rate of 0%: risk-free interest rates based
upon current rates at the date of grant (5.5% to 7.9%); expected lives
of 10 years, and expected price volatility of 14% to 19%.
F-21
<PAGE>
NOTE 13. WARRANTS AND STOCK BASED COMPENSATION (CONTINUED)
A summary of the stock option plans as of March 31, 1999 and June 30,
1998, 1997, and 1996 and changes during the nine months and years
ended on those dates is presented following.
<TABLE>
<CAPTION>
March 31, 1999 1998
------------------------------ ----------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Outstanding, beginning 190,887 $ 9.12 175,155 $ 7.89
Granted 750 20.92 19,062 20.92
Exercised (345) 20.84 (75) 18.59
Forfeited (1,247) 16.86 (3,255) 12.15
-------- ---------
Outstanding, ending 190,045 9.13 190,887 9.12
-------- ---------
-------- ---------
Exercisable, ending 139,530 130,455
Weighted average fair value per option
of options granted during the year $ 9.60 $ 9.72
<CAPTION>
1997 1996
------------------------------ ----------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning 147,030 $ 6.79 139,950 $ 6.64
Granted 28,650 13.51 10,350 8.75
Exercised -- -- -- --
Forfeited (525) 6.85 (3,270) 6.21
-------- ---------
Outstanding, ending 175,155 7.89 147,030 6.79
-------- ---------
-------- ---------
Exercisable, ending 96,345 67,170
Weighted average fair value per option
of options granted during the year $ 6.69 $ 4.27
</TABLE>
F-22
<PAGE>
NOTE 13. WARRANTS AND STOCK BASED COMPENSATION (CONTINUED)
A further summary of options outstanding as of June 30, 1998 is presented
following:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------------------- Options Exercisable
Weighted -------------------------------------
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$6.00 to $6.83 136,140 5.47 years $ 6.65 121,320 $ 6.65
$7.83 to $8.83 9,360 7.95 years 8.76 3,870 8.76
$10.00 to $11.67 1,500 8.63 years 10.83 300 10.83
$13.33 to $13.67 24,825 9.00 years 13.65 4,965 13.65
$14.09 to $21.33 19,062 9.95 years 20.92 -- --
-------- --------
190,887 130,455
-------- --------
-------- --------
</TABLE>
STOCK APPRECIATION RIGHTS:
Additionally, the Stock Incentive Plan allows the granting of stock
appreciation rights (SARs). SARs are rights entitling the grantee to
receive cash having a fair market value equal to the appreciation in the
market value of a stated number of shares from the date of grant. Like
options, the number and exercise price of SARs granted is determined by
the Committee. The SARs will vest 20% per year, and the term of the SAR
may not exceed 10 years from the date of the grant. As of June 30, 1998
there were 33,375 SARs granted, with 3,000 currently exercisable.
NOTE 14. PREFERRED STOCK
As of March 31, 1999 and June 30, 1998 and 1997, the Company had 25
(unaudited), 25, and 10 shares, respectively, of Perpetual, Nonvoting
Preferred Stock, Series A (Preferred Stock). The Preferred Stock will
accrue no dividends, nor will it carry any stated dividend rate. After the
first anniversary of the issuance of these shares of Preferred Stock,
subject to all required regulatory approvals and upon a thirty-day notice,
the Company can redeem all outstanding Preferred Stock. The Preferred
Stock shall be redeemed for an amount per share in cash which is equal to
the sum of: (i) $100,000; plus (ii) a premium in the amount of $9,750
multiplied by a fraction, the numerator of which is the total number of
calendar days the Preferred Stock being redeemed has been outstanding and
the denominator of which is 365.
All shares of Preferred Stock that have been issued are senior to common
stock as to dividends, liquidation, and redemption rights, but they do not
confer general voting rights.
F-23
<PAGE>
NOTE 15. REGULATORY CAPITAL REQUIREMENTS AND RESTRICTIONS ON DIVIDENDS
Federal regulatory agencies have adopted various capital standards for
financial institutions, including risk-based capital standards. The
primary objectives of the risk-based capital framework are to provide a
more consistent system for comparing capital positions of financial
institutions and to take into account the different risks among financial
institutions' assets and off-balance sheet items.
Risk-based capital standards have been supplemented with requirements for a
minimum Tier 1 capital to average total assets ratio (leverage ratio). In
addition, regulatory agencies consider the published capital levels as
minimum levels and may require a financial institution to maintain capital
at higher levels.
The actual amounts and capital ratios as of March 31, 1999 and June 30,
1998 and 1997 with the minimum requirements for the Bank are presented
below:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1999 (unaudited):
Total risk based capital $23,611,000 11.2% $16,836,000 > 8.0% $21,045,000 > 10.0%
- -
Tier 1 risk based capital 20,979,000 10.0 8,418,000 > 4.0 12,627,000 > 6.0
- -
Leverage ratio 20,979,000 7.2 11,712,000 > 4.0 14,640,000 > 5.0
- -
As of June 30, 1998:
Total risk based capital $20,167,000 11.8% $13,649,408 > 8.0% $17,061,760 > 10.0%
- -
Tier 1 risk based capital 18,032,000 10.6 6,823,841 > 4.0 10,235,762 > 6.0
- -
Leverage ratio 18,032,000 7.6 9,453,211 > 4.0 11,816,514 > 5.0
- -
As of June 30, 1997:
Total risk based capital $15,248,139 11.2% $10,881,812 > 8.0% $13,602,265 > 10.0%
- -
Tier 1 risk based capital 13,623,139 10.0 5,438,379 > 4.0 8,157,568 > 6.0
- -
Leverage ratio 13,623,139 8.8 6,164,316 > 4.0 7,705,395 > 5.0
- -
</TABLE>
Federal Reserve Board policy provides that a bank holding company should
not pay dividends unless (i) the dividends can be fully funded out of net
income from the company's net earnings over the prior year and (ii) the
prospective rate of earnings retention appears consistent with the
company's (and its subsidiaries') capital needs, asset quality, and overall
financial condition.
In addition, the Delaware General Corporation Law restricts the Company
from paying dividends except out of its surplus, or in the case there shall
be no such surplus, out of its net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year.
The Iowa Banking Act provides that an Iowa bank may not pay dividends in an
amount greater than its undivided profits. In addition, the Bank, as a
member of the Federal Reserve System, will be prohibited from paying
dividends to the extent such dividends declared in any calendar year exceed
the total of its net profits of that year combined with its retained net
profits of the preceding two years, or are otherwise determined to be an
"unsafe and unsound practice" by the Federal Reserve Board.
F-24
<PAGE>
NOTE 16. EARNINGS PER COMMON SHARE
The following information was used in the computation of basic and diluted
earnings per common share for the nine months ended March 31, 1999 and 1998
and the years ended June 30, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1999 1998 Year Ended June 30,
---------------------------- ----------------------------------------------
(Unaudited) 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Basic and diluted earnings,
net income $1,672,224 $1,008,964 $2,393,272 $1,219,336 $ 682,588
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Weighted average common
shares outstanding 2,286,863 2,194,236 2,196,297 2,162,490 2,156,736
Weighted average common
shares issuable upon
exercise of stock
options and warrants 120,033 184,035 157,635 87,878 26,654
----------------------------------------------------------------------------------
Weighted average common
and common equivalent
shares outstanding 2,406,896 2,378,271 2,353,932 2,250,368 2,183,390
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
</TABLE>
NOTE 17. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank makes various commitments and
incurs certain contingent liabilities that are not presented in the
accompanying consolidated financial statements. The commitments and
contingent liabilities include various guarantees, commitments to extend
credit, and standby letters of credit.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based upon management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment, and income-producing commercial properties.
Standby letters of credit and financial guarantees 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 loan facilities to
customers.
As of June 30, 1998 and 1997 commitments to extend credit aggregated
$38,024,001 and $26,318,470, respectively. As of June 30, 1998 and 1997
standby letters of credit aggregated $1,278,000 and $993,000, respectively.
Management does not expect that all of these commitments will be funded.
Bancard is subject to the risk of chargebacks from cardholders and the
merchant being incapable of refunding the amount charged back. Management
attempts to mitigate such risk by regular monitoring of merchant activity and
in appropriate cases, holding cash reserves deposited by the merchant.
F-25
<PAGE>
NOTE 17. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company also has a guarantee to MasterCard International Incorporated,
which is backed up by a performance bond in the amount of $1,000,000. As of
June 30, 1998 there were no pending liabilities.
Aside from cash on-hand and in-vault, the majority of the Company's cash is
maintained at upstream correspondent banks. The total amount of cash on
deposit and certificates of deposit exceeded federal insured limits by
$3,767,204 and $1,091,609 as of June 30, 1998 and 1997, respectively. In the
opinion of management, no material risk of loss exists due to the financial
condition of the upstream correspondent banks.
NOTE 18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended March 31, 1999
----------------------------------------------
September December March
1998 1998 1999
----------------------------------------------
<S> <C> <C> <C>
Total interest income $4,785,014 $4,949,961 $4,948,755
Total interest expense 2,692,979 2,718,434 2,673,931
----------------------------------------------
NET INTEREST INCOME 2,092,035 2,231,527 2,274,824
Provision for loan losses 252,000 174,200 218,200
Other income 1,191,066 1,329,819 1,437,189
Other expense 2,301,829 2,376,376 2,472,977
----------------------------------------------
NET INCOME BEFORE INCOME TAXES 729,272 1,010,770 1,020,836
Federal and state income taxes 290,451 391,314 406,889
----------------------------------------------
NET INCOME $ 438,821 $ 619,456 $ 613,947
----------------------------------------------
----------------------------------------------
Earnings per common share:
Basic $ 0.19 $ 0.27 $ 0.27
Diluted 0.18 0.26 0.25
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1998
------------------------------------------------------------------------
September December March June
1997 1997 1998 1998
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest income $ 3,405,111 $ 3,746,132 $ 3,797,383 $ 4,127,941
Total interest expense 1,757,272 1,963,477 2,157,917 2,463,355
------------------------------------------------------------------------
NET INTEREST INCOME 1,647,839 1,782,655 1,639,466 1,664,586
Provision for loan losses (304,355) (215,643) (233,260) (148,718)
Other income 822,491 743,817 1,134,103 3,448,006
Other expense (1,606,833) (1,706,098) (2,048,517) (2,548,367)
------------------------------------------------------------------------
NET INCOME BEFORE
INCOME TAXES 559,142 604,731 491,792 2,415,507
Federal and state income taxes 218,200 237,075 191,425 1,031,200
------------------------------------------------------------------------
NET INCOME $ 340,942 $ 367,656 $ 300,367 $ 1,384,307
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings per common share:
Basic $ 0.15 $ 0.17 $ 0.14 $ 0.63
Diluted 0.14 0.15 0.13 0.60
</TABLE>
F-26
<PAGE>
NOTE 18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Year Ended June 30, 1997
------------------------------------------------------------------------
September December March June
1996 1996 1997 1997
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest income $ 2,014,237 $ 2,308,760 $ 2,499,725 $ 2,882,922
Total interest expense 1,008,269 1,202,258 1,325,463 1,457,878
------------------------------------------------------------------------
NET INTEREST INCOME 1,005,968 1,106,502 1,174,262 1,425,044
Provision for loan losses (157,400) (146,325) (222,775) (317,891)
Other income 519,208 599,095 790,345 899,106
Other expense (1,108,592) (1,257,025) (1,392,010) (1,533,176)
------------------------------------------------------------------------
NET INCOME BEFORE
INCOME TAXES 259,184 302,247 349,822 473,083
Federal and state income taxes - - - 165,000
------------------------------------------------------------------------
NET INCOME $ 259,184 $ 302,247 $ 349,822 $ 308,083
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings per common share:
Basic $ 0.12 $ 0.14 $ 0.16 $ 0.14
Diluted 0.12 0.13 0.15 0.14
</TABLE>
NOTE 19. PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following is condensed financial information of Quad City Holdings, Inc.
(parent company only):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1999 --------------------------------
ASSETS (Unaudited) 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $ 1,459,202 $ 433,928 $ 627,808
Securities available for sale, at fair value 411,964 160,946 151,838
Investment in Quad City Bank and Trust Company 20,677,512 18,040,231 13,567,901
Investment in Quad City Bancard, Inc. 711,458 367,916 941,923
Net loans receivable - 502,844 332,994
Other assets 476,593 1,217,502 626,517
----------------------------------------------------
$ 23,736,729 $ 20,723,367 $ 16,248,981
----------------------------------------------------
----------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------
Liabilities:
Other borrowings $ 2,500,000 $ 1,500,000 $ 1,500,000
Other liabilities 134,375 121,149 135,755
----------------------------------------------------
2,634,375 1,621,149 1,635,755
----------------------------------------------------
Stockholders' Equity:
Preferred stock 25 25 10
Common stock 2,295,876 1,510,374 1,462,824
Additional paid-in capital 14,452,187 15,014,884 13,039,406
Retained earnings 4,235,777 2,564,443 171,171
Accumulated other comprehensive income (loss) 118,489 12,492 (60,185)
----------------------------------------------------
21,102,354 19,102,218 14,613,226
----------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
EQUITY $ 23,736,729 $ 20,723,367 $ 16,248,981
----------------------------------------------------
----------------------------------------------------
</TABLE>
F-27
<PAGE>
NOTE 19. PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------
1999 1998 Year Ended June 30,
---------------------------- ----------------------------------------------
(Unaudited) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $ 51,009 $ 40,121 $ 48,178 $ 84,431 $ 178,783
Investment securities gains, net 3,331 8,734 8,734 23,437 26,345
Equity in net income of Quad City Bank
and Trust Company 1,524,548 867,118 1,208,090 844,915 300,672
Equity in net income of Quad City
Bancard, Inc. 343,542 229,569 1,325,992 356,318 396,094
Other 57,390 64,666 81,435 63,516 24,000
----------------------------------------------------------------------------------
TOTAL INCOME 1,979,820 1,210,208 2,672,429 1,372,617 925,894
----------------------------------------------------------------------------------
Interest expense 120,267 97,042 129,271 122,885 1,604
Other 334,029 212,902 304,186 342,396 241,702
----------------------------------------------------------------------------------
TOTAL EXPENSES 454,296 309,944 433,457 465,281 243,306
----------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX
BENEFIT 1,525,524 900,264 2,238,972 907,336 682,588
Income tax benefit 146,700 108,700 154,300 312,000 -
----------------------------------------------------------------------------------
NET INCOME $1,672,224 $1,008,964 $2,393,272 $1,219,336 $ 682,588
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
</TABLE>
F-28
<PAGE>
NOTE. 19. PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------------------
1999 1998 Year Ended June 30,
--------------------------- ------------------------------------------
(Unaudited) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,672,224 $ 1,008,964 $ 2,393,272 $ 1,219,336 $ 682,588
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Distributions in excess of (less than)
earnings of:
Quad City Bank and Trust Company (1,524,548) (867,118) (1,208,090) (844,915) (300,672)
Quad City Bancard, Inc. (343,542) (229,569) 574,008 (356,318) (396,094)
Depreciation 3,152 1,323 3,520 2,647 2,524
Provision for loan losses (7,500) - - (10,000) (8,300)
Amortization of premiums (accretion of
discounts) on securities, net - - - (5,495) 3,079
Investment securities gains, net (3,331) (8,734) (8,734) (23,437) (26,345)
Decrease in accrued interest receivable 4,780 658 749 2,676 20,746
(Increase) decrease in other assets (264,769) 585,836 (605,877) (560,689) (30,731)
Increase (decrease) in other liabilities 13,226 (39,953) (14,606) 35,115 32,429
------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (450,308) 451,407 1,134,242 (541,080) (20,776)
------------------------------------------------------------------------
Cash Flows from Investing Activities:
Net decrease in certificates of deposit at
financial institutions - - - - 420,035
Purchase of securities available for sale (272,400) (5,958) (5,958) (49,515) (117,167)
Proceeds from sale of securities available for sale 15,721 14,020 14,020 95,691 145,512
Proceeds from paydowns on securities - - - 5,496 28,419
Capital infusion, Quad City Bank and
Trust Company - (2,200,000) (3,200,000) (2,100,000) (2,099,000)
Net loans (originated) repaid 510,344 (187,331) (169,850) 809,702 572,837
(Purchase) disposal of premises and equipment - 13,927 10,623 64,326 (69,221)
------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 253,665 (2,365,342) (3,351,165) (1,174,300) (1,118,585)
------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net increase in other borrowings 1,000,000 - - 500,000 1,000,000
Proceeds from issuance of preferred stock - 1,500,000 1,500,000 1,000,000 -
Proceeds from issuance of common stock 221,915 - 523,043 300,000 -
------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,221,915 1,500,000 2,023,043 1,800,000 1,000,000
------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
DUE FROM BANKS 1,025,272 (413,935) (193,880) 84,620 (139,361)
Cash and due from banks:
Beginning 433,928 627,808 627,808 343,188 482,549
------------------------------------------------------------------------
Ending $ 1,459,200 $ 213,873 $ 433,928 $ 427,808 $ 343,188
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
F-29
<PAGE>
NOTE 20. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107 "Disclosures about Fair Value of Financial
Instruments" requires disclosures of fair value information about financial
instruments for which it is practicable to estimate that value. When quoted
market prices are not available, fair values are based on estimates using
present value or other techniques. Those techniques are significantly
affected by the assumptions used, including the discounted rates and
estimates of future cash flows. In this regard, fair value estimates cannot
be substantiated by comparison to independent markets and, in many cases,
could not be realized in an immediate settlement. Some financial instruments
and all nonfinancial instruments are excluded from the disclosures. The
aggregate fair value amounts presented do not represent the underlying value
of the Company.
The following methods and assumptions were used by the Company in estimating
the fair value of their financial instruments.
CASH AND DUE FROM BANKS, FEDERAL FUNDS SOLD, AND CERTIFICATES OF DEPOSIT AT
FINANCIAL INSTITUTIONS: The carrying amounts reported in the balance
sheets for cash and due from banks, federal funds sold, and certificates
of deposit at financial institutions equal their fair values.
INVESTMENT SECURITIES: Fair values for investment 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 instrument
LOANS RECEIVABLE: The fair values for variable rate loans equal their
carrying values. The fair values for all other types of loans are
estimated using discounted cash flow analysis, using interest rates
currently being offered for loans with similar terms to borrowers with
similar credit quality.
ACCRUED INTEREST RECEIVABLE: The fair value of accrued interest
receivable is equal to its carrying value.
DEPOSITS: The fair values disclosed for demand deposits equal their
carrying amounts which represents the amount payable on demand. Fair
values for time deposits are estimated using a discount cash flow
calculation that applies interest rates currently being offered on time
deposits to a schedule of aggregate expected monthly maturities on time
deposits.
SHORT-TERM BORROWINGS: The fair value for short-term borrowings is
equal to its carrying value.
FEDERAL HOME LOAN BANK ADVANCES: The fair value of the Company's
Federal Home Loan Bank advances is estimated using discounted cash flow
analysis, based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
OTHER BORROWINGS: For variable rate debt, the carrying amount is a
reasonable estimate of fair value.
ACCRUED INTEREST PAYABLE: The fair value of accrued interest payable is
equal to its carrying value.
COMMITMENTS TO EXTEND CREDIT: The majority of the Company's commitment
agreements contain variable interest rates, therefore, the carrying
amount is a reasonable estimate of fair value.
F-30
<PAGE>
NOTE 20. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values and estimated fair values of the Company's financial
instruments as of June 30, 1998 and 1997 are presented as follows:
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
---------------------------- ----------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 11,640,813 $ 11,640,813 $ 6,953,463 $ 6,953,463
Federal funds sold 22,960,000 22,960,000 9,190,000 9,190,000
Certificates of deposit at financial institutions 8,366,123 8,366,123 5,359,124 5,359,124
Investment securities:
Held to maturity 2,380,309 2,363,698 2,914,129 2,888,062
Available for sale 32,238,245 32,238,245 28,897,629 28,897,629
Loans receivable, net 160,625,298 162,770,000 106,732,929 108,833,000
Accrued interest receivable 1,773,223 1,773,223 1,374,307 1,374,307
Deposits 197,383,964 197,378,000 135,960,195 135,904,000
Short-term borrowings 2,000,000 2,000,000 - -
Federal Home Loan Bank advances 24,667,174 25,334,000 10,777,712 10,848,000
Other borrowings 1,500,000 1,500,000 1,500,000 1,500,000
Accrued interest payable 1,297,260 1,297,260 724,751 724,751
</TABLE>
NOTE 21. LINE OF BUSINESS INFORMATION
Selected financial information on the Company, the Bank and Bancard is
presented as follows for the nine months ended March 31, 1999 and 1998 and
the years ended June 30, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
Nine Months Ended
March 31, Year Ended June 30,
----------------------------- --------------------------------------------
1999 1998 1998 1997 1996
----------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Quad City Holdings, Inc.:
Revenue $ 39,482 86,521 $ 114,347 $ 147,384 $ 205,128
Net income (loss) (195,866) (87,723) (140,810) 18,103 (14,178)
Identifiable assets 3,523 5,568 6,675 20,818 87,791
Depreciation 3,152 1,323 3,520 2,647 2,524
Capital expenditures - - - - 69,221
Quad City Bank and Trust Company:
Revenue 17,263,654 12,490,782 17,547,063 10,817,617 7,007,635
Net income (loss) 1,524,548 867,118 1,208,090 84,915 300,672
Identifiable assets 7,267,653 7,406,427 7,535,319 5,108,723 4,396,962
Depreciation 436,657 307,405 389,177 315,312 131,913
Capital expenditures 168,991 2,605,109 2,870,009 1,027,073 2,780,158
Quad City Bancard, Inc.:
Revenue 1,338,668 1,071,734 3,563,574 1,548,397 1,032,991
Net income (loss) 343,542 229,569 1,325,992 356,318 396,094
Identifiable assets 140,877 124,498 118,274 119,148 46,285
Depreciation 23,712 21,793 29,660 16,450 8,736
Capital expenditures 46,315 27,143 28,786 89,313 22,993
</TABLE>
F-31
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with
the sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All amounts shown are estimates, except
the SEC's registration fee and the American Stock Exchange filing fee:
<TABLE>
<CAPTION>
<S> <C>
SEC's registration fee....................................$ 3,336
American Stock Exchange filing fee..........................22,000
Trustees' Fees...............................................4,000
Printing and mailing expenses...............................15,000
Fees and expenses of counsel................................80,000
Accounting and related expenses.............................25,000
Blue Sky fees and expenses...................................2,000
NASD fees....................................................1,700
Miscellaneous................................................6,964
Total......................................................160,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the Delaware General Corporation Law, Articles Ninth
and Tenth of Quad City's Certificate of Incorporation provide as follows:
NINTH: Each person who is or was a director or officer of the
corporation and each person who serves or served at the request of the
corporation as a director, officer or partner of another enterprise,
shall be indemnified by the corporation in accordance with, and to the
fullest extent authorized by, the General Corporation Law of the State
of Delaware, as the same now exists or may be hereafter amended. No
amendment to or repeal of this Article IX shall apply to or have any
effect on the rights of any individual referred to in this Article IX
for or with respect to acts or omissions of such individual occurring
prior to such amendment or repeal.
TENTH: To the fullest extent permitted by the General
Corporation Law of Delaware, as the same now exists or may be hereafter
amended, a director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. No amendment to or repeal of this Article
X shall apply to or have any effect on the liability or alleged
liability of any director of the corporation for or with respect to any
acts or omissions of such director occurring prior to the effective
date of such amendment or repeal.
Article VII of Quad City's Bylaws further provides as follows:
SECTION 7.1 DIRECTORS AND OFFICERS. (a) The corporation shall
indemnify any person who was or is a party or is threatened to be made
party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason
of the fact that he or she is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as
a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such
action, suit or proceeding if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to, the
best interests of the corporation, and, with respect to any criminal
II-1
<PAGE>
action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his or her conduct
was unlawful.
(b) The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he or she is
or was a director or officer of the corporation, or is or was serving
at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection with the defense or settlement of
such action or suit if he or she acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless, and
only to the extent that, the Court of Chancery of the State of Delaware
or the court in which action or suit was brought shall determine upon
application that, despite the adjudication of liability and in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of
the State of Delaware or such other court shall deem proper.
(c) To the extent that any person referred to in paragraphs
(a) and (b) of this Section 7.1 has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to
therein or in defense of any claim, issue or matter therein, he or she
shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) of this
Section 7.1 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is proper
in the circumstances because he or she has met the applicable standard
of conduct set forth in paragraphs (a) and (b) of this Section 7.1.
Such determination shall be made (i) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties
to such action, suit or proceeding or (ii) if such quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (iii)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred in defending
any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation as provided in this
Section 7.1. Such expenses (including attorneys' fees) incurred by
other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided
by or granted pursuant to this Section 7.1 shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another
capacity while holding such office.
II-2
<PAGE>
(g) The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power
to indemnify him or her against such liability under the provisions of
this Section 7.1.
(h) For purposes of this Section 7.1, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the
request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent
with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
or she reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have
acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section 7.1.
(i) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section 7.1 shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.
(j) Unless otherwise determined by the board of directors,
references in this section to "the corporation" shall not include in
addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in
the same position under this section with respect to the resulting or
surviving corporation as he or she would have with respect to such
constituent corporation if its separate existence had continued.
SECTION 7.2 EMPLOYEES AND AGENTS. The board of directors may,
by resolution, extend the indemnification provisions of the foregoing
Section 7.1 to any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding by reason of the fact that he or she is or was an employee
or agent of the corporation, or is or was serving at the request of the
corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Commission such
indemnification is against public policy, as expressed in the
Securities Act, and is therefore unenforceable.
The Company also carries Directors' and Officers' liability insurance
in the amount of $7.5 million.
II-3
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number
--------
<S> <C>
1.1 Form of Underwriting Agreement for Capital Securities
3.1 Certificate of Incorporation, as amended, of Quad City
Holdings, Inc. (incorporated by reference to exhibit 3.1 to
the Registration Statement of Quad City Holdings, Inc. on Form
SB-2, File No. 33-67028)
3.2 Bylaws of Quad City Holdings, Inc. (incorporated by reference
to exhibit 3.2 to the Registration Statement of Quad City
Holdings, Inc. on Form SB-2, File No. 33-67028)
4.1 Form of Indenture
4.2 Form of Subordinated Debenture (included as an exhibit to
Exhibit 4.1)
4.3 Certificate of Designations and Preferences of Preferred Stock
(incorporated by reference to exhibit 4.1 to the Form 10-Q of
Quad City Holdings, Inc. for the quarter ended March 31, 1999,
File No. 0-22208)
4.4 Certificate of Trust
4.5 Trust Agreement
4.6 Form of Amended and Restated Trust Agreement
4.7 Form of Capital Securities Certificate (included as an exhibit
to Exhibit 4.6)
4.8 Form of Capital Securities Guarantee Agreement
4.9 Form of Agreement of Expenses and Liabilities (included as an
exhibit to Exhibit 4.6)
5.1 Opinion of Barack Ferrazzano Kirschbaum Perlman & Nagelberg
5.2 Opinion of Richards, Layton & Finger, P.A.
8.1 Tax Opinion of Barack Ferrazzano Kirschbaum Perlman
& Nagelberg
10.1 Quad City Holdings, Inc. Stock Option Plan (incorporated by
reference to exhibit 10.1 to the Registration Statement of
Quad City Holdings, Inc. on Form SB-2, File No. 33-67028)
10.2 Form of Stock Option Agreement between Quad City Holdings,
Inc. and each of Michael A. Bauer, Douglas M. Hultquist and
Victor J. Quinn (incorporated by reference to exhibit 10.2 to
the Registration Statement of Quad City Holdings, Inc. on Form
SB-2, Reg. No. 33-67028)
10.3 Employment Agreement between Quad City Holdings, Inc. and
Michael A. Bauer dated May 4, 1993 (incorporated by reference
to exhibit 10.3 to the Registration Statement of Quad City
Holdings, Inc. on Form SB-2, Reg. No. 33-67028)
10.4 Employment Agreement between Quad City Holdings, Inc. and
Michael A. Bauer dated July 1, 1993 (incorporated by reference
to exhibit 10.4 to the Registration Statement of Quad City
Holdings, Inc. on Form SB-2, Reg. No. 33-67028)
10.5 Employment Agreement between Quad City Holdings, Inc. and
Douglas M. Hultquist dated April 30, 1993 (incorporated by
reference to exhibit 10.5 to the Registration Statement of
Quad City Holdings, Inc. on Form SB-2, Reg. No. 33-67028)
10.6 Employment Agreement between Quad City Holdings, Inc. and
Douglas M. Hultquist dated July 1, 1993 (incorporated by
reference to exhibit 10.6 to the Registration Statement of
Quad City Holdings, Inc. on Form SB-2, Reg. No. 33-67028)
10.7 Lease/Option Agreement between Quad City Holdings, Inc. and
Kaizen, Inc. (incorporated by reference to exhibit 10.8 to the
Registration Statement of Quad City Holdings, Inc. on Form
SB-2, Reg. No. 33-67028)
II-4
<PAGE>
12.1 Calculations of ratios of earnings to fixed charges and ratios
of earnings to combined fixed charges and preferred stock
dividends
23.1 Consent of McGladrey and Pullen, LLP
23.2 Consent of Barack Ferrazzano Kirschbaum Perlman & Nagelberg
(included in opinion filed as Exhibit 5.1)
23.3 Consent of Richards, Layton & Finger (included in opinion
filed as Exhibit 5.2)
23.4 Consent of Barack Ferrazzano Kirschbaum Perlman
& Nagelberg (included in opinion filed as Exhibit 8.1)
24.1 Powers of Attorney (included as part of Signature Pages)
25.1 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of First Union Trust Company,
National Association, as trustee under the Indenture
25.2 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of First Union Trust Company,
National Association, as trustee under the Trust Agreement
25.3 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of First Union Trust Company,
National Association, as trustee under the Guarantee Agreement
</TABLE>
ITEM 17. UNDERTAKINGS.
(b) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Company's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in that Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrants of expenses incurred or paid by a director, officer,
or controlling person of the Registrants in the successful defense of any
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, each
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(i) The Undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities act
of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall
be deemed to be part of this Registration Statement as of the time it
was declared effective.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial BONA FIDE offering thereof.
(j) The undersigned Registrants hereby undertake to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the SEC under Section 305(b)(2) of that Act.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Moline, State of Illinois, on May 5, 1999.
QUAD CITY HOLDINGS, INC.
By: /s/ Douglas M. Hultquist
-----------------------------------
Douglas M. Hultquist, President and
Chief Executive and Financial Officer
Pursuant to the requirements of the Securities Act of 1933, the Trust
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Moline, State of Illinois, on May 5, 1999.
QUAD CITY HOLDINGS CAPITAL TRUST I
By: /s/ Douglas M. Hultquist
--------------------------------
Douglas M. Hultquist
By: /s/ Michael A. Bauer
--------------------------------
Michael A. Bauer
By: /s/ Shellee R. Showalter
--------------------------------
Shellee R. Showalter
S-1
<PAGE>
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Michael A. Bauer and Douglas M.
Hultquist, and each of them, his true and lawful attorney-in-fact and agent,
each with full power of substitution and re-substitution, for him and in his
name, place and stead, in any and all capacities (including in his capacity as a
director or officer of Quad City Holdings, Inc.) to sign any or all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or any of them, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 5, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ Michael A. Bauer Chairman of the Board
-------------------------
Michael A. Bauer
/s/ Douglas M. Hultquist President, Chief Executive and
-------------------------- Financial Officer and Director
Douglas M. Hultquist
/s/ Richard R. Horst Director and Secretary
--------------------------
Richard R. Horst
/s/ James J. Brownson Director
--------------------------
James J. Brownson
/s/ John W. Schricker Director
--------------------------
John W. Schricker
/s/ Robert A. Van Vooren Director
--------------------------
Robert A. Van Vooren
/s/ Ronald G. Peterson Director
--------------------------
Ronald G. Peterson
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Filed Sequential
Number Description of Exhibit Incorporated Herein by Reference to Herewith Page No.
- -------------- ---------------------------------------- ---------------------------------------- ------------ ------------
<S> <C> <C> <C> <C>
1.1 Form of Underwriting Agreement for X
Capital Securities
3.1 Certificate of Incorporation, as Exhibit 3.1 to the Registration
amended, of Quad City Holdings, Inc. Statement of Quad City Holdings, Inc.
on Form SB-2, File No. 33-67028
3.2 Bylaws of Quad City Holdings, Inc. Exhibit 3.2 to the Registration
Statement of Quad City Holdings, Inc.
on Form SB-2, File No. 33-67028
4.1 Form of Indenture X
4.2 Form of Subordinated Debenture X
(included as an exhibit to Exhibit 4.1)
4.3 Form of Certificate of Designations of Exhibit 4.1 to the Form 10-Q for the
Preferred Stock quarter ended March 31, 1999,
SEC File No. 0-22208
4.4 Certificate of Trust X
4.5 Trust Agreement X
4.6 Form of Amended and Restated Trust X
Agreement
4.7 Form of Capital Securities Certificate X
(included as an exhibit to Exhibit 4.6)
4.8 Form of Capital Securities Guarantee X
Agreement
4.9 Form of Agreement of Expenses and X
Liabilities (included as an exhibit to
Exhibit 4.6)
5.1 Opinion of Barack Ferrazzano X
Kirschbaum Perlman & Nagelberg
5.2 Opinion of Richards, Layton & Finger, X
P.A.
8.1 Tax opinion of Barack Ferrazzano Kirschbaum Perlman X
& Nagelberg
<PAGE>
Exhibit Filed Sequential
Number Description of Exhibit Incorporated Herein by Reference to Herewith Page No.
- -------------- ---------------------------------------- ---------------------------------------- ------------ ------------
10.1 Quad City Holdings, Inc. Stock Option Exhibit 10.1 to the Registration
Plan Statement of Quad City Holdings, Inc.
on Form SB-2, File No. 33-67028
10.2 Form of Stock Option Agreement between Exhibit 10.2 to the Registration
Quad City Holdings, Inc. and each of Statement of Quad City Holdings, Inc.
Michael A. Bauer, Douglas M. Hultquist on Form SB-2, File No. 33-67028
and Victor J. Quinn
10.3 Employment Agreement between Quad City Exhibit 10.3 to the Registration
Holdings, Inc. and Michael A. Bauer Statement of Quad City Holdings, Inc.
dated May 4, 1993 on Form SB-2, File No. 33-67028
10.4 Employment Agreement between Quad City Exhibit 10.4 to the Registration
Holdings, Inc. and Michael A. Bauer Statement of Quad City Holdings, Inc.
dated July 1, 1993 on Form SB-2, File No. 33-67028
10.5 Employment Agreement between Quad City Exhibit 10.5 to the Registration
Holdings, Inc. and Douglas M. Statement of Quad City Holdings, Inc.
Hultquist dated April 30, 1993 on Form SB-2, File No. 33-67028
10.6 Employment Agreement between Quad City Exhibit 10.6 to the Registration
Holdings, Inc. and Douglas M. Statement of Quad City Holdings, Inc.
Hultquist dated July 1, 1993 on Form SB-2, File No. 33-67028
10.7 Lease/Option Agreement between Quad Exhibit 10.8 to the Registration
City Holdings, Inc. and Kaizen, Inc. Statement of Quad City Holdings, Inc.
on Form SB-2, File No. 33-67028
12.1 Calculations of ratios of earnings to X
fixed charges and ratios of earnings
to combined fixed charges and
preferred stock dividends
23.1 Consent of McGladrey & Pullen, LLP X
<PAGE>
Exhibit Filed Sequential
Number Description of Exhibit Incorporated Herein by Reference to Herewith Page No.
- -------------- ---------------------------------------- ---------------------------------------- ------------ ------------
23.2 Consent of Barack Ferrazzano X
Kirschbaum Perlman & Nagelberg
(included in opinion filed as Exhibit
5.1)
23.3 Consent of Richards, Layton & Finger
(included in opinion filed as Exhibit
5.2) X
23.4 Consent of Barack Ferrazzano Kirschbaum Perlman
& Nagelberg (included in opinion filed as Exhibit
8.1) X
24.1 Powers of Attorney
(included as part of Signature Pages)
25.1 Form T-1 Statement of Eligibility X
under the Trust Indenture Act of 1939,
as amended, of First Union Trust
Company, National Association, as
trustee under the Indenture
25.2 Form T-1 Statement of Eligibility X
under the Trust Indenture Act of 1939,
as amended, of First Union Trust
Company, National Association, as
trustee under the Trust Agreement
25.3 Form T-1 Statement of Eligibility X
under the Trust Indenture Act of 1939,
as amended, of First Union Trust
Company, National Association, as
trustee under the Guarantee Agreement
</TABLE>
<PAGE>
EXHIBIT 1.1
DRAFT
5/3/99
1,200,000 CAPITAL SECURITIES
QUAD CITY HOLDINGS CAPITAL TRUST I
_____% CUMULATIVE CAPITAL SECURITIES
(LIQUIDATION PREFERENCE OF $10 PER CAPITAL SECURITY)
UNDERWRITING AGREEMENT
__________, 1999
Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated
Howe Barnes Investments, Inc.
c/o Dain Rauscher Incorporated
Dain Rauscher Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
Quad City Holdings, Inc., a Delaware corporation (the "Company"), and its
subsidiary, Quad City Holdings Capital Trust I, a statutory business trust
organized under the Delaware Business Trust Act (the "Delaware Act") (the
"Trust" and, together with the Company, the "Offerors"), propose, subject to the
terms and conditions stated herein, to issue and sell to you (the
"Underwriters"), an aggregate of 1,200,000 of the Trust's _____% Cumulative
Capital Securities, with a liquidation preference of $10.00 per capital security
(the "Capital Securities"). The Offerors propose that the Trust issue the
Capital Securities pursuant to an amended and restated declaration of trust, by
First Union Trust Company, National Association, a national banking association
("First Union"), as Property Trustee and Delaware Trustee, the regular trustees
named therein (the "Regular Trustees") and the Company and by the holders from
time to time of undivided beneficial interests in the Trust (the "Declaration").
The Capital Securities will be guaranteed by the Company (the "Guarantee") as
set forth in a Guarantee Agreement (the "Guarantee Agreement"), to be dated
___________, 1999, between the Company and First Union, as trustee (the
"Guarantee Trustee").
The proceeds of the sale of the Capital Securities will be used to purchase
junior subordinated deferrable interest debentures (the "Junior Subordinated
Debentures") issued by the Company pursuant to that certain Indenture, to be
dated ____________, 1999, between the Company and First Union, as trustee, (the
"Indenture").
The Offerors have filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-2 (File No. _________) for the
registration of the Capital Securities, the Guarantee and the Junior
Subordinated Debentures under the Securities Act of 1933, as amended (the "Act")
and the rules and regulations thereunder and the
<PAGE>
qualification of the Indenture, the Declaration and the Guarantee under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and the
rules and regulations thereunder. If the Offerors have elected not to rely upon
Rule 430A under the Act, the Offerors have prepared and will promptly file an
amendment to the registration statement and an amended prospectus (including a
term sheet meeting the requirements of Rule 434 under the Act) if necessary to
complete the Prospectus. If the Offerors have elected to rely upon Rule 430A
under the Act, they will prepare and file a prospectus (or a term sheet meeting
the requirements of Rule 434) pursuant to Rule 424(b) that discloses the
information previously omitted from the prospectus in reliance upon Rule 430A.
Such registration statement, as amended at the time it is or was declared
effective by the Commission, and, in the event of any amendment thereto after
the effective date and prior to the Closing Date (as hereinafter defined), such
registration statement as so amended (but only from and after the effectiveness
of such amendment), including a registration statement (if any) filed pursuant
to Rule 462(b) under the Act increasing the size of the offering registered
under the Act and information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rules 430A(b) and 434(d)
under the Act, is hereinafter called the "Registration Statement". The
prospectus included in the Registration Statement at the time it is or was
declared effective by the Commission is hereinafter called the "Prospectus",
except that if any prospectus (including any term sheet meeting the requirements
of Rule 434 under the Act provided by the Offerors for use with a prospectus
subject to completion within the meaning of Rule 434 under the Act in order to
meet the requirements of Section 10(a)) filed by the Offerors with the
Commission pursuant to Rule 424(b) under the Act (and Rule 434 under the Act, if
applicable) or any other such prospectus provided to you by the Offeror for use
in connection with the offering of the Capital Securities (whether or not
required to be filed by the Offeror with the Commission pursuant to Rule 424(b)
under the Act) differs from the prospectus on file at the time the Registration
Statement is or was declared effective by the Commission, the term "Prospectus"
shall refer to such differing prospectus (including any term sheet within the
meaning of Rule 434 under the Act) from and after the time such prospectus is
filed with the Commission or transmitted to the Commission for filing pursuant
to such Rule 424(b) (and Rule 434, if applicable) or from and after the time it
is first provided to you by the Offeror for such use. The term "Preliminary
Prospectus" as used herein means the preliminary prospectus included in any
Registration Statement prior to the time it becomes or became effective under
the Act and any prospectus subject to completion as described in Rule 430A or
434 under the Act.
Copies of the Registration Statement, including all exhibits and schedules
thereto, any amendments thereto and all Preliminary Prospectuses have been
delivered to the Underwriters.
The Offerors hereby confirm their agreement with respect to the purchase of
the Capital Securities by the Underwriters as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE OFFERORS.
(a) The Offerors jointly and severally represent and warrant to,
and agree with, each of the Underwriters that:
(i) The Registration Statement has been declared
effective under the Act, and no post-effective amendment to the Registration
Statement has been filed with the Commission as of the date of this Agreement.
No stop order suspending the effectiveness of the
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Registration Statement has been issued and no proceeding for that purpose has
been instituted or, to the Company's knowledge, threatened by the Commission.
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material respects to
the requirements of the Act and the rules and regulations of the Commission
promulgated thereunder, and did 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, in light of the circumstances under which they
were made, not misleading; provided, however, that the Offerors make no
representation or warranty as to information contained in or omitted in reliance
upon, and in conformity with, written information furnished to the Offerors by
or on behalf of any Underwriter, expressly for use in the preparation thereof.
(iii) The Registration Statement and the Prospectus
conform in all material respects to the requirements of the Act and the rules
and regulations thereunder and the Trust Indenture Act and the rules and
regulations thereunder. Neither the Registration Statement, as of its effective
date and the date of any amendment thereto, nor the Prospectus contains any
untrue statement of a material fact or omits or will omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
provided, however, that the Offerors make no representation or warranty as to
(i) information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Offerors by or on behalf
of any Underwriter, expressly for use in the preparation thereof or
(ii) information in those parts of the Registration Statement which constitute
Statements of Eligibility and Qualification ("Form T-1") under the Trust
Indenture Act. Each Preliminary Prospectus and the Prospectus will be identical
to the electronically transmitted copies thereof filed with the Commission
pursuant to its Electronic Date Gathering, Analysis and Retrieval system
("EDGAR"), except to the extent permitted by Regulation S-T.
(iv) The documents of the Company incorporated by
reference in the Registration Statement and the Prospectus, when they were filed
with the Commission, conformed in all material respects to the requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations of the Commission thereunder, and none of such documents
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; and any further documents so filed and incorporated by reference
in the Registration Statement and the Prospectus or any further amendment or
supplement thereto, when such documents are filed with the Commission will
conform in all material respects to the requirements of the Exchange Act and the
rules and regulations of the Commission thereunder, 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.
(v) The Trust has been duly created and is validly
existing in good standing as a business trust under the Delaware Act with full
trust power and authority to own property and to conduct its business as
described in the Registration Statement and Prospectus
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and to enter into and perform its obligations under this Agreement, the Capital
Securities, the Common Securities and the Declaration and is authorized to do
business in each jurisdiction in which such qualification is required, except
where the failure to so qualify would not have a material adverse effect on the
Trust's condition (financial or otherwise), earnings, business, prospects,
assets, results of operations or properties taken as a whole; the Trust has
conducted and will conduct no business other than the transactions contemplated
by the Declaration and described in the Prospectus; the Trust is not a party to
or otherwise bound by any agreement other than this Agreement and those
described in the Prospectus; the Trust is and will be classified for United
States federal income tax purposes as a grantor trust and not as an association
taxable as a corporation; and the Trust is and will be treated as a consolidated
subsidiary of the Company pursuant to generally accepted accounting principles.
(vi) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware and is duly registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), supervised by the Board of
Governors of the Federal Reserve System (the "FRB"). The subsidiaries of the
Company are Quad City Bank and Trust Company (the "Bank") and Quad City Bancard,
Inc. (each a subsidiary and collectively the "Subsidiaries"). The Bank is a
commercial bank having a valid charter from the State of Iowa. Each Subsidiary
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation. Each of the
Company and the Subsidiaries has the corporate power and authority to own or
lease its properties and conduct its business as described in the Registration
Statement and the Prospectus; is, to the Company's knowledge, in compliance with
all federal and state regulatory rules and guidelines; and is duly qualified to
transact business in all jurisdictions in which the conduct of its business or
its ownership or leasing of property requires such qualification and the failure
so to qualify would have a material adverse effect on the business or condition,
financial or otherwise, of the Company and the Subsidiaries, taken as a whole.
The accounts of each of the Company's Subsidiaries which are banks are insured
by the Bank Insurance Fund of the Federal Deposit Insurance Corporation (the
"FDIC") up to the maximum applicable amount in accordance with the rules and
regulations of the FDIC, and no proceedings for the termination or revocation of
such membership or insurance are pending, or, to the knowledge of the Company,
threatened.
(vii) All of the issued and outstanding shares of capital
stock of the Company are duly authorized, validly issued, fully paid and
nonassessable, were offered and sold in compliance with all federal and state
securities laws, and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities.
Except as otherwise stated in the Registration Statement and Prospectus, there
are no preemptive rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, the Junior Subordinated Debentures,
the common securities of the Trust held by the Company (the "Common Securities")
or the Capital Securities. Neither the filing of the Registration Statement nor
the registration of the Capital Securities, the Guarantee or the Junior
Subordinated Debentures gives rise to any rights for or relating to the
registration of any capital stock or other securities of the Company or the
Trust. The Company has an authorized and outstanding capitalization as set
forth in the Registration Statement and the Prospectus. All outstanding shares
of capital stock of each of the Subsidiaries have been duly authorized and
validly issued, are fully paid and non-assessable, and are owned, directly or
indirectly, by the Company free and
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clear of all liens, encumbrances and security interests, except as disclosed in
the Registration Statement and Prospectus and the information incorporated
therein by reference. No options, warrants or other rights to purchase,
agreements or other obligations to issue, or other rights to convert any
obligations into, shares of capital stock or ownership interests in any of the
Subsidiaries are outstanding. Other than the foregoing Subsidiaries and the
Trust, the Company does not own directly any capital stock or other equity,
ownership or proprietary interest in any company, partnership, association,
trust or other entity, other than securities for investment purposes.
(viii) Each of this Agreement, the Indenture, the
Declaration and the Guarantee Agreement has been duly authorized, executed and
delivered by the Company and/or the Trust, as the case may be, and constitutes a
valid, legal and binding obligation of the Company and/or the Trust, as the case
may be, enforceable in accordance with its terms, except as rights to indemnity
hereunder may be limited by federal or state securities laws and except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally and subject to general
principles of equity and, with respect to Section 7 hereof, by the public policy
underlying the federal or state securities laws. The execution, delivery and
performance of this Agreement, the Indenture, the Declaration and the Guarantee
Agreement and the consummation of the transactions herein or therein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, (x) any statute, any indenture,
mortgage, deed of trust, loan agreement, lease, franchise, license or other
agreement or instrument to which the Trust, the Company or any of the
Subsidiaries is a party or by which the Trust, the Company or any of the
Subsidiaries is bound or to which any property or assets of the Trust, the
Company or any of the Subsidiaries is subject or any order, rule, regulation,
order, agreement or decree of any court or governmental agency or body having
jurisdiction over the Company, any Subsidiary or the Trust or any of the
properties of the Company, any Subsidiary or the Trust or (y) the Company's or
any Subsidiary's charter or bylaws or the Declaration or the Trust's certificate
of trust filed with the State of Delaware on April 27, 1999 (the "Certificate of
Trust"). No consent, approval, authorization or order of, or filing with, any
court or governmental agency or body is required for the execution, delivery and
performance of this Agreement, the Indenture, the Declaration and the Guarantee
Agreement or for the consummation of the transactions contemplated hereby or
thereby, including the issuance or sale of the Junior Subordinated Debentures by
the Company and the Common Securities and the Capital Securities by the Trust,
except such as may be required under the Act, all of which have been obtained or
made, and under state securities or blue sky laws. Each of the Company and the
Trust has full power and authority to enter into this Agreement, the Indenture,
the Declaration and the Guarantee Agreement, as the case may be, and to
authorize, issue and sell the Junior Subordinated Debentures or the Common
Securities and the Capital Securities, as the case may be, as contemplated by
this Agreement and each of the Indenture, the Declaration and the Guarantee
Agreement has been duly qualified under the Trust Indenture Act and will conform
in all material respects to the statements relating thereto in the Registration
Statement and the Prospectus.
(ix) The Junior Subordinated Debentures have been duly
authorized by the Company and at the Closing Date will have been duly executed
by the Company and, when authenticated in the manner provided for in the
Indenture and delivered against payment therefor as described in the Prospectus,
will constitute valid and binding obligations of the Company,
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enforceable against the Company in accordance with their terms, except to the
extent that enforcement thereof may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors generally and
subject to general principles of equity, will be in the form contemplated by,
and entitled to the benefits of, the Indenture, will conform to the statements
relating thereto in the Prospectus, and will be owned by the Trust free and
clear of any security interest, pledge, lien, encumbrance, claim or equity.
(x) The Common Securities have been duly authorized by
the Declaration and, when issued and delivered by the Trust to the Company
against payment therefor as described in the Registration Statement and
Prospectus, will be validly issued and (subject to the terms of the Declaration)
fully paid and nonassessable undivided beneficial interests in the assets of the
Trust and will conform in all material respects to all statements relating
thereto contained in the Prospectus; and at the Closing Date all of the issued
and outstanding Common Securities of the Trust will be directly owned by the
Company free and clear of any security interest, pledge, lien, encumbrance,
claim or equity.
(xi) The Capital Securities have been duly authorized by
the Declaration and, when issued and delivered pursuant to this Agreement
against payment of the consideration set forth herein, will be validly issued
and fully paid and non-assessable undivided beneficial interests in the Trust,
will be entitled to the benefits of the Declaration and will conform in all
material respects to the statements relating thereto contained in the
Prospectus; and holders of Capital Securities will be entitled to the same
limitation of personal liability under Delaware law as extended to stockholders
of private corporations for profit.
(xii) The Indenture, the Declaration and the Guarantee
Agreement are in substantially the respective forms filed as exhibits to the
Registration Statement.
(xiii) The Company's obligations under the Guarantee are
subordinated and junior in right of payment to all Senior and Subordinated Debt
(as defined in the Indenture) of the Company.
(xiv) The Junior Subordinated Debentures are subordinate
and junior in right of payment to all Senior and Subordinated Debt of the
Company.
(xv) Each of the Regular Trustees of the Trust is an
officer of the Company and has been duly authorized by the Company to execute
and deliver the Declaration.
(xvi) The financial statements, together with the related
notes and schedules, contained or incorporated by reference in the Registration
Statement and Prospectus present fairly the consolidated financial position,
results of operations, shareholders' equity and cash flows of the Company and
its consolidated Subsidiaries on the basis stated therein at the indicated dates
and for the indicated periods. Such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as expressly stated therein, and all
adjustments necessary for a fair presentation of results for such periods have
been made, except as otherwise stated therein. The selected financial and
statistical data included in the Registration Statement present fairly the
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information shown therein on the basis stated in the Registration Statement and
have been compiled on a basis consistent with the financial statements presented
therein.
(xvii) There is no action or proceeding pending or, to the
knowledge of the Trust or the Company, threatened or contemplated against any of
the Trust, the Company or any Subsidiary before any court or administrative or
regulatory agency which, if determined adversely to the Trust, the Company or
such Subsidiary would, individually or in the aggregate, result in a material
adverse change in the business or condition (financial or otherwise), results of
operations, shareholders' equity or prospects of the Trust, or of the Company
and it Subsidiaries taken as a whole, except as set forth in the Registration
Statement or the Prospectus.
(xviii) There are no contracts or documents of the Trust or
the Company or any Subsidiary that are required by the Act or by the rules and
regulations thereunder to be filed as exhibits to the Registration Statement or
any document incorporated by reference therein which contracts or documents have
not been so filed.
(xix) The Company and the Subsidiaries have good and
marketable title to all properties and assets reflected as owned in the
financial statements hereinabove described (or as described as owned in the
Prospectus), in each case free and clear of all liens, encumbrances and defects,
except such as are described in the Registration Statement and the Prospectus or
do not substantially affect the value of such properties and assets and do not
materially interfere with the use made and proposed to be made of such
properties and assets by the Company and the Subsidiaries; and any real property
and buildings held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases with such exceptions as are
not material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and the Subsidiaries.
(xx) Since the respective dates as of which information
is given in the Registration Statement, as it may be amended or supplemented,
(A) there has not been any material adverse change, or any development involving
a prospective material adverse change, in or affecting the condition, financial
or otherwise, of the Trust, or of the Company and the Subsidiaries taken as a
whole, or the business affairs, management, financial position, shareholders'
equity or results of operations of the Trust, or of the Company and the
Subsidiaries taken as a whole, whether or not occurring in the ordinary course
of business, including, without limitation, any material increase in
delinquencies or the amount or number of classified assets of the Bank, any
material decrease in net interest margin for any month, or any material decrease
in the volume of loan originations, the amount of deposits or the amount of
loans, (B) there has not been any transaction not in the ordinary course of
business entered into by the Trust, the Company or any of the Subsidiaries which
is material to the Trust, or the Company and the Subsidiaries taken as a whole,
other than transactions described or contemplated in the Registration Statement,
(C) the Trust, the Company and the Subsidiaries have not incurred any material
liabilities or obligations, which are not in the ordinary course of business or
which could result in a material reduction in the future earnings of the Trust,
or the Company and the Subsidiaries taken as a whole, (D) the Trust, the Company
and the Subsidiaries have not sustained any material loss or interference with
their respective businesses or properties from fire, flood, windstorm, accident
or other calamity, whether or not covered by insurance, (E) there has not been
any change in the capital stock of the Company or the Subsidiaries (other than
upon
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the exercise of options and warrants described in the Registration Statement),
or any material increase in the short-term or long-term debt (including
capitalized lease obligations) of the Company and the Subsidiaries taken as a
whole, and (F) there has not been any declaration or payment of any dividends or
any distributions of any kind with respect to the capital stock of the Company
or the Subsidiaries other than any dividends or distributions described or
contemplated in the Registration Statement and the Company's regular quarterly
common stock dividend.
(xxi) Neither the Company nor any of the Subsidiaries is
in violation of its respective charter or bylaws; the Trust is not in violation
of the Declaration or its Certificate of Trust; and none of the Trust, the
Company, or the Subsidiaries is in violation of or otherwise in default under
any statute, or any rule, regulation, order, supervisory agreement, judgment,
decree or authorization of any court or governmental or administrative agency or
body having jurisdiction over the Trust, the Company or any of the Subsidiaries
or any of their properties, or any indenture, mortgage, deed of trust, loan
agreement, lease, franchise, license or other agreement or instrument to which
the Trust, the Company or any of the Subsidiaries is a party or by which any of
them are bound or to which any property or assets of the Trust, the Company or
any of the Subsidiaries is subject, which violation or default would have a
material adverse effect on the business, condition (financial or otherwise),
results of operations, shareholders' equity or prospects of the Trust, or of the
Company and the Subsidiaries taken as a whole.
(xxii) The Trust, the Company and each of the Subsidiaries
holds and is operating in compliance in all material respects with all licenses,
approvals, certificates and permits from governmental and regulatory authorities
which are necessary to the conduct of its business as described in the
Prospectus. Without limiting the generality of the foregoing, the Company has
all necessary federal or state approvals to own the stock of the Subsidiaries.
None of the Trust, the Company or any Subsidiary has received notice of or has
knowledge of any basis for any proceeding or action relating specifically to the
Trust, the Company or the Subsidiaries for the revocation or suspension of any
such consent, authorization, approval, order, license, certificate or permit or
any other action or proposed action by any regulatory authority having
jurisdiction over the Trust, the Company or the Subsidiaries that would have a
material adverse effect on the Trust, the Company or any Subsidiary.
(xxiii) McGladrey and Pullen L.L.P., which have certified
the financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants with respect to the Company as
required by the Act and the rules and regulations thereunder.
(xxiv) The Offerors have not taken and will not take,
directly or indirectly, any action designed to, or which has constituted, or
which might reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Capital Securities.
(xxv) The Offerors' registration statement pursuant to
Section 12(b) of the Exchange Act with respect to the Capital Securities, has
been declared effective by the Commission; and the Capital Securities have been
approved for designation upon notice of issuance on the American Stock Exchange,
under the symbol "______________."
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(xxvi) The Offerors have not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Capital Securities other than any Preliminary
Prospectus or the Prospectus or other materials permitted by the Act to be
distributed by the Company.
(xxvii) Neither the Company nor any Subsidiary has received
or is subject to any directive, order or supervisory agreement or arrangement
from the FRB, the FDIC, or any other regulatory authority to make any material
change in the method of conducting their respective businesses that has not been
complied with in all material respects.
(xxviii) The Offerors are in material compliance with all
provisions of Florida Statutes Section 517.075 (Chapter 92-198, laws of
Florida). Neither of the Offerors nor any of their affiliates does any
business, directly or indirectly, with the government of Cuba or with any person
or entity located in Cuba.
(xxix) The Trust, the Company and the Subsidiaries have
filed all federal, state, local and foreign tax returns or reports required to
be filed (including extensions), and have paid in full all taxes indicated by
said returns or reports and all assessments received by it or any of them to the
extent that such taxes have become due and payable (including extensions),
except where the Trust, the Company and the Subsidiaries are contesting in good
faith such taxes and assessments. The Company and the Subsidiaries have also
filed all required applications, reports, returns and other documents and
information with all state and federal savings bank authorities and agencies.
(xxx) The Trust, the Company and each of the Subsidiaries
owns or licenses all patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations, copyrights,
licenses, inventions, trade secrets and other similar rights necessary for the
conduct of their businesses as described in the Prospectus, except where the
failure to so own would not have a material adverse effect on the Trust, the
Company or any Subsidiary. Neither the Trust nor the Company has any knowledge
of any infringement by them or the Subsidiaries of any patents, patent
applications, trademarks, service marks, trade names, trademark registrations,
service mark registrations, copyrights, licenses, inventions, trade secrets or
other similar rights of others, and none of the Trust, the Company or any of the
Subsidiaries has received any notice or claim of conflict with the asserted
rights of others with respect to any of the foregoing.
(xxxi) None of the Trust, the Company or any of the
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or an "investment adviser" within the meaning of the Investment
Advisers Act of 1940, as amended.
(xxxii) The Company and its Subsidiaries maintain, and the
Trust will maintain, a system of internal accounting controls sufficient to
provide reasonable assurances that (A) transactions are executed in accordance
with management's general or specific authorization; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (C) access to records is permitted only in accordance
with
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management's general or specific authorization; and (D) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(xxxiii) Other than as contemplated by this Agreement and as
disclosed in the Registration Statement, the Company has not incurred any
liability for any finder's or broker's fee or agent's commission in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(xxxiv) No report or application filed by the Company or any
of its Subsidiaries with the FRB, the FDIC, the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), the Office of the
Comptroller of the Currency (the "OCC") or any other regulatory authority, as of
the date it was filed or amended, 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 when made or failed to
comply in all material respects with the applicable requirements of the FRB, the
FDIC, the Federal Reserve Board, the OCC or any other regulatory authority, as
the case may be.
(xxxv) Based upon current guidelines of the Federal Reserve
Board, the Junior Subordinated Debentures will constitute "tier 1" capital (as
defined in 12 C.F.R. Part 225), subject to applicable regulatory restrictions on
the amount thereof that can be included in tier 1 capital.
(xxxvi) The Offerors meet all of the requirements for the
use of Form S-2 to register the Capital Securities, the Guarantee and the Junior
Subordinated Debentures under the Act.
(b) Any certificate signed by or on behalf of the Trust or the
Company and delivered to the Underwriters or counsel to the Underwriters shall
be deemed to be a representation and warranty of the Trust or the Company to
each Underwriter as to the matters covered thereby.
2. PURCHASE, SALE AND DELIVERY OF CAPITAL SECURITIES. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Trust agrees to issue and sell to
each Underwriter, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Trust, at a purchase price per Capital Security of
$10.00, the number of Capital Securities set forth opposite the name of such
Underwriter in Schedule A hereto.
As compensation to the Underwriters for their commitments hereunder and in
view of the fact that the proceeds of the sale of the Capital Securities
(together with the entire proceeds from the sale by the Trust to the Company of
the Common Securities) will be used to purchase the Junior Subordinated
Debentures, the Company hereby agrees to pay at the Closing Date to the
Underwriters a commission of $_______ per Capital Security sold by the Trust
hereunder.
The Capital Securities will be delivered by the Company to the Underwriters
against payment of the purchase price therefor at the offices of ___________, or
such other location as may be mutually acceptable, at 9:00 a.m. Central time on
___________, 1999, or such other time
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and date as the Underwriters and the Company may agree upon in writing, such
time and date of delivery being herein referred to as the "Closing Date." The
purchase price shall be payable by wire transfer of immediately available funds
to an account designated by the Trust at least two business days preceding the
Closing Date. The Underwriters' commission shall be payable by wire transfer of
immediately available funds to an account designated by the Underwriters at
least two business days preceding the Closing Date. Delivery of the Capital
Securities may be made by credit through full fast transfer to the accounts at
The Depository Trust Company ("DTC") designated by the Underwriters.
Certificates representing the Capital Securities, in definitive form and in such
denominations and registered in such names as the Underwriters may request upon
at least two business days' prior notice to the Company shall be prepared and
will be made available for checking and packaging, not later than 10:30 a.m.,
Central time, on the business day next preceding the Closing Date at the offices
of Dain Rauscher Incorporated, Dain Rauscher Plaza, 60 South Sixth Street,
Minneapolis, Minnesota, or such other location as may be mutually acceptable.
It is understood that any Underwriter may (but shall not be obligated to)
make payment to the Company on behalf of the other Underwriter for the
Securities to be purchased by such Underwriter. Any such payment shall not
relieve such other Underwriter of any of its obligations hereunder. Nothing
herein contained shall constitute the Underwriters as an unincorporated
association or partner with either or both Offerors.
3. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to make a public offering of the Capital Securities as soon
as the Underwriters deem it advisable to do so. The Capital Securities are to
be initially offered to the public at the initial public offering price set
forth in the Prospectus. The Underwriters may from time to time thereafter
change the public offering price and other selling terms.
4. COVENANTS OF THE OFFERORS. The Offerors jointly and severally
covenant and agree with the several Underwriters that:
(a) If the Registration Statement has not already been
declared effective by the Commission, the Company will use its best efforts
to cause the Registration Statement and any post-effective amendments thereto
to become effective as promptly as possible; the Company will notify you
promptly of the time when the Registration Statement or any post-effective
amendment to the Registration Statement has become effective or any
supplement to the Prospectus (including any term sheet within the meaning of
Rule 434 under the Act) has been filed and of any request by the Commission
for any amendment or supplement to the Registration Statement or Prospectus
or additional information; if the Company has elected to rely on Rule 430A
under the Act, the Company will prepare and file a Prospectus (or term sheet
within the meaning of Rule 434 under the Act) containing the information
omitted therefrom pursuant to Rule 430A under the Act with the Commission
within the time period required by, and otherwise in accordance with the
provisions of, Rules 424(b), 430A and 434, if applicable; the Offerors will
prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus
(including any term sheet within the meaning of Rule 434 under the Act) that,
in your opinion, may be necessary or advisable in connection with your
distribution of the Capital Securities; and the Offerors will not file any
amendment or supplement to the Registration Statement or Prospectus
(including any
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term sheet within the meaning of Rule 434 under the Act) to which you shall
reasonably object by notice to the Company after having been furnished a copy
a reasonable time prior to the filing.
(b) The Offerors will advise the Underwriters promptly of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, or of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus, of the suspension of the
qualification of the Capital Securities for offering or sale in any
jurisdiction, or of the institution or threatening of any proceedings for that
purpose, and the Offerors will use their best efforts to prevent the issuance of
any such stop order preventing or suspending the use of the Prospectus or
suspending such qualification and to obtain as soon as possible the lifting
thereof, if issued.
(c) The Offerors will cooperate with the Underwriters and the
Underwriters' counsel in order to qualify the Capital Securities and the Junior
Subordinated Debentures for sale under the securities laws of such jurisdictions
as the Underwriters may reasonably have designated in writing and to continue
such qualifications in effect for so long as the Underwriters may reasonably
request for distribution of the Capital Securities (or obtain exemptions from
the application of such laws), provided that neither Offeror shall be required
to qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or required to file
such a consent. The Offerors will, from time to time, prepare and file such
statements, reports and other documents as may be requested by the Underwriters
for that purpose.
(d) The Offerors will furnish the Underwriters with as many
copies of any Preliminary Prospectus as the Underwriters may reasonably request
and, during the period when delivery of a prospectus is required under the Act,
the Offerors will furnish the Underwriters with as many copies of the Prospectus
in final form, or as thereafter amended or supplemented, as the Underwriters
may, from time to time, reasonably request. The Offerors will deliver to the
Underwriters, at or before the Closing Date, two conformed copies of the
Registration Statement and all amendments thereto including all exhibits filed
therewith, and will deliver to the Underwriters such number of conformed copies
of the Registration Statement, without exhibits, and of all amendments thereto,
as the Underwriters may reasonably request.
(e) If, during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading, or if
for any other reason it shall be necessary at any time to amend or supplement
the Prospectus to comply with any law, the Offerors promptly will prepare and
file with the Commission an appropriate amendment to the Registration Statement
or supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein in
light of the circumstances when it is so delivered, not misleading, or so that
the Prospectus will comply with law.
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(f) The Offerors will make generally available to their security
holders, as soon as it is practicable to do so, but in any event not later than
18 months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 thereunder and will advise the
Underwriters in writing when such statement has been so made available.
(g) The Company will, for five years from the Closing Date,
deliver to each Underwriter, as soon as they are available, copies of its annual
report and copies of all other documents, reports and information furnished by
the Company to its security holders or filed with any securities exchange
pursuant to the requirements of such exchange or with the Commission pursuant to
the Act or the Exchange Act. The Company will deliver to each Underwriter
similar reports with respect to significant subsidiaries, as that term is
defined in the rules and regulations under the Act, which are not consolidated
in the Company's financial statements.
