As filed with the Securities and Exchange Commission on May 8, 1997.
Registration No. 333-__________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BNCCORP, INC.
(Name of small business issuer in its charter)
Delaware 6021 45-0402816
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
322 East Main
Bismarck, North Dakota 58501
(701) 250-3040
(Address and telephone number of principal executive offices)
Gregory K. Cleveland
President and Chief Financial Officer
BNCCORP, Inc.
322 East Main
Bismarck, North Dakota 58501
(701) 250-3040
(Name, address and telephone number of agent for service)
Copies to:
William B. Masters, Esq. Bruce A. Machmeier,Esq.
Jones, Walker, Waechter, Poitevent, Kristine L. Gabel, Esq.
Carrere & Denegre, L.L.P. Oppenheimer Wolff & Donnelly
201 St. Charles Avenue 3400 Plaza VII
New Orleans, Louisiana 70170 45 South 7th Street
(504) 582-8000 Minneapolis, Minnesota 55402
Fax: (504) 582-8012 (612) 344-9300
Fax: (612) 344-9376
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each class of Dollar amount Amount of
securities to be registered to be registered registration
fee(1)
Subordinated Notes Due 2004 $15,000,000 $4,546
(1) Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under t he securities laws
of any such State.
SUBJECT TO COMPLETION, DATED MAY 8, 1997
$15,000,000
BNCCORP, INC.
% Subordinated Notes Due 2004
Interest on the % Subordinated Notes due 2004 (the
"Notes") issued by BNCCORP, Inc. ("BNC" or the "Company") will be payable on
the first business day of each month, commencing July 1, 1997. The Notes
will mature on May 31, 2004. The Notes will not be redeemable prior to May
31, 2000. Thereafter, the Notes will be redeemable, in whole or in part, at
the option of the Company at par plus accrued interest to the date of
redemption. The Notes will have no sinking fund. The Notes will only be
offered in denominations of $1,000 and integral multiples thereof. The
Notes will be unsecured general obligations of the Company and subordinated
to all existing and future Senior Indebtedness (as defined herein) of the
Company. The Indenture (as defined herein) does not limit the ability of
the Company or its subsidiaries to incur Senior Indebtedness or indebtedness
ranking on a parity with the Notes. Payment of principal of the Notes may
be accelerated only in the case of certain events relating to the
bankruptcy, insolvency or reorganization of the Company. There is no right
to acceleration in the case of a default in the payment of interest on the
Notes or in the performance of any other covenant of the Company. See
"Description of the Notes."
The Notes will be represented by one or more global certificates
("Registered Global Securities") registered in the name of The Depository
Trust Company ("DTC") or its nominee. Beneficial interests in the Notes will
be shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. Except as described herein, the
Notes in certificate form will not be issued in exchange for Registered
Global Securities. See "Description of the Notes - Book-Entry, Delivery and
Form."
The Company does not intend to list the Notes on any securities
exchange, and no active trading market is likely to develop. Although the
Underwriter has informed the Company that it intends to make a market in the
Notes, the Underwriter is not obligated to make a market in the Notes, and
any market making may be discontinued at any time at the sole discretion of
the Underwriter. See "Underwriting."
The Notes offered hereby involve a high degree of risk.
See "Risk Factors" beginning on page 7.
THE NOTES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, BY ANY OTHER
GOVERNMENT AGENCY OR OTHERWISE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Price Underwriting Proceeds to
to Public Discount (1) Company (2)
Per Note..................... 100.0% % %
Total(2)..................... $15,000,000 $ $
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at
$150,000.
The Notes are being offered by the Underwriter named herein subject
to prior sale and when, as and if delivered to and accepted by the
Underwriter. It is expected that the Notes will be ready for delivery in
book-entry form only through the facilities of the Depository Trust Company
in New York, New York, on or about ________________, 1997, against payment
therefor in immediately available funds.
DAIN BOSWORTH
Incorporated
The date of this Prospectus is _______, 1997
[MAP OF BANK LOCATIONS TO BE PRINTED HERE.]
The Company intends to furnish holders of the Notes with annual reports
containing audited financial statements together with report a of independent
public accountants.
_____________________
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
NOTES, INCLUDING THOSE DESCRIBED IN "UNDERWRITING."
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus.
The Company
BNCCORP, INC. (together with its consolidated subsidiaries, "BNC" or
the "Company") is a bank holding company headquartered in Bismarck, North
Dakota, which provides a broad range of banking and financial services to
small and mid-size businesses and individuals through its nine full service
banking facilities in North Dakota and Minnesota. BNC operates primarily
through its two commercial banking subsidiaries, BNC National Bank ("BNC-
North Dakota"), which is headquartered in Bismarck and has seven additional
branches in North Dakota, and BNC National Bank of Minnesota ("BNC-
Minnesota," together with BNC-North Dakota, the "Banks"), which is located
in Minneapolis, Minnesota. In addition, the Company provides asset-based
commercial financing through its non-bank subsidiary, BNC Financial
Corporation ("BNC Financial"), located in St. Cloud, Minnesota.
Due to its focus on customer service and local relationship banking
with small and mid-size businesses and individuals, BNC has experienced
significant growth. Management believes that the Company's entrepreneurial
approach to banking and the introduction of new products and services will
continue to attract small and mid-size businesses which are often not of
sufficient size to be of interest to the larger banks in the Company's
market areas. Small and mid-size businesses and individuals frequently have
difficulty finding banking services that meet their specific needs and have
sought, and management believes will continue to seek, banking institutions
that are more relationship-oriented. BNC offers an increasing number of
banking and finance-related products and services, including trust services,
asset management, retirement planning, tax planning and preparation,
insurance and other private banking services.
BNC was formed in 1987 with the objective of acquiring and improving
the performance of strategically located banks in North Dakota. As part of
this strategy, the Company has completed several acquisitions. The largest
of these acquisitions was the Company's July 1995 acquisition of seven North
Dakota branches, with aggregate deposits of approximately $104.8 million,
from First Bank fsb. In January 1996, the Company established a de novo
national bank in Minneapolis, Minnesota which primarily serves small and
mid-size businesses in the Minneapolis/St. Paul metropolitan area. In
addition, the Company acquired BNC Financial, a non-bank commercial finance
subsidiary that primarily engages in asset-based lending, in May 1996.
Management believes that these initiatives have generated significant
growth for the Company. From December 31, 1992 to March 31, 1997, the
Company's net loans increased from $69.3 million to $207.7 million, total
assets increased from $118.0 million to $307.8 million and total deposits
increased from $102.7 million to $253.3 million. During this same period,
the Company's ratio of nonperforming loans to total loans decreased from
5.80% to 0.22%. The Company's goal continues to be the creation of a well-
capitalized $500 million to $1 billion financial services organization
focused on local relationship banking. Efforts are ongoing to ensure that
the executive management team and operating systems are in place to achieve
this goal.
BNC was incorporated in North Dakota in 1987 and reincorporated in
Delaware in July 1995. BNC's principal executive office is located at 322
East Main, Bismarck, North Dakota 58501, and its telephone number is (701)
250-3040.
The Offering
Notes Offered $15,000,000 principal amount of % Subordinated
Notes due 2004. See "Description of the Notes."
Denominations $1,000 and integral multiples thereof.
Maturity May 31, 2004.
Interest Payment
Dates Monthly, commencing July 1, 1997, and on the first
business day of each month thereafter. The first
interest payment date will represent interest from the
date of issuance of the Notes through June 30, 1997.
Sinking Fund None.
Optional Redemption The Company may elect to redeem the Notes, in whole or
in part, upon 30 days' prior written notice, at any time
on or after May 31, 2000, at 100% of the principal
amount thereof plus accrued interest to the date of
redemption. See "Description of the Notes - Redemption
at the Option of the Company."
Covenants The indenture under which the Notes will be issued (the
"Indenture") will restrict the ability of the Company,
under certain circumstances, to pay cash dividends,
redeem or repurchase stock or make other capital
distributions. The Indenture does not limit the ability
of the Company or its subsidiaries to incur additional
indebtedness. See "Description of the Notes -
Limitation on Dividends and Other Payments."
Limited Rights of
Acceleration Payment of principal of the Notes may be accelerated
only in the case of certain events relating to the
bankruptcy, insolvency or reorganization of the Company.
There is no right of acceleration in the case of a
default in the payment of principal of or interest on
the Notes or a failure to fulfill any other covenant of
the Company contained in the Indenture. See
"Description of the Notes - Acceleration Events."
Subordination The Notes will be unsecured general obligations of BNC
and will be subordinated to all existing and future
Senior Indebtedness (as defined herein). As of May
, 1997, the Company had approximately $
million in Senior Indebtedness (excluding deposits).
The Indenture does not limit the ability of the Company
or its Subsidiaries to incur additional Senior
Indebtedness or indebtedness ranking on a parity with
the Notes. See "Capitalization" and "Description of the
Notes."
Use of Proceeds The estimated net proceeds of approximately $14.1
million from the sale of the Notes will be used to repay
approximately $13.3 million of indebtedness expected to
be outstanding under the Company's Revolving Lines of
Credit (as defined herein) at the time of the offering.
In subsequent periods, BNC expects to borrow additional
funds under the Revolving Lines of Credit in order to
provide additional working capital for general corporate
purposes, including the funding of loans at BNC
Financial. See "Use of Proceeds."
Information contained in this Prospectus contains "forward-looking
statements" which can be identified by the use of forward-looking terminology
such as "may," "will," "expect," "anticipate," "estimate," or "continue" or
the negative thereof or other variations thereon or comparable terminology.
The statements in "Risk Factors" beginning on page 7 of this Prospectus
constitute cautionary statements identifying important factors, including
certain risks and uncertainties, with respect to such forward-looking
statements that could cause actual results to differ materially from those
reflected in such forward-looking statements.
Selected Consolidated Financial Data
The statement of income data for the three years ended December 31,
1996, and the statement of financial condition data as of December 31, 1996
and 1995 set forth below have been derived from the consolidated financial
statements of the Company audited by Arthur Andersen LLP and included
elsewhere in this Prospectus. The statement of financial condition data as
of December 31, 1994 has been derived from financial statements not included
in this Prospectus, which have been audited by Arthur Andersen LLP. The
statement of income data for the two years ended December 31, 1993 and the
statement of financial condition data as of December 31, 1993 and 1992 have
been derived from financial statements not included in this Prospectus,
which were audited by James J. Wosepka, CPA, independent public accountant.
The statement of income and statement of financial condition data for the
three months ended and as of March 31, 1997 and 1996 are derived from the
unaudited consolidated financial statements of the Company and, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) necessary for fair presentation thereof. The results
for the three-month period ended March 31, 1997 are not necessarily
indicative of results to be expected for the full year. The following
summary historical financial data should be read in conjunction with the
Company's Consolidated Financial Statements and the notes thereto included
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
At or for the
three months ended At or for the
March 31, year ended December 31,
--------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Interest income $ 6,060 $ 4,485 $ 20,957 $ 15,283 $ 10,263 $ 8,920 $ 9,376
Interest expense 3,115 2,537 11,107 8,542 4,411 4,068 4,995
--------- --------- --------- --------- --------- --------- ---------
Net interest income 2,945 1,948 9,850 6,741 5,852 4,852 4,381
Provision for loan losses 170 84 739 168 179 89 236
--------- --------- --------- --------- --------- --------- ---------
Net interest income after
provisions for loan losses 2,775 1,864 9,111 6,573 5,673 4,763 4,145
Noninterest income (1) 481 371 2,096 1,736 1,399 993 957
Noninterest expense 2,340 1,966 8,213 6,511 5,202 4,207 3,916
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes 916 269 2,994 1,798 1,870 1,549 1,186
Income taxes 355 127 1,147 641 679 453 267
--------- --------- --------- --------- --------- --------- ---------
Net income $ 561 $ 142 $ 1,847 $ 1,157 $ 1,191 $ 1,096 $ 919
========= ========= ========= ========= ========= ========= =========
Net income per common share $ 0.24 $ 0.06 $ 0.79 $ 0.67 $ 0.98 $ 0.89 $ 0.83
========= ========= ========= ========= ========= ========= =========
Weighted average common
shares outstanding 2,338,720 2,338,720 2,338,720 1,720,030 1,218,909 1,238,100 1,103,395
Statement of Financial
Condition Data:
Total assets $ 307,802 $ 239,807 $ 288,558 $ 240,399 $ 147,645 $ 122,414 $ 117,958
Net loans 207,747 147,812 201,403 119,635 109,450 82,777 69,328
Investment securities 61,953 73,290 59,491 94,416 25,111 26,964 35,591
Deposits 253,300 202,959 239,770 211,048 124,649 107,496 102,666
Stockholders' equity 22,903 20,968 22,635 20,887 9,540 8,904 7,808
Book value per common share $ 9.79 $ 8.97 $ 9.68 $ 8.93 $ 7.87 $ 7.19 $ 7.08
Tangible book value per
common share 8.07 7.23 7.93 7.24 7.31 6.65 6.36
</TABLE>
(1) Includes loan origination fees of $191 and $164 for the three month
periods ended March 31, 1997 and 1996, respectively, and $1,276, $559,
$650, $320 and $173 for the years ended December 31, 1996, 1995, 1994,
1993 and 1992, respectively.