(h) The Offerors will apply the net proceeds from the sale of the
Junior Subordinated Debentures and the Capital Securities substantially in
accordance with the purposes set forth under "Use of Proceeds" in the
Prospectus.
(i) The Offerors will use their best efforts to maintain the
designation of the Capital Securities on the American Stock Exchange.
(j) The Offerors have not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted, the stabilization or manipulation
of the price of any security of either Offeror to facilitate the sale or resale
of the Capital Securities, and has not effected any sales of Common Stock which
are required to be disclosed in response to Item 701 of Regulation S-K under the
Act which have not been so disclosed in the Registration Statement.
(k) Neither Offeror will incur any liability for any finder's or
broker's fee or agent's commission in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby.
(l) The Offerors will inform the Florida Department of Banking
and Finance at any time prior to the consummation of the distribution of the
Capital Securities by you if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba. Such
information will be provided within 90 days after the commencement thereof or
after a change occurs with respect to previously reported information.
5. COSTS AND EXPENSES.
(a) The Offerors will pay (directly or by reimbursement) all
costs, expenses and fees incident to the performance of the obligations of the
Offerors under this Agreement, including, without limiting the generality of the
foregoing, the following: accounting fees of the Offerors; the fees and
disbursements of counsel for the Offerors; the cost of preparing, printing and
filing of the Registration Statement, the Preliminary Prospectus(es) and the
Prospectus and
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any amendments and supplements thereto and the printing, mailing and delivery to
the Underwriters and dealers of copies thereof and of this Agreement, any
selected dealers agreement, any blue sky memorandum and any supplements or
amendments thereto (excluding, except as provided below, fees and expenses of
counsel to the Underwriters); the filing fees of the Commission; the filing fees
and expenses (including legal fees and disbursements of counsel for the
Underwriters) incident to securing any required review by the NASD of the terms
of the sale of the Capital Securities; the fees and expenses of the Indenture
Trustee, including the fees and disbursements of counsel for the Indenture
Trustee in connection with the Indenture and Junior Subordinated Debentures; the
fees and expenses of the Property Trustee and the Delaware Trustee, including
the fees and disbursements of counsel for the Property Trustee and the Delaware
Trustee in connection with the Declaration and the Certificate of Trust; the
fees and expenses of the Guarantee Trustee, including the fees and disbursements
of counsel for the Guarantee Trustee in connection with the Guarantee and
Guarantee Agreement; listing fees, if any, transfer taxes and the expenses,
including the fees and disbursements of counsel for the Underwriters, incurred
in connection with the qualification of the Capital Securities under state
securities or Blue Sky laws; the fees and expenses incurred in connection with
the designation of the Capital Securities on the American Stock Exchange; the
costs of preparing certificates representing Junior Subordinated Debentures or
Capital Securities; the costs and fees of any registrar or transfer agent and
all other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section 5.
Notwithstanding anything to the contrary in the foregoing sentence, the Offerors
shall not be required to pay more than an aggregate of (i) $_________ of fees
and expenses (x) related to qualification of the Capital Securities under state
securities or Blue Sky laws or (y) incident to securing any required review by
the NASD of the terms of the sale of the Capital Securities and (ii) $_________
of fees and expenses of the Guarantee Trustee, including the fees and
disbursements of counsel for the Guarantee Trustee in connection with the
Guarantee and Guarantee Agreement. The Offerors shall not be required to pay
for any of the Underwriters' expenses (other than those related to qualification
of the Capital Securities under state securities or Blue Sky laws and those
incident to securing any required review by the NASD of the terms of the sale of
the Capital Securities which shall be paid by the Offerors as provided above)
except that, if this Agreement shall not be consummated because the conditions
in Section 6 hereof are not satisfied, or because this Agreement is terminated
by the Underwriters pursuant to Section 9(b) hereof, or by reason of any
failure, refusal or inability on the part of the Offerors to perform any
undertaking or satisfy any condition of this Agreement or to comply with any of
the terms hereof on either of their parts to be performed, unless such failure
to satisfy said condition or to comply with said terms shall be due to the
default or omission of any Underwriter, then the Offerors promptly upon request
by the Underwriters shall reimburse the several Underwriters for all actual,
accountable out-of-pocket expenses, including fees and disbursements of counsel
reasonably incurred in connection with investigating, marketing and proposing to
market the Capital Securities or in contemplation of performing their
obligations hereunder; but the Offerors shall not in any event be liable to any
of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Capital Securities.
(b) Upon successful completion of the offering contemplated by
this Agreement, the Offerors will pay all reasonable and customary costs,
expenses and fees incident to tombstone advertisements of the offering and
incurred with the approval of the Company.
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6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Capital
Securities on the Closing Date are subject to the condition that all
representations and warranties of the Offerors contained herein are true and
correct, at and as of the Closing Date, and the condition that each Offeror
shall have performed all of its covenants and obligations hereunder and to the
following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing by the rules and regulations under the Act and in accordance with
Section 4(a) hereof (or any required post-effective amendment to the
Registration Statement shall have been filed and declared effective in
accordance with the requirements of Rule 430A); no stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, or
any part thereof shall have been issued and no proceedings for that purpose
shall have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been complied
with to the reasonable satisfaction of the Underwriters.
(b) The Underwriters shall have received on the Closing Date the
opinions of Barack Ferrazzano Kirschbaum Perlman & Nagelberg, counsel for the
Offerors, dated the Closing Date addressed to the Underwriters, in the form
attached hereto as EXHIBIT 1.
Such counsel shall also state that on the basis of such counsel's review
and participation in conferences in connection with the preparation of the
Registration Statement and the Prospectus, such counsel has no reason to believe
that, as of its effective date, the Registration Statement or any further
amendment thereto made by the Offerors prior to the Closing Date, including any
document incorporated by reference in the Registration Statement, as the case
may be (other than the financial statements, other financial and statistical
data and related schedules therein, as to which such counsel need express 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, as of its date, the Prospectus or any
further amendment or supplement thereto made by the Offerors prior to the
Closing Date, including any document incorporated by reference in the Prospectus
(other than the financial statements, other financial and statistical data and
related schedules therein, as to which such counsel need express no statement)
contained an untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading or that, as of the Closing Date, either the
Registration Statement or the Prospectus or any further amendment or supplement
thereto made by the Offerors prior to the Closing Date (other than the financial
statements, other financial and statistical data and related schedules therein,
as to which such counsel need express no statement) contains an untrue statement
of a material fact or omits to state a material fact necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading; and they do not know of any amendment to the Registration Statement
(or any document incorporated therein by reference) required to be filed.
In rendering the above opinions, counsel may rely (i) as to matters of law
other than federal law, upon the opinion or opinions of local counsel provided
that the extent of such
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reliance is specified in such opinion and that such counsel shall state that
such opinion or opinions of local counsel are satisfactory to them and they
believe they and the Underwriters are justified in relying thereon and (ii) as
to matters of fact, upon the representations of the Trust and the Company
contained in this Agreement and upon certificates of trustees or officers of the
Trust, the Company and of public officials.
(c) The Underwriters shall have received on the Closing Date the
opinions of Barack Ferrazzano Kirschbaum Perlman & Nagelberg, special counsel
for the Offerors, dated the Closing Date addressed to the Underwriters, to the
effect that:
(i) The statements set forth in the Prospectus under the
caption "Federal Income Tax Consequences" constitute a fair and accurate summary
of the matters addressed therein, based upon current law and the assumptions
stated or referred to therein.
(ii) Under current law, the Trust will be classified for
United States federal income tax purposes as a grantor trust and not as an
association taxable as a corporation; accordingly, for United States federal
income tax purposes each beneficial owner of Capital Securities will be treated
as owning an undivided beneficial interest in the Junior Subordinated
Debentures, and stated interest on the Junior Subordinated Debentures generally
will be included in income by a holder of Capital Securities at the time such
interest income is paid or accrued in accordance with such holder's regular
method of tax accounting.
(iii) For federal income tax purposes, (a) the Junior
Subordinated Debentures will constitute indebtedness of the Company and (b) the
interest on the Junior Subordinated Debentures will be deductible by the Company
on an economic accrual basis in accordance with Section 163(e) of the Internal
Revenue Code of 1986, as amended, and Treasury Regulation Section 1.163-7.
(d) The Underwriters shall have received on the Closing Date the
opinion of Richards, Layton & Finger, counsel to First Union, as Property
Trustee under the Declaration, Indenture Trustee under the Indenture, and
Guarantee Trustee under the Guarantee Agreement, dated the Closing Date
addressed to the Underwriters, to the effect that:
(i) First Union is a national banking association duly
organized and validly existing in good standing under the laws of the United
States.
(ii) First Union has the power and authority to execute,
deliver and perform its obligations under the Declaration, the Indenture and the
Guarantee Agreement.
(iii) Each of the Declaration, the Indenture and the
Guarantee Agreement has been duly authorized, executed and delivered by First
Union and constitutes a legal, valid and binding obligation of First Union,
enforceable against First Union, in accordance with its terms.
(iv) The execution, delivery and performance by First
Union of the Declaration, the Indenture and the Guarantee Agreement do not
conflict with or constitute a breach of the charter or by-laws of First Union.
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(v) No consent, approval or authorization of, or
registration with or notice to, any governmental authority or agency of the
State of Delaware or the United States of America governing the banking or trust
powers of First Union is required for the execution, delivery or performance by
First Union of the Declaration, the Indenture and the Guarantee Agreement.
(e) The Underwriters shall have received on the Closing Date the
opinion of Richards, Layton & Finger, as special Delaware counsel for the
Offerors, dated the Closing Date or the Additional Closing Date, addressed to
the Underwriters, to the effect that:
(i) The Trust has been duly created and is validly
existing in good standing as a business trust under the Delaware Act, and all
filings required as of the date hereof under the Delaware Act with respect to
the creation and valid existence of the Trust as a business trust have been
made.
(ii) Under the Declaration and the Delaware Act, the
Trust has the trust power and authority to own property and to conduct its
business, all as described in the Prospectus.
(iii) The Declaration constitutes a valid and binding
obligation of the Company, the Property Trustee and each of the Regular
Trustees, and is enforceable against the Company, the Property Trustee and each
of the Regular Trustees in accordance with its terms.
(iv) Under the Declaration and the Delaware Act, the
Trust has the trust power and authority (i) to execute and deliver, and to
perform its obligations under, this Agreement, (ii) to issue, and to perform its
obligations under, the Capital Securities and the Common Securities and (iii) to
purchase and hold the Debentures.
(v) Under the Declaration and the Delaware Act, the
execution and delivery by the Trust of this Agreement, and the performance by
the Trust of its obligations under this Agreement, have been duly authorized by
all necessary trust action on the part of the Trust.
(vi) Under the Delaware Act, the certificate attached to
the Declaration as Exhibit E is an appropriate form of certificate to evidence
ownership of the Capital Securities. The Capital Securities have been duly
authorized by the Declaration and are duly and validly issued and, subject to
the qualifications hereinafter expressed in this paragraph (vi), fully paid and
non-assessable undivided beneficial interests in the assets of the Trust and are
entitled to the benefits of the Declaration. The Common Securities have been
duly authorized by the Declaration and are duly and validly issued undivided
beneficial interests in the assets of the Trust and are entitled to the benefits
of the Declaration. The holders of the Capital Securities, as beneficial owners
of the Trust, will be entitled to the same limitation of personal liability
extended to stockholders of private corporations for profit organized under the
General Corporation Law of the State of Delaware. Such counsel may note that
the respective holders of the Capital Securities may be obligated, pursuant to
the Declaration, to make certain payments under the Declaration.
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(vii) Under the Declaration and the Delaware Act, the
issuance of the Capital Securities and the Common Securities is not subject to
preemptive or similar rights.
(viii) The issuance and sale by the Trust of the Capital
Securities and the Common Securities, the purchase by the Trust of the Junior
Subordinated Debentures, the execution, delivery and performance by the Trust of
this Agreement and the Guarantee Agreement, the consummation by the Trust of the
transactions contemplated by this Agreement and compliance by the Trust with its
obligations under this Agreement do not violate (a) any of the provisions of the
Certificate of Trust or the Declaration, or (b) any applicable Delaware law or
Delaware administrative regulation.
(ix) No authorization, approval, consent or order of any
Delaware court or any Delaware governmental authority or Delaware agency is
required to be obtained by the Trust solely in connection with the issuance and
sale by the Trust of the Common Securities or the Capital Securities or the
performance by the Trust of its obligations under the Declaration or this
Agreement.
(x) The Capital Security holders (other than those
Capital Security holders who reside or are domiciled in the State of Delaware)
will have no liability for income taxes imposed by the state of Delaware solely
as a result of their participation in the Trust, and the Trust will not be
liable for any income tax imposed by the State of Delaware or any political
subdivisions or taxing authority thereof.
(f) The Underwriters shall have received from Faegre & Benson
LLP, counsel for the Underwriters, an opinion dated the Closing Date with
respect to the formation of the Trust, the validity of the Capital Securities,
the Indenture, the Declaration, the Guarantee Agreement, this Agreement, the
Registration Statement, the Prospectus, and other related matters as the
Underwriters may reasonably request, and such counsel shall have received such
papers and information as they may reasonably request to enable them to pass
upon such matters. In rendering the above opinions, counsel may rely (i) as to
matters of law other than federal law, upon the opinion or opinions of local
counsel provided that the extent of such reliance is specified in such opinion
and (ii) as to matters of fact, upon the representations of the Trust and the
Company contained in this Agreement and upon certificates of trustees or
officers of the Trust, the Company and of public officials.
(g) The Underwriters shall have received on each of the date
hereof and the Closing Date, a signed letter, dated as of the date hereof and
the Closing Date in form and substance reasonably satisfactory to the
Underwriters, from McGladrey & Pullen, L.L.P. (i) to the effect that they are
independent public accountants with respect to the Trust, the Company and the
Subsidiaries within the meaning of the Act and the related rules and
regulations; (ii) containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus; and (iii) confirming that the Trust
is and will be treated as a consolidated subsidiary of the Company pursuant to
generally accepted accounting principles.
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(h) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date there shall not have been any change, or any
development involving a reasonably foreseeable change, in or affecting the
general affairs, management, financial position, shareholders' equity or results
of operations of the Offerors otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in the Underwriters' reasonable judgment, is
material and adverse to the Offerors and makes it impracticable or inadvisable
to proceed with the public offering or the delivery of the Capital Securities
being delivered at the Closing Date on the terms and in the manner contemplated
in the Prospectus.
(i) The Underwriters shall have received on the Closing Date a
certificate or certificates of the chief executive officer and the chief
financial officer of the Company, to the effect that, as of the Closing Date
each of them severally represents as follows:
(i) No stop order suspending the effectiveness of the
Registration Statement or the qualification of the Capital Securities for
offering or sale has been issued, and no proceedings for such purpose have been
initiated or are, to such officer's knowledge, threatened by the Commission.
(ii) The representations and warranties of the Company
set forth in Section 1 of this Agreement are true and correct at and as of the
Closing Date and the Company has performed all of its obligations under this
Agreement to be performed at or prior to the Closing Date.
(iii) The signers of said certificate have carefully
examined the Registration Statement and the Prospectus, and any amendments
thereof or supplements thereto (including any term sheet within the meaning of
Rule 434 under the Act), and (a) such documents contain all statements and
information required to be included therein, the Registration Statement, or any
amendment thereof, does not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading and the Prospectus, as amended or
supplemented, does not include any untrue statement of material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, (B) since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented prospectus which has not
been so set forth, (C) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the Trust
has not incurred any material liabilities or obligations, direct or contingent,
or entered into any material transactions, not in the ordinary course of
business, or declared or paid any dividends or made any distribution of any kind
with respect to its capital securities, and except as disclosed in the
Prospectus, there has not been any change in the capital securities, or any
material change in the short-term or long-term debt, or any issuance of options,
warrants, convertible securities or other rights to purchase the capital
securities, of the Trust or any material adverse change or any development
involving a prospective material adverse change (whether or not arising in the
ordinary course of business), in the general affairs, condition (financial or
otherwise), business, key personnel, property, prospects, net worth or results
of operations of the Trust, and (D) except as stated in the Registration
Sttement and the Prospectus, there is not pending, or, to the knowledge of the
Trust, threatened or contemplated, any action, suit or proceeding to which the
Trust is a party before or by any court or governmental agency, authority or
body, or any arbitrator, which might
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result in any material adverse change in the condition (financial or otherwise),
business, prospects or results of operations of the Trust.
(j) The Underwriters shall have received on the Closing Date a
certificate or certificates of the Regular Trustees, to the effect that, as of
the Closing Date each of them severally represents as follows:
(i) No stop order suspending the effectiveness of the
Registration Statement or the qualification of the Capital Securities for
offering or sale has been issued, and no proceedings for such purpose have been
initiated or are, to such officer's knowledge, threatened by the Commission.
(ii) The representations and warranties of the Trust set
forth in Section 1 of this Agreement are true and correct at and as of the
Closing Date and the Trust has performed all of its obligations under this
Agreement to be performed at or prior to the Closing Date.
(iii) The signers of said certificate have carefully
examined the Registration Statement and the Prospectus, and any amendments
thereof or supplements thereto (including any term sheet within the meaning of
Rule 434 under the Act), and (a) such documents contain all statements and
information required to be included therein, the Registration Statement, or any
amendment thereof, does not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Prospectus, as amended or
supplemented, does not include any untrue statement of material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, (B) since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented prospectus which has not
been so set forth, (C) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the Trust
has not incurred any material liabilities or obligations, direct or contingent,
or entered into any material transactions, not in the ordinary course of
business, or declared or paid any dividends or made any distribution of any kind
with respect to its capital securities, and except as disclosed in the
Prospectus, there has not been any change in the capital securities, or any
material change in the short-term or long-term debt, or any issuance of options,
warrants, convertible securities or other rights to purchase the capital
securities, of the Trust or any material adverse change or any development
involving a prospective material adverse change (whether or not arising in the
ordinary course of business), in the general affairs, condition (financial or
otherwise), business, key personnel, property, prospects, net worth or results
of operations of the Trust, and (D) except as stated in the Registration
Satement and the Prospectus, there is not pending, or, to the knowledge of the
Trust, threatened or contemplated, any action, suit or proceeding to which the
Trust is a party before or by any court or governmental agency, authority or
body, or any arbitrator, which might result in any material adverse change in
the condition (financial or otherwise), business, prospects or results of
operations of the Trust.
(k) The Offerors shall have furnished to the Underwriters such
further certificates and documents as the Underwriters may reasonably have
requested.
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The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects reasonably satisfactory to the Underwriters and to Faegre & Benson LLP,
counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Underwriters by notifying the Trust of such termination in writing or by
telegram at or prior to the Closing Date. In such event, the Trust and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 7 hereof).
7. INDEMNIFICATION.
(a) The Offerors jointly and severally agree to indemnify and
hold harmless each Underwriter, each officer and director thereof, and each
person, if any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such Underwriter or
such persons may become subject under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus or the Prospectus, including any amendments or
supplements thereto (including any term sheet within the meaning of Rule 434
under the Act), (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading in light of the circumstances under which they were made,
or (iii) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Capital
Securities or the offering contemplated hereby, and which is included as part of
or referred to in any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arising out of or based upon matters covered by
clause (i) or (ii) above, and will reimburse each Underwriter and each such
controlling person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that the Offerors shall not be liable (1) in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement, or omission or alleged
omission, made in the Registration Statement, any Preliminary Prospectus or the
Prospectus, including any amendments or supplements thereto, in reliance upon
and in conformity with written information furnished to the Offerors by any
Underwriter specifically for use therein or (2) in the case of any matter
covered by clause (iii) above to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such losses, claims, damages
or liabilities resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Offerors and the trustees and directors and officers who have
signed the Registration Statement, and each person, if any, who controls the
Offerors within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Offerors or any such person may become
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subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made, and
will reimburse any legal or other expenses reasonably incurred by the Offerors
or any such person in connection with investigating or defending any such action
or claim as such expenses are incurred; provided, however, that each Underwriter
will be liable in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission has
been made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Trust or the Company by or
through the Underwriters specifically for use therein. The obligations of the
Underwriters under this Section 7(b) are several in proportion to their
respective underwriting obligations and not joint.
(c) The Company agrees to indemnify the Trust against all loss,
liability, claim damage and expense whatsoever, which may become due from the
Trust under subsection (a).
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity or contribution may be sought pursuant to this Section 7, such person
(the "indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 7(a) or (b) or contribution provided for
in Section 7(e) shall be available with respect to a proceeding to any party who
shall fail to give notice of such proceeding as provided in this Section 7(d) if
the party to whom notice was not given was unaware of the proceeding to which
such notice would have related and was prejudiced by the failure to give such
notice, but the failure to give such notice shall not relieve the indemnifying
party or parties from any liability which it or they may have to the indemnified
party otherwise than on account of the provisions of Section 7(a) or (b). In
case any such proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party and shall pay as incurred the fees and disbursements of
such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel at its own
expense. Notwithstanding the foregoing, the indemnifying party shall pay
promptly as incurred the reasonable fees and expenses of the counsel retained by
the indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and the
indemnified party shall have reasonably concluded that there may be a conflict
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it or other indemnified parties which are different from or
additional to those available to the indemnifying party. It is understood that
the
22
<PAGE>
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm at any time for all such indemnified parties. Such
firm shall be designated in writing by the Underwriters and shall be reasonably
satisfactory to the Offerors in the case of parties indemnified pursuant to
Section 7(a) and shall be designated in writing by the Offerors and shall be
reasonably satisfactory to the Underwriters in the case of parties indemnified
pursuant to Section 7(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
(e) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under Section
7(a) or (b) above in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Offerors on the one hand and
the Underwriters on the other from the offering of the Capital Securities. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Offerors on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Offerors on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Offerors bears to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Offerors on the one hand
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Offerors and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(e) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(e). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereto) referred
to above in this Section 7(e) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7(e), no Underwriter shall be required to contribute
any amount in excess of the underwriting discounts and commissions applicable to
the Capital Securities purchased by such Underwriter; and no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The
23
<PAGE>
Underwriters' obligations in this Section 7(e) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(f) The obligations of the Offerors under this Section 7 shall be
in addition to any liability which the Offerors may otherwise have, and the
obligations of the Underwriters under this Section 7 shall be in addition to any
liability which the Underwriters may otherwise have.
8. NOTICES. All communications hereunder shall be in writing and,
except as otherwise provided herein, will be mailed, delivered, telegraphed or
sent via facsimile transmission and confirmed as follows: if to the
Underwriters, to them c/o Dain Rauscher Incorporated, 60 South Sixth Street,
Minneapolis, Minnesota 55402, Attention: J. David Welch, Managing Director, with
a copy to David B. Miller, Esq., Faegre & Benson LLP, 2200 Norwest Center,
90 South Seventh Street, Minneapolis, Minnesota 55402-3901; if to the Company,
to Quad City Holdings, Inc., 3551 7th Street, Suite 100, Moline, Illinois 61265,
Attention: Douglas M. Hultquist, CPA, with a copy to John Freechack, Barack
Ferrazzano Kirschbaum Perlman & Nagelberg, 333 West Wacker Drive, Suite 2700,
Chicago, Illinois 60606, and if to the Trust, to it c/o Quad City Holdings,
Inc., Attention: Douglas M. Hultquist, CPA, with a copy to First Union, One
Rodney Square, 920 King Street, First Floor, Wilmington, Delaware 19801
Corporate Trust Administration. All notices given by facsimile transmission or
facsimile transmission shall be electronically confirmed and a copy of such
notice shall be sent promptly via U.S. mail. Any notice to the Trust shall also
be copied to the Company at the address previously stated, Attention: Douglas M.
Hultquist, CPA. Any party may change its address for notice purposes by written
notice to the other parties.
9. TERMINATION. This Agreement may be terminated by the Underwriters
by notice to the Offerors as follows:
(a) at any time prior to the earlier of (i) the time the Capital
Securities are released by the Underwriters for sale or (ii) 10:00 A.M., Central
time, on the first business day following the date of this Agreement; for the
purpose of this Section, the Capital Securities shall be deemed to have been
released for sale to the public upon release by you of the publication of a
newspaper advertisement relating thereto or upon release by the Underwriters of
telexes offering the Capital Securities for sale to securities dealers,
whichever shall first occur. By giving notice as hereinafter specified before
the time this Agreement becomes effective, the Underwriters, the Trust or the
Company may prevent this Agreement from becoming effective without liability of
any party to any other party, except that the provisions of Section 4(a)(viii)
and Section 6 hereof shall at all times be effective.
(b) at any time prior to the Closing Date if any of the following
has occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change in or
affecting the condition, financial or otherwise, of the Trust, or of the Company
and the Subsidiaries taken as a whole or the business affairs, management,
financial position, shareholders' equity or results of operations of the Trust,
or of the Company and the Subsidiaries taken as a whole, whether or not arising
in the ordinary course of business, (ii) any outbreak or escalation of
hostilities or declaration of war or national emergency after the date hereof or
other national or international calamity or crisis or change in
24
<PAGE>
economic or political conditions if the effect of such outbreak, escalation,
declaration, emergency, calamity, crisis or change on the financial markets of
the United States would, in the Underwriters' judgment, make the offering or
delivery of the Capital Securities impracticable or inadvisable,
(iii) suspension of trading in securities on the New York Stock Exchange or the
American Stock Exchange or limitation on prices (other than limitations on hours
or numbers of days of trading) for securities on either such Exchange, or a halt
or suspension of trading in securities generally which are quoted on Nasdaq
(iv) declaration of a banking moratorium by either federal or state authorities
or New York, Illinois or Iowa authorities; (v) either Offeror shall have failed,
refused or been unable, at or prior to the Closing Date, to perform any
agreement on its part to be performed hereunder, or (vi) any other condition of
the Underwriters' obligations hereunder is not fulfilled.
(c) as provided in Section 6 of this Agreement.
10. WRITTEN INFORMATION. For all purposes under this Agreement
(including, without limitation, Section 1, Section 3 and Section 7 hereof), the
Offerors understand and agree with each of the Underwriters that the following
constitutes the only written information furnished to the Offerors by the
Underwriters specifically for use in preparation of the Registration Statement,
any Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto: (i) the per share "Public Offering Price" and per share "Underwriting
Fees to be Paid by the Company" set forth on the cover page of the Prospectus,
and (ii) the information set forth under the caption "Underwriting" in the
Preliminary Prospectus and the Prospectus.
11. SUCCESSORS. This Agreement has been and is made solely for the
benefit of and shall be binding upon the Underwriters, the Trust and the Company
and their respective successors, executors, administrators, heirs and assigns,
and the trustees and controlling persons and the officers and directors of any
such controlling person referred to herein, and no other person will have any
right or obligation hereunder. The term "successors" shall not include any
purchaser of the Capital Securities merely because of such purchase.
12. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Offerors or controlling persons thereof and (c) delivery of and payment for
the Capital Securities under this Agreement.
Each provision of this Agreement shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable under any applicable
law or rule in any jurisdiction, such provision will be ineffective only to the
extent of such invalidity, illegality or unenforceability in such jurisdiction
or any provision hereof in any other jurisdiction.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
25
<PAGE>
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Minnesota.
If the foregoing letter is in accordance with the Underwriters'
understanding of our agreement, please sign and return to us the enclosed
duplicates hereof, whereupon it will become a binding agreement among the
Offerors and the Underwriters in accordance with its terms.
[The remainder of this page intentionally left blank.]
26
<PAGE>
Very truly yours,
QUAD CITY HOLDINGS CAPITAL TRUST I, a
Delaware business trust
By:
---------------------------------
Douglas M. Hultquist, Regular Trustee
QUAD CITY HOLDINGS, INC.
By:
---------------------------------
Douglas M. Hultquist, President
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
DAIN RAUSCHER WESSELS, A DIVISION OF
DAIN RAUSCHER INCORPORATED
HOWE BARNES INVESTMENTS, INC.
By:
------------------------------------
Dain Rauscher Incorporated
By:
--------------------------------
______________, Vice President
27
<PAGE>
SCHEDULE A
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Capital Number of
Securities Capital Securities
Underwriter to be purchased
- ----------- ------------------
<S> <C>
Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated......................
Howe Barnes Investments, Inc....................
----------
Total 1,200,000
----------
----------
</TABLE>
A-1
<PAGE>
EXHIBIT I
(FORM OF OPINION OF COMPANY COUNSEL)
() The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware
and is duly registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended. Each subsidiary of the Company has been
duly incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its formation. Each of the Company
and its subsidiaries has the corporate power and authority to own or lease
its properties and conduct its business as described in the Registration
Statement and the Prospectus; is, to such counsel's knowledge, in
compliance with all federal and state regulatory rules and guidelines; and
is duly qualified to transact business in all jurisdictions in which the
conduct of its business or its ownership or leasing of property requires
such qualification and the failure so to qualify would have a material
adverse effect on the business or condition, financial or otherwise, of the
Company and its subsidiaries, taken as a whole. The accounts of each of
the Company's subsidiaries which are banks are insured by the Bank
Insurance Fund of the Federal Deposit Insurance Corporation (the "FDIC") up
to the maximum applicable amount in accordance with the rules and
regulations of the FDIC, and, to the knowledge of such counsel, no
proceedings for the termination or revocation of such membership or
insurance are pending, or threatened.
() The statements in the Prospectus under the caption
"Description of the Capital Securities", "Description of the Debentures",
"Description of the Guarantee", and "Relationship among the Capital
Securities, the Debentures and the Guarantee" insofar as such statements
constitute matters of law applicable to the Offerors or summaries of
documents, fairly present the information required to be included therein
in all material respects. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued
and are fully paid and nonassessable, and the holders thereof are not
subject to personal liability by reason of being such holders. Except as
otherwise stated in the Registration Statement and Prospectus, there are no
preemptive rights or options, warrants, agreements, contracts or other
rights in existence to purchase or acquire from the Company any shares of
the capital stock of the Company pursuant to the Company's certificate of
incorporation, bylaws or any agreement or other instrument known to such
counsel to which the Company is a party or by which the Company is bound.
To such counsel's knowledge, neither the filing of the Registration
Statement nor the offering or sale of the Junior Subordinated Debentures or
Capital Securities as contemplated by this Agreement gives rise to any
rights for or relating to the registration of any shares of Common Stock or
other securities of the Company.
() All of the issued and outstanding shares of capital stock of
each of the Company's Subsidiaries have been duly and validly authorized
and issued and are fully paid and nonassessable, and, to such counsel's
knowledge, except as otherwise described in the Registration Statement and
Prospectus and except for directors' qualifying shares, the Company owns of
record and beneficially, free and clear of any security interests, claims,
liens, proxies, equities or other encumbrances, all of the issued and
outstanding shares of the stock of the Subsidiaries. To such counsel's
knowledge, except as described in the Registration Statement and
Prospectus, there are no options, warrants, agreements, contracts or other
rights in existence to purchase or acquire from the Company or any of its
Subsidiaries any shares of the capital stock of any Subsidiary of the
Company.
2
<PAGE>
() All of the issued and outstanding Common Securities of the
Trust are owned by the Company free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equitable right.
() The Declaration has been duly qualified under the Trust
Indenture Act.
() The Junior Subordinated Debentures are in the form
contemplated by the Indenture, have been duly authorized, executed and
delivered by the Company and, when authenticated by the Indenture Trustee
in the manner provided for in the Indenture and delivered against payment
therefor, will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except to
the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity.
() The Junior Subordinated Debentures are subordinate and
junior in right of payment to all "Senior and Subordinated Debt" (as
defined in the Indenture) of the Company.
() Neither the Company nor the Trust is an "investment company"
or a company "controlled" by an "investment company" within the meaning of
the 1940 Act.
() To such counsel's knowledge and information after due
inquiry, the Trust is not required to be authorized to do business in any
other jurisdiction and the Trust is not a party to or otherwise bound by
any agreement other than those described in the Prospectus.
() The Declaration has been duly authorized, executed and
delivered by the Company and the Regular Trustees.
() To such counsel's knowledge and information after due
inquiry, the Trust is not in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or any other
instrument of which the Trust is a party or by which it may be bound, or to
which any of the property or assets of the Trust is subject.
() The Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or, to the knowledge of
such counsel, threatened by the Commission.
() The descriptions in the Registration Statement and
Prospectus of statutes, and to counsel's knowledge, legal and governmental
proceedings or rulings, contracts and other documents are accurate in all
material respects and fairly present the information required to be shown;
and such counsel does not know of any statutes or legal or governmental
proceedings required to be described in the Prospectuses that are not
described as required, or of any contracts or documents of a character
required to be described in the Registration Statement or Prospectus or
included as exhibits to the Registration Statement that are not described
or included as required.
3
<PAGE>
() The reports of the Company incorporated by reference in the
Registration Statement and the Prospectus or any further amendment or
supplement thereto made by the Company (other than the financial
statements, other financial data and related schedules therein, as to which
such counsel need express no opinion), when they were filed with the
Commission, complied as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder.
() The Company has full corporate power and authority and the
Trust has full trust power and authority to enter into this Agreement, the
Indenture, the Declaration and the Guarantee Agreement to which it is a
party and to issue the Junior Subordinated Debentures and Capital
Securities, as the case may be, and to effect the transactions contemplated
by this Agreement, the Indenture, the Declaration and the Guarantee
Agreement to which it is a party, and each of this Agreement, the
Indenture, the Declaration and the Guarantee Agreement is duly authorized,
executed and delivered by the Company and the Trust, as applicable, and
constitutes a valid, legal and binding obligation of the Company
enforceable in accordance with its terms (except as rights to indemnity
hereunder may be limited by federal or state securities laws and except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors generally
and subject to general principles of equity). The execution, delivery and
performance of this Agreement, the Indenture, the Declaration, the
Guarantee Agreement, the Capital Securities, the Common Securities, the
Junior Subordinated Debentures and the Guarantee and the consummation of
the transactions herein or therein contemplated will not result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, any statute, rule or regulation, any agreement or instrument known
to such counsel to which the Company or the Trust is a party or by which
either is bound or to which any of their property is subject, the Company's
charter or bylaws, or the Trust's Certificate or any order or decree known
to such counsel of any court or governmental agency or body having
jurisdiction over the Company or the Trust or any of its respective
properties, except for any breach, violation or default which would not
have a material adverse effect on the Company; and no consent, approval,
authorization or order of, or filing with, any court or governmental agency
or body is required for the execution, delivery and performance of this
Agreement, the Indenture, the Declaration, the Guarantee Agreement, the
Capital Securities, the Junior Subordinated Debentures, or the Guarantee or
for the consummation of the transactions contemplated hereby or thereby,
including the issuance or sale of the Junior Subordinated Debentures by the
Company and the Common Securities and Capital Securities by the Trust,
except (a) such as may be required under the Act, which has been obtained,
or under state securities or blue sky laws, and (b) the qualification of
the Declaration, the Guarantee Agreement and the Indenture under the Trust
Indenture Act and the regulations thereunder.
() To such counsel's knowledge, neither the Company nor any of
its Subsidiaries is in violation of its respective charter or bylaws.
() The Registration Statement and the Prospectus, and any
amendment thereof or supplement thereto (including any term sheet within
the meaning of Rule 434 under the Act), comply as to form in all material
respects with the requirements of the Act and the rules and regulations
thereunder; and on the basis of conferences with officers of the Company,
examination of documents referred to in the Registration Statement and
Prospectus and such other procedures as such counsel deemed appropriate,
nothing has come to the attention of such counsel that causes such counsel
to believe that the Registration Statement or any amendment thereof, at the
time such Registration Statement became effective and as of the Closing
Date (including any Registration Statement filed under Rule 462(b) under
the Act),
4
<PAGE>
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus (as of their
respective dates and as of the Closing Date), as amended or supplemented,
includes any untrue statement of material fact or omits to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; it being
understood that such counsel need express no opinion as to the financial
statements or other financial data included in any of the documents
mentioned in this clause.
5
<PAGE>
FORM OF
QUAD CITY HOLDINGS, INC.
AND
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
AS INDENTURE TRUSTEE
INDENTURE
____% SUBORDINATED DEBENTURES DUE 2029
DATED AS OF _________ __, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 1.1 Definitions of Terms. . . . . . . . . . . . . . . . . . .
ARTICLE II
ISSUE, DESCRIPTION, TERMS, CONDITIONS
REGISTRATION AND EXCHANGE OF THE DEBENTURES. . . . . . . . . . . . . .
Section 2.1 Designation and Principal Amount. . . . . . . . . . . . .
Section 2.2 Maturity. . . . . . . . . . . . . . . . . . . . . . . . .
Section 2.3 Form and Payment. . . . . . . . . . . . . . . . . . . . .
Section 2.4 Intentionally Left Blank. . . . . . . . . . . . . . . . .
Section 2.5 Interest. . . . . . . . . . . . . . . . . . . . . . . . .
Section 2.6 Execution and Authentications . . . . . . . . . . . . . .
Section 2.7 Registration of Transfer and Exchange . . . . . . . . . .
Section 2.8 Temporary Debentures. . . . . . . . . . . . . . . . . . .
Section 2.9 Mutilated, Destroyed, Lost or Stolen Debentures . . . . .
Section 2.10 Cancellation. . . . . . . . . . . . . . . . . . . . . . .
Section 2.11 Benefit of Indenture. . . . . . . . . . . . . . . . . . .
Section 2.12 Authentication Agent. . . . . . . . . . . . . . . . . . .
ARTICLE III
REDEMPTION OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . .
Section 3.1 Redemption. . . . . . . . . . . . . . . . . . . . . . . .
Section 3.2 Special Event Redemption. . . . . . . . . . . . . . . . .
Section 3.3 Optional Redemption by Company. . . . . . . . . . . . . .
Section 3.4 Notice of Redemption. . . . . . . . . . . . . . . . . . .
Section 3.5 Payment Upon Redemption . . . . . . . . . . . . . . . . .
Section 3.6 No Sinking Fund . . . . . . . . . . . . . . . . . . . . .
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD . . . . . . . . . . . . . . . . .
Section 4.1 Extension of Interest Payment Period. . . . . . . . . . .
Section 4.2 Notice of Extension . . . . . . . . . . . . . . . . . . .
Section 4.3 Limitation on Transactions. . . . . . . . . . . . . . . .
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY. . . . . . . . . . . . . . . . . .
Section 5.1 Payment of Principal and Interest . . . . . . . . . . . .
Section 5.2 Maintenance of Agency . . . . . . . . . . . . . . . . . .
ii
<PAGE>
Section 5.3 Paying Agents . . . . . . . . . . . . . . . . . . . . . .
Section 5.4 Appointment to Fill Vacancy in Office of Trustee. . . . .
Section 5.5 Compliance with Consolidation Provisions. . . . . . . . .
Section 5.6 Limitation on Transactions. . . . . . . . . . . . . . . .
Section 5.7 Covenants as to the Trust . . . . . . . . . . . . . . . .
Section 5.8 Covenants as to Purchases . . . . . . . . . . . . . . . .
Section 5.9 Waiver of Usury, Stay or Extension Laws . . . . . . . . .
ARTICLE VI
DEBENTUREHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE . .
Section 6.1 Company to Furnish Trustee Names and Addresses
of Debentureholders . . . . . . . . . . . . . . . . . . .
Section 6.2 Preservation of Information Communications with
Debentureholders. . . . . . . . . . . . . . . . . . . . .
Section 6.3 Reports by the Company. . . . . . . . . . . . . . . . . .
Section 6.4 Reports by the Trustee. . . . . . . . . . . . . . . . . .
ARTICLE VII
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT . . .
Section 7.1 Events of Default
Section 7.2 Collection of Indebtedness and Suits for Enforcement
by Trustee. . . . . . . . . . . . . . . . . . . . . . . .
Section 7.3 Application of Moneys Collected . . . . . . . . . . . . .
Section 7.4 Limitation on Suits . . . . . . . . . . . . . . . . . . .
Section 7.5 Rights and Remedies Cumulative; Delay or Omission
not Waiver. . . . . . . . . . . . . . . . . . . . . . . .
Section 7.6 Control by Debentureholders . . . . . . . . . . . . . . .
Section 7.7 Undertaking to Pay Costs. . . . . . . . . . . . . . . . .
Section 7.8 Direct Action; Right of Set-Off . . . . . . . . . . . . .
ARTICLE VIII
FORM OF DEBENTURE AND ORIGINAL ISSUE . . . . . . . . . . . . . . . . .
Section 8.1 Form of Debenture . . . . . . . . . . . . . . . . . . . .
Section 8.2 Original Issue of Debentures. . . . . . . . . . . . . . .
ARTICLE IX
CONCERNING THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . .
Section 9.1 Certain Duties and Responsibilities of the Trustee. . . .
Section 9.2 Notice of Defaults. . . . . . . . . . . . . . . . . . . .
Section 9.3 Certain Rights of Trustee . . . . . . . . . . . . . . . .
Section 9.4 Trustee Not Responsible for Recitals, etc . . . . . . . .
Section 9.5 May Hold Debentures . . . . . . . . . . . . . . . . . . .
Section 9.6 Moneys Held in Trust. . . . . . . . . . . . . . . . . . .
Section 9.7 Compensation and Reimbursement. . . . . . . . . . . . . .
Section 9.8 Reliance on Officers' Certificate . . . . . . . . . . . .
Section 9.9 Disqualification: Conflicting Interests. . . . . . . . .
iii
<PAGE>
Section 9.10 Corporate Trustee Required; Eligibility. . . . . . . . .
Section 9.11 Resignation and Removal; Appointment of Successor. . . .
Section 9.12 Acceptance of Appointment by Successor . . . . . . . . .
Section 9.13 Merger, Conversion, Consolidation or Succession
to Business. . . . . . . . . . . . . . . . . . . . . . .
Section 9.14 Preferential Collection of Claims Against
the Company. . . . . . . . . . . . . . . . . . . . . . .
ARTICLE X
CONCERNING THE DEBENTUREHOLDERS. . . . . . . . . . . . . . . . . . . .
Section 10.1 Evidence of Action by Holders. . . . . . . . . . . . . .
Section 10.2 Proof of Execution by Debentureholders . . . . . . . . .
Section 10.3 Who May be Deemed Owners . . . . . . . . . . . . . . . .
Section 10.4 Certain Debentures Owned by Company Disregarded. . . . .
Section 10.5 Actions Binding on Future Debentureholders . . . . . . .
ARTICLE XI
SUPPLEMENTAL INDENTURES. . . . . . . . . . . . . . . . . . . . . . . .
Section 11.1 Supplemental Indentures Without the Consent of
Debentureholders . . . . . . . . . . . . . . . . . . . .
Section 11.2 Supplemental Indentures with Consent of
Debentureholders . . . . . . . . . . . . . . . . . . . .
Section 11.3 Effect of Supplemental Indentures. . . . . . . . . . . .
Section 11.4 Debentures Affected by Supplemental Indentures . . . . .
Section 11.5 Execution of Supplemental Indentures . . . . . . . . . .
ARTICLE XII
SUCCESSOR CORPORATION. . . . . . . . . . . . . . . . . . . . . . . . .
Section 12.1 Company May Consolidate, etc . . . . . . . . . . . . . .
Section 12.2 Successor Corporation Substituted. . . . . . . . . . . .
Section 12.3 Evidence of Consolidation, etc. to Trustee . . . . . . .
ARTICLE XIII
SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . .
Section 13.1 Satisfaction and Discharge of Indenture. . . . . . . . .
Section 13.2 Discharge of Obligations . . . . . . . . . . . . . . . .
Section 13.3 Deposited Moneys to be Held in Trust . . . . . . . . . .
Section 13.4 Payment of Monies Held by Paying Agents. . . . . . . . .
Section 13.5 Repayment to Company . . . . . . . . . . . . . . . . . .
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS. . . .
Section 14.1 No Recourse. . . . . . . . . . . . . . . . . . . . . . .
ARTICLE XV
MISCELLANEOUS PROVISIONS
Section 15.1 Effect on Successors and Assigns . . . . . . . . . . . .
Section 15.2 Actions by Successor . . . . . . . . . . . . . . . . . .
iv
<PAGE>
Section 15.3 Surrender of Company Powers. . . . . . . . . . . . . . .
Section 15.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . .
Section 15.5 Governing Law. . . . . . . . . . . . . . . . . . . . . .
Section 15.6 Treatment of Debentures as Debt. . . . . . . . . . . . .
Section 15.7 Compliance Certificates and Opinions . . . . . . . . . .
Section 15.8 Payments on Business Days. . . . . . . . . . . . . . . .
Section 15.9 Conflict with Trust Indenture Act. . . . . . . . . . . .
Section 15.10 Counterparts . . . . . . . . . . . . . . . . . . . . . .
Section 15.11 Separability . . . . . . . . . . . . . . . . . . . . . .
Section 15.12 Assignment . . . . . . . . . . . . . . . . . . . . . . .
Section 15.13 Acknowledgment of Rights . . . . . . . . . . . . . . . .
ARTICLE XVI
SUBORDINATION OF DEBENTURES. . . . . . . . . . . . . . . . . . . . . .
Section 16.1 Agreement to Subordinate . . . . . . . . . . . . . . . .
Section 16.2 Default on Senior Debt, Subordinated Debt or
Additional Senior Obligations. . . . . . . . . . . . . .
Section 16.3 Liquidation; Dissolution; Bankruptcy . . . . . . . . . .
Section 16.4 Subrogation. . . . . . . . . . . . . . . . . . . . . . .
Section 16.5 Trustee to Effectuate Subordination. . . . . . . . . . .
Section 16.6 Notice by the Company. . . . . . . . . . . . . . . . . .
Section 16.7 Rights of the Trustee; Holders of
Senior Indebtedness. . . . . . . . . . . . . . . . . . .
Section 16.8 Subordination may not be Impaired. . . . . . . . . . . .
</TABLE>
v
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
SECTION OF
TRUST INDENTURE ACT SECTION OF
OF 1939, AS AMENDED INDENTURE
- -----------------------------------------------------------------------------
<S> <C>
310(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10
310(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.11
310(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.14
311(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.14
311(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2(a)
312(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2(c)
312(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2(c)
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4(a)
313(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4(b)
313(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4(b)
313(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4(c)
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3(a)
314(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
314(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.7
314(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
314(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.7
314(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3
315(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2
315(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1(a)
315(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1(b)
315(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7
316(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
316(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4(b)
316(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10.1(b)
317(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
317(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9
</TABLE>
Note: This reconciliation and tie sheet shall not, for any purpose, be
deemed to be a part of the Indenture.
vi
<PAGE>
INDENTURE
INDENTURE, dated as of _________ __, 1999, between QUAD CITY HOLDINGS,
INC., a Delaware corporation (the "Company") and FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, a national banking association with its principal place
of business in the State of Delaware (the "Trustee");
RECITALS
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the execution and delivery of this Indenture to provide for the
issuance of securities to be known as its ____% Subordinated Debentures due
2029 (hereinafter referred to as the "Debentures"), the form and substance of
such Debentures and the terms, provisions and conditions thereof to be set
forth as provided in this Indenture;
WHEREAS, Quad City Holdings Capital Trust I, a Delaware statutory
business trust (the "Trust"), has offered to the public up to $12,000,000
aggregate liquidation amount of its Capital Securities (as defined herein)
and proposes to invest the proceeds from such offering, together with the
proceeds of the issuance and sale by the Trust to the Company of up to
$380,000 aggregate liquidation amount of its Common Securities (as defined
herein), in up to $12,380,000 aggregate principal amount of the Debentures;
WHEREAS, the Company has requested that the Trustee execute and deliver
this Indenture;
WHEREAS, all requirements necessary to make this Indenture a valid
instrument in accordance with its terms, and to make the Debentures, when
executed by the Company and authenticated and delivered by the Trustee, the
valid obligations of the Company, have been performed, and the execution and
delivery of this Indenture have been duly authorized in all respects;
WHEREAS, to provide the terms and conditions upon which the Debentures
are to be authenticated, issued and delivered, the Company has duly
authorized the execution of this Indenture; and
WHEREAS, all things necessary to make this Indenture a valid agreement
of the Company, in accordance with its terms, have been done.
NOW, THEREFORE, in consideration of the premises and the purchase of the
Debentures by the holders thereof, it is mutually covenanted and agreed as
follows for the equal and ratable benefit of the holders of the Debentures:
1
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS OF TERMS.
The terms defined in this Section 1.1 (except as in this Indenture
otherwise expressly provided or unless the context otherwise requires) for
all purposes of this Indenture and of any indenture supplemental hereto shall
have the respective meanings specified in this Section 1.1 and shall include
the plural as well as the singular. All other terms used in this Indenture
that are defined in the Trust Indenture Act, or that are by reference in the
Trust Indenture Act defined in the Securities Act (except as herein otherwise
expressly provided or unless the context otherwise requires), shall have the
meanings assigned to such terms in the Trust Indenture Act and in the
Securities Act as in force at the date of the execution of this instrument.
All accounting terms used herein and not expressly defined shall have the
meanings assigned to such terms in accordance with Generally Accepted
Accounting Principles.
"Accelerated Maturity Date" means if the Company elects to accelerate
the Maturity Date in accordance with Section 2.2(c), the date selected by the
Company which is prior to the Scheduled Maturity Date, but is after June 30,
2004.
"Additional Interest" shall have the meaning set forth in Section 2.5.
"Additional Senior Obligations" means all indebtedness of the Company
whether incurred on or prior to the date of this Indenture or thereafter
incurred, for claims in respect of derivative products such as interest and
foreign exchange rate contracts, commodity contracts and similar
arrangements; provided, however, that Additional Senior Obligations does not
include claims in respect of Senior Debt or Subordinated Debt or obligations
which, by their terms, are expressly stated to be not superior in right of
payment to the Debentures or to rank pari passu in right of payment with the
Debentures. For purposes of this definition, "claim" shall have the meaning
assigned thereto in Section 101(4) of the United States Bankruptcy Code of
1978, as amended.
"Administrative Trustees" shall have the meaning set forth in the Trust
Agreement.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10%
or more of the outstanding voting securities or other ownership interests of
the specified Person; (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person; (c) any Person
directly or indirectly controlling, controlled by, or under common control
with the specified Person; (d) a partnership in which the specified Person is
a general partner; (e) any officer or
2
<PAGE>
director of the specified Person; and (f) if the specified Person is an
individual, any entity of which the specified Person is an officer, director
or general partner.
"Authenticating Agent" means an authenticating agent with respect to the
Debentures appointed by the Trustee pursuant to Section 2.12.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or any
duly authorized committee of such Board or any other duly designated officers
of the Company.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of
such certification.
"Business Day" means, with respect to the Debentures, any day other
than a Saturday or a Sunday or a day on which federal or state banking
institutions in New York, New York or Wilmington, Delaware are authorized or
required by law, executive order or regulation to close, or a day on which
the Corporate Trust Office of the Trustee or the Property Trustee is closed
for business.
"Capital Securities" means undivided beneficial interests in the assets
of the Trust which rank pari passu with Common Securities issued by the
Trust; provided, however, that upon the occurrence of an Event of Default,
the rights of holders of Common Securities to payment in respect of
distributions and payments upon liquidation, redemption and otherwise are
subordinated to the rights of holders of Capital Securities.
"Capital Securities Guarantee" means any guarantee that the Company may
enter into with the Trustee or other Persons that operate directly or
indirectly for the benefit of holders of Capital Securities.
"Capital Treatment Event" means the receipt by the Company and the Trust
of an Opinion of Counsel, rendered by a law firm having a recognized national
bank regulatory practice, 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
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of
the Capital Securities under the Trust Agreement, there is more than an
insubstantial risk of impairment of the Company's ability to treat the
Capital Securities (or any substantial portion thereof) as Tier 1 capital (or
the then equivalent thereof), for purposes of the capital adequacy guidelines
of the Federal Reserve, as then in effect and applicable to the Company;
provided, however, that the Trust or the Company shall have requested and
received such an Opinion of Counsel with regard to such matters within a
3
<PAGE>
reasonable period of time after the Trust or the Company shall have become
aware of the possible occurrence of any such event.
"Certificate" means a certificate signed by the principal executive
officer, the principal financial officer, the principal accounting officer,
the treasurer or any vice president of the Company. The Certificate need not
comply with the provisions of Section 15.7.
"Change in 1940 Act Law" shall have the meaning set forth in the
definition of "Investment Company Event."
"Commission" means the Securities and Exchange Commission.
"Common Securities" means undivided beneficial interests in the assets
of the Trust which rank pari passu with the Capital Securities; provided,
however, that upon the occurrence of an Event of Default, the rights of
holders of Common Securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Capital Securities.
"Company" means Quad City Holdings, Inc., a corporation duly organized
and existing under the laws of the State of Delaware, and, subject to the
provisions of Article XII, shall also include its successors and assigns.
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Corporate Trust Office" means the office of the Trustee at which, at
any particular time, its corporate trust business shall be principally
administered, which office at the date hereof is located at One Rodney
Square, 920 King Street, 1st Floor, Wilmington, Delaware 19801, Attention:
Corporate Trust Administration.
"Coupon Rate" shall have the meaning set forth in Section 2.5.
"Custodian" means any receiver, trustee, assignee, liquidator, or
similar official under any Bankruptcy Law.
"Debentures" shall have the meaning set forth in the Recitals hereto.
"Debentureholder," "holder of Debentures," "registered holder," or other
similar term, means the Person or Persons in whose name or names a particular
Debenture shall be registered on the books of the Company or the Trustee kept
for that purpose in accordance with the terms of this Indenture.
"Debenture Register" shall have the meaning set forth in Section 2.7(b).
"Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition
4
<PAGE>
of property, assets or businesses; (iii) every reimbursement obligation of
such Person with respect to letters of credit, bankers' acceptances or
similar facilities issued for the account of such Person; (iv) every
obligation of such Person issued or assumed as the deferred purchase price of
property or services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business); (v) every capital
lease obligation of such Person; and (vi) and every obligation of the type
referred to in clauses (i) through (v) of another Person and all dividends of
another Person the payment of which, in either case, such Person has
guaranteed or is responsible or liable, directly or indirectly, as obligor or
otherwise.
"Default" means any event, act or condition that with notice or lapse of
time, or both, would constitute an Event of Default.
"Deferred Interest" shall have the meaning set forth in Section 4.1.
"Dissolution Event" means that as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance
with the Trust Agreement and the Debentures held by the Property Trustee are
to be distributed to the holders of the Trust Securities issued by the Trust
pro rata in accordance with the Trust Agreement.
"Event of Default" means, with respect to the Debentures, any event
specified in Section 7.1, which has continued for the period of time, if any,
and after the giving of the notice, if any, therein designated.
"Exchange Act," means the Securities Exchange Act of 1934, as amended,
as in effect at the date of execution of this instrument.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 4.1.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"Generally Accepted Accounting Principles" means such accounting
principles as are generally accepted at the time of any computation required
hereunder.
"Governmental Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America, the payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America that, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depositary receipt issued by a bank (as defined in
Section 3(a)(2) of the Securities Act) as custodian with respect to any such
Governmental Obligation or a specific payment of principal of or interest on
any such Governmental Obligation held by such custodian for the account of
the holder of such depositary receipt; provided, however, that (except as
required by law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depositary receipt from any amount
received by the custodian in respect of the Governmental Obligation
5
<PAGE>
or the specific payment of principal of or interest on the Governmental
Obligation evidenced by such depositary receipt.
"Herein," "hereof," and "hereunder," and other words of similar import,
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into in accordance with the terms hereof.
"Interest Payment Date," when used with respect to any installment of
interest on the Debentures, means the date specified in the Debenture or in
an indenture supplemental hereto with respect to the Debentures as the fixed
date on which an installment of interest with respect to the Debentures is
due and payable.
"Investment Company Act," means the Investment Company Act of 1940, as
amended, as in effect at the date of execution of this instrument.
"Investment Company Event" means the receipt by the Trust and the
Company of an Opinion of Counsel, rendered by a law firm having a recognized
national tax and securities law practice, to the effect that, as a result of
the occurrence of a change in law or regulation or a change in interpretation
or application of law or regulation by any legislative body, court,
governmental agency or regulatory authority (a "Change in 1940 Act Law"), the
Trust is or shall be considered an "investment company" that is required to
be registered under the Investment Company Act, which Change in 1940 Act Law
becomes effective on or after the date of original issuance of the Capital
Securities under the Trust Agreement; provided, however, that the Trust or
the Company shall have requested and received such an Opinion of Counsel with
regard to such matters within a reasonable period of time after the Trust or
the Company shall have become aware of the possible occurrence of any such
event.
"Maturity Date" means the date on which the Debentures mature and on
which the principal shall be due and payable together with all accrued and
unpaid interest thereon including Compounded Interest and Additional
Interest, if any.
"Ministerial Action" shall have the meaning set forth in Section 3.2.
"Officers' Certificate" means a certificate signed by the Chief
Executive Officer, President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company
that is delivered to the Trustee in accordance with the terms hereof. Each
such certificate shall include the statements provided for in Section 15.7,
if and to the extent required by the provisions thereof.
"Opinion of Counsel" means an opinion in writing of independent, outside
legal counsel for the Company that is delivered to the Trustee in accordance
with the terms hereof. Each such opinion shall include the statements
provided for in Section 15.7, if and to the extent required by the provisions
thereof.
6
<PAGE>
"Outstanding," when used with reference to the Debentures, means,
subject to the provisions of Section 10.4, as of any particular time, all
Debentures theretofore authenticated and delivered by the Trustee under this
Indenture, except (a) Debentures theretofore canceled by the Trustee or any
paying agent, or delivered to the Trustee or any paying agent for
cancellation or that have previously been canceled; (b) Debentures or
portions thereof for the payment or redemption of which moneys or
Governmental Obligations in the necessary amount shall have been deposited in
trust with the Trustee or with any paying agent (other than the Company) or
shall have been set aside and segregated in trust by the Company (if the
Company shall act as its own paying agent); provided, however, that if such
Debentures or portions of such Debentures are to be redeemed prior to the
maturity thereof, notice of such redemption shall have been given as in
Article III provided, or provision satisfactory to the Trustee shall have
been made for giving such notice; and (c) Debentures in lieu of or in
substitution for which other Debentures shall have been authenticated and
delivered pursuant to the terms of Section 2.7; provided, however, that in
determining whether the holders of the requisite percentage of Debentures
have given any request, notice, consent or waiver hereunder, Debentures held
by the Company or any Affiliate of the Company shall not be included;
provided, further, that the Trustee shall be protected in acting upon any
request, notice, consent or waiver unless a Responsible Officer of the
Trustee shall have actual knowledge that the holder of such Debenture is the
Company or an Affiliate thereof.
"Person" means any individual, corporation, partnership, trust, limited
liability company, joint venture, joint-stock company, unincorporated
organization or government or any agency or political subdivision thereof.
"Predecessor Debenture" means every previous Debenture evidencing all or
a portion of the same debt as that evidenced by such particular Debenture;
and, for the purposes of this definition, any Debenture authenticated and
delivered under Section 2.9 in lieu of a lost, destroyed or stolen Debenture
shall be deemed to evidence the same debt as the lost, destroyed or stolen
Debenture.
"Property Trustee" has the meaning set forth in the Trust Agreement.
"Redemption Price" shall have the meaning set forth in Section 3.2.
"Responsible Officer" when used with respect to the Trustee means any
officer within the Corporate Trust Office of the Trustee with direct
responsibility for the administration of this Indenture, including any vice
president, any assistant vice president, any assistant secretary or any other
officer or assistant officer of the Trustee customarily performing functions
similar to those performed by the Persons who at the time shall be such
officers, respectively, or to whom corporate trust matter is referred because
of his or her knowledge of and familiarity with the particular subject.
"Scheduled Maturity Date" means June 30, 2029.
"Securities Act," means the Securities Act of 1933, as amended, as in
effect at the date of execution of this instrument.
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"Senior Debt" means the principal of (and premium, if any) and interest,
if any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of this Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Debentures or to
other Debt which is pari passu with, or subordinated to, the Debentures;
provided, however, that Senior Debt shall not be deemed to include (i) any
Debt of the Company which when incurred and without respect to any election
under section 1111(b) of the United States Bankruptcy Code of 1978, as
amended, was without recourse to the Company; (ii) any Debt of the Company to
any of its subsidiaries; (iii) Debt to any employee of the Company; (iv) Debt
which by its terms is subordinated to trade accounts payable or accrued
liabilities arising in the ordinary course of business to the extent that
payments made to the holders of such Debt by the holders of the Debentures as
a result of the subordination provisions of this Indenture would be greater
than they otherwise would have been as a result of any obligation of such
holders to pay amounts over to the obligees on such trade accounts payable or
accrued liabilities arising in the ordinary course of business as a result of
subordination provisions to which such Debt is subject; and (v) Debt which
constitutes Subordinated Debt.
"Senior Indebtedness" shall have the meaning set forth in Section 16.2.
"Special Event" means a Tax Event, an Investment Company Event or a
Capital Treatment Event.
"Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether
or not such claim for post-petition interest is allowed in such proceeding),
on Debt, whether incurred on or prior to the date of this Indenture or
thereafter incurred, which is by its terms expressly provided to be junior
and subordinate to Senior Debt of the Company (other than the Debentures);
provided, however, that Subordinated Debt will not be deemed to include (i)
any Debt of the Company which when incurred and without respect to any
election under section 1111(b) of the United States Bankruptcy Code of 1978,
as amended, was without recourse to the Company, (ii) any Debt of the Company
to any of its subsidiaries, (iii) any Debt to any employee of the Company,
(iv) any Debt which by its terms is subordinated to trade accounts payable or
accrued liabilities arising in the ordinary course of business to the extent
that payments made to the holders of such Debt by the holders of the
Subordinated Debentures as a result of the subordination provisions of the
Indenture would be greater than they otherwise would have been as a result of
any obligation of such holders to pay amounts over to the obligees on such
trade accounts payable or accrued liabilities arising in the ordinary course
of business as a result of subordination provisions to which such Debt is
subject, (v) Debt which constitutes Senior Debt and (vi) any Debt of the
Company under debt securities (and guarantees in respect of these debt
securities) initially issued to any trust, or a trustee of a trust,
partnership or other entity affiliated with the Company that is, directly or
indirectly, a financing vehicle of the Company
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in connection with the issuance by that entity of preferred securities or
other securities which are intended to qualify for Tier 1 capital treatment.
"Subsidiary" means, with respect to any Person, (i) any corporation at
least a majority of whose outstanding Voting Stock shall at the time be
owned, directly or indirectly, by such Person or by one or more of its
Subsidiaries or by such Person and one or more of its Subsidiaries; (ii) any
general partnership, joint venture or similar entity, at least a majority of
whose outstanding partnership or similar interests shall at the time be owned
by such Person, or by one or more of its Subsidiaries, or by such Person and
one or more of its Subsidiaries; (iii) any limited partnership of which such
Person or any of its Subsidiaries is a general partner; and (iv) any limited
liability company, a majority of the membership interests of which are held
by such person or one or more of its Subsidiaries.
"Tax Event" means the receipt by the Company and the Trust of an Opinion
of Counsel, rendered by a law firm having a recognized national tax and
securities practice, to the effect that, as a result of any amendment to, or
change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying
such laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of
the Capital Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Trust is, or shall be within 90 days after
the date of such Opinion of Counsel, subject to United States federal income
tax with respect to income received or accrued on the Debentures; (ii)
interest payable by the Company on the Debentures is not, or within 90 days
after the date of such Opinion of Counsel, shall not be, deductible by the
Company, in whole or in part, for United States federal income tax purposes;
or (iii) the Trust is, or shall be within 90 days after the date of such
Opinion of Counsel, subject to more than a de minimis amount of other taxes,
duties, assessments or other governmental charges; provided, however, that
the Trust or the Company shall have requested and received such an Opinion of
Counsel with regard to such matters within a reasonable period of time after
the Trust or the Company shall have become aware of the possible occurrence
of any of the events described in clauses (i) through (iii) above.
"Trust" means Quad City Holdings Capital Trust I, a Delaware statutory
business trust.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
[ ], 1999, of the Trust.
"Trustee" means First Union Trust Company, National Association and,
subject to the provisions of Article IX, shall also include its successors
and assigns, and, if at any time there is more than one Person acting in such
capacity hereunder, "Trustee" shall mean each such Person.
"Trust Indenture Act," means the Trust Indenture Act of 1939, as
amended, subject to the provisions of Sections 11.1, 11.2, and 12.1, as in
effect at the date of execution of this instrument.
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"Trust Securities" means the Common Securities and Capital Securities,
collectively.
"Voting Stock," as applied to stock of any Person, means shares,
interests, participations or other equivalents in the equity interest
(however designated) in such Person having ordinary voting power for the
election of a majority of the directors (or the equivalent) of such Person,
other than shares, interests, participations or other equivalents having such
power only by reason of the occurrence of a contingency.
ARTICLE II
ISSUE, DESCRIPTION, TERMS, CONDITIONS,
REGISTRATION AND EXCHANGE OF THE DEBENTURES
SECTION 2.1 DESIGNATION AND PRINCIPAL AMOUNT.
There is hereby authorized Debentures designated the "[ ]%
Subordinated Debentures due 2029," limited in aggregate principal amount to
$12,380,000, which amount shall be as set forth in any written order of the
Company for the authentication and delivery of Debentures pursuant to Section
2.6.
SECTION 2.2 MATURITY.
(a) The Maturity Date shall be either:
(i) the Scheduled Maturity Date; or
(ii) if the Company elects to accelerate the Maturity Date to be a
date prior to the Scheduled Maturity Date in accordance with
Section 2.2(c), the Accelerated Maturity Date.
(b) the Company may at any time before the day which is 90 days before
the Scheduled Maturity Date and after June 30, 2004, elect to shorten the
Maturity Date only once to the Accelerated Maturity Date provided that the
Company has received the prior approval of the Federal Reserve if then
required under applicable capital guidelines, policies or regulations of the
Federal Reserve.
(c) if the Company elects to accelerate the Maturity Date in accordance
with Section 2.2(b), the Company shall give notice to the Trustee and the
Trust (unless the Trust is not the holder of the Debentures, in which case
the Trustee will give notice to the holders of the Debentures) of the
acceleration of the Maturity Date and the Accelerated Maturity Date at least
90 days and no more than 180 days before the Accelerated Maturity Date.
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SECTION 2.3 FORM AND PAYMENT.
The Debentures shall be issued in fully registered certificated form
without interest coupons. Principal and interest on the Debentures issued in
certificated form shall be payable, the transfer of such Debentures shall be
registrable and such Debentures shall be exchangeable for Debentures bearing
identical terms and provisions at the office or agency of the Trustee;
provided, however, that payment of interest may be made at the option of the
Company by check mailed to the holder at such address as shall appear in the
Debenture Register or by wire transfer to an account maintained by the holder
as specified in the Debenture Register, provided that the holder provides
proper transfer instructions by the regular record date. Notwithstanding the
foregoing, so long as the holder of any Debentures is the Property Trustee,
the payment of principal of and interest (including Compounded Interest and
Additional Interest, if any) on such Debentures held by the Property Trustee
shall be made at such place and to such account as may be designated by the
Property Trustee.
SECTION 2.4 INTENTIONALLY LEFT BLANK.
SECTION 2.5 INTEREST.
(a) Each Debenture shall bear interest at the rate of [ ]% per annum
(the "Coupon Rate") from the original date of issuance until the principal
thereof becomes due and payable, and on any overdue principal and (to the
extent that payment of such interest is enforceable under applicable law) on
any overdue installment of interest at the Coupon Rate, compounded quarterly,
payable (subject to the provisions of Article IV) quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year (each, an
"Interest Payment Date"), commencing on September 30, 1999 to the Person in
whose name such Debenture or any Predecessor Debenture is registered, at the
close of business on the regular record date for such interest installment,
which shall be the fifteenth day of the last month of the calendar quarter.
(b) The amount of interest payable for any period shall be computed on
the basis of a 360-day year of twelve 30-day months. The amount of interest
payable for any period shorter than a full quarterly period for which
interest is computed, shall be computed on the basis of the number of days
elapsed in a 360-day year of twelve 30-day months. In the event that any date
on which interest is payable on the Debentures is not a Business Day, then
payment of interest payable on such date shall be made on the next succeeding
day which is a Business Day (and without any interest or other payment in
respect of any such delay) except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day (and without any reduction of interest or any other
payment in respect of any such acceleration), in each case with the same
force and effect as if made on the date such payment was originally payable.
(c) If, at any time while the Property Trustee is the holder of any
Debentures, the Trust or the Property Trustee is required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any case, the Company shall pay as additional interest
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("Additional Interest") on the Debentures held by the Property Trustee, such
additional amounts as shall be required so that the net amounts received and
retained by the Trust and the Property Trustee after paying such taxes,
duties, assessments or other governmental charges shall be equal to the
amounts the Trust and the Property Trustee would have received had no such
taxes, duties, assessments or other government charges been imposed.
SECTION 2.6 EXECUTION AND AUTHENTICATIONS.
(a) The Debentures shall be signed on behalf of the Company by its
President or one of its Vice Presidents, under its corporate seal, if any,
attested by its Secretary or one of its Assistant Secretaries. Signatures may
be in the form of a manual or facsimile signature. The Company may use the
facsimile signature of any Person who shall have been a President or Vice
President thereof, or of any Person who shall have been a Secretary or
Assistant Secretary thereof, notwithstanding the fact that at the time the
Debentures shall be authenticated and delivered or disposed of such Person
shall have ceased to be the President or a Vice President, or the Secretary
or an Assistant Secretary, of the Company (and any such signature shall be
binding on the Company). The seal of the Company may be in the form of a
facsimile of such seal and may be impressed, affixed, imprinted or otherwise
reproduced on the Debentures. The Debentures may contain such notations,
legends or endorsements required by law, stock exchange rule or usage. Each
Debenture shall be dated the date of its authentication by the Trustee. A
Debenture shall not be valid until authenticated manually by an authorized
signatory of the Trustee, or by an Authenticating Agent. Such signature shall
be conclusive evidence that the Debenture so authenticated has been duly
authenticated and delivered hereunder and that the holder is entitled to the
benefits of this Indenture.
(b) At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Debentures executed by the Company
to the Trustee for authentication, together with a written order of the
Company for the authentication and delivery of such Debentures signed by its
Chairman, President or any Vice President and its Treasurer or any Assistant
Treasurer, and the Trustee in accordance with such written order shall
authenticate and deliver such Debentures.
(c) In authenticating such Debentures and accepting the additional
responsibilities under this Indenture in relation to such Debentures, the
Trustee shall be entitled to receive, and (subject to Section 9.1) shall be
fully protected in relying upon, an Opinion of Counsel stating that the form
and terms thereof have been established in conformity with the provisions of
this Indenture.
(d) The Trustee shall not be required to authenticate such Debentures
if the issue of such Debentures pursuant to this Indenture shall affect the
Trustee's own rights, duties or immunities under the Debentures and this
Indenture or otherwise in a manner that is not reasonably acceptable to the
Trustee.
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SECTION 2.7 REGISTRATION OF TRANSFER AND EXCHANGE.
(a) Debentures may be exchanged upon presentation thereof at the office
or agency of the Company designated for such purpose in New York, New York,
Wilmington, Delaware or at the office of the Debenture Registrar, for other
Debentures and for a like aggregate principal amount in denominations of
integral multiples of $10, upon payment of a sum sufficient to cover any tax
or other governmental charge in relation thereto, all as provided in this
Section 2.7. In respect of any Debentures so surrendered for exchange, the
Company shall execute, the Trustee shall authenticate and such office or
agency shall deliver in exchange therefor the Debenture or Debentures that
the Debentureholder making the exchange shall be entitled to receive, bearing
numbers not contemporaneously outstanding.
(b) The Company shall keep, or cause to be kept, at its office or
agency designated for such purpose in New York, New York or Wilmington,
Delaware or at the office of the Debenture Registrar or such other location
designated by the Company a register or registers (herein referred to as the
"Debenture Register") in which, subject to such reasonable regulations as it
may prescribe, the Company shall register the Debentures and the transfers of
Debentures as in this Article II provided and which at all reasonable times
shall be open for inspection by the Trustee. The registrar for the purpose of
registering Debentures and transfer of Debentures as herein provided shall
initially be the Trustee and thereafter as may be appointed by the Company as
authorized by Board Resolution (the "Debenture Registrar"). Upon surrender
for transfer of any Debenture at the office or agency of the Company
designated for such purpose, the Company shall execute, the Trustee shall
authenticate and such office or agency shall deliver in the name of the
transferee or transferees a new Debenture or Debentures for a like aggregate
principal amount. All Debentures presented or surrendered for exchange or
registration of transfer, as provided in this Section 2.7, shall be
accompanied (if so required by the Company or the Debenture Registrar) by a
written instrument or instruments of transfer, in form satisfactory to the
Company or the Debenture Registrar, duly executed by the registered holder or
by such holder's duly authorized attorney in writing.
(c) No service charge shall be made for any exchange or registration of
transfer of Debentures, or issue of new Debentures in case of partial
redemption, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge in relation thereto, other than
exchanges pursuant to Section 2.8, the second paragraph of Section 3.5 and
Section 11.4 not involving any transfer.
(d) The Company shall not be required (i) to issue, exchange or
register the transfer of any Debentures during a period beginning at the
opening of business 15 days before the day of the mailing of a notice of
redemption of less than all the Outstanding Debentures and ending at the
close of business on the day of such mailing; nor (ii) to register the
transfer of or exchange any Debentures or portions thereof called for
redemption.
(e) Debentures may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Indenture. Any
transfer or purported transfer of any Debenture not made in accordance with
this Indenture shall be null and void.
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SECTION 2.8 TEMPORARY DEBENTURES.
Pending the preparation of definitive Debentures, the Company may
execute, and the Trustee shall authenticate and deliver, temporary Debentures
(printed, lithographed, or typewritten). Such temporary Debentures shall be
substantially in the form of the definitive Debentures in lieu of which they
are issued, but with such omissions, insertions and variations as may be
appropriate for temporary Debentures, all as may be determined by the
Company. Every temporary Debenture shall be executed by the Company and be
authenticated by the Trustee upon the same conditions and in substantially
the same manner, and with like effect, as the definitive Debentures. Without
unnecessary delay the Company shall execute and shall furnish definitive
Debentures and thereupon any or all temporary Debentures may be surrendered
in exchange therefor (without charge to the holders), at the office or agency
of the Company designated for the purpose in New York, New York or
Wilmington, Delaware and the Trustee shall authenticate and such office or
agency shall deliver in exchange for such temporary Debentures an equal
aggregate principal amount of definitive Debentures, unless the Company
advises the Trustee to the effect that definitive Debentures need not be
executed and furnished until further notice from the Company. Until so
exchanged, the temporary Debentures shall be entitled to the same benefits
under this Indenture as definitive Debentures authenticated and delivered
hereunder.
SECTION 2.9 MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES.
(a) In case any temporary or definitive Debenture shall become
mutilated or be destroyed, lost or stolen, the Company (subject to the next
succeeding sentence) shall execute, and upon the Company's request the
Trustee (subject as aforesaid) shall authenticate and deliver, a new
Debenture bearing a number not contemporaneously outstanding, in exchange and
substitution for the mutilated Debenture, or in lieu of and in substitution
for the Debenture so destroyed, lost, stolen or mutilated. In every case the
applicant for a substituted Debenture shall furnish to the Company and the
Trustee such security or indemnity as may be required by them to save each of
them harmless, and, in every case of destruction, loss or theft, the
applicant shall also furnish to the Company and the Trustee evidence to their
satisfaction of the destruction, loss or theft of the applicant's Debenture
and of the ownership thereof. The Trustee may authenticate any such
substituted Debenture and deliver the same upon the written request or
authorization of the Chairman, President or any Vice President and the
Treasurer or any Assistant Treasurer of the Company. Upon the issuance of any
substituted Debenture, 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. In case any Debenture that has matured
or is about to mature shall become mutilated or be destroyed, lost or stolen,
the Company may, instead of issuing a substitute Debenture, pay or authorize
the payment of the same (without surrender thereof except in the case of a
mutilated Debenture) if the applicant for such payment shall furnish to the
Company and the Trustee such security or indemnity as they may require to
save them harmless, and, in case of destruction, loss or theft, evidence to
the satisfaction of the Company and the Trustee of the destruction, loss or
theft of such Debenture and of the ownership thereof.
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(b) Every replacement Debenture issued pursuant to the provisions of
this Section 2.9 shall constitute an additional contractual obligation of the
Company whether or not the mutilated, destroyed, lost or stolen Debenture
shall be found at any time, or be enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately
with any and all other Debentures duly issued hereunder. All Debentures shall
be held and owned upon the express condition that the foregoing provisions
are exclusive with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Debentures, and shall preclude (to the extent
lawful) any and all other rights or remedies, notwithstanding any law or
statute existing or hereafter enacted to the contrary with respect to the
replacement or payment of negotiable instruments or other securities without
their surrender.
SECTION 2.10 CANCELLATION.
All Debentures surrendered for the purpose of payment, redemption,
exchange or registration of transfer shall, if surrendered to the Company or
any paying agent, be delivered to the Trustee for cancellation, or, if
surrendered to the Trustee, shall be canceled by it, and no Debentures shall
be issued in lieu thereof except as expressly required or permitted by any of
the provisions of this Indenture. On request of the Company at the time of
such surrender, the Trustee shall deliver to the Company canceled Debentures
held by the Trustee. In the absence of such request the Trustee may dispose
of canceled Debentures in accordance with its standard procedures and deliver
a certificate of disposition to the Company. If the Company shall otherwise
acquire any of the Debentures, however, such acquisition shall not operate as
a redemption or satisfaction of the indebtedness represented by such
Debentures unless and until the same are delivered to the Trustee for
cancellation.
SECTION 2.11 BENEFIT OF INDENTURE.
Nothing in this Indenture or in the Debentures, express or implied,
shall give or be construed to give to any Person, other than the parties
hereto and the holders of the Debentures (and, with respect to the provisions
of Article XVI, the holders of Senior Indebtedness) any legal or equitable
right, remedy or claim under or in respect of this Indenture, or under any
covenant, condition or provision herein contained; all such covenants,
conditions and provisions being for the sole benefit of the parties hereto
and of the holders of the Debentures (and, with respect to the provisions of
Article XVI, the holders of Senior Indebtedness).
SECTION 2.12 AUTHENTICATION AGENT.
(a) So long as any of the Debentures remain Outstanding there may be an
Authenticating Agent for any or all such Debentures, which the Trustee shall
have the right to appoint. Said Authenticating Agent shall be authorized to
act on behalf of the Trustee to authenticate Debentures issued upon exchange,
transfer or partial redemption thereof, and Debentures so authenticated shall
be entitled to the benefits of this Indenture and shall be valid and
obligatory for all purposes as if authenticated by the Trustee hereunder. All
references in this Indenture to the authentication of Debentures by the
Trustee shall be deemed to include authentication by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall be a
corporation that has a combined capital and surplus, as most
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recently reported or determined by it, sufficient under the laws of any
jurisdiction under which it is organized or in which it is doing business to
conduct a trust business, and that is otherwise authorized under such laws to
conduct such business and is subject to supervision or examination by federal
or state authorities. If at any time any Authenticating Agent shall cease to
be eligible in accordance with these provisions, it shall resign immediately.
(b) Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at
any time (and upon request by the Company shall) terminate the agency of any
Authenticating Agent by giving written notice of termination to such
Authenticating Agent and to the Company. Upon resignation, termination or
cessation of eligibility of any Authenticating Agent, the Trustee may appoint
an eligible successor Authenticating Agent acceptable to the Company. Any
successor Authenticating Agent, upon acceptance of its appointment hereunder,
shall become vested with all the rights, powers and duties of its predecessor
hereunder as if originally named as an Authenticating Agent pursuant hereto.
ARTICLE III
REDEMPTION OF DEBENTURES
SECTION 3.1 REDEMPTION.
Subject to the Company having received prior approval of the Federal
Reserve, if then required under the applicable capital guidelines, policies
or regulations of the Federal Reserve, the Company may redeem the Debentures
issued hereunder on and after the dates set forth in and in accordance with
the terms of this Article III.
SECTION 3.2 SPECIAL EVENT REDEMPTION.
Subject to the Company having received the prior approval of the Federal
Reserve, if then required under the applicable capital guidelines, policies
or regulations of the Federal Reserve, if a Special Event has occurred and is
continuing, then, notwithstanding Section 3.3(a) but subject to Section
3.3(b), the Company shall have the right upon not less than 30 days nor more
than 60 days notice to the holders of the Debentures to redeem the
Debentures, in whole but not in part, for cash within 180 days following the
occurrence of such Special Event (the "180-Day Period") at a redemption price
equal to 100% of the principal amount to be redeemed plus any accrued and
unpaid interest thereon to the date of such redemption (the "Redemption
Price"), provided that if at the time there is available to the Company the
opportunity to eliminate, within the 180-Day Period, a Tax Event by taking
some ministerial action (a "Ministerial Action"), such as filing a form or
making an election, or pursuing some other similar reasonable measure which
has no adverse effect on the Company, the Trust or the holders of the Trust
Securities issued by the Trust, the Company shall pursue such Ministerial
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Action in lieu of redemption. The Redemption Price shall be paid prior to
12:00 noon, New York time, on the date of such redemption or such earlier
time as the Company determines, provided that the Company shall deposit with
the Trustee an amount sufficient to pay the Redemption Price by 10:00 a.m.,
New York time, on the date such Redemption Price is to be paid.
SECTION 3.3 OPTIONAL REDEMPTION BY COMPANY.
(a) Subject to the provisions of Section 3.3(b), except as otherwise
may be specified in this Indenture, the Company shall have the right to
redeem the Debentures, in whole or in part, from time to time, on or after
June 30, 2004, at a Redemption Price equal to 100% of the principal amount to
be redeemed plus any accrued and unpaid interest thereon to the date of such
redemption. Any redemption pursuant to this Section 3.3(a) shall be made
upon not less than 30 days' nor more than 60' days notice to the holder of
the Debentures, at the Redemption Price. If the Debentures are only
partially redeemed pursuant to this Section 3.3, the Debentures shall be
redeemed pro rata or by lot or in such other manner as the Trustee shall deem
appropriate and fair in its discretion. The Redemption Price shall be paid
prior to 12:00 noon, New York time, on the date of such redemption or at such
earlier time as the Company determines provided that the Company shall
deposit with the Trustee an amount sufficient to pay the Redemption Price by
10:00 a.m., New York time, on the date such Redemption Price is to be paid.
(b) If a partial redemption of the Debentures would result in the
delisting of the Capital Securities issued by the Trust from American Stock
Exchange or any national securities exchange or other organization on which
the Capital Securities are then listed, the Company shall not be permitted to
effect such partial redemption and may only redeem the Debentures in whole.
SECTION 3.4 NOTICE OF REDEMPTION.
(a) In case the Company shall desire to exercise such right to redeem
all or, as the case may be, a portion of the Debentures in accordance with
the right reserved so to do, the Company shall, or shall cause the Trustee to
upon receipt of 45 days' written notice from the Company (which notice shall,
in the event of a partial redemption, include a representation to the effect
that such partial redemption will not result in the delisting of the Capital
Securities as described in Section 3.3(b) above), give notice of such
redemption to holders of the Debentures to be redeemed by mailing, first
class postage prepaid, a notice of such redemption not less than 30 days' and
not more than 60 days' before the date fixed for redemption to such holders
at their last addresses as they shall appear upon the Debenture Register
unless a shorter period is specified in the Debentures to be redeemed. Any
notice that is mailed in the manner herein provided shall be conclusively
presumed to have been duly given, whether or not the registered holder
receives the notice. In any case, failure duly to give such notice to the
holder of any Debenture designated for redemption in whole or in part, or any
defect in the notice, shall not affect the validity of the proceedings for
the redemption of any other Debentures. In the case of any redemption of
Debentures prior to the expiration of any restriction on such
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redemption provided in the terms of such Debentures or elsewhere in this
Indenture, the Company shall furnish the Trustee with an Officers'
Certificate evidencing compliance with any such restriction. Each such notice
of redemption shall specify the date fixed for redemption and the Redemption
Price and shall state that payment of the Redemption Price shall be made at
the office or agency of the Company or at the Corporate Trust Office, upon
presentation and surrender of such Debentures, that interest accrued to the
date fixed for redemption shall be paid as specified in said notice and that
from and after said date interest shall cease to accrue. If less than all
the Debentures are to be redeemed, the notice to the holders of the
Debentures shall specify the particular Debentures to be redeemed. If the
Debentures are to be redeemed in part only, the notice shall state the
portion of the principal amount thereof to be redeemed and shall state that
on and after the redemption date, upon surrender of such Debenture, a new
Debenture or Debentures in principal amount equal to the unredeemed portion
thereof shall be issued.
(b) If less than all the Debentures are to be redeemed, the Company
shall give the Trustee at least 45 days' notice in advance of the date fixed
for redemption as to the aggregate principal amount of Debentures to be
redeemed, and thereupon the Trustee shall select, pro rata or by lot or in
such other manner as it shall deem appropriate and fair in its discretion,
the portion or portions (equal to $10 or any integral multiple thereof) of
the Debentures to be redeemed and shall thereafter promptly notify the
Company in writing of the numbers of the Debentures to be redeemed, in whole
or in part. The Company may, if and whenever it shall so elect pursuant to
the terms hereof, by delivery of instructions signed on its behalf by its
Chairman, its President or any Vice President, instruct the Trustee or any
paying agent to call all or any part of the Debentures for redemption and to
give notice of redemption in the manner set forth in this Section 3.4, such
notice to be in the name of the Company or its own name as the Trustee or
such paying agent may deem advisable. In any case in which notice of
redemption is to be given by the Trustee or any such paying agent, the
Company shall deliver or cause to be delivered to, or permit to remain with,
the Trustee or such paying agent, as the case may be, such Debenture
Register, transfer books or other records, or suitable copies or extracts
therefrom, sufficient to enable the Trustee or such paying agent to give any
notice by mail that may be required under the provisions of this Section 3.4.
SECTION 3.5 PAYMENT UPON REDEMPTION.
(a) If the giving of notice of redemption shall have been completed as
above provided, the Debentures or portions of Debentures to be redeemed
specified in such notice shall become due and payable on the date and at the
place stated in such notice at the applicable Redemption Price, and interest
on such Debentures or portions of Debentures shall cease to accrue on and
after the date fixed for redemption, unless the Company shall default in the
payment of such Redemption Price with respect to any such Debenture or
portion thereof. On presentation and surrender of such Debentures on or after
the date fixed for redemption at the place of payment specified in the
notice, said Debentures shall be paid and redeemed at the Redemption Price
(but if the date fixed for redemption is an interest payment date, the
interest installment payable on such date shall be payable to the registered
holder at the close of business on the applicable record date pursuant to
Section 3.3).
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(b) Upon presentation of any Debenture that is to be redeemed in part
only, the Company shall execute and the Trustee shall authenticate and the
office or agency where the Debenture is presented shall deliver to the holder
thereof, at the expense of the Company, a new Debenture of authorized
denomination in principal amount equal to the unredeemed portion of the
Debenture so presented.
SECTION 3.6 NO SINKING FUND.
The Debentures are not entitled to the benefit of any sinking fund.
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1 EXTENSION OF INTEREST PAYMENT PERIOD.
The Company shall have the right, at any time and from time to time
during the term of the Debentures so long as no Event of Default has occurred
and is continuing, to defer payments of interest by extending the interest
payment period of such Debentures for a period not exceeding 20 consecutive
quarters (the "Extended Interest Payment Period"), during which Extended
Interest Payment Period no interest shall be due and payable; provided that
no Extended Interest Payment Period may extend beyond the Maturity Date or
end on a date other than an Interest Payment Date. To the extent permitted by
applicable law, interest, the payment of which has been deferred because of
the extension of the interest payment period pursuant to this Section 4.1,
shall bear interest thereon at the Coupon Rate compounded quarterly for each
quarter of the Extended Interest Payment Period ("Compounded Interest"). At
the end of the Extended Interest Payment Period, the Company shall calculate
(and deliver such calculation to the Trustee) and pay all interest accrued
and unpaid on the Debentures, including any Additional Interest and
Compounded Interest (together, "Deferred Interest") that shall be payable to
the holders of the Debentures in whose names the Debentures are registered in
the Debenture Register on the first record date after the end of the Extended
Interest Payment Period. Before the termination of any Extended Interest
Payment Period, the Company may further extend such period so long as no
Event of Default has occurred and is continuing, provided that such period
together with all such further extensions thereof shall not exceed 20
consecutive quarters, or extend beyond the Maturity Date of the Debentures or
end on a date other than an Interest Payment Date. Upon the termination of
any Extended Interest Payment Period and upon the payment of all Deferred
Interest then due, the Company may commence a new Extended Interest Payment
Period, subject to the foregoing requirements. No interest shall be due and
payable during an Extended Interest Payment Period, except at the end
thereof, but the Company may prepay at any time all or any portion of the
interest accrued during an Extended Interest Payment Period.
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SECTION 4.2 NOTICE OF EXTENSION.
(a) If the Property Trustee is the only registered holder of the
Debentures at the time the Company selects an Extended Interest Payment
Period, the Company shall give written notice to the Administrative Trustees,
the Property Trustee and the Trustee of its selection of such Extended
Interest Payment Period two Business Days before the earlier of (i) the next
succeeding date on which Distributions on the Trust Securities issued by the
Trust are payable; or (ii) the date the Trust is required to give notice of
the record date, or the date such Distributions are payable, to the American
Stock Exchange or other applicable self-regulatory organization or to holders
of the Capital Securities issued by the Trust, but in any event at least one
Business Day before such record date.
(b) If the Property Trustee is not the only holder of the Debentures at
the time the Company selects an Extended Interest Payment Period, the Company
shall give the holders of the Debentures and the Trustee written notice of
its selection of such Extended Interest Payment Period at least two Business
Days before the earlier of (i) the next succeeding Interest Payment Date; or
(ii) the date the Company is required to give notice of the record or payment
date of such interest payment to the American Stock Exchange or other
applicable self-regulatory organization or to holders of the Debentures.
(c) The quarter in which any notice is given pursuant to paragraphs (a)
or (b) of this Section 4.2 shall be counted as one of the 20 quarters
permitted in the maximum Extended Interest Payment Period permitted under
Section 4.1.
SECTION 4.3 LIMITATION ON TRANSACTIONS.
If (i) the Company shall exercise its right to defer payment of interest
as provided in Section 4.1; or (ii) there shall have occurred and be
continuing any Event of Default, then (a) the Company shall not declare or
pay any dividend on, make any distributions with respect to, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock (other than as a result of a reclassification of its capital
stock for another class of its capital stock); (b) the Company shall not make
any payment of interest, principal or premium, if any, or repay, repurchase
or redeem any debt securities issued by the Company which rank pari passu
with or junior to the Debentures or make any guarantee payment with respect
to any guarantee by the Company of the debt securities of any subsidiary of
the Company if such guarantee ranks pari passu with or junior to the
Debentures; provided, however, that notwithstanding the foregoing the Company
may make payments pursuant to its obligations under the Capital Securities
Guarantee; and (c) the Company shall not redeem, purchase or acquire less
than all of the outstanding Debentures or any of the Capital Securities.
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
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SECTION 5.1 PAYMENT OF PRINCIPAL AND INTEREST.
The Company shall duly and punctually pay or cause to be paid the
principal of and interest on the Debentures at the time and place and in the
manner provided herein.
SECTION 5.2 MAINTENANCE OF AGENCY.
So long as any of the Debentures remain Outstanding, the Company shall
maintain, or shall cause to be maintained, an office or agency in New York,
New York or Wilmington, Delaware, and at such other location or locations as
may be designated as provided in this Section 5.2, where (i) Debentures may
be presented for payment; (ii) Debentures may be presented as hereinabove
authorized for registration of transfer and exchange; and (iii) notices and
demands to or upon the Company in respect of the Debentures and this
Indenture may be given or served, such designation to continue with respect
to such office or agency until the Company shall, by written notice signed by
its President or an Executive Vice President and delivered to the Trustee,
designate some other office or agency for such purposes or any of them. If at
any time the Company shall fail to maintain any such required office or
agency or shall fail to furnish the Trustee with the address thereof, such
presentations, notices and demands may be made or served at the Corporate
Trust Office of the Trustee, and the Company hereby appoints the Trustee as
its agent to receive all such presentations, notices and demands. In
addition to any such office or agency, the Company may from time to time
designate one or more offices or agencies outside of New York, New York or
Wilmington, Delaware where the Debentures may be presented for registration
or transfer and for exchange in the manner provided herein, and the Company
may from time to time rescind such designation as the Company may deem
desirable or expedient; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to
maintain any such office or agency in New York, New York or Wilmington,
Delaware for the purposes above mentioned. The Company shall give the
Trustee prompt written notice of any such designation or rescission thereof.
SECTION 5.3 PAYING AGENTS.
(a) The Company shall be the initial paying agent. If the Company shall
appoint one or more paying agents for the Debentures, other than the Trustee,
the Company shall cause each such paying agent to execute and deliver to the
Trustee an instrument in which such agent shall agree with the Trustee,
subject to the provisions of this Section 5.3:
(i) that it shall hold all sums held by it as such agent for the
payment of the principal of or interest on the Debentures
(whether such sums have been paid to it by the Company or by
any other obligor of such Debentures) in trust for the
benefit of the Persons entitled thereto;
(ii) that it shall give the Trustee notice of any failure by the
Company (or by any other obligor of such Debentures) to make
any payment of the
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principal of or interest on the Debentures when the same
shall be due and payable;
(iii) that it shall, at any time during the continuance of any
failure referred to in the preceding paragraph (a)(ii)
above, upon the written request of the Trustee, forthwith
pay to the Trustee all sums so held in trust by such paying
agent; and
(iv) that it shall perform all other duties of paying agent as
set forth in this Indenture.
(b) If the Company shall act as its own paying agent with respect to
the Debentures, it shall on or before each due date of the principal of or
interest on such Debentures, set aside, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay such
principal or interest so becoming due on Debentures until such sums shall be
paid to such Persons or otherwise disposed of as herein provided and shall
promptly notify the Trustee of such action, or any failure (by it or any
other obligor on such Debentures) to take such action. Whenever the Company
shall have one or more paying agents for the Debentures, it shall, prior to
each due date of the principal of or interest on any Debentures, deposit with
the paying agent a sum sufficient to pay the principal or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal or interest, and (unless such paying agent is the
Trustee) the Company shall promptly notify the Trustee of this action or
failure so to act.
(c) Notwithstanding anything in this Section 5.3 to the contrary, (i)
the agreement to hold sums in trust as provided in this Section 5.3 is
subject to the provisions of Section 13.3 and 13.4; and (ii) the Company may
at any time, for the purpose of obtaining the satisfaction and discharge of
this Indenture or for any other purpose, pay, or direct any paying agent to
pay, to the Trustee all sums held in trust by the Company or such paying
agent, such sums to be held by the Trustee upon the same terms and conditions
as those upon which such sums were held by the Company or such paying agent;
and, upon such payment by any paying agent to the Trustee, such paying agent
shall be released from all further liability with respect to such money.
SECTION 5.4 APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE.
The Company, whenever necessary to avoid or fill a vacancy in the office
of Trustee, shall appoint, in the manner provided in Section 9.10, a Trustee,
so that there shall at all times be a Trustee hereunder.
SECTION 5.5 COMPLIANCE WITH CONSOLIDATION PROVISIONS.
The Company shall not, while any of the Debentures remain outstanding,
consolidate with, or merge into, or merge into itself, or sell or convey all
or substantially all of its property to any other company unless the
provisions of Article XII hereof are complied with.
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SECTION 5.6 LIMITATION ON TRANSACTIONS.
If Debentures are issued to the Trust or a Trustee of the Trust in
connection with the issuance of Trust Securities by the Trust and (i) there
shall have occurred any event that would constitute an Event of Default; (ii)
the Company shall be in default with respect to any of its obligations under
the Capital Securities Guarantee relating to the Trust; or (iii) the Company
shall have given notice of its election to defer payments of interest on such
Debentures by extending the interest payment period as provided in this
Indenture and such period, or any extension thereof, shall be continuing,
then (a) the Company shall not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than as
a result of a reclassification of its capital stock); and (b) the Company
shall not make any payment of interest, principal or premium, if any, or
repay, repurchase or redeem any debt securities issued by the Company which
rank pari passu with or junior to the Debentures or make any guarantee
payments with respect to any guarantee by the Company of the debt securities
of any subsidiary of the Company if such guarantee ranks pari passu with or
junior in interest to the Debentures; provided, however, that the Company may
make payments pursuant to its obligations under the Capital Securities
Guarantee; and (c) the Company shall not redeem, purchase or acquire less
than all of the outstanding Debentures or any of the Capital Securities.
SECTION 5.7 COVENANTS AS TO THE TRUST.
For so long as such Trust Securities of the Trust remain outstanding,
the Company shall (i) maintain 100% direct or indirect ownership of the
Common Securities of the Trust; provided, however, that any permitted
successor of the Company under this Indenture may succeed to the Company's
ownership of the Common Securities; (ii) not voluntarily terminate, wind up
or liquidate the Trust, except upon prior approval of the Federal Reserve if
then so required under applicable capital guidelines, policies or regulations
of the Federal Reserve and use its reasonable efforts to cause the Trust (a)
to remain a business trust (and to avoid involuntary termination, winding up
or liquidation), except in connection with a distribution of Debentures, the
redemption of all of the Trust Securities of the Trust or certain mergers,
consolidations or amalgamations, each as permitted by the Trust Agreement;
and (b) to otherwise continue not to be treated as an association taxable as
a corporation or partnership for United States federal income tax purposes;
and (iii) use its reasonable efforts to cause each holder of Trust Securities
to be treated as owning an individual beneficial interest in the Debentures.
In connection with the distribution of the Debentures to the holders of the
Capital Securities issued by the Trust upon a Dissolution Event, the Company
shall use its best efforts to list such Debentures on the American Stock
Exchange or on such exchange or self regulatory organization as the Capital
Securities are then listed.
SECTION 5.8 COVENANTS AS TO PURCHASES.
Prior to June 30, 2004, the Company shall not purchase any Debentures,
in whole or in part, from the Trust.
SECTION 5.9 WAIVER OF USURY, STAY OR EXTENSION LAWS.
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The Company shall 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 performances 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
DEBENTUREHOLDERS' LISTS AND REPORTS
BY THE COMPANY AND THE TRUSTEE
SECTION 6.1 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
DEBENTUREHOLDERS.
The Company shall furnish or cause to be furnished to the Trustee (a) on
a quarterly basis on each regular record date (as described in Section 2.5) a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the holders of the Debentures as of such regular record date,
provided that the Company shall not be obligated to furnish or cause to
furnish such list at any time that the list shall not differ in any respect
from the most recent list furnished to the Trustee by the Company (in the
event the Company fails to provide such list on a quarterly basis, the
Trustee shall be entitled to rely on the most recent list provided by the
Company); and (b) at such other times as the Trustee may request in writing
within 30 days after the receipt by the Company of any such request, a list
of similar form and content as of a date not more than 15 days prior to the
time such list is furnished; provided, however, that, in either case, no such
list need be furnished if the Trustee shall be the Debenture Registrar.
SECTION 6.2 PRESERVATION OF INFORMATION COMMUNICATIONS WITH
DEBENTUREHOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders of
Debentures contained in the most recent list furnished to it as provided in
Section 6.1 and as to the names and addresses of holders of Debentures
received by the Trustee in its capacity as registrar for the Debentures (if
acting in such capacity).
(b) The Trustee may destroy any list furnished to it as provided in
Section 6.1 upon receipt of a new list so furnished.
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(c) Debentureholders may communicate as provided in Section 312(b) of
the Trust Indenture Act with other Debentureholders with respect to their
rights under this Indenture or under the Debentures.
SECTION 6.3 REPORTS BY THE COMPANY.
(a) The Company covenants and agrees to file with the Trustee, within
15 days after the Company is required to file the same with the Commission,
copies of the annual reports and of the information, documents and other
reports (or copies of such portions of any of the foregoing as the Commission
may from time to time by rules and regulations prescribe) that the Company
may be required to file with the Commission pursuant to Section 13 or Section
15(d) of the Exchange Act; or, if the Company is not required to file
information, documents or reports pursuant to either of such sections, then
to file with the Trustee and the
(b) Commission, in accordance with the rules and regulations prescribed
from time to time by the Commission, such of the supplementary and periodic
information, documents and reports that may be required pursuant to Section
13 of the Exchange Act in respect of a security listed and registered on a
national securities exchange or the applicable self-regulatory organization
as may be prescribed from time to time in such rules and regulations.
(c) The Company covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from to
time by the Commission, such additional information, documents and reports
with respect to compliance by the Company with the conditions and covenants
provided for in this Indenture as may be required from time to time by such
rules and regulations.
(d) The Company covenants and agrees to transmit by mail, first class
postage prepaid, or the reputable over-night delivery service that provides
for evidence of receipt, to the Debentureholders, as their names and
addresses appear upon the Debenture Register, within 30 days after the filing
thereof with the Trustee, such summaries of any information, documents and
reports required to be filed by the Company pursuant to subsections (a) and
(b) of this Section 6.3 as may be required by rules and regulations
prescribed from time to time by the Commission.
SECTION 6.4 REPORTS BY THE TRUSTEE.
(a) On or before July 15 in each year in which any of the Debentures
are Outstanding, the Trustee shall transmit by mail, first class postage
prepaid, to the Debentureholders, as their names and addresses appear upon
the Debenture Register, a brief report dated as of the preceding May 15, if
and to the extent required under Section 313(a) of the Trust Indenture Act.
(b) The Trustee shall comply with Section 313(b) and 313(c) of the
Trust Indenture Act.
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(c) A copy of each such report shall, at the time of such transmission
to Debentureholders, be filed by the Trustee with the Company, with each
stock exchange or applicable self-regulatory organization upon which any
Debentures are listed (if so listed) and also with the Commission. The
Company agrees to notify the Trustee when any Debentures become listed on any
stock exchange applicable self-regulatory organization.
ARTICLE VII
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON EVENT OF DEFAULT
SECTION 7.1 EVENTS OF DEFAULT.
(a) Whenever used herein with respect to the Debentures, "Event of
Default" means any one or more of the following events that has occurred and
is continuing:
(i) the Company defaults in the payment of any installment of
interest upon any of the Debentures, as and when the same
shall become due and payable, and continuance of such
default for a period of 30 days; provided, however, that a
valid extension of an interest payment period by the Company
in accordance with the terms of this Indenture shall not
constitute a default in the payment of interest for this
purpose;
(ii) the Company defaults in the payment of the principal on the
Debentures as and when the same shall become due and payable
whether at maturity, upon redemption, by declaration or
otherwise; provided, however, that a valid extension of the
maturity of such Debentures in accordance with the terms of
this Indenture shall not constitute a default in the payment
of principal;
(iii) the Company fails to observe or perform any other of its
covenants or agreements with respect to the Debentures for a
period of 90 days after the date on which written notice of
such failure, requiring the same to be remedied and stating
that such notice is a "Notice of Default" hereunder, shall
have been given to the Company by the Trustee, by registered
or certified mail, or to the Company and the Trustee by the
holders of at least 25% in principal amount of the
Debentures at the time Outstanding;
(iv) the Company pursuant to or within the meaning of any
Bankruptcy Law (i) commences a voluntary case; (ii) consents
to the entry of an order for relief against it in an
involuntary case; (iii) consents to the appointment
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of a Custodian of it or for all or substantially all of its
property; or (iv) makes a general assignment for the benefit
of its creditors;
(v) a court of competent jurisdiction enters an order under any
Bankruptcy Law that (i) is for relief against the Company in
an involuntary case; (ii) appoints a Custodian of the
Company for all or substantially all of its property; or
(iii) orders the liquidation of the Company, and the order
or decree remains unstayed and in effect for 90 days; or
(vi) the Trust shall have voluntarily or involuntarily dissolved,
wound-up its business or otherwise terminated its existence
except in connection with (i) the distribution of Debentures
to holders of Trust Securities in liquidation of their
interests in the Trust; (ii) the redemption of all of the
outstanding Trust Securities of the Trust; or
(vii) certain mergers, consolidations or amalgamations, each as
permitted by the Trust Agreement.
(b) In each and every such case, unless the principal of all the
Debentures shall have already become due and payable, either the Trustee or
the holders of not less than 25% in aggregate principal amount of the
Debentures then Outstanding hereunder, by notice in writing to the Company
(and to the Trustee if given by such Debentureholders) may declare the
principal of all the Debentures to be due and payable immediately, and upon
any such declaration the same shall become and shall be immediately due and
payable, notwithstanding anything contained in this Indenture or in the
Debentures.
(c) At any time after the principal of the Debentures shall have been
so declared due and payable, and before any judgment or decree for the
payment of the moneys due shall have been obtained or entered as hereinafter
provided, the holders of a majority in aggregate principal amount of the
Debentures then Outstanding hereunder, by written notice to the Company and
the Trustee, may rescind and annul such declaration and its consequences if:
(i) the Company has paid or deposited with the Trustee a sum sufficient to
pay all matured installments of interest upon all the Debentures and the
principal of any and all Debentures that shall have become due otherwise than
by acceleration (with interest upon such principal, and, to the extent that
such payment is enforceable under applicable law, upon overdue installments
of interest, at the rate per annum expressed in the Debentures to the date of
such payment or deposit) and the amount payable to the Trustee under Section
9.6; and (ii) any and all Events of Default under this Indenture, other than
the nonpayment of principal on Debentures that shall not have become due by
their terms, shall have been remedied or waived as provided in Section 7.6.
No such rescission and annulment shall extend to or shall affect any
subsequent default or impair any right consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any right with
respect to Debentures under this Indenture and such proceedings shall have
been discontinued or abandoned because of such rescission or annulment or for
any other reason or shall have been determined adversely to the Trustee, then
and in every such case the Company and the Trustee
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shall be restored respectively to their former positions and rights
hereunder, and all rights, remedies and powers of the Company and the Trustee
shall continue as though no such proceedings had been taken.
SECTION 7.2 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
(a) The Company covenants that (1) in case it shall default in the
payment of any installment of interest on any of the Debentures, and such
default shall have continued for a period of 90 Business Days; or (2) in case
it shall default in the payment of the principal of any of the Debentures
when the same shall have become due and payable, whether upon maturity of the
Debentures or upon redemption or upon declaration or otherwise, the, upon
demand of the Trustee, the Company shall pay to the Trustee, for the benefit
of the holders of the Debentures, the whole amount that then shall have been
become due and payable on all such Debentures for principal or interest, or
both, as the case may be, with interest upon the overdue principal and (to
the extent that payment of such interest is enforceable under applicable law
and, if the Debentures are held by the Trust or a trustee of the Trust,
without duplication of any other amounts paid by the Trust or trustee in
respect thereof) upon overdue installments of interest at the rate per annum
expressed in the Debentures; and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, and the
amount payable to the Trustee under Section 9.7.
(b) If the Company shall fail to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust,
shall be entitled and empowered to institute any action or proceedings at law
or in equity for the collection of the sums so due and unpaid, and may
prosecute any such action or proceeding to judgment or final decree, and may
enforce any such judgment or final decree against the Company or other
obligor upon the Debentures and collect the moneys adjudged or decreed to be
payable in the manner provided by law out of the property of the Company or
other obligor upon the Debentures, wherever situated.
(c) In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, readjustment, arrangement, composition or judicial
proceedings affecting the Company or the creditors or property of either, the
Trustee shall have power to intervene in such proceedings and take any action
therein that may be permitted by the court and shall (except as may be
otherwise provided by law) be entitled to file such proofs of claim and other
papers and documents as may be necessary or advisable in order to have the
claims of the Trustee and of the holders of the Debentures allowed for the
entire amount due and payable by the Company under this Indenture at the date
of institution of such proceedings and for any additional amount that may
become due and payable by the Company after such date, and to collect and
receive any moneys or other property payable or deliverable on any such
claim, and to distribute the same after the deduction of the amount payable
to the Trustee under Section 9.7; and any receiver, assignee or trustee in
bankruptcy or reorganization is hereby authorized by each of the holders of
the Debentures to make such payments to the Trustee, and, in the event that
the Trustee shall consent to the making of such payments directly to such
Debentureholders, to pay to the Trustee any amount due it under Section 9.7.
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(d) All rights of action and of asserting claims under this Indenture,
or under any of the terms established with respect to Debentures, may be
enforced by the Trustee without the possession of any of such Debentures, or
the production thereof at any trial or other proceeding relative thereto, and
any such suit or proceeding instituted by the Trustee shall be brought in its
own name as trustee of an express trust, and any recovery of judgment shall,
after provision for payment to the Trustee of any amounts due under Section
9.7, be for the ratable benefit of the holders of the Debentures. In case of
an Event of Default hereunder, the Trustee may in its discretion proceed to
protect and enforce the rights vested in it by this Indenture by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any of such rights, either at law or in equity or in
bankruptcy or otherwise, whether for the specific enforcement of any covenant
or agreement contained in this Indenture or in aid of the exercise of any
power granted in this Indenture, or to enforce any other legal or equitable
right vested in the Trustee by this Indenture or by law. Nothing contained
herein shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Debentureholder any plan of reorganization,
arrangement, adjustment or composition affecting the Debentures or the rights
of any holder thereof or to authorize the Trustee to vote in respect of the
claim of any Debentureholder in any such proceeding.
SECTION 7.3 APPLICATION OF MONEYS COLLECTED.
Any moneys or other assets collected by the Trustee pursuant to this
Article VII with respect to the Debentures shall be applied in the following
order, at the date or dates fixed by the Trustee and, in case of the
distribution of such moneys or other assets on account of principal or
interest, upon presentation of the Debentures, and notation thereon the
payment, if only partially paid, and upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses of collection and of all
amounts payable to the Trustee under Section 9.6;
SECOND: To the payment of all Senior Indebtedness of the Company if and
to the extent required by Article XVI; and
THIRD: To the payment of the amounts then due and unpaid upon the
Debentures for principal and interest, in respect of which or for the benefit
of which such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable on such
Debentures for principal and interest, respectively.
SECTION 7.4 LIMITATION ON SUITS.
(a) Except as set forth herein, no holder of any Debenture shall have
any right by virtue or by availing of any provision of this Indenture to
institute any suit, action or proceeding in equity or at law upon or under or
with respect to this Indenture or for the appointment of a receiver or
trustee, or for any other remedy hereunder, unless (i) such holder previously
shall have given to the Trustee written notice of an Event of Default and of
the continuance thereof with respect to the Debentures specifying such Event
of Default, as hereinbefore provided; (ii) the holders of not less than 25%
in aggregate principal amount of
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the Debentures then Outstanding shall have made written request upon the
Trustee to institute such action, suit or proceeding in its own name as
trustee hereunder; (iii) such holder or holders shall have offered to the
Trustee such reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred therein or thereby; (iv) the Trustee
for 60 days after its receipt of such notice, request and offer of indemnity,
shall have failed to institute any such action, suit or proceeding; and (v)
during such 60 day period, the holders of a majority in principal amount of
the Debentures do not give the Trustee a direction inconsistent with the
request.
(b) Notwithstanding anything contained herein to the contrary or any
other provisions of this Indenture, the right of any holder of the Debentures
to receive payment of the principal of and interest on the Debentures, as
therein provided, on or after the respective due dates expressed in such
Debenture (or in the case of redemption, on the redemption date), or to
institute suit for the enforcement of any such payment on or after such
respective dates or redemption date, shall not be impaired or affected
without the consent of such holder and by accepting a Debenture hereunder it
is expressly understood, intended and covenanted by the taker and holder of
every Debenture with every other such taker and holder and the Trustee, that
no one or more holders of Debentures shall have any right in any manner
whatsoever by virtue or by availing of any provision of this Indenture to
affect, disturb or prejudice the rights of the holders of any other of such
Debentures, or to obtain or seek to obtain priority over or preference to any
other such holder, or to enforce any right under this Indenture, except in
the manner herein provided and for the equal, ratable and common benefit of
all holders of Debentures. For the protection and enforcement of the
provisions of this Section 7.4, each and every Debentureholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
SECTION 7.5 RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER.
(a) Except as otherwise provided in Section 2.9, all powers and
remedies given by this Article VII to the Trustee or to the Debentureholders
shall, to the extent permitted by law, be deemed cumulative and not exclusive
of any other powers and remedies available to the Trustee or the holders of
the Debentures, by judicial proceedings or otherwise, to enforce the
performance or observance of the covenants and agreements contained in this
Indenture or otherwise established with respect to such Debentures.
(b) No delay or omission of the Trustee or of any holder of any of the
Debentures to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power,
or shall be construed to be a waiver of any such default or on acquiescence
therein; and, subject to the provisions of Section 7.4, every power and
remedy given by this Article VII or by law to the Trustee or the
Debentureholders may be exercised from time to time, and as often as shall be
deemed expedient, by the Trustee or by the Debentureholders.
SECTION 7.6 CONTROL BY DEBENTUREHOLDERS.
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The holders of a majority in aggregate principal amount of the
Debentures at the time Outstanding, determined in accordance with Section
10.4, shall have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred on the Trustee; provided, however, that such
direction shall not be in conflict with any rule of law or with this
Indenture. Subject to the provisions of Section 9.1, the Trustee shall have
the right to decline to follow any such direction if the Trustee in good
faith shall, by a Responsible Officer or Officers of the Trustee, determine
that the proceeding so directed would involve the Trustee in personal
liability. The holders of a majority in aggregate principal amount of the
Debentures at the time Outstanding affected thereby, determined in accordance
with Section 10.4, may on behalf of the holders of all of the Debentures
waive any past default in the performance of any of the covenants contained
herein and its consequences, except (i) a default in the payment of the
principal of or interest on, any of the Debentures as and when the same shall
become due by the terms of such Debentures otherwise than by acceleration
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal has been deposited with the Trustee
(in accordance with Section 7.1(c)); (ii) a default in the covenants
contained in Section 5.6; or (iii) in respect of a covenant or provision
hereof which cannot be modified or amended without the consent of the holder
of each Outstanding Debenture affected; provided, however, that if the
Debentures are held by the Trust or a trustee of the Trust, such waiver or
modification to such waiver shall not be effective until the holders of a
majority in liquidation preference of Trust Securities of the Trust shall
have consented to such waiver or modification to such waiver; provided
further, that if the consent of the holder of each Outstanding Debenture is
required, such waiver shall not be effective until each holder of the Trust
Securities of the Trust shall have consented to such waiver. Upon any such
waiver, the default covered thereby shall be deemed to be cured for all
purposes of this Indenture and the Company, the Trustee and the holders of
the Debentures shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 7.7 UNDERTAKING TO PAY COSTS.
All parties to this Indenture agree, and each holder of any Debentures
by such holder's acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for
any action taken or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having
due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section 7.7 shall not apply
to any suit instituted by the Trustee, to any suit instituted by any
Debentureholder, or group of Debentureholders holding more than 10% in
aggregate principal amount of the Outstanding Debentures, or to any suit
instituted by any Debentureholder for the enforcement of the payment of the
principal of or interest on the Debentures, on or after the respective due
dates expressed in such Debenture or established pursuant to this Indenture.
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SECTION 7.8 DIRECT ACTION; RIGHT OF SET-OFF.
In the event that an Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest on
or principal of the Debentures on the payment date on which such payment is
due and payable, then a holder of Capital Securities may institute a legal
proceeding directly against the Company for enforcement of payment to such
holder of the principal of or interest on such Debentures having a principal
amount equal to the aggregate Liquidation Amount of the Capital Securities of
such holders (a "Direct Action"). In connection with such Direct Action, the
Company will have a right of set-off under this Indenture to the extent of
any payment made by the Company to such holder of the Capital Securities with
respect to such Direct Action.
ARTICLE VIII
FORM OF DEBENTURE AND ORIGINAL ISSUE
SECTION 8.1 FORM OF DEBENTURE.
The Debenture and the Trustee's Certificate of Authentication to be
endorsed thereon are to be substantially in the forms contained as Exhibit A
to this Indenture, attached hereto and incorporated herein by reference.
SECTION 8.2 ORIGINAL ISSUE OF DEBENTURES.
Debentures in the aggregate principal amount of $12,380,000 may, upon
execution of this Indenture, be executed by the Company and delivered to the
Trustee for authentication. The Trustee shall thereupon authenticate and
deliver said Debentures to or upon the written order of the Company, signed
by its President, or any Vice President and its Treasurer or an Assistant
Treasurer, without any further action by the Company.
ARTICLE IX
CONCERNING THE TRUSTEE
SECTION 9.1 CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE.
(a) The Trustee, prior to the occurrence of an Event of Default and
after the curing of all Events of Default that may have occurred, shall
undertake to perform with respect to the Debentures such duties and only such
duties as are specifically set forth in this Indenture, and
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no implied covenants shall be read into this Indenture against the Trustee.
In case an Event of Default has occurred that has not been cured or waived,
the Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent Person would exercise or use under the circumstances in the conduct
of its own affairs.
(b) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default that may
have occurred:
(1) the duties and obligations of the Trustee shall with
respect to the Debentures be determined solely by the
express provisions of this Indenture, and the Trustee
shall not be liable with respect to the Debentures
except for the performance of such duties and
obligations as are specifically set forth in this
Indenture, and no implied covenants or obligations
shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on the part of the
Trustee, the Trustee may with respect to the
Debentures conclusively rely, as to the truth of the
statements and the correctness of the opinions
expressed therein, upon any certificates or opinions
furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of
any such certificates or opinions that by any
provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under
a duty to examine the same to determine whether or
not they conform to the requirements of this
Indenture;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in
accordance with the direction of the holders of not less
than a majority in principal amount of the Debentures at the
time Outstanding relating to the time, method and place of
conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the
Trustee under this Indenture with respect to the Debentures;
and
(iv) none of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or
otherwise incur personal financial liability in the
performance of any of its duties or in the exercise of any
of its rights or powers, if there is reasonable ground for
believing that the repayment of such funds or
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liability is not reasonably assured to it under the terms of
this Indenture or adequate indemnity against such risk is
not reasonably assured to it.
SECTION 9.2 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 the
Debentures, as their names and addresses appear in the Debenture Register,
notice of such default, unless such default shall have been cured or waived;
provided, however, that, except in the case default in the payment of the
principal or interest (including any Additional Interest) on any Debenture,
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 the
directors and/or Responsible Officers of the Trustee determines in good faith
that the withholding of such notice is in the interests of the holders of
such Debentures; and provided, further, that in the case of any default of
the character specified in Section 7.1(a)(3), no such notice to holders of
Debentures need be sent until at least 30 days after the occurrence thereof.
For the purposes of this Section 9.2, the term "default" means any event
which is, or after notice or lapse of time or both, would become, an Event of
Default with respect to the Debentures.
SECTION 9.3 CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 9.1:
(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, consent, order, approval, bond, security or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) Any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by a Board Resolution or an instrument
signed in the name of the Company by its President or any Vice President and
by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer thereof (unless other evidence in respect thereof is specifically
prescribed herein);
(c) The Trustee shall not be deemed to have knowledge of a default or
an Event of Default, other than an Event of Default specified in Section
7.1(a)(i); or (ii), unless and until it receives written notification of such
Event of Default from the Company or by holders of at least 25% of the
aggregate principal amount of the Debentures at the time Outstanding;
(d) The Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or omitted
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, order or
direction of any of the Debentureholders,
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pursuant to the provisions of this Indenture, unless such Debentureholders
shall have offered to the Trustee reasonable security or indemnity against
the costs, expenses and liabilities that may be incurred therein or thereby;
nothing contained herein shall, however, relieve the Trustee of the
obligation, upon the occurrence of an Event of Default (that has not been
cured or waived) to exercise with respect to the Debentures such of the
rights and powers vested in it by this Indenture, and to use the same degree
of care and skill in their exercise, as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs;
(f) The Trustee shall not be liable for any action taken or omitted to
be taken by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture;
(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
security, or other papers or documents, unless requested in writing so to do
by the holders of not less than a majority in principal amount of the
Outstanding Debentures (determined as provided in Section 10.4); provided,
however, that if the payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by it in the making of
such investigation is, in the opinion of the Trustee, not reasonably assured
to the Trustee by the security afforded to it by the terms of this Indenture,
the Trustee may require reasonable indemnity against such costs, expenses or
liabilities as a condition to so proceeding. The reasonable expense of every
such examination shall be paid by the Company or, if paid by the Trustee,
shall be repaid by the Company upon demand; and
(h) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 9.4 TRUSTEE NOT RESPONSIBLE FOR RECITALS, ETC.
(a) The Recitals contained herein and in the Debentures shall be taken
as the statements of the Company, and the Trustee assumes no responsibility
for the correctness of the same.
(b) The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Debentures.
(c) The Trustee shall not be accountable for the use or application by
the Company of any of the Debentures or of the proceeds of such Debentures,
or for the use or application of any moneys paid over by the Trustee in
accordance with any provision of this Indenture, or for the use or
application of any moneys received by any paying agent other than the Trustee.
SECTION 9.5 MAY HOLD DEBENTURES.
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The Trustee or any paying agent or registrar for the Debentures, in its
individual or any other capacity, may become the owner or pledgee of
Debentures with the same rights it would have if it were not Trustee, paying
agent or Debenture Registrar.
SECTION 9.6 MONEYS HELD IN TRUST.
Subject to the provisions of Section 13.5, all moneys received by the
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated from
other funds except to the extent required by law. The Trustee shall be under
no liability for interest on any moneys received by it hereunder except such
as it may agree with the Company to pay thereon.
SECTION 9.7 COMPENSATION AND REIMBURSEMENT.
(a) The Company covenants and agrees to pay to the Trustee, and the
Trustee shall be entitled to, such compensation (which shall not be limited
by any provision of law in regard to the compensation of a trustee of an
express trust), as the Company and the Trustee may from time to time agree in
writing, for all services rendered by it in the execution of the trusts
hereby created and in the exercise and performance of any of the powers and
duties hereunder of the Trustee, and, except as otherwise expressly provided
herein, the Company shall pay or reimburse the Trustee upon its request for
all reasonable expenses, disbursements and advances incurred or made by the
Trustee in accordance with any of the provisions of this Indenture (including
the reasonable compensation and the expenses and disbursements of its counsel
and of all Persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence or bad faith. The
Company also covenants to indemnify the Trustee (and its officers, agents,
directors and employees) for, and to hold it harmless against, any loss,
liability, claim, action, suit, cost or expense incurred without negligence
or bad faith on the part of the Trustee and arising out of or in connection
with the acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim of liability in the premises.
(b) The obligations of the Company under this Section 9.7 to compensate
and indemnify the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances shall constitute additional indebtedness
hereunder. Such additional indebtedness shall be secured by a lien prior to
that of the Debentures upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the benefit of the holders of
particular Debentures.
SECTION 9.8 RELIANCE ON OFFICERS' CERTIFICATE.
Except as otherwise provided in Section 9.1, whenever in the
administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking
or suffering or omitting to take any action hereunder, such matter (unless
other evidence in respect thereof be herein specifically prescribed) may, in
the absence of negligence or bad faith on the part of the Trustee, be deemed
to be conclusively proved and established by an Officers' Certificate
delivered to the Trustee and such certificate,
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in the absence of negligence or bad faith on the part of the Trustee, shall
be full warrant to the Trustee for any action taken, suffered or omitted to
be taken by it under the provisions of this Indenture upon the faith thereof.
SECTION 9.9 DISQUALIFICATION: CONFLICTING INTERESTS.
If the Trustee has or shall acquire any "conflicting interest" within
the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the
Company shall in all respects comply with the provisions of Section 310(b) of
the Trust Indenture Act.
SECTION 9.10 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee with respect to the Debentures
issued hereunder which shall at all times be a corporation organized and
doing business under the laws of the United States of America or any State or
Territory thereof or of the District of Columbia, or a corporation or other
Person permitted to act as trustee by the Commission, authorized under such
laws to exercise corporate trust powers, having a combined capital and
surplus of at least $50,000,000, and subject to supervision or examination by
federal, state, territorial, or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant to law
or to the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section 9.10, the combined capital and surplus
of such corporation shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. The Company
may not, nor may any Person directly or indirectly controlling, controlled
by, or under common control with the Company, serve as Trustee. In case at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 9.10, the Trustee shall resign immediately in the
manner and with the effect specified in Section 9.11.
SECTION 9.11 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) The Trustee or any successor hereafter appointed, may at any time
resign by giving written notice thereof to the Company and by transmitting
notice of resignation by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register. Upon receiving such notice of resignation, the Company shall
promptly appoint a successor trustee with respect to Debentures by written
instrument, in duplicate, executed by order of the Board of Directors, one
copy of which instrument shall be delivered to the resigning Trustee and one
copy to the successor trustee. If no successor trustee shall have been so
appointed and have accepted appointment within 30 days after the mailing of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee with
respect to Debentures, or any Debentureholder who has been a bona fide holder
of a Debenture or Debentures for at least six months may, subject to the
provisions of Section 9.9, on behalf of himself and all others similarly
situated, petition any such court for the appointment of a successor trustee.
Such court may thereupon after such notice, if any, as it may deem proper and
prescribe, appoint a successor trustee.
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(b) In case at any time any one of the following shall occur
(i) the Trustee shall fail to comply with the provisions of
Section 9.9 after written request therefor by the Company or
by any Debentureholder who has been a bona fide holder of a
Debenture or Debentures for at least six months; or
(ii) the Trustee shall cease to be eligible in accordance with
the provisions of Section 9.10 and shall fail to resign
after written request therefor by the Company or by any such
Debentureholder; or
the Trustee shall become incapable of acting, or shall be adjudged a bankrupt
or insolvent, or commence a voluntary bankruptcy proceeding, or a receiver of
the Trustee or of its property shall be appointed or consented to, or any
public officer shall take charge or control of the Trustee or of its property
or affairs for the purpose of rehabilitation, conservation or liquidation,
then, in any such case, the Company may remove the Trustee with respect to
all Debentures and appoint a successor trustee by written instrument, in
duplicate, executed by order of the Board of Directors, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to the
successor trustee, or, subject to the provisions of Section 9.9, unless the
Trustee's duty to resign is stayed as provided herein, any Debentureholder
who has been a bona fide holder of a Debenture or Debentures for at least six
months may, on behalf of that holder and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor trustee. Such court may thereupon after
such notice, if any, as it may deem proper and prescribe, remove the Trustee
and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Debentures at the time Outstanding may at any time remove the Trustee by so
notifying the Trustee and the Company and may appoint a successor Trustee
with the consent of the Company.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee with respect to the Debentures pursuant to any of the
provisions of this Section 9.11 shall become effective upon acceptance of
appointment by the successor trustee as provided in Section 9.12.
(e) Any successor trustee appointed pursuant to this Section 9.11 may
be appointed with respect to the Debentures, and at any time there shall be
only one Trustee with respect to the Debentures.
SECTION 9.12 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor trustee with
respect to the Debentures, every 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
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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 successor trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and
confirming to such successor trustee all such rights, powers and trusts
referred to in paragraph (a) of this Section 9.12.
(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 IX.
(d) Upon acceptance of appointment by a successor trustee as provided
in this Section 9.12, the Company shall transmit notice of the succession of
such trustee hereunder by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register. If the Company fails to transmit such notice within ten days after
acceptance of appointment by the successor trustee, the successor trustee
shall cause such notice to be transmitted at the expense of the Company.
SECTION 9.13 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to the corporate trust business of the Trustee,
shall be the successor of the Trustee hereunder, provided that such
corporation shall be qualified under the provisions of Section 9.9 and
eligible under the provisions of Section 9.10, without the execution or
filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding. In case any
Debentures shall have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the
Debentures so authenticated with the same effect as if such successor Trustee
had itself authenticated such Debentures.
SECTION 9.14 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with Section 311(a) of the Trust Indenture Act,
excluding any creditor relationship described in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent included therein.
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ARTICLE X
CONCERNING THE DEBENTUREHOLDERS
SECTION 10.1 EVIDENCE OF ACTION BY HOLDERS.
(a) Whenever in this Indenture it is provided that the holders of a
majority or specified percentage in aggregate principal amount of the
Debentures may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any
other action), the fact that at the time of taking any such action the
holders of such majority or specified percentage have joined therein may be
evidenced by any instrument or any number of instruments of similar tenor
executed by such holders of Debentures in Person or by agent or proxy
appointed in writing.
(b) If the Company shall solicit from the Debentureholders any request,
demand, authorization, direction, notice, consent, waiver or other action,
the Company may, at its option, as evidenced by an Officers' Certificate, fix
in advance a record date for the determination of Debentureholders entitled
to give such request, demand, authorization, direction, notice, consent,
waiver or other action, but the Company shall have no obligation to do so. If
such a record date is fixed, such request, demand, authorization, direction,
notice, consent, waiver or other action may be given before or after the
record date, but only the Debentureholders of record at the close of business
on the record date shall be deemed to be Debentureholders for the purposes of
determining whether Debentureholders of the requisite proportion of
Outstanding Debentures have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other
action, and for that purpose the Outstanding Debentures shall be computed as
of the record date; provided, however, that no such authorization, agreement
or consent by such Debentureholders on the record date shall be deemed
effective unless it shall become effective pursuant to the provisions of this
Indenture not later than six months after the record date.
SECTION 10.2 PROOF OF EXECUTION BY DEBENTUREHOLDERS.
Subject to the provisions of Section 9.1, proof of the execution of any
instrument by a Debentureholder (such proof shall not require notarization)
or his agent or proxy and proof of the holding by any Person of any of the
Debentures shall be sufficient if made in the following manner:
(a) The fact and date of the execution by any such Person of any
instrument may be proved in any reasonable manner acceptable to the Trustee.
(b) The ownership of Debentures shall be proved by the Debenture
Register of such Debentures or by a certificate of the Debenture Registrar
thereof.
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(c) The Trustee may require such additional proof of any matter
referred to in this Section 10.2 as it shall deem necessary.
SECTION 10.3 WHO MAY BE DEEMED OWNERS.
Prior to the due presentment for registration of transfer of any
Debenture, the Company, the Trustee, any paying agent, any Authenticating
Agent and any Debenture Registrar may deem and treat the Person in whose name
such Debenture shall be registered upon the books of the Company as the
absolute owner of such Debenture (whether or not such Debenture shall be
overdue and notwithstanding any notice of ownership or writing thereon made
by anyone other than the Debenture Registrar) for the purpose of receiving
payment of or on account of the principal of and interest on such Debenture
(subject to Section 2.3) and for all other purposes; and neither the Company
nor the Trustee nor any paying agent nor any Authenticating Agent nor any
Debenture Registrar shall be affected by any notice to the contrary.
SECTION 10.4 CERTAIN DEBENTURES OWNED BY COMPANY DISREGARDED.
In determining whether the holders of the requisite aggregate principal
amount of Debentures have concurred in any direction, consent or waiver under
this Indenture, the Debentures that are owned by the Company or any other
obligor on the Debentures or by any Person directly or indirectly controlling
or controlled by or under common control with the Company or any other
obligor on the Debentures shall be disregarded and deemed not to be
Outstanding for the purpose of any such determination, except that for the
purpose of determining whether the Trustee shall be protected in relying on
any such direction, consent or waiver, only Debentures that the Trustee
actually knows are so owned shall be so disregarded. The Debentures so owned
that have been pledged in good faith may be regarded as Outstanding for the
purposes of this Section 10.4, if the pledgee shall establish to the
satisfaction of the Trustee the pledgee's right so to act with respect to
such Debentures and that the pledgee is not a Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the Company or any such other obligor. In case of a dispute as to such right,
any decision by the Trustee taken upon the advice of counsel shall be full
protection to the Trustee.
SECTION 10.5 ACTIONS BINDING ON FUTURE DEBENTUREHOLDERS.
At any time prior to (but not after) the evidencing to the Trustee, as
provided in Section 10.1, of the taking of any action by the holders of the
majority or percentage in aggregate principal amount of the Debentures
specified in this Indenture in connection with such action, any holder of a
Debenture that is shown by the evidence to be included in the Debentures the
holders of which have consented to such action may, by filing written notice
with the Trustee, and upon proof of holding as provided in Section 10.2,
revoke such action so far as concerns such Debenture. Except as aforesaid any
such action taken by the holder of any Debenture shall be conclusive and
binding upon such holder and upon all future holders and owners of such
Debenture, and of any Debenture issued in exchange therefor, on registration
of transfer thereof or in place thereof, irrespective of whether or not any
notation in regard thereto is
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made upon such Debenture. Any action taken by the holders of the majority or
percentage in aggregate principal amount of the Debentures specified in this
Indenture in connection with such action shall be conclusively binding upon
the Company, the Trustee and the holders of all the Debentures.
ARTICLE XI
SUPPLEMENTAL INDENTURES
SECTION 11.1 SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF
DEBENTUREHOLDERS.
In addition to any supplemental indenture otherwise authorized by this
Indenture, the Company and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto (which shall
conform to the provisions of the Trust Indenture Act as then in effect),
without the consent of the Debentureholders, for one or more of the following
purposes:
(a) to cure any ambiguity, defect, or inconsistency herein, in the
Debentures;
(b) to comply with Article X;
(c) to provide for uncertificated Debentures in addition to or in place
of certificated Debentures;
(d) to add to the covenants of the Company for the benefit of the
holders of all or any of the Debentures or to surrender any right or power
herein conferred upon the Company;
(e) to add to, delete from, or revise the conditions, limitations, and
restrictions on the authorized amount, terms, or purposes of issue,
authentication, and delivery of Debentures, only as herein set forth;
(f) to make any change that does not adversely affect the rights of any
Debentureholder in any material respect;
(g) to provide for the issuance of and establish the form and terms and
conditions of the Debentures, to establish the form of any certifications
required to be furnished pursuant to the terms of this Indenture or of the
Debentures, or to add to the rights of the holders of the Debentures; or
(h) qualify or maintain the qualification of this Indenture under the
Trust Indenture Act. The Trustee is hereby authorized to join with the
Company in the execution of any such supplemental indenture, and to make any
further appropriate agreements and stipulations that may be therein
contained, but the Trustee shall not be obligated to enter into any such
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supplemental indenture that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise. Any supplemental indenture
authorized by the provisions of this Section 11.1 may be executed by the
Company and the Trustee without the consent of the holders of any of the
Debentures at the time Outstanding, notwithstanding any of the provisions of
Section 11.2.