<TABLE>
<CAPTION>
At or for the
three months ended At or for the
March 31, year ended December 31,
-------------------- --------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Key Ratios:(1)
Net interest margin 4.38% 3.59% 4.09% 3.71% 4.70% 4.40% 4.08%
Net interest spread 3.89 3.13 3.63 3.27 4.34 4.10 3.71
Return on average assets 0.77 0.24 0.71 0.59 0.87 0.90 0.78
Return on average equity 9.87 2.70 8.53 8.11 12.34 12.92 13.70
Stockholders' equity to
total assets 7.44 8.74 7.84 8.69 6.46 7.27 6.62
Nonperforming assets to
total assets 0.20 0.29 0.15 0.20 0.44 1.47 3.74
Nonperforming loans to
total assets 0.22 0.47 0.14 0.40 0.49 1.93 5.80
Allowance for loan losses
to total loans 0.83 0.76 0.78 0.87 0.92 0.85 1.55
Allowance for loan losses
to nonperforming loans 382 164 555 218 188 44 27
Efficiency ratio(2) 68.32 84.80 68.75 76.81 71.74 71.98 73.36
Ratio of earnings to fixed
charges(3)
Including interest on
deposits 1.29x 1.11x 1.27x 1.21x 1.42x 1.38x 1.24x
Excluding interest on 3.48x 2.74x 3.19x 3.43x 5.01x 6.61x 4.52x
deposits
</TABLE>
___________________
(1) Ratios for the three months ended March 31, 1997 and 1996 have been
annualized and are not necessarily indicative of the results for the
entire year.
(2) The efficiency ratio is calculated by dividing noninterest expense by
an amount equal to net interest income plus noninterest income.
(3) The consolidated ratio of earnings to fixed charges has been computed
by dividing net income plus all applicable income taxes plus fixed
charges by fixed charges. Fixed charges represent interest expense
(ratios are presented both including and excluding interest on
deposits). Interest expense (other than on deposits) includes
interest on long-term debt, federal funds purchased and securities
sold under agreements to repurchase, mortgages, commercial paper and
other borrowed funds.
RISK FACTORS
An investment in the Notes offered hereby involves a high degree of
risk. In addition to the other information in this Prospectus, the following
factors should be considered carefully.
Dependence on Dividends From Subsidiary Banks
As a holding company, with the substantial majority of its assets
represented by its equity interest in the Banks, the Company's ability to
pay principal and interest on the Notes depends primarily upon the cash
dividends the Company receives from the Banks, and, to a lesser extent, from
BNC Financial. Dividend payments from the Banks are subject to state and
federal regulatory limitations that are based on each Bank's earnings and
capital. Payment of dividends is also subject to regulatory restrictions if
such dividends would impair the capital of the Banks. Payment of dividends
by the Banks is also subject to the Banks' profitability, financial
condition and capital expenditures and other cash flow requirements. At
March 31, 1997, the Banks could pay total dividends to the Company of
approximately $4.4 million without prior regulatory approval. Substantially
all of the consolidated assets of the Company are held by the Banks, and, in
the event of liquidation of both the Company and any of the Banks, creditors
of such Banks, including depositors, would have first claim to such assets
before holders of the Notes. No assurance can be given that the Banks will
be able to pay dividends at past levels, or at all, in the future. See
"Supervision and Regulation."
Limited Covenants
The covenants in the Indenture are limited and are not designed to
protect holders of the Notes in the event of a material adverse change in
the Company's financial condition or results of operations. The covenants
also do not limit the ability of the Company or any subsidiary to incur
additional indebtedness. The covenants in the Indenture should not be a
significant factor to an investor in evaluating whether the Company will be
able to comply with its obligations under the Notes. See "Description of
the Notes."
Limited Right of Acceleration of Notes
Payment of principal or interest on the Notes may be accelerated only
in the case of the bankruptcy, insolvency, reorganization or other similar
proceeding of the Company. There is no right of acceleration in the case of
a default in the payment of principal or interest on the Notes or in the
performance of any other covenant of the Company. See "Description of the
Notes - Acceleration Events."
Subordination
The Notes will be unsecured general obligations of the Company and
will be subordinated to all present and future Senior Indebtedness of the
Company. The Notes also will be effectively subordinated to all of the
present and future liabilities of the Company's subsidiaries. Since the
Notes are obligations of the parent company only, the Company's subsidiaries
are not obligated or required to pay any amounts pursuant to the Notes or to
make funds available therefor in the form of dividends or advances to the
Company. In the event of bankruptcy, liquidation, reorganization or similar
proceeding of the Company, the holders of the Notes would not receive
payment until all Senior Indebtedness had been paid in full. As of May __,
1997, the Company had approximately $____ million of outstanding Senior
Indebtedness (excluding deposits). The Indenture does not limit the ability
of the Company or its subsidiaries to incur additional Senior Indebtedness
or indebtedness ranking on a parity with the Notes. In the event of a
payment default with respect to the Senior Indebtedness, no payments may be
made on account of the Notes until such default has been cured or waived.
See "Description of the Notes - Subordination." The Notes are not insured
by the Federal Deposit Insurance Corporation ("FDIC") or otherwise and are
not secured by any collateral or sinking fund.
Risks of Growth Strategy
BNC has pursued and intends to continue to pursue an aggressive growth
strategy. This strategy is focused primarily on expanding existing account
relationships and developing new account relationships through its existing
banking locations, but may also include acquisitions and establishment of de
novo banks and additional branches. The success of BNC's growth strategy
will depend primarily on its ability to generate loans at acceptable risk
and pricing levels and deposits with acceptable interest rates without
proportionate increases in noninterest expenses. In addition, no assurance
can be given that the Company will be successful in managing its internal
growth and integrating acquired businesses, if any, into its existing
operations. The management of such growth or the integration of any
acquired business could result in unforeseen operational difficulties or
require a disproportionate amount of management's attention.
The Company intends to pursue internal growth through an emphasis on
expanding its existing account relationships and by developing new
relationships with small and mid-sized business customers and individuals.
The Company's internal growth will depend in part on the economic conditions
in its market areas. There can be no assurance that BNC will be successful
in implementing its internal growth strategy. See "Business - Growth
Strategy" and "- Market Area."
BNC may pursue acquisitions of community banks and other financial
institutions in its market areas and other strategic locations. BNC does
not currently have any agreements, arrangements or understandings regarding
the acquisition of any financial institution. BNC may not be successful in
identifying acquisition candidates, integrating acquired institutions into
BNC's operations, or preventing deposit erosion at acquired institutions.
There are a limited number of attractive acquisition candidates in BNC's
targeted market area, and BNC must compete with a variety of institutions,
including multi-regional bank holding companies, for potential acquisitions.
This competition, especially from multi-regional bank holding companies, is
expected to intensify with the expected increase in interstate banking and
branching that will be allowed under recently passed banking regulation.
Any acquisition will be subject to regulatory approval, and there can be no
assurance that BNC will obtain such approvals. Moreover, the success of
BNC's acquisition growth strategy will depend on maintaining acceptable
capital levels. There can be no assurance that BNC will be successful in
implementing its acquisition growth strategy. See "Business - Growth
Strategy," "- Market Area" and "Supervision and Regulation."
The Company intends to use a portion of the net proceeds of this
offering and funds available to it under its Revolving Lines of Credit (as
defined herein) to fund loan growth at BNC Financial, a non-bank commercial
finance subsidiary acquired by the Company in 1996. Such lending often
involves loans that have higher risk of default than traditional loans made
by the Banks. See "Use of Proceeds" and "Business - Products and Services -
- - Loans."
Allowance for Loan Losses
The inability of borrowers to repay loans can erode earnings and
capital of banks. Like all banks, BNC maintains an allowance for loan
losses to provide for loan defaults and nonperformance. The allowance is
based on prior experience with loan losses, as well as an evaluation of the
risks in the current portfolio. BNC maintains the allowance at a level
considered adequate by management to absorb anticipated losses. The amount
of future losses is susceptible to changes in economic, operating and other
conditions, including changes in interest rates, that may be beyond BNC's
control. Such future losses may exceed current estimates of BNC's allowance
for loan losses. At March 31, 1997, BNC had total nonperforming loans of
$454,000 (0.22% of total loans). At the same date, BNC's allowance for loan
losses was $1.7 million (0.83% of total loans and 382% of nonperforming
loans). There can be no assurance that BNC's allowance for loan losses will
be adequate to cover actual losses. Future additions to BNC's allowance for
loan losses could result in a material decrease in BNC's net income and
capital. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Financial Condition -- Nonperforming Loans and
Assets," "- Allowance for Loan Losses" and the Company's Consolidated
Financial Statements and notes thereto included elsewhere herein.
Impact of Interest Rates and Economic Conditions
BNC's operating results may be materially and adversely affected by
changes in prevailing economic conditions, including declines in real estate
market values, rapid changes in interest rates and the monetary and fiscal
policies of the federal government. BNC's profitability is in part a
function of the spread between the interest rates earned on assets and the
interest rates paid on deposits and other interest-bearing liabilities.
Since 1991, many banking organizations, including BNC, have experienced
historically high interest rate spreads. There can be no assurance,
however, that such high interest rate spreads will continue. Although
economic conditions in BNC's market area have been generally stronger than
those in other regions of the country, there can be no assurance that such
conditions will continue to prevail. Substantially all of BNC's existing
loans are to businesses and individuals in western North Dakota and
Minnesota, and any decline in the economies of these areas could have an
adverse impact on BNC. Like most banking institutions, BNC's net interest
margin will continue to be affected by general economic conditions and other
factors that influence market interest rates and BNC's ability to respond to
changes in such rates. At any given time, BNC's assets and liabilities will
be affected differently by a given change in interest rates, and as a result
an increase or decrease in rates could have a positive or negative effect on
BNC's 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 BNC. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business - Market Area," and
"Supervision and Regulation - Monetary Policy."
Dependence on Key Personnel
BNC is highly dependent on the continued services of Tracy J. Scott,
its Chairman of the Board and Chief Executive Officer, Gregory K. Cleveland,
its President and Chief Financial Officer, Thomas J. Resch, President and
Chief Executive Officer of BNC-Minnesota, and other key management
personnel. The loss of any of these persons could adversely affect BNC's
operations. BNC has entered into employment agreements with each of Tracy
J. Scott, Gregory K. Cleveland and Thomas J. Resch. See "Management."
Competitive Banking Environment
The banking business is highly competitive. BNC competes for loans,
including asset-based loans, and deposits with other commercial banks,
savings banks, savings and loan associations, finance companies, money
market funds, brokerage houses, credit unions and other nonfinancial
institutions. Many of these competitors have substantially greater
resources and lending limits than BNC, offer certain services that BNC does
not currently provide and may offer more favorable pricing than BNC. In
addition, non-depository institution competitors are generally not subject
to the extensive laws and regulations applicable to BNC. Recent changes in
federal banking laws are expected to facilitate and increase interstate
branching and mergers and acquisitions among banks. Since September 1995,
certain bank holding companies have been authorized to acquire banks
throughout the United States. In addition, after June 1, 1997, certain
banks will be permitted to merge with banks organized under the laws of
different states and to operate branches in BNC's markets without a separate
charter. These changes may result in even greater competition in the
banking business. There can be no assurance that BNC's operations and
profitability will not be adversely effected by the anticipated increase in
competition in the banking business. Moreover, increased competition from
multi-regional bank holding companies for acquisition candidates may affect
BNC's ability to grow through acquisitions. See "Business - Competition"
and "Supervision and Regulation."
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.
The Company's future success will depend in part on its ability to address
the needs of its customers by using technology to provide products and
services that will satisfy customer demands for convenience as well as to
create additional efficiencies in BNC's operations. Many of BNC's
competitors have substantially greater resources to invest in technological
improvements. There can be no assurance that the Company will be able to
effectively implement new technology-driven products and services or be
successful in marketing such products and services to its customers.