SECTION 11.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS.
With the consent (evidenced as provided in Section 10.1) of the holders
of not less than a majority in aggregate principal amount of the Debentures
at the time Outstanding, the Company, when authorized by Board Resolutions,
and the Trustee may from time to time and at any time enter into an indenture
or indentures supplemental hereto (which shall conform to the provisions of
the Trust Indenture Act as then in effect) for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of this Indenture or of any supplemental indenture or of modifying in any
manner not covered by Section 11.1 the rights of the holders of the
Debentures under this Indenture; provided, however, that no such supplemental
indenture shall without the consent of the holders of each Debenture then
Outstanding and affected thereby, (i) extend the fixed maturity of any
Debentures, reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon, without the consent of the holder of
each Debenture so affected; or (ii) reduce the aforesaid percentage of
Debentures, the holders of which are required to consent to any such
supplemental indenture; provided further, that if the Debentures are held by
the Trust or a trustee of the Trust, such supplemental indenture shall not be
effective until the holders of a majority in liquidation preference of Trust
Securities of the Trust shall have consented to such supplemental indenture;
provided further, that if the consent of the holder of each Outstanding
Debenture is required, such supplemental indenture shall not be effective
until each holder of the Trust Securities of the Trust shall have consented
to such supplemental indenture. It shall not be necessary for the consent of
the Debentureholders affected thereby under this Section 11.2 to approve the
particular form of any proposed supplemental indenture, but it shall be
sufficient if such consent shall approve the substance thereof.
SECTION 11.3 EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture pursuant to the
provisions of this Article XI, this Indenture shall be and be deemed to be
modified and amended in accordance therewith and the respective rights,
limitations of rights, obligations, duties and immunities under this
Indenture of the Trustee, the Company and the holders of Debentures shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and
conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
SECTION 11.4 DEBENTURES AFFECTED BY SUPPLEMENTAL INDENTURES.
Debentures affected by a supplemental indenture, authenticated and
delivered after the execution of such supplemental indenture pursuant to the
provisions of this Article XI, may
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bear a notation in form approved by the Company, provided such form meets the
requirements of any exchange upon which the Debentures may be listed, as to
any matter provided for in such supplemental indenture. If the Company shall
so determine, new Debentures so modified as to conform, in the opinion of the
Board of Directors of the Company, to any modification of this Indenture
contained in any such supplemental indenture may be prepared by the Company,
authenticated by the Trustee and delivered in exchange for the Debentures
then Outstanding.
SECTION 11.5 EXECUTION OF SUPPLEMENTAL INDENTURES.
(a) Upon the request of the Company, accompanied by their Board
Resolutions authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of
Debentureholders required to consent thereto as aforesaid, the Trustee shall
join with the Company in the execution of such supplemental indenture unless
such supplemental indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may
in its discretion but shall not be obligated to enter into such supplemental
indenture. The Trustee, subject to the provisions of Sections 9.1, may
receive an Opinion of Counsel as conclusive evidence that any supplemental
indenture executed pursuant to this Article XI is authorized or permitted by,
and conforms to, the terms of this Article XI and that it is proper for the
Trustee under the provisions of this Article XI to join in the execution
thereof.
(b) Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section 11.5, the
trustee shall transmit by mail, first class postage prepaid, a notice,
setting forth in general terms the substance of such supplemental indenture,
to the Debentureholders as their names and addresses appear upon the
Debenture Register. Any failure of the Trustee to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity
of any such supplemental indenture.
ARTICLE XII
SUCCESSOR CORPORATION
SECTION 12.1 COMPANY MAY CONSOLIDATE, ETC.
Nothing contained in this Indenture or in any of the Debentures shall
prevent any consolidation or merger of the Company with or into any other
corporation or corporations (whether or not affiliated with the Company, as
the case may be), or successive consolidations or mergers in which the
Company, as the case may be, or its successor or successors shall be a party
or parties, or shall prevent any sale, conveyance, transfer or other
disposition of the property of the Company, as the case may be, or its
successor or successors as an entirety, or substantially as an entirety, to
any other corporation (whether or not affiliated with the
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Company, as the case may be, or its successor or successors) authorized to
acquire and operate the same; provided, however, the Company hereby covenants
and agrees that, (i) upon any such consolidation, merger, sale, conveyance,
transfer or other disposition, the due and punctual payment, in the case of
the Company, of the principal of and interest on all of the Debentures,
according to their tenor and the due and punctual performance and observance
of all the covenants and conditions of this Indenture to be kept or performed
by the Company as the case may be, shall be expressly assumed, by
supplemental indenture (which shall conform to the provisions of the Trust
Indenture Act, as then in effect) satisfactory in form to the Trustee
executed and delivered to the Trustee by the entity formed by such
consolidation, or into which the Company, as the case may be, shall have been
merged, or by the entity which shall have acquired such property; (ii) in
case the Company consolidates with or merges into another Person or conveys
or transfers its properties and assets substantially then as an entirety to
any Person, the successor Person is organized under the laws of the United
States or any state or the District of Columbia; and (iii) immediately after
giving effect thereto, an Event of Default, and no event which, after notice
or lapse of time or both, would become an Event of Default, shall have
occurred and be continuing.
SECTION 12.2 SUCCESSOR CORPORATION SUBSTITUTED.
(a) In case of any such consolidation, merger, sale, conveyance,
transfer or other disposition and upon the assumption by the successor
corporation, by supplemental indenture, executed and delivered to the Trustee
and satisfactory in form to the Trustee, of, in the case of the Company, the
due and punctual payment of the principal of and interest on all of the
Debentures Outstanding and the due and punctual performance of all of the
covenants and conditions of this Indenture to be performed by the Company, as
the case may be, such successor corporation shall succeed to and be
substituted for the Company, with the same effect as if it had been named as
the Company herein, and thereupon the predecessor corporation shall be
relieved of all obligations and covenants under this Indenture and the
Debentures.
(b) In case of any such consolidation, merger, sale, conveyance,
transfer or other disposition such changes in phraseology and form (but not
in substance) may be made in the Debentures thereafter to be issued as may be
appropriate.
(c) Nothing contained in this Indenture or in any of the Debentures
shall prevent the Company from merging into itself or acquiring by purchase
or otherwise all or any part of the property of any other Person (whether or
not affiliated with the Company).
SECTION 12.3 EVIDENCE OF CONSOLIDATION, ETC. TO TRUSTEE.
The Trustee, subject to the provisions of Section 9.1, may receive an
Opinion of Counsel as conclusive evidence that any such consolidation,
merger, sale, conveyance, transfer or other disposition, and any such
assumption, comply with the provisions of this Article XII.
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ARTICLE XIII
SATISFACTION AND DISCHARGE
SECTION 13.1 SATISFACTION AND DISCHARGE OF INDENTURE.
If at any time: (a) the Company shall have delivered to the Trustee for
cancellation all Debentures theretofore authenticated (other than any
Debentures that shall have been destroyed, lost or stolen and that shall have
been replaced or paid as provided in Section 2.9) and Debentures for whose
payment money or Governmental Obligations have theretofore been deposited in
trust or segregated and held in trust by the Company (and thereupon repaid to
the Company or discharged from such trust, as provided in Section 13.5); or
(b) all such Debentures not theretofore delivered to the Trustee for
cancellation shall have become due and payable, or are by their terms to
become due and payable within one year or are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the giving
of notice of redemption, and the Company shall deposit or cause to be
deposited with the Trustee as trust funds the entire amount in moneys or
Governmental Obligations sufficient or a combination thereof, sufficient in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to pay
at maturity or upon redemption all Debentures not theretofore delivered to
the Trustee for cancellation, including principal and interest due or to
become due to such date of maturity or date fixed for redemption, as the case
may be, and if the Company shall also pay or cause to be paid all other sums
payable hereunder by the Company; then this Indenture shall thereupon cease
to be of further effect except for the provisions of Sections 2.3, 2.7, 2.9,
5.1, 5.2, 5.3 and 9.7, that shall survive until the date of maturity or
redemption date, as the case may be, and Sections 9.7 and 13.5, that shall
survive to such date and thereafter, and the Trustee, on demand of the
Company and at the cost and expense of the Company, shall execute proper
instruments acknowledging satisfaction of and discharging this Indenture.
SECTION 13.2 DISCHARGE OF OBLIGATIONS.
If at any time all Debentures not heretofore delivered to the Trustee
for cancellation or that have not become due and payable as described in
Section 13.1 shall have been paid by the Company by depositing irrevocably
with the Trustee as trust funds moneys or an amount of Governmental
Obligations sufficient in the opinion of a nationally recognized certified
public accounting firm to pay at maturity or upon redemption all Debentures
not theretofore delivered to the Trustee for cancellation, including
principal and interest due or to become due to such date of maturity or date
fixed for redemption, as the case may be, and if the Company shall also pay
or cause to be paid all other sums payable hereunder by the Company, then
after the date such moneys or Governmental Obligations, as the case may be,
are deposited with the Trustee, the obligations of the Company under this
Indenture shall cease to be of further effect except for the provisions of
Sections 2.3, 2.7, 2.9, 5.1, 5.2, 5.3, 9.6, 9.7 and 13.5 hereof that shall
survive until such Debentures shall mature and be paid. Thereafter, Sections
9.7 and 13.5 shall survive.
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SECTION 13.3 DEPOSITED MONEYS TO BE HELD IN TRUST.
All monies or Governmental Obligations deposited with the Trustee
pursuant to Sections 13.1 or 13.2 shall be held in trust and shall be
available for payment as due, either directly or through any paying agent
(including the Company acting as its own paying agent), to the holders of the
Debentures for the payment or redemption of which such moneys or Governmental
Obligations have been deposited with the Trustee.
SECTION 13.4 PAYMENT OF MONIES HELD BY PAYING AGENTS.
In connection with the satisfaction and discharge of this Indenture, all
moneys or Governmental Obligations then held by any paying agent under the
provisions of this Indenture shall, upon demand of the Company, be paid to
the Trustee and thereupon such paying agent shall be released from all
further liability with respect to such moneys or Governmental Obligations.
SECTION 13.5 REPAYMENT TO COMPANY.
Any monies or Governmental Obligations deposited with any paying agent
or the Trustee, or then held by the Company in trust, for payment of
principal of or interest on the Debentures that are not applied but remain
unclaimed by the holders of such Debentures for at least two years after the
date upon which the principal of or interest on such Debentures shall have
respectively become due and payable, shall be repaid to the Company, as the
case may be, on May 31 of each year or (if then held by the Company) shall be
discharged from such trust; and thereupon the paying agent and the Trustee
shall be released from all further liability with respect to such moneys or
Governmental Obligations, and the holder of any of the Debentures entitled to
receive such payment shall thereafter, as an unsecured general creditor, look
only to the Company for the payment thereof.
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
AND DIRECTORS
SECTION 14.1 NO RECOURSE.
No recourse under or upon any obligation, covenant or agreement of this
Indenture, or of the Debentures, or for any claim based thereon or otherwise
in respect thereof, shall be had against any incorporator, stockholder,
officer or director, past, present or future as such, of the Company or of
any predecessor corporation, either directly or through the Company or any
such predecessor corporation, whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood
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that this Indenture and the obligations issued hereunder are solely corporate
obligations, and that no such personal liability whatever shall attach to, or
is or shall be incurred by, the incorporators, stockholders, officers or
directors as such, of the Company or of any predecessor corporation, or any
of them, because of the creation of the indebtedness hereby authorized, or
under or by reason of the obligations, covenants or agreements contained in
this Indenture or in any of the Debentures or implied therefrom; and that any
and all such personal liability of every name and nature, either at common
law or in equity or by constitution or statute, of, and any and all such
rights and claims against, every such incorporator, stockholder, officer or
director as such, because of the creation of the indebtedness hereby
authorized, or under or by reason of the obligations, covenants or agreements
contained in this Indenture or in any of the Debentures or implied therefrom,
are hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issuance of such
Debentures.
ARTICLE XV
MISCELLANEOUS PROVISIONS
SECTION 15.1 EFFECT ON SUCCESSORS AND ASSIGNS.
All the covenants, stipulations, promises and agreements in this
Indenture contained by or on behalf of the Company shall bind their
respective successors and assigns, whether so expressed or not.
SECTION 15.2 ACTIONS BY SUCCESSOR.
Any act or proceeding by any provision of this Indenture authorized or
required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
corresponding board, committee or officer of any corporation that shall at
the time be the lawful sole successor of the Company.
SECTION 15.3 SURRENDER OF COMPANY POWERS.
The Company by instrument in writing executed by appropriate authority
of its Board of Directors and delivered to the Trustee may surrender any of
the powers reserved to the Company, and thereupon such power so surrendered
shall terminate both as to the Company, as the case may be, and as to any
successor corporation.
SECTION 15.4 NOTICES.
Except as otherwise expressly provided herein any notice or demand that
by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Debentures to or on the Company
may be given or served by being deposited
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first class postage prepaid in a post-office letterbox addressed (until
another address is filed in writing by the Company with the Trustee), as
follows: Quad City Holdings, Inc., 3551 7th Street, Suite 100, Moline,
Illinois 61265, Attention: Douglas M. Hultquist. Any notice, election,
request or demand by the Company or any Debentureholder to or upon the
Trustee shall be deemed to have been sufficiently given or made, for all
purposes, if given or made in writing at the Corporate Trust Office of the
Trustee.
SECTION 15.5 GOVERNING LAW.
This Indenture and each Debenture shall be deemed to be a contract made
under the internal laws of the State of Illinois and for all purposes shall
be construed in accordance with the laws of said State.
SECTION 15.6 TREATMENT OF DEBENTURES AS DEBT.
It is intended that the Debentures shall be treated as indebtedness and
not as equity for federal income tax purposes. The provisions of this
Indenture shall be interpreted to further this intention.
SECTION 15.7 COMPLIANCE CERTIFICATES AND OPINIONS.
(a) Upon any application or demand by the Company to the Trustee to
take any action under any of the provisions of this Indenture, the Company
shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent have been complied
with, except that in the case of any such application or demand as to which
the furnishing of such documents is specifically required by any provision of
this Indenture relating to such particular application or demand, no
additional certificate or opinion need be furnished.
(b) Each certificate or opinion of the Company provided for in this
Indenture and delivered to the Trustee with respect to compliance with a
condition or covenant in this Indenture shall include (1) a statement that
the Person making such certificate or opinion has read such covenant or
condition; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained
in such certificate or opinion are based; (3) a statement that, in the
opinion of such Person, he has made such examination or investigation as, in
the opinion of such Person, is necessary to enable him to express an informed
opinion as to whether or not such covenant or condition has been complied
with; and (4) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with; provided, however,
that each such certificate shall comply with the provisions of Section 314 of
the Trust Indenture Act.
SECTION 15.8 PAYMENTS ON BUSINESS DAYS.
In any case where the date of maturity of interest or principal of any
Debenture or the date of redemption of any Debenture shall not be a Business
Day, then payment of interest or
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principal may be made on the next succeeding Business Day with the same force
and effect as if made on the nominal date of maturity or redemption, and no
interest shall accrue for the period after such nominal date.
SECTION 15.9 CONFLICT WITH TRUST INDENTURE ACT.
If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
SECTION 15.10 COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute
but one and the same instrument.
SECTION 15.11 SEPARABILITY.
In case any one or more of the provisions contained in this Indenture or
in the Debentures shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Indenture or of the Debentures,
but this Indenture and the Debentures shall be construed as if such invalid
or illegal or unenforceable provision had never been contained herein or
therein.
SECTION 15.12 ASSIGNMENT.
The Company shall have the right at all times to assign any of its
respective rights or obligations under this Indenture to a direct or indirect
wholly owned Subsidiary of the Company, provided that, in the event of any
such assignment, the Company shall remain liable for all such obligations.
Subject to the foregoing, this Indenture is binding upon and inures to the
benefit of the parties thereto and their respective successors and assigns.
This Indenture may not otherwise be assigned by the parties thereto.
SECTION 15.13 ACKNOWLEDGMENT OF RIGHTS.
The Company acknowledges that, with respect to any Debentures held by
the Trust or a trustee of the Trust, if the Property Trustee fails to enforce
its rights under this Indenture as the holder of the Debentures held as the
assets of the Trust, any holder of Capital Securities may, to the extent
permitted under applicable law, institute legal proceedings directly against
the Company to enforce such Property Trustee's rights under this Indenture
without first instituting any legal proceedings against such Property Trustee
or any other person or entity. Notwithstanding the foregoing, if an Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Debentures on the
date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), the Company acknowledges that a holder
of Capital Securities may directly institute a proceeding for enforcement of
payment to such holder of the principal of or interest on the Debentures
having a principal amount equal to the aggregate
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liquidation amount of the Capital Securities of such holder on or after the
respective due date specified in the Debentures.
ARTICLE XVI
SUBORDINATION OF DEBENTURES
SECTION 16.1 AGREEMENT TO SUBORDINATE.
The Company covenants and agrees, and each holder of Debentures issued
hereunder by such holder's acceptance thereof likewise covenants and agrees,
that all Debentures shall be issued subject to the provisions of this Article
XVI; and each holder of a Debenture, whether upon original issue or upon
transfer or assignment thereof, accepts and agrees to be bound by such
provisions. The payment by the Company of the principal of and interest on
all Debentures issued hereunder shall, to the extent and in the manner
hereinafter set forth, be subordinated and junior in right of payment to the
prior payment in full of all Senior Debt, Subordinated Debt and Additional
Senior Obligations (collectively, "Senior Indebtedness") to the extent
provided herein, whether outstanding at the date of this Indenture or
thereafter incurred. No provision of this Article XVI shall prevent the
occurrence of any default or Event of Default hereunder. Section 16.2
Default on Senior Debt, Subordinated Debt or Additional Senior Obligations.
In the event and during the continuation of any default by the Company
in the payment of principal, premium, interest or any other payment due on
any Senior Indebtedness of the Company, or in the event that the maturity of
any Senior Indebtedness of the Company has been accelerated because of a
default, then, in either case, no payment shall be made by the Company with
respect to the principal (including redemption payments) of or interest on
the Debentures. In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee when such payment is prohibited by the
preceding sentence of this Section 16.2, such payment shall be held in trust
for the benefit of, and shall be paid over or delivered to, the holders of
Senior Indebtedness or their respective representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Senior
Indebtedness may have been issued, as their respective interests may appear,
but only to the extent that the holders of the Senior Indebtedness (or their
representative or representatives or a trustee) notify the Trustee in writing
within 90 days of such payment of the amounts then due and owing on the
Senior Indebtedness and only the amounts specified in such notice to the
Trustee shall be paid to the holders of Senior Indebtedness.
SECTION 16.3 LIQUIDATION; DISSOLUTION; BANKRUPTCY.
(a) Upon any payment by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution
51
<PAGE>
or winding-up or liquidation or reorganization of the Company, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all amounts due upon all Senior Indebtedness of the Company
shall first be paid in full, or payment thereof provided for in money in
accordance with its terms, before any payment is made by the Company on
account of the principal or interest on the Debentures; and upon any such
dissolution or winding-up or liquidation or reorganization, any payment by
the Company, or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the holders of
the Debentures or the Trustee would be entitled to receive from the Company,
except for the provisions of this Article XVI, shall be paid by the Company
or by any receiver, trustee in bankruptcy, liquidating trustee, agent or
other Person making such payment or distribution, or by the holders of the
Debentures or by the Trustee under this Indenture if received by them or it,
directly to the holders of Senior Indebtedness of the Company (pro rata to
such holders on the basis of the respective amounts of Senior Indebtedness
held by such holders, as calculated by the Company) or their representative
or representatives, or to the trustee or trustees under any indenture
pursuant to which any instruments evidencing such Senior Indebtedness may
have been issued, as their respective interests may appear, to the extent
necessary to pay such Senior Indebtedness in full, in money or money's worth,
after giving effect to any concurrent payment or distribution to or for the
holders of such Senior Indebtedness, before any payment or distribution is
made to the holders of Debentures or to the Trustee.
(b) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities, prohibited by the foregoing, shall be received
by the Trustee before all Senior Indebtedness of the Company is paid in full,
or provision is made for such payment in money in accordance with its terms,
such payment or distribution shall be held in trust for the benefit of and
shall be paid over or delivered to the holders of such Senior Indebtedness or
their representative or representatives, or to the trustee or trustees under
any indenture pursuant to which any instruments evidencing such Senior
Indebtedness may have been issued, and their respective interests may appear,
as calculated by the Company, for application to the payment of all Senior
Indebtedness of the Company, as the case may be, remaining unpaid to the
extent necessary to pay such Senior Indebtedness in full in money in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the benefit of the holders of such Senior Indebtedness.
(c) For purposes of this Article XVI, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated at least to the extent provided in this
Article XVI with respect to the Debentures to the payment of all Senior
Indebtedness of the Company, as the case may be, that may at the time be
outstanding, provided that (i) such Senior Indebtedness is assumed by the new
corporation, if any, resulting from any such reorganization or readjustment;
and (ii) the rights of the holders of such Senior Indebtedness are not,
without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Company with, or the merger of the
Company into, another
52
<PAGE>
corporation or the liquidation or dissolution of the Company following the
conveyance or transfer of its property as an entirety, or substantially as an
entirety, to another corporation upon the terms and conditions provided for
in Article XII shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section 16.3 if such other
corporation shall, as a part of such consolidation, merger, conveyance or
transfer, comply with the conditions stated in Article XII. Nothing in
Section 16.2 or in this Section 16.3 shall apply to claims of, or payments
to, the Trustee under or pursuant to Section 9.7.
SECTION 16.4 SUBROGATION.
(a) Subject to the payment in full of all Senior Indebtedness of the
Company, the rights of the holders of the Debentures shall be subrogated to
the rights of the holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company, as the case may
be, applicable to such Senior Indebtedness until the principal of and
interest on the Debentures shall be paid in full; and, for the purposes of
such subrogation, no payments or distributions to the holders of such Senior
Indebtedness of any cash, property or securities to which the holders of the
Debentures or the Trustee would be entitled except for the provisions of this
Article XVI, and no payment over pursuant to the provisions of this Article
XVI to or for the benefit of the holders of such Senior Indebtedness by
holders of the Debentures or the Trustee, shall, as between the Company, its
creditors other than holders of Senior Indebtedness of the Company, and the
holders of the Debentures, be deemed to be a payment by the Company to or on
account of such Senior Indebtedness. It is understood that the provisions of
this Article XVI are and are intended solely for the purposes of defining the
relative rights of the holders of the Debentures, on the one hand, and the
holders of such Senior Indebtedness on the other hand.
(b) Nothing contained in this Article XVI or elsewhere in this
Indenture or in the Debentures is intended to or shall impair, as between the
Company, its creditors (other than the holders of Senior Indebtedness of the
Company), and the holders of the Debentures, the obligation of the Company,
which is absolute and unconditional, to pay to the holders of the Debentures
the principal of and interest on the Debentures as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the holders of the Debentures and
creditors of the Company, as the case may be, other than the holders of
Senior Indebtedness of the Company, as the case may be, nor shall anything
herein or therein prevent the Trustee or the holder of any Debenture from
exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article XVI
of the holders of such Senior Indebtedness in respect of cash, property or
securities of the Company, as the case may be, received upon the exercise of
any such remedy.
(c) Upon any payment or distribution of assets of the Company referred
to in this Article XVI, the Trustee, subject to the provisions of Article IX,
and the holders of the Debentures shall be entitled to conclusively rely upon
any order or decree made by any court of competent jurisdiction in which such
dissolution, winding-up, liquidation or reorganization proceedings are
pending, or a certificate of the receiver, trustee in bankruptcy, liquidation
53
<PAGE>
trustee, agent or other Person making such payment or distribution, delivered
to the Trustee or to the holders of the Debentures, for the purposes of
ascertaining the Persons entitled to participate in such distribution, the
holders of Senior Indebtedness and other indebtedness of the Company, as the
case may be, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article XVI.
SECTION 16.5 TRUSTEE TO EFFECTUATE SUBORDINATION.
Each holder of Debentures by such holder's acceptance thereof authorizes
and directs the Trustee on such holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article XVI and appoints the Trustee such holder's attorney-in-fact for any
and all such purposes.
SECTION 16.6 NOTICE BY THE COMPANY.
(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 of monies to or by the Trustee in respect of the
Debentures pursuant to the provisions of this Article XVI. Notwithstanding
the provisions of this Article XVI or any other provision of this Indenture,
the Trustee shall not be charged with knowledge of the existence of any facts
that would prohibit the making of any payment of monies to or by the Trustee
in respect of the Debentures pursuant to the provisions of this Article XVI,
unless and until a Responsible Officer of the Trustee shall have received
written notice thereof from the Company or a holder or holders of Senior
Indebtedness or from any trustee therefor; and before the receipt of any such
written notice, the Trustee, subject to the provisions of Section 9.1, shall
be entitled in all respects to assume that no such facts exist; provided,
however, that if the Trustee shall not have received the notice provided for
in this Section 16.6 at least two Business Days prior to the date upon which
by the terms hereof any money may become payable for any purpose (including,
without limitation, the payment of the principal of or interest on any
Debenture), then, anything herein contained to the contrary notwithstanding,
the Trustee shall have full power and authority to receive such money and to
apply the same to the purposes for which 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) The Trustee, subject to the provisions of Section 9.1, shall be
entitled to conclusively rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Indebtedness of the
Company (or a trustee on behalf of such holder) to establish that such notice
has been given by a holder of such Senior Indebtedness or a trustee on behalf
of any such holder or holders. In the event that the Trustee determines in
good faith that further evidence is required with respect to the right of any
Person as a holder of such Senior Indebtedness to participate in any payment
or distribution pursuant to this Article XVI, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of such Senior 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
XVI, and, if such evidence is not
54
<PAGE>
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 16.7 RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS.
(a) The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XVI in respect of any Senior Indebtedness at
any time 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. The Trustee's right to compensation and
reimbursement of expenses as set forth in Section 9.7 shall not be subject to
the subordination provisions of the Article XVI.
(b) With respect to the holders of Senior Indebtedness of the Company,
the Trustee undertakes to perform or to observe only such of its covenants
and obligations as are specifically set forth in this Article XVI, and no
implied covenants or obligations with respect to the holders of such Senior
Indebtedness shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of such
Senior Indebtedness and, subject to the provisions of Section 9.1, the
Trustee shall not be liable to any holder of such Senior Indebtedness if it
shall pay over or deliver to holders of Debentures, the Company or any other
Person money or assets to which any holder of such Senior Indebtedness shall
be entitled by virtue of this Article XVI or otherwise.
SECTION 16.8 SUBORDINATION MAY NOT BE IMPAIRED.
(a) No right of any present or future holder of any Senior Indebtedness
of the Company to enforce subordination as herein provided shall at any time
in any way be prejudiced or impaired by any act or failure to act on the part
of the Company or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof that any
such holder may have or otherwise be charged with.
(b) Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness of the Company may, at any time
and from time to time, without the consent of or notice to the Trustee or the
holders of the Debentures, without incurring responsibility to the holders of
the Debentures and without impairing or releasing the subordination provided
in this Article XVI or the obligations hereunder of the holders of the
Debentures to the holders of such 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, such Senior Indebtedness, or
otherwise amend or supplement in any manner such Senior Indebtedness or any
instrument evidencing the same or any agreement under which such Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing such Senior
Indebtedness; (iii) release any Person liable in any manner for the
collection of such Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Company and any other Person.
55
<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.
QUAD CITY HOLDINGS, INC.
By:________________________________
Name:______________________________
Title:_____________________________
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, AS TRUSTEE
By:________________________________
Name:______________________________
Title:_____________________________
56
<PAGE>
STATE OF ILLINOIS )
) ss:
COUNTY OF COOK )
On the __ day of ____, 1999, before me personally came __________________
to me known, who, being by me duly sworn, did depose and say that he is the
______________________ of Company, one of the corporations described in and
which executed the above instrument; that he knows the corporate seal of said
corporation; that the seal affixed to the said instrument is such corporation
seal; that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
___________________________________
Notary Public
(seal) My Commission expires:_____________
57
<PAGE>
EXHIBIT A
(FORM OF FACE OF DEBENTURE)
QUAD CITY HOLDINGS, INC.
____% SUBORDINATED DEBENTURE
DUE _______________, 2029
No. -1- $__________
CUSIP No. ______ ___ __
Quad City Holdings, Inc., a Delaware corporation (the "Company," which
term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to,
_________________________ or registered assigns, the principal sum of
_____________________________ ($) on June 30, 2029 (the "Stated Maturity"),
and to pay interest on said principal sum from ________ __, 1999, or from the
most recent interest payment date (each such date, an "Interest Payment
Date") to which interest has been paid or duly provided for, quarterly
(subject to deferral as set forth herein) in arrears on March 31, June 30,
September 30 and December 31 of each year commencing September 30, 1999, at
the rate of ____% per annum until the principal hereof shall have become due
and payable, and on any overdue principal and (without duplication and to the
extent that payment of such interest is enforceable under applicable law) on
any overdue installment of interest at the same rate per annum compounded
quarterly. The amount of interest payable on any Interest Payment Date shall
be computed on the basis of a 360-day year of twelve 30-day months. The
amount of interest for any partial period shall be computed on the basis of
the number of days elapsed in a 360-day year of twelve 30-day months. In the
event that any date on which interest is payable on this Debenture is not a
business day, then payment of interest payable on such date shall be made on
the next succeeding day that is a business day (and without any interest or
other payment in respect of any such delay) except that, if such business day
is in the next succeeding calendar year, payment of such interest will
<PAGE>
be made on the immediately preceding business day, in each case, with the
same force and effect as if made on such date. The interest installment so
payable, and punctually paid or duly provided for, on any Interest Payment
Date shall, as provided in the Indenture, be paid to the person in whose name
this Debenture (or one or more Predecessor Debentures, as defined in said
Indenture) is registered at the close of business on the regular record date
for such interest installment, which shall be the close of business on the
business day next preceding such Interest Payment Date unless otherwise
provided in the Indenture. Any such interest installment not punctually paid
or duly provided for shall forthwith cease to be payable to the registered
holders on such regular record date and may be paid to the Person in whose
name this Debenture (or one or more Predecessor Debentures) is registered at
the close of business on a special record date to be fixed by the Trustee for
the payment of such defaulted interest, notice whereof shall be given to the
registered holders of the Debentures not less than 10 days prior to such
special record date, or may be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which
the Debentures may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in the Indenture. The principal of and
the interest on this Debenture shall be payable at the office or agency of
the Trustee maintained for that purpose in any coin or currency of the United
States of America that at the time of payment is legal tender for payment of
public and private debts; provided, however, that payment of interest may be
made at the option of the Company by check mailed to the registered holder at
such address as shall appear in the Debenture Register. Notwithstanding the
foregoing, so long as the holder of this Debenture is the Property Trustee,
the payment of the principal of and interest on this Debenture shall be made
at such place and to such account as may be designated by the Trustee.
The Stated Maturity may be shortened at any time by the Company to any
date not earlier than June 30, 2004, subject to the Company having received
prior approval of the Federal Reserve if then required under applicable
capital guidelines, policies or regulations of the Federal Reserve.
The indebtedness evidenced by this Debenture is, to the extent provided
in the Indenture, subordinate and junior in right of payment to the prior
payment in full of all Senior Indebtedness, and this Debenture is issued
subject to the provisions of the Indenture with respect thereto. Each holder
of this Debenture, by accepting the same, (a) agrees to and shall be bound by
such provisions; (b) authorizes and directs the Trustee on his or her behalf
to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination so provided; and (c) appoints the Trustee his or
her attorney-in-fact for any and all such purposes. Each holder hereof, by
his or her acceptance hereof, hereby waives all notice of the acceptance of
the subordination provisions contained herein and in the Indenture by each
holder of Senior Indebtedness, whether now outstanding or hereafter incurred,
and waives reliance by each such holder upon said provisions.
This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until
the Certificate of Authentication hereon shall have been signed by or on
behalf of the Trustee.
A-2
<PAGE>
The provisions of this Debenture are continued on the reverse side
hereof and such continued provisions shall for all purposes have the same
effect as though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed.
Dated: ________ __, 1999.
QUAD CITY HOLDINGS, INC.
By:________________________________
Name:______________________________
Title:_____________________________
Attest:
_________________________________
By:
_________________________________
Name:
_________________________________
Title:
_________________________________
A-3
<PAGE>
FORM OF CERTIFICATE OF AUTHENTICATION
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-mentioned
Indenture.
Dated: ________ __, 1999
First Union Trust Company,
National Association, as Trustee ___________________________________
or Authentication Agent
By: ______________________________ By: _______________________________
Authorized Signatory
A-4
<PAGE>
FORM OF REVERSE OF DEBENTURE
____% SUBORDINATED DEBENTURE
(CONTINUED)
This Debenture is one of the subordinated debentures of the Company (herein
sometimes referred to as the "Debentures"), specified in the Indenture, all
issued or to be issued under and pursuant to an Indenture dated as of _______
__, 1999 (the "Indenture") duly executed and delivered between the Company and
First Union Trust Company, National Association, as Trustee (the "Trustee"), to
which Indenture reference is hereby made for a description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Trustee, the Company and the holders of the Debentures. The Debentures are
limited in aggregate principal amount as specified in the Indenture.
Because of the occurrence and continuation of a Special Event, in certain
circumstances, this Debenture may become due and payable at the principal amount
together with any interest accrued thereon (the "Redemption Price"). The
Redemption Price shall be paid prior to 12:00 noon, Eastern Standard Time, time,
on the date of such redemption or at such earlier time as the Company
determines. The Company shall have the right to redeem this Debenture at the
option of the Company, without premium or penalty, in whole or in part at any
time on or after June 30, 2004 (an "Optional Redemption"), or at any time in
certain circumstances upon the occurrence of a Special Event, at a Redemption
Price equal to 100% of the principal amount plus any accrued but unpaid
interest, to the date of such redemption. Any redemption pursuant to this
paragraph shall be made upon not less than 30 days nor more than 60 days notice,
at the Redemption Price. If the Debentures are only partially redeemed by the
Company pursuant to an Optional Redemption, the Debentures shall be redeemed pro
rata or by lot or by any other method utilized by the Trustee.
In the event of redemption of this Debenture in part only, a new Debenture
or Debentures for the unredeemed portion hereof shall be issued in the name of
the holder hereof upon the cancellation hereof. In case an Event of Default, as
defined in the Indenture, shall have occurred and be continuing, the principal
of all of the Debentures may be declared, and upon such declaration shall
become, due and payable, in the manner, with the effect and subject to the
conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the Debentures at the time outstanding, as defined in the
Indenture, to execute supplemental indentures for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or of modifying in any manner the
rights of the holders of the Debentures; provided, however, that
A-5
<PAGE>
no such supplemental indenture shall (i) extend the fixed maturity of the
Debentures except as provided in the Indenture, or reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest
thereon, without the consent of the holder of each Debenture so affected; or
(ii) reduce the aforesaid percentage of Debentures, the holders of which are
required to consent to any such supplemental indenture, without the consent
of the holders of each Debenture then outstanding and affected thereby. The
Indenture also contains provisions permitting the holders of a majority in
aggregate principal amount of the Debentures at the time outstanding, on
behalf of all of the holders of the Debentures, to waive any past default in
the performance of any of the covenants contained in the Indenture, or
established pursuant to the Indenture, and its consequences, except a default
in the payment of the principal of or interest on any of the Debentures. Any
such consent or waiver by the registered holder of this Debenture (unless
revoked as provided in the Indenture) shall be conclusive and binding upon
such holder and upon all future holders and owners of this Debenture and of
any Debenture issued in exchange herefor or in place hereof (whether by
registration of transfer or otherwise), irrespective of whether or not any
notation of such consent or waiver is made upon this Debenture.
No reference herein to the Indenture and no provision of this Debenture
or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal and interest on
this Debenture at the time and place and at the rate and in the money herein
prescribed.
Provided certain conditions are met, the Company shall have the right at
any time during the term of the Debentures and from time to time to extend
the interest payment period of such Debentures for up to 20 consecutive
quarters (each, an "Extended Interest Payment Period"), at the end of which
period the Company shall pay all interest then accrued and unpaid (together
with interest thereon at the rate specified for the Debentures to the extent
that payment of such interest is enforceable under applicable law). Before
the termination of any such Extended Interest Payment Period, so long as no
Event of Default shall have occurred and be continuing, the Company may
further extend such Extended Interest Payment Period, provided that such
Extended Interest Payment Period together with all such further extensions
thereof shall not exceed 20 consecutive quarters, extend beyond the Stated
Maturity or end on a date other than an Interest Payment Date. At the
termination of any such Extended Interest Payment Period and upon the payment
of all accrued and unpaid interest and any additional amounts then due and
subject to the foregoing conditions, the Company may commence a new Extended
Interest Payment Period.
As provided in the Indenture and subject to certain limitations therein
set forth, this Debenture is transferable by the registered holder hereof on
the Debenture Register of the Company, upon surrender of this Debenture for
registration of transfer at the office or agency of the Trustee accompanied
by a written instrument or instruments of transfer in form satisfactory to
the Company or the Trustee duly executed by the registered holder hereof or
his attorney duly authorized in writing, and thereupon one or more new
Debentures of authorized denominations and for the same aggregate principal
amount shall be issued to the designated transferee or transferees. No
service charge shall be made for any such transfer, but the
A-6
<PAGE>
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this Debenture,
the Company, the Trustee, any paying agent and the Debenture Registrar may
deem and treat the registered holder hereof as the absolute owner hereof
(whether or not this Debenture shall be overdue and notwithstanding any
notice of ownership or writing hereon made by anyone other than the Debenture
Registrar) for the purpose of receiving payment of or on account of the
principal hereof and interest due hereon and for all other purposes, and
neither the Company nor the Trustee nor any paying agent nor any Debenture
Registrar shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether
by virtue of any constitution, statute or rule of law, or by the enforcement
of any assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issuance hereof,
expressly waived and released.
The Debentures are issuable only in registered form without coupons in
denominations of $10 and any integral multiple thereof.
All terms used in this Debenture that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
A-7
<PAGE>
CERTIFICATE OF TRUST
OF
QUAD CITY HOLDINGS CAPITAL TRUST I
THIS CERTIFICATE OF TRUST OF Quad City Holdings Capital Trust I (the
"Trust") is being duly executed and filed by the undersigned as trustees, to
form a business trust under the Delaware Business Trust Act (12 DEL. C.
Section 3801 ET SEQ.)(the "Act").
1. NAME. The name of the business trust formed hereby is Quad City
Holdings Capital Trust I.
2. DELAWARE TRUSTEE. The name and business address of the trustee of
the Trust in the State of Delaware is First Union Trust Company, National
Association, One Rodney Square, 920 King Street, Wilmington, Delaware 19801,
Attention: Corporate Trust Administration.
3. EFFECTIVE DATE. This Certificate of Trust will be effective upon
filing.
IN WITNESS WHEREOF, the undersigned being all of the trustees of the
Trust have duly executed this Certificate of Trust in accordance with Section
3811(a)(1) of the Act.
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, as Delaware trustee
By:
---------------------------
Name:
Title:
------------------------------
Douglas M. Hultquist, as Administrative Trustee
------------------------------
Michael A. Bauer, as Administrative Trustee
------------------------------
Shellee R. Showalter, as Administrative Trustee
<PAGE>
TRUST AGREEMENT
OF
QUAD CITY HOLDINGS CAPITAL TRUST I
THIS TRUST AGREEMENT is made as of April __, 1999 (this "Trust
Agreement"), by and among Quad City Holdings, Inc., a Delaware corporation,
as depositor (the "Depositor"), First Union Trust Company, National
Association, a national banking association, as trustee (the "Delaware
Trustee"), and Douglas M. Hultquist, Michael A. Bauer and Shellee Showalter,
as administrators (the "Administrative Trustees", and together with the
Delaware Trustee, the "Trustees"). The Depositor, the Administrative
Trustees and the Delaware Trustee hereby agree as follows:
1. The trust created hereby shall be known as "Quad City Holding
Capital Trust I" (the "Trust"), in which name the Administrative Trustees,
the Delaware Trustee or the Depositor, to the extent provided herein, may
conduct the business of the Trust, make and execute contracts, and sue and be
sued.
2. The Depositor hereby assigns, transfers, conveys and sets over to
the Trust the sum of $10.00. The Delaware Trustee and the Administrative
Trustees hereby acknowledge receipt of such amount from the Depositor, which
amount shall constitute the initial trust estate. It is the intention of the
parties hereto that the Trust created hereby constitute a business trust
under Chapter 38 of Title 12 of the Delaware Code, 12 DEL. C, Section 3801,
ET SEQ. (the "Business Trust Act"), and that this document constitute the
governing instrument of the Trust. The Delaware Trustee is hereby authorized
and directed to execute and file a certificate of trust with the Delaware
Secretary of State in such form as the Delaware Trustee may approve.
3. The Depositor, the Administrative Trustees and the Delaware Trustee
will enter into an amended and restated Trust Agreement, satisfactory to each
such party and substantially in the form to be included as an exhibit to the
Registration Statement on Form S-2 (the "1933 Act Registration Statement"),
or in such other form as the Trustees and the Depositor may approve, to
provide for the contemplated operation of the Trust created hereby and the
issuance of the Preferred Securities and Common Securities referred to
therein. Prior to the execution and delivery of such amended and restated
Trust Agreement, the Administrative Trustees and the Delaware Trustee shall
not have any duty or obligation hereunder or with respect to the trust
estate, except as otherwise required by applicable law or as may be necessary
to obtain prior to such execution and delivery of any licenses, consents or
approvals required by applicable law or otherwise.
4. The Depositor and the Trustee hereby authorize and direct the
Depositor, as the sponsor of the Trust, and the Administrative Trustees, as
trustees of the Trust, acting singly or jointly, (i) to file with the
Securities and Exchange Commission (the "Commission") and to
<PAGE>
execute, in the case of the 1933 Act Registration Statement and 1934 Act
Registration Statement (as herein defined), on behalf of the Trust, (a) the
1933 Act Registration Statement, including pre-effective or post-effective
amendments to such Registration Statement, relating to the registration under
the Securities Act of 1933, as amended (the "1933 Act"), of the Preferred
Securities of the Trust, (b) any preliminary prospectus or prospectus
supplement thereto relating to the Preferred Securities required to be filed
pursuant to Rule 424 under the 1933 Act, and (c) a Registration Statement on
Form 8-A or other appropriate form (the "1934 Act Registration Statement")
(including all pre-effective and post-effective amendment thereto) relating
to the registration of the Preferred Securities to the Trust under Section
12(b) of the Securities Exchange Act of 1934, as amended; (ii) to file with
the New York Stock Exchange or other exchange, and execute on behalf of the
Trust a listing application and all other applications, statements,
certificates, agreements and other instruments as shall be necessary or
desirable to cause the Preferred Securities to be listed on the New York
Stock Exchange or such other exchange or quotation system; (iii) to file and
execute on behalf of the Trust such applications, reports, surety bonds,
irrevocable consents, appointments of attorney for service of process and
other papers and documents as shall be necessary or desirable to register the
Preferred Securities under the securities or "Blue Sky" laws of such
jurisdictions as the Depositor, on behalf of the Trust, may deem necessary or
desirable; and (iv) to execute, deliver and perform on behalf of the Trust an
underwriting agreement with the Depositor and the underwriter or underwriters
of the Preferred Securities of the Trust. In the event that any filing
referred to in clauses (i)-(iii) above is required by the rules and
regulations of the Commission, the New York Stock Exchange or other exchange
or quotation system, or state securities or Blue Sky laws to be executed on
behalf of the Trust by a trustee, the Administrative Trustees, in their
capacities as trustees of the Trust, are hereby authorized and directed to
join in any such filing and to execute on behalf of the Trust any and all of
the foregoing, it being understood that the Administrative Trustees, in their
capacities as trustees of the Trust, shall not be required to join in any
such filing or execute on behalf of the Trust any such document unless
required by the rules and regulations of the Commission, the New York Stock
Exchange or other exchange, or state securities or Blue Sky laws. In
connection with all of the foregoing, the Trustees, solely in their
capacities as trustees of the Trust, and the Depositor hereby constitute and
appoint the Administrative Trustees as the Depositor's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution for the Depositor or in the Depositor's name, place and stead,
in any and all capacities, to sign any and all amendments (including all
pre-effective and post-effective amendments) to the 1933 Act Registration
Statement and the 1934 Act Registration Statement and to file the same, with
all exhibits thereto, and any other documents in connection therewith, with
the Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as the Depositor might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his respective
substitute or substitutes, shall do or cause to be done by virtue hereof.
5. This Trust Agreement may be executed in one or more counterparts.
2
<PAGE>
6. The number of trustees of the Trust initially shall be four and
thereafter the number of trustees of the Trust shall be such number as shall
be fixed from time to time by a written instrument signed by the Depositor
which may increase or decrease the number of trustees of the Trust; provided,
however, that to the extent required by the Business Trust Act, one trustee
of the Trust shall either be a natural person who is a resident of the State
of Delaware or, if not a natural person, an entity which has its principal
place of business in the State of Delaware. Subject to the foregoing, the
Depositor is entitled to appoint or remove without cause any trustee of the
Trust at any time. Any trustee of the Trust may resign upon thirty days'
prior notice to the Depositor.
7. First Union Trust Company, National Association, in its capacity as
trustee of the Trust, shall not have any of the powers or duties of the
Administrative Trustees set forth herein and shall be a trustee of the Trust
for the sole purpose of satisfying the requirements of Section 3807 of the
Business Trust Act.
8. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to
conflict of laws principles).
[SIGNATURE PAGE FOLLOWS]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed as of the day and year first above written.
QUAD CITY HOLDINGS, INC., as Depositor
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, as not in its individual
capacity but solely as trustee of the Trust
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
-----------------------------------
Douglas M. Hultquist, not in its individual
capacity, but solely as trustee of the Trust
-----------------------------------
Michael A. Bauer, not in his individual
capacity, but solely as trustee of the Trust
-----------------------------------
Shellee R. Showalter, not in her individual
capacity, but solely as trustee of the Trust
4
<PAGE>
FORM OF QUAD CITY HOLDINGS CAPITAL TRUST I
AMENDED AND RESTATED TRUST AGREEMENT
among
QUAD CITY HOLDINGS, INC., as Depositor,
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, as Property Trustee,
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, as Delaware Trustee,
and
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
Dated as of _________, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINED TERMS....................................................................
Section 101. Definitions........................................................
ARTICLE II
ESTABLISHMENT OF THE TRUST.......................................................
Section 201. Name...............................................................
Section 202. Office of the Delaware Trustee;
Principal Place of Business........................................
Section 203. Initial Contribution of Trust Property;
Organizational Expenses............................................
Section 204. Issuance of the Capital Securities.................................
Section 205. Issuance of the Common Securities; Subscription
and Purchase of Debentures.........................................
Section 206. Declaration of Trust...............................................
Section 207. Authorization to Enter into Certain Transactions...................
Section 208. Assets of Trust....................................................
Section 209. Title to Trust Property............................................
ARTICLE III
PAYMENT ACCOUNT..................................................................
Section 301. Payment Account....................................................
ARTICLE IV
DISTRIBUTIONS; REDEMPTION........................................................
Section 401. Distributions......................................................
Section 402. Redemption.........................................................
Section 403. Subordination of Common Securities.................................
Section 404. Payment Procedures.................................................
Section 405. Tax Returns and Reports............................................
Section 406. Payment of Taxes, Duties, etc.
of the Trust.......................................................
Section 407. Payments Under Indenture...........................................
ARTICLE V
TRUST SECURITIES CERTIFICATES ...................................................
Section 501. Initial Ownership..................................................
Section 502. The Trust Securities Certificates..................................
Section 503. Execution, Authentication and Delivery
of Trust Securities Certificates...................................
Section 503A. Global Capital Security............................................
<PAGE>
Section 504. Registration of Transfer and Exchange
of Capital Securities Certificates.................................
Section 505. Mutilated, Destroyed, Lost or
Stolen Trust Securities Certificates...............................
Section 506. Persons Deemed Securityholders.....................................
Section 507. Access to List of Securityholders' Names and Addresses.............
Section 508. Maintenance of Office or Agency....................................
Section 509. Appointment of Paying Agent........................................
Section 510. Ownership of Common Securities by Depositor........................
Section 511. Trust Securities Certificates......................................
Section 512. Notices to Clearing Agency.........................................
Section 513. Rights of Securityholders..........................................
ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING........................................
Section 601. Limitations on Voting Rights.......................................
Section 602. Notice of Meetings.................................................
Section 603. Meetings of Capital Securityholders................................
Section 604. Voting Rights......................................................
Section 605. Proxies, etc.......................................................
Section 606. Securityholder Action by Written Consent...........................
Section 607. Record Date for Voting and Other Purposes..........................
Section 608. Acts of Securityholders............................................
Section 609. Inspection of Records..............................................
ARTICLE VII
REPRESENTATIONS AND WARRANTIES...................................................
Section 701. Representations and Warranties of
the Bank and the Property Trustee..................................
Section 702. Representations and Warranties of
the Delaware Bank and the Delaware Trustee.........................
Section 703. Representations and Warranties of Depositor........................
ARTICLE VIII
TRUSTEES.........................................................................
Section 801. Certain Duties and Responsibilities................................
Section 802. Certain Notices....................................................
Section 803. Certain Rights of Property Trustee.................................
Section 804. Not Responsible for Recitals or Issuance of Securities.............
Section 805. May Hold Securities................................................
Section 806. Compensation; Indemnity; Fees......................................
Section 807. Corporate Property Trustee Required; Eligibility of Trustees.......
Section 808. Conflicting Interests..............................................
Section 809. Co-Trustees and Separate Trustee...................................
Section 810. Resignation and Removal; Appointment of Successor..................
2
<PAGE>
Section 811. Acceptance of Appointment by Successor.............................
Section 812. Merger, Conversion, Consolidation or Succession to Business........
Section 813. Preferential Collection of Claims Against Depositor or Trust.......
Section 814. Reports by Property Trustee........................................
Section 815. Reports to the Property Trustee....................................
Section 816. Evidence of Compliance with Conditions Precedent...................
Section 817. Number of Trustees.................................................
Section 818. Delegation of Power................................................
Section 819. Voting ............................................................
ARTICLE IX
TERMINATION, LIQUIDATION AND MERGER..............................................
Section 901. Termination Upon Expiration Date...................................
Section 902. Early Termination..................................................
Section 903. Termination........................................................
Section 904. Liquidation........................................................
Section 905. Mergers, Consolidations, Amalgamations
or Replacements of the Trust.......................................
ARTICLE X
MISCELLANEOUS PROVISIONS.........................................................
Section 1001. Limitation of Rights of Securityholders............................
Section 1002. Amendment..........................................................
Section 1003. Separability.......................................................
Section 1004. Governing law......................................................
Section 1005. Payments Due on Non-Business Day...................................
Section 1006. Successors.........................................................
Section 1007. Headings...........................................................
Section 1008. Reports, Notices and Demands.......................................
Section 1009. Agreement Not to Petition..........................................
Section 1010. Trust Indenture Act; Conflict with Trust Indenture Act.............
Section 1011. Acceptance of Terms of Trust Agreement,
Guarantee and Indenture.........................................
EXHIBITS
Exhibit A Certificate of Trust
Exhibit B Form of Common Securities Certificate
Exhibit C Form of Expense Agreement
Exhibit D Form of Capital Securities Certificate
Exhibit E Form of Capital Securities Certificate of Authentication
Exhibit F Certificate of Depositary Agreement
</TABLE>
3
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
SECTION OF TRUST INDENTURE ACT SECTION OF AMENDED AND RESTATED
OF 1939, AS AMENDED TRUST AGREEMENT
- ------------------------------ -------------------------------
<S> <C>
310(a)(1)...................................................................807
310(a)(2) ..................................................................807
310(a)(3) ..................................................................807
310(a)(4)............................................................207(a)(ii)
310(b) .....................................................................808
311(a) .....................................................................813
311(b) .....................................................................813
312(a) .....................................................................507
312(b) .....................................................................507
312(c) .....................................................................507
313(a) ..................................................................814(a)
313(a)(4) ...............................................................814(b)
313(b) ..................................................................814(b)
313(c).....................................................................1008
313(d) ..................................................................814(c)
314(a) .....................................................................815
314(b).......................................................... Not Applicable
314(c)(1) ..................................................................816
314(c)(2) ..................................................................816
314(c)(3)........................................................Not Applicable
314(d) ..........................................................Not Applicable
314(e) ................................................................101, 816
315(a)...........................................................801(a), 803(a)
315(b)................................................................802, 1008
315(c)...................................................................801(a)
315(d).................................................................801, 803
316(a)(2)....................................................... Not Applicable
316(b) ..........................................................Not Applicable
316(c) .....................................................................607
317(a)(1)........................................................Not Applicable
317(a)(2)........................................................Not Applicable
317(b)......................................................................509
318(a).....................................................................1010
</TABLE>
Note: This Cross-Reference Table does not constitute part of this Agreement and
shall not affect the interpretation of any of its terms or provisions.
4
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT
AMENDED AND RESTATED TRUST AGREEMENT, dated as of _________ __, 1999,
among (i) QUAD CITY HOLDINGS, INC., a Delaware corporation (including any
successors or assigns, the "Depositor"), (ii) FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, a national banking association with its principal place
of business in the State of Delaware, as property trustee (the "Property
Trustee" and, in its separate corporate capacity and not in its capacity as
Property Trustee, the "Bank"), (iii) FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, a national banking association with its principal place of
business in the State of Delaware, as Delaware trustee (the "Delaware
Trustee," and, in its separate corporate capacity and not in its capacity as
Delaware Trustee, the "Delaware Bank") (iv) Douglas M. Hultquist, an
individual, Michael A. Bauer, an individual, and Shellee R. Showalter, an
individual, each of whose address is c/o Company (each an "Administrative
Trustee" and collectively the "Administrative Trustees") (the Property
Trustee, the Delaware Trustee and the Administrative Trustees referred to
collectively as the "Trustees"), and (v) the several Holders (as hereinafter
defined).
RECITALS
WHEREAS, the Depositor, the Delaware Trustee, and Douglas M.
Hultquist, Michael A. Bauer and Shellee R. Showalter, each as an
Administrative Trustee, have heretofore duly declared and established a
business trust pursuant to the Delaware Business Trust Act by the entering
into of that certain Trust Agreement, dated as of April 27, 1999 (the
"Original Trust Agreement"), and by the execution and filing by the Delaware
Trustee and the Administrative Trustees with the Secretary of State of the
State of Delaware of the Certificate of Trust, filed on April 29, 1999, the
form of which is attached as Exhibit A; and
WHEREAS, the Depositor, the Delaware Trustee, the Property Trustee
and the Administrative Trustees desire to amend and restate the Original
Trust Agreement in its entirety as set forth herein to provide for, among
other things, (i) the issuance of the Common Securities (as defined herein)
by the Trust (as defined herein) to the Depositor; (ii) the issuance and sale
of the Capital Securities (as defined herein) by the Trust pursuant to the
Underwriting Agreement (as defined herein); (iii) the acquisition by the
Trust from the Depositor of all of the right, title and interest in the
Debentures (as defined herein); and (iv) the appointment of the Trustees;
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 Securityholders (as defined
herein), hereby amends and restates the Original Trust Agreement in its
entirety and agrees as follows:
5
<PAGE>
ARTICLE I
DEFINED TERMS
SECTION 101. 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 I have the meanings assigned to
them in this Article I and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may
be, of this Trust Agreement; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Act" has the meaning specified in Section 608.
"Additional Amount" means, with respect to Trust Securities of a
given Liquidation Amount and/or a given period, the amount of additional
interest accrued on interest in arrears and paid by the Depositor on a Like
Amount of Debentures for such period.
"Additional Interest" has the meaning specified in Section 1.1 of
the Indenture.
"Administrative Trustee" means each of Douglas M. Hultquist, Michael
A. Bauer and Shellee R. Showalter, solely in his or her capacity as
Administrative Trustee of the Trust formed and continued hereunder and not in
his or her individual capacity, or such Administrative Trustee's successor in
interest in such capacity, or any successor trustee appointed as herein
provided.
"Affiliate" means, with respect to a specified Person, (a) any
Person directly or indirectly owning, controlling or holding with power to
vote 10% or more of the outstanding voting securities or other ownership
interests of the specified Person, any Person 10% or more of whose
outstanding voting securities or other ownership interests are directly or
indirectly owned, controlled or held with power to vote by the specified
Person; (b) any Person directly or indirectly controlling, controlled by, or
under common control with the specified Person; (c) a partnership in which
the specified Person is a general partner; (d) any officer or director of the
specified Person; and (e) if the specified Person is an individual, any
entity of which the specified Person is an officer, director or general
partner.
6
<PAGE>
"Authenticating Agent" means an authenticating agent with respect to
the Capital Securities appointed by the Property Trustee pursuant to Section
503.
"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 adjudging such Person a bankrupt or insolvent, or approving
as properly filed a petition seeking liquidation or reorganization of or in
respect of such Person under the United States Bankruptcy Code of 1978, as
amended, or any other similar applicable federal or state law, and the
continuance of any such decree or order unvacated and unstayed for a period
of 90 days; or the commencement of an involuntary case under the United
States Bankruptcy Code of 1978, as amended, in respect of such Person, which
shall continue undismissed for a period of 90 days or entry of an order for
relief in such case; or the entry of a decree or order of a court having
jurisdiction in the premises for the appointment on the ground of insolvency
or bankruptcy of a receiver, custodian, liquidator, trustee or assignee in
bankruptcy or insolvency of such Person or of its property, or for the
winding up or liquidation of its affairs, and such decree or order shall have
remained in force unvacated and unstayed for a period of 90 days; or
(b) the institution by such Person of proceedings to be adjudicated
a voluntary bankrupt, or the consent by such Person to the filing of a
bankruptcy proceeding against it, or the filing by such Person of a petition
or answer or consent seeking liquidation or reorganization under the United
States Bankruptcy Code of 1978, as amended, or other similar applicable
Federal or State law, or the consent by such Person to the filing of any such
petition or to the appointment on the ground of insolvency or bankruptcy of a
receiver or custodian or liquidator or trustee or assignee in bankruptcy or
insolvency of such Person or of its property, or shall make a general
assignment for the benefit of creditors.
"Bankruptcy Laws" has the meaning specified in Section 1009.
"Board Resolution" means a copy of a resolution certified by the
Secretary of the Depositor to have been duly adopted by the Depositor's Board of
Directors, or such committee of the Board of Directors or officers of the
Depositor to which authority to act on behalf of the Board of Directors has been
delegated, and to be in full force and effect on the date of such certification,
and delivered to the appropriate Trustee.
"Business Day" means a day other than a Saturday or Sunday, a day on
which banking institutions in New York, New York or Wilmington, Delaware are
authorized or required by law, executive order or regulation to remain
closed, or a day on which the Property Trustee's Corporate Trust Office or
the Corporate Trust Office of the Debenture Trustee is closed for business.
7
<PAGE>
"Capital Security" means a preferred undivided beneficial interest
in the assets of the 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.
"Capital Securities Certificate" means a certificate evidencing
ownership of Capital Securities, substantially in the form attached as
Exhibit D.
"Certificate of Depositary Agreement" means the agreement among
Depositor, Trust and DTC, as the initial Clearing Agency, dated as of the
Closing Date, substantially in the form attached as Exhibit F as the same may
be amended and supplemented from time to time.
"Certificate of Trust" means the certificate of trust filed with the
Secretary of State of the State of Delaware with respect to the Trust, as
amended or restated from time to time.
"Change in 1940 Act Law" shall have the meaning set forth in the
definition of "Investment Company Event."
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. DTC shall be the initial Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank or other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with
the Clearing Agency.
"Closing Date" means the date of execution and delivery of this
Trust Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Common Security" means an undivided beneficial interest in the
assets of the Trust, having a Liquidation Amount of $10 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
"Common Securities Certificate" means a certificate evidencing
ownership of Common Securities, substantially in the form attached as Exhibit
C.
"Company" means Quad City Holdings, Inc.
"Corporate Trust Office" means the office at which, at any
particular time, the corporate trust business of the Property Trustee or the
Debenture Trustee, as the case may be,
8
<PAGE>
shall be principally administered, which office at the date hereof, in each
such case, is located at One Rodney Square, 920 King Street, 1st Floor,
Wilmington, Delaware 19801, Attn: Corporate Trust Administration.
"Debenture Event of Default" means an "Event of Default" as defined
in Section 7.1 of the Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to
be redeemed under the Indenture, the date fixed for redemption under the
Indenture.
"Debenture Tax Event" means a "Tax Event" as specified in Section
1.1 of the Indenture.
"Debenture Trustee" means First Union Trust Company, National
Association, a national banking association with its principal place of
business in the State of Delaware and any successor thereto, as trustee under
the Indenture.
"Debentures" means the $12,380,000 aggregate principal amount of the
Depositor's ____% Subordinated Debentures due 2029, issued pursuant to the
Indenture.
"Definitive Capital Securities Certificates" means Capital
Securities Certificates issued in certified, fully registered form as
provided in Section 513.
"Delaware Bank" has the meaning specified in the Preamble to this
Trust Agreement.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Delaware Code Sections 3801 et seq. as it may be amended
from time to time.
"Delaware Trustee" means the commercial bank or trust company
identified as the "Delaware Trustee" in the Preamble to this Trust Agreement
solely in its capacity as Delaware Trustee of the Trust formed and 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 DTC or any successor thereto.
"Depositor" has the meaning specified in the Preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 401(a).
"Distributions" means amounts payable in respect of the Trust
Securities as provided in Section 401.
"DTC" means The Depository Trust Company.
"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
9
<PAGE>
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Trust in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of 30
days; or
(c) default by the Trust in the payment of any Redemption Price of
any Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Trustees in this Trust Agreement (other
than a covenant or warranty a default in the performance of which or the
breach of which is dealt with in clause (b) or (c), above) and continuation
of such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the defaulting Trustee or Trustees by the
Holders of at least 25% in aggregate liquidation preference of the
Outstanding Capital Securities a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the
Property Trustee and the failure by the Depositor to appoint a successor
Property Trustee within 60 days thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Agreement" means the Agreement as to Expenses and
Liabilities between the Depositor and the Trust, substantially in the form
attached as Exhibit C, as amended from time to time.
"Expiration Date" has the meaning specified in Section 901.
"Extended Interest Payment Period" has the meaning specified in
Section 4.1 of the Indenture.
"Global Capital Securities Certificate" means a Capital Securities
Certificate evidencing ownership of Global Capital Securities.
"Global Capital Security" means a Capital Security, the ownership
and transfer of which shall be made through book entries by a Clearing Agency
as described herein.
"Guarantee" means the Capital Securities Guarantee Agreement
executed and delivered by the Depositor and First Union Trust Company,
National Association, as trustee, contemporaneously with the execution and
delivery of this Trust Agreement, for the benefit of the holders of the
Capital Securities, as amended from time to time.
"Indenture" means the Indenture, dated as of [ ], 1999, between the
Depositor and the Debenture Trustee, as trustee, as amended or supplemented
from time to time.
10
<PAGE>
"Investment Company Act," means the Investment Company Act of 1940,
as amended, as in effect at the date of execution of this instrument.
"Investment Company Event" means the receipt by the Trust and the
Depositor of an Opinion of Counsel, rendered by a law firm having a
recognized national tax and securities law practice, to the effect that, as a
result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act
Law"), the Trust is or shall be considered an "investment company" that is
required to be registered under the Investment Company Act, which Change in
1940 Act Law becomes effective on or after the date of original issuance of
the Capital Securities under this Trust Agreement; provided, however, that
the Depositor or the Trust shall have requested and received such an Opinion
of Counsel with regard to such matters within a reasonable period of time
after the Depositor or the Trust shall have become aware of the possible
occurrence of any such event.
"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 an aggregate Liquidation Amount equal to
the aggregate principal amount of Debentures to be contemporaneously redeemed
in accordance with the Indenture and the proceeds of which shall be used to
pay the Redemption Price of such Trust Securities; and (b) with respect to a
distribution of Debentures to Holders of Trust Securities in connection with
a termination or liquidation of the Trust, Debentures having a principal
amount equal to the Liquidation Amount of the Trust Securities of the Holder
to whom such Debentures are distributed. Each Debenture distributed pursuant
to clause (b) above shall carry with it accrued interest in an amount equal
to the accrued and unpaid interest then due on such Debentures.
"Liquidation Amount" means the stated amount of $10 per Trust
Security.
"Liquidation Date" means the date on which Debentures are to be
distributed to Holders of Trust Securities in connection with a termination
and liquidation of the Trust pursuant to Section 904(a).
"Liquidation Distribution" has the meaning specified in Section
904(d).
"Officers' Certificate" means a certificate signed by the President
or an Executive Vice President and by the Treasurer or the Vice
President--Finance or the Secretary, of the Depositor, and delivered to the
appropriate Trustee. One of the officers signing an Officers' Certificate
given pursuant to Section 816 shall be the principal executive, financial or
accounting officer of the Depositor. Any Officers' Certificate delivered with
respect to compliance with a condition or covenant provided for in this Trust
Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
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(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Opinion of Counsel" means an opinion in writing of independent,
outside legal counsel for the Trust, the Property Trustee, the Delaware
Trustee or the Depositor, who shall be reasonably acceptable to the Property
Trustee.
"Original Trust Agreement" has the meaning specified in the Recitals
to this Trust Agreement.
"Outstanding", when used with respect to Capital Securities, means,
as of the date of determination, all Capital Securities theretofore executed
and delivered under this Trust Agreement, except:
(a) Capital Securities theretofore canceled by the Property Trustee
or delivered to the Property Trustee for cancellation;
(b) Capital Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee or
any Paying Agent for the Holders of such Capital Securities; provided that,
if such Capital Securities are to be redeemed, notice of such redemption has
been duly given pursuant to this Trust Agreement; and
(c) Capital Securities which have been paid or in exchange for or in
lieu of which other Capital Securities have been executed and delivered
pursuant to Sections 504, 505, 511 and 513; provided, however, that in
determining whether the Holders of the requisite Liquidation Amount of the
Outstanding Capital Securities have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Capital Securities owned by
the Depositor, any Trustee or any Affiliate of the Depositor or any Trustee
shall be disregarded and deemed not to be Outstanding, except that (a) in
determining whether any Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Capital Securities that such Trustee knows to be so owned shall be so
disregarded; and (b) the foregoing shall not apply at any time when all of
the outstanding Capital Securities are owned by the Depositor, one or more of
the Trustees and/or any such Affiliate. Capital Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Administrative Trustees the pledgee's
right so to the Depositor or any Affiliate of the Depositor.