Potential Liability for Undercapitalized Subsidiary
Under federal law, a bank holding company may be required to guarantee
a capital plan filed by an undercapitalized bank subsidiary with its primary
regulator. If the subsidiary defaults under the plan, the holding company
may be required to contribute to the capital of the subsidiary bank an
amount equal to the lesser of 5% of the bank's assets at the time it became
undercapitalized or the amount necessary to bring the bank into compliance
with applicable capital standards. Therefore, it is possible that BNC will
be required to contribute capital to one or both of the Banks or any other
bank that it may acquire in the event either of the Banks or such other bank
becomes undercapitalized. Such capital contribution may adversely affect
BNC's operations and limit its ability to pay principal of and interest on
the Notes. See "Supervision and Regulation - BNC -- Capital Adequacy" and
"- The Banks -- Capital Adequacy."
Government Regulation and Recent Legislation
BNC and the Banks are subject to extensive federal and state
legislation, regulation and supervision that is intended to protect
depositors rather than investors in the Company's securities. These
regulations limit the manner in which BNC conducts its business and obtains
financing. Powers of bank regulatory authorities include, but are not
limited to, the ability to impose restrictions on the operation of a
financial institution, to require the classification of assets by an
institution and to dictate an increase in an institution's allowance for
loan losses. Recently enacted, proposed and future legislation and
regulations designed to strengthen the banking industry have had and may
continue to have a significant impact on the banking industry. Although
some of the legislative and regulatory changes may benefit BNC, others may
increase its costs of doing business or otherwise adversely affect it and
create competitive advantages for non-bank competitors. The Company cannot
determine at this time the effect any changes could have on the Company's
operations. See "Supervision and Regulation."
Absence of a Public Market for the Notes
The Notes are a new issue of securities for which there is currently
no public market. The Company does not intend to list the Notes on any
securities exchange, and no active trading market is expected to develop.
Although the Underwriter has informed the Company that it intends to make a
market in the Notes, the Underwriter is not obligated to make a market in
the Notes, and any market making may be discontinued at any time at the sole
discretion of the Underwriter. If a market develops for the Notes, there
can be no assurance as to the liquidity of such market, the ability of
holders to sell their Notes or the prices at which holders would be able to
sell their Notes. If a market for the Notes does develop, the Notes may
trade at a discount to their principal amount, depending upon prevailing
interest rates, the market for similar securities, performance of the
Company, performance of the banking industry and other factors. See
"Underwriting."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered
hereby, after deducting the underwriting discount and estimated offering
expenses, will be approximately $14.1 million. BNC anticipates that
approximately $13.3 million of the net proceeds will be used to repay
indebtedness outstanding under the Company's Revolving Lines of Credit.
The Company has a $12.0 million revolving line of credit with Firstar
Bank Milwaukee, N.A. (the "Firstar Line of Credit"), which matures in
February 1998 and bears interest at either the prime rate or LIBOR plus 2%,
at the Company's option (currently 7.51% per annum). The Company expects to
have $12.0 million outstanding under the Firstar Line of Credit immediately
prior to the offering. BNC Financial has a $1.3 million revolving line of
credit with Bank Windsor, N.A. (the "Windsor Line of Credit" and together
with the Firstar Line of Credit, the "Revolving Lines of Credit"), which
matures in September 1997 and bears interest at the prime rate plus 0.75%
(currently 9.25% per annum). The Company expects to have $1.3 million
outstanding under the Windsor Line of Credit immediately prior to the
offering.
After the completion of the offering and the application of the net
proceeds thereof as described herein, the Company expects to borrow
additional funds under the Revolving Lines of Credit to provide additional
working capital for general corporate purposes, including the funding of
loans at BNC Financial.
The Notes are expected to be treated as Tier 2 capital for regulatory
purposes. As Tier 2 capital, the Notes will help to further strengthen the
capital structure of the Company.
CAPITALIZATION
The following table sets forth the actual capitalization (including
deposits) of BNC as of March 31, 1997, and as adjusted to give effect to the
sale of the Notes offered hereby and the application of the estimated net
proceeds therefrom. This information is derived from the Company's
Consolidated Financial Statements and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and the notes
thereto contained elsewhere herein.
March 31, 1997
-----------------------
Actual As Adjusted
-------- -----------
(In thousands)
Deposits $ 253,300 $ 253,300
========= =========
Borrowings:
Federal funds purchased $ 3,708 $ 3,708
Securities sold under agreements to repurchase 1,598 1,598
Advances from the Federal Home Loan Bank 10,000 10,000
Notes payable:
Revolving Lines of Credit(1) 8,485 ---
Term loans 3,111 3,111
Subordinated Notes due 2004 offered hereby --- 15,000
--------- ---------
Total borrowings $ 26,902 $ 33,417
========= =========
Stockholders' equity:
Preferred Stock, $.01 par value per share,
2,000,000 shares authorized; no shares
outstanding --- ---
Common Stock, $.01 par value per share,
10,000,000 shares authorized; 2,364,100
shares issued, 2,338,720 shares outstanding 23 23
Additional paid-in capital 13,768 13,768
Retained earnings 9,578 9,578
Treasury stock (25,380 shares) (216) (216)
Unrealized loss on securities available
for sale, net (250) (250)
--------- ---------
Total stockholders' equity $ 22,903 $ 22,903
========= =========
___________________
(1) Amounts due under the Revolving Lines of Credit are expected to be
approximately $13.3 million immediately prior to the date of this
Prospectus, which amount is expected to be paid in full with proceeds of
the offering. Upon completion of the offering and the application of the
net proceeds thereof as described in "Use of Proceeds," the Company will
have approximately $13.3 million available under the Revolving Lines of
Credit.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto and other detailed
information appearing elsewhere in this Prospectus.
Overview
BNC was formed in 1987 with the objective of acquiring and improving
the performance of strategically located banks in North Dakota. In 1988,
BNC acquired its initial bank, the First National Bank of Linton. In 1990,
the Company formed BNC National Bank, formerly Bismarck National Bank, and
acquired the Bismarck branch of Midwest Federal Savings Bank from the
Resolution Trust Corporation. In January 1994, BNC acquired its third bank,
Farmers & Merchants Bank of Beach ("FMB"), which had been managed and owned
by certain members of BNC's executive management team since 1985. In 1995,
BNC acquired seven North Dakota branches of First Bank fsb and sold FMB. In
August 1995, the Company merged the First National Bank of Linton and BNC
National Bank of Bismarck and changed the name of the resulting entity to
BNC National Bank. In January 1996, BNC established a de novo national bank
in Minneapolis, Minnesota, and in May 1996 acquired BNC Financial, a non-
bank finance company located in St. Cloud, Minnesota that primarily engages
in asset-based lending.
Results of Operations
Net income was $561,000 for the three month period ended March 31,
1997 compared to $142,000 for the three month period ended March 31, 1996.
Net income was $1.8 million for the year ended December 31, 1996 as compared
to $1.2 million in 1995. This earnings growth was due primarily to an
increase in net interest income, which was driven by loan growth, and an
increase in non-interest income.
Loans totaled $209.5 million at March 31, 1997, an increase of $60.5
million, or 40.6%, from March 31, 1996. Total assets increased $68.0
million, or 28.4%, to $307.8 million as of March 31, 1997 compared to $239.8
million at March 31, 1996. Total deposits increased $50.3 million, or 24.8%,
to $253.3 million at March 31, 1997 compared to $203.0 million at March 31,
1996.
Net Interest Income. Net interest income, the difference between total
interest income earned on earning assets and total interest expense paid on
interest-bearing liabilities, is the Company's principal source of earnings.
The amount of net interest income is affected by changes in the volume and
mix of earning assets, the level of rates earned on those assets, the volume
and mix of interest-bearing liabilities, and the level of rates paid on those
interest-bearing liabilities.
Three months ended March 31, 1997 compared to three months
ended March 31, 1996
Net interest income increased $1.0 million, or 51%, to $2.9 million for
the quarter ended March 31, 1997 as compared to the same period in 1996.
Total interest income increased $1.6 million, or 35%, to $6.1 million for the
first quarter of 1997 as compared to the $4.5 million recorded in the first
quarter of 1996. The increase in interest income was primarily due to loan
growth, as average earning assets increased $54.4 million, or 25%, to $272.9
million for the three months ended March 31, 1997 as compared to $218.5
million for the same period in 1996. The increase in net interest income
between periods was also attributable in part to an increase in the yield on
average earning assets to 9.00% for the quarter ended March 31, 1997 as
compared to 8.26% for the same period in 1996. A change in mix of the earning
asset portfolio contributed to the increase in interest income. During the
first quarter of 1997, loans totaled 75% of the average earning asset
portfolio as compared to only 62% for the quarter ended March 31, 1996. This
increase in volume and the change in mix of the earning asset portfolio were
caused by the Company's significant loan growth as investments were sold to
fund loans. The increase in yield resulted from an increase in loan yield of
43 basis points (to 9.84% for the first quarter of 1997 from 9.41% for the
first quarter of 1996) and the change in mix of the earning asset portfolio
from lower yielding investments to higher yielding loans.
Total interest expense increased $578,000, or 23%, to $3.1 million for
the three months ended March 31, 1997 as compared to $2.5 million for the
same period in 1996. The increase in interest expense was caused by an
increase in volume of average interest-bearing liabilities, partially offset
by decreases in cost on these liabilities. Total average interest-bearing
liabilities increased $48.1 million, or 24%, to $247.1 million for the
quarter ended March 31, 1997 as compared to $199.0 million for the quarter
ended March 31, 1996. Average interest-bearing deposits and borrowings
increased $35.2 million and $13.0 million, or 19% and 135%, respectively, for
the three months ended March 31, 1997 as compared to the same period in 1996.
The average cost on interest-bearing deposits decreased 10 basis points to
4.96% for the quarter ended March 31, 1997 as compared to 5.06% for the same
period in 1996. The average cost of borrowed funds increased 15 basis points
to 6.66% for the first quarter of 1997 as compared to 6.51% for the same
period in 1996. The decrease in cost on deposits was offset somewhat by the
increased cost on borrowings resulting in an improvement in total cost on
rate related liabilities of 2 basis points to 5.11% for the quarter ended
March 31, 1997 as compared to 5.13% for the same period in 1996.
Net interest margin for the first quarter of 1997 was 4.38% as compared
to 3.59% for the same period in 1996. The improvement in the Company's net
interest margin was mainly attributable to the increase in yield on earning
assets discussed above.
Year ended December 31, 1996 compared to the year ended December 31, 1995
Net interest income increased $3.1 million, or 46%, to $9.9 million
for the year ended December 31, 1996 as compared to the same period in 1995.
Total interest income increased $5.7 million, or 37%, to $21.0 million for
1996 as compared to the $15.3 million recorded in 1995. Loan growth during
1996 caused the increase in interest income as average earning assets
increased $59.0 million, or 32%, to $240.9 million for the year ended
December 31, 1996 as compared to $181.9 million in 1995. The increase in
net interest income between periods was also attributable in part to an
increase in the yield on average earning assets to 8.70% for 1996 as
compared to 8.40% for 1995. A change in mix of the earning asset portfolio
also contributed to the increase in interest income. During 1996, the
average earning asset portfolio was comprised of 29% investments (yielding
6.50%) and 71% loans (yielding 9.54%) as compared to 36% investments
(yielding 6.13%) and 64% loans (yielding 9.58%) in 1995. The volume
increase and change in mix of the earning asset portfolio were caused by the
Company's significant loan growth as investments were sold to fund loans.
The increase in yield resulted from the increase in investment yield noted
above and the change in mix of the earning asset portfolio from lower
yielding investments to higher yielding loans.
Total interest expense increased $2.6 million, or 30%, to $11.1
million for the year ended December 31, 1996 as compared to $8.5 million for
1995. The increase in interest expense was caused by an increase in volume
of average interest-bearing liabilities offset by decreases in cost on these
liabilities. Total average interest-bearing liabilities increased $52.6
million, or 32%, to $219.1 million for the year ended December 31, 1996 as
compared to $166.5 million for the year ended December 31, 1995. Average
interest-bearing deposits and borrowings increased $41.6 million and $11.0
million, or 27% and 105%, respectively, for the year ended December 31, 1996
as compared to 1995. The average cost on interest-bearing deposits decreased
47, 55, 15 and 26 basis points for interest-bearing checking and money
market accounts, savings accounts, time deposits under $100,000 and time
deposits of $100,000 and over, respectively. The decreased costs of deposits
on a category by category basis, however, resulted in only a 7 basis point
decrease in total deposit cost to 4.93% for the year ended December 31, 1996
as compared to 5.00% for 1995. Offsetting the by-category cost decreases was
a shift in average deposit portfolio mix as time deposits accounted for 71%
of total average deposit balances for the year ended December 31, 1996 as
compared to less than 65% for 1995. This change was caused primarily by the
mix of deposits acquired in 1995. Over 80% of the $94.2 million of such
acquired and retained deposits were time deposits (a portion of which were
sold along with FMB in October 1995).
Year ended December 31, 1995 compared to the year ended December 31, 1994
Net interest income increased $889,000, or 15%, to $6.7 million for
the year ended December 31, 1995 as compared to the $5.9 million recorded
for the same period in 1994. Total interest income increased $5.0 million,
or 49%, to $15.3 million for 1995 as compared to the $10.3 million recorded
in 1994. The increased interest income was the net result of rate, volume
and mix variances in the earning asset portfolio. The most significant
factor was the increase in average earning assets of $57.4 million, or 46%,
to $181.9 million for the twelve months ended December 31, 1995 as compared
to $124.5 million for the same period in 1994. The yield on earning assets
increased 16 basis points to 8.40% for 1995 as compared to 8.24% for 1994. A
change in mix of the earning asset portfolio also occurred. During 1995, the
average earning asset portfolio was comprised of 36% investments (yielding
6.13%) and 64% loans (yielding 9.58%) as compared to 21% investments
(yielding 5.34%) and 79% loans (yielding 8.95%) in 1994. The increases in
loan and investment yields were offset by the mix change noted above. The
volume increase and change in mix of the earning asset portfolio were caused
by a combination of the Company's corporate developments in 1995, including
the deposit acquisition (as acquired funds were invested), internal loan
growth and the sale of FMB.
Total interest expense increased $4.1 million, or 94%, to $8.5 million
for the year ended December 31, 1995 as compared to $4.4 million for 1994.
The increase in interest expense was caused by an increase in volume of
average interest-bearing liabilities and increases on costs of the
liabilities. Total average interest-bearing liabilities increased $53.6
million, or 47%, to $166.5 million for the year ended December 31, 1995 as
compared to $112.9 million for 1994. Average interest-bearing deposits and
borrowings increased $52.6 million and $1.0 million, or 51% and 10%,
respectively, for the year ended December 31, 1995 as compared to 1994. The
average cost on interest-bearing deposits increased to 5.00% for 1995 as
compared to 3.81% for 1994. The increase in cost of deposits was caused by
an aggressive bid for deposits at BNC - North Dakota in late 1994 and early
1995 and the higher than anticipated cost on the deposits acquired in August
1995. The high percentage of time deposits to total deposits acquired also
contributed to the overall increase in average deposit cost as the mix of
the deposit portfolio changed such that a higher percentage of deposits were
in time deposits versus noninterest and low interest-bearing deposits. See
"- Financial Condition -- Deposits and Borrowed Funds."
The following table sets forth, for the periods indicated, certain
information relating to BNC's average balance sheets and reflects the yield
on average assets and cost of average liabilities. Such yields and costs are
derived by dividing income and expense by the average balance of assets and
liabilities. No tax equivalent adjustments were made, and all average
balances have been derived from monthly averages which are indicative of
daily averages.
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------------------------------
1997 1996
---------------------------- ----------------------------
Interest Average Interest Average
Average earned yield or Average earned yield or
balance or paid cost balance or paid cost
--------- ------- -------- --------- ------- --------
ASSETS (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 11,840 $ 159 5.45% $ 2,769 $ 40 5.81%
Taxable investments 57,032 915 6.51 79,242 1,236 6.27
Tax-exempt investments 789 12 6.17 1,245 20 6.46
Loans (1) 204,931 4,974 9.84 136,317 3,189 9.41
Allowance for loan losses (1,675) --- (1,081) ---
--------- ----- --------- ------
Total interest-earning
assets (2) 272,917 6,060 9.00 218,492 4,485 8.26
Noninterest-earning assets:
Cash and due from banks 6,074 5,202
Other 15,058 12,858
--------- ---------
Total assets $ 294,049 $ 236,552
========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits:
NOW and money market
accounts $ 45,840 $ 338 2.99% $ 36,772 $ 233 2.55%
Savings 8,694 49 2.29 8,147 46 2.27
Certificates of deposit:
Under $100,000 128,123 1,768 5.60 126,114 1,832 5.84
$100,000 and over 41,962 590 5.70 18,426 271 5.92
--------- ------ --------- ------
Total interest-
bearing deposits 224,619 2,745 4.96 189,459 2,382 5.06
Short-term borrowings:
Securities and loans sold
under agreements to
repurchase and federal
funds purchased 1,346 21 6.33 5,302 70 5.31
FHLB notes payable 10,000 141 5.72 1,000 17 6.84
Long-term borrowings 11,184 208 7.54 3,272 68 8.36
--------- ------ --------- ------
Total interest-bearing
liabilities 247,149 3,115 5.11 199,033 2,537 5.13
Noninterest-bearing demand
accounts 19,349 12,198
--------- ---------
Total deposits and interest-
bearing liabilities 266,498 211,231
Other noninterest-bearing
liabilities 4,484 4,225
--------- ---------
Total liabilities 270,982 215,456
Stockholders' equity 23,067 21,096
--------- ---------
Total liabilities and
stockholders' equity $ 294,049 $ 236,552
========= =========
Net interest income $2,945 $1,948
====== ======
Net interest spread 3.89% 3.13%
==== ====
Net interest margin 4.38% 3.59%
==== ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities 110.43% 109.78%
========= =========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ---------------------------- ----------------------------
Interest Average Interest 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
ASSETS (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 2,714 $ 145 5.34% $ 11,348 $ 651 5.74% $ 4,086 $ 110 2.69%
Taxable investments 66,547 4,359 6.55 52,154 3,213 6.16 21,260 1,211 5.70
Tax-exempt investments 1,090 70 6.42 1,705 134 7.86 1,287 100 7.77
Loans (1) 171,780 16,383 9.54 117,773 11,285 9.58 98,749 8,842 8.95
Allowance for loan losses (1,265) --- (1,117) --- (871) ---
--------- ------ --------- ------- --------- ------- ----
Total interest-earning
assets (2) 240,866 20,957 8.70 181,863 15,283 8.40 124,511 10,263 8.24
Noninterest-earning assets:
Cash and due from banks 5,240 5,290 4,216
Other 13,393 10,095 7,883
--------- --------- ---------
Total assets $ 259,499 $ 197,248 $ 136,610
========= ========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits:
NOW and money market
accounts $ 38,920 $ 1,004 2.58% $ 38,941 $ 1,187 3.05% $ 36,423 $ 990 2.72%
Savings 8,498 196 2.31 7,598 217 2.86 7,187 189 2.63
Certificates of deposit:
Under $100,000 124,682 7,055 5.66 93,983 5,456 5.81 50,259 2,277 4.53
$100,000 and over 25,499 1,483 5.82 15,486 942 6.08 9,523 488 5.12
--------- ------ --------- ------- --------- ------- ----
Total interest-
bearing deposits 197,599 9,738 4.93 156,008 7,802 5.00 103,392 3,944 3.81
Short-term borrowings:
Securities and loans sold
under agreements to
repurchase and federal
funds purchased 7,340 408 5.56 3,546 172 4.85 3,366 60 1.78
FHLB notes payable 7,192 406 5.65 3,483 231 6.63 2,667 130 4.87
Long-term borrowings 7,027 555 7.90 3,499 337 9.63 3,525 277 7.86
--------- ------ --------- ------- --------- ------- ----
Total interest-bearing
liabilities 219,158 11,107 5.07 166,536 8,542 5.13 112,950 4,411 3.90
Noninterest-bearing demand
accounts 15,147 13,233 11,942
--------- --------- ---------
Total deposits and interest-
bearing liabilities 234,305 179,769 124,892
Other noninterest-bearing
liabilities 3,539 3,208 2,068
--------- --------- ---------
Total liabilities 237,844 182,977 126,960
Stockholders' equity 21,655 14,271 9,650
--------- --------- ---------
Total liabilities and
stockholders' equity $ 259,499 $ 197,248 $ 136,610
========= ========= =========
Net interest income $ 9,850 $ 6,741 $ 5,852
======= ======= =======
Net interest spread 3.63% 3.27% 4.34%
==== ==== ====
Net interest margin 4.09% 3.71% 4.70%
==== ==== ====
Ratio of average interest earning
assets to average interest-
bearing liabilities 109.91% 109.20% 110.24%
====== ====== ======
</TABLE>
___________________
(1) Interest income does not include loan origination fees other than those
amortized and included as an adjustment to loan yield as required under
Statement of Financial Accounting Standards No. 91, "Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring
Loans and Initial Direct Costs of Leases." Average nonaccrual loans are
included in average loans outstanding.
(2) Yields do not include adjustments for tax exempt interest because such
interest is not material.
The following table illustrates, for the periods indicated, the changes
in BNC's net interest income and interest expense for the major components of
interest-earning assets and interest-bearing liabilities and distinguishes
between the increase related to higher outstanding balances and the
volatility of interest rates. Changes in net interest income due to both
volume and rate have been included in the changes due to rate:
<TABLE>
<CAPTION>
Three months ended
March 31, Year ended December 31,
----------------------------- ----------------------------------------------------------
1997 compared to 1996 1996 compared to 1995 1995 compared to 1994
----------------------------- ---------------------------- ---------------------------
Change due to Change due to Change due to
------------------ ------------------ ------------------
Volume Rate Total Volume Rate Total Volume Rate Total
-------- -------- ------- -------- -------- ------- -------- -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Federal funds sold $ 131 $ (12) $ 119 $ (496) $ (10) $ (506) $ 196 $ 345 $ 541
Investments (354) 25 (329) 856 226 1,082 1,821 215 2,036
Loans 1,605 180 1,785 5,175 (77) 5,098 1,703 740 2,443
------- ------- ------- ------- ------- ------- ------- ------- -------
Total increase in interest
income 1,382 193 1,575 5,535 139 5,674 3,720 1,300 5,020
------- ------- ------- ------- ------- ------- ------- ------- -------
Interest-bearing liabilities
NOW and money market accounts 57 48 105 (1) (182) (183) 68 129 197
Savings 3 -- 3 26 (47) (21) 11 17 28
Certificates of deposit:
Under $100,000 29 (93) (64) 1,782 (183) 1,599 1,981 1,198 3,179
$100,000 and over 346 (27) 319 609 (68) 541 306 148 454
Short-term borrowings:
Securities and loans sold
under agreements to
repurchase and federal
funds purchased (52) 3 (49) 184 52 236 3 109 112
FHLB notes payable 153 (29) 124 246 (71) 175 40 61 101
Long-term borrowings 164 (24) 140 340 (122) 218 (2) 62 60
------- ------- ------- ------- ------- ------- ------- ------- -------
Total increase (decrease)
in interest expense 700 (122) 578 3,186 (621) 2,565 2,407 1,724 4,131
------- ------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in
net interest income $ 682 $ 315 $ 997 $ 2,349 $ 760 $ 3,109 $ 1,313 $ (424) $ 889
======= ======= ======= ======= ======= ======= ======= ======== =======
</TABLE>
Provision for Loan Losses. Management determines a provision for loan
losses which it considers sufficient to maintain an adequate allowance for
loan losses. In evaluating the adequacy of the allowance for loan losses,
consideration is given to historical charge-off experience, growth of the
loan portfolio, changes in the composition of the loan portfolio, general
economic conditions, information regarding specific borrower status including
financial condition and related loan collateral values and other factors and
estimates that are subject to change over periods of time. Estimating the
risk and potential amount of loss on loans is subjective. Ultimate losses may
vary from current estimated losses. Management reviews its estimates
periodically and, as adjustments become necessary, such adjustments are
reported in income through the provision for loan losses in the appropriate
period.
The provision for loan losses was $170,000 during the quarter ended
March 31, 1997 as compared to $84,000 for the quarter ended March 31, 1996.
The increased provision was booked in order to allow the Company's allowance
for loan losses to keep pace with the loan growth the Company has
experienced. The allowance for loan losses as a percentage of total loans
increased from 0.76% at March 31, 1996 to 0.83% at March 31, 1997.
The provision for loan losses was $739,000 in 1996, an increase of
$571,000 or 340% over the 1995 provision which was $168,000, a decrease of
$11,000, or 6%, from 1994's provision for loan losses of $179,000. Management
increased the loan loss provision in 1996 due to the Company's significant
loan growth. Management believes the resulting allowance for loan losses is
adequate to cover anticipated losses in the loan portfolio at March 31, 1997.