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"Paying Agent" means any paying agent or co-paying agent appointed
pursuant to Section 509 and shall initially be the Bank.
"Payment Account" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee with the Bank in its trust
department for the benefit of the Securityholders in which all amounts paid
in respect of the Debentures shall be held and from which the Property
Trustee shall make payments to the Securityholders in accordance with
Sections 401 and 402.
"Person" means any individual, corporation, partnership, joint
venture, trust, limited liability company or corporation, unincorporated
organization or government or any agency or political subdivision thereof.
"Property Trustee" means the commercial bank or trust company
identified as the "Property Trustee," in the Preamble to this Trust Agreement
solely in its capacity as Property Trustee of the Trust heretofore formed and
continued hereunder and not in its individual capacity, or its successor in
interest in such capacity, or any successor property trustee appointed as
herein provided.
"Redemption Date" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Debenture Redemption Date and the stated
maturity of the Debentures shall be a Redemption Date for a Like Amount of
Trust Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, plus the related amount of the premium,
if any, paid by the Depositor upon the concurrent redemption of a Like Amount
of Debentures, allocated on a pro rata basis (based on Liquidation Amounts)
among the Trust Securities.
"Relevant Trustee" shall have the meaning specified in Section 810.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 504.
"Securityholder" or "Holder" means a Person in whose name a Trust
Security or Trust Securities is registered in the Securities Register; any
such Person is a beneficial owner within the meaning of the Delaware Business
Trust Act.
"Trust" means the Delaware business trust created and continued
hereby and identified on the cover page to this Trust Agreement.
"Trust Agreement" means this Amended and Restated Trust Agreement,
as the same may be modified, amended or supplemented in accordance with the
applicable provisions hereof, including all exhibits hereto, including, for
all purposes of this Trust Agreement and any such modification, amendment or
supplement, the provisions of the Trust Indenture Act
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that are deemed to be a part of and govern this Trust Agreement and any such
modification, amendment or supplement, respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, as in force at the date as of which this instrument was executed;
provided, however, that in the event the Trust Indenture Act of 1939, as
amended, is amended after such date, "Trust Indenture Act" means, to the
extent required by any such amendment, the Trust Indenture Act of 1939 as so
amended.
"Trust Property" means (a) the Debentures; (b) the rights of the
Property Trustee under the Guarantee; (c) any cash on deposit in, or owing
to, the Payment Account; and (d) all proceeds and rights in respect of the
foregoing and any other property and assets for the time being held or deemed
to be held by the Property Trustee pursuant to the trusts of this Trust
Agreement.
"Trust Security" means any one of the Common Securities or the
Capital Securities.
"Trust Securities Certificate" means any one of the Common
Securities Certificates or the Capital Securities Certificates.
"Trustees" means, collectively, the Property Trustee, the Delaware
Trustee and the Administrative Trustees.
"Underwriting Agreement" means the Underwriting Agreement, dated as
of [ ], 1999, among the Trust, the Depositor and the Underwriters named
therein.
ARTICLE II
ESTABLISHMENT OF THE TRUST
SECTION 201. NAME.
The Trust continued hereby shall be known as "Quad City Holdings
Capital Trust I," as such name may be modified from time to time by the
Administrative Trustees following written notice to the Holders of Trust
Securities and the other Trustees, in which name the Trustees may engage in
the transactions contemplated hereby, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
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SECTION 202. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF
BUSINESS.
The address of the Delaware Trustee in the State of Delaware is c/o
First Union Trust Company, National Association, One Rodney Square, 920 King
Street, 1st Floor, Wilmington, Delaware 19801, Attn: Corporate Trust
Administration, or such other address in the State of Delaware as the
Delaware Trustee may designate by written notice to the Securityholders and
the Depositor. The principal executive office of the Trust is c/o Quad City
Holdings, Inc., 3551 7th Street, Suite 100, Moline, Illinois, 61265.
SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL
EXPENSES.
The Trustees acknowledge receipt in trust from the Depositor in
connection with the Original Trust Agreement of the sum of $10, which
constituted the initial Trust Property. The Depositor shall pay
organizational expenses of the Trust as they arise or shall, upon request of
any Trustee, promptly reimburse such Trustee for any such expenses paid by
such Trustee. The Depositor shall make no claim upon the Trust Property for
the payment of such expenses.
SECTION 204. ISSUANCE OF THE CAPITAL SECURITIES.
On April [ ], 1999, the Depositor and an Administrative Trustee, on
behalf of the Trust and pursuant to the Original Trust Agreement, executed
and delivered the Underwriting Agreement. Contemporaneously with the
execution and delivery of this Trust Agreement, an Administrative Trustee, on
behalf of the Trust, shall execute in accordance with Section 502 and deliver
in accordance with the Underwriting Agreement, Capital Securities
Certificates, registered in the name of Persons entitled thereto in an
aggregate amount of 1,200,000 Capital Securities having an aggregate
Liquidation Amount of $12,000,000 against receipt of the aggregate purchase
price of such Capital Securities of $12,000,000, which amount such
Administrative Trustee shall promptly deliver to the Property Trustee.
SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND
PURCHASE OF DEBENTURES.
Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrative Trustee, on behalf of the Trust, shall execute
in accordance with Section 502 and deliver to the Depositor, Common
Securities Certificates, registered in the name of the Depositor, in an
aggregate amount of Common Securities having an aggregate Liquidation Amount
of $380,000 against payment by the Depositor of such amount.
Contemporaneously therewith, an Administrative Trustee, on behalf of the
Trust, shall subscribe to and purchase from the Depositor Debentures,
registered in the name of the Property Trustee on behalf of the Trust and
having an aggregate principal amount equal to $12,380,000, and, in
satisfaction of the purchase price for such Debentures, the Property Trustee,
on behalf of the Trust, shall deliver to the Depositor the sum of $12,380,000.
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SECTION 206. DECLARATION OF TRUST.
The exclusive purposes and functions of the Trust are (a) to issue
and sell Trust Securities and use the proceeds from such sale to acquire the
Debentures; and (b) to engage in those activities necessary, advisable or
incidental thereto. The Depositor hereby appoints the Trustees as trustees of
the Trust, to have all the rights, powers and duties to the extent set forth
herein, and the Trustees hereby accept such appointment. The Property Trustee
hereby declares that it shall hold the Trust Property in trust upon and
subject to the conditions set forth herein for the benefit of the
Securityholders. The Administrative Trustees shall have all rights, powers
and duties set forth herein and in accordance with applicable law with
respect to accomplishing the purposes of the Trust. The Delaware Trustee
shall not be entitled to exercise any powers, nor shall the Delaware Trustee
have any of the duties and responsibilities, of the Property Trustee or the
Administrative Trustees set forth herein. The Delaware Trustee shall be one
of the Trustees of the Trust for the sole and limited purpose of fulfilling
the requirements of Section 3807 of the Delaware Business Trust Act.
SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS.
(a) The Trustees shall conduct the affairs of the Trust in
accordance with the terms of this Trust Agreement. Subject to the limitations
set forth in paragraph (b) of this Section 207 and Article VIII, and in
accordance with the following provisions (i) and (ii), the Administrative
Trustees shall have the authority to enter into all transactions and
agreements determined by the Administrative Trustees to be appropriate in
exercising the authority, express or implied, otherwise granted to the
Administrative Trustees under this Trust Agreement, and to perform all acts
in furtherance thereof, including without limitation, the acts set forth in
the following provision (i) and the Property Trustee shall have the authority
to act, each as set forth below:
(i) As among the Trustees, each Administrative Trustee, acting
singly or jointly, shall have the power and authority to
act on behalf of the Trust with respect to the following
matters:
(A) the issuance and sale of the Trust Securities and the
compliance with the Underwriting Agreement in
connection therewith;
(B) to cause the Trust to enter into, and to execute,
deliver and perform on behalf of the Trust, the
Expense Agreement and such other agreements or
documents as may be necessary or desirable in
connection with the purposes and function of the
Trust;
(C) assisting in the registration of the Capital
Securities under the Securities Act of 1933, as
amended, and under state securities or blue sky laws,
and the qualification of this Trust Agreement as a
trust indenture under the Trust Indenture Act;
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(D) assisting in the listing of the Capital Securities
upon The Nasdaq National Market or such securities
exchange or exchanges as shall be determined by the
Depositor, the registration of the Capital Securities
under the Exchange Act, the compliance with the
listing requirements of The Nasdaq National Market or
the applicable securities exchange and the
preparation and filing of all periodic and other
reports and other documents pursuant to the foregoing;
(E) the sending of notices (other than notices of
default) and other information regarding the Trust
Securities and the Debentures to the Securityholders
in accordance with this Trust Agreement;
(F) the appointment of a Paying Agent, authenticating
agent and Securities Registrar in accordance with
this Trust Agreement;
(G) to the extent provided in this Trust Agreement, the
winding up of the affairs of and liquidation of the
Trust and the preparation, execution and filing of
the certificate of cancellation with the Secretary of
State of the State of Delaware;
(H) to take all action that may be necessary or
appropriate for the preservation and the continuation
of the Trust's valid existence, rights, franchises
and privileges as a statutory business trust under
the laws of the State of Delaware and of each other
jurisdiction in which such existence is necessary to
protect the limited liability of the Holders of the
Capital Securities or to enable the Trust to effect
the purposes for which the Trust was created; and
(I) the taking of any action incidental to the foregoing
as the Administrative Trustees may from time to time
determine is necessary or advisable to give effect to
the terms of this Trust Agreement for the benefit of
the Securityholders (without consideration of the
effect of any such action on any particular
Securityholder).
(ii) As among the Trustees, the Property Trustee shall have the
power, duty and authority to act on behalf of the Trust
with respect to the following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and any other
payments made in respect of the Debentures in the
Payment Account;
(D) the distribution of amounts owed to the
Securityholders in respect of the Trust Securities in
accordance with the terms of this Trust Agreement;
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(E) the exercise of all of the rights, powers and
privileges of a holder of the Debentures;
(F) the sending of notices of default and other
information regarding the Trust Securities and the
Debentures to the Securityholders in accordance with
this Trust Agreement;
(G) the distribution of the Trust Property in accordance
with the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the
winding up of the affairs of and liquidation of the
Trust;
(I) after an Event of Default, the taking of any action
incidental to the foregoing as the Property Trustee
may from time to time determine is necessary or
advisable to give effect to the terms of this Trust
Agreement and protect and conserve the Trust Property
for the benefit of the Securityholders (without
consideration of the effect of any such action on any
particular Securityholder);
(J) registering transfers of the Trust Securities in
accordance with this Trust Agreement; and
(K) except as otherwise provided in this Section
207(a)(ii), the Property Trustee shall have none of
the duties, liabilities, powers or the authority of
the Administrative Trustees set forth in Section
207(a)(i).
(b) So long as this Trust Agreement remains in effect, the Trust
(or the Trustees acting on behalf of the Trust) shall not undertake any
business, activities or transaction except as expressly provided herein or
contemplated hereby. In particular, the Trustees shall not (i) acquire any
investments or engage in any activities not authorized by this Trust
Agreement; (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off
or otherwise dispose of any of the Trust Property or interests therein,
including to Securityholders, except as expressly provided herein; (iii) take
any action that would cause the Trust to fail or cease to qualify as a
"grantor trust" for United States federal income tax purposes; (iv) incur any
indebtedness for borrowed money or issue any other debt; or (v) take or
consent to any action that would result in the placement of a Lien on any of
the Trust Property. The Administrative Trustees shall defend all claims and
demands of all Persons at any time claiming any Lien on any of the Trust
Property adverse to the interest of the Trust or the Securityholders in their
capacity as Securityholders.
(c) In connection with the issue and sale of the Capital
Securities, the Depositor shall have the right and responsibility to assist
the Trust with respect to, or effect on behalf of the Trust, the following
(and any actions taken by the Depositor in furtherance of the following prior
to the date of this Trust Agreement are hereby ratified and confirmed in all
respects):
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(i) the preparation and filing by the Trust with the
Commission and the execution on behalf of the Trust of a
registration statement on the appropriate form in relation
to the Capital Securities, the Debentures, and the
Guarantee, including any amendments thereto;
(ii) the determination of the states in which to take
appropriate action to qualify or, register for sale all or
part of the Capital Securities and to do any and all such
acts, other than actions which must be taken by or on
behalf of the Trust, and advise the Trustees of actions
they must take on behalf of the Trust, and prepare for
execution and filing any documents to be executed and
filed by the Trust or on behalf of the Trust, as the
Depositor deems necessary or advisable in order to comply
with the applicable laws of any such States;
(iii) the preparation for filing by the Trust and execution on
behalf of the Trust of an application to The Nasdaq
National Market or a national stock exchange or other
organizations for listing upon notice of issuance of any
Capital Securities and to file or cause an Administrative
Trustee to file thereafter with such exchange or
organization such notifications and documents as may be
necessary from time to time;
(iv) the preparation for filing by the Trust with the
Commission and the execution on behalf of the Trust of a
registration statement on Form 8-A relating to the
registration of the Capital Securities under Section 12(b)
or 12(g) of the Exchange Act, including any amendments
thereto;
(v) the negotiation of the terms of, and the execution for the
sale of the Capital Securities; and
(vi) the taking of any other actions necessary or desirable to
carry out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the Trustees
are authorized and directed to conduct the affairs of the Trust and to
operate the Trust so that the Trust shall not be deemed to be an "investment
company" required to be registered under the Investment Company Act, shall be
classified as a "grantor trust" and not as an association taxable as a
corporation for United States federal income tax purposes and so that the
Debentures shall be treated as indebtedness of the Depositor for United
States federal income tax purposes. In this connection, subject to Section
1002, the Depositor and the Trustees are authorized to take any action, not
inconsistent with applicable law or this Trust Agreement, that each of the
Depositor and the Trustees determines in their discretion to be necessary or
desirable for such purposes.
SECTION 208. ASSETS OF TRUST.
The assets of the Trust shall consist of the Trust Property.
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SECTION 209. TITLE TO TRUST PROPERTY.
Legal title to all Trust Property shall be vested at all times in
the Property Trustee (in its capacity as such) and shall be held and
administered by the Property Trustee for the benefit of the Securityholders
in accordance with this Trust Agreement.
ARTICLE III
PAYMENT ACCOUNT
SECTION 301. PAYMENT ACCOUNT.
(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. The Property Trustee and any agent of the
Property Trustee shall have exclusive control and sole right of withdrawal
with respect to the Payment Account for the purpose of making deposits and
withdrawals from the Payment Account in accordance with this Trust Agreement.
All monies and other property deposited or held from time to time in the
Payment Account shall be held by the Property Trustee in the Payment Account
for the exclusive benefit of the Securityholders and for distribution as
herein provided, including (and subject to) any priority of payments provided
for herein.
(b) The Property Trustee shall deposit in the Payment Account,
promptly upon receipt, all payments of principal of or interest on, and any
other payments or proceeds with respect to, the Debentures. Amounts held in
the Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
SECTION 401. DISTRIBUTIONS.
(a) Distributions on the Trust Securities shall be cumulative, and
shall accumulate whether or not there are funds of the Trust available for
the payment of Distributions. Distributions shall accumulate from [ ], 1999,
and, except during any Extended Interest Payment Period with respect to the
Debentures, shall be payable quarterly in arrears on the last calendar day of
March, June, September and December of each year, commencing on September 30,
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 (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 (and without any reduction of
interest or any other payment in respect of any such acceleration), in each
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case with the same force and effect as if made on such date (each date on
which distributions are payable in accordance with this Section 401(a), a
"Distribution Date").
(b) The Trust Securities represent undivided beneficial interests
in the Trust Property, and, as a practical matter, the Distributions on the
Trust Securities shall be payable at a rate of [ ]% per annum of the
Liquidation Amount of the Trust Securities. The amount of Distributions
payable for any full period shall be computed on the basis of a 360-day year
of twelve 30-day months. The amount of Distributions for any partial period
shall be computed on the basis of the number of days elapsed in a 360-day
year of twelve 30-day months. During any Extended Interest Payment Period
with respect to the Debentures, Distributions on the Capital Securities shall
be deferred for a period equal to the Extended Interest Payment Period. The
amount of Distributions payable for any period shall include the Additional
Amounts, if any.
(c) Distributions on the Trust Securities shall be made by the
Property Trustee solely from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Trust has funds on hand and
immediately available by 12:30 p.m. on each Distribution Date in the Payment
Account for the payment of such Distributions.
(d) Distributions on the Trust Securities with respect to a
Distribution Date shall be payable to the record holders thereof as they
appear on the Securities Register for the Trust Securities on the relevant
record date, which shall be the Business Day immediately prior to the
relevant Distribution Date.
SECTION 402. REDEMPTION.
(a) On each Debenture Redemption Date and on the maturity of the
Debentures, the Trust shall be required to redeem a Like Amount of Trust
Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60
days prior to the Redemption Date to each Holder of Trust Securities to be
redeemed, at such Holder's address appearing in the Securities Register. The
Property Trustee shall have no responsibility for the accuracy of any CUSIP
number contained in such notice. All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities are to
be redeemed, the identification and the aggregate
Liquidation Amount of the particular Trust Securities to
be redeemed;
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(v) that, on the Redemption Date, the Redemption Price shall
become due and payable upon each such Trust Security to be
redeemed and that Distributions thereon shall cease to
accumulate on and after said date, except as provided in
Section 4.2(d); and
(vi) the place or places at which Trust Securities are to be
surrendered for the payment of the Redemption Price; and
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Debentures. Redemptions of the Trust Securities shall be made
and the Redemption Price shall be payable on each Redemption Date only to the
extent that the Trust has immediately available funds then on hand and
available in the Payment Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect
of any Capital Securities, then, by 12:00 noon, New York City time, on the
Redemption Date, subject to Section 402(c), the Property Trustee, subject to
Section 402(c), shall, with respect to Capital Securities held in global
form, deposit with the Clearing Agency for such Capital Securities, to the
extent available therefor, funds sufficient to pay the applicable Redemption
Price and will give such Clearing Agency irrevocable instructions and
authority to pay the Redemption Price to the Holders of the Capital
Securities. With respect to Trust Securities that are not held in global
form, the Property Trustee, subject to Section 402(c), shall deposit with the
Paying Agent funds sufficient to pay the applicable Redemption Price and
shall give the Paying Agent irrevocable instructions and authority to pay the
Redemption Price to the record holders thereof upon surrender of their
Capital Securities Certificates. Notwithstanding the foregoing, Distributions
payable on or prior to the Redemption Date for any Trust Securities called
for redemption shall be payable to the Holders of such Trust Securities as
they appear on the 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, (i) all rights of Securityholders holding Trust Securities so called
for redemption shall cease, except the right of such Securityholders to
receive the Redemption Price, (ii) such Securities shall cease to be
Outstanding, (iii) the Clearing Agency for the Capital Securities or its
nominee, as the registered Holder of the Global Capital Securities
Certificate, shall receive a registered global certificate or certificates
representing the Debentures to be delivered upon such distribution with
respect to Capital Securities held by the Clearing Agency or its nominee, and
(iv) any Trust Securities Certificates not held by the Clearing Agency for
the Capital Securities or its nominee as specified in clause (iii) above will
be deemed to represent 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. In the
event that any date on which any Redemption Price is payable is not a
Business Day, then payment of the Redemption Price payable on such date shall
be made on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay) except that, if such
Business Day is in the next succeeding calendar year, such payment
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shall be made on the immediately preceding Business Day (and without any
reduction of interest or any other payment in respect of any such
acceleration), in each case with the same force and effect as if made on such
date. In the event that payment of the Redemption Price in respect of any
Trust Securities called for redemption is improperly withheld or refused and
not paid either by the Trust or by the Depositor pursuant to the Guarantee,
Distributions on such Trust Securities shall continue to accumulate, at the
then applicable rate, from the Redemption Date originally established by the
Trust for such Trust Securities to the date such Redemption Price is actually
paid, in which case the actual payment date shall be the date fixed for
redemption for purposes of calculating the Redemption Price.
(e) Payment of the Redemption Price on the Trust Securities shall
be made to the record holders thereof as they appear on the Securities
Register for the Trust Securities on the relevant record date, which shall be
the date 15 days prior to the relevant Redemption Date.
(f) Subject to Section 403(a), if less than all the Outstanding
Trust Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Common Securities and
the Capital Securities. The particular Capital Securities to be redeemed
shall be selected not more than 60 days prior to the Redemption Date by the
Property Trustee from the outstanding Capital Securities not previously
called for redemption, by such method (including, without limitation, by lot)
as the Property Trustee shall deem fair and appropriate and which may provide
for the selection for redemption of portions (equal to $10 or an integral
multiple of $10 in excess thereof) of the Liquidation Amount of Capital
Securities of a denomination larger than $10. The Property Trustee shall
promptly notify the Securities Registrar in writing of the Capital Securities
selected for redemption and, in the case of any Capital Securities selected
for partial redemption, the Liquidation Amount thereof to be redeemed. For
all purposes of this Trust Agreement, unless the context otherwise requires,
all provisions relating to the redemption of Capital Securities shall relate,
in the case of any Capital Securities redeemed or to be redeemed only in
part, to the portion of the Liquidation Amount of Capital Securities which
has been or is to be redeemed.
SECTION 403. SUBORDINATION OF COMMON SECURITIES.
(a) Payment of Distributions (including Additional Amounts, if
applicable) on, and the Redemption Price of, the Trust Securities, as
applicable, shall be made, subject to Section 402(f), pro rata among the
Common Securities and the Capital Securities based on the Liquidation Amount
of the Trust Securities; provided, however, that if on any Distribution Date
or Redemption Date any Event of Default resulting from a Debenture Event of
Default shall have occurred and be continuing, no payment of any Distribution
(including Additional Amounts, if applicable) on, or Redemption Price of, any
Common Security, and no other payment on account of the redemption,
liquidation or other acquisition of Common Securities, shall be made unless
payment in full in cash of all accumulated and unpaid Distributions
(including Additional Amounts, if applicable) on all Outstanding Capital
Securities for all Distribution periods terminating on or prior thereto, or
in the case of payment of the Redemption Price the full amount of such
Redemption Price on all Outstanding Capital
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Securities then called for redemption, shall have been made or provided for,
and all funds immediately available to the Property Trustee shall first be
applied to the payment in full in cash of all Distributions (including
Additional Amounts, if applicable) on, or the Redemption Price of, Capital
Securities then due and payable.
(b) In the case of the occurrence of any Event of Default resulting
from a Debenture Event of Default, the record holder of Common Securities,
the Depositor, shall be deemed to have waived any right to act with respect
to any such Event of Default under this Trust Agreement until the effect of
all such Events of Default with respect to the Capital Securities shall have
been cured, waived or otherwise eliminated. Until any such Event of Default
under this Trust Agreement with respect to the Capital Securities shall have
been so cured, waived or otherwise eliminated, the Property Trustee shall act
solely on behalf of the record holders of the Capital Securities and not the
record holder of the Common Securities, and only the Holders of the Capital
Securities shall have the right to direct the Property Trustee to act on
their behalf.
SECTION 404. PAYMENT PROCEDURES.
Payments of Distributions (including Additional Amounts, if
applicable) in respect of the Capital Securities shall be made by check
mailed to the address of the Person entitled thereto as such address shall
appear on the Securities Register or, if the Capital Securities are held by a
Clearing Agency, such Distributions shall be made to the Clearing Agency in
immediately available funds, which will credit the relevant accounts on the
applicable Distribution Dates. Payments in respect of the Common Securities
shall be made in such manner as shall be mutually agreed between the Property
Trustee and the Common Securityholder.
SECTION 405. TAX RETURNS AND REPORTS.
The Administrative Trustees shall prepare (or cause to be prepared),
at the Depositor's expense, and file all United States federal, state and
local tax and information returns and reports required to be filed by or in
respect of the Trust. In this regard, the Administrative Trustees shall (a)
prepare and file (or cause to be prepared and filed) the appropriate Internal
Revenue Service forms required to be filed in respect of the Trust in each
taxable year of the Trust; and (b) prepare and furnish (or cause to be
prepared and furnished) to each Securityholder the appropriate Internal
Revenue Service forms required to be furnished to such Securityholder or the
information required to be provided on such form. The Administrative Trustees
shall provide the Depositor with a copy of all such returns and reports
promptly after such filing or furnishing. The Property Trustee shall comply
with United States federal withholding and backup withholding tax laws and
information reporting requirements with respect to any payments to
Securityholders under the Trust Securities.
SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST.
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Upon receipt under the Debentures of Additional Interest (as defined in
Section 1.1 of the Indenture), the Property Trustee, at the direction of an
Administrative Trustee or the Depositor, shall promptly pay any taxes, duties or
governmental charges of whatsoever nature (other than withholding taxes) imposed
on the Trust by the United States or any other taxing authority.
SECTION 407. PAYMENTS UNDER INDENTURE.
Any amount payable hereunder to any record holder of Capital Securities
shall be reduced by the amount of any corresponding payment such Holder has
directly received under the Indenture pursuant to Section 513(b) or (c) hereof.
ARTICLE V
TRUST SECURITIES CERTIFICATES
SECTION 501. INITIAL OWNERSHIP.
Upon the creation of the Trust and the contribution by the Depositor
pursuant to Section 203 and until the issuance of the Trust Securities, and
at any time during which no Trust Securities are outstanding, the Depositor
shall be the sole beneficial owner of the Trust.
SECTION 502. THE TRUST SECURITIES CERTIFICATES.
The Capital Securities Certificates shall be issued in minimum
denominations of $10 Liquidation Amount and integral multiples of $10 in
excess thereof, and the Common Securities Certificates shall be issued in
denominations of $10 Liquidation Amount and integral multiples thereof. The
Trust Securities Certificates shall be executed on behalf of the Trust by
manual or facsimile signature of at least one Administrative Trustee. Trust
Securities Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been
affixed, authorized to sign on behalf of the Trust, shall be validly issued
and entitled to the benefits of this Trust Agreement, notwithstanding that
such individuals or any of them shall have ceased to be so authorized prior
to the delivery of such Trust Securities Certificates or did not hold such
offices at the date of delivery of such Trust Securities Certificates. A
transferee of a Trust Securities Certificate shall become a Securityholder,
and shall be entitled to the rights and subject to the obligations of a
Securityholder hereunder, upon due registration of such Trust Securities
Certificate in such transferee's name pursuant to Sections 504, 511 and 513.
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SECTION 503. EXECUTION, AUTHENTICATION AND DELIVERY OF TRUST
SECURITIES CERTIFICATES.
(a) On the Closing Date and on any date on which the underwriters
exercise their over-allotment option, as applicable (an "Option Closing
Date"), the Administrative Trustees shall cause Trust Securities
Certificates, in an aggregate Liquidation Amount as provided in Sections 204
and 205, to be executed on behalf of the Trust by at least one of the
Administrative Trustees and delivered to or upon the written order of the
Depositor, signed by its Chief Executive Officer, President, any Vice
President or its Treasurer without further corporate action by the Depositor,
in authorized denominations.
(b) A Capital Securities Certificate shall not be valid until
authenticated by the manual signature of an authorized signatory of the
Property Trustee. The signature shall be conclusive evidence that the Capital
Securities Certificate has been authenticated under this Trust Agreement.
Each Capital Security Certificate shall be dated the date of its
authentication.
Upon the written order of the Trust signed by one of the
Administrative Trustees, the Property Trustee shall authenticate and make
available for delivery the Capital Securities Certificates.
The Property Trustee may appoint an Authenticating Agent acceptable
to the Trust to authenticate the Capital Securities. An Authenticating Agent
may authenticate the Capital Securities whenever the Property Trustee may do
so. Each reference in this Trust Agreement to authentication by the Property
Trustee includes authentication by such agent. An Authenticating Agent has
the same rights as the Property Trustee to deal with the Company or the Trust.
SECTION 503A. GLOBAL CAPITAL SECURITY.
(a) Any Global Capital 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 Capital Security shall
constitute a single Capital Security for all purposes of this Trust Agreement.
(b) Notwithstanding any other provision in this Trust Agreement, no
Global Capital Security may be exchanged for Capital Securities registered in
the names of persons other than the Depositary or its nominee unless (i) the
Depositary notifies the Debenture Trustee that it is unwilling or unable to
continue as a depositary for such Global Capital Securities and the Depositor
is unable to locate a qualified successor depositary, (ii) the Depositor
executes and delivers to the Trustee a written order stating that it elects
to terminate the book-entry system through the Depositary or (iii) there
shall have occurred and be continuing a Debenture Event of Default.
(c) If a Capital Security is to be exchanged in whole or in part
for a beneficial interest in a Global Capital Security, then either (i) such
Global Capital Security shall be so surrendered for exchange or cancellation
as provided in this Article V or (ii) the Liquidation
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amount thereof shall be reduced or increased by an amount equal to the
portion thereof to be so exchanged or cancelled, or equal to the Liquidation
Amount of such other Capital Securities 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 Property
Trustee, in accordance with the rules and procedures of the Depositary for
such Global Capital Security (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
Capital Security by the Clearing Agency, accompanied by registration
instructions, the Administrative Trustees shall execute and the Property
Trustee shall, subject to Section 504(b) and as otherwise provided in this
Article V, authenticate and deliver any Capital Securities issuable in
exchange for such Global Capital 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 Capital Security executed, authenticated and delivered
upon registration of transfer of, or in exchange for or in lieu of, a Global
Capital Security or any portion thereof, whether pursuant to this Article V
or otherwise, shall be executed, authenticated and delivered in the form of,
and shall be, a Global Capital Security, unless such Global Capital Security
is registered in the name of a Person other than the Clearing Agency for such
Global Capital Security or a nominee thereof.
(e) The Clearing Agency or its nominee, as the registered owner of
a Global Capital Security, shall be considered the Holder of the Capital
Securities represented by such Global Capital Security for all purposes under
this Trust Agreement and the Capital Securities, and owners of beneficial
interests in such Global Capital Security shall hold such interests pursuant
to the Applicable Procedures and, except as otherwise provided herein, shall
not be entitled to receive physical delivery of any such Capital Securities
in definitive form and shall not be considered the Holders thereof under this
Trust Agreement. Accordingly, any such owner's beneficial interest in the
Global Capital Securities 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 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
Capital Security shall be exercised only through the Clearing Agency and
shall be limited to those established by law and agreements between such
owners and the Clearing Agency.
SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF CAPITAL
SECURITIES CERTIFICATES.
(a) The Depositor shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 508, a register or registers for the
purpose of registering Trust Securities Certificates and, subject to the
provisions of Section 503A, transfers and exchanges of Capital Securities
Certificates (herein referred to as the "Securities Register") in which the
registrar
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designated by the Depositor (the "Securities Registrar"), subject to such
reasonable regulations as it may prescribe, shall provide for the
registration of Capital Securities Certificates and Common Securities
Certificates (subject to Section 510 in the case of the Common Securities
Certificates) and registration of transfers and exchanges of referred
Securities Certificates as herein provided. The Property Trustee shall be the
initial Securities Registrar.
(b) Subject to the provisions of Section 503A, upon surrender for
registration of transfer of any Capital Securities Certificate at the office
or agency maintained pursuant to Section 508, the Administrative Trustees or
any one of them shall execute and deliver, in the name of the designated
transferee or transferees, one or more new Capital Securities Certificates in
authorized denominations of a like aggregate Liquidation Amount dated the
date of execution by such Administrative Trustee or Trustees. The Securities
Registrar shall not be required to register the transfer of any Capital
Securities that have been called for redemption. At the option of a record
holder, Capital Securities Certificates may be exchanged for other Capital
Securities Certificates in authorized denominations of the same class and of
a like aggregate Liquidation Amount upon surrender of the Capital Securities
Certificates to be exchanged at the office or agency maintained pursuant to
Section 508.
(c) Every Capital Securities Certificate presented or surrendered
for registration of transfer or exchange, subject to the provisions of
Section 503A, shall be accompanied by a written instrument of transfer in
form satisfactory to the Property Trustee and the Securities Registrar duly
executed by the Holder or his attorney duly authorized in writing. Each
Capital Securities Certificate surrendered for registration of transfer or
exchange shall be canceled and subsequently disposed of by the Property
Trustee in accordance with its customary practice. The Trust shall not be
required to (i) issue, register the transfer of, or exchange any Capital
Securities during a period beginning at the opening of business 15 calendar
days before the date of mailing of a notice of redemption of any Capital
Securities called for redemption and ending at the close of business on the
day of such mailing; or (ii) register the transfer of or exchange any Capital
Securities so selected for redemption, in whole or in part, except the
unredeemed portion of any such Capital Securities being redeemed in part.
(d) No service charge shall be made for any registration of
transfer or exchange of Capital Securities Certificates, subject to the
provisions of Section 503A, but the Securities Registrar may require payment
of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer or exchange of Capital Securities
Certificates.
(e) Capital 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 Capital Security not
made in accordance with this Trust Agreement shall be null and void. A
Capital Security that is not a Global Capital Security may be transferred, in
whole or in part, to a Person who takes delivery in the form of another
Capital Security that is not a Global Capital Security as provided in Section
504(a). A beneficial interest in a Global Capital Security may be exchanged
for a Capital Security that is not a Global Capital Security only as provided
in Section 503A.
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SECTION 505. MUTILATED, DESTROYED, LOST OR STOLEN TRUST
SECURITIES CERTIFICATES.
If (a) any mutilated Trust Securities certificate shall be
surrendered to the Securities Registrar, or if the Securities Registrar shall
receive evidence to its satisfaction of the destruction, loss or theft of any
Trust Securities Certificate; and (b) there shall be delivered to the
Securities Registrar and the Administrative Trustees such security or
indemnity as may be required by them to save each of them harmless, then in
the absence of notice that such Trust Securities Certificate shall have been
acquired by a bona fide purchaser, the Administrative Trustees, or any one of
them, on behalf of the Trust shall execute and make available for delivery,
in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Trust Securities Certificate, a new Trust Securities Certificate of like
class, tenor and denomination. In connection with the issuance of any new
Trust Securities Certificate under this Section 505, the Administrative
Trustees or the Securities Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith. Any duplicate Trust Securities Certificate issued
pursuant to this Section 505 shall constitute conclusive evidence of an
undivided beneficial interest in the assets of the Trust, as if originally
issued, whether or not the lost, stolen or destroyed Trust Securities
Certificate shall be found at any time.
SECTION 506. PERSONS DEEMED SECURITYHOLDERS.
The Trustees, the Paying Agent and the Securities Registrar shall
treat the Person in whose name any Trust Securities Certificate shall be
registered in the Securities Register as the owner of such Trust Securities
Certificate for the purpose of receiving Distributions and for all other
purposes whatsoever, and neither the Trustees nor the Securities Registrar
shall be bound by any notice to the contrary.
SECTION 507. ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES.
At any time when the Property Trustee is not also acting as the
Securities Registrar, the Administrative Trustees or the Depositor shall
furnish or cause to be furnished to the Property Trustee (a) within five
Business Days of each record date, a list, in such form as the Property
Trustee may reasonably require, of the names and addresses of the
Securityholders as of the most recent record date; and (b) promptly after
receipt by any Administrative Trustee or the Depositor of a request therefor
from the Property Trustee in order to enable the Property Trustee to
discharge its obligations under this Trust Agreement, in each case to the
extent such information is in the possession or control of the Administrative
Trustees or the Depositor and is not identical to a previously supplied list
or has not otherwise been received by the Property Trustee in its capacity as
Securities Registrar. The rights of Securityholders to communicate with other
Securityholders with respect to their rights under this Trust Agreement or
under the Trust Securities, and the corresponding rights of the Trustee shall
be as provided in the Trust Indenture Act. Each Holder, by receiving and
holding a Trust Securities Certificate, and each owner shall be deemed to
have agreed not to hold the Depositor, the Property Trustee or the
Administrative Trustees accountable by reason of the disclosure of its name
and address, regardless of the source from which such information was derived.
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SECTION 508. MAINTENANCE OF OFFICE OR AGENCY.
The Administrative Trustees shall maintain, or cause to be
maintained, in The City of New York, New York or Wilmington, Delaware or
other location designated by the Administrative Trustees, an office or
offices or agency or agencies where Capital Securities Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Trustees in respect of the Trust Securities
Certificates may be served. The Administrative Trustees initially designate
the Corporate Trust Office of the Property Trustee, First Union Trust
Company, National Association, as the principal corporate trust office for
such purposes. The Administrative Trustees shall give prompt written notice
to the Depositor and to the Securityholders of any change in the location of
the Securities Register or any such office or agency.
SECTION 509. APPOINTMENT OF PAYING AGENT.
The Paying Agent shall make Distributions to Securityholders from
the Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrative Trustees. Any Paying Agent shall have
the revocable power to withdraw funds from the Payment Account for the
purpose of making the Distributions referred to above. The Administrative
Trustees may revoke such power and remove the Paying Agent if such Trustees
determine in their sole discretion that the Paying Agent shall have failed to
perform its obligations under this Trust Agreement in any material respect.
The Paying Agent shall initially be the Property Trustee, and any co-paying
agent chosen by the Property Trustee, and acceptable to the Administrative
Trustees and the Depositor. Any Person acting as Paying Agent shall be
permitted to resign as Paying Agent upon 30 days' written notice to the
Administrative Trustees, the Property Trustee and the Depositor. In the event
that the Property Trustee shall no longer be the Paying Agent or a successor
Paying Agent shall resign or its authority to act be revoked, the
Administrative Trustees shall appoint a successor that is acceptable to the
Property Trustee and the Depositor to act as Paying Agent (which shall be a
bank or trust company). The Administrative Trustees shall cause such
successor Paying Agent or any additional Paying Agent appointed by the
Administrative Trustees to execute and deliver to the Trustees an instrument
in which such successor Paying Agent or additional Paying Agent shall agree
with the Trustees that as Paying Agent, such successor Paying Agent or
additional Paying Agent shall hold all sums, if any, held by it for payment
to the Securityholders in trust for the benefit of the Securityholders
entitled thereto until such sums shall be paid to such Securityholders. The
Paying Agent shall return all unclaimed funds to the Property Trustee and,
upon removal of a Paying Agent, such Paying Agent shall also return all funds
in its possession to the Property Trustee. The provisions of Sections 801,
803 and 806 shall apply to the Property Trustee also in its role as Paying
Agent, for so long as the Property Trustee shall act as Paying Agent and, to
the extent applicable, to any other paying agent appointed hereunder. Any
reference in this Agreement to the Paying Agent shall include any co-paying
agent unless the context requires otherwise.
SECTION 510. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR.
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On the Closing Date, the Depositor shall acquire and retain
beneficial and record ownership of the Common Securities. To the fullest
extent permitted by law, any attempted transfer of the Common Securities
(other than a transfer in connection with a merger or consolidation of the
Depositor into another corporation pursuant to Section 12.1 of the Indenture)
shall be void. The Administrative Trustees shall cause each Common Securities
Certificate issued to the Depositor to contain a legend stating "THIS
CERTIFICATE IS NOT TRANSFERABLE."
SECTION 511. TRUST SECURITIES CERTIFICATES.
(a) Upon their original issuance, Capital Securities Certificates
shall be issued in the form of one or more fully registered Global Capital
Securities Certificates which will be deposited with or on behalf of the
Clearing Agency and registered in the name of the Clearing Agency's nominee.
Unless and until it is exchangeable in whole or in part for the Capital
Securities in definitive form, a global security may not be transferred
except as a whole by the Clearing Agency to a nominee of the Clearing Agency
or by a nominee of the Clearing Agency to the Clearing Agency or another
nominee of the Clearing Agency or by the Clearing Agency or any such nominee
to a successor of such Clearing Agency or a nominee of such successor.
(b) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive
Common Securities Certificate.
SECTION 512. 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 Capital Securities are
represented by a Global Capital Securities Certificate, the Trustees shall
give all such notices and communications specified herein to be given to the
Clearing Agency, and shall have no obligations to provide notice to the
owners of the beneficial interest in the Global Capital Securities.
SECTION 513. RIGHTS OF SECURITYHOLDERS.
(a) The legal title to the Trust Property is vested exclusively in
the Property Trustee (in its capacity as such) in accordance with Section
209, and the Securityholders shall not have any right or title therein other
than the undivided beneficial interest in the assets of the Trust conferred
by their Trust Securities and they shall have no right to call for any
partition or division of property, profits or rights of the Trust except as
described below. The Trust Securities shall be personal property giving only
the rights specifically set forth therein and in this Trust Agreement. The
Trust Securities shall have no preemptive or similar rights. When issued and
delivered to Holders of the Capital Securities against payment of the
purchase price therefor, the Capital Securities shall be fully paid and
nonassessable interests in the Trust. The Holders of the Capital 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.
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(b) For so long as any Capital Securities remain Outstanding, if,
upon a Debenture Event of Default, the Debenture Trustee fails or the holders
of not less than 25% in principal amount of the outstanding Debentures fail
to declare the principal of all of the Debentures to be immediately due and
payable, the Holders of at least 25% in Liquidation Amount of the Capital
Securities then Outstanding shall have such right by a notice in writing to
the Depositor and the Debenture Trustee; and upon any such declaration such
principal amount of and the accrued interest on all of the Debentures shall
become immediately due and payable, provided that the payment of principal
and interest on such Debentures shall remain subordinated to the extent
provided in the Indenture.
(c) For so long as any Capital Securities remain outstanding, upon
a Debenture Event of Default arising from the failure to pay interest or
principal on the Debentures, the Holders of any Capital Securities then
Outstanding shall, to the fullest extent permitted by law, have the right to
directly institute proceedings for enforcement of payment to such Holders of
principal of or interest on the Debentures having a principal amount equal to
the Liquidation Amount of the Capital Securities of such Holders.
ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
SECTION 601. LIMITATIONS ON VOTING RIGHTS.
(a) Except as provided in this Section 601, in Sections 512, 810
and 1002 and in the Indenture and as otherwise required by law, no record
Holder of Capital Securities shall have any right to vote or in any manner
otherwise control the administration, operation and management of the Trust
or the obligations of the parties hereto, nor shall anything herein set
forth, or contained in the terms of the Trust Securities Certificates, be
construed so as to constitute the Securityholders from time to time as
partners or members of an association.
(b) So long as any Debentures are held by the Property Trustee on
behalf of the Trust, the Trustees shall not (i) direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee, or executing any trust or power conferred on the Debenture Trustee
with respect to such Debentures; (ii) waive any past default which is
waivable under Article VII of the Indenture; (iii) exercise any right to
rescind or annul a declaration that the principal of all the Debentures shall
be due and payable; or (iv) consent to any amendment, modification or
termination of the Indenture or the Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the Holders
of at least a majority in Liquidation Amount of all Outstanding Capital
Securities; PROVIDED, HOWEVER, that where a consent under the Indenture would
require the consent of each Holder of Outstanding Debentures affected
thereby, no such consent shall be given by the Property Trustee without the
prior written consent of each holder of Capital Securities. The Trustees
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shall not revoke any action previously authorized or approved by a vote of
the Holders of the Outstanding Capital Securities, except by a subsequent
vote of the Holders of the Outstanding Capital Securities. The Property
Trustee shall notify each Holder of the Outstanding Capital Securities of any
notice of default received from the Debenture Trustee with respect to the
Debentures. In addition to obtaining the foregoing approvals of the Holders
of the Capital Securities, prior to taking any of the foregoing actions, the
Trustees shall, at the expense of the Depositor, obtain an Opinion of Counsel
experienced in such matters to the effect that the Trust shall continue to be
classified as a grantor trust and not as an association taxable as a
corporation for United States federal income tax purposes on account of such
action.
(c) If any proposed amendment to the Trust Agreement provides for,
or the Trustees otherwise propose to effect, (i) any action that would
adversely affect in any material respect the powers, preferences or special
rights of the Capital Securities, whether by way of amendment to the Trust
Agreement or otherwise; or (ii) the dissolution, winding-up or termination of
the Trust, other than pursuant to the terms of this Trust Agreement, then the
Holders of Outstanding Capital Securities as a class shall be entitled to
vote on such amendment or proposal and such amendment or proposal shall not
be effective except with the approval of the Holders of at least a majority
in Liquidation Amount of the Outstanding Capital Securities. No amendment to
this Trust Agreement may be made if, as a result of such amendment, the Trust
would cease to be classified as a grantor trust or would be classified as an
association taxable as a corporation for United States federal income tax
purposes.
SECTION 602. NOTICE OF MEETINGS.
Notice of all meetings of the Capital Securityholders, stating the
time, place and purpose of the meeting, shall be given by the Property
Trustee pursuant to Section 1008 to each Capital Securityholder of record, at
his registered address, at least 15 days and not more than 90 days before the
meeting. At any such meeting, any business properly before the meeting may be
so considered whether or not stated in the notice of the meeting. Any
adjourned meeting may be held as adjourned without further notice.
SECTION 603. MEETINGS OF CAPITAL SECURITYHOLDERS.
(a) No annual meeting of Securityholders is required to be held.
The Administrative Trustees, however, shall call a meeting of Securityholders
to vote on any matter in respect of which Capital Securityholders are
entitled to vote upon the written request of the Capital Securityholders of
25% of the Outstanding Capital Securities (based upon their aggregate
Liquidation Amount) and the Administrative Trustees or the Property Trustee
may, at any time in their discretion, call a meeting of Capital
Securityholders to vote on any matters as to which the Capital
Securityholders are entitled to vote.
(b) Capital Securityholders of record of 50% of the Outstanding
Capital Securities (based upon their aggregate Liquidation Amount), present
in person or by proxy, shall constitute a quorum at any meeting of
Securityholders.
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(c) If a quorum is present at a meeting, an affirmative vote by the
Capital Securityholders of record present, in person or by proxy, holding
more than a majority of the Capital Securities (based upon their aggregate
Liquidation Amount) held by the Capital Securityholders of record present,
either in person or by proxy, at such meeting shall constitute the action of
the Securityholders, unless this Trust Agreement requires a greater number of
affirmative votes.
SECTION 604. VOTING RIGHTS.
Securityholders shall be entitled to one vote for each $10 of
Liquidation Amount represented by their Trust Securities (with any fractional
multiple thereof rounded up or down as the case may be to the closest integral
multiple) in respect of any matter as to which such Securityholders are entitled
to vote.
SECTION 605. PROXIES, ETC.
At any meeting of Securityholders, any Securityholder entitled to
vote thereat may vote by proxy, provided that no proxy, shall be voted at any
meeting unless it shall have been placed on file with the Administrative
Trustees, or with such other officer or agent of the Trust as the
Administrative Trustees may direct, for verification prior to the time at
which such vote shall be taken. 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 Securityholder shall be deemed valid unless challenged at or
prior to its exercise, and, the burden of proving invalidity shall rest on
the challenger. No proxy shall be valid more than three years after its date
of execution.
SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT.
Any action which may be taken by Securityholders at a meeting may be
taken without a meeting if Securityholders holding more than a majority of
all outstanding Trust Securities (based upon their aggregate Liquidation
Amount) entitled to vote in respect of such action (or such larger proportion
thereof as shall be required by any express provision of this Trust
Agreement) shall consent to the action in writing (based upon their aggregate
Liquidation Amount).
SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES.
For the purposes of determining the Securityholders who are entitled
to notice of and to vote at any meeting or by written consent, or to
participate in any Distribution on the Trust Securities in respect of which a
record date is not otherwise provided for in this Trust Agreement, or for the
purpose of any other action, the Administrative Trustees or the Property
Trustee may from time to time fix a date, not more than 90 days prior to the
date of any meeting of Securityholders or the payment of Distribution or
other action, as the case may be,
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as a record date for the determination of the identity of the Securityholders
of record for such purposes.
SECTION 608. ACTS OF SECURITYHOLDERS.
(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 Securityholders may be embodied in and evidenced by
one or more instruments of substantially similar tenor signed by such
Securityholders or owners in person or by an agent duly appointed in writing;
and, except as otherwise expressly provided herein, such action shall become
effective when such instrument or instruments are delivered to an
Administrative Trustee. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as
the "Act" of the Securityholders 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 801) conclusive in favor of the Trustees, if made in the
manner provided in this Section 608.
(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 Trustee receiving the
same deems sufficient.
(c) The ownership of Capital Securities shall be proved by the
Securities Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Securityholder of any Trust Security shall bind
every future Securityholder of the same Trust Security and the Securityholder
of every Trust Security issued upon the registration of transfer thereof or
in exchange therefor or in lieu thereof in respect of anything done, omitted
or suffered to be done by the Trustees or the Trust in reliance thereon,
whether or not notation of such action is made upon such Trust Security.
(e) Without limiting the foregoing, a Securityholder entitled
hereunder to take any action hereunder with regard to any particular Trust
Security may do so with regard to all or any part of the Liquidation Amount
of such Trust Security or by one or more duly appointed agents each of which
may do so pursuant to such appointment with regard to all or any part of such
liquidation amount.
(f) A Securityholder may institute a legal proceeding directly
against the Depositor under the Guarantee to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Guarantee
Trustee (as defined in the Guarantee), the Trust or any Person.
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SECTION 609. INSPECTION OF RECORDS.
Upon reasonable notice to the Administrative Trustees and the
Property Trustee, the records of the Trust shall be open to inspection at the
principal executive office of the Trust (as indicated in Section 202) by
record holders of the Trust Securities during normal business hours for any
purpose reasonably related to such record holder's interest as a record
holder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
SECTION 701. REPRESENTATIONS AND WARRANTIES OF THE BANK AND THE
PROPERTY TRUSTEE.
The Bank and the Property Trustee, each severally on behalf of and
as to itself, as of the date hereof, and each Successor Property Trustee at
the time of the Successor Property Trustee's acceptance of its appointment as
Property Trustee hereunder (in the case of a Successor Property Trustee, the
term "Bank" as used herein shall be deemed to refer to such Successor
Property Trustee in its separate corporate capacity), hereby represents and
warrants (as applicable) for the benefit of the Depositor and the
Securityholders that:
(a) the Bank is a national banking association with its principal
place of business in the State of Delaware or, with respect to a Successor
Property Trustee, a state chartered bank and trust company; duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(b) the Bank has full corporate power, authority and legal right to
execute, deliver and perform its obligations under this Trust Agreement and
has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(c) this Trust Agreement has been duly authorized, executed and
delivered by the Property Trustee and constitutes the valid and legally
binding agreement of the Property Trustee enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors, rights and to general
equity principles;
(d) the execution, delivery and performance by the Property Trustee
of this Trust Agreement has been duly authorized by all necessary corporate
or other action on the part of the Property Trustee and does not require any
approval of stockholders of the Bank and such execution, delivery and
performance shall not (i) violate the Bank's charter or by-laws; (ii) violate
any provision of, or constitute, with or without notice or lapse of time, a
default under, or result in the creation or imposition of, any Lien on any
properties included in the Trust
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Property pursuant to the provisions of, any indenture, mortgage, credit
agreement, license or other agreement or instrument to which the Property
Trustee or the Bank is a party or by which it is bound; or (iii) violate any
law, governmental rule or regulation of the United States or the State of
Delaware, as the case may be, governing the banking or trust powers of the
Bank or the Property Trustee (as appropriate in context) or any order,
judgment or decree applicable to the Property Trustee or the Bank;
(e) neither the authorization, execution or delivery by the
Property Trustee of this Trust Agreement nor the consummation of any of the
transactions by the Property Trustee contemplated herein or therein requires
the consent or approval of, the giving of notice to, the registration with or
the taking of any other action with respect to any governmental authority or
agency under any existing federal law governing the banking or trust powers
of the Bank or the Property Trustee, as the case may be, under the laws of
the United States or the State of Delaware, other than the filing of a
Certificate of Trust with the Secretary of State of the State of Delaware;
(f) there are no proceedings pending or, to the best of the
Property Trustee's knowledge, threatened against or affecting the Bank or the
Property Trustee in any court or before any governmental authority, agency or
arbitration board or tribunal which, individually or in the aggregate, would
materially and adversely affect the Trust or would question the right, power
and authority of the Property Trustee to enter into or perform its
obligations as one of the Trustees under this Trust Agreement; and
(g) the Property Trustee is a Person eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of at
least $50,000,000.
SECTION 702. REPRESENTATIONS AND WARRANTIES OF THE DELAWARE BANK AND
THE DELAWARE TRUSTEE.
The Delaware Bank and the Delaware Trustee, each severally on behalf
of and as to itself, as of the date hereof, and each Successor Delaware
Trustee at the time of the Successor Delaware Trustee's acceptance of
appointment as Delaware Trustee hereunder (the term "Delaware Bank" being
used to refer to such Successor Delaware Trustee in its separate corporate
capacity), hereby represents and warrants (as applicable) for the benefit of
the Depositor and the Securityholders that:
(a) the Delaware Bank is a national banking association with its
principal place of business in the State of Delaware, or, if a Successor
Delaware Trustee, is a Delaware banking corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware;
(b) the Delaware Bank has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust
Agreement and has taken all necessary action to authorize the execution,
delivery and performance by it of this Trust Agreement;
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(c) this Trust Agreement has been duly authorized, executed and
delivered by the Delaware Trustee and constitutes the valid and legally
binding agreement of the Delaware Trustee enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors, rights and to general
equity principles;
(d) the execution, delivery and performance by the Delaware Trustee
of this Trust Agreement has been duly authorized by all necessary corporate
or other action on the part of the Delaware Trustee and does not require any
approval of stockholders of the Delaware Bank and such execution, delivery
and performance shall not (i) violate the Delaware Bank's charter or by-laws;
(ii) violate any provision of, or constitute, with or without notice or lapse
of time, a default under, or result in the creation or imposition of, any
Lien on any properties included in the Trust Property pursuant to the
provisions of, any indenture, mortgage, credit agreement, license or other
agreement or instrument to which the Delaware Bank or the Delaware Trustee is
a party or by which it is bound; or (iii) violate any law, governmental rule
or regulation of the United States or the State of Delaware, as the case may
be, governing the banking or trust powers of the Delaware Bank or the
Delaware Trustee (as appropriate in context) or any order, judgment or decree
applicable to the Delaware Bank or the Delaware Trustee;
(e) neither the authorization, execution or delivery by the
Delaware Trustee of this Trust Agreement nor the consummation of any of the
transactions by the Delaware Trustee contemplated herein or therein requires
the consent or approval of, the giving of notice to, the registration with or
the taking of any other action with respect to any governmental authority or
agency under any existing federal law governing the banking or trust powers
of the Delaware Bank or the Delaware Trustee, as the case may be, under the
laws of the United States or the State of Delaware, other than the filing of
the Certificate of Trust with the Secretary of State of the State of
Delaware; and
(f) there are no proceedings pending or, to the best of the
Delaware Trustee's knowledge, threatened against or affecting the Delaware
Bank or the Delaware Trustee in any court or before any governmental
authority, agency or arbitration board or tribunal which, individually or in
the aggregate, would materially and adversely affect the Trust or would
question the right, power and authority of the Delaware Trustee to enter into
or perform its obligations as one of the Trustees under this Trust Agreement.
SECTION 703. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
(a) the Trust Securities Certificates issued on the Closing Date on
behalf of the Trust have been duly authorized and, shall have been, duly and
validly executed, issued and delivered by the Administrative Trustees
pursuant to the terms and provisions of, and in accordance with the
requirements of, this Trust Agreement and the Securityholders shall be, as of
such date, entitled to the benefits of this Trust Agreement; and
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(b) there are no taxes, fees or other governmental charges payable
by the Trust (or the Trustees on behalf of the Trust) under the laws of the
State of Delaware or any political subdivision thereof in connection with the
execution, delivery and performance by the Bank, the Property Trustee or the
Delaware Trustee, as the case may be, of this Trust Agreement.
ARTICLE VIII
TRUSTEES
SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The duties and responsibilities of the Trustees shall be as
provided by this Trust Agreement and, in the case of the Property Trustee, by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Trust Agreement shall require the Trustees to expend or risk their own funds
or otherwise incur any financial liability in the performance of any of their
duties hereunder, or in the exercise of any of their rights or powers, if
they shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably
assured to it. No Administrative Trustee nor the Delaware Trustee shall be
liable for its act or omissions hereunder except as a result of its own gross
negligence or willful misconduct. The Property Trustee's liability shall be
determined under the Trust Indenture Act. Whether or not therein expressly so
provided, every provision of this Trust Agreement relating to the conduct or
affecting the liability of or affording protection to the Trustees shall be
subject to the provisions of this Section 801. To the extent that, at law or
in equity, the Delaware Trustee or an Administrative Trustee has duties
(including fiduciary duties) and liabilities relating thereto to the Trust or
to the Securityholders, the Delaware Trustee or such Administrative Trustee
shall not be liable to the Trust or to any Securityholder for such Trustee's
good faith reliance on the provisions of this Trust Agreement. The provisions
of this Trust Agreement, to the extent that they restrict the duties and
liabilities of the Delaware Trustee or the Administrative Trustees otherwise
existing at law or in equity, are agreed by the Depositor and the
Securityholders to replace such other duties and liabilities of the Delaware
Trustee or the Administrative Trustees, as the case may be.
(b) All payments made by the Property Trustee or a Paying Agent in
respect of the Trust Securities shall be made only from the revenue and
proceeds from the Trust Property and only to the extent that there shall be
sufficient revenue or proceeds from the Trust Property to enable the Property
Trustee or a Paying Agent to make payments in accordance with the terms
hereof. Each Securityholder, by its acceptance of a Trust Security, agrees
that it shall look solely to the revenue and proceeds from the Trust Property
to the extent legally available for distribution to it as herein provided and
that the Trustees are not personally liable to it for any amount
distributable in respect of any Trust Security or for any other liability in
respect of any Trust Security. This Section 801(b) does not limit the
liability of the Trustees expressly set forth elsewhere in this Trust
Agreement or, in the case of the Property Trustee, in the Trust Indenture Act.
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(c) No provision of this Trust Agreement shall be construed to
relieve the Property Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(i) the Property Trustee shall not be liable for any error of
judgment made in good faith by an authorized officer of
the Property Trustee, unless it shall be proved that the
Property Trustee was negligent in ascertaining the
pertinent facts;
(ii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good
faith in accordance with the direction of the Holders of
not less than a majority in Liquidation Amount of the
Trust Securities relating to the time, method and place
of conducting any proceeding for any remedy available to
the Property Trustee, or exercising any trust or power
conferred upon the Property Trustee under this Trust
Agreement;
(iii) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the
Debentures and the Payment Account shall be to deal with
such Property in a similar manner as the Property Trustee
deals with similar property for its own account, subject
to the protections and limitations on liability afforded
to the Property Trustee under this Trust Agreement and
the Trust Indenture Act;
(iv) the Property Trustee shall not be liable for any interest
on any money received by it except as it may otherwise
agree with the Depositor and money held by the Property
Trustee need not be segregated from other funds held by
it except in relation to the Payment Account maintained
by the Property Trustee pursuant to Section 301 and
except to the extent otherwise required by law; and
(d) the Property Trustee shall not be responsible for monitoring
the compliance by the Administrative Trustees or the Depositor with their
respective duties under this Trust Agreement, nor shall the Property Trustee
be liable for the negligence, default or misconduct of the Administrative
Trustees or the Depositor.
SECTION 802. CERTAIN NOTICES.
(a) Within five Business Days after the occurrence of any Event of
Default actually known to the Property Trustee, the Property Trustee shall
transmit, in the manner and to the extent provided in Section 1008, notice of
such Event of Default to the Securityholders, the Administrative Trustees and
the Depositor, unless such Event of Default shall have been cured or waived.
For purposes of this Section 802 the term "Event of Default" means any event
that is, or after notice or lapse of time or both would become, an Event of
Default.
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(b) The Administrative Trustees shall transmit, to the
Securityholders in the manner and to the extent provided in Section 1008,
notice of the Depositor's election to begin or further extend an Extended
Interest Payment Period on the Debentures (unless such election shall have
been revoked) within the time specified for transmitting such notice to the
holders of the Debentures pursuant to the Indenture as originally executed.
SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE.
Subject to the provisions of Section 801:
(a) the Property Trustee may rely and shall be protected in acting
or refraining from acting in good faith upon any resolution, Opinion of
Counsel, certificate, written representation of a Holder or transferee,
certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by
it to be genuine and to have been signed or presented by the proper party or
parties;
(b) if (i) in performing its duties under this Trust Agreement the
Property Trustee is required to decide between alternative courses of action;
or (ii) in construing any of the provisions of this Trust Agreement the
Property Trustee finds the same ambiguous or inconsistent with other
provisions contained herein; or (iii) the Property Trustee is unsure of the
application of any provision of this Trust Agreement, then, except as to any
matter as to which the Capital Securityholders are entitled to vote under the
terms of this Trust Agreement, the Property Trustee shall deliver a notice to
the Depositor requesting written instructions of the Depositor as to the
course of action to be taken and the Property Trustee shall take such action,
or refrain from taking such action, as the Property Trustee shall be
instructed in writing to take, or to refrain from taking, by the Depositor;
provided, however, that if the Property Trustee does not receive such
instructions of the Depositor within 10 Business Days after it has delivered
such notice, or such reasonably shorter period of time set forth in such
notice (which to the extent practicable shall not be less than 2 Business
Days), it may, but shall be under no duty to, take or refrain from taking
such action not inconsistent with this Trust Agreement as it shall deem
advisable and in the best interests of the Securityholders, in which event
the Property Trustee shall have no liability except for its own bad faith,
negligence or willful misconduct;
(c) any direction or act of the Depositor or the Administrative
Trustees contemplated by this Trust Agreement shall be sufficiently evidenced
by an Officers' Certificate;
(d) whenever in the administration of this Trust Agreement, the
Property Trustee shall deem it desirable that a matter be established before
undertaking, suffering or omitting any action hereunder, the Property Trustee
(unless other evidence is herein specifically prescribed) may, in the absence
of bad faith on its part, request and conclusively rely upon an Officer's
Certificate which, upon receipt of such request, shall be promptly delivered
by the Depositor or the Administrative Trustees;
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(e) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any financing
or continuation statement, any filing under tax or securities laws or any
filing under tax or securities laws) or any rerecording, refiling or
reregistration thereof;
(f) the Property Trustee may consult with counsel of its choice
(which counsel may be counsel to the Depositor or any of its Affiliates) and
the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon and, in accordance with such
advice, such counsel may be counsel to the Depositor or any of its
Affiliates, and may include any of its employees; the Property Trustee shall
have the right at any time to seek instructions concerning the administration
of this Trust Agreement from any court of competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Trust Agreement at the
request or direction of any of the Securityholders pursuant to this Trust
Agreement, unless such Securityholders shall have offered to the Property
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(h) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, approval, bond, debenture, note or other evidence of
indebtedness or other paper or document, unless requested in writing to do so
by one or more Securityholders, but the Property Trustee may make such
further inquiry or investigation into such facts or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
its agents or attorneys, provided that the Property Trustee shall be
responsible for its own negligence or recklessness with respect to selection
of any agent or attorney appointed by it hereunder;
(j) whenever in the administration of this Trust Agreement the
Property Trustee shall deem it desirable to receive instructions with respect
to enforcing any remedy or right or taking any other action hereunder the
Property Trustee (i) may request instructions from the Holders of the Trust
Securities which instructions may only be given by the Holders of the same
proportion in Liquidation Amount of the Trust Securities as would be entitled
to direct the Property Trustee under the terms of the Trust Securities in
respect of such remedy, right or action; (ii) may refrain from enforcing such
remedy or right or taking such other action until such instructions are
received; and (iii) shall be protected in acting in accordance with such
instructions; and
(k) except as otherwise expressly provided by this Trust Agreement,
the Property Trustee shall not be under any obligation to take any action
that is discretionary under the provisions of this Trust Agreement. No
provision of this Trust Agreement shall be deemed to impose any duty or
obligation on the Property Trustee to perform any act or acts or exercise
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any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property
Trustee shall be construed to be a duty.
SECTION 804. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The Recitals contained herein and in the Trust Securities
Certificates shall be taken as the statements of the Trust, and the Trustees
do not assume any responsibility for their correctness. The Trustees shall
not be accountable for the use or application by the Depositor of the
proceeds of the Debentures.
SECTION 805. MAY HOLD SECURITIES.
Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and, subject to Sections 808 and 813 and except as provided in the
definition of the term "Outstanding" in Article I, may otherwise deal with
the Trust with the same rights it would have if it were not a Trustee or such
other agent.
SECTION 806. COMPENSATION; INDEMNITY; FEES.
The Depositor agrees:
(a) to pay to the Trustees from time to time 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), in the case of the Property Trustee, as set forth in a
written agreement between the Depositor and the Property Trustee;
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this
Trust Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to such Trustee's negligence,
bad faith or willful misconduct (or, in the case of the Administrative
Trustees or the Delaware Trustee, any such expense, disbursement or advance
as may be attributable to its, his or her gross negligence, bad faith or
willful misconduct); and
(c) to indemnify each of the Trustees or any predecessor Trustee
for, and to hold the Trustees harmless against, any loss, damage, claims,
liability, penalty or expense of any kind or nature whatsoever, arising out
of or in connection with the acceptance or administration of this Trust
Agreement, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder, except any such expense, disbursement or
advance as may be attributable to such Trustee's negligence, bad faith or
willful misconduct for (or, in the case of
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the Administrative Trustees or the Delaware Trustee, any such expense,
disbursement or advance as may be attributable to its, his or her gross
negligence, bad faith or willful misconduct).
Each Trustee may claim a Lien or charge on Trust Property as a
result of any amount due and unpaid pursuant to this Section 806. The
Property Trustee and the Delaware Trustee may be the same Person.
SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF
TRUSTEES.
(a) There shall at all times be a Property Trustee hereunder with
respect to the Trust Securities. The Property Trustee shall be a Person that
is eligible pursuant to the Trust Indenture Act to act as such and has a
combined capital and surplus of at least $50,000,000. If any such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of its supervising or examining authority, then for the purposes
of this Section 807, 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 807, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article VIII.
(b) There shall at all times be one or more Administrative Trustees
hereunder with respect to the Trust Securities. Each Administrative Trustee
shall be either a natural person who is at least 21 years of age or a legal
entity that shall act through one or more persons authorized to bind that
entity.
(c) There shall at all times be a Delaware Trustee with respect to
the Trust Securities. The Delaware Trustee shall either be (i) a natural
person who is at least 21 years of age and a resident of the State of
Delaware; or (ii) a legal entity with its principal place of business in the
State of Delaware and that otherwise meets the requirements of applicable
Delaware law that shall act through one or more persons authorized to bind
such entity.
SECTION 808. CONFLICTING INTERESTS.