The decrease in the provision for 1995 as compared to 1994 reflects the fact
that $9.2 million of loans were sold with FMB during 1995, resulting in a
lower average risk grade in the Company's loan portfolio and an allowance for
loan losses considered adequate to cover anticipated losses in the loan
portfolio at December 31, 1995.
Net charge-offs through the allowance for loan losses were $28,000 for
the three month period ended March 31, 1997, while net recoveries were
$4,000 for the three month period ended March 31, 1996. Net charge-offs
were $193,000 and $41,000 for the years ended December 31, 1996 and 1995,
respectively. Net recoveries through the allowance for loan losses during
1994 were $129,000. The allowance for loan losses was $1.7 million as of
March 31, 1997 and $1.1 million as of March 31, 1996 and 1995. See "-
Financial Condition -- Allowance for Loan Losses."
Noninterest Income. The following table presents, for the periods
indicated, the major categories of the Company's noninterest income:
Three months Year ended
ended March 31, December 31,
----------------- ---------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
Loan fees $ 191 $ 164 $ 1,276 $ 559 $ 650
Service charges 124 99 418 401 259
Rental income 24 9 34 37 126
Net gain (loss) on sales of
securities (11) 5 19 (18) 28
Other noninterest income 153 94 349 757 336
------ ------ ------- ------- -------
Total noninterest income $ 481 $ 371 $ 2,096 $ 1,736 $ 1,399
====== ====== ======= ======= =======
Total noninterest income increased $110,000 or 30% to $481,000 for the three
months ended March 31, 1997 from $371,000 for the first quarter of 1996.
This increase resulted from small increases in loan fees, service charges and
rental income as well as an increase in other non-interest income, primarily
fee income from the Company's recently established private banking division
at BNC - North Dakota. Total noninterest income increased $360,000, or 21%,
to $2.1 million for the year ended December 31, 1996 as compared to the same
period in 1995. Total noninterest income for the year ended December 31, 1995
was $1.7 million, an increase of $337,000, or 24%, from the $1.4 million
recorded for the year ended December 31, 1994.
Loan fee income totaled $191,000 for the first quarter of 1997, a
$27,000 increase over the same period in 1996. Loan fee income for the
twelve month period ended December 31, 1996 totaled $1.3 million, a $717,000
increase over the same period in 1995. Loan fee income for the year ended
December 31, 1995 was $559,000 as compared to $650,000 for the same period in
1994. The increase in loan fee income for the year ended December 31, 1996 as
compared to the same period in 1995 was primarily the result of recognition
of loan origination fees on several large commercial loans originated and
sold without recourse during 1996. BNC-North Dakota generated over $1.0
million of the $1.3 million in loan fees recognized in 1996. Management
cannot predict with any degree of certainty the amount of loans which will be
originated and related loan fees which will be recognized in future periods.
Service charges totaled $124,000 for the first quarter of 1997 as
compared to $99,000 for the same period in 1996. Service charges for the
year ended December 31, 1996 totaled $418,000 as compared to $401,000 for
the same period in 1995. Service charges in 1995 increased $142,000, or 55%,
from the $259,000 recorded in 1994. The increase in service charge income
for the year ended December 31, 1995 as compared to 1994 was due primarily
to volume-related increases in service charge income on commercial
transaction accounts coupled with increases in fees charged for certain
account activity.
Rental income was $24,000 and $9,000 for the three month periods ending
March 31, 1997 and 1996, respectively, and $34,000, $37,000 and $126,000 for
the years ended December 31, 1996, 1995 and 1994, respectively. The decrease
in rental income in 1996 and 1995 as compared to 1994 is attributable to the
Company's growth. Excess space in the Company's principal office building in
Bismarck was rented to outside entities in 1994. During 1995 and 1996, that
space was occupied by BNC personnel.
Net investment securities losses were $11,000 for the three month
period ended March 31, 1997 as compared to net gains of $5,000 for the same
period in 1996. For the year ended December 31, 1996, the Company had net
investment securities gains of $19,000 as compared to net losses of $18,000
and net gains of $28,000 for the years ended December 31, 1995 and 1994,
respectively. In 1996, the proceeds from securities sales were $49 million
with resultant gross gains and losses recorded of $32,000 and $13,000,
respectively. In 1995, the proceeds from securities sales were $89 million
with resultant gross gains and losses recorded of $5,000 and $23,000,
respectively. In 1994, the proceeds from securities sales were $18 million
with resultant gross gains and losses recorded of $33,000 and $5,000,
respectively.
Other noninterest income, which includes various fee income items,
commission income from the sale of nondeposit investments, consulting income
and other miscellaneous income items was $153,000 and $94,000 for the three
month periods ended March 31, 1997 and 1996, respectively, and $349,000 for
the year ended December 31, 1996 as compared to $757,000 and $336,000 for
the years ended December 31, 1995 and 1994, respectively. The decrease in
other noninterest income of $408,000 for the year ended December 31, 1996 as
compared to the year ended December 31, 1995 was primarily the result of the
$316,000 gain recognized on the sale of FMB during 1995. Commission income
on sales of nondeposit investments decreased $135,000 in 1996 as compared to
1995 due to a reduction of personnel in the nondeposit investment sales
area. These items were offset by smaller increases in other miscellaneous
fee income and income derived from the consulting activities of BNC
Financial. The increase of $421,000 in other noninterest income for 1995 as
compared to 1994 was a result of the $316,000 gain on the sale of FMB
recorded in 1995 and an increase of $217,000 in commission income on the
sale of nondeposit investments in 1995 as compared to 1994. The increased
commission income recorded for the year ended December 31, 1995 as compared
to the year ended December 31, 1994 reflects the fact that 1995 was the
first full year of nondeposit investment sales activities for the Company.
The increased income from the sale of nondeposit investments and the gain on
the sale of FMB in 1995 were offset by smaller decreases in fee income,
consulting income and other miscellaneous income in 1995.
Noninterest Expense. The following table presents, for the periods
indicated, the major categories of the Company's noninterest expense:
Three months Year ended
ended March 31, December 31,
----------------- -------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
Salaries and employee benefits $ 1,284 $ 976 $ 4,311 $ 3,352 $ 2,990
Depreciation and amortization 280 219 980 619 444
Occupancy 221 140 675 413 305
Office supplies, telephone and
postage 125 121 505 521 227
Professional services 81 103 360 246 236
Marketing and promotion 87 112 352 424 211
FDIC and other assessments 41 71 239 296 308
Other 221 224 791 640 481
------- ------- ------- ------- -------
Total noninterest expense $ 2,340 $ 1,966 $ 8,213 $ 6,511 $ 5,202
======= ======= ======= ======= =======
Efficiency ratio (1) 68.32% 84.80% 68.75% 76.81% 71.74%
____________________
(1) Noninterest expense divided by an amount equal to net interest income
plus noninterest income.
Noninterest expense increased $374,000 or 19% from $2.0 million for the
three months ended March 31, 1996 to $2.3 million for the three months ended
March 31, 1997. The increase in non-interest expense is a function of the
growth experienced by the Company during the past 24 months. Salaries and
employee benefits expense increased $308,000 for the first quarter of 1997 as
compared to the same quarter in 1996, as average full time equivalent
employees increased from 95 for the quarter ended March 31, 1996 to 116 for
the quarter ended March 31, 1997. The Company also experienced increases in
occupancy, depreciation and amortization expense in the first quarter of 1997
as compared to the same period in 1996. These increases were caused by
additional rent expense, the purchase (and related depreciation expense) of
furniture and equipment and the amortization of intangibles related to BNC -
Minnesota (chartered in January 1996), BNC Financial (acquired in May 1996),
the acquisitions of the accounting firm of Gregory K. Cleveland & Company
(December 1996) and J.D. Meier Insurance Agency (early 1997) and BNC - North
Dakota's purchase of an additional office building in Bismarck (early 1997).
See "Certain Transactions." These increases in non-interest expense were
partially offset by decreases in FDIC and Office of the Comptroller of the
Currency ("OCC") assessments and professional and marketing expenses.
For the year ended December 31, 1996, total noninterest expense
increased $1.7 million, or 26%, as compared to total noninterest expense for
the same period in 1995. Total noninterest expense for the year ended
December 31, 1995 was $6.5 million, an increase of $1.3 million, or 25%, as
compared to total noninterest expense for the year ended December 31, 1994.
The overall increases in noninterest expense resulted from the growth and
expansion the Company experienced during this two year period.
Salaries and employee benefits represent the largest category of
noninterest expense at 55%, 50%, 52%, 51% and 57% of total noninterest
expense for the quarters ended March 31, 1997 and 1996 and for the years
ended December 31, 1996, 1995 and 1994, respectively. Salary and employee
benefits expense includes salaries, applicable payroll and unemployment
taxes, premiums for health, life and disability insurance, incentive bonuses
and contributions to the Company's 401(k) plan. Salaries and benefits
totaled $1.3 million for the first quarter of 1997, an increase of 32% over
the same period in 1996, and $4.3 million for the year ended December 31,
1996, an increase of $959,000, or 29%, as compared to 1995. The total
salaries and benefits expense of $3.4 million recorded for the year ended
December 31, 1995 represented an increase of $362,000, or 12%, over the
total salaries and benefits recorded for the year ended December 31, 1994.
Salaries and incentives totaled $1.1 million, $831,000, $3.7 million, $3.0
million and $2.4 million for the three months ended March 31, 1997 and 1996
and for the years ended December 31, 1996, 1995 and 1994, respectively.
Officer and employee insurance expenses totaled $60,000, $52,000, $215,000,
$132,000 and $140,000 for the three months ended March 31, 1997 and 1996 and
for the years ended December 31, 1996, 1995 and 1994, respectively.
Increases in these expenses are attributable to the Company's expansion
which resulted in average full-time equivalent employees of 118, 97, 105, 68
and 54 for the three months ended March 31, 1997 and 1996 and for the years
ended December 31, 1996, 1995 and 1994, respectively.
Depreciation and amortization expense totaled $280,000 for the first
quarter of 1997 as compared to $219,000 for the same period in 1996. For the
year ended December 31, 1996, depreciation and amortization totaled $980,000,
an increase of $361,000, or 58%, as compared to the year ended December 31,
1995. The total depreciation and amortization expense of $619,000 recorded
for the year ended December 31, 1995 represented an increase of $175,000, or
39%, over the $444,000 recorded for the year ended December 31, 1994. Total
depreciation and amortization expense on premises, leasehold improvements and
equipment recorded for the three month periods ending March 31, 1997 and 1996
and the years ending December 31, 1996, 1995 and 1994 was $152,000, $104,000,
$499,000, $377,000 and $348,000, respectively, with the increases resulting
from additions to premises, leasehold improvements and equipment of $850,000
and $360,000 in the first quarters of 1997 and 1996, respectively, and $1.4
million, $2.0 million and $345,000 in the years ending December 31, 1996,
1995 and 1994, respectively. Amortization expense on intangible assets
totaled $128,000, $115,000, $481,000, $242,000 and $96,000 for the three
month periods ending March 31, 1997 and 1996 and the years ending December
31, 1996, 1995 and 1994, respectively. This increase is attributable to
intangible assets recorded on acquisitions during 1995 and 1996, including
$3.6 million in deposit premiums and acquisition costs relating to the August
1995 deposit acquisition, and certain smaller intangibles relating to BNC's
other acquisitions.
Occupancy expense for the three months ended March 31, 1997 totaled
$221,000, a 58% increase over the same period in 1996. Occupancy expenses
for the year ended December 31, 1996 increased $262,000, or 63%, as compared
to the year ended December 31, 1995. The total occupancy expense of $413,000
recorded for the year ended December 31, 1995 represented an increase of
$108,000, or 35%, over the year ended December 31, 1994. This category
includes rent expense, building maintenance, utilities, real estate taxes,
property insurance, and furniture and fixture, EDP and other maintenance. The
$262,000 increase in occupancy expense in 1996 was caused primarily by
increased rent expense of $187,000 attributable to BNC's facilities in
Minneapolis and St. Cloud, Minnesota as well as Garrison and Watford City,
North Dakota. See "Business - Properties." The remainder of the $262,000
increase consisted of small increases in each of the other occupancy expense
categories attributable to operation of the facilities acquired during the
second half of 1995 and early 1996. The $108,000 increase in occupancy
expense recorded in 1995 as compared to 1994 resulted from small increases in
most of the occupancy expense categories and was attributable to the
acquisition of the North Dakota branches during third quarter 1995 and the
operation of a loan production office by BNC - North Dakota in Minneapolis
prior to BNC - Minnesota being chartered in January 1996.
Office supplies, telephone and postage expenses decreased slightly for
the year ended December 31, 1996, in comparison to the same period in 1995.
The increase in expense in this category of $294,000 from the $227,000
recorded for the year ended December 31, 1994 to the $521,000 recorded for
the year ended December 31, 1995 was caused primarily by expenses incurred
in opening the loan production office in Minneapolis and bringing the BNC -
North Dakota branch offices on line in August 1995. Such expenses totaled
$125,000 in the first quarter of 1997, a 3% increase from the same period in
1996. Expenses included in this category are office supplies, special
forms, customer checks, data processing supplies, telephone and postage and
freight expense. BNC recorded decreases in expenses relating to office
supplies, special forms, customer checks and data processing supplies during
1996 as compared to 1995. Telephone and postage and freight expense,
however, increased in 1996 as a result of the number of facilities
operating and the additional customers acquired in the 1995 branch
acquisition.
Professional services expense includes legal, audit and tax
preparation fees as well as software support and other consulting expense.
Total professional expense of $81,000, $103,000, $360,000, $246,000 and
$236,000 was recorded for the three months ended March 31, 1997 and 1996 and
for the years ending December 31, 1996, 1995 and 1994, respectively. The
$114,000 increase for 1996 as compared to 1995 was mainly attributable to
increases in legal and audit fees.
Marketing and promotion expenses totaled $87,000, $112,000, $352,000,
$424,000 and $211,000 for the three months ended March 31, 1997 and 1996 and
for the years ended December 31, 1996, 1995 and 1994, respectively. This
category includes advertising, public and community relations and
miscellaneous promotional campaign expenses. The $213,000 increase in this
category for 1995 as compared to 1994 is almost entirely attributable to ad
campaigns conducted in connection with the 1995 branch acquisition and the
reorganization of the Company's North Dakota banks into BNC-North Dakota,
and the resulting name change for such bank.
FDIC and other assessments expense includes FDIC deposit insurance
premiums and OCC assessments. Total FDIC and OCC assessments were $41,000,
$71,000, $239,000, $296,000 and $308,000 for the three months ended March
31, 1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994,
respectively. The decreases in this expense category have been caused
primarily by changes in the FDIC's risk related deposit insurance premiums.
During 1994 the Company paid FDIC assessments of 23 basis points annually on
its deposits insured by the Bank Insurance Fund ("BIF"). In 1995, the
Company acquired approximately $94 million of deposits insured by the
Savings Association Insurance Fund ("SAIF"). The addition of the SAIF
deposits and the increased insurance expense attributable to them was offset
by the reduction of premium rates on BIF deposits to 0 basis points for
BNC's banks and an FDIC deposit insurance refund paid to BIF insured banks
due to the recapitalization of the BIF to the required level of 1.25% of
insured deposits. During 1996, the Company's assessment expenses further
decreased because of the reduction of premium rates on SAIF deposits to 0
basis points and a deposit insurance refund paid to SAIF insured banks upon
recapitalization of the SAIF to 1.25% of insured deposits. Unless there are
additional changes to the deposit insurance regulations, management expects
expense in this category to decline in 1997, as they did in the first
quarter of 1997, as the Banks are currently being assessed only for interest
payable on Financing Corporation bonds (issued between 1987 and 1989 to
resolve failed savings and loan associations). The assessments are 1.30
basis points annually on BIF insured deposits and 6.48 basis points annually
on SAIF insured deposits.
Other noninterest expense includes directors fees, blanket bond and
other insurance expense, education and development expense, correspondent
changes, travel, dues, conventions and other miscellaneous expense
categories. Total other noninterest expense was $221,000, $224,000,
$791,000, $640,000 and $481,000 for the three months ended March 31, 1997
and 1996 and the years ended December 31, 1996, 1995 and 1994, respectively.
The increase of $151,000 in this expense category for 1996 as compared to
1995 was attributable to small increases in several of the categories
mentioned above. The increase of $159,000 for 1995 as compared to 1994 was
also caused by small increases in many of the categories mentioned above.
Income Taxes. Federal and state income taxes increased by $228,000
from $127,000 for the three months ended March 31, 1996 to $355,000 for the
three months ended March 31, 1997 due to an increase in pre-tax income of
$647,000. The income tax provision for the years 1996, 1995 and 1994 was
$1.1 million, $641,000 and $679,000, respectively. As a percentage of pretax
income, income tax expense for 1996 was 38.3%, as compared to 35.7% in 1995
and 36.3% in 1994. The increase in income tax expense relative to pretax
income in 1996 as compared to 1995 resulted from an increase in the
percentage of taxable income on municipal bonds. Consolidated federal income
tax returns were filed for all of the periods presented.
Financial Condition
Investment Securities. BNC's investment policy is designed to: enhance
net income and return on equity through prudent management of risk; ensure
liquidity for cash-flow requirements; help manage interest rate risk; ensure
collateral is available for public deposits, advances and repurchase
agreements; and manage asset diversification. In managing the portfolio and
the composition of the entire balance sheet, the Company seeks a balance
among earnings, credit and liquidity considerations, with a goal of
maximizing the longer-term overall profitability of the Company.
Investments are centrally managed by the President of BNC - North
Dakota in order to aid in compliance with federal laws and regulations,
which place certain restrictions on the amounts and types of investments BNC
may hold. See "Supervision and Regulation." BNC's liquidity is monitored
and managed, and the maturity dates of the Company's investments are
structured to maintain necessary liquidity. See "-- Liquidity." However,
the primary goal of BNC's investment policy is to maintain an appropriate
relationship between assets and liabilities while maximizing interest rate
spreads. Accordingly, BNC monitors the sensitivity of its assets and
liabilities to changes in interest rates and maturities and directs the
Company's overall acquisition and allocation of funds. See "--
Asset/Liability Management."
As of March 31, 1997, BNC had $62.0 million of securities in its
investment portfolio as compared to $59.5 million, $94.4 million and $25.1
million for the years ended December 31, 1996, 1995 and 1994, respectively.
The decrease in investment securities in 1996 and 1997 has resulted from the
transfer of funds from investments to loans as the Company has funded the
significant loan growth experienced during 1996 and 1997. The increase in
investment securities at December 31, 1995 as compared to 1994 resulted from
the investment of the funds received in the 1995 branch acquisition. See "-
Results of Operations -- Net Interest Income" and "- Financial Condition --
Loan Portfolio." Investments accounted for 20%, 21%, 39% and 17% of total
assets as of March 31, 1997 and December 31, 1996, 1995 and 1994,
respectively.
The following table presents the amortized cost and estimated fair
market value (book value) of the securities in BNC's investment portfolio
by major category as of the periods indicated:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
March 31, 1997 1996 1995 1994
------------------- ------------------- ------------------- -------------------
Estimated Estimated Estimated Estimated
fair fair fair fair
Amortized market Amortized market Amortized market Amoritzed market
cost value(1) cost value(1) cost value(1) cost value(1)
--------- --------- --------- --------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale:
U.S. Treasury securities $ 13,975 $ 13,917 $ 13,814 $ 13,856 $ 25,041 $ 25,101 $ 8,973 $ 8,860
U.S. government agency mortgage-
backed securities 11,068 11,017 9,555 9,559 4,798 4,843 5,205 5,102
U.S. government agencies securities 5,620 5,549 3,633 3,642 7,513 7,520 7,363 7,263
Collateralized mortgage obligations 23,783 23,524 23,898 23,855 44,800 44,803 1,881 1,734
Other securities 6,671 6,666 7,773 7,779 10,882 10,885 1,004 1,004
State and municipal bonds 1,248 1,280 759 800 1,162 1,264 - -
-------- -------- -------- -------- -------- -------- -------- --------
Total 62,365 61,953 59,432 59,491 94,196 94,416 24,426 23,963
-------- -------- -------- -------- -------- -------- -------- --------
Held to Maturity:
State and municipal bonds - - - - - - 1,148 1,195
-------- -------- -------- -------- -------- -------- -------- --------
Total - - - - - - 1,148 1,195
-------- -------- -------- -------- -------- -------- -------- --------
Total investments $ 62,365 $ 61,953 $ 59,432 $ 59,491 $ 94,196 $ 94,416 $ 25,574 $ 25,158
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
_____________________
(1)The estimated fair market values of the securities contained in BNC's
investment portfolio are calculated using the quoted market price,
updated monthly.
The following table sets forth the amortized cost and approximate yields
of the securities in BNC's investment portfolio as of March 31, 1997.
<TABLE>
<CAPTION>
Maturing
-----------------------------------------------------------------------------------------------
After 1 but After 5 but
Within 1 year within 5 years within 10 years After 10 years Total
----------------- ----------------- ----------------- ------------------ -----------------
Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1)
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale: (2)
U.S. Treasury securities $ - - $ 13,975 5.89% $ - -% $ - -% $ 13,975 5.89%
U.S. government agency mortgage
backed securities (3) - - 1,799 6.87 6,926 6.52 2,343 6.59 11,068 6.59
U.S. government agencies
securities - - 2,626 7.18 2,994 6.76 - - 5,620 6.96
Collateralized mortgage
obligations (3) - - 310 5.93 10,128 6.07 13,345 6.49 23,783 6.30
Other securities 6,671 6.80 - - - - - - 6,671 6.80
State and municipal bonds 70 6.37 180 8.34 150 7.39 848 9.61 1,248 8.98
-------- -------- -------- -------- --------
Total amortized cost
of investment securities $ 6,741 6.80% $ 18,890 6.18% $ 20,198 6.34% $ 16,536 6.66% $ 62,365 6.43%
======== ==== ======== ==== ======== ==== ======== ====
Unrealized holding loss
on securities available
for sale (412)
Total investment in
securities (at estimated
fair market value) $ 61,953 6.47% (4)
======== ====
</TABLE>
____________________
(1) Yields do not include adjustments for tax exempt interest because such
interest is not material; yields also do not reflect changes in fair
value that are reflected as a separate component of stockholders' equity
(except as noted in (4) below).
(2) Based on amortized cost.
(3) Maturities of mortgage-backed securities and collateralized mortgage
obligations are based on contractual maturities.
(4) Yield reflects changes in fair value that are reflected as a separate
component of stockholders' equity.
At March 31, 1997, BNC held no securities of any single issuer, other than
the U.S. Treasury and U.S. government agencies, that exceeded 10% of
stockholders' equity. A significant portion of the Company's investment
securities portfolio (approximately 62% at March 31, 1997) is used as
collateral for public funds time deposits, securities sold under agreements
to repurchase and other BNC borrowings.
Loan Portfolio. The following table presents the composition of the
Company's loan portfolio at the end of the periods indicated:
<TABLE>
<CAPTION>
March 31, December 31,
--------------- ------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
--------------- ---------------- --------------- --------------- --------------- ---------------
Amount % Amount % Amount % Amount % Amount % Amount %
------ --- ------ --- ------ --- ------ --- ------ --- ------ ---
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial
(1) $ 96,878 46.6 $ 94,701 47.0 $ 41,639 34.8 $ 39,218 35.9 $ 23,011 27.8 $ 17,610 25.4
Agricultural 20,084 9.7 20,673 10.3 18,046 15.1 22,144 20.2 16,101 19.5 21,420 30.9
Real estate-mortgage 49,601 23.9 47,451 23.6 36,606 30.6 32,805 30.0 31,655 38.2 20,669 29.8
Real estate-construction 11,597 5.6 8,806 4.4 5,884 4.9 3,992 3.6 4,462 5.4 3,227 4.7
Consumer 18,738 9.0 18,734 9.3 9,960 8.3 9,331 8.5 4,937 6.0 5,119 7.4
Lease financing 12,827 6.2 12,970 6.4 8,660 7.2 3,076 2.8 3,324 4.0 2,483 3.6
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total face amount of loans 209,725 101.0 203,335 101.0 120,795 100.9 110,566 101.0 83,490 100.9 70,528 101.8
Deferred loan fees and
costs (242) (0.1) (338) (0.2) (112) (0.1) (95) (0.1) --- --- (112) (0.2)
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Loans 209,483 100.9 202,997 100.8 120,683 100.8 110,471 100.9 83,490 100.9 70,416 101.6
Less allowance for loan
losses (1,736) (0.9) (1,594) (0.8) (1,048) (0.8) (1,021) (0.9) (713) (0.9) (1,088) (1.6)
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net loans $207,747 100.0 $201,403 100.0 $119,635 100.0 $109,450 100.0 $ 82,777 100.0 $ 69,328 100.0
======== ===== ======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
____________________
(1) The commercial and industrial loan category includes asset-based
loans held by BNC Financial totaling $6.5 million at March 31, 1997
and $5.6 million at December 31, 1996.