If the Property Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Property Trustee shall
either eliminate such interest or resign, to the extent and in the manner
provided by, and subject to the provisions of, the Trust Indenture Act and
this Trust Agreement.
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SECTION 809. 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 Depositor shall
have power to appoint, and upon the written request of the Property Trustee,
the Depositor 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 809. If the Depositor does not join in such appointment within 15
days after the receipt by it of a request so to do, or in case a Debenture
Event of Default has occurred and is continuing, the Property Trustee alone
shall have power to make such appointment. Any co-trustee or separate trustee
appointed pursuant to this Section 809 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 and
all rights, powers, duties and obligations hereunder in
respect of the custody of securities, cash and other
personal property held by, or required to be deposited or
pledged with, the Trustees specified hereunder, shall be
exercised, solely by such Trustees and not by such
co-trustee or separate trustee.
(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 or by the Property Trustee and such
co-trustee or separate trustee jointly, as shall be
provided in the instrument appointing such co-trustee or
separate trustee, except to the extent that under any law
of any jurisdiction in which any particular act is to be
performed, the Property Trustee shall be incompetent or
unqualified to perform such act, in which event such
rights, powers,
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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 809, and, in case a Debenture Event of Default has
occurred and is continuing, the Property Trustee shall
have the 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 809.
(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 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of any Trustee (the "Relevant
Trustee") and no appointment of a successor Trustee pursuant to this Article
VIII shall become effective until the acceptance of appointment by the
successor Trustee in accordance with the applicable requirements of Section
811.
(b) Subject to the immediately preceding paragraph, the Relevant
Trustee may resign at any time with respect to the Trust Securities by giving
written notice thereof to the Securityholders. If the instrument of
acceptance by the successor Trustee required by Section 811 shall not have
been delivered to the Relevant Trustee within 30 days after the giving of
such notice of resignation, the Relevant Trustee may petition, at the expense
of the Depositor, any court of competent jurisdiction or the appointment of a
successor Relevant Trustee with respect to the Trust Securities.
(c) Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by Act of the Common
Securityholder. If a Debenture Event of Default shall have occurred and be
continuing, the Property Trustee or the Delaware Trustee, or both of them,
may be removed at such time by Act of the Holders of a majority in
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Liquidation Amount of the Capital Securities, delivered to the Relevant
Trustee (in its individual capacity and on behalf of the Trust). An
Administrative Trustee may be removed by the Common Securityholder at any
time.
(d) If any Trustee shall resign, be removed or become incapable of
acting as Trustee, or if a vacancy shall occur in the office of any Trustee
for any cause, at a time when no Debenture Event of Default shall have
occurred and be continuing, the Common Securityholder, by Act of the Common
Securityholder delivered to the retiring Trustee, shall promptly appoint a
successor Trustee or Trustees with respect to the Trust Securities and the
Trust, and the successor Trustee shall comply with the applicable
requirements of Section 811. If the Property Trustee or the Delaware Trustee
shall resign, be removed or become incapable of continuing to act as the
Property Trustee or the Delaware Trustee, as the case may be, at a time when
a Debenture Event of Default shall have occurred and is continuing, the
Capital Securityholders, by Act of the Securityholders of a majority in
Liquidation Amount of the Capital Securities then Outstanding delivered to
the retiring Relevant Trustee, shall promptly appoint a successor Relevant
Trustee or Trustees with respect to the Trust Securities and the Trust, and
such successor Trustee shall comply with the applicable requirements of
Section 811. If an Administrative Trustee shall resign, be removed or become
incapable of acting as Administrative Trustee, at a time when a Debenture
Event of Default shall have occurred and be continuing, the Common
Securityholder, by Act of the Common Securityholder delivered to an
Administrative Trustee, shall promptly appoint a successor Administrative
Trustee or Administrative Trustees with respect to the Trust Securities and
the Trust, and such successor Administrative Trustee or Administrative
Trustees shall comply with the applicable requirements of Section 811. If no
successor Relevant Trustee with respect to the Trust Securities shall have
been so appointed by the Common Securityholder or the Capital Securityholders
and accepted appointment in the manner required by Section 811, any
Securityholder who has been a Securityholder of Trust Securities on behalf of
himself and all others similarly situated may petition a court of competent
jurisdiction for the appointment Trustee with respect to the Trust Securities.
(e) The Property Trustee shall give notice of each resignation and
each removal of a Trustee and each appointment of a successor Trustee to all
Securityholders in the manner provided in Section 1008 and shall give notice
to the Depositor. Each notice shall include the name of the successor
Relevant Trustee and the address of its Corporate Trust office if it is the
Property Trustee.
(f) Notwithstanding the foregoing or any other provision of this
Trust Agreement, in the event any Administrative Trustee or a Delaware
Trustee who is a natural person dies or becomes, in the opinion of the
Depositor, incompetent or incapacitated, the vacancy created by such death,
incompetence or incapacity may be filled by (a) the unanimous act of
remaining Administrative Trustees if there are at least two of them; or (b)
otherwise by the Depositor (with the successor in each case being a Person
who satisfies the eligibility requirement for Administrative Trustees set
forth in Section 807).
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SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Relevant
Trustee with respect to the Trust Securities and the Trust, the retiring
Relevant Trustee and each successor Relevant Trustee with respect to the
Trust Securities shall execute and deliver an instrument hereto wherein each
successor Relevant 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 Relevant Trustee all the rights,
powers, trusts and duties of the retiring Relevant Trustee with respect to
the Trust Securities and the Trust and upon the execution and delivery of
such instrument the resignation or removal of the retiring Relevant Trustee
shall become effective to the extent provided therein and each such successor
Relevant Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring
Relevant Trustee with respect to the Trust Securities and the Trust; but, on
request of the Trust or any successor Relevant Trustee such retiring Relevant
Trustee shall duly assign, transfer and deliver to such successor Relevant
Trustee all Trust Property, all proceeds thereof and money held by such
retiring Relevant Trustee hereunder with respect to the Trust Securities and
the Trust.
(b) Upon request of any such successor Relevant Trustee, the Trust
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Relevant Trustee all such rights, powers and
trusts referred to in the immediately preceding paragraph, as the case may be.
(c) No successor Relevant Trustee shall accept its appointment
unless at the time of such acceptance such successor Relevant Trustee shall
be qualified and eligible under this Article VIII.
SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any Person into which the Property Trustee, the Delaware Trustee or
any Administrative 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
corporation succeeding to all or substantially all the corporate trust
business of such Relevant Trustee, shall be the successor of such Relevant
Trustee hereunder, provided such Person shall be otherwise qualified and
eligible under this Article VIII, without the execution or filing of any
paper or any further act on the part of any of the parties hereto.
SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR
TRUST.
If and when the Property Trustee or the Delaware Trustee shall be or
become a creditor of the Depositor or the Trust (or any other obligor upon
the Debentures or the Trust Securities), the Property Trustee or the Delaware
Trustee, as the case may be, shall be subject to and shall take all actions
necessary in order to comply with the provisions of the Trust Indenture Act
regarding the collection of claims against the Depositor or Trust (or any
such other obligor).
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SECTION 814. REPORTS BY PROPERTY TRUSTEE.
(a) Not later than July 15 of each year commencing with July 15,
2000, the Property Trustee shall transmit to all Securityholders in
accordance with Section 1008, and to the Depositor, a brief report dated as
of May 15 with respect to:
(i) its eligibility under Section 807 or, in lieu thereof, if
to the best of its knowledge it has continued to be
eligible under said Section, a written statement to such
effect; and
(ii) any change in the property and funds in its possession as
Property Trustee since the date of its last report and any
action taken by the Property Trustee in the performance of
its duties hereunder which it has not previously reported
and which in its opinion materially affects the Trust
Securities.
(b) In addition the Property Trustee shall transmit to
Securityholders such reports concerning the Property Trustee and its actions
under this Trust Agreement as may be required pursuant to the Trust Indenture
Act at the times and in the manner provided pursuant thereto.
(c) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Property Trustee with American Stock
Exchange, and each national securities exchange or other organization upon
which the Trust Securities are listed, and also with the Commission and the
Depositor.
SECTION 815. REPORTS TO THE PROPERTY TRUSTEE.
The Depositor and the Administrative Trustees on behalf of the Trust
shall provide to the Property Trustee such documents, reports and information
as required by Section 314 of the Trust Indenture Act (if any) and the
compliance certificate required by Section 314(a) of the Trust Indenture Act
in the form, in the manner and at the times required by Section 314 of the
Trust Indenture Act.
SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Depositor and the Administrative Trustees on behalf of
the Trust shall provide to the Property Trustee such evidence of compliance
with any conditions precedent, if any, provided for in this Trust Agreement
that relate to any of the matters set forth in Section 314(c) of the Trust
Indenture Act. Any certificate or opinion required to be given by an officer
pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in
the form of an Officers' Certificate.
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SECTION 817. NUMBER OF TRUSTEES.
(a) The number of Trustees shall be five, provided that the Holder
of all of the Common Securities by written instrument may increase or
decrease the number of Administrative Trustees. The Property Trustee and the
Delaware Trustee may be the same Person.
(b) If a Trustee ceases to hold office for any reason and the
number of Administrative Trustees is not reduced pursuant to Section 817(a),
or if the number of Trustees is increased pursuant to Section 817(a), a
vacancy shall occur. The vacancy shall be filled with a Trustee appointed in
accordance with Section 810.
(c) The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of a Trustee shall not
operate to annul the Trust. Whenever a vacancy in the number of
Administrative Trustees shall occur, until such vacancy is filled by the
appointment of an Administrative Trustee in accordance with Section 810, the
Administrative Trustees in office, regardless of their number (and
notwithstanding any other provision of this Agreement), shall have all the
powers granted to the Administrative Trustees and shall discharge all the
duties imposed upon the Administrative Trustees by this Trust Agreement.
SECTION 818. DELEGATION OF POWER.
(a) Any Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21
his or her power for the purpose of executing any documents contemplated in
Section 207(a); and
(b) The Administrative Trustees shall have power to delegate from
time to time to such of their number or to the Depositor the doing of such
things and the execution of such instruments either in the name of the Trust
or the names of the Administrative Trustees or otherwise as the
Administrative Trustees may deem expedient, to the extent such delegation is
not prohibited by applicable law or contrary to the provisions of the Trust,
as set forth herein.
SECTION 819. VOTING.
Except as otherwise provided in this Trust Agreement, the consent or
approval of the Administrative Trustees shall require consent or approval by
not less than a majority of the Administrative Trustees, unless there are
only two, in which case both must consent.
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ARTICLE IX
TERMINATION, LIQUIDATION AND MERGER
SECTION 901. TERMINATION UPON EXPIRATION DATE.
Unless earlier dissolved, the Trust shall automatically dissolve on,
June 30, 2034 (the "Expiration Date") subject to distribution of the Trust
Property in accordance with Section 904.
SECTION 902. EARLY TERMINATION.
The first to occur of any of the following events is an "Early
Termination Event:"
(a) the occurrence of a Bankruptcy Event in respect of, or the
dissolution or liquidation of, the Depositor;
(b) delivery of written direction to the Property Trustee by the
Depositor at any time (which direction is wholly optional and within the
discretion of the Depositor, subject to Depositor having received prior
approval of the Board of Governors of the Federal Reserve System if so
required under applicable guidelines, policies or regulations thereof) to
dissolve the Trust and distribute the Debentures to Securityholders in
exchange for the Capital Securities in accordance with Section 904;
(c) the redemption of all of the Capital Securities in connection
with the redemption of all of the Debentures (whether upon a Debenture
Redemption Date or the maturity of the Debenture); or
(d) an order for dissolution of the Trust shall have been entered
by a court of competent jurisdiction.
SECTION 903. TERMINATION.
The respective obligations and responsibilities of the Trustees and
the Trust created and continued hereby shall terminate upon the latest to
occur of the following: (a) the distribution by the Property Trustee to
Securityholders upon the liquidation of the Trust pursuant to Section 904, or
upon the redemption of all of the Trust Securities pursuant to Section 402,
of all amounts required to be distributed hereunder upon the final payment of
the Trust Securities; (b) the payment of any expenses owed by the Trust; (c)
the discharge of all administrative duties of the Administrative Trustees,
including the performance of any tax reporting obligations with respect to
the Trust or the Securityholders; and (d) the filing of a Certificate of
Cancellation by the Administrative Trustee under the Business Trust Act.
SECTION 904. LIQUIDATION.
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(a) If an Early Termination Event specified in clause (a), (b), or
(d) of Section 902 occurs or upon the Expiration Date, the Trust shall be
liquidated by the Trustees as expeditiously as the Trustees determine to be
possible by distributing, after satisfaction of liabilities to creditors of
the Trust as provided by applicable law, to each Securityholder a Like Amount
of Debentures, subject to Section 904(d). Notice of liquidation shall be
given by the Property Trustee by first-class mail, postage prepaid, mailed
not later than 30 nor more than 60 days prior to the Liquidation Date to each
Holder of Trust Securities at such Holder's address appearing in the
Securities Register. All notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities shall no longer be deemed to be Outstanding
and any Trust Securities Certificates not surrendered for
exchange shall be deemed to represent a Like Amount of
Debentures; and
(iii) provide such information with respect to the mechanics by
which Holders may exchange Trust Securities Certificates
for Debentures, or, if Section 904(d) applies, receive a
Liquidation Distribution, as the Administrative Trustees
or the Property Trustee shall deem appropriate.
(b) Except where Section 902(c) or 904(d) applies, in order to
effect the liquidation of the Trust and distribution of the Debentures to
Securityholders, the Property Trustee shall establish a record date for such
distribution (which shall be not more than 45 days prior to the Liquidation
Date) and, either itself acting as exchange agent or through the appointment
of a separate exchange agent, shall establish such procedures as it shall
deem appropriate to effect the distribution of Debentures in exchange for the
Outstanding Trust Securities Certificates.
(c) Except where Section 902(c) or 904(d) applies, after the
Liquidation Date, (i) the Trust Securities shall no longer be deemed to be
outstanding; (ii) certificates representing a Like Amount of Debentures shall
be issued to holders of Trust Securities Certificates upon surrender of such
certificates to the Administrative Trustees or their agent for exchange;
(iii) the Depositor shall use its reasonable efforts to have the Debentures
listed on the Nasdaq National Market or on such other securities exchange or
other organization as the Capital Securities are then listed or traded; (iv)
any Trust Securities Certificates not so surrendered for exchange shall be
deemed to represent a Like Amount of Debentures, accruing interest at the
rate provided for in the Debentures from the last Distribution Date on which
a Distribution was made on such Trust Securities Certificates until such
certificates are so surrendered (and until such certificates are so
surrendered, no payments of interest or principal shall be made to holders of
Trust Securities Certificates with respect to such Debentures); and (v) all
rights of Securityholders holding Trust Securities shall cease, except the
right of such Securityholders to receive Debentures upon surrender of Trust
Securities Certificates.
(d) In the event that, notwithstanding the other provisions of this
Section 904, whether because of an order for dissolution entered by a court
of competent jurisdiction or otherwise, distribution of the Debentures in the
manner provided herein is determined by the
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Property Trustee not to be practical, the Trust Property shall be liquidated,
and the Trust shall be dissolved, wound-up or terminated, by the Property
Trustee in such manner as the Property Trustee determines. In such event, on
the date of the dissolution, winding-up or other termination of the Trust,
Securityholders shall be entitled to receive out of the assets of the Trust
available for distribution to Securityholders, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, an
amount equal to the Liquidation Amount per Trust Security plus accumulated
and unpaid Distributions thereon to the date of payment (such amount being
the "Liquidation Distribution"). If, upon any such dissolution, winding-up or
termination, the Liquidation Distribution can be paid only in part because
the Trust has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then, subject to the next succeeding sentence, the
amounts payable by the Trust on the Trust Securities shall be paid on a pro
rata basis (based upon Liquidation Amounts). The holder of the Common
Securities shall be entitled to receive Liquidation Distributions upon any
such dissolution, winding-up or termination pro rata (determined as
aforesaid) with Holders of Capital Securities, except that, if a Debenture
Event of Default has occurred and is continuing, the Capital Securities shall
have a priority over the Common Securities.
SECTION 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS
OF THE TRUST.
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except
pursuant to this Section 905. At the request of the Depositor, with the
consent of the Administrative Trustees and without the consent of the holders
of the Capital Securities, the Property Trustee or the Delaware Trustee, the
Trust may merge with or into, consolidate, amalgamate, be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to a trust organized as such under the laws of any state; provided,
that (i) such successor entity either (a) expressly assumes all of the
obligations of the Trust with respect to the Capital Securities; or (b)
substitutes for the Capital Securities other securities having substantially
the same terms as the Capital Securities (the "Successor Securities") so long
as the Successor Securities rank the same as the Capital Securities rank in
priority with respect to distributions and payments upon liquidation,
redemption and otherwise; (ii) the Depositor expressly appoints a trustee of
such successor entity possessing substantially the same powers and duties as
the Property Trustee as the holder of the Debentures; (iii) the Successor
Securities are listed or traded, or any Successor Securities shall be listed
or traded upon notification of issuance, on any national securities exchange
or other organization on which the Capital Securities are then listed, if
any; (iv) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect; (v) such successor entity has a purpose
substantially identical to that of the Trust; (vi) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Depositor has received an Opinion of Counsel to the effect that (a) such
merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Securities) in any
material respect; and (b)
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following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Trust nor such successor entity shall be
required to register as an "investment company" under the Investment Company
Act; and (vii) the Depositor owns all of the Common Securities of such
successor entity and guarantees the obligations of such successor entity
under the Successor Securities at least to the extent provided by the
Guarantee. Notwithstanding the foregoing, the Trust shall not, except with
the consent of holders of 100% in Liquidation Amount of the Capital
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to any other Person or permit any other Person to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger or replacement would cause the Trust or the successor
entity to be classified as other than a grantor trust for United States
federal income tax purposes.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS.
The death or incapacity of any Person having an interest, beneficial
or otherwise, in Trust Securities shall not operate to terminate this Trust
Agreement, nor entitle the legal representatives or heirs of such Person or
any Securityholder for such Person, to claim an accounting, take any action
or bring any proceeding in any court for a partition or winding-up of the
arrangements contemplated hereby, nor otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.
SECTION 1002. AMENDMENT.
(a) This Trust Agreement may be amended from time to time by the
Trustees and the Depositor, without the consent of any Securityholders, (i)
as provided in Section 811 with respect to acceptance of appointment by a
successor Trustee; (ii) to cure any ambiguity, correct or supplement any
provision herein or therein which may be inconsistent with any other
provision herein or therein, or to make any other provisions with respect to
matters or questions arising under this Trust Agreement, that shall not be
inconsistent with the other provisions of this Trust Agreement; or (iii) to
modify, eliminate or add to any provisions of this Trust Agreement to such
extent as shall be necessary to ensure that the Trust shall be classified for
United States federal income tax purposes as a grantor trust at all times
that any Trust Securities are outstanding or to ensure that the Trust shall
not be required to register as an "investment company" under the Investment
Company Act; provided, however, that in the case of clause (ii), such action
shall not adversely affect in any material respect the interests of any
Securityholder, and any amendments of this Trust Agreement shall become
effective when notice thereof is given to the Securityholders.
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(b) Except as provided in Section 601(c) or Section 1002(c) hereof,
any provision of this Trust Agreement may be amended by the Trustees and the
Depositor (i) with the consent of Trust Securityholders representing not less
than a majority (based upon Liquidation Amounts) of the Trust Securities then
Outstanding; and (ii) upon receipt by the Trustees of an Opinion of Counsel
to the effect that such amendment or the exercise of any power granted to the
Trustees in accordance with such amendment shall not affect the Trust's
status as a grantor trust for United States federal income tax purposes or
the Trust's exemption from status of an "investment company" under the
Investment Company Act.
(c) In addition to and notwithstanding any other provision in this
Trust Agreement, without the consent of each affected Securityholder (such
consent being obtained in accordance with Section 603 or 606 hereof), this
Trust Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount
of any Distribution required to be made in respect of the Trust Securities as
of a specified date; or (ii) restrict the right of a Securityholder to
institute suit for the enforcement of any such payment on or after such date;
notwithstanding any other provision herein, without the unanimous consent of
the Securityholders (such consent being obtained in accordance with Section
603 or 606 hereof), this paragraph (c) of this Section 1002 may not be
amended.
(d) Notwithstanding any other provisions of this Trust Agreement,
no Trustee shall enter into or consent to any amendment to this Trust
Agreement which would cause the Trust to fail or cease to qualify for the
exemption from status of an "investment company" under the Investment Company
Act or to fail or cease to be classified as a grantor trust for United States
federal income tax purposes.
(e) Notwithstanding anything in this Trust Agreement to the
contrary, without the consent of the Depositor, this Trust Agreement may not
be amended in a manner which imposes any additional obligation on the
Depositor.
(f) In the event that any amendment to this Trust Agreement is
made, the Administrative Trustees shall promptly provide to the Depositor a
copy of such amendment.
(g) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects
its own rights, duties or immunities under this Trust Agreement. The Property
Trustee shall be entitled to receive an Opinion of Counsel and an Officers'
Certificate stating that any amendment to this Trust Agreement is in
compliance with this Trust Agreement.
SECTION 1003. SEPARABILITY.
In case any provision in this Trust Agreement or in the Trust
Securities Certificates shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
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SECTION 1004. GOVERNING LAW.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST
AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES THEREOF).
SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY.
If the date fixed for any payment on any Trust Security shall be a
day that is not a Business Day, then such payment need not be made on such
date but may be made on the next succeeding day which is a Business Day,
except that, if such Business Day is in the next succeeding calendar year,
such payment shall be made on the immediately preceding Business Day (and
without any reduction of interest or any other payment in respect of any such
acceleration), in each case with the same force and effect as though made on
the date fixed for such payment, and no distribution shall accumulate thereon
for the period after such date.
SECTION 1006. SUCCESSORS.
This Trust Agreement shall be binding upon and shall inure to the
benefit of any successor to the Depositor, the Trust or the Relevant
Trustee(s), including any successor by operation of law. Except in connection
with a consolidation, merger or sale involving the Depositor that is
permitted under Article XII 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 1007. HEADINGS.
The Article and Section headings are for convenience only and shall
not affect the construction of this Trust Agreement.
SECTION 1008. REPORTS, NOTICES AND DEMANDS.
Any report, notice, demand or other communication which by any
provision of this Trust Agreement is required or permitted to be given or
served to or upon any Securityholder or the Depositor may be given or served
in writing by deposit thereof, first-class postage prepaid, in the United
States mail, hand delivery or facsimile transmission, in each case,
addressed, (a) in the case of a Capital Securityholder, to such Capital
Securityholder as such Securityholder's name and address may appear on the
Securities Register; and (b) in the case of the Common Securityholder or the
Depositor, to Quad City Holdings, Inc., 3551 7th Street, Suite 100, Moline,
Illinois, 61265, Attention: Douglas M. Hultquist, facsimile no.: (309)
736-3581. Any notice to Capital Securityholders shall also be given to such
owners as have, within two years preceding the giving of such notice, filed
their names and addresses with the Property Trustee for that purpose. Such
notice, demand or other communication to or upon a
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Securityholder shall be deemed to have been sufficiently given or made, for
all purposes, upon hand delivery, mailing or transmission.
Any notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or
upon the Trust, the Property Trustee or the Administrative Trustees shall be
given in writing addressed (until another address is published by the Trust)
as follows: (a) with respect to the Property Trustee to First Union Trust
Company, National Association, One Rodney Square, 920 King Street, 1st Floor,
Wilmington, Delaware 19801, Attention: Corporate Trust Administration]; (b)
with respect to the Delaware Trustee, to First Union Trust Company, National
Association at the above address; and (c) with respect to the Administrative
Trustees, to them at the address above for notices to the Depositor, marked
"Attention: Administrative Trustees of Capital Trust." Such notice, demand or
other communication to or upon the Trust or the Property Trustee shall be
deemed to have been sufficiently given or made only upon actual receipt of
the writing by the Trust or the Property Trustee.
SECTION 1009. AGREEMENT NOT TO PETITION.
Each of the Trustees and the Depositor agree for the benefit of the
Securityholders that, until at least one year and one day after the Trust has
been terminated in accordance with Article IX, they shall not file, or join
in the filing of, a petition against the Trust under any bankruptcy,
insolvency, reorganization or other similar law (including, without
limitation, the United States Bankruptcy Code of 1978, as amended)
(collectively, "Bankruptcy Laws") or otherwise join in the commencement of
any proceeding against the Trust under any Bankruptcy Law. In the event the
Depositor or any of the Trustees takes action in violation of this Section
1009, the Property Trustee agrees, for the benefit of Securityholders, that
at the expense of the Depositor (which expense shall be paid prior to the
filing), it shall file an answer with the bankruptcy court or otherwise
properly contest the filing of such petition by the Depositor or such Trustee
against the Trust or the commencement of such action and raise the defense
that the Depositor or such Trustee has agreed in writing not to take such
action and should be stopped and precluded therefrom. The provisions of this
Section 1009 shall survive the termination of this Trust Agreement.
SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT.
(a) This Trust Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Trust Agreement and shall,
to the extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a
trustee for the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with
another provision hereof which is required to be included in this Trust
Agreement by any of the provisions of the Trust Indenture Act, such required
provision shall control. If any provision of this Trust Agreement modifies or
excludes any provision of the Trust Indenture Act which may be so
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modified or excluded, the latter provision shall be deemed to apply to this
Trust Agreement as so modified or to be excluded, as the case may be. The
application of the Trust Indenture Act to this Trust Agreement shall not
affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND
INDENTURE.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST
THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT
ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE
UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A
BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF
THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER
TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT
OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND
PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE
AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS.
SIGNATURE PAGE FOLLOWS
58
<PAGE>
QUAD CITY HOLDINGS, INC.
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, as Property Trustee
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, as Delaware Trustee
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
________________________________________________
Douglas M. Hultquist, As Administrative Trustee
________________________________________________
Michael A. Bauer, As Administrative Trustee
________________________________________________
Shellee R. Showalter, As Administrative Trustee
59
<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST
OF
QUAD CITY HOLDINGS CAPITAL TRUST I
THIS CERTIFICATE OF TRUST OF Quad City Holdings Capital Trust I (the
"Trust"), dated April __, 1999, is being duly executed and filed by First
Union Trust Company, National Association, a national banking association,
Douglas M. Hultquist, Michael A. Bauer and Shellee R. Showalter, each an
individual, as trustees, to form a business trust under the Delaware Business
Trust Act (12 DEL. C. Section 3801 ET SEQ.)(the "Act").
1. NAME. The name of the business trust formed hereby is Quad City
Holdings Capital Trust I.
2. DELAWARE TRUSTEE. The name and business address of the trustee
of the Trust in the State of Delaware is First Union Trust Company, National
Association, One Rodney Square, 920 King Street, Wilmington, Delaware 19801,
Attention: Corporate Trust Administration.
3. EFFECTIVE DATE. This Certificate of Trust will be effective
upon filing.
IN WITNESS WHEREOF, the undersigned have executed this Certificate
of Trust in accordance with Section 3811(a)(1) of the Act.
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, as Delaware trustee
By:_____________________________________________
Name:
Title:
________________________________________________
Douglas M. Hultquist, as Administrative Trustee
________________________________________________
Michael A. Bauer, as Administrative Trustee
________________________________________________
Shellee R. Showalter, as Administrative Trustee
<PAGE>
EXHIBIT B
THIS CERTIFICATE IS NOT TRANSFERABLE
Certificate Number 1 Number of Common Securities _________
Certificate Evidencing Common Securities
of
Quad City Holdings Capital Trust I
Common Securities
(liquidation amount $10 per Common Security)
QUAD CITY HOLDINGS CAPITAL TRUST I, a statutory business trust
created under the laws of the State of Delaware (the "Trust"), hereby
certifies that QUAD CITY HOLDINGS, INC. (the "Holder") is the registered
owner of _______________ (_______) common securities of the Trust
representing undivided beneficial interests in the assets of the Trust and
designated the ____% Common Securities (liquidation amount $10 per Common
Security) (the "Common Securities"). In accordance with Section 510 of the
Trust Agreement (as defined below), the Common Securities are not
transferable and any attempted transfer hereof shall be void. The
designations, rights, privileges, restrictions, preferences, and other terms
and provisions of the Common Securities are set forth in, and this
certificate and the Common Securities represented hereby are issued and shall
in all respects be subject to the terms and provisions of, the Amended and
Restated Trust Agreement of the Trust dated as of, [ ]1999, as the same may
be amended from time to time (the "Trust Agreement"), including the
designation of the terms of the Common Securities as set forth therein. The
Trust shall furnish a copy of the Trust Agreement to the Holder without
charge upon written request to the Trust at its principal place of business
or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
<PAGE>
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust
has executed this certificate this ____ day of _________, 1999.
Quad City Holdings Capital Trust I
By:_____________________________________
Name:___________________________________
Title:__________________________________
<PAGE>
EXHIBIT C
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT AS TO EXPENSES AND LIABILITIES (this "Agreement") dated as
of _________________ __, 1999, between QUAD CITY HOLDINGS, INC., a Delaware
corporation (the "Company"), and QUAD CITY HOLDINGS CAPITAL TRUST I, a
Delaware business trust (the "Trust").
RECITALS
WHEREAS, the Trust intends to issue its common securities (the "Common
Securities") to, and receive ____% Subordinated Debentures (the "Debentures")
from, the Company and to issue and sell Quad City Holdings Capital Trust I ___%
Cumulative Trust Capital Securities (the "Capital Securities") with such powers,
preferences and special rights and restrictions as are set forth in the Amended
and Restated Trust Agreement of the Trust dated as of ________ __, 1999, as the
same may be amended from time to time (the "Trust Agreement");
WHEREAS, the Company shall directly or indirectly own all of the Common
Securities of the Trust and shall issue the Debentures;
NOW, THEREFORE, in consideration of the purchase by each holder of the
Capital Securities, which purchase the Company hereby agrees shall benefit the
Company and which purchase the Company acknowledges shall be made in reliance
upon the execution and delivery of this Agreement, the Company, including in its
capacity as holder of the Common Securities, and the Trust hereby agree as
follows:
ARTICLE I
SECTION 1.1. GUARANTEE BY THE COMPANY.
Subject to the terms and conditions hereof, the Company, including
in its capacity as holder of the Common Securities, hereby irrevocably and
unconditionally guarantees to each person or entity to whom the Trust is now
or hereafter becomes indebted or liable (the
<PAGE>
"Beneficiaries") the full payment when and as due, of any and all Obligations
(as hereinafter defined) to such Beneficiaries. As used herein, "Obligations"
means any costs, expenses or liabilities of the Trust other than obligations
of the Trust to pay to holders of any Capital Securities or other similar
interests in the Trust the amounts due such holders pursuant to the terms of
the Capital Securities or such other similar interests, as the case may be.
This Agreement is intended to be for the benefit of, and to be enforceable
by, all such Beneficiaries, whether or not such Beneficiaries have received
notice hereof.
SECTION 1.2. TERM OF AGREEMENT.
This Agreement shall terminate and be of no further force and effect
upon the later of (a) the date on which full payment has been made of all
amounts payable to all holders of all the Capital Securities (whether upon
redemption, liquidation, exchange or otherwise); and (b) the date on which
there are no Beneficiaries remaining; provided, however, that this Agreement
shall continue to be effective or shall be reinstated, as the case may be, if
at any time any holder of Capital Securities or any Beneficiary must restore
payment of any sums paid under the Capital Securities, under any obligation,
under the Capital Securities Guarantee Agreement dated the date hereof by the
Company and First Union Trust Company, National Association, as guarantee
trustee or under this Agreement for any reason whatsoever. This Agreement is
continuing, irrevocable, unconditional and absolute.
SECTION 1.3. WAIVER OF NOTICE.
The Company hereby waives notice of acceptance of this Agreement and
of any obligation to which it applies or may apply, and the Company hereby
waives presentment, demand for payment, protest, notice of nonpayment, notice
of dishonor, notice of redemption and all other notices and demands.
SECTION 1.4. NO IMPAIRMENT.
The obligations, covenants, agreements and duties of the Company
under this Agreement shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or
any portion of the obligations or for the performance of any other obligation
under, arising out of, or in connection with, the obligations;
(b) any failure, omission, delay or lack of diligence on the part
of the Beneficiaries to enforce, assert or exercise any right, privilege,
power or remedy conferred on the Beneficiaries with respect to the
obligations or any action on the part of the Trust granting indulgence or
extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement composition or readjustment
of debt of, or other similar proceedings affecting, the
<PAGE>
Trust or any of the assets of the Trust. There shall be no obligation of the
Beneficiaries to give notice to, or obtain the consent of, the Company with
respect to the happening of any of the foregoing.
SECTION 1.5. ENFORCEMENT.
A Beneficiary may enforce this Agreement directly against the
Company, and the Company waives any right or remedy to require that any
action be brought against the Trust or any other person or entity before
proceeding against the Company.
ARTICLE II
SECTION 2.1. BINDING EFFECT.
All guarantees and agreements contained in this Agreement shall bind
the successors, assigns, receivers, trustees and representatives of the
Company and shall inure to the benefit of the Beneficiaries.
SECTION 2.2. AMENDMENT.
So long as there remains any Beneficiary or any Capital Securities
of any series are outstanding, this Agreement shall not be modified or
amended in any manner adverse to such Beneficiary or to any of the holders of
the Capital Securities.
SECTION 2.3. NOTICES.
Any notice, request or other communication required or permitted to
be given hereunder shall be given in writing by delivering the same by
facsimile transmission (confirmed by mail), telex, or by registered or
certified mail, addressed as follows (and if so given, shall be deemed given
when mailed or upon receipt of an answer back, if sent by telex):
Quad City Holdings Capital Trust I
c/o Quad City Holdings, Inc.
3551 7th Street
Suite 100
Moline, Illinois 61265
Facsimile No.: (309) 736-3581
Attention: Shellee R. Showalter, Administrative Trustee
Quad City Holdings, Inc.
3551 7th Street
Suite 100
Moline, Illinois 61265
Facsimile No.: (309) 736-3581
<PAGE>
Attention: Douglas M. Hultquist, President
SECTION 2.4 This agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Delaware (without
regard to conflict of laws principles).
<PAGE>
THIS AGREEMENT is executed as of the day and year first above written.
QUAD CITY HOLDINGS, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
QUAD CITY HOLDINGS CAPITAL TRUST I
By:_____________________________________
Name:___________________________________
Title: Administrative Trustee
<PAGE>
EXHIBIT D
Certificate Number ____________ Number of Capital Securities ____________
Certificate Evidencing Capital Securities
of
Quad City Holdings Capital Trust I
____% Cumulative Trust Capital Securities
(liquidation amount $10 per Capital Security)
CUSIP ____________
Quad City Holdings Capital Trust I, a statutory business trust created
under the laws of the State of Delaware (the "Trust"), hereby certifies that
_________________ (the "Holder") is the registered owner of _________ Capital
securities of the Trust representing undivided beneficial interests in the
assets of the Trust and designated the _____% Cumulative Trust Capital
Securities (liquidation amount $10 per Capital Security) (the "Capital
Securities"). The Capital Securities are transferable on the books and records
of the Trust, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer as provided in Section
504 of the Trust Agreement (as defined herein). The designations, rights,
privileges, restrictions, preferences, and other terms and provisions of the
Capital Securities are set forth in, and this certificate and the Capital
Securities represented hereby are issued and shall in all respects be subject to
the terms and provisions of, the Amended and Restated Trust Agreement of the
Trust dated as of _______ __, 1999, as the same may be amended from time to time
(the "Trust Agreement"), including the designation of the terms of Capital
Securities as set forth therein. The Holder is entitled to the benefits of the
Capital Securities Guarantee Agreement entered into by Quad City Holdings, Inc.,
a Delaware corporation, and First Union Trust Company, National Association, as
guarantee trustee, dated as of [ ], 1999, as the same may be amended from time
to time (the "Guarantee"), to the extent provided therein. The Trust shall
furnish a copy of the Trust Agreement and the
<PAGE>
Guarantee to the Holder without charge upon written request to the Trust at
its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
Unless the Certificate of Authentication has been manually executed
by the Authentication Agent, this certificate is not valid or effective.
IN WITNESS WHEREOF, the Administrative Trustees of the Trust have
executed this Certificate this ____ day of _________.
CERTIFICATE OF AUTHENTICATION: QUAD CITY HOLDINGS CAPITAL
TRUST I
This is one of the ____% Cumulative
Trust Capital Securities
Referred to in the within mentioned By: ________________________________
Amended and Restated Trust Agreement. Douglas M. Hultquist, as
Administrative Trustee
By: ________________________________
Michael A. Bauer, as
Administrative Trustee
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION,
as Authentication Agent and Registrar
By: ________________________________
Shellee R. Showalter, as
Administrative Trustee
By:__________________________________
AUTHORIZED SIGNATURE
<PAGE>
FORM OF REVERSE OF CERTIFICATE
The Trust will furnish without charge to any registered owner of
Capital Securities who so requests, a copy of the Trust Agreement and the
Guarantee. Any such request should be in writing and addressed to Quad City
Holdings Capital Trust I, c/o Quad City Holdings, Inc., 3551 7th Street,
Suite 100, Moline, Illinois 61265 or to the Registrar named on the face of
this Certificate.
The following abbreviations, when used in the inscription on the
face of this Certificate, shall be construed as though they were written out
in full according to applicable laws or regulations:
TEN CON - as tenants in common
TEN ENT - as tenants in the entireties
JT TEN - as joint tenants with right of survival
UNIF GIFT MIN ACT - under Uniform Gift to Minors Act and not as tenants
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto:
______________________________________________________________________________
______________________________________________________________________________
(Please insert social security or other identifying number of assignee)
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(insert address and zip code of assignee)
the within Certificate and all rights and interests represented by the
Capital Securities evidenced thereby, and hereby irrevocably constitutes and
appoints attorney to transfer the said Capital Securities on the books of the
within-named Trust with full power of substitution in the premises.
<PAGE>
Dated:_______________________________ Signature: _________________________
Note: The signature(s) to this
assignment must correspond with
the name(s) as written upon the
face of this Certificate in
every particular, without
alteration or enlargement, or
any change whatever.
Signature(s) Guaranteed:
NOTICE: Signature(s) must be guaranteed by an "eligible guarantor institution"
that is a member or participant in a "signature guarantee program" (i.e., the
Securities Transfer Agents Medallion Program, the Stock Exchange Medallion
Program or the New York Stock Exchange, Inc. Medallion Signature Program).
<PAGE>
EXHIBIT E
FORM OF CERTIFICATE OF AUTHENTICATION
This is one of the ____% Cumulative Trust Capital Securities referred
to in the within-mentioned Amended and Restated Trust Agreement.
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, as Authentication Agent and
Registrar
By: ______________________________________
AUTHORIZED SIGNATURE
<PAGE>
FORM OF
CAPITAL SECURITIES GUARANTEE AGREEMENT
BY AND BETWEEN
QUAD CITY HOLDINGS, INC.
AND
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
DATED AS OF ______ __, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATION. . . . . . . . . . . . . . . . . . . . .
Section 1.1. Definitions and Interpretation. . . . . . . . . . . . . .
ARTICLE II
TRUST INDENTURE ACT . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 2.1. Trust Indenture Act; Application . . . . . . . . . . . . .
Section 2.2. Lists of Holders of Securities . . . . . . . . . . . . . .
Section 2.3. Reports by the Capital Guarantee Trustee . . . . . . . . .
Section 2.4. Periodic Reports to Capital Guarantee Trustee. . . . . . .
Section 2.5. Evidence of Compliance with Conditions Precedent . . . . .
Section 2.6. Events of Default; Waiver. . . . . . . . . . . . . . . . .
Section 2.7. Event of Default; Notice . . . . . . . . . . . . . . . . .
Section 2.8. Conflicting Interests. . . . . . . . . . . . . . . . . . .
ARTICLE III
POWERS, DUTIES AND RIGHTS OF CAPITAL GUARANTEE TRUSTEE. . . . . . . . .
Section 3.1. Powers and Duties of the Capital Guarantee Trustee . . . .
Section 3.2. Certain Rights of Capital Guarantee Trustee. . . . . . . .
Section 3.3. Not Responsible for Recitals or Issuance of Guarantee. . .
ARTICLE IV
CAPITAL GUARANTEE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . .
Section 4.1. Capital Guarantee Trustee; Eligibility . . . . . . . . . .
Section 4.2. Appointment, Removal and Resignation of Capital
Guarantee Trustees . . . . . . . . . . . . . . . . . . . .
ARTICLE V
GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 5.1. Guarantee. . . . . . . . . . . . . . . . . . . . . . . . .
Section 5.2. Waiver of Notice and Demand. . . . . . . . . . . . . . . .
Section 5.3. Obligations not Affected . . . . . . . . . . . . . . . . .
Section 5.4. Rights of Holders. . . . . . . . . . . . . . . . . . . . .
Section 5.5. Guarantee of Payment . . . . . . . . . . . . . . . . . . .
Section 5.6. Subrogation. . . . . . . . . . . . . . . . . . . . . . . .
Section 5.7. Independent Obligations. . . . . . . . . . . . . . . . . .
i
<PAGE>
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION . . . . . . . . . . . . . . .
Section 6.1. Limitation of Transactions. . . . . . . . . . . . . . . .
Section 6.2 Ranking . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE VII
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 7.1 Termination. . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE VIII
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 8.1 Exculpation. . . . . . . . . . . . . . . . . . . . . . . .
Section 8.2 Indemnification. . . . . . . . . . . . . . . . . . . . . .
ARTICLE IX
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 9.1 Successors and Assigns . . . . . . . . . . . . . . . . . .
Section 9.2 Amendments . . . . . . . . . . . . . . . . . . . . . . . .
Section 9.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . .
Section 9.4 Benefit. . . . . . . . . . . . . . . . . . . . . . . . . .
Section 9.5 Governing Law. . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
ii
<PAGE>
CROSS REFERENCE TABLE
<TABLE>
<CAPTION>
Section of Trust Section of
Indenture Act of Guarantee
1939, as amended Agreement
- ------------------------------------------------------------------------------
<S> <C>
310(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1(a)
310(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1(c), 2.8
310(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.2(b)
311(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.2(b)
311(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.2(a)
312(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.2(b)
313. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.3
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.4
314(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
314(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.5
314(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
314(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.1, 2.5, 3.2
314(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.1, 3.2
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.1(d)
315(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.7
315(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.1
315(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.1(d)
316(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.1, 2.6, 5.4
316(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.3
317(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.1
317(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..1(a)
318(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..1
318(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.1(b)
</TABLE>
Note: This Cross-Reference Table does not constitute part of this Agreement
and shall not affect the interpretation of any of its terms or provisions.
iii
<PAGE>
CAPITAL SECURITIES GUARANTEE AGREEMENT
THIS CAPITAL SECURITIES GUARANTEE AGREEMENT (this "Capital Securities
Guarantee"), dated as of ________ __, 1999, is executed and delivered by QUAD
CITY HOLDINGS, INC, an Delaware corporation (the "Guarantor"), and FIRST UNION
TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association, as trustee
(the "Capital Guarantee Trustee"), for the benefit of the Holders (as defined
herein) from time to time of the Capital Securities (as defined herein) of Quad
City Holdings Capital Trust I, a Delaware statutory business trust (the
"Trust").
RECITALS
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "Trust
Agreement"), dated as of [ ], 1999, among the trustees of the Trust named
therein, the Guarantor, as depositor, and the holders from time to time of
undivided beneficial interests in the assets of the Trust, the Trust is issuing
on the date hereof up to 1,200,000 Capital securities, having an aggregate
liquidation amount of $12,000,000, designated the [ ]% Cumulative Trust
Capital Securities (the "Capital Securities");
WHEREAS, as incentive for the Holders to purchase the Capital Securities,
the Guarantor desires irrevocably and unconditionally to agree, to the extent
set forth in this Capital Securities Guarantee, to pay to the Holders of the
Capital Securities the Guarantee Payments (as defined herein) and to make
certain other payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of Capital
Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Capital Securities
Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. DEFINITIONS AND INTERPRETATION.
In this Capital Securities Guarantee, unless the context otherwise
requires:
1
<PAGE>
(a) capitalized terms used in this Capital Securities Guarantee but not
defined in the preamble above have the respective meanings assigned to them in
this Section 1.1;
(b) terms defined in the Trust Agreement as at the date of execution of
this Capital Securities Guarantee have the same meaning when used in this
Capital Securities Guarantee, unless otherwise defined in this Capital
Securities Guarantee;
(c) a term defined anywhere in this Capital Securities Guarantee has the
same meaning throughout;
(d) all references to "the Capital Securities Guarantee" or "this Capital
Securities Guarantee" are to this Capital Securities Guarantee as modified,
supplemented or amended from time to time;
(e) all references in this Capital Securities Guarantee to Articles and
Sections are to Articles and Sections of this Capital Securities Guarantee,
unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning when
used in this Capital Securities Guarantee, unless otherwise defined in this
Capital Securities Guarantee or unless the context otherwise requires; and
(g) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a Saturday, Sunday, a day on which
federal or state banking institutions in New York, New York or Wilmington,
Delaware are authorized or required by law, executive order or regulation to
close or a day on which the Corporate Trust Office of the Capital Guarantee
Trustee is closed for business.
"Capital Guarantee Trustee" means First Union Trust Company, National
Association, until a Successor Capital Guarantee Trustee has been appointed and
has accepted such appointment pursuant to the terms of this Capital Securities
Guarantee and thereafter means each such Successor Capital Guarantee Trustee.
"Corporate Trust Office" means the office of the Capital Guarantee Trustee
at which the corporate trust business of the Capital Guarantee Trustee shall,
at any particular time, be principally administered, which office at the date
of execution of this Agreement is located at One Rodney Square, 920 King
Street, 1st Floor, Wilmington, Delaware 19801, Attention: Corporate Trust
Administration.
"Covered Person" means any Holder or beneficial owner of Capital
Securities.
"Debentures" means the ____% Subordinated Debentures due June 30, 2029, of
the Debenture Issuer held by the Property Trustee of the Trust.
2
<PAGE>
"Debenture Issuer" means Quad City Holdings, Inc., issuer of the
Debentures under the Indenture.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Capital Securities Guarantee.
"Guarantor" means Quad City Holdings, Inc., a Delaware corporation.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Capital Securities, to the extent
not paid or made by the Trust: (i) any accrued and unpaid Distributions (as
defined in the Trust Agreement) that are required to be paid on such Capital
Securities, to the extent the Trust shall have funds available therefor, (ii)
the redemption price, including all accrued and unpaid Distributions to the
date of redemption (the "Redemption Price"), to the extent the Trust has
funds available therefor, with respect to any Capital Securities called for
redemption by the Trust, and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Trust (other than in connection
with the distribution of Debentures to the Holders in exchange for Capital
Securities as provided in the Trust Agreement), the lesser of (a) the
aggregate of the liquidation amount and all accrued and unpaid Distributions
on the Capital Securities to the date of payment, to the extent the Trust
shall have funds available therefor (the "Liquidation Distribution"), and (b)
the amount of assets of the Trust remaining available for distribution to
Holders in liquidation of the Trust.
"Holder" shall mean any holder, as registered on the books and records
of the Trust, of any Capital Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Capital
Securities have given any request, notice, consent or waiver hereunder,
"Holder" shall not include the Guarantor, the Capital Guarantee Trustee or
any of their respective Affiliates.
"Indemnified Person" means the Capital Guarantee Trustee, any Affiliate
of the Capital Guarantee Trustee, or any officers, directors, shareholders,
members, partners, employees, representatives, nominees, custodians or agents
of the Capital Guarantee Trustee.
"Indenture" means the Indenture dated as of [ ], 1999, among the
Debenture Issuer and First Union Trust Company, National Association, as
trustee, and any indenture supplemental thereto pursuant to which certain
subordinated debt securities of the Debenture Issuer are to be issued to the
Property Trustee of the Trust.
"Liquidation Amount" means the stated value of $10 per Capital Security.
"Liquidation Distribution" has the meaning provided therefor in the
definition of Guarantee Payments.
"Majority in liquidation amount of the Capital Securities" means the
holders of more than 50% of the Liquidation Amount of all of the Capital
Securities.
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"Officers' Certificate" means, with respect to any Person, a certificate
igned by two authorized officers of such Person, at least one of whom shall be
the principal executive officer, principal financial officer, principal
accounting officer, treasurer or any vice president of such Person. Any
Officers' Certificate delivered with respect to compliance with a condition or
covenant provided for in this Capital Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever
nature.
"Redemption Price" has the meaning provided therefor in the definition
of Guarantee Payments.
"Responsible Officer" means, with respect to the Capital Guarantee
Trustee, any officer within the Corporate Trust Office of the Capital
Guarantee Trustee with direct responsibility for the administration of this
Capital Securities Guarantee, including any vice-president, any assistant
vice-president, any assistant secretary or other officer or assistant officer
of the Capital Guarantee Trustee customarily performing functions similar to
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of that officer's knowledge of and
familiarity with the particular subject.
"Successor Capital Guarantee Trustee" means a successor Capital
Guarantee Trustee possessing the qualifications to act as Capital Guarantee
Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
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ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1. TRUST INDENTURE ACT; APPLICATION.
(a) This Capital Securities Guarantee is subject to the provisions of
the Trust Indenture Act that are required to be part of this Capital
Securities Guarantee and shall, to the extent applicable, be governed by such
provisions.
(b) If and to the extent that any provision of this Capital Securities
Guarantee limits, qualifies or conflicts with the duties imposed by Section
310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
SECTION 2.2. LISTS OF HOLDERS OF SECURITIES.
(a) In the event the Capital Guarantee Trustee is not also acting in
the capacity of the Property Trustee under the Trust Agreement, the Guarantor
shall cause to be provided to the Capital Guarantee Trustee with a list, in
such form as the Capital Guarantee Trustee may reasonably require, of the
names and addresses of the Holders of the Capital Securities ("List of
Holders") as of the date (i) within 5 Business Days after the last day of
March, June, September and December, and (ii) at any other time within 30
days of receipt by the Guarantor of a written request for a List of Holders
as of a date no more than 15 days before such List of Holders is given to the
Capital Guarantee Trustee; provided, that the Guarantor shall not be
obligated to provide such List of Holders at any time the List of Holders
does not differ from the most recent List of Holders caused to have been
given to the Capital Guarantee Trustee by the Guarantor. The Capital
Guarantee Trustee may destroy any List of Holders previously given to it on
receipt of a new List of Holders.
(b) The Capital Guarantee Trustee shall comply with its obligations
under Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.3. REPORTS BY THE CAPITAL GUARANTEE TRUSTEE.
On or before July 15 of each year, the Capital Guarantee Trustee shall
provide to the Holders of the Capital Securities such reports as are required
by Section 313 of the Trust Indenture Act, if any, in the form and in the
manner provided by Section 313 of the Trust Indenture Act. The Capital
Guarantee Trustee shall also comply with the requirements of Section 313(d)
of the Trust Indenture Act.
SECTION 2.4. PERIODIC REPORTS TO CAPITAL GUARANTEE TRUSTEE.
The Guarantor shall provide to the Capital Guarantee Trustee such
documents, reports and information as required by Section 314 (if any) and
the compliance certificate required by
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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 Capital Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Capital Securities Guarantee that relate to any of the matters set forth
in Section 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c)(1) may be given
in the form of an Officers' Certificate.
SECTION 2.6. EVENTS OF DEFAULT; WAIVER.
The Holders of a Majority in liquidation amount of Capital Securities
may, by vote, on behalf of the Holders of all of the Capital Securities,
waive any past Event of Default and its consequences. Upon such waiver, any
such Event of Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured, for every purpose of this
Capital Securities Guarantee, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right
consequent thereon.
SECTION 2.7. EVENT OF DEFAULT; NOTICE.
(a) The Capital Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Capital Securities, notices of all Events of
Default actually known to a Responsible Officer of the Capital Guarantee
Trustee, unless such defaults have been cured before the giving of such
notice; provided, that, except in the case of a default by Guarantor on any
of its payment obligations, the Capital Guarantee Trustee shall be protected
in withholding such notice if and so long as a Responsible Officer of the
Capital Guarantee Trustee in good faith determines that the withholding of
such notice is in the interests of the Holders of the Capital Securities.
(b) The Capital Guarantee Trustee shall not be deemed to have knowledge
of any Event of Default unless the Capital Guarantee Trustee shall have
received written notice, or of which a Responsible Officer of the Capital
Guarantee Trustee charged with the administration of the Trust Agreement
shall have obtained actual knowledge.
SECTION 2.8. CONFLICTING INTERESTS.
The Trust Agreement shall be deemed to be specifically described in this
Capital Securities Guarantee for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.
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ARTICLE III
POWERS, DUTIES AND RIGHTS OF CAPITAL GUARANTEE TRUSTEE
SECTION 3.1. POWERS AND DUTIES OF THE CAPITAL GUARANTEE TRUSTEE.
(a) This Capital Securities Guarantee shall be held by the Capital
Guarantee Trustee for the benefit of the Holders of the Capital Securities,
and the Capital Guarantee Trustee shall not transfer this Capital Securities
Guarantee to any Person except a Holder of Capital Securities exercising his
or her rights pursuant to Section 5.4(b) or to a Successor Capital Guarantee
Trustee on acceptance by such Successor Capital Guarantee Trustee of its
appointment to act as Successor Capital Guarantee Trustee. The right, title
and interest of the Capital Guarantee Trustee shall automatically vest in any
Successor Capital Guarantee Trustee, and such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed
and delivered pursuant to the appointment of such Successor Capital Guarantee
Trustee.
(b) If an Event of Default actually known to a Responsible Officer of
the Capital Guarantee Trustee has occurred and is continuing, the Capital
Guarantee Trustee shall enforce this Capital Securities Guarantee for the
benefit of the Holders of the Capital Securities.
(c) The Capital Guarantee Trustee, before the occurrence of any Event
of Default and after the curing of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Capital Securities Guarantee, and no implied covenants shall be
read into this Capital Securities Guarantee against the Capital Guarantee
Trustee. In case an Event of Default has occurred (that has not been cured or
waived pursuant to Section 2.6) and is actually known to a Responsible
Officer of the Capital Guarantee Trustee, the Capital Guarantee Trustee shall
exercise such of the rights and powers vested in it by this Capital
Securities Guarantee, and use the same degree of care and skill in its
exercise thereof, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(d) No provision of this Capital Securities Guarantee shall be
construed to relieve the Capital Guarantee Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(a) 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:
(i) the duties and obligations of the Capital Guarantee Trustee
shall be determined solely by the express provisions of
this Capital Securities Guarantee, and the Capital
Guarantee Trustee shall not be liable except for the
performance of such duties and obligations as are
specifically set forth in this Capital Securities
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Guarantee, and no implied covenants or obligations shall
be read into this Capital Securities Guarantee against the
Capital Guarantee Trustee; and
(ii) in the absence of bad faith on the part of the Capital
Guarantee Trustee, the Capital 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 Capital Guarantee
Trustee and conforming to the requirements of this Capital
Securities Guarantee; but in the case of any such
certificates or opinions that by any provision hereof are
specifically required to be furnished to the Capital
Guarantee Trustee, the Capital Guarantee Trustee shall be
under a duty to examine the same to determine whether or
not they conform to the requirements of this Capital
Securities Guarantee;
(b) the Capital Guarantee Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer of the
Capital Guarantee Trustee, unless it shall be proved that the
Capital Guarantee Trustee was negligent in ascertaining the
pertinent facts upon which such judgment was made;
(c) the Capital Guarantee Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good faith
in accordance with the direction of the Holders of not less
than a Majority in liquidation amount of the Capital Securities
relating to the time, method and place of conducting any
proceeding for any remedy available to the Capital Guarantee
Trustee, or exercising any trust or power conferred upon the
Capital Guarantee Trustee under this Capital Securities
Guarantee; and
(d) no provision of this Capital Securities Guarantee shall require
the Capital 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 Capital Guarantee Trustee shall
have reasonable grounds for believing that the repayment of
such funds or liability is not reasonably assured to it under
the terms of this Capital Securities Guarantee or indemnity,
reasonably satisfactory to the Capital Guarantee Trustee,
against such risk or liability is not reasonably assured to it.
SECTION 3.2. CERTAIN RIGHTS OF CAPITAL GUARANTEE TRUSTEE.
(a) Subject to the provisions of Section 3.1:
(i) the Capital Guarantee Trustee may conclusively rely, and shall
be fully protected in acting or refraining from acting upon,
any resolution,
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certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper
or document believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Guarantor contemplated by this
Capital Securities Guarantee shall be sufficiently evidenced
by an Officers' Certificate;
(iii) whenever, in the administration of this Capital Securities
Guarantee, the Capital Guarantee Trustee shall deem it
desirable that a matter be proved or established before
taking, suffering or omitting any action hereunder, the
Capital Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on
its part, request and conclusively rely upon an Officers'
Certificate which, upon receipt of such request, shall be
promptly delivered by the Guarantor;
(iv) the Capital Guarantee Trustee shall have no duty to see to any
recording, filing or registration of any instrument (or any
rerecording, refiling or registration thereof);
(v) the Capital Guarantee Trustee may consult with counsel, and
the written advice or opinion of such counsel with respect to
legal matters shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in accordance with such
advice or opinion. Such counsel may be counsel to the
Guarantor or any of its Affiliates and may include any of its
employees. The Capital Guarantee Trustee shall have the right
at any time to seek instructions concerning the administration
of this Capital Securities Guarantee from any court of
competent jurisdiction;
(vi) the Capital Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Capital Securities Guarantee at the request or direction of
any Holder, unless such Holder shall have provided to the
Capital Guarantee Trustee such security and indemnity,
reasonably satisfactory to the Capital Guarantee Trustee,
against the costs, expenses (including attorneys' fees and
expenses and the expenses of the Capital Guarantee Trustee's
agents, nominees or custodians) and liabilities that might be
incurred by it in complying with such request or direction,
including such reasonable advances as may be requested by the
Capital Guarantee Trustee; provided that, nothing contained in
this Section 3.2(a)(vi) shall be taken to relieve the Capital
Guarantee Trustee, upon the occurrence of an Event of Default,
of its obligation to exercise the rights and powers vested in
it by this Capital Securities Guarantee;
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(vii) the Capital 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 Capital Guarantee Trustee, in its
discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit;
(viii) the Capital Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or by or through agents, nominees, custodians or
attorneys, and the Capital Guarantee Trustee shall not be
responsible for any misconduct or negligence on the part of
any agent or attorney appointed with due care by it hereunder;
(ix) any action taken by the Capital Guarantee Trustee or its
agents hereunder shall bind the Holders of the Capital
Securities, and the signature of the Capital Guarantee Trustee
or its agents alone shall be sufficient and effective to
perform any such action. No third party shall be required to
inquire as to the authority of the Capital Guarantee Trustee
to so act or as to its compliance with any of the terms and
provisions of this Capital Securities Guarantee, both of which
shall be conclusively evidenced by the Capital Guarantee
Trustee's or its agent's taking such action;
(x) whenever in the administration of this Capital Securities
Guarantee the Capital Guarantee Trustee shall deem it
desirable to receive instructions with respect to enforcing
any remedy or right or taking any other action hereunder, the
Capital Guarantee Trustee (i) may request instructions from
the Holders of a Majority in liquidation amount of the Capital
Securities, (ii) may refrain from enforcing such remedy or
right or taking such other action until such instructions are
received, and (iii) shall be protected in conclusively relying
on or acting in accordance with such instructions.
(b) No provision of this Capital Securities Guarantee shall be deemed to
impose any duty or obligation on the Capital 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 Capital 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 Capital Guarantee Trustee shall be construed to be a duty.
SECTION 3.3. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.
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The Recitals contained in this Guarantee shall be taken as the statements
of the Guarantor, and the Capital Guarantee Trustee does not assume any
responsibility for their correctness. The Capital Guarantee Trustee makes no
representation as to the validity or sufficiency of this Capital Securities
Guarantee.
ARTICLE IV
CAPITAL GUARANTEE TRUSTEE
SECTION 4.1. CAPITAL GUARANTEE TRUSTEE; ELIGIBILITY.
(a) There shall at all times be a Capital Guarantee Trustee which
shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or
Territory thereof or of the District of Columbia, or a
corporation or Person permitted by the Securities and
Exchange Commission to act as an institutional trustee
under the Trust Indenture Act, authorized under such
laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000,
and subject to supervision or examination by Federal,
State, Territorial or District of Columbia authority.
If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements
of the supervising or examining authority referred to
above, then, for the purposes of this Section
4.1(a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital
and surplus as set forth in its most recent report of
condition so published.
(b) If at any time the Capital Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Capital Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Capital Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Capital Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
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SECTION 4.2. APPOINTMENT, REMOVAL AND RESIGNATION OF CAPITAL GUARANTEE
TRUSTEES.
(a) Subject to Section 4.2(b), the Capital Guarantee Trustee may
be appointed or removed without cause at any time by the Guarantor.
(b) The Capital Guarantee Trustee shall not be removed in
accordance with Section 4.2(a) until a Successor Capital Guarantee Trustee has
been appointed and has accepted such appointment by written instrument executed
by such Successor Capital Guarantee Trustee and delivered to the Guarantor.
(c) The Capital Guarantee Trustee appointed to office shall hold
office until a Successor Capital Guarantee Trustee shall have been appointed or
until its removal or resignation. The Capital Guarantee Trustee may resign from
office (without need for prior or subsequent accounting) by an instrument in
writing executed by the Capital Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take effect until a Successor Capital
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Capital Guarantee Trustee and
delivered to the Guarantor and the resigning Capital Guarantee Trustee.
(d) If no Successor Capital Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section 4.2 within 60
days after delivery to the Guarantor of an instrument of resignation, the
resigning Capital Guarantee Trustee may petition any court of competent
jurisdiction for appointment of a Successor Capital Guarantee Trustee. Such
court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Capital Guarantee Trustee.
(e) No Capital Guarantee Trustee shall be liable for the acts or
omissions to act of any Successor Capital Guarantee Trustee.
(f) Upon termination of this Capital Securities Guarantee or
removal or resignation of the Capital Guarantee Trustee pursuant to this
Section 4.2, the Guarantor shall pay to the Capital Guarantee Trustee all
amounts accrued to the date of such termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1. GUARANTEE.
The Guarantor irrevocably and unconditionally agrees to pay in full to the
Holders the Guarantee Payments (without duplication of amounts theretofore paid
by the Trust), as and when due, regardless of any defense, right of set-off or
counterclaim that the Trust may have
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or assert. The Guarantor's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Guarantor to the
Holders or by causing the Trust to pay such amounts to the Holders.
SECTION 5.2. WAIVER OF NOTICE AND DEMAND.
The Guarantor hereby waives notice of acceptance of this Capital
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first
against the 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 Capital Securities Guarantee shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Capital Securities to be
performed or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or
any other sums payable under the terms of the Capital Securities or the
extension of time for the performance of any other obligation under, arising
out of, or in connection with, the Capital Securities (other than an
extension of time for payment of Distributions, Redemption Price, Liquidation
Distribution or other sum payable that results from the extension of any
interest payment period on the Debentures or any extension of the maturity
date of the Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Capital
Securities, or any action on the part of the 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 Trust or any of the
assets of the Trust;
(e) any invalidity of, or defect or deficiency in, the Capital
Securities;
(f) any failure or omission to receive any regulatory approval or
consent required in connection with the Capital Securities (or the common
equity securities issued by the Trust),
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including the failure to receive any approval of the Board of Governors of
the Federal Reserve System required for the redemption of the Capital
Securities;
(g) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(h) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent
of this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain
consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.4. RIGHTS OF HOLDERS.
(a) Subject to Section 5.4(b), the Holders of a Majority in liquidation
amount of the Capital Securities have the right to direct the time, method
and place of conducting of any proceeding for any remedy available to the
Capital Guarantee Trustee in respect of this Capital Securities Guarantee or
exercising any trust or power conferred upon the Capital Guarantee Trustee
under this Capital Securities Guarantee.
(b) Any Holder of Capital Securities may institute and prosecute a
legal proceeding directly against the Guarantor to enforce its rights under
this Capital Securities Guarantee without first instituting a legal
proceeding against the Trust, the Capital Guarantee Trustee or any other
Person.
SECTION 5.5. GUARANTEE OF PAYMENT.
This Capital Securities Guarantee creates a guarantee of payment and not
of collection.
SECTION 5.6. SUBROGATION.
The Guarantor shall be subrogated to all (if any) rights of the Holders
of Capital Securities against the Trust in respect of any amounts paid to
such Holders by the Guarantor under this Capital Securities Guarantee;
provided, however, that the Guarantor shall not (except to the extent
required by mandatory provisions of law) be entitled to enforce or exercise
any right that it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under
this Capital Securities Guarantee, if, at the time of any such payment, any
amounts are due and unpaid under this Capital Securities Guarantee. If any
amount shall be paid to the Guarantor in violation of the preceding sentence,
the Guarantor agrees to hold such amount in trust for the Holders and to pay
over such amount to the Holders.
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SECTION 5.7. INDEPENDENT OBLIGATIONS.
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Trust with respect to the Capital
Securities, and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Capital
Securities Guarantee notwithstanding the occurrence of any event referred to
in subsections (a) through (h), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
Section 6.1. LIMITATION OF TRANSACTIONS.
So long as any Capital Securities remain outstanding, if there shall
have occurred an Event of Default under this Capital Securities Guarantee, an
event of default under the Trust Agreement or during an Extended Interest
Payment Period (as defined in the Indenture), then (a) the Guarantor shall
not declare or pay any dividend on, make any distributions with respect to,
or redeem, purchase, acquire or make a liquidation payment with respect to,
any of its capital stock (other than as a result of a reclassification of its
capital stock for another class of its capital stock) and (b) the Guarantor
shall not make any payment of interest or principal on or repay, repurchase
or redeem any debt securities issued by the Guarantor which rank pari passu
with or junior to the Debentures.
SECTION 6.2 RANKING.
This Capital Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank subordinate and junior in right of
payment to all Senior Debt, Subordinated Debt and Additional Senior
Obligations, as defined in the Indenture, of the Guarantor, to the extent and
in the manner set forth in the Indenture, and the applicable provisions of
the Indenture will apply, in all relevant respects, to the obligations of the
Guarantor hereunder.
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ARTICLE VII
TERMINATION
Section 7.1. TERMINATION.
This Capital Securities Guarantee shall terminate upon (i) full payment
of the Redemption Price of all Capital Securities, (ii) upon full payment of
the amounts payable in accordance with the Trust Agreement upon liquidation
of the Trust, or (iii) upon distribution of the Debentures to the Holders of
the Capital Securities. Notwithstanding the foregoing, this Capital
Securities Guarantee shall continue to be effective or shall be reinstated,
as the case may be, if at any time any Holder of Capital Securities must
restore payment of any sums paid under the Capital Securities or under this
Capital Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1. EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Guarantor or any Covered Person
for any loss, damage or claim incurred by reason of any act or omission
performed or omitted by such Indemnified Person in good faith in accordance
with this Capital Securities Guarantee and in a manner that such Indemnified
Person reasonably believed to be within the scope of the authority conferred
on such Indemnified Person by this Capital Securities Guarantee or by law,
except that an Indemnified Person shall be liable for any such loss, damage
or claim incurred by reason of such Indemnified Person's negligence or
willful misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as
to matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Guarantor, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses, or any other facts pertinent to the existence
and amount of assets from which Distributions to Holders of Capital
Securities might properly be paid.
16
<PAGE>
SECTION 8.2. INDEMNIFICATION.
The Guarantor agrees to indemnify each Indemnified Person for, and to
hold each Indemnified Person harmless against, any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees
and expenses) of defending itself against, or investigating, any claim or
liability in connection with the exercise or performance of any of its powers
or duties hereunder. The obligation to indemnify as set forth in this Section
8.2 shall survive the termination of this Capital Securities Guarantee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. SUCCESSORS AND ASSIGNS.
All guarantees and agreements contained in this Capital Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the
Holders of the Capital Securities then outstanding.
SECTION 9.2. AMENDMENTS.
Except with respect to any changes that do not materially adversely
affect the rights of Holders (in which case no consent of Holders will be
required), this Capital Securities Guarantee may only be amended with the
prior approval of the Holders of at least a Majority in Liquidation Amount of
the Capital Securities. The provisions of Article VI of the Trust Agreement
with respect to meetings of Holders of the Capital Securities apply to the
giving of such approval.
SECTION 9.3. NOTICES.
All notices provided for in this Capital Securities Guarantee shall be
in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by registered or certified mail, as follows:
17
<PAGE>
(a) If given to the Capital Guarantee Trustee, at the Capital Guarantee
Trustee's mailing address set forth below (or such other address as the Capital
Guarantee Trustee may give notice of to the Holders of the Capital Securities):
First Union Trust Company, National Association
One Rodney Square
920 King Street, 1st Floor
Wilmington, Delaware 19801
Attention: Corporate Trust Administration
(b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Capital Securities):
Quad City Holdings, Inc.
3551 7th Street
Suite 100
Moline, Illinois 61265
Attention: Douglas M. Hultquist, President
(c) If given to any Holder of Capital Securities, at the address set
forth on the books and records of the Trust. All such notices shall be
deemed to have been given when received in person, telecopied with receipt
confirmed, or mailed by first class mail, postage prepaid except that if a
notice or other document is refused delivery or cannot be delivered because
of a changed address of which no notice was given, such notice or other
document shall be deemed to have been delivered on the date of such refusal
or inability to deliver.
SECTION 9.4. BENEFIT.
This Capital Securities Guarantee is solely for the benefit of the
Holders of the Capital Securities and, subject to Section 3.1(a), is not
separately transferable from the Capital Securities.
SECTION 9.5. GOVERNING LAW.
THIS CAPITAL SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS.
18
<PAGE>
This Capital Securities Guarantee is executed as of the day and year first
above written.
QUAD CITY HOLDINGS, INC, as Guarantor
By:___________________________________
Its:__________________________________
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, as Capital Guarantee
Trustee
By:___________________________________
Its:__________________________________
19
<PAGE>
BARACK FERRAZZANO KIRSCHBAUM PERLMAN & NAGELBERG
333 WEST WACKER DRIVE, SUITE 2700
CHICAGO, ILLINOIS 60606
Telephone (312) 984-3100
Facsimile (312) 984-3150
May 3, 1999
Quad City Holdings, Inc.
3551 7th Street
Suite 100
Moline, Illinois 61265
Re: QUAD CITY HOLDINGS CAPITAL TRUST I
Ladies and Gentlemen:
We have acted as special counsel for Quad City Holdings,
Inc., a Delaware corporation (the "Company"), in connection with the matters
set forth herein. At your request, this letter is being furnished to you.
For purposes of giving the opinions hereinafter set forth,
our examination of documents has been limited to the examination of originals
or copies of the following:
(a) The Certificate of Trust (the "Certificate of Trust")
of Quad City Holdings Capital Trust I, a Delaware business trust (the "Trust"),
as filed with the office of the Secretary of State of the State of Delaware
(the "Secretary of State") on April 27, 1999;
(b) The Trust Agreement of the Trust, dated as of April
27, 1999, among the Company; First Union Trust Company, National Association,
a national banking association with its principal place of business in the
State of Delaware ("First Union"), as trustee (the "Delaware Trustee"); and
Douglas M. Hultquist, Michael A. Bauer and Shellee Showalter, as
administrative trustees (the "Administrative Trustees");
(c) The Registration Statement (the "Registration
Statement") on Form S-2, including a preliminary prospectus with respect to
the Trust (the "Prospectus"), relating to the Capital Securities of the Trust
representing preferred undivided beneficial ownership interests in the assets
of the Trust (each, a "Capital Security" and collectively, the "Capital
Securities"), to be filed by the Company and the Trust with the Securities
and Exchange Commission;
(d) A form of Amended and Restated Trust Agreement for the
Trust, to be entered into between the Company, the trustees of the Trust
named therein, and the holders, from time to time, of the undivided
beneficial ownership interests in the assets of such Trust, attached as an
exhibit to the Registration Statement (the "Trust Agreement");
(e) A form of Indenture to be entered into between the
Company and First Union, as Indenture Trustee (the "Indenture");
(f) A form of Capital Securities Guarantee Agreement to be
entered into between the Company and First Union, as Guarantee Trustee (the
"Guarantee");
(g) the Certificate of Incorporation of the Company filed
with the Secretary of State of the State of Delaware on February 4, 1993, as
amended on July 22, 1993, July 29, 1993, October 16, 1996, and November 9,
1998 and the Company's Bylaws, as amended;
(h) Resolutions of the Board of Directors of the Company
(the "Board") relating to the Offering, dated January 20, 1999, and March 24,
1999;
(i) a form of subordinated debenture to represent the
subordinated debentures approved by the Board (the "Debenture"); and
(j) The Agreement as to Expenses and Liabilities to be
entered into between the Company and the Trust (the "Expense Agreement" and
collectively with the Indenture, the Trust Agreement, the Guarantee and the
Debenture, the "Operative Documents").
<PAGE>
BARACK FERRAZZANO KIRSCHBAUM PERLMAN & NAGELBERG
Quad City Holdings, Inc.
May 3, 1999
Page 2
Capitalized terms used but not defined in this opinion shall have
the meanings given such terms in the Trust Agreement.
(1) Based solely on certificates received from management of the
Company and from the Secretary of State of the State of Delaware, the State
of Illinois and the State of Iowa, the Company has been duly incorporated and
is validly existing as a corporation under the laws of the State of Delaware,
with full corporate power and authority to own, lease and operate its
properties and conduct its business as presently conducted and is duly
qualified to do business as a foreign corporation in the State of Illinois,
the State of Iowa and in each other jurisdiction in which it owns or leases
properties, has an office, or in which business is conducted and such
qualification is required, except where the failure to so qualify would not
reasonably be expected to have a material adverse effect.
(2) The Company has full corporate power and authority to enter into
and perform its obligations under the Operative Documents, and the
performance of the Company's obligations thereunder have been duly authorized
by all necessary corporate action of the Company and, when properly executed
and delivered, the Operative Documents, do and will, to our knowledge: (i)
constitute legal, valid and binding agreements of the Company enforceable in
accordance with their terms, except that rights to indemnity or contribution
may be limited or denied by applicable
<PAGE>
BARACK FERRAZZANO KIRSCHBAUM PERLMAN & NAGELBERG
Quad City Holdings, Inc.
May 3, 1999
Page 3
law and except as may be limited or denied by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles limiting the
right to specific performance or other equitable relief; and (ii) no consent,
approval, authorization or other order or decree of any court, regulatory or
governmental body, arbitrator, administrative agency, or other
instrumentality of the United States or any other jurisdiction having
jurisdiction over the Company is necessary for the execution and delivery of
the Operative Documents in connection with the issuance or sale of the
Debentures pursuant to the Indenture and the Trust Agreement or the
consummation by the Company of any other transactions contemplated thereby.
(3) The execution, delivery and performance of the Operative
Documents by the Company, will not, to our knowledge, contravene any of the
provisions of, or result in a default under: (ii) the Certificate of
Incorporation or Bylaws of the Company, or of any material contract,
agreement, lease, franchise, license, indenture, permit, loan agreement, deed
of trust, or other evidence of indebtedness or other instrument known to us
and to which the Company is a party or by which the Company or any of its
material owned or leased properties is bound; and (ii) will not violate any
statute, ordinance, order, rule, decree or regulation of any court,
regulatory or governmental body, arbitrator, administrative agency or other
instrumentality of the United States or other jurisdiction having
jurisdiction over the Company or its properties.
With respect to the opinions expressed above, we are qualified to
practice law in the State of Illinois and express no opinion concerning any
law other than the laws of the State of Illinois, the General Corporation Law
of the State of Delaware and the laws of the United States of America.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. We hereby
consent to the use of our name under the heading "Legal Opinions" in the
Prospectus. In giving the foregoing consents, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of
the Securities and Exchange Commission thereunder. This opinion is being
furnished to you solely for your benefit in connection with the transactions
set forth above. It may not be relied upon by, nor a copy of it delivered to
any other party, without our prior written consent. This opinion is based
upon our knowledge of the law and facts as of the date hereof, and we assume
no duty to communicate with you with respect to any matter that comes to our
attention hereafter.
Very truly yours,
BARACK FERRAZZANO KIRSCHBAUM
PERLMAN & NAGELBERG
<PAGE>
May 3, 1999
Quad City Holdings, Inc.
Quad City Holdings Capital Trust I
c/o Quad City Holdings, Inc.
3551 7th Street
Suite 100
Moline, Illinois 61265
Re: QUAD CITY HOLDINGS CAPITAL TRUST I
Ladies and Gentlemen:
We have acted as special Delaware counsel for Quad City
Holdings, Inc., a Delaware corporation (the "Company") and Quad City Holdings
Capital Trust I, a Delaware business trust (the "Trust"), in connection with
the matters set forth herein. At your request, this opinion is being
furnished to you.
For purposes of giving the opinions hereinafter set forth,
our examination of documents has been limited to the examination of originals
or copies of the following:
(a) The Certificate of Trust of the Trust (the "Certificate
of Trust"), as filed with the office of the Secretary of State of the State
of Delaware (the "Secretary of State") on April 27, 1999;
(b) The Trust Agreement of the Trust, dated as of April 27,
1999, among the Company, First Union Trust Company, National Association, a
national banking association with its principal place of business in the
State of Delaware ("First
<PAGE>
Quad City Holdings, Inc.
Quad City Holdings Capital Trust I
May 3, 1999
Page 2
Union"), as trustee (the "Delaware Trustee"), and Douglas M. Hultquist,
Michael A. Bauer and Shellee Showalter, as administrative trustees (the
"Administrative Trustees");
(c) The Registration Statement (the "Registration
Statement") on Form S-2, including a preliminary prospectus with respect to
the Trust (the "Prospectus"), relating to the Capital Securities of the Trust
representing preferred undivided beneficial ownership interests in the assets
of the Trust (each, a "Capital Security" and collectively, the "Capital
Securities"), to be filed by the Company and the Trust with the Securities
and Exchange Commission;
(d) A form of Amended and Restated Trust Agreement for the
Trust, to be entered into between the Company, the Trustees of the Trust
named therein, and the holders, from time to time, of the undivided
beneficial ownership interests in the assets of such Trust (including
Exhibits B and D thereto), attached as an exhibit to the Registration
Statement (the "Trust Agreement"; and
(e) A Certificate of Good Standing for the Trust, dated May
3, 1999, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise
defined are used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any
documents other than the documents listed in paragraphs (a) through (e)
above. In particular, we have not reviewed any document (other than the
documents listed in paragraphs (a) through (e) above) that is referred to in
or incorporated by reference into the documents reviewed by us. We have
assumed that there exists no provision in any document that we have not
reviewed that is inconsistent with the opinions stated herein. We have
conducted no independent factual investigation of our own but rather have
relied solely upon the foregoing documents, the statements and information
set forth therein and the additional matters recited or assumed herein, all
of which we have assumed to be true, complete and accurate in all material
respects.
With respect to all documents examined by us, we have
assumed (i) the authenticity of all documents submitted to us as authentic
originals, (ii) the conformity with the originals of all documents submitted
to us as copies or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the
Trust Agreement will constitute the entire agreement among the parties
thereto with respect to the subject
<PAGE>
Quad City Holdings, Inc.
Quad City Holdings Capital Trust I
May 3, 1999
Page 3
matter thereof, including with respect to the creation, operation and
termination of the Trust, and that the Trust Agreement and the Certificate of
Trust will be in full force and effect and will not be amended, (ii) except
to the extent provided in paragraph 1 below, the due organization or due
formation, as the case may be, and valid existence in good standing of each
party to the documents examined by us under the laws of the jurisdiction
governing its organization or formation, (iii) the legal capacity of natural
persons who are parties to the documents examined by us, (iv) that each of
the parties to the documents examined by us has the power and authority to
execute and deliver, and to perform its obligations under, such documents,
(v) the due authorization, execution and delivery by all parties thereto of
all documents examined by us, (vi) the receipt by each Person to whom a
Capital Security is to be issued by the Trusts (collectively, the "Capital
Security Holders") of a Capital Security Certificate for such Capital
Security and the payment for such Capital Security, in accordance with the
Trust Agreement and the Registration Statement, and (vii) that the Capital
Securities are authenticated, issued and sold to the Capital Security Holders
in accordance with the Trust Agreement and the Registration Statement. We
have not participated in the preparation of the Registration Statement or the
Prospectus and assume no responsibility for their contents.
This opinion is limited to the laws of the State of
Delaware (excluding the securities laws of the State of Delaware), and we
have not considered and express no opinion on the laws of any other
jurisdiction, including federal laws and rules and regulations relating
thereto. Our opinions are rendered only with respect to Delaware laws and
rules, regulations and orders thereunder which are currently in effect.
Based upon the foregoing, and upon our examination of such
questions of law and statutes of the State of Delaware as we have considered
necessary or appropriate, and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing
in good standing as a business trust under the Delaware Business Trust Act,
12 Del. C. Section 3801 ET SEQ.
2. The Capital Securities of the Trust will represent valid
and, subject to the qualifications set forth in paragraph 3 below, fully paid
and nonassessable undivided beneficial interests in the assets of the Trust.
3. The Capital Security Holders, as beneficial owners of
the Trust, will be entitled to the same limitation of personal liability
extended to stockholders of private corporations for profit organized under
the General Corporation Law of the State of
<PAGE>
Quad City Holdings, Inc.
Quad City Holdings Capital Trust I
May 3, 1999
Page 4
Delaware. We note that the Capital Security Holders may be obligated to make
payments as set forth in the Trust Agreement.
We consent to the filing of this opinion with the
Securities and Exchange Commission as an exhibit to the Registration
Statement. We hereby consent to the use of our name under the heading "Legal
Opinions" in the Prospectus. In giving the foregoing consents, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Except as stated above, without our prior written consent, this opinion may
not be furnished or quoted to, or relied upon by, any other person for any
purpose.
Very truly yours,
/s/ Richards, Layton & Finger
EAM/DKD
<PAGE>
BARACK FERRAZZANO KIRSCHBAUM PERLMAN & NAGELBERG
333 WEST WACKER DRIVE, SUITE 2700
CHICAGO, ILLINOIS 60606
MICHAEL J. LEGAMARO
(312) 629-5181 Telephone (312) 984-3100
Voice Mail Ext. 4581 Facsimile (312) 984-3193
[email protected]
May 3, 1999
Quad City Holdings Capital Trust I
Quad City Holdings, Inc.
3551 7th Street, Suite 100
Moline, Illinois 61265
RE: QUAD CITY HOLDINGS CAPITAL TRUST I
Ladies and Gentlemen:
We have acted as counsel to Quad City Holdings, Inc., a Delaware
corporation (the "Company"), and to Quad City Holdings Capital Trust I, a
Delaware business trust (the "Trust"), in connection with the registration
statement of the Company and the Trust on Form S-2 (as amended or
supplemented, the "Registration Statement"), of which a preliminary
prospectus (the "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. In that connection, we have participated
in preparation of the section set forth in the Prospectus entitled "Federal
Income Tax Consequences."
For the purposes of rendering this opinion, we have reviewed and relied
upon the Registration Statement, a form of Indenture to be entered into between
the Company and First Union Trust Company, National Association, a national
banking association (the "Indenture"); the Certificate of Trust of the Trust,
as filed with the office of the Secretary of State of the State of Delaware
on April 27, 1999; a form of the Amended and Restated Trust Agreement to the
Trust to be entered into by the Company, the trustees of the Trust, and the
holders, from time to time, of the undivided beneficial ownership interests
in the assets of the Trust; and such other documents and instruments
as we have deemed necessary for the rendering of this opinion. In our
examination of the 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 by the Trust.
Based solely upon our review of such documents, and upon such
information as the Company has provided to us (which we have not attempted to
verify in any respect), we are of the opinion that, under current federal income
tax law:
1. The Trust will be classified as a grantor trust and not as an
association taxable as a corporation.
<PAGE>
BARACK FERRAZZANO KIRSCHBAUM PERLMAN & NAGELBERG
Quad City Holdings Capital Trust I
Quad City Holdings, Inc.
May 4, 1999
Page 2
2. The Debentures (as defined in the Indenture) will be
classified as indebtedness of the Company, and the interest on
the Debentures will be deductible by the Company.
3. The statements set forth in the Prospectus under the caption
"Federal Income Tax Consequences" constitute a fair and accurate
summary of the matters addressed therein, based upon current law
and the assumptions stated therein.
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
upon 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 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 upon 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 with the Securities and
Exchange Commission as an exhibit to the Registration Statement. We also consent
to the use of our name in the Prospectus under the heading "Federal Income Tax
Consequences." In giving the foregoing consents, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder. This opinion is being furnished
to you solely for your benefit in connection with the transactions set forth
above. It may not be relied upon by, nor a copy of it delivered to any other
party, without our prior written consent. This opinion is based upon our
knowledge of the law and facts as of the date hereof, and we assume no duty to
communicate with you with respect to any matter that comes to our attention
hereafter.
Very truly yours,
BARACK FERRAZZANO KIRSCHBAUM
PERLMAN & NAGELBERG
<PAGE>
EXHIBIT 12.1
<TABLE>
<CAPTION>
March 31,
---------------------------
QUAD CITY HOLDINGS, INC.
CALCULATION OF EARNINGS TO FIXED CHARGES AS OF: 1999 1998
-------------- ------------
<S> <C> <C>
Earnings before income taxes $ 2,761 $ 1,656
Add: preferred dividends on a pretax basis --- ---
Add: fixed charges 8,254 5,917
------- -------
Earnings including interest expense on deposits(1) 11,015 7,573
Less: interest expense on deposits 6,674 4,909
------- -------
Earnings excluding interest expense on deposits(2) 4,341 2,664
Fix charges:
Interest expense on deposits 6,674 4,909
Interest expense on borrowings 1,411 969
Interest expense on capital leases --- ---
Portion of rents representative of interest factor 169 39
------- -------
Fixed charges including interest expense on deposits(3) 8,254 5,917
Less interest expense on deposits 6,674 4,909
------- -------
Fixed charges excluding interest expense on deposits(4) $ 1,580 $ 1,008
------- -------
------- -------
Rents 326 73
Portions of rents representative of interest factor 169 39
Ratio of earnings to fixed charges and preferred stock
dividends:
Excluding interest expense on deposits((2)/(4)) 2.75x 2.64x
Including interest expense on deposits((1)/(3)) 1.33 1.28
</TABLE>
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------------------
QUAD CITY HOLDINGS, INC.
CALCULATION OF EARNINGS TO FIXED CHARGES AS OF: 1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes $4, 071 $ 1,384 $ 683 $ (374) $(1,122)
Add: preferred dividends on a pretax basis --- --- --- --- ---
Add: fixed charges 8,437 4,997 3,495 1,896 254
------- ------- ------- ------- -------
Earnings including interest expense on deposits(1) 12,508 6,381 4,178 1,522 (868)
Less: interest expense on deposits 6,971 4,358 3,350 1,793 254
------- ------- ------- ------- -------
Earnings excluding interest expense on deposits(2) 5,537 2,023 828 (271) (1,122)
Fix charges:
Interest expense on deposits 6,971 4,358 3,350 1,793 254
Interest expense on borrowings 1,371 635 137 103 ---
Interest expense on capital leases --- --- --- --- ---
Portion of rents representative of interest factor 95 4 8 --- ---
------- ------- ------- ------- -------
Fixed charges including interest expense on deposits(3) 8,437 4,997 3,495 1,896 254
Less interest expense on deposits 6,971 4,358 3,350 1,793 254
------- ------- ------- ------- -------
Fixed charges excluding interest expense on deposits(4) $ 1,466 $ 639 $ 145 $ 103 $ ---
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Rents 176 10 20 --- ---
Portions of rents representative of interest factor 95 4 8 --- ---
Ratio of earnings to fixed charges and preferred stock
dividends:
Excluding interest expense on deposits((2)/(4)) 3.78x 3.17x 5.71x N/A* N/A*
Including interest expense on deposits((1)/(3)) 1.48 1.28 1.20 N/A* N/A*
</TABLE>
- --------
* Earnings were inadequate to cover fixed charges in the amount of $374 and
$1,122 for the years ended June 30, 1995 and June 30, 1994, respectively.
<PAGE>
CONSENT TO INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-2
(filed on or about May 3, 1999) of our report, dated August 7, 1998 relating
to the consolidated financial statements of Quad City Holdings, Inc. and
subsidiaries. We also consent to the reference to our Firm under the captions
"Experts" and "Selected Consolidated Financial Date" in the Prospectus.
Davenport, Iowa
May 3, 1999
<PAGE>
REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) X
-----
------------------
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
United States National Banking Association 56-1989961
(State of incorporation if (I.R.S. employer
not a national bank) identification no.)
First Union Trust Company, National Association
One Rodney Square, Suite 102
920 King St.
Wilmington, DE 19801
(Address of principal (Zip Code)
executive offices)
SAME AS ABOVE
(Name, address and telephone number, including
area code, of trustee's agent for service)
Quad City Holdings, Inc.
(Exact name of obligor as specified in its charter)
The State of Illinois
(State or other jurisdiction of incorporation or organization)
42-1397595
(I.R.S. employer identification no.)
c/o
Douglas M. Hultquist, President
Quad City Holdings, Inc.
3551 7th St., Suite 100
Moline, IL 61265
(Address, including zip code, of principal executive offices)
--------------------
<PAGE>
SUBORDINATED DEBENTURES
(Title of the Indenture securities)
------------------------------------------------
1. GENERAL INFORMATION. Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject
- -----------------------------------------------------------------
Name Address
- ------------------------------------------------------------------
Federal Reserve Bank of Richmond, VA Richmond, VA
Comptroller of the Currency Washington, D.C.
Securities and Exchange Commission
Division of Market Regulation Washington, D.C.
Federal Deposit Insurance Corporation Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS. If the obligor or any underwriter
for the obligor is an affiliate of the trustee, describe each such affiliation.
None.
(See Note 1 on Page 4.)
Because the obligor is not in default on any securities issued under indentures
under which the applicant is trustee, Items 3 through 15 are not required
herein.
<PAGE>
16. LIST OF EXHIBITS.
All exhibits identified below are filed as a part of this statement of
eligibility.
1. A copy of the Articles of Association of First Union Trust Company,
National Association, as now in effect, which contain the authority to
commence business and a grant of powers to exercise corporate trust
powers.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the Articles of Association.
3. A copy of the authorization of the trustee to exercise corporate trust
powers, if such authorization is not contained in the documents
specified in exhibits (1) or (2) above.
4. A copy of the existing By-laws of First Union Trust Company, National
Association, or instruments corresponding thereto.
5. Inapplicable.
6. The consent of the trustee required by Section 321(b) of the Trust
Indenture Act of 1939 is included at Page 4 of this Form T-1
Statement.
7. A copy of the latest report of condition of the trustee published
pursuant to law or to the requirements of its supervising or examining
authority is attached hereto.
8. Inapplicable.
9. Inapplicable.
3
<PAGE>
NOTE
Note 1: Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information. Item 2 may, however, be
considered correct unless amended by an amendment to this Form T-1.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, First Union Trust Company, National Association, a
national banking association organized and existing under the laws of the United
States of America, has duly caused this statement of eligibility and
qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington, and State of Delaware, on the 30th
day of April, 1999.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
(trustee)
By: \s\ Edward L. Truitt, Jr.
Name: Edward L. Truitt, Jr.
Title: Vice President
CONSENT OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939, as amended, and in
connection with the proposed issuance by Quad City Holdings, Inc. of
Subordinated Debentures, First Union Trust Company, National Association, as the
trustee herein named, hereby consents that reports of examinations of said
Trustee by Federal, State, Territorial or District authorities may be furnished
by such authorities to the Securities and Exchange Commission upon requests
therefor.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
By: \s\ Edward L. Truitt, Jr.
Name: Edward L. Truitt, Jr.
Title: Vice President
4
<PAGE>
Dated: April 30, 1999
5
<PAGE>
<TABLE>
<S><C>
Legal Title of Bank: First Union Trust Company, N.A. Call Date: 6/30/98 ST-BK: 37-0351 FFIEC 031
Address: Two First Union Center Page RC-1
City, State, Zip: Charlotte, NC 28288-0201
FDIC Certificate #: 33869
-----
CONSOLIDATED REPORT OF CONDITION FOR SEPTEMBER 30, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
C400
Dollar Amount in Thousands RCFD Bil Mil Thou
--------------------------------------------
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin (1)........................ 0081 10,212,563 1.a.
b. Interest-bearing balances (2)................................................. 0071 1,529,435 1.b.
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A).................... 1754 1,994,665 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D).................. 1773 37,427,525 2.b.
3. Federal funds sold and securities purchased under agreements to resell........... 1350 7,551,730 3.
4. Loans and lease financing receivables
a. Loans and leases, net of unearned income
(from Schedule RC-C)....................................RCFD 2122 133,841,290 4.a.
b. LESS: Allowance for loan and lease losses...............RCFD 3123 1,856,548 4.b.
c. LESS: Allocated transfer risk reserve...................RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c)........................... 2125 131,984,742 4.d.
5. Trading assets (from Schedule RC-D).............................................. 3545 8,349,640 5.
6. Premises and fixed assets (including capitalized leases)......................... 2145 3,208,660 6.
7. Other real estate owned (from Schedule RC-M)..................................... 2150 127,757 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M)................................................... 2180 351,648 8.
9. Customers' liability to this bank on acceptances outstanding..................... 2155 1,026,154 9.
10. Intangible assets (from Schedule RC-M)........................................... 2143 5,215,196 10.
11. Other assets (from Schedule RC-F)................................................ 2160 9,099,122 11.
12. Total assets (sum of items 1 through 11)......................................... 2170 218,078,837 12.
</TABLE>
- ----------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
<TABLE>
<S><C>
Legal Title of Bank: First Union Trust Company, N.A. Call Date: 6/30/98 ST-BK: 37-0351 FFIEC 031
Address: Two First Union Center Page RC-1
City, State, Zip: Charlotte, NC 28288-0201
FDIC Certificate #: 33869
-----
Schedule RC--Continued
Dollar Amount in Thousands Bil Mil Thou
-------------------------------------------
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E,
part I)..................................................................... RCON 2200 131,541,691 13.a.
(1) Noninterest-bearing (1).......................RCON 6631 23,997,063 13.a.(1)
(2) Interest-bearing..............................RCON 6636 107,544,628 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from
Schedule RC-E, part II)..................................................... RCFN 2200 8,708,735 13.b.
(1) Noninterest-bearing...........................RCFN 6631 400,989 13.b.(1)
(2) Interest-bearing..............................RCFN 6636 8,307,746 13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase...... RCFD 2800 24,903,299 14.
15. a. Demand notes issued to the U.S. Treasury.................................... RCON 2840 772,252 15.a.
b. Trading liabilities (from Schedule RC-D).................................... RCFD 3548 6,496,578 15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):............................................................
a. With a remaining maturity of one year or less............................... RCFD 2332 11,928,951 16.a.
b. With a remaining maturity of more than one year through three years......... RCFD A547 1,260,353 16.b.
c. With a remaining maturity of more than three years.......................... RCFD A548 775,219 16.c.
17. Not applicable..................................................................
18. Bank's liability on acceptances executed and outstanding........................ RCFD 2920 1,036,587 18.
19. Subordinated notes and debentures (2)........................................... RCFD 3200 3,501,546 19.
20. Other liabilities (from Schedule RC-G).......................................... RCFD 2930 9,211,139 20.
21. Total liabilities (sum of items 13 through 20).................................. RCFD 2948 200,136,350 21.
22. Not applicable..................................................................
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus................................... RCFD 3838 160,540 23.
24. Common stock.................................................................... RCFD 3230 454,543 24.
25. Surplus (exclude all surplus related to preferred stock)........................ RCFD 3839 13,206,354 25.
26. a. Undivided profits and capital reserves...................................... RCFD 3632 3,553,449 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities...... RCFD 8434 572,731 26.b.
27. Cumulative foreign currency translation adjustments............................. RCFD 3284 (5,130) 27.
28. Total equity capital (sum of items 23 through 27)............................... RCFD 3210 17,942,487 28.
29. Total liabilities and equity capital (sum of items 21 and 28)................... RCFD 3300 218,078,837 29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external Number
auditors as of any date during 1996............................................ RCFD 6724 N/A M.1.
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ----------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposit.
(2) Includes limited-life preferred stock and related surplus.
7
<PAGE>
Comptroller of the Currency
Administrator of National Banks
Multinational Banking Division
250 E Street, SW
Washington, D.C. 20219-0001
CHARTER CERTIFICATE
Whereas, satisfactory evidence has been presented to the Office of the
Comptroller of the Currency that FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, located in WILMINGTON, State of DELAWARE, has complied with all
provisions of the statutes of the United States required to be complied with
before being authorized to commence the business of banking as a National
Banking Association;
Now, therefore, I hereby certify that the above-named association is
authorized to commence the business of banking as a National Banking
Association.
In testimony whereof, witness my signature and Seal of office this fifteenth day
of January 1997.
- --------------------------------------
Deputy Comptroller for Multinational Banking
Charter Number 23201
<PAGE>
Charter No. _________
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
ARTICLES OF ASSOCIATION
For the purpose of organizing an association to carry on the business of
banking under the laws of the United States, the undersigned do enter into the
following Articles of Association:
FIRST. The title of this association shall be FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
SECOND. The main office of this association shall be in Wilmington,
Delaware. The business of this association will be limited to that of a national
trust bank. This association must obtain the prior written approval of the
Office of the Comptroller of the Currency ("OCC") before amending its Articles
of Association to expand the scope of its activities and services. Transfers of
this association's stock are subject to prior approval of a federal depository
institution regulatory agency. If no other agency approval is required, the
OCC's approval must be obtained before the transfers. In such cases where OCC
approval is required, the OCC will apply the definitions and standards of the
Change in Bank Control Act and the OCC's implementing regulation to ownership
changes in this association.
THIRD. The Board of Directors of this association shall consist of not less
than five nor more than twenty-five shareholders, the exact number to be fixed
and determined from time to time by resolution of a majority of the full Board
of Directors or by resolution of the shareholders at any annual or special
meeting thereof. Each director, during the full term of his directorship, shall
own a minimum of $1,000 aggregate par value of stock of this association or a
minimum par market value or equity interest of $1,000 of stock in the bank
holding company controlling this association. Any vacancy in the Board of
Directors may be filled by action of the Board of Directors.
FOURTH. There shall be an annual meeting of the shareholders to elect
directors and transact whatever other business may be brought before the
meeting. It shall be held at the main office or any other convenient place the
Board of Directors may designate, on the day of each year specified thereby in
the bylaws, but if no election is held on that day, it may be held on any
subsequent day according to such lawful rules as may be prescribed by the Board
of Directors.
Nominations for election to the Board of Directors may be made by the
Board of Directors or by any shareholder of any outstanding class of capital
stock of this association entitled to vote for election of directors.
Nominations other than those made by or on behalf of
<PAGE>
the existing bank management shall be made in writing and be delivered or
mailed to the president of this association and to the OCC, Washington, D.C.,
not less than 14 days nor more than 50 days prior to any meeting of
shareholders called for the election of directors, provided, however, that if
less than 21 days notice of the meeting is given to shareholders, such
nomination shall be mailed or delivered to the president of this association
and to the Comptroller of the Currency not later than the close of business
on the seventh day following the day on which the notice of meeting was
mailed.
Such notification shall contain the following information to the
extent known to the notifying shareholder:
- The name and address of each proposed nominee.
- The principal occupation of each proposed nominee.
- The total number of shares of capital stock of this
association that will be voted for each proposed nominee.
- The name and residence address of the notifying shareholder.
- The number of shares of capital stock of this association
owned by the notifying shareholder. Nominations not made in
accordance herewith may, in his discretion, be disregarded
by the chairperson of the meeting, and upon his
instructions, the vote tellers may disregard all votes cast
for each such nominee.
FIFTH. The authorized amount of capital stock of this association shall be
2,000 shares of common stock of the par value of one hundred dollars ($100.00)
each; but said capital stock may be increased or decreased from time to time,
according to the provisions of the laws of the United States.
If the capital stock is increased by the sale of additional shares
thereof, each shareholder shall be entitled to subscribe for such additional
shares in proportion to the number of shares of said capital stock owned by him
at the time the increase is authorized by the shareholders, unless another time
subsequent to the date of the shareholders' meeting is specified in a resolution
by the shareholders at the time the increase is authorized. The Board of
Directors will have the power to prescribe a reasonable period of time within
which the preemptive rights to subscribe to the new shares of capital stock must
be exercised.
This association, at any time and from time to time, may authorize and
issue debt obligations, whether or not subordinated, without the approval of the
shareholders.
2
<PAGE>
SIXTH. The Board of Directors shall appoint one of its members president of
this association, who shall be chairperson of the Board of Directors, unless the
Board of Directors appoints another director to be the chairperson. The Board of
Directors shall have the power to appoint one or more vice presidents and to
appoint a cashier and such other officers and employees as may be required to
transact the business of this association.
The Board of Directors shall have the power to:
- Define the duties of the officers and employees of this
association.
- Fix the salaries to be paid to the officers and employees.
- Dismiss officers and employees.
- Require bonds from officers and employees and to fix the
penalty thereof.
- Regulate the manner in which any increase of the capital of
this association shall be made.
- Manage and administer the business and affairs of this
association.
- Make all bylaws that it may be lawful for the Board of
Directors to make.
- Generally to perform all acts that are legal for a Board of
Directors to perform.
SEVENTH. The Board of Directors shall have the power to change the location
of the main office to any other place within the limits of Wilmington, Delaware,
without the approval of the shareholders, and shall have the power to establish
or change the location of any branch or branches of the association to any other
location, without the approval of the shareholders.
EIGHTH. The corporate existence of this association shall continue until
terminated according to the laws of the United States.
NINTH. The Board of Directors of this association, or any three or more
shareholders owning, in the aggregate, not less than 10 percent of the stock of
this association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time, place
and purpose of every annual and special meeting of the shareholders shall be
given by first-class mail, postage prepaid, mailed at least 10 days prior to the
date of the meeting to each shareholder of record at his address as shown upon
the books of this association.
3
<PAGE>
TENTH. Each director and executive officer of this association shall be
indemnified by the association against liability in any proceeding (including
without limitation a proceeding brought by or on behalf of this association
itself) arising out of his status as such or his activities in either of the
foregoing capacities, except for any liability incurred on account of activities
which were at the time taken known or believed by such person to be clearly in
conflict with the best interests of this association. Liabilities incurred by a
director or executive officer of this association in defending a proceeding
shall be paid by this association in advance of the final disposition of such
proceeding upon receipt of an undertaking by the director or executive officer
to repay such amount if it shall be determined, as provided in the last
paragraph of this Article Tenth, that he is not entitled to be indemnified by
this association against such liabilities.
The indemnity against liability in the preceding paragraph of this Article
Tenth, including liabilities incurred in defending a proceeding, shall be
automatic and self-operative.
Any director, officer or employee of this association who serves at the
request of this association as a director, officer, employee or agent of a
charitable, not-for-profit, religious, educational or hospital corporation,
partnership, joint venture, trust or other enterprise, or a trade association,
or as a trustee or administrator under an employee benefit plan, or who serves
at the request of this association as a director, officer or employee of a
business corporation in connection with the administration of an estate or trust
by this association, shall have the right to be indemnified by this association,
subject to the provisions set forth in the following paragraph of this Article
Tenth, against liabilities in any manner arising out of or attributable to such
status or activities in any such capacity, except for any liability incurred on
account of activities which were at the time taken known or believed by such
person to be clearly in conflict with the best interests of this association, or
of the corporation, partnership, joint venture, trust, enterprise, association
or plan being served by such person.
In the case of all persons except the directors and executive officers of
this association, the determination of whether a person is entitled to
indemnification under the preceding paragraph of this Article Tenth shall be
made by and in the sole discretion of the Chief Executive Officer of this
association. In the case of the directors and executive officers of this
association, the indemnity against liability in the preceding paragraph of this
Article Tenth shall be automatic and self-operative.
For purposes of this Article Tenth of these Articles of Association only,
the following terms shall have the meanings indicated:
(a) "association" means First Union Trust Company, National Association
and its direct and indirect wholly-owned subsidiaries.
(b) "director" means an individual who is or was a director of this
association.
4
<PAGE>
(c) "executive officer" means an officer of this association who by
resolution of the Board of Directors of this association has been
determined to be an executive officer of this association for purposes
of Regulation O of the Federal Reserve Board.
(d) "liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an
employee benefit plan), or reasonable expenses, including counsel fees
and expenses, incurred with respect to a proceeding.
(e) "party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(f) "proceeding" means any threatened, pending, or completed claim,
action, suit, or proceeding, whether civil, criminal, administrative,
or investigative and whether formal or informal.
This association shall have no obligation to indemnify any person for an
amount paid in settlement of a proceeding unless this association consents in
writing to such settlement.
The right to indemnification herein provided for shall apply to persons who
are directors, officers, or employees of banks or other entities that are
hereafter merged or otherwise combined with this association only after the
effective date of such merger or other combination and only as to their status
and activities after such date.
The right to indemnification herein provided for shall inure to the benefit
of the heirs and legal representatives of any person entitled to such right.
No revocation of, change in, or adoption of any resolution or provision in
the Articles of Association or By-laws of this association inconsistent with,
this Article Tenth shall adversely affect the rights of any director, officer,
or employee of this association with respect to (i) any proceeding commenced or
threatened prior to such revocation, change, or adoption, or (ii) any proceeding
arising out of any act or omission occurring prior to such revocation, change,
or adoption, in either case, without the written consent of such director,
officer, or employee.
The rights hereunder shall be in addition to and not exclusive of any
other rights to which a director, officer, or employee of this association
may be entitled under any statute, agreement, insurance policy, or otherwise.
This association shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, or employee of this
association, or is or was serving at the request of this association as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, trade association, employee benefit plan, or other enterprise,
against any liability asserted against such director, officer, or employee in
any such capacity, or arising out of their status as such, whether or not this
association would have the power to
5
<PAGE>
indemnify such director, officer, or employee against such liability,
excluding insurance coverage for a formal order assessing civil money
penalties against a director, officer or employee of this association.
Notwithstanding anything to the contrary provided herein, no person shall
have a right to indemnification with respect to any liability (i) incurred in an
administrative proceeding or action instituted by an appropriate bank regulatory
agency which proceeding or action results in a final order assessing civil money
penalties or requiring affirmative action by an individual or individuals in the
form of payments to this association, (ii) to the extent such person is entitled
to receive payment therefor under any insurance policy or from any corporation,
partnership, joint venture, trust, trade association, employee benefit plan, or
other enterprise other than this association, or (iii) to the extent that a
court of competent jurisdiction determines that such indemnification is void or
prohibited under state or federal law.
ELEVENTH. These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
IN WITNESS WHEREOF, we have hereunto set our hands this 25th day of
November, 1996.
ORGANIZERS:
- ----------------------- -----------------------
Kent S. Hathaway Keith D. Lembo
- ----------------------- -----------------------
Robert L. Andersen Stephen J. Antal
-----------------------
Daniel Glassberg
6
<PAGE>
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
BYLAWS
AS AMENDED AND RESTATED MAY 27, 1997
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1.1. ANNUAL MEETING. The regular annual meeting of the shareholders
for the election of directors and transaction of whatever other business may
properly come before the meeting, shall be held at the Main Office of the
Association, or such other place as the Board of Directors may designate, at
10:00 A.M., on the third Tuesday of February in each year, commencing with the
year 1997 or such other time within 90 days as may be set by the Board of
Directors. If, from any cause, an election of directors is not made on the said
day, the Board of Directors shall order the election to be held on some
subsequent day, as soon thereafter as practicable, according to the provisions
of the law; and notice thereof shall be given in the manner herein.
Section 1.2. SPECIAL MEETINGS. Except as otherwise specifically provided by
statute, special meetings of the shareholders may be called for any purpose at
any time by the Board of Directors or by any one or more shareholders owning, in
the aggregate, not less than twenty-five percent of the stock of the
Association.
Section 1.3. NOTICE OF MEETINGS. Notice of Annual and Special meetings
shall mailed, postage prepaid, at least ten days prior to the date thereof
provided for the annual meeting, addressed to each shareholder at his address
appearing on the books of the Association; but any
<PAGE>
failure to mail such notice, or any irregularity therein, shall not affect
the validity of such meeting, or of any of the proceedings thereat. A
shareholder may waive any such notice.
Section 1.4. ORGANIZATION OF MEETINGS. The Chairman shall preside at all
meetings of shareholders. In his absence, the President, or a director
designated by the Chairman shall preside at such meeting.
Section 1.5. PROXIES. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing. Proxies shall be valid only
for one meeting to be specified therein, and any adjournments of such meeting.
Proxies shall be dated and shall be filed with the records of the meeting.
Section 1.6. QUORUM. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law. A majority of the votes cast
shall decide every question or matter submitted to the shareholders at any
meeting, unless otherwise provided by law or by the Articles of Association.
ARTICLE II
DIRECTORS
Section 2.1. BOARD OF DIRECTORS. The Board of Directors (hereinafter
referred to as the "Board"), shall have power to manage and administer the
business and affairs of the Association. Except as expressly limited by law, all
corporate powers of the Association shall be vested in and may be exercised by
said Board.
Section 2.2. NUMBER. The Board shall consist of not less than five nor more
than twenty-five persons, the exact number within such minimum and maximum
limits to be fixed and
<PAGE>
determined from time to time by resolution of a majority of the full Board or
by resolution of the shareholders at any meeting thereof; provided, however,
that a majority of the full Board may not increase the number of directors to
a number which: (a) exceeds by more than two the number of directors last
elected by shareholders where such number was fifteen or less; and (b) to a
number which exceeds by more than four the number of directors last elected
by shareholders where such number was sixteen or more, but in no event shall
the number of directors exceed twenty-five.
Section 2.3. ORGANIZATION MEETING. A meeting shall be held for the purpose
of organizing the new Board and electing and appointing officers of the
Association for the succeeding year on the day of the Annual Meeting of
Shareholders or as soon thereafter as practicable, and, in any event, within
thirty days thereof. If, at the time fixed for such meeting, there shall not be
a quorum present, the directors present may adjourn the meeting, from time to
time, until a quorum is obtained.
Section 2.4. REGULAR MEETINGS. The regular meetings of the Board shall be
held on such days and time as the directors may, by resolution, designate; and
written notice of any change thereof shall be sent to each member. When any
regular meeting of the Board falls upon a legal holiday, the meeting shall be
held on such other day as the Board may designate.
Section 2.5. SPECIAL MEETINGS. Special meetings of the Board may be called
by the Chairman of the Board, or President, or at the request of three or more
directors. Each director shall be given notice of each special meeting, except
the organization meeting, at least one day before it is to be held by facsimile,
telephone, telegram, letter or in person. Any director may waive any such
notice.
Section 2.6. QUORUM. A majority of the directors shall constitute a quorum
at any
3
<PAGE>
meeting, except when otherwise provided by law; but a less number may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned without further notice.
Section 2.7. TERM OF OFFICE AND VACANCY. Directors shall hold office for
one year and until their successors are elected and have qualified. No person
shall stand for election as a director of this Association if at the date of his
election he will have passed his seventieth birthday; provided, however, this
prohibition shall not apply to persons who are active officers of this
Association, an affiliate bank, or its parent corporation, or a former chief
executive officer of the Association. No person, who is not an officer or former
officer of this Association, an affiliate bank, or its parent corporation and
who has discontinued the principal position or activity the person held when
initially elected, shall be recommended to the shareholders for reelection;
provided, however, that exceptions may be made because of a change in principal
position or activity which would be compatible with continued service to this
Association. No person elected as a director may exercise any of the powers of
his office until he has taken the oath of office as prescribed by law. When any
vacancy occurs among the directors, the remaining members of the Board, in
accordance with the laws of the United States, may appoint a director to fill
such vacancy at any regular meeting of the Board, or at a special meeting called
for that purpose.
Section 2.8. NOMINATIONS. Nominations for election to the Board may be
made by the Executive Committee or by any stockholder of any outstanding class
of capital stock of the Association entitled to vote for the election of
directors.
Section 2.9. COMMUNICATIONS EQUIPMENT. Any or all directors may participate
in a meeting of the Board by means of conference telephone or any means of
communication by which all persons participating in the meeting are able to hear
each other.
4
<PAGE>
Section 2.10. ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board or committee thereof by law, the Association's Articles of
Association, or these Bylaws may be taken without a meeting, if, prior or
subsequent to the action, all members of the Board or committee shall
individually or collectively consent in writing to the action. Each written
consent or consents shall be filed with the minutes of the proceedings of the
Board or committee. Action by written consent shall have the same force and
effect as a unanimous vote of the directors, for all purposes. Any certificate
or other documents which relates to action so taken shall state that the action
was taken by unanimous written consent of the Board or committee without a
meeting.
ARTICLE III
COMMITTEES OF THE BOARD
Section 3.1. EXECUTIVE COMMITTEE. The Board may by resolution adopted by a
majority of the entire Board designate an Executive Committee consisting of the
Chairman of the Board, the President, and not less than two other directors.
Subject to the national banking laws and the Association's Articles of
Association, the Executive Committee may exercise all the powers of the Board of
Directors with respect to the affairs of the Association, except that the
Executive Committee may not:
1. (a) exercise such powers while a quorum of the Board of Directors is
actually convened for the conduct of business,
(b) exercise any power specifically required to be
exercised by at least a majority of all the directors,
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(c) act on matters committed by the Bylaws or resolution of the Board
of Directors to another committee of the board, or
(d) amend or repeal any resolution theretofore adopted by the Board
of Directors which by its terms is amendable or repealable only
by the Board;
2. amend the Articles of Association or make, alter or repeal any Bylaw
of the Association;
3. elect or appoint any director, create or fill any vacancies in the
Board of Directors or remove any director, or authorize or approve any
change in the compensation of any officer of the Association who is
also a director of the Association;
4. authorize or approve issuance or sale or contract for sale of shares
of stock of the Association, or determine the designation and relative
rights, preferences and limitations of a class or series of shares;
5. adopt an agreement of merger or consolidation, or submit to
shareholders any action that requires shareholder approval, including
any recommendation to the shareholders concerning the sale, lease or
exchange of all or substantially all the Association's property and
assets, a dissolution of the Association or a revocation of a
previously approved dissolution; or
6. authorize an expenditure by the Association in excess of $10 million
for any one item or group of related items.
The committee shall hold regular meetings at such times as the members shall
agree and whenever called by the chairman of the committee. A majority of the
committee shall constitute a quorum for the transaction of business. The
committee shall keep a record of its proceedings and shall
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report these proceedings to the Board at the regular meetings thereof. The
committee shall serve as the nominating committee for nominations to the Board.
Section 3.2. CHAIRMAN OF THE EXECUTIVE COMMITTEE. The Board may designate
one of its members to be Chairman of the Executive Committee who shall preside
at the meetings thereof and shall perform such duties as the Board shall assign
to him from time to time.
Section 3.3. AUDIT COMMITTEE. The Board shall appoint a committee of three
or more persons exclusive of the officers of this Association which committee
shall be known as the Audit Committee. It shall be the duty of this committee at
least once in every twelve months to examine the affairs of the Association, and
determine whether it is in a sound and solvent condition and to recommend to the
Board such changes in the manner of doing business, etc., as may seem to be
desirable. The committee may cause such examination to be made in its behalf and
under its supervision by outside accountants and may also use the services of
any other persons either inside or outside the Association to assist in its
work. The results of each examination shall be reported in writing to the Board.
Section 3.4. AUDIT OF TRUST DEPARTMENT. The Audit Committee shall, at least
once during each calendar year and within fifteen months of the last such audit
make suitable audits of the Trust Department or cause suitable audits to be made
by auditors responsible only to the Board, and at such time shall ascertain
whether the department has been administered in accordance with law, Part 9 of
the Regulations of the Comptroller of the Currency, and sound fiduciary
principles. In lieu of such periodic audit the Audit Committee, at the election
of the Board, may conduct or cause to be conducted by auditors responsible only
to the Board an adequate continuous audit system adopted by the Board. A written
report of such periodic or continuous audit shall be made
7
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to the Board.
Section 3.5. OTHER COMMITTEES. The Board may appoint from time to time
other committees composed of one or more persons each, for such purposes and
with such powers as the Board may determine. The Chairman of the Board shall
have the power to designate another person to serve on any committee during the
absence or inability of any member thereof so to serve.
Section 3.6. DIRECTORS' EMERITUS. The Board may designate one or more
persons to serve as Director Emeritus. Such Director Emeritus shall have the
right to attend any and all meetings of the Board, but shall have no vote at
such meetings. A person designated as Director Emeritus may serve in that
capacity for a period of three years.
Section 3.7. ALTERNATE COMMITTEE MEMBERS. The Board may, from time to time,
appoint one or more, but no more than three persons to serve as alternate
members of a committee, each of whom shall be empowered to serve on that
committee in place of a regular committee member in the event of the absence or
disability of that committee member. An alternate committee member shall, when
serving on a committee, have all of the powers of a regular committee member.
Alternate committee members shall be notified of, and requested to serve at, a
particular meeting or meetings, or for particular periods of time, by or at the
direction of the chairman of the committee or the Chairman of the Board.
ARTICLE IV
OFFICERS
Section 4.1. OFFICERS. The officers of the Association may be a Chairman of
the Board, a
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Vice Chairman of the Board, one or more Chairmen or Vice Chairmen (who shall not
be required to be directors of the Association), a President, one or more Vice
Presidents, a Secretary, a Cashier or Treasurer, and such other officers,
including officers holding similar or equivalent titles to the above in regions,
divisions or functional units of the Association, as may be appointed by the
Board of Directors. The Chairman of the Board and the President shall be
members of the Board of Directors. Any two or more offices may be held by one
person, but no officer shall sign or execute any document in more than one
capacity.
4.2. TERM OF OFFICE. The officers who are required by the articles of
association or the bylaws to be members of the Board shall hold their respective
offices until the Organization meeting of the Board following the annual meeting
of shareholders or until their respective successors shall have been elected,
unless they shall resign, become disqualified or be removed from office. Each
other officer shall hold office at the pleasure of the Board. Any officer may be
removed at any time by the Board.
Section 4.3. CHAIRMAN OF THE BOARD. The chairman of the board shall be
designated as Chairman of the Board. He shall preside at all meetings of the
stockholders and directors and he shall be a member of all committees of the
Board except the Audit Committee. He shall have such other powers and perform
such other duties as may be prescribed from time to time by the Board. He shall
be subject only to the direction and control of the Board.
Section 4.4. PRESIDENT. The president shall be the chief executive officer
of the Association and he shall be designated as President and Chief Executive
Officer. In the absence of the Chairman the President shall preside at all
meetings of the Board. The President shall be a member of each committee of the
Board except the Audit Committee. He shall have the powers
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and perform the duties conferred or imposed upon the President by the national
banking laws, and he shall have such other powers and perform such other duties
as nay from time to time be imposed upon or assigned to him by the Board.
Section 4.5. CHIEF FINANCIAL OFFICER. The Chief Financial officer shall
have such title as may be designated by the Board and he shall be responsible
for all monies, funds and valuables of this Association, provide for the keeping
of proper records of all transactions of the Association, report to the Board at
each regular meeting the condition of the Association, submit to the Board, when
requested, a detailed statement of the income and expenses, be responsible for
the conduct and efficiency of all persons employed under him, and perform such
other duties as may be from time to time assigned to him by the Board.
Section 4.6. OTHER OFFICERS. All other officers shall respectively exercise
such powers and perform such duties as generally pertain to their several
offices, or as may be conferred upon or assigned to them by the Board, the
Chairman of the Board or the President.
Section 4.7. BOND. Each officer and employee, if so required by the Board,
shall give bond with surety to be approved by the Board, conditioning for the
honest discharge of his duties as such officer or employee. In the discretion of
the Board, such bonds may be individual, schedule or blanket form, and the
premiums may be paid by the Association.
Section 4.8. OFFICERS ACTING AS ASSISTANT SECRETARY. Notwithstanding
Section 4.la of this Article IV, any Senior Vice President, Vice President or
Assistant Vice President shall have, by virtue of his office, and by authority
of the Bylaws, the authority from time to time to act as an Assistant Secretary
of the Association, and to such extent, said officers are appointed to the
office
10
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of Assistant Secretary.
ARTICLE V
TRUST DEPARTMENT
Section 5.1. TRUST DEPARTMENT. There shall be a department of the
Association known as the Trust Department which shall perform the fiduciary
responsibilities of the Association. Opinions of counsel shall be retained on
file in the Trust Department in connection with all important matters pertaining
to fiduciary activities.
Section 5.2. TRUST INVESTMENT. Funds held in a fiduciary capacity shall be
invested in accordance with the instrument establishing the fiduciary
relationship and local law. Where such instrument does not specify the character
and class of the investments to be made and does not vest in the Association a
discretion in the matter, funds held pursuant to such instrument shall be
invested in investments in which corporate fiduciaries may invest under local
law.
ARTICLE VI
STOCK CERTIFICATES AND TRANSFERS
Section 6.1. STOCK CERTIFICATES. Ownership of capital stock of the
Association shall be evidenced by certificates of stock signed by the Chairman
or President, and the Secretary, or an Assistant Secretary. Each certificate
shall state upon its face that the stock is transferable only upon the books of
the Association by the holder thereof, or by duly authorized attorney, upon the
surrender of such certificate, and shall meet the requirements of Section 5139,
United States Revised Statutes, as amended.
11
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Section 6.2. TRANSFERS. The stock of this Association shall be assignable
and transferable only on the books of this Association, subject to the
restrictions and provisions of the national banking laws; and a transfer book
shall be provided in which all assignments and transfers of stock shall be made.
When stock is transferred, the certificates thereof shall be returned to the
Association, canceled, preserved and new certificates issued.
Section 6.3. DIVIDENDS. Dividends shall be paid to the shareholders in
whose names the stock shall stand at the close of business on the day next
preceding the date when the dividends are payable, provided, however, that
the directors may fix another date as a record date for the determination of
the shareholders entitled to receive payment thereof.
ARTICLE VII
INCREASE OF STOCK
7.1. CAPITAL STOCK. Shares of the capital stock of the Association, which
have been authorized but not issued, may be issued from time to time for such
consideration, not less than the par value thereof, as may be determined by the
Board.
ARTICLE VIII
CORPORATE SEAL
Section 8.1. SEAL. The seal, an impression of which appears below, is the
seal of the Association adopted by the Board of Directors:
[Seal]
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The Chairman of the Board, the Vice Chairman, the President, Senior
Executive Vice President, Executive Vice President, Senior Vice President, Vice
President, each Assistant Vice President, the Chief Financial Officer, the
Secretary, each Assistant Secretary, each Trust Officer, each Assistant Trust
Officer or each Assistant Cashier, shall have the authority to affix the
corporate seal of this Association and to attest to the same.
13
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ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.l. FISCAL YEAR. The fiscal year of the Association shall be the
calendar year.
Section 9.2. EXECUTION OF INSTRUMENTS. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies, and other instruments or
documents may be signed, executed, acknowledged, verified, delivered or accepted
in behalf of the Association by the Chairman of the Board, the Vice Chairman of
the Board, any Chairman or Vice Chairman, the President, any Vice President or
Assistant Vice President, the Secretary or any Assistant Secretary, the Cashier
or Treasurer or any Assistant Cashier or Assistant Treasurer, or any officer
holding similar or equivalent titles to the above in any regions, divisions or
functional units of the Association, or, if in connection with the exercise of
fiduciary powers of the Association, by any of said officers or by any Trust
Officer or Assistant Trust Officer (or equivalent titles); provided, however,
that where required, any such instrument shall be attested by one of said
officers other than the officer executing such instrument. Any such instruments
may also be executed, acknowledged, verified, delivered, or accepted in behalf
of the Association in such other manner and by such other officers as the Board
of Directors may from time to time direct. The provisions of this Section 9.2
are supplementary to any other provision of these Bylaws.
Section 9.3. RECORDS. The organization papers of this Association, the
articles of association, the bylaws and any amendments thereto, the proceedings
of all regular and special meetings of the shareholders and of the directors,
the returns of the judges of elections, and the
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reports of the committees of directors shall be recorded in an appropriate
minute book, and the minutes of each meeting shall be signed by the Secretary or
any other officer appointed to act as secretary of the meeting.
Section 9.4. BANKING HOURS. This Association and its branch offices shall
be open on such days and during such hours as shall be fixed from time to time
by the Board.
Section 9.5. VOTING SHARES OF OTHER CORPORATIONS. The Chairman, any Vice
Chairman, the President, or any Vice President is authorized to vote, represent
and exercise on behalf of this Association all rights incident to any and all
shares of stock of any other corporation standing in the name of the
Association. The authority granted herein may be exercised by such officers in
person or by proxy or by power of attorney duly executed by said officer.
ARTICLE X
BYLAWS
Section 10.1. INSPECTION. A copy of the Bylaws, with all amendments
thereto, shall at all times be kept in a convenient place at the Head Office of
the Association, and shall be open for inspection to all shareholders, during
banking hours.
Section 10.2. AMENDMENTS. These Bylaws may be changed or amended at any
regular or special meeting of the Board by the vote of a majority of the
Directors.
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Comptroller of the Currency
Administrator of National Banks
Multinational Banking Division
250 E Street, SW
Washington, D.C. 20219-0001
TRUST CERTIFICATE
Whereas, FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, Charter Number
23201, located in WILMINGTON, State of DELAWARE, being a National Banking
Association, organized under the statutes of the United States, has made
application for authority to act as fiduciary;
And whereas, applicable provisions of the statutes of the United States
authorize the granting of such authority;
Now, therefore, I hereby certify that the said association is authorized to
act in all fiduciary capacities by such statutes.
In testimony whereof, witness my signature and
Seal of office this fifteenth day of January 1997.
- --------------------------------------
Deputy Comptroller for Multinational Banking
<PAGE>
REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) X
-----
------------------
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
United States National Banking Association 56-1989961
(State of incorporation if (I.R.S. employer
not a national bank) identification no.)
First Union Trust Company, National Association
One Rodney Square, Suite 102
920 King St.
Wilmington, DE 19801
(Address of principal (Zip Code)
executive offices)
SAME AS ABOVE
(Name, address and telephone number, including
area code, of trustee's agent for service)
Quad City Holdings, Capital Trust I
(Exact name of obligor as specified in its charter)
The State of Delaware
(State or other jurisdiction of incorporation or organization)
51-6512630
(I.R.S. employer identification no.)
c/o
Edward L. Truitt, Jr., Vice President
First Union Trust Company, National Association
One Rodney Square
920 King Street, Suite 102
Wilmington, DE 19801
(Address, including zip code, of principal executive offices)
--------------------
<PAGE>
CAPITAL SECURITIES
(Title of the Amended and Restated Declaration of Trust securities)
------------------------------------------------
1. GENERAL INFORMATION. Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject
- -----------------------------------------------------------------
Name Address
- ------------------------------------------------------------------
Federal Reserve Bank of Richmond, VA Richmond, VA
Comptroller of the Currency Washington, D.C.
Securities and Exchange Commission
Division of Market Regulation Washington, D.C.
Federal Deposit Insurance Corporation Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS. If the obligor or any underwriter
for the obligor is an affiliate of the trustee, describe each such affiliation.
None.
(See Note 1 on Page 4.)
Because the obligor is not in default on any securities issued under indentures
under which the applicant is trustee, Items 3 through 15 are not required
herein.
16. LIST OF EXHIBITS.
All exhibits identified below are filed as a part of this statement of
eligibility.
<PAGE>
1. A copy of the Articles of Association of First Union Trust Company,
National Association, as now in effect, which contain the authority to
commence business and a grant of powers to exercise corporate trust
powers.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the Articles of Association.
3. A copy of the authorization of the trustee to exercise corporate trust
powers, if such authorization is not contained in the documents
specified in exhibits (1) or (2) above.
4. A copy of the existing By-laws of First Union Trust Company, National
Association, or instruments corresponding thereto.
5. Inapplicable.
6. The consent of the trustee required by Section 321(b) of the Trust
Indenture Act of 1939 is included at Page 4 of this Form T-1
Statement.
7. A copy of the latest report of condition of the trustee published
pursuant to law or to the requirements of its supervising or examining
authority is attached hereto.
8. Inapplicable.
9. Inapplicable.
3
<PAGE>
NOTE
Note 1: Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information. Item 2 may, however, be
considered correct unless amended by an amendment to this Form T-1.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, First Union Trust Company, National Association, a
national banking association organized and existing under the laws of the United
States of America, has duly caused this statement of eligibility and
qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington, and State of Delaware, on the 30th
day of April, 1999.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
(trustee)
By: \s\ Edward L. Truitt, Jr.
Name: Edward L. Truitt, Jr.
Title: Vice President
CONSENT OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939, as amended, and
in connection with the proposed issuance by Quad City Holdings Capital Trust
I of Capital Securities, First Union Trust Company, National Association, as
the trustee herein named, hereby consents that reports of examinations of
said Trustee by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
requests therefor.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
By: \s\ Edward L. Truitt, Jr.
Name: Edward L. Truitt, Jr.
4
<PAGE>
Title: Vice President
Dated: April 30, 1999
5
<PAGE>
<TABLE>
<S><C>
Legal Title of Bank: First Union Trust Company, N.A. Call Date: 6/30/98 ST-BK: 37-0351 FFIEC 031
Address: Two First Union Center Page RC-1
City, State, Zip: Charlotte, NC 28288-0201
FDIC Certificate #: 33869
-----
CONSOLIDATED REPORT OF CONDITION FOR SEPTEMBER 30, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
C400
Dollar Amount in Thousands RCFD Bil Mil Thou
--------------------------------------------
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin (1)........................ 0081 10,212,563 1.a.
b. Interest-bearing balances (2)................................................. 0071 1,529,435 1.b.
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A).................... 1754 1,994,665 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D).................. 1773 37,427,525 2.b.
3. Federal funds sold and securities purchased under agreements to resell........... 1350 7,551,730 3.
4. Loans and lease financing receivables
a. Loans and leases, net of unearned income
(from Schedule RC-C)....................................RCFD 2122 133,841,290 4.a.
b. LESS: Allowance for loan and lease losses...............RCFD 3123 1,856,548 4.b.
c. LESS: Allocated transfer risk reserve...................RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c)........................... 2125 131,984,742 4.d.
5. Trading assets (from Schedule RC-D).............................................. 3545 8,349,640 5.
6. Premises and fixed assets (including capitalized leases)......................... 2145 3,208,660 6.
7. Other real estate owned (from Schedule RC-M)..................................... 2150 127,757 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M)................................................... 2180 351,648 8.
9. Customers' liability to this bank on acceptances outstanding..................... 2155 1,026,154 9.
10. Intangible assets (from Schedule RC-M)........................................... 2143 5,215,196 10.
11. Other assets (from Schedule RC-F)................................................ 2160 9,099,122 11.
12. Total assets (sum of items 1 through 11)......................................... 2170 218,078,837 12.
</TABLE>
- ----------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
<TABLE>
<S><C>
Legal Title of Bank: First Union Trust Company, N.A. Call Date: 6/30/98 ST-BK: 37-0351 FFIEC 031
Address: Two First Union Center Page RC-1
City, State, Zip: Charlotte, NC 28288-0201
FDIC Certificate #: 33869
-----
Schedule RC--Continued
Dollar Amount in Thousands Bil Mil Thou
-------------------------------------------
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E,
part I)..................................................................... RCON 2200 131,541,691 13.a.
(1) Noninterest-bearing (1).......................RCON 6631 23,997,063 13.a.(1)
(2) Interest-bearing..............................RCON 6636 107,544,628 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from
Schedule RC-E, part II)..................................................... RCFN 2200 8,708,735 13.b.
(1) Noninterest-bearing...........................RCFN 6631 400,989 13.b.(1)
(2) Interest-bearing..............................RCFN 6636 8,307,746 13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase...... RCFD 2800 24,903,299 14.
15. a. Demand notes issued to the U.S. Treasury.................................... RCON 2840 772,252 15.a.
b. Trading liabilities (from Schedule RC-D).................................... RCFD 3548 6,496,578 15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):............................................................
a. With a remaining maturity of one year or less............................... RCFD 2332 11,928,951 16.a.
b. With a remaining maturity of more than one year through three years......... RCFD A547 1,260,353 16.b.
c. With a remaining maturity of more than three years.......................... RCFD A548 775,219 16.c.
17. Not applicable..................................................................
18. Bank's liability on acceptances executed and outstanding........................ RCFD 2920 1,036,587 18.
19. Subordinated notes and debentures (2)........................................... RCFD 3200 3,501,546 19.
20. Other liabilities (from Schedule RC-G).......................................... RCFD 2930 9,211,139 20.
21. Total liabilities (sum of items 13 through 20).................................. RCFD 2948 200,136,350 21.
22. Not applicable..................................................................
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus................................... RCFD 3838 160,540 23.
24. Common stock.................................................................... RCFD 3230 454,543 24.
25. Surplus (exclude all surplus related to preferred stock)........................ RCFD 3839 13,206,354 25.
26. a. Undivided profits and capital reserves...................................... RCFD 3632 3,553,449 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities...... RCFD 8434 572,731 26.b.
27. Cumulative foreign currency translation adjustments............................. RCFD 3284 (5,130) 27.
28. Total equity capital (sum of items 23 through 27)............................... RCFD 3210 17,942,487 28.
29. Total liabilities and equity capital (sum of items 21 and 28)................... RCFD 3300 218,078,837 29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external Number
auditors as of any date during 1996............................................ RCFD 6724 N/A M.1.