The Company's primary source of income is interest earned on loans. The
Company's loan portfolio has grown significantly during the past three years
as a result of BNC's strategy of increasing the amount of loans outstanding
to increase net interest income. Net loans were $207.7 million at March 31,
1997, a 41% increase from net loans at March 31, 1996. Net loans increased
$81.8 million, or 68%, to $201.4 million at December 31, 1996 as compared to
$119.6 million at December 31, 1995. In 1995, net loans increased $10.2
million, or 9%, as compared to December 31, 1994 ($9.2 million in loans were
sold in 1995 along with FMB).
BNC's significant loan growth is attributable in part to each of its
subsidiaries. BNC - North Dakota has experienced continued growth mainly in
the commercial and industrial loan category but also in each other loan
category presented above. BNC - Minnesota added significant loan growth,
particularly in the commercial and industrial category. BNC Financial had
$6.5 million of asset-based commercial and industrial loans as of March 31,
1997. While prospects for continued loan growth appear favorable, management
cannot predict with any degree of certainty the Company's future loan growth
potential.
Credit Policy and Approval Procedures. BNC follows a uniform credit policy
that sets forth underwriting and loan administration criteria. The loan
policy, including lending guidelines for the various types of credit offered
by the Company, is established by the Company's Board of Directors (the
"Board") based upon the recommendations of senior lending management and the
executive credit committee (comprised of the Company's President, BNC - North
Dakota's Executive Vice President of Corporate Finance, BNC - Minnesota's
President and Chief Executive Officer and BNC - North Dakota's Executive Vice
President of Lending (collectively, the "Loan Committee")). The loan policy
is reviewed and reaffirmed by the Board at least annually. Underwriting
criteria are based upon the risks associated with each type of credit
offered, the related borrowers and types of collateral.
The Company delegates lending decision authority among various lending
officers and the Loan Committee based on the size of the customer's credit
relationship with BNC. Individual loan officers at the Banks are assigned
loan approval limits not exceeding $200,000. Senior lenders at BNC - North
Dakota may approve credit relationships at BNC - North Dakota above
individual officer limits up to $500,000 and $1,000,000 in the case of its
Executive Vice President of Corporate Finance. Relationships over $500,000
and $1,000,000, respectively, up to the bank's legal lending limit must be
approved by the Loan Committee. The President and Chief Executive Officer at
BNC - Minnesota may approve BNC - Minnesota credit relationships in excess
of officer limits up to the bank's legal lending limit, not to exceed $1
million. All BNC - Minnesota credit relationships in excess of $1 million
and up to the bank's legal lending limit must be approved by the Loan
Committee. The President/CEO of BNC Financial may approve BNC Financial
credit relationships up to $750,000. All BNC Financial credit relationships
over $750,000 must be approved by a loan committee comprised of the
Company's President and BNC - North Dakota's Executive Vice President of
Corporate Finance, BNC - Minnesota's President and Chief Executive Officer
and BNC Financial's President/CEO. All loans and commitments in excess of
$300,000 are presented to the Board on a monthly basis for summary review.
Any exceptions to loan policies and guidelines are subject to special
approval by Bank executive lenders or the Loan Committee based upon the
lending authority as described above.
Loan Participations. Pursuant to BNC's lending policy, loans do not
exceed 85% of Bank lending limits (except to the extent collateralized by
treasury securities or Bank deposits and, accordingly, excluded from the
Bank's lending limit). To accommodate customers whose financing needs exceed
its lending limits and internal loan restrictions relating primarily to
industry concentration, BNC sells loan participations to outside
participants without recourse. At March 31, 1997, the outstanding balances
of loan participations sold by BNC to outside banks were $58.2 million. At
December 31, 1996, 1995 and 1994, the outstanding balances of loan
participations sold by BNC to outside banks were $57.3 million, $35.0
million and $23.4 million, respectively. At March 31, 1997, loan
participations sold to outside banks totaled $55.0 million and $3.2 million
for BNC - North Dakota and BNC - Minnesota, respectively. All outstanding
participations at December 31, 1995 were attributable to BNC - North Dakota.
BNC has retained servicing rights on loan participations sold and
traditionally has been able to recognize loan origination fees received in
respect to such loans. Management cannot reliably predict BNC's ability to
continue to generate or sell loan participations or the terms of any such
sales.
Commercial and industrial loans consist primarily of loans to small or
mid-size businesses and sole proprietors in a wide variety of industries.
These loans, which are made for various purposes, generally are
collateralized by inventory, accounts receivable or other commercial assets.
Commercial and industrial loans, which have been the largest component of
the Company's loan portfolio in each of the periods presented herein, were
$96.9 million at March 31, 1997, $94.7 million, $41.6 million and $23.0
million at December 31, 1996, 1995 and 1994, respectively. Commercial and
industrial loans represented 47%, 47%, 35% and 36% of the Company's loan
portfolio at March 31, 1997 and December 31, 1996, 1995 and 1994,
respectively. As of March 31, 1997, commercial and industrial loans totaled
$63.9 million, $26.4 million, $6.5 million and $100,000 at BNC - North
Dakota, BNC - Minnesota, BNC Financial and BNC, respectively. All of BNC
Financial's loans are asset-based loans. Management anticipates growth of
asset-based loans at BNC Financial could approximate $15 to $25 million
during 1997. See "-- Deposits and Borrowed Funds" for further discussion
regarding anticipated funding for the Company's asset-based loans.
Agricultural loans include loans to feed lot operators, dairy farmers
and commercial farming organizations. These loans are generally
collateralized by accounts receivable, equipment and other assets.
Agricultural loans totaled $20.0 million at March 31, 1997. Loans of this
type increased $2.6 million, or 15%, to $20.7 million at December 31, 1996
as compared to December 31, 1995. The sale of FMB in 1995 and the strong
growth in commercial and industrial loans resulted in agricultural loans
representing only 10% of the Company's loan portfolio at March 31, 1997 and
December 31, 1996 as compared to 15% and 20% at December 31, 1995 and 1994,
respectively.
Real estate mortgage loans include various types of loans for which
BNC holds real property as collateral. A large portion of these loans
(approximately 40% at March 31, 1997) are made to commercial customers where
the collateral for the loan is, among other things, the real estate occupied
by the business of the customer. Whenever practicable, the Company seeks to
receive real estate as collateral in making commercial loans in addition to
other appropriate collateral. Accordingly, many loans in this category can
be characterized as commercial loans that are secured by real estate. Real
estate mortgage loans totaled $49.6 million at March 31, 1997. Loans of
this type increased $10.8 million, or 30%, to $47.4 million at December 31,
1996 as compared to $36.6 million at December 31, 1995. Approximately $4.0
million of this growth was attributable to BNC - North Dakota, while
approximately $6.8 million was attributable to BNC - Minnesota. Real estate
mortgage loans represented 24%, 24%, 31% and 30% of the total loan portfolio
at March 31, 1997 and December 31, 1996, 1995 and 1994, respectively.
Real estate construction loans are loans to finance the construction
of residential and non-residential property. These loans are generally
collateralized by first liens on the real estate. BNC conducts periodic
inspections, either directly or through an architect or other agent, prior
to approval of periodic draws on these loans. The Company generally
requires that a permanent financing commitment be in place prior to the
approval of a residential construction loan. These loans totaled $11.6
million at March 31, 1997. Loans of this type increased $2.9 million, or
50%, to $8.8 million at December 31, 1996 as compared to $5.9 million at
December 31, 1995. Construction loans represented 6% of the Company's loan
portfolio at March 31, 1997 as compared to 4%, 5% and 4% at December 31,
1996, 1995 and 1994, respectively.
Consumer loans, which generally have terms of two to five years,
include home equity loans, credit cards and other installment loans. These
loans totaled $18.7 million at March 31, 1997. Loans of this type increased
$8.7 million, or 88%, to $18.7 million at December 31, 1996 as compared to
$10.0 million at December 31, 1995. BNC - North Dakota accounted for $6.2
million of the increase due to increased consumer loan demand in the
Bismarck market and consumer loan originations at the branches acquired in
1995. Consumer loans represented 9%, 9%, 8% and 9% of the Company's loan
portfolio at March 31, 1997 and December 31, 1996, 1995 and 1994,
respectively.
Financing leases are generally structured such that the Company
retains title to the assets leased in order to secure payment. The Company
generally provides lease financing to customers with whom it has other
lending relationships. Financing leases totaled $12.8 million at March 31,
1997. Loans of this type increased $4.3 million, or 50%, to $13 million at
December 31, 1996 as compared to $8.7 million at December 31, 1995. These
leases represented 6% of the Company's loan portfolio at March 31, 1997 as
compared to 6%, 7% and 3% as of December 31, 1996, 1995 and 1994,
respectively.
There was no concentration of loans to any single industry exceeding
10% of total loans (other than those listed above) nor were there any loans
classified as highly leveraged transactions as of March 31, 1997.
The following table sets forth the remaining maturities of loans in
each major category of BNC's portfolio as of March 31, 1997. Maturities are
based upon contractual maturities. Actual maturities may differ from the
contractual maturities shown below as a result of renewals and prepayments.
Loan renewals are evaluated in the same manner as new credit applications.
Floating rate loans include loans that would reprice prior to maturity if
base rates change. See " - Asset/Liability Management" for further discussion
regarding repricing of loans and other assets.
<TABLE>
<CAPTION>
Over one year
through five years Over five years
------------------- -------------------
Less than Fixed Floating Fixed Floating
one year Rate Rate Rate Rate Total
-------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 30,219 $ 19,858 $ 36,285 $ 4,560 $ 5,956 $ 96,878
Agricultural 8,903 2,994 2,796 1,521 3,870 20,084
Real estate-mortgage 4,708 8,730 4,584 11,408 20,171 49,601
Real estate-construction 11,374 - - - 223 11,597
Consumer 8,765 7,829 1,587 547 10 18,738
Lease financing 1,299 8,830 2,643 55 - 12,827
-------- -------- -------- -------- -------- --------
Total face amount of loans $ 65,268 $ 48,241 $ 47,895 $ 18,091 $ 30,230 $209,725
======== ======== ======== ======== ======== ========
</TABLE>
Nonperforming Loans and Assets. The Company's lending personnel are
responsible for continuous monitoring of the quality of the loan portfolio.
Officer compensation depends, to a substantial extent, on maintaining loan
quality and dealing with credit issues in a proactive manner. Lenders are not
compensated for growth at the expense of credit quality. Loan officers are
responsible for ongoing and regular review of past due loans in their
respective portfolios. The Company's loan portfolio is also monitored
regularly and examined by the Company's loan review personnel. Loans
demonstrating weaknesses are downgraded and the Board receives a listing of
all such loans on a monthly basis. The Company also has an annual independent
credit review which tests credit quality, compliance with loan policy and
documentation for all loans over $100,000 and a sampling of smaller loans.
The following table sets forth the amounts of nonperforming loans,
other real estate owned and certain ratios at the ends of the periods
indicated:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
March 31,1997 1996 1995 1994 1993 1992
------------- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans:
Loans 90 days or more delinquent
and still accruing interest $ 236 $ 129 $ 290 $ 39 $ 87 $ 467
Nonaccrual loans (1) (2) 86 22 71 248 1,338 3,332
Restructured loans (1) (2) 132 136 119 257 188 283
------- ------- ------- ------- ------- -------
Total nonperforming loans 454 287 480 544 1,613 4,082
Other real estate owned 159 159 - 100 193 332
------- ------- ------- ------- ------- -------
Total nonperforming assets $ 613 $ 446 $ 480 $ 644 $ 1,806 $ 4,414
======= ======= ======= ======= ======= =======
Allowance for loan losses $ 1,736 $ 1,594 $ 1,048 $ 1,021 $ 713 $ 1,088
======= ======= ======= ======= ======= =======
Ratio of total nonperforming loans
to total loans 0.22% 0.14% 0.40% 0.49% 1.93% 5.80%
Ratio of total nonperforming assets
to total assets 0.20% 0.15% 0.20% 0.44% 1.47% 3.74%
Ratio of allowance for loan losses
to total loans 0.83% 0.78% 0.87% 0.92% 0.85% 1.55%
Ratio of allowance for loan losses
to total nonperforming loans 382% 555% 218% 188% 44% 27%
</TABLE>
____________________
(1) If the Company's nonaccrual and restructured loans at December 31, 1996
had been current in accordance with their original terms, additional
interest income would have been recognized into earnings in the amount
of $12,000 for the year ended December 31, 1996.