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ----------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposit.
(2) Includes limited-life preferred stock and related surplus.
7
<PAGE>
Comptroller of the Currency
Administrator of National Banks
Multinational Banking Division
250 E Street, SW
Washington, D.C. 20219-0001
CHARTER CERTIFICATE
Whereas, satisfactory evidence has been presented to the Office of the
Comptroller of the Currency that FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, located in WILMINGTON, State of DELAWARE, has complied with all
provisions of the statutes of the United States required to be complied with
before being authorized to commence the business of banking as a National
Banking Association;
Now, therefore, I hereby certify that the above-named association is
authorized to commence the business of banking as a National Banking
Association.
In testimony whereof, witness my signature and Seal of office this fifteenth day
of January 1997.
- --------------------------------------
Deputy Comptroller for Multinational Banking
Charter Number 23201
<PAGE>
Charter No. _________
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
ARTICLES OF ASSOCIATION
For the purpose of organizing an association to carry on the business of
banking under the laws of the United States, the undersigned do enter into the
following Articles of Association:
FIRST. The title of this association shall be FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
SECOND. The main office of this association shall be in Wilmington,
Delaware. The business of this association will be limited to that of a national
trust bank. This association must obtain the prior written approval of the
Office of the Comptroller of the Currency ("OCC") before amending its Articles
of Association to expand the scope of its activities and services. Transfers of
this association's stock are subject to prior approval of a federal depository
institution regulatory agency. If no other agency approval is required, the
OCC's approval must be obtained before the transfers. In such cases where OCC
approval is required, the OCC will apply the definitions and standards of the
Change in Bank Control Act and the OCC's implementing regulation to ownership
changes in this association.
THIRD. The Board of Directors of this association shall consist of not less
than five nor more than twenty-five shareholders, the exact number to be fixed
and determined from time to time by resolution of a majority of the full Board
of Directors or by resolution of the shareholders at any annual or special
meeting thereof. Each director, during the full term of his directorship, shall
own a minimum of $1,000 aggregate par value of stock of this association or a
minimum par market value or equity interest of $1,000 of stock in the bank
holding company controlling this association. Any vacancy in the Board of
Directors may be filled by action of the Board of Directors.
FOURTH. There shall be an annual meeting of the shareholders to elect
directors and transact whatever other business may be brought before the
meeting. It shall be held at the main office or any other convenient place the
Board of Directors may designate, on the day of each year specified thereby in
the bylaws, but if no election is held on that day, it may be held on any
subsequent day according to such lawful rules as may be prescribed by the Board
of Directors.
Nominations for election to the Board of Directors may be made by the
Board of Directors or by any shareholder of any outstanding class of capital
stock of this association entitled to vote for election of directors.
Nominations other than those made by or on behalf of
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the existing bank management shall be made in writing and be delivered or
mailed to the president of this association and to the OCC, Washington, D.C.,
not less than 14 days nor more than 50 days prior to any meeting of
shareholders called for the election of directors, provided, however, that if
less than 21 days notice of the meeting is given to shareholders, such
nomination shall be mailed or delivered to the president of this association
and to the Comptroller of the Currency not later than the close of business
on the seventh day following the day on which the notice of meeting was
mailed.
Such notification shall contain the following information to the
extent known to the notifying shareholder:
- The name and address of each proposed nominee.
- The principal occupation of each proposed nominee.
- The total number of shares of capital stock of this
association that will be voted for each proposed nominee.
- The name and residence address of the notifying shareholder.
- The number of shares of capital stock of this association
owned by the notifying shareholder. Nominations not made in
accordance herewith may, in his discretion, be disregarded
by the chairperson of the meeting, and upon his
instructions, the vote tellers may disregard all votes cast
for each such nominee.
FIFTH. The authorized amount of capital stock of this association shall be
2,000 shares of common stock of the par value of one hundred dollars ($100.00)
each; but said capital stock may be increased or decreased from time to time,
according to the provisions of the laws of the United States.
If the capital stock is increased by the sale of additional shares
thereof, each shareholder shall be entitled to subscribe for such additional
shares in proportion to the number of shares of said capital stock owned by him
at the time the increase is authorized by the shareholders, unless another time
subsequent to the date of the shareholders' meeting is specified in a resolution
by the shareholders at the time the increase is authorized. The Board of
Directors will have the power to prescribe a reasonable period of time within
which the preemptive rights to subscribe to the new shares of capital stock must
be exercised.
This association, at any time and from time to time, may authorize and
issue debt obligations, whether or not subordinated, without the approval of the
shareholders.
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SIXTH. The Board of Directors shall appoint one of its members president of
this association, who shall be chairperson of the Board of Directors, unless the
Board of Directors appoints another director to be the chairperson. The Board of
Directors shall have the power to appoint one or more vice presidents and to
appoint a cashier and such other officers and employees as may be required to
transact the business of this association.
The Board of Directors shall have the power to:
- Define the duties of the officers and employees of this
association.
- Fix the salaries to be paid to the officers and employees.
- Dismiss officers and employees.
- Require bonds from officers and employees and to fix the
penalty thereof.
- Regulate the manner in which any increase of the capital of
this association shall be made.
- Manage and administer the business and affairs of this
association.
- Make all bylaws that it may be lawful for the Board of
Directors to make.
- Generally to perform all acts that are legal for a Board of
Directors to perform.
SEVENTH. The Board of Directors shall have the power to change the location
of the main office to any other place within the limits of Wilmington, Delaware,
without the approval of the shareholders, and shall have the power to establish
or change the location of any branch or branches of the association to any other
location, without the approval of the shareholders.
EIGHTH. The corporate existence of this association shall continue until
terminated according to the laws of the United States.
NINTH. The Board of Directors of this association, or any three or more
shareholders owning, in the aggregate, not less than 10 percent of the stock of
this association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time, place
and purpose of every annual and special meeting of the shareholders shall be
given by first-class mail, postage prepaid, mailed at least 10 days prior to the
date of the meeting to each shareholder of record at his address as shown upon
the books of this association.
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TENTH. Each director and executive officer of this association shall be
indemnified by the association against liability in any proceeding (including
without limitation a proceeding brought by or on behalf of this association
itself) arising out of his status as such or his activities in either of the
foregoing capacities, except for any liability incurred on account of activities
which were at the time taken known or believed by such person to be clearly in
conflict with the best interests of this association. Liabilities incurred by a
director or executive officer of this association in defending a proceeding
shall be paid by this association in advance of the final disposition of such
proceeding upon receipt of an undertaking by the director or executive officer
to repay such amount if it shall be determined, as provided in the last
paragraph of this Article Tenth, that he is not entitled to be indemnified by
this association against such liabilities.
The indemnity against liability in the preceding paragraph of this Article
Tenth, including liabilities incurred in defending a proceeding, shall be
automatic and self-operative.
Any director, officer or employee of this association who serves at the
request of this association as a director, officer, employee or agent of a
charitable, not-for-profit, religious, educational or hospital corporation,
partnership, joint venture, trust or other enterprise, or a trade association,
or as a trustee or administrator under an employee benefit plan, or who serves
at the request of this association as a director, officer or employee of a
business corporation in connection with the administration of an estate or trust
by this association, shall have the right to be indemnified by this association,
subject to the provisions set forth in the following paragraph of this Article
Tenth, against liabilities in any manner arising out of or attributable to such
status or activities in any such capacity, except for any liability incurred on
account of activities which were at the time taken known or believed by such
person to be clearly in conflict with the best interests of this association, or
of the corporation, partnership, joint venture, trust, enterprise, association
or plan being served by such person.
In the case of all persons except the directors and executive officers of
this association, the determination of whether a person is entitled to
indemnification under the preceding paragraph of this Article Tenth shall be
made by and in the sole discretion of the Chief Executive Officer of this
association. In the case of the directors and executive officers of this
association, the indemnity against liability in the preceding paragraph of this
Article Tenth shall be automatic and self-operative.
For purposes of this Article Tenth of these Articles of Association only,
the following terms shall have the meanings indicated:
(a) "association" means First Union Trust Company, National Association
and its direct and indirect wholly-owned subsidiaries.
(b) "director" means an individual who is or was a director of this
association.
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(c) "executive officer" means an officer of this association who by
resolution of the Board of Directors of this association has been
determined to be an executive officer of this association for purposes
of Regulation O of the Federal Reserve Board.
(d) "liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an
employee benefit plan), or reasonable expenses, including counsel fees
and expenses, incurred with respect to a proceeding.
(e) "party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(f) "proceeding" means any threatened, pending, or completed claim,
action, suit, or proceeding, whether civil, criminal, administrative,
or investigative and whether formal or informal.
This association shall have no obligation to indemnify any person for an
amount paid in settlement of a proceeding unless this association consents in
writing to such settlement.
The right to indemnification herein provided for shall apply to persons who
are directors, officers, or employees of banks or other entities that are
hereafter merged or otherwise combined with this association only after the
effective date of such merger or other combination and only as to their status
and activities after such date.
The right to indemnification herein provided for shall inure to the benefit
of the heirs and legal representatives of any person entitled to such right.
No revocation of, change in, or adoption of any resolution or provision in
the Articles of Association or By-laws of this association inconsistent with,
this Article Tenth shall adversely affect the rights of any director, officer,
or employee of this association with respect to (i) any proceeding commenced or
threatened prior to such revocation, change, or adoption, or (ii) any proceeding
arising out of any act or omission occurring prior to such revocation, change,
or adoption, in either case, without the written consent of such director,
officer, or employee.
The rights hereunder shall be in addition to and not exclusive of any
other rights to which a director, officer, or employee of this association
may be entitled under any statute, agreement, insurance policy, or otherwise.
This association shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, or employee of this
association, or is or was serving at the request of this association as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, trade association, employee benefit plan, or other enterprise,
against any liability asserted against such director, officer, or employee in
any such capacity, or arising out of their status as such, whether or not this
association would have the power to
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indemnify such director, officer, or employee against such liability,
excluding insurance coverage for a formal order assessing civil money
penalties against a director, officer or employee of this association.
Notwithstanding anything to the contrary provided herein, no person shall
have a right to indemnification with respect to any liability (i) incurred in an
administrative proceeding or action instituted by an appropriate bank regulatory
agency which proceeding or action results in a final order assessing civil money
penalties or requiring affirmative action by an individual or individuals in the
form of payments to this association, (ii) to the extent such person is entitled
to receive payment therefor under any insurance policy or from any corporation,
partnership, joint venture, trust, trade association, employee benefit plan, or
other enterprise other than this association, or (iii) to the extent that a
court of competent jurisdiction determines that such indemnification is void or
prohibited under state or federal law.
ELEVENTH. These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
IN WITNESS WHEREOF, we have hereunto set our hands this 25th day of
November, 1996.
ORGANIZERS:
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Kent S. Hathaway Keith D. Lembo
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Robert L. Andersen Stephen J. Antal
-----------------------
Daniel Glassberg
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FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
BYLAWS
AS AMENDED AND RESTATED MAY 27, 1997
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1.1. ANNUAL MEETING. The regular annual meeting of the shareholders
for the election of directors and transaction of whatever other business may
properly come before the meeting, shall be held at the Main Office of the
Association, or such other place as the Board of Directors may designate, at
10:00 A.M., on the third Tuesday of February in each year, commencing with the
year 1997 or such other time within 90 days as may be set by the Board of
Directors. If, from any cause, an election of directors is not made on the said
day, the Board of Directors shall order the election to be held on some
subsequent day, as soon thereafter as practicable, according to the provisions
of the law; and notice thereof shall be given in the manner herein.
Section 1.2. SPECIAL MEETINGS. Except as otherwise specifically provided by
statute, special meetings of the shareholders may be called for any purpose at
any time by the Board of Directors or by any one or more shareholders owning, in
the aggregate, not less than twenty-five percent of the stock of the
Association.
Section 1.3. NOTICE OF MEETINGS. Notice of Annual and Special meetings
shall mailed, postage prepaid, at least ten days prior to the date thereof
provided for the annual meeting, addressed to each shareholder at his address
appearing on the books of the Association; but any
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failure to mail such notice, or any irregularity therein, shall not affect
the validity of such meeting, or of any of the proceedings thereat. A
shareholder may waive any such notice.
Section 1.4. ORGANIZATION OF MEETINGS. The Chairman shall preside at all
meetings of shareholders. In his absence, the President, or a director
designated by the Chairman shall preside at such meeting.
Section 1.5. PROXIES. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing. Proxies shall be valid only
for one meeting to be specified therein, and any adjournments of such meeting.
Proxies shall be dated and shall be filed with the records of the meeting.
Section 1.6. QUORUM. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law. A majority of the votes cast
shall decide every question or matter submitted to the shareholders at any
meeting, unless otherwise provided by law or by the Articles of Association.
ARTICLE II
DIRECTORS
Section 2.1. BOARD OF DIRECTORS. The Board of Directors (hereinafter
referred to as the "Board"), shall have power to manage and administer the
business and affairs of the Association. Except as expressly limited by law, all
corporate powers of the Association shall be vested in and may be exercised by
said Board.
Section 2.2. NUMBER. The Board shall consist of not less than five nor more
than twenty-five persons, the exact number within such minimum and maximum
limits to be fixed and
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determined from time to time by resolution of a majority of the full Board or
by resolution of the shareholders at any meeting thereof; provided, however,
that a majority of the full Board may not increase the number of directors to
a number which: (a) exceeds by more than two the number of directors last
elected by shareholders where such number was fifteen or less; and (b) to a
number which exceeds by more than four the number of directors last elected
by shareholders where such number was sixteen or more, but in no event shall
the number of directors exceed twenty-five.
Section 2.3. ORGANIZATION MEETING. A meeting shall be held for the purpose
of organizing the new Board and electing and appointing officers of the
Association for the succeeding year on the day of the Annual Meeting of
Shareholders or as soon thereafter as practicable, and, in any event, within
thirty days thereof. If, at the time fixed for such meeting, there shall not be
a quorum present, the directors present may adjourn the meeting, from time to
time, until a quorum is obtained.
Section 2.4. REGULAR MEETINGS. The regular meetings of the Board shall be
held on such days and time as the directors may, by resolution, designate; and
written notice of any change thereof shall be sent to each member. When any
regular meeting of the Board falls upon a legal holiday, the meeting shall be
held on such other day as the Board may designate.
Section 2.5. SPECIAL MEETINGS. Special meetings of the Board may be called
by the Chairman of the Board, or President, or at the request of three or more
directors. Each director shall be given notice of each special meeting, except
the organization meeting, at least one day before it is to be held by facsimile,
telephone, telegram, letter or in person. Any director may waive any such
notice.
Section 2.6. QUORUM. A majority of the directors shall constitute a quorum
at any
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meeting, except when otherwise provided by law; but a less number may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned without further notice.
Section 2.7. TERM OF OFFICE AND VACANCY. Directors shall hold office for
one year and until their successors are elected and have qualified. No person
shall stand for election as a director of this Association if at the date of his
election he will have passed his seventieth birthday; provided, however, this
prohibition shall not apply to persons who are active officers of this
Association, an affiliate bank, or its parent corporation, or a former chief
executive officer of the Association. No person, who is not an officer or former
officer of this Association, an affiliate bank, or its parent corporation and
who has discontinued the principal position or activity the person held when
initially elected, shall be recommended to the shareholders for reelection;
provided, however, that exceptions may be made because of a change in principal
position or activity which would be compatible with continued service to this
Association. No person elected as a director may exercise any of the powers of
his office until he has taken the oath of office as prescribed by law. When any
vacancy occurs among the directors, the remaining members of the Board, in
accordance with the laws of the United States, may appoint a director to fill
such vacancy at any regular meeting of the Board, or at a special meeting called
for that purpose.
Section 2.8. NOMINATIONS. Nominations for election to the Board may be
made by the Executive Committee or by any stockholder of any outstanding class
of capital stock of the Association entitled to vote for the election of
directors.
Section 2.9. COMMUNICATIONS EQUIPMENT. Any or all directors may participate
in a meeting of the Board by means of conference telephone or any means of
communication by which all persons participating in the meeting are able to hear
each other.
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Section 2.10. ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board or committee thereof by law, the Association's Articles of
Association, or these Bylaws may be taken without a meeting, if, prior or
subsequent to the action, all members of the Board or committee shall
individually or collectively consent in writing to the action. Each written
consent or consents shall be filed with the minutes of the proceedings of the
Board or committee. Action by written consent shall have the same force and
effect as a unanimous vote of the directors, for all purposes. Any certificate
or other documents which relates to action so taken shall state that the action
was taken by unanimous written consent of the Board or committee without a
meeting.
ARTICLE III
COMMITTEES OF THE BOARD
Section 3.1. EXECUTIVE COMMITTEE. The Board may by resolution adopted by a
majority of the entire Board designate an Executive Committee consisting of the
Chairman of the Board, the President, and not less than two other directors.
Subject to the national banking laws and the Association's Articles of
Association, the Executive Committee may exercise all the powers of the Board of
Directors with respect to the affairs of the Association, except that the
Executive Committee may not:
1. (a) exercise such powers while a quorum of the Board of Directors is
actually convened for the conduct of business,
(b) exercise any power specifically required to be
exercised by at least a majority of all the directors,
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(c) act on matters committed by the Bylaws or resolution of the Board
of Directors to another committee of the board, or
(d) amend or repeal any resolution theretofore adopted by the Board
of Directors which by its terms is amendable or repealable only
by the Board;
2. amend the Articles of Association or make, alter or repeal any Bylaw
of the Association;
3. elect or appoint any director, create or fill any vacancies in the
Board of Directors or remove any director, or authorize or approve any
change in the compensation of any officer of the Association who is
also a director of the Association;
4. authorize or approve issuance or sale or contract for sale of shares
of stock of the Association, or determine the designation and relative
rights, preferences and limitations of a class or series of shares;
5. adopt an agreement of merger or consolidation, or submit to
shareholders any action that requires shareholder approval, including
any recommendation to the shareholders concerning the sale, lease or
exchange of all or substantially all the Association's property and
assets, a dissolution of the Association or a revocation of a
previously approved dissolution; or
6. authorize an expenditure by the Association in excess of $10 million
for any one item or group of related items.
The committee shall hold regular meetings at such times as the members shall
agree and whenever called by the chairman of the committee. A majority of the
committee shall constitute a quorum for the transaction of business. The
committee shall keep a record of its proceedings and shall
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report these proceedings to the Board at the regular meetings thereof. The
committee shall serve as the nominating committee for nominations to the Board.
Section 3.2. CHAIRMAN OF THE EXECUTIVE COMMITTEE. The Board may designate
one of its members to be Chairman of the Executive Committee who shall preside
at the meetings thereof and shall perform such duties as the Board shall assign
to him from time to time.
Section 3.3. AUDIT COMMITTEE. The Board shall appoint a committee of three
or more persons exclusive of the officers of this Association which committee
shall be known as the Audit Committee. It shall be the duty of this committee at
least once in every twelve months to examine the affairs of the Association, and
determine whether it is in a sound and solvent condition and to recommend to the
Board such changes in the manner of doing business, etc., as may seem to be
desirable. The committee may cause such examination to be made in its behalf and
under its supervision by outside accountants and may also use the services of
any other persons either inside or outside the Association to assist in its
work. The results of each examination shall be reported in writing to the Board.
Section 3.4. AUDIT OF TRUST DEPARTMENT. The Audit Committee shall, at least
once during each calendar year and within fifteen months of the last such audit
make suitable audits of the Trust Department or cause suitable audits to be made
by auditors responsible only to the Board, and at such time shall ascertain
whether the department has been administered in accordance with law, Part 9 of
the Regulations of the Comptroller of the Currency, and sound fiduciary
principles. In lieu of such periodic audit the Audit Committee, at the election
of the Board, may conduct or cause to be conducted by auditors responsible only
to the Board an adequate continuous audit system adopted by the Board. A written
report of such periodic or continuous audit shall be made
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to the Board.
Section 3.5. OTHER COMMITTEES. The Board may appoint from time to time
other committees composed of one or more persons each, for such purposes and
with such powers as the Board may determine. The Chairman of the Board shall
have the power to designate another person to serve on any committee during the
absence or inability of any member thereof so to serve.
Section 3.6. DIRECTORS' EMERITUS. The Board may designate one or more
persons to serve as Director Emeritus. Such Director Emeritus shall have the
right to attend any and all meetings of the Board, but shall have no vote at
such meetings. A person designated as Director Emeritus may serve in that
capacity for a period of three years.
Section 3.7. ALTERNATE COMMITTEE MEMBERS. The Board may, from time to time,
appoint one or more, but no more than three persons to serve as alternate
members of a committee, each of whom shall be empowered to serve on that
committee in place of a regular committee member in the event of the absence or
disability of that committee member. An alternate committee member shall, when
serving on a committee, have all of the powers of a regular committee member.
Alternate committee members shall be notified of, and requested to serve at, a
particular meeting or meetings, or for particular periods of time, by or at the
direction of the chairman of the committee or the Chairman of the Board.
ARTICLE IV
OFFICERS
Section 4.1. OFFICERS. The officers of the Association may be a Chairman of
the Board, a
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Vice Chairman of the Board, one or more Chairmen or Vice Chairmen (who shall not
be required to be directors of the Association), a President, one or more Vice
Presidents, a Secretary, a Cashier or Treasurer, and such other officers,
including officers holding similar or equivalent titles to the above in regions,
divisions or functional units of the Association, as may be appointed by the
Board of Directors. The Chairman of the Board and the President shall be
members of the Board of Directors. Any two or more offices may be held by one
person, but no officer shall sign or execute any document in more than one
capacity.
4.2. TERM OF OFFICE. The officers who are required by the articles of
association or the bylaws to be members of the Board shall hold their respective
offices until the Organization meeting of the Board following the annual meeting
of shareholders or until their respective successors shall have been elected,
unless they shall resign, become disqualified or be removed from office. Each
other officer shall hold office at the pleasure of the Board. Any officer may be
removed at any time by the Board.
Section 4.3. CHAIRMAN OF THE BOARD. The chairman of the board shall be
designated as Chairman of the Board. He shall preside at all meetings of the
stockholders and directors and he shall be a member of all committees of the
Board except the Audit Committee. He shall have such other powers and perform
such other duties as may be prescribed from time to time by the Board. He shall
be subject only to the direction and control of the Board.
Section 4.4. PRESIDENT. The president shall be the chief executive officer
of the Association and he shall be designated as President and Chief Executive
Officer. In the absence of the Chairman the President shall preside at all
meetings of the Board. The President shall be a member of each committee of the
Board except the Audit Committee. He shall have the powers
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and perform the duties conferred or imposed upon the President by the national
banking laws, and he shall have such other powers and perform such other duties
as nay from time to time be imposed upon or assigned to him by the Board.
Section 4.5. CHIEF FINANCIAL OFFICER. The Chief Financial officer shall
have such title as may be designated by the Board and he shall be responsible
for all monies, funds and valuables of this Association, provide for the keeping
of proper records of all transactions of the Association, report to the Board at
each regular meeting the condition of the Association, submit to the Board, when
requested, a detailed statement of the income and expenses, be responsible for
the conduct and efficiency of all persons employed under him, and perform such
other duties as may be from time to time assigned to him by the Board.
Section 4.6. OTHER OFFICERS. All other officers shall respectively exercise
such powers and perform such duties as generally pertain to their several
offices, or as may be conferred upon or assigned to them by the Board, the
Chairman of the Board or the President.
Section 4.7. BOND. Each officer and employee, if so required by the Board,
shall give bond with surety to be approved by the Board, conditioning for the
honest discharge of his duties as such officer or employee. In the discretion of
the Board, such bonds may be individual, schedule or blanket form, and the
premiums may be paid by the Association.
Section 4.8. OFFICERS ACTING AS ASSISTANT SECRETARY. Notwithstanding
Section 4.la of this Article IV, any Senior Vice President, Vice President or
Assistant Vice President shall have, by virtue of his office, and by authority
of the Bylaws, the authority from time to time to act as an Assistant Secretary
of the Association, and to such extent, said officers are appointed to the
office
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of Assistant Secretary.
ARTICLE V
TRUST DEPARTMENT
Section 5.1. TRUST DEPARTMENT. There shall be a department of the
Association known as the Trust Department which shall perform the fiduciary
responsibilities of the Association. Opinions of counsel shall be retained on
file in the Trust Department in connection with all important matters pertaining
to fiduciary activities.
Section 5.2. TRUST INVESTMENT. Funds held in a fiduciary capacity shall be
invested in accordance with the instrument establishing the fiduciary
relationship and local law. Where such instrument does not specify the character
and class of the investments to be made and does not vest in the Association a
discretion in the matter, funds held pursuant to such instrument shall be
invested in investments in which corporate fiduciaries may invest under local
law.
ARTICLE VI
STOCK CERTIFICATES AND TRANSFERS
Section 6.1. STOCK CERTIFICATES. Ownership of capital stock of the
Association shall be evidenced by certificates of stock signed by the Chairman
or President, and the Secretary, or an Assistant Secretary. Each certificate
shall state upon its face that the stock is transferable only upon the books of
the Association by the holder thereof, or by duly authorized attorney, upon the
surrender of such certificate, and shall meet the requirements of Section 5139,
United States Revised Statutes, as amended.
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Section 6.2. TRANSFERS. The stock of this Association shall be assignable
and transferable only on the books of this Association, subject to the
restrictions and provisions of the national banking laws; and a transfer book
shall be provided in which all assignments and transfers of stock shall be made.
When stock is transferred, the certificates thereof shall be returned to the
Association, canceled, preserved and new certificates issued.
Section 6.3. DIVIDENDS. Dividends shall be paid to the shareholders in
whose names the stock shall stand at the close of business on the day next
preceding the date when the dividends are payable, provided, however, that
the directors may fix another date as a record date for the determination of
the shareholders entitled to receive payment thereof.
ARTICLE VII
INCREASE OF STOCK
7.1. CAPITAL STOCK. Shares of the capital stock of the Association, which
have been authorized but not issued, may be issued from time to time for such
consideration, not less than the par value thereof, as may be determined by the
Board.
ARTICLE VIII
CORPORATE SEAL
Section 8.1. SEAL. The seal, an impression of which appears below, is the
seal of the Association adopted by the Board of Directors:
[Seal]
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The Chairman of the Board, the Vice Chairman, the President, Senior
Executive Vice President, Executive Vice President, Senior Vice President, Vice
President, each Assistant Vice President, the Chief Financial Officer, the
Secretary, each Assistant Secretary, each Trust Officer, each Assistant Trust
Officer or each Assistant Cashier, shall have the authority to affix the
corporate seal of this Association and to attest to the same.
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ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.l. FISCAL YEAR. The fiscal year of the Association shall be the
calendar year.
Section 9.2. EXECUTION OF INSTRUMENTS. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies, and other instruments or
documents may be signed, executed, acknowledged, verified, delivered or accepted
in behalf of the Association by the Chairman of the Board, the Vice Chairman of
the Board, any Chairman or Vice Chairman, the President, any Vice President or
Assistant Vice President, the Secretary or any Assistant Secretary, the Cashier
or Treasurer or any Assistant Cashier or Assistant Treasurer, or any officer
holding similar or equivalent titles to the above in any regions, divisions or
functional units of the Association, or, if in connection with the exercise of
fiduciary powers of the Association, by any of said officers or by any Trust
Officer or Assistant Trust Officer (or equivalent titles); provided, however,
that where required, any such instrument shall be attested by one of said
officers other than the officer executing such instrument. Any such instruments
may also be executed, acknowledged, verified, delivered, or accepted in behalf
of the Association in such other manner and by such other officers as the Board
of Directors may from time to time direct. The provisions of this Section 9.2
are supplementary to any other provision of these Bylaws.
Section 9.3. RECORDS. The organization papers of this Association, the
articles of association, the bylaws and any amendments thereto, the proceedings
of all regular and special meetings of the shareholders and of the directors,
the returns of the judges of elections, and the
14
<PAGE>
reports of the committees of directors shall be recorded in an appropriate
minute book, and the minutes of each meeting shall be signed by the Secretary or
any other officer appointed to act as secretary of the meeting.
Section 9.4. BANKING HOURS. This Association and its branch offices shall
be open on such days and during such hours as shall be fixed from time to time
by the Board.
Section 9.5. VOTING SHARES OF OTHER CORPORATIONS. The Chairman, any Vice
Chairman, the President, or any Vice President is authorized to vote, represent
and exercise on behalf of this Association all rights incident to any and all
shares of stock of any other corporation standing in the name of the
Association. The authority granted herein may be exercised by such officers in
person or by proxy or by power of attorney duly executed by said officer.
ARTICLE X
BYLAWS
Section 10.1. INSPECTION. A copy of the Bylaws, with all amendments
thereto, shall at all times be kept in a convenient place at the Head Office of
the Association, and shall be open for inspection to all shareholders, during
banking hours.
Section 10.2. AMENDMENTS. These Bylaws may be changed or amended at any
regular or special meeting of the Board by the vote of a majority of the
Directors.
15
<PAGE>
Comptroller of the Currency
Administrator of National Banks
Multinational Banking Division
250 E Street, SW
Washington, D.C. 20219-0001
TRUST CERTIFICATE
Whereas, FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, Charter Number
23201, located in WILMINGTON, State of DELAWARE, being a National Banking
Association, organized under the statutes of the United States, has made
application for authority to act as fiduciary;
And whereas, applicable provisions of the statutes of the United States
authorize the granting of such authority;
Now, therefore, I hereby certify that the said association is authorized to
act in all fiduciary capacities by such statutes.
In testimony whereof, witness my signature and
Seal of office this fifteenth day of January 1997.
- --------------------------------------
Deputy Comptroller for Multinational Banking
<PAGE>
REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) X
-----
------------------
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
United States National Banking Association 56-1989961
(State of incorporation if (I.R.S. employer
not a national bank) identification no.)
First Union Trust Company, National Association
One Rodney Square, Suite 102
920 King St.
Wilmington, DE 19801
(Address of principal (Zip Code)
executive offices)
SAME AS ABOVE
(Name, address and telephone number, including
area code, of trustee's agent for service)
Quad City Holdings, Inc.
(Exact name of obligor as specified in its charter)
The State of Illinois
(State or other jurisdiction of incorporation or organization)
42-1397595
(I.R.S. employer identification no.)
c/o
Douglas M. Hultquist, President
Quad City Holdings, Inc.
3551 7th St., Suite 100
Moline, IL 61265
(Address, including zip code, of principal executive offices)
--------------------
<PAGE>
SUBORDINATED DEBENTURES
(Title of the Indenture securities)
------------------------------------------------
1. GENERAL INFORMATION. Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject
- -----------------------------------------------------------------
Name Address
- ------------------------------------------------------------------
Federal Reserve Bank of Richmond, VA Richmond, VA
Comptroller of the Currency Washington, D.C.
Securities and Exchange Commission
Division of Market Regulation Washington, D.C.
Federal Deposit Insurance Corporation Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS. If the obligor or any underwriter
for the obligor is an affiliate of the trustee, describe each such affiliation.
None.
(See Note 1 on Page 4.)
Because the obligor is not in default on any securities issued under indentures
under which the applicant is trustee, Items 3 through 15 are not required
herein.
<PAGE>
16. LIST OF EXHIBITS.
All exhibits identified below are filed as a part of this statement of
eligibility.
1. A copy of the Articles of Association of First Union Trust Company,
National Association, as now in effect, which contain the authority to
commence business and a grant of powers to exercise corporate trust
powers.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the Articles of Association.
3. A copy of the authorization of the trustee to exercise corporate trust
powers, if such authorization is not contained in the documents
specified in exhibits (1) or (2) above.
4. A copy of the existing By-laws of First Union Trust Company, National
Association, or instruments corresponding thereto.
5. Inapplicable.
6. The consent of the trustee required by Section 321(b) of the Trust
Indenture Act of 1939 is included at Page 4 of this Form T-1
Statement.
7. A copy of the latest report of condition of the trustee published
pursuant to law or to the requirements of its supervising or examining
authority is attached hereto.
8. Inapplicable.
9. Inapplicable.
3
<PAGE>
NOTE
Note 1: Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information. Item 2 may, however, be
considered correct unless amended by an amendment to this Form T-1.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, First Union Trust Company, National Association, a
national banking association organized and existing under the laws of the United
States of America, has duly caused this statement of eligibility and
qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington, and State of Delaware, on the 30th
day of April, 1999.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
(trustee)
By: \s\ Edward L. Truitt, Jr.
Name: Edward L. Truitt, Jr.
Title: Vice President
CONSENT OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939, as amended, and in
connection with the proposed issuance by Quad City Holdings, Inc. of
Subordinated Debentures, First Union Trust Company, National Association, as the
trustee herein named, hereby consents that reports of examinations of said
Trustee by Federal, State, Territorial or District authorities may be furnished
by such authorities to the Securities and Exchange Commission upon requests
therefor.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
By: \s\ Edward L. Truitt, Jr.
Name: Edward L. Truitt, Jr.
Title: Vice President
4
<PAGE>
Dated: April 30, 1999
5
<PAGE>
<TABLE>
<S><C>
Legal Title of Bank: First Union Trust Company, N.A. Call Date: 6/30/98 ST-BK: 37-0351 FFIEC 031
Address: Two First Union Center Page RC-1
City, State, Zip: Charlotte, NC 28288-0201
FDIC Certificate #: 33869
-----
CONSOLIDATED REPORT OF CONDITION FOR SEPTEMBER 30, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
C400
Dollar Amount in Thousands RCFD Bil Mil Thou
--------------------------------------------
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin (1)........................ 0081 10,212,563 1.a.
b. Interest-bearing balances (2)................................................. 0071 1,529,435 1.b.
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A).................... 1754 1,994,665 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D).................. 1773 37,427,525 2.b.
3. Federal funds sold and securities purchased under agreements to resell........... 1350 7,551,730 3.
4. Loans and lease financing receivables
a. Loans and leases, net of unearned income
(from Schedule RC-C)....................................RCFD 2122 133,841,290 4.a.
b. LESS: Allowance for loan and lease losses...............RCFD 3123 1,856,548 4.b.
c. LESS: Allocated transfer risk reserve...................RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c)........................... 2125 131,984,742 4.d.
5. Trading assets (from Schedule RC-D).............................................. 3545 8,349,640 5.
6. Premises and fixed assets (including capitalized leases)......................... 2145 3,208,660 6.
7. Other real estate owned (from Schedule RC-M)..................................... 2150 127,757 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M)................................................... 2180 351,648 8.
9. Customers' liability to this bank on acceptances outstanding..................... 2155 1,026,154 9.
10. Intangible assets (from Schedule RC-M)........................................... 2143 5,215,196 10.
11. Other assets (from Schedule RC-F)................................................ 2160 9,099,122 11.
12. Total assets (sum of items 1 through 11)......................................... 2170 218,078,837 12.
</TABLE>
- ----------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
<TABLE>
<S><C>
Legal Title of Bank: First Union Trust Company, N.A. Call Date: 6/30/98 ST-BK: 37-0351 FFIEC 031
Address: Two First Union Center Page RC-1
City, State, Zip: Charlotte, NC 28288-0201
FDIC Certificate #: 33869
-----
Schedule RC--Continued
Dollar Amount in Thousands Bil Mil Thou
-------------------------------------------
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E,
part I)..................................................................... RCON 2200 131,541,691 13.a.
(1) Noninterest-bearing (1).......................RCON 6631 23,997,063 13.a.(1)
(2) Interest-bearing..............................RCON 6636 107,544,628 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from
Schedule RC-E, part II)..................................................... RCFN 2200 8,708,735 13.b.
(1) Noninterest-bearing...........................RCFN 6631 400,989 13.b.(1)
(2) Interest-bearing..............................RCFN 6636 8,307,746 13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase...... RCFD 2800 24,903,299 14.
15. a. Demand notes issued to the U.S. Treasury.................................... RCON 2840 772,252 15.a.
b. Trading liabilities (from Schedule RC-D).................................... RCFD 3548 6,496,578 15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):............................................................
a. With a remaining maturity of one year or less............................... RCFD 2332 11,928,951 16.a.
b. With a remaining maturity of more than one year through three years......... RCFD A547 1,260,353 16.b.
c. With a remaining maturity of more than three years.......................... RCFD A548 775,219 16.c.
17. Not applicable..................................................................
18. Bank's liability on acceptances executed and outstanding........................ RCFD 2920 1,036,587 18.
19. Subordinated notes and debentures (2)........................................... RCFD 3200 3,501,546 19.
20. Other liabilities (from Schedule RC-G).......................................... RCFD 2930 9,211,139 20.
21. Total liabilities (sum of items 13 through 20).................................. RCFD 2948 200,136,350 21.
22. Not applicable..................................................................
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus................................... RCFD 3838 160,540 23.
24. Common stock.................................................................... RCFD 3230 454,543 24.
25. Surplus (exclude all surplus related to preferred stock)........................ RCFD 3839 13,206,354 25.
26. a. Undivided profits and capital reserves...................................... RCFD 3632 3,553,449 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities...... RCFD 8434 572,731 26.b.
27. Cumulative foreign currency translation adjustments............................. RCFD 3284 (5,130) 27.
28. Total equity capital (sum of items 23 through 27)............................... RCFD 3210 17,942,487 28.
29. Total liabilities and equity capital (sum of items 21 and 28)................... RCFD 3300 218,078,837 29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external Number
auditors as of any date during 1996............................................ RCFD 6724 N/A M.1.
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ----------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposit.
(2) Includes limited-life preferred stock and related surplus.
7
<PAGE>
Comptroller of the Currency
Administrator of National Banks
Multinational Banking Division
250 E Street, SW
Washington, D.C. 20219-0001
CHARTER CERTIFICATE
Whereas, satisfactory evidence has been presented to the Office of the
Comptroller of the Currency that FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, located in WILMINGTON, State of DELAWARE, has complied with all
provisions of the statutes of the United States required to be complied with
before being authorized to commence the business of banking as a National
Banking Association;
Now, therefore, I hereby certify that the above-named association is
authorized to commence the business of banking as a National Banking
Association.
In testimony whereof, witness my signature and Seal of office this fifteenth day
of January 1997.
- --------------------------------------
Deputy Comptroller for Multinational Banking
Charter Number 23201
<PAGE>
Charter No. _________
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
ARTICLES OF ASSOCIATION
For the purpose of organizing an association to carry on the business of
banking under the laws of the United States, the undersigned do enter into the
following Articles of Association:
FIRST. The title of this association shall be FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
SECOND. The main office of this association shall be in Wilmington,
Delaware. The business of this association will be limited to that of a national
trust bank. This association must obtain the prior written approval of the
Office of the Comptroller of the Currency ("OCC") before amending its Articles
of Association to expand the scope of its activities and services. Transfers of
this association's stock are subject to prior approval of a federal depository
institution regulatory agency. If no other agency approval is required, the
OCC's approval must be obtained before the transfers. In such cases where OCC
approval is required, the OCC will apply the definitions and standards of the
Change in Bank Control Act and the OCC's implementing regulation to ownership
changes in this association.
THIRD. The Board of Directors of this association shall consist of not less
than five nor more than twenty-five shareholders, the exact number to be fixed
and determined from time to time by resolution of a majority of the full Board
of Directors or by resolution of the shareholders at any annual or special
meeting thereof. Each director, during the full term of his directorship, shall
own a minimum of $1,000 aggregate par value of stock of this association or a
minimum par market value or equity interest of $1,000 of stock in the bank
holding company controlling this association. Any vacancy in the Board of
Directors may be filled by action of the Board of Directors.
FOURTH. There shall be an annual meeting of the shareholders to elect
directors and transact whatever other business may be brought before the
meeting. It shall be held at the main office or any other convenient place the
Board of Directors may designate, on the day of each year specified thereby in
the bylaws, but if no election is held on that day, it may be held on any
subsequent day according to such lawful rules as may be prescribed by the Board
of Directors.
Nominations for election to the Board of Directors may be made by the
Board of Directors or by any shareholder of any outstanding class of capital
stock of this association entitled to vote for election of directors.
Nominations other than those made by or on behalf of
<PAGE>
the existing bank management shall be made in writing and be delivered or
mailed to the president of this association and to the OCC, Washington, D.C.,
not less than 14 days nor more than 50 days prior to any meeting of
shareholders called for the election of directors, provided, however, that if
less than 21 days notice of the meeting is given to shareholders, such
nomination shall be mailed or delivered to the president of this association
and to the Comptroller of the Currency not later than the close of business
on the seventh day following the day on which the notice of meeting was
mailed.
Such notification shall contain the following information to the
extent known to the notifying shareholder:
- The name and address of each proposed nominee.
- The principal occupation of each proposed nominee.
- The total number of shares of capital stock of this
association that will be voted for each proposed nominee.
- The name and residence address of the notifying shareholder.
- The number of shares of capital stock of this association
owned by the notifying shareholder. Nominations not made in
accordance herewith may, in his discretion, be disregarded
by the chairperson of the meeting, and upon his
instructions, the vote tellers may disregard all votes cast
for each such nominee.
FIFTH. The authorized amount of capital stock of this association shall be
2,000 shares of common stock of the par value of one hundred dollars ($100.00)
each; but said capital stock may be increased or decreased from time to time,
according to the provisions of the laws of the United States.
If the capital stock is increased by the sale of additional shares
thereof, each shareholder shall be entitled to subscribe for such additional
shares in proportion to the number of shares of said capital stock owned by him
at the time the increase is authorized by the shareholders, unless another time
subsequent to the date of the shareholders' meeting is specified in a resolution
by the shareholders at the time the increase is authorized. The Board of
Directors will have the power to prescribe a reasonable period of time within
which the preemptive rights to subscribe to the new shares of capital stock must
be exercised.
This association, at any time and from time to time, may authorize and
issue debt obligations, whether or not subordinated, without the approval of the
shareholders.
2
<PAGE>
SIXTH. The Board of Directors shall appoint one of its members president of
this association, who shall be chairperson of the Board of Directors, unless the
Board of Directors appoints another director to be the chairperson. The Board of
Directors shall have the power to appoint one or more vice presidents and to
appoint a cashier and such other officers and employees as may be required to
transact the business of this association.
The Board of Directors shall have the power to:
- Define the duties of the officers and employees of this
association.
- Fix the salaries to be paid to the officers and employees.
- Dismiss officers and employees.
- Require bonds from officers and employees and to fix the
penalty thereof.
- Regulate the manner in which any increase of the capital of
this association shall be made.
- Manage and administer the business and affairs of this
association.
- Make all bylaws that it may be lawful for the Board of
Directors to make.
- Generally to perform all acts that are legal for a Board of
Directors to perform.
SEVENTH. The Board of Directors shall have the power to change the location
of the main office to any other place within the limits of Wilmington, Delaware,
without the approval of the shareholders, and shall have the power to establish
or change the location of any branch or branches of the association to any other
location, without the approval of the shareholders.
EIGHTH. The corporate existence of this association shall continue until
terminated according to the laws of the United States.
NINTH. The Board of Directors of this association, or any three or more
shareholders owning, in the aggregate, not less than 10 percent of the stock of
this association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time, place
and purpose of every annual and special meeting of the shareholders shall be
given by first-class mail, postage prepaid, mailed at least 10 days prior to the
date of the meeting to each shareholder of record at his address as shown upon
the books of this association.
3
<PAGE>
TENTH. Each director and executive officer of this association shall be
indemnified by the association against liability in any proceeding (including
without limitation a proceeding brought by or on behalf of this association
itself) arising out of his status as such or his activities in either of the
foregoing capacities, except for any liability incurred on account of activities
which were at the time taken known or believed by such person to be clearly in
conflict with the best interests of this association. Liabilities incurred by a
director or executive officer of this association in defending a proceeding
shall be paid by this association in advance of the final disposition of such
proceeding upon receipt of an undertaking by the director or executive officer
to repay such amount if it shall be determined, as provided in the last
paragraph of this Article Tenth, that he is not entitled to be indemnified by
this association against such liabilities.
The indemnity against liability in the preceding paragraph of this Article
Tenth, including liabilities incurred in defending a proceeding, shall be
automatic and self-operative.
Any director, officer or employee of this association who serves at the
request of this association as a director, officer, employee or agent of a
charitable, not-for-profit, religious, educational or hospital corporation,
partnership, joint venture, trust or other enterprise, or a trade association,
or as a trustee or administrator under an employee benefit plan, or who serves
at the request of this association as a director, officer or employee of a
business corporation in connection with the administration of an estate or trust
by this association, shall have the right to be indemnified by this association,
subject to the provisions set forth in the following paragraph of this Article
Tenth, against liabilities in any manner arising out of or attributable to such
status or activities in any such capacity, except for any liability incurred on
account of activities which were at the time taken known or believed by such
person to be clearly in conflict with the best interests of this association, or
of the corporation, partnership, joint venture, trust, enterprise, association
or plan being served by such person.
In the case of all persons except the directors and executive officers of
this association, the determination of whether a person is entitled to
indemnification under the preceding paragraph of this Article Tenth shall be
made by and in the sole discretion of the Chief Executive Officer of this
association. In the case of the directors and executive officers of this
association, the indemnity against liability in the preceding paragraph of this
Article Tenth shall be automatic and self-operative.
For purposes of this Article Tenth of these Articles of Association only,
the following terms shall have the meanings indicated:
(a) "association" means First Union Trust Company, National Association
and its direct and indirect wholly-owned subsidiaries.
(b) "director" means an individual who is or was a director of this
association.
4
<PAGE>
(c) "executive officer" means an officer of this association who by
resolution of the Board of Directors of this association has been
determined to be an executive officer of this association for purposes
of Regulation O of the Federal Reserve Board.
(d) "liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an
employee benefit plan), or reasonable expenses, including counsel fees
and expenses, incurred with respect to a proceeding.
(e) "party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(f) "proceeding" means any threatened, pending, or completed claim,
action, suit, or proceeding, whether civil, criminal, administrative,
or investigative and whether formal or informal.
This association shall have no obligation to indemnify any person for an
amount paid in settlement of a proceeding unless this association consents in
writing to such settlement.
The right to indemnification herein provided for shall apply to persons who
are directors, officers, or employees of banks or other entities that are
hereafter merged or otherwise combined with this association only after the
effective date of such merger or other combination and only as to their status
and activities after such date.
The right to indemnification herein provided for shall inure to the benefit
of the heirs and legal representatives of any person entitled to such right.
No revocation of, change in, or adoption of any resolution or provision in
the Articles of Association or By-laws of this association inconsistent with,
this Article Tenth shall adversely affect the rights of any director, officer,
or employee of this association with respect to (i) any proceeding commenced or
threatened prior to such revocation, change, or adoption, or (ii) any proceeding
arising out of any act or omission occurring prior to such revocation, change,
or adoption, in either case, without the written consent of such director,
officer, or employee.
The rights hereunder shall be in addition to and not exclusive of any
other rights to which a director, officer, or employee of this association
may be entitled under any statute, agreement, insurance policy, or otherwise.
This association shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, or employee of this
association, or is or was serving at the request of this association as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, trade association, employee benefit plan, or other enterprise,
against any liability asserted against such director, officer, or employee in
any such capacity, or arising out of their status as such, whether or not this
association would have the power to
5
<PAGE>
indemnify such director, officer, or employee against such liability,
excluding insurance coverage for a formal order assessing civil money
penalties against a director, officer or employee of this association.
Notwithstanding anything to the contrary provided herein, no person shall
have a right to indemnification with respect to any liability (i) incurred in an
administrative proceeding or action instituted by an appropriate bank regulatory
agency which proceeding or action results in a final order assessing civil money
penalties or requiring affirmative action by an individual or individuals in the
form of payments to this association, (ii) to the extent such person is entitled
to receive payment therefor under any insurance policy or from any corporation,
partnership, joint venture, trust, trade association, employee benefit plan, or
other enterprise other than this association, or (iii) to the extent that a
court of competent jurisdiction determines that such indemnification is void or
prohibited under state or federal law.
ELEVENTH. These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
IN WITNESS WHEREOF, we have hereunto set our hands this 25th day of
November, 1996.
ORGANIZERS:
- ----------------------- -----------------------
Kent S. Hathaway Keith D. Lembo
- ----------------------- -----------------------
Robert L. Andersen Stephen J. Antal
-----------------------
Daniel Glassberg
6
<PAGE>
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
BYLAWS
AS AMENDED AND RESTATED MAY 27, 1997
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1.1. ANNUAL MEETING. The regular annual meeting of the shareholders
for the election of directors and transaction of whatever other business may
properly come before the meeting, shall be held at the Main Office of the
Association, or such other place as the Board of Directors may designate, at
10:00 A.M., on the third Tuesday of February in each year, commencing with the
year 1997 or such other time within 90 days as may be set by the Board of
Directors. If, from any cause, an election of directors is not made on the said
day, the Board of Directors shall order the election to be held on some
subsequent day, as soon thereafter as practicable, according to the provisions
of the law; and notice thereof shall be given in the manner herein.
Section 1.2. SPECIAL MEETINGS. Except as otherwise specifically provided by
statute, special meetings of the shareholders may be called for any purpose at
any time by the Board of Directors or by any one or more shareholders owning, in
the aggregate, not less than twenty-five percent of the stock of the
Association.
Section 1.3. NOTICE OF MEETINGS. Notice of Annual and Special meetings
shall mailed, postage prepaid, at least ten days prior to the date thereof
provided for the annual meeting, addressed to each shareholder at his address
appearing on the books of the Association; but any
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failure to mail such notice, or any irregularity therein, shall not affect
the validity of such meeting, or of any of the proceedings thereat. A
shareholder may waive any such notice.
Section 1.4. ORGANIZATION OF MEETINGS. The Chairman shall preside at all
meetings of shareholders. In his absence, the President, or a director
designated by the Chairman shall preside at such meeting.
Section 1.5. PROXIES. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing. Proxies shall be valid only
for one meeting to be specified therein, and any adjournments of such meeting.
Proxies shall be dated and shall be filed with the records of the meeting.
Section 1.6. QUORUM. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law. A majority of the votes cast
shall decide every question or matter submitted to the shareholders at any
meeting, unless otherwise provided by law or by the Articles of Association.
ARTICLE II
DIRECTORS
Section 2.1. BOARD OF DIRECTORS. The Board of Directors (hereinafter
referred to as the "Board"), shall have power to manage and administer the
business and affairs of the Association. Except as expressly limited by law, all
corporate powers of the Association shall be vested in and may be exercised by
said Board.
Section 2.2. NUMBER. The Board shall consist of not less than five nor more
than twenty-five persons, the exact number within such minimum and maximum
limits to be fixed and
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determined from time to time by resolution of a majority of the full Board or
by resolution of the shareholders at any meeting thereof; provided, however,
that a majority of the full Board may not increase the number of directors to
a number which: (a) exceeds by more than two the number of directors last
elected by shareholders where such number was fifteen or less; and (b) to a
number which exceeds by more than four the number of directors last elected
by shareholders where such number was sixteen or more, but in no event shall
the number of directors exceed twenty-five.
Section 2.3. ORGANIZATION MEETING. A meeting shall be held for the purpose
of organizing the new Board and electing and appointing officers of the
Association for the succeeding year on the day of the Annual Meeting of
Shareholders or as soon thereafter as practicable, and, in any event, within
thirty days thereof. If, at the time fixed for such meeting, there shall not be
a quorum present, the directors present may adjourn the meeting, from time to
time, until a quorum is obtained.
Section 2.4. REGULAR MEETINGS. The regular meetings of the Board shall be
held on such days and time as the directors may, by resolution, designate; and
written notice of any change thereof shall be sent to each member. When any
regular meeting of the Board falls upon a legal holiday, the meeting shall be
held on such other day as the Board may designate.
Section 2.5. SPECIAL MEETINGS. Special meetings of the Board may be called
by the Chairman of the Board, or President, or at the request of three or more
directors. Each director shall be given notice of each special meeting, except
the organization meeting, at least one day before it is to be held by facsimile,
telephone, telegram, letter or in person. Any director may waive any such
notice.
Section 2.6. QUORUM. A majority of the directors shall constitute a quorum
at any
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meeting, except when otherwise provided by law; but a less number may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned without further notice.
Section 2.7. TERM OF OFFICE AND VACANCY. Directors shall hold office for
one year and until their successors are elected and have qualified. No person
shall stand for election as a director of this Association if at the date of his
election he will have passed his seventieth birthday; provided, however, this
prohibition shall not apply to persons who are active officers of this
Association, an affiliate bank, or its parent corporation, or a former chief
executive officer of the Association. No person, who is not an officer or former
officer of this Association, an affiliate bank, or its parent corporation and
who has discontinued the principal position or activity the person held when
initially elected, shall be recommended to the shareholders for reelection;
provided, however, that exceptions may be made because of a change in principal
position or activity which would be compatible with continued service to this
Association. No person elected as a director may exercise any of the powers of
his office until he has taken the oath of office as prescribed by law. When any
vacancy occurs among the directors, the remaining members of the Board, in
accordance with the laws of the United States, may appoint a director to fill
such vacancy at any regular meeting of the Board, or at a special meeting called
for that purpose.
Section 2.8. NOMINATIONS. Nominations for election to the Board may be
made by the Executive Committee or by any stockholder of any outstanding class
of capital stock of the Association entitled to vote for the election of
directors.
Section 2.9. COMMUNICATIONS EQUIPMENT. Any or all directors may participate
in a meeting of the Board by means of conference telephone or any means of
communication by which all persons participating in the meeting are able to hear
each other.
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Section 2.10. ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board or committee thereof by law, the Association's Articles of
Association, or these Bylaws may be taken without a meeting, if, prior or
subsequent to the action, all members of the Board or committee shall
individually or collectively consent in writing to the action. Each written
consent or consents shall be filed with the minutes of the proceedings of the
Board or committee. Action by written consent shall have the same force and
effect as a unanimous vote of the directors, for all purposes. Any certificate
or other documents which relates to action so taken shall state that the action
was taken by unanimous written consent of the Board or committee without a
meeting.
ARTICLE III
COMMITTEES OF THE BOARD
Section 3.1. EXECUTIVE COMMITTEE. The Board may by resolution adopted by a
majority of the entire Board designate an Executive Committee consisting of the
Chairman of the Board, the President, and not less than two other directors.
Subject to the national banking laws and the Association's Articles of
Association, the Executive Committee may exercise all the powers of the Board of
Directors with respect to the affairs of the Association, except that the
Executive Committee may not:
1. (a) exercise such powers while a quorum of the Board of Directors is
actually convened for the conduct of business,
(b) exercise any power specifically required to be
exercised by at least a majority of all the directors,
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(c) act on matters committed by the Bylaws or resolution of the Board
of Directors to another committee of the board, or
(d) amend or repeal any resolution theretofore adopted by the Board
of Directors which by its terms is amendable or repealable only
by the Board;
2. amend the Articles of Association or make, alter or repeal any Bylaw
of the Association;
3. elect or appoint any director, create or fill any vacancies in the
Board of Directors or remove any director, or authorize or approve any
change in the compensation of any officer of the Association who is
also a director of the Association;
4. authorize or approve issuance or sale or contract for sale of shares
of stock of the Association, or determine the designation and relative
rights, preferences and limitations of a class or series of shares;
5. adopt an agreement of merger or consolidation, or submit to
shareholders any action that requires shareholder approval, including
any recommendation to the shareholders concerning the sale, lease or
exchange of all or substantially all the Association's property and
assets, a dissolution of the Association or a revocation of a
previously approved dissolution; or
6. authorize an expenditure by the Association in excess of $10 million
for any one item or group of related items.
The committee shall hold regular meetings at such times as the members shall
agree and whenever called by the chairman of the committee. A majority of the
committee shall constitute a quorum for the transaction of business. The
committee shall keep a record of its proceedings and shall
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report these proceedings to the Board at the regular meetings thereof. The
committee shall serve as the nominating committee for nominations to the Board.
Section 3.2. CHAIRMAN OF THE EXECUTIVE COMMITTEE. The Board may designate
one of its members to be Chairman of the Executive Committee who shall preside
at the meetings thereof and shall perform such duties as the Board shall assign
to him from time to time.
Section 3.3. AUDIT COMMITTEE. The Board shall appoint a committee of three
or more persons exclusive of the officers of this Association which committee
shall be known as the Audit Committee. It shall be the duty of this committee at
least once in every twelve months to examine the affairs of the Association, and
determine whether it is in a sound and solvent condition and to recommend to the
Board such changes in the manner of doing business, etc., as may seem to be
desirable. The committee may cause such examination to be made in its behalf and
under its supervision by outside accountants and may also use the services of
any other persons either inside or outside the Association to assist in its
work. The results of each examination shall be reported in writing to the Board.
Section 3.4. AUDIT OF TRUST DEPARTMENT. The Audit Committee shall, at least
once during each calendar year and within fifteen months of the last such audit
make suitable audits of the Trust Department or cause suitable audits to be made
by auditors responsible only to the Board, and at such time shall ascertain
whether the department has been administered in accordance with law, Part 9 of
the Regulations of the Comptroller of the Currency, and sound fiduciary
principles. In lieu of such periodic audit the Audit Committee, at the election
of the Board, may conduct or cause to be conducted by auditors responsible only
to the Board an adequate continuous audit system adopted by the Board. A written
report of such periodic or continuous audit shall be made
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to the Board.
Section 3.5. OTHER COMMITTEES. The Board may appoint from time to time
other committees composed of one or more persons each, for such purposes and
with such powers as the Board may determine. The Chairman of the Board shall
have the power to designate another person to serve on any committee during the
absence or inability of any member thereof so to serve.
Section 3.6. DIRECTORS' EMERITUS. The Board may designate one or more
persons to serve as Director Emeritus. Such Director Emeritus shall have the
right to attend any and all meetings of the Board, but shall have no vote at
such meetings. A person designated as Director Emeritus may serve in that
capacity for a period of three years.
Section 3.7. ALTERNATE COMMITTEE MEMBERS. The Board may, from time to time,
appoint one or more, but no more than three persons to serve as alternate
members of a committee, each of whom shall be empowered to serve on that
committee in place of a regular committee member in the event of the absence or
disability of that committee member. An alternate committee member shall, when
serving on a committee, have all of the powers of a regular committee member.
Alternate committee members shall be notified of, and requested to serve at, a
particular meeting or meetings, or for particular periods of time, by or at the
direction of the chairman of the committee or the Chairman of the Board.
ARTICLE IV
OFFICERS
Section 4.1. OFFICERS. The officers of the Association may be a Chairman of
the Board, a
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Vice Chairman of the Board, one or more Chairmen or Vice Chairmen (who shall not
be required to be directors of the Association), a President, one or more Vice
Presidents, a Secretary, a Cashier or Treasurer, and such other officers,
including officers holding similar or equivalent titles to the above in regions,
divisions or functional units of the Association, as may be appointed by the
Board of Directors. The Chairman of the Board and the President shall be
members of the Board of Directors. Any two or more offices may be held by one
person, but no officer shall sign or execute any document in more than one
capacity.
4.2. TERM OF OFFICE. The officers who are required by the articles of
association or the bylaws to be members of the Board shall hold their respective
offices until the Organization meeting of the Board following the annual meeting
of shareholders or until their respective successors shall have been elected,
unless they shall resign, become disqualified or be removed from office. Each
other officer shall hold office at the pleasure of the Board. Any officer may be
removed at any time by the Board.
Section 4.3. CHAIRMAN OF THE BOARD. The chairman of the board shall be
designated as Chairman of the Board. He shall preside at all meetings of the
stockholders and directors and he shall be a member of all committees of the
Board except the Audit Committee. He shall have such other powers and perform
such other duties as may be prescribed from time to time by the Board. He shall
be subject only to the direction and control of the Board.
Section 4.4. PRESIDENT. The president shall be the chief executive officer
of the Association and he shall be designated as President and Chief Executive
Officer. In the absence of the Chairman the President shall preside at all
meetings of the Board. The President shall be a member of each committee of the
Board except the Audit Committee. He shall have the powers
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and perform the duties conferred or imposed upon the President by the national
banking laws, and he shall have such other powers and perform such other duties
as nay from time to time be imposed upon or assigned to him by the Board.
Section 4.5. CHIEF FINANCIAL OFFICER. The Chief Financial officer shall
have such title as may be designated by the Board and he shall be responsible
for all monies, funds and valuables of this Association, provide for the keeping
of proper records of all transactions of the Association, report to the Board at
each regular meeting the condition of the Association, submit to the Board, when
requested, a detailed statement of the income and expenses, be responsible for
the conduct and efficiency of all persons employed under him, and perform such
other duties as may be from time to time assigned to him by the Board.
Section 4.6. OTHER OFFICERS. All other officers shall respectively exercise
such powers and perform such duties as generally pertain to their several
offices, or as may be conferred upon or assigned to them by the Board, the
Chairman of the Board or the President.
Section 4.7. BOND. Each officer and employee, if so required by the Board,
shall give bond with surety to be approved by the Board, conditioning for the
honest discharge of his duties as such officer or employee. In the discretion of
the Board, such bonds may be individual, schedule or blanket form, and the
premiums may be paid by the Association.
Section 4.8. OFFICERS ACTING AS ASSISTANT SECRETARY. Notwithstanding
Section 4.la of this Article IV, any Senior Vice President, Vice President or
Assistant Vice President shall have, by virtue of his office, and by authority
of the Bylaws, the authority from time to time to act as an Assistant Secretary
of the Association, and to such extent, said officers are appointed to the
office
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of Assistant Secretary.
ARTICLE V
TRUST DEPARTMENT
Section 5.1. TRUST DEPARTMENT. There shall be a department of the
Association known as the Trust Department which shall perform the fiduciary
responsibilities of the Association. Opinions of counsel shall be retained on
file in the Trust Department in connection with all important matters pertaining
to fiduciary activities.
Section 5.2. TRUST INVESTMENT. Funds held in a fiduciary capacity shall be
invested in accordance with the instrument establishing the fiduciary
relationship and local law. Where such instrument does not specify the character
and class of the investments to be made and does not vest in the Association a
discretion in the matter, funds held pursuant to such instrument shall be
invested in investments in which corporate fiduciaries may invest under local
law.
ARTICLE VI
STOCK CERTIFICATES AND TRANSFERS
Section 6.1. STOCK CERTIFICATES. Ownership of capital stock of the
Association shall be evidenced by certificates of stock signed by the Chairman
or President, and the Secretary, or an Assistant Secretary. Each certificate
shall state upon its face that the stock is transferable only upon the books of
the Association by the holder thereof, or by duly authorized attorney, upon the
surrender of such certificate, and shall meet the requirements of Section 5139,
United States Revised Statutes, as amended.
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Section 6.2. TRANSFERS. The stock of this Association shall be assignable
and transferable only on the books of this Association, subject to the
restrictions and provisions of the national banking laws; and a transfer book
shall be provided in which all assignments and transfers of stock shall be made.
When stock is transferred, the certificates thereof shall be returned to the
Association, canceled, preserved and new certificates issued.
Section 6.3. DIVIDENDS. Dividends shall be paid to the shareholders in
whose names the stock shall stand at the close of business on the day next
preceding the date when the dividends are payable, provided, however, that
the directors may fix another date as a record date for the determination of
the shareholders entitled to receive payment thereof.
ARTICLE VII
INCREASE OF STOCK
7.1. CAPITAL STOCK. Shares of the capital stock of the Association, which
have been authorized but not issued, may be issued from time to time for such
consideration, not less than the par value thereof, as may be determined by the
Board.
ARTICLE VIII
CORPORATE SEAL
Section 8.1. SEAL. The seal, an impression of which appears below, is the
seal of the Association adopted by the Board of Directors:
[Seal]
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The Chairman of the Board, the Vice Chairman, the President, Senior
Executive Vice President, Executive Vice President, Senior Vice President, Vice
President, each Assistant Vice President, the Chief Financial Officer, the
Secretary, each Assistant Secretary, each Trust Officer, each Assistant Trust
Officer or each Assistant Cashier, shall have the authority to affix the
corporate seal of this Association and to attest to the same.
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ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.l. FISCAL YEAR. The fiscal year of the Association shall be the
calendar year.
Section 9.2. EXECUTION OF INSTRUMENTS. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies, and other instruments or
documents may be signed, executed, acknowledged, verified, delivered or accepted
in behalf of the Association by the Chairman of the Board, the Vice Chairman of
the Board, any Chairman or Vice Chairman, the President, any Vice President or
Assistant Vice President, the Secretary or any Assistant Secretary, the Cashier
or Treasurer or any Assistant Cashier or Assistant Treasurer, or any officer
holding similar or equivalent titles to the above in any regions, divisions or
functional units of the Association, or, if in connection with the exercise of
fiduciary powers of the Association, by any of said officers or by any Trust
Officer or Assistant Trust Officer (or equivalent titles); provided, however,
that where required, any such instrument shall be attested by one of said
officers other than the officer executing such instrument. Any such instruments
may also be executed, acknowledged, verified, delivered, or accepted in behalf
of the Association in such other manner and by such other officers as the Board
of Directors may from time to time direct. The provisions of this Section 9.2
are supplementary to any other provision of these Bylaws.
Section 9.3. RECORDS. The organization papers of this Association, the
articles of association, the bylaws and any amendments thereto, the proceedings
of all regular and special meetings of the shareholders and of the directors,
the returns of the judges of elections, and the
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reports of the committees of directors shall be recorded in an appropriate
minute book, and the minutes of each meeting shall be signed by the Secretary or
any other officer appointed to act as secretary of the meeting.
Section 9.4. BANKING HOURS. This Association and its branch offices shall
be open on such days and during such hours as shall be fixed from time to time
by the Board.
Section 9.5. VOTING SHARES OF OTHER CORPORATIONS. The Chairman, any Vice
Chairman, the President, or any Vice President is authorized to vote, represent
and exercise on behalf of this Association all rights incident to any and all
shares of stock of any other corporation standing in the name of the
Association. The authority granted herein may be exercised by such officers in
person or by proxy or by power of attorney duly executed by said officer.
ARTICLE X
BYLAWS
Section 10.1. INSPECTION. A copy of the Bylaws, with all amendments
thereto, shall at all times be kept in a convenient place at the Head Office of
the Association, and shall be open for inspection to all shareholders, during
banking hours.
Section 10.2. AMENDMENTS. These Bylaws may be changed or amended at any
regular or special meeting of the Board by the vote of a majority of the
Directors.
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Comptroller of the Currency
Administrator of National Banks
Multinational Banking Division
250 E Street, SW
Washington, D.C. 20219-0001
TRUST CERTIFICATE
Whereas, FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, Charter Number
23201, located in WILMINGTON, State of DELAWARE, being a National Banking
Association, organized under the statutes of the United States, has made
application for authority to act as fiduciary;
And whereas, applicable provisions of the statutes of the United States
authorize the granting of such authority;
Now, therefore, I hereby certify that the said association is authorized to
act in all fiduciary capacities by such statutes.
In testimony whereof, witness my signature and
Seal of office this fifteenth day of January 1997.
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Deputy Comptroller for Multinational Banking