(2) The interest income on nonaccrual and restructured loans actually
included in the Company's net income was approximately $6,000 for the
year ended December 31, 1996.
Loans 90 Days or More Delinquent and Still Accruing Interest. This
category of loans includes loans over 90 days past due which management
believes, based on its specific analysis of the loan, do not present doubt
about the collection of interest and principal in accordance with the loan
contract. Loans in this category must be well-secured and in the process of
collection. These loans are monitored closely by BNC lending and management
personnel.
Nonaccrual Loans. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such that the
collection of interest is doubtful. A delinquent loan is generally placed on
nonaccrual status when it becomes 90 days or more past due unless the loan is
well-secured and in the process of collection. When a loan is placed on
nonaccrual status, accrued but uncollected interest income applicable to the
current period is reversed against interest income of the current period.
Accrued but uncollected interest income applicable to previous periods is
charged against the allowance for loan losses as BNC provides for a reserve
for accrued interest. No additional interest is accrued on the loan balance
until the collection of both principal and interest becomes reasonably
certain. When a problem loan is finally resolved, there may ultimately be an
actual write down or charge-off of the principal balance of the loan which
may necessitate additional charges to earnings.
Restructured Loans. Restructured loans are those for which concessions,
including a reduction of the interest rate or the deferral of interest or
principal, have been granted due to the borrower's weakened financial
condition. Interest on restructured loans is accrued at the restructured
rates when it is anticipated that no loss of its original principal will
occur.
Other Real Estate Owned. Other real estate owned represents properties
acquired through foreclosures or other proceedings or those considered in-
substance foreclosures, and is stated at the lower of cost or fair value at
the date of acquisition. Write-downs to fair value at the time of acquisition
are charged to the allowance for loan losses; write-downs and costs incurred
subsequent to acquisition are charged to expense as incurred. As of March 31,
1997 and December 31, 1996, the Company had a recorded investment of $159,000
of property acquired in foreclosure proceedings or under agreements with
delinquent borrowers. The Company had no property acquired in foreclosure
proceedings at December 31, 1995.
Potential Problem Loans. In addition to the loans presented above,
management has identified, through its internal loan monitoring activities,
approximately 19 loans with stated balances totaling $4.0 million at March
31, 1997 that exhibit a higher than normal credit risk but are not considered
impaired or nonperforming under the definitions presented above. These loans
are not in default but have characteristics such as recent adverse operating
cash flows or general risk characteristics that the loan officer feels might
jeopardize the future timely collection of principal or interest payments.
The ultimate resolution of these credits is subject to changes in economic
conditions and other factors. These loans are monitored closely to ensure
that the Company's position as a creditor is protected.
Allowance for Loan Losses. An allowance for loan losses has been
established to provide for those loans which may not be repaid in their
entirety. It represents management's recognition of the risks of extending
credit and its evaluation of the quality of the loan portfolio. Loan losses
are primarily created from the loan portfolio, but may also be generated from
other sources, such as commitments to extend credit, guarantees, and standby
letters of credit. The allowance for loan losses is increased by provisions
charged to expense and decreased by charge-offs, net of recoveries. See "-
Results of Operations -- Provision for Loan Losses." Although a loan is
charged-off by management when deemed uncollectible, collection efforts
continue and future recoveries may occur.
The allowance is maintained at a level considered adequate to provide
for anticipated loan losses based on past loss experience, general economic
conditions, information about specific borrower situations, including their
financial position, collateral values, and other factors and estimates which
are subject to change over time. Estimating the risk of loss and amount of
loss on any loan is subjective and ultimate losses may vary from current
estimates. These estimates are reviewed periodically and, as adjustments
become necessary, they are reported in income through the provision for loan
losses in the periods in which they become known. The adequacy of the
allowance for loan losses is monitored by management and reported to the
Board. Although management believes that the allowance for loan losses is
adequate to absorb any losses on existing loans that may become
uncollectible, there can be no assurance that the allowance will prove
sufficient to cover actual loan losses in the future. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the adequacy of the Company's allowance for loan losses.
Such agencies may require BNC to make additional provisions to the allowance
based upon their judgments about information available to them at the time of
their examination.
The following table summarizes, for the periods indicated, activity in
the allowance for loan losses, including amounts of loans charged-off,
amounts of recoveries, additions to the allowance charged to operating
expense and the ratio of net charge-offs to average total loans:
<TABLE>
<CAPTION>
Three months
ended March 31, Year ended December 31,
------------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance of allowance for loan
losses at beginning of period $ 1,594 $ 1,048 $ 1,048 $ 1,021 $ 713 $ 1,088 $ 1,298
-------- -------- -------- ------- ------- ------- -------
Charge-offs:
Commercial and industrial 7 1 104 114 22 641 529
Agricultural - - 22 130 - - -
Real estate-mortgage 24 - - - - - 6
Real estate-construction - - - - - - -
Consumer 8 - 6 4 1 17 17
Lease financing - - 218 - - - -
-------- -------- -------- ------- ------- ------- -------
Total charge-offs 39 1 350 248 23 658 552
-------- -------- -------- ------- ------- ------- -------
Recoveries:
Commercial and industrial 9 4 5 116 147 192 95
Agricultural - 1 146 84 - - -
Real estate-mortgage 1 - 6 3 - - 5
Real estate-construction - - - - - - -
Consumer 1 - - 4 5 2 6
Lease financing - - - - - - -
-------- -------- -------- ------- ------- ------- -------
Total recoveries 11 5 157 207 152 194 106
-------- -------- -------- ------- ------- ------- -------
Net (charge-offs) recoveries (28) 4 (193) (41) 129 (464) (446)
Provision for loan losses charged
to operations 170 84 739 168 179 89 236
Allowance attributable to FMB - - - (100)(1) - - -
-------- -------- -------- ------- ------- ------- -------
Balance of allowance for loan
losses at end of period $ 1,736 $ 1,136 $ 1,594 $ 1,048 $ 1,021 $ 713 $ 1,088
======== ======== ======== ======== ======== ======== ========
Ratio of net (charge-offs)
recoveries to average loans (0.01%) 0.00% (0.11%) (0.03%) 0.13% (0.62%) (.66%)
======== ======== ======== ======== ======== ======== ========
Average gross loans outstanding
during the period $204,931 $136,317 $171,780 $117,773 $ 98,749 $ 75,171 $ 67,265
======== ======== ======== ======== ======== ======== ========
</TABLE>
____________________
(1) In connection with the sale of FMB in October 1995, $100,000 of the
Company's allowance for loan and lease losses, together with approximately
$9.2 million of loans originated by FMB, was transferred to Community
First Bankshares, Inc.
Management regards the allowance for loan losses as a general reserve
which is available to absorb losses from all loans. However, for purposes of
complying with disclosure requirements of the Securities and Exchange
Commission (the "Commission"), the table below presents an allocation of the
allowance for loan losses among the various loan categories and sets forth
the percentage of loans in each category to gross loans. The allocation of
the allowance for loan losses as shown in the table should neither be
interpreted as an indication of future charge-offs, nor as an indication that
charge-offs in future periods will necessarily occur in these amounts or in
the indicated proportions.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
March 31, 1997 1996 1995 1994
------------------ -----------------------------------------------------
Loans in Loans in Loans in Loans in
category category category category
as a as s as a as a
percentage percentage percentage percentage
Amount of total Amount of total Amount of total Amount of total
of gross of gross of gross of gross
allowance loans allowance loans allowance loans allowance loans
--------- ----- --------- ----- --------- ----- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 833 46% $ 721 47% $ 355 35% $ 265 35%
Agricultural 159 10 176 10 318 15 395 20
Real estate-mortgage 325 24 306 24 213 30 267 30
Real estate-construction 81 5 57 4 41 5 24 4
Consumer 95 9 97 9 58 8 52 8
Leasing 64 6 63 6 41 7 18 3
Unallocated 179 - 174 - 22 - - -
------- --- ------- --- ------- --- ------- ---
Total $ 1,736 100% $ 1,594 100% $ 1,048 100% $ 1,021 100%
======= === ======= === ======= === ======= ===
</TABLE>
Deposits and Borrowed Funds. BNC's core deposits consist of noninterest
bearing and interest bearing demand deposits, savings deposits, certificates
of deposit under $100,000, certain certificates of deposit of $100,000 and
over and public funds. These deposits, along with other borrowed funds are
used by the Company to support its asset base.
The following tables set forth the distribution of BNC's average deposit
account balances and average cost of funds rates on each category of deposits
for the periods indicated:
<TABLE>
<CAPTION>
Three months
ended March 31, Year ended December 31,
------------------------ ----------------------------------------------------------------------------
1997 1996 1995 1994
------------------------ ------------------------ ------------------------ ------------------------
Percent Wtd. Percent Wtd. Percent Wtd. Percent Wtd.
Average of Avg. Avergae of Avg. Average of Avg. Average of Avg.
Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing
demand deposits $ 45,840 18.79% 2.99% $ 38,920 18.29% 2.58% $ 38,941 23.01% 3.05% $ 36,423 31.58% 2.72%
Savings deposits 8,694 3.56 2.29 8,498 3.99 2.31 7,598 4.49 2.86 7,187 6.23 2.63
Time deposits ("CDs"):
CDS under $100,000 128,123 52.52 5.60 124,682 58.61 5.66 93,983 55.53 5.81 50,259 43.58 4.53
CDS $100,000 and over 41,962 17.20 5.70 25,499 11.99 5.82 15,486 9.15 6.08 9,523 8.26 5.12
-------- ------ -------- ------ -------- ------ -------- ------
Total time deposits 170,085 69.72 5.62 150,181 70.60 5.69 109,469 64.68 5.84 59,782 51.84 4.63
-------- ------ -------- ------ -------- ------ -------- ------
Total interest-
bearing deposits 224,619 92.07 4.96 197,599 92.88 4.93 156,008 92.18 5.00 103,392 89.65 3.81
Noninterest-bearing
demand deposits 19,349 7.93 - 15,147 7.12 - 13,233 7.82 - 11,942 10.35 -
-------- ------ -------- ------ -------- ------ -------- ------
Total deposits $243,968 100.00% 4.56% $212,746 100.00% 4.58% $169,241 100.00% 4.61% $115,334 100.00% 3.42%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
Average total deposits were $244.0 million for the first quarter of 1997,
a 21% increase over the same period in 1996. Average total deposits
increased $43.5 million, or 26%, to $212.7 million for the year ended
December 31, 1996, as compared to $169.2 million for the year ended December
31, 1995. The average total deposits of $169.2 million for 1995 represented
an increase of $53.9 million, or 47%, as compared to the $115.3 million for
1994. In the first quarter of 1997, average noninterest-bearing deposits
totaled $19.3 million as compared to $12.2 million for the same period in
1996. In 1996, average noninterest-bearing deposits increased to $15.1
million as compared to $13.2 million and $11.9 million for 1995 and 1994,
respectively. Total average interest-bearing deposits totaled $224.6 million
in the first quarter of 1997. Total average interest-bearing deposits in
1996 of $197.6 million represented an increase of $41.6 million, or 27%, as
compared to the $156.0 million in 1995. The $156.0 million in 1995
represented an increase of $52.6 million, or 51%, as compared to 1994's
$103.4 million. The 1995 branch acquisition and sale of FMB, coupled with
internal deposit growth, impacted the amount, composition and cost of BNC's
deposit portfolio. See "-- Results of Operations -- Net Interest Income."
Since 1994, earning asset growth has outpaced core deposit growth
resulting in the use of more brokered and out of market certificates of
deposit and other borrowed funds. As of March 31, 1997, BNC held a total of
$15.8 million of brokered certificates of deposit. Under current FDIC
regulations, only "well-capitalized" financial institutions may fund
themselves with brokered deposits without prior approval of regulators. BNC -
North Dakota and BNC - Minnesota were both well capitalized at March 31,
1997.
Time deposits in denominations of $100,000 and greater totaled $46.2
million at March 31, 1997 as compared to $39.7 million, $16.6 million and
$11.7 million at December 31, 1996, 1995 and 1994, respectively. The
following table sets forth the amount and maturities of time deposits of
$100,000 or more as of March 31, 1997:
Time deposits of $100,000 and over with remaining maturity: (In thousands)
3 months or less............................ $ 24,183
Over 3 months through 6 months.............. 12,533
Over 6 months through 12 months............. 3,853
Over 12 months.............................. 5,633
----------
Total.................................. $ 46,202
==========
BNC uses short-term borrowings to support its asset base. These borrowings
include federal funds purchased and U.S. Treasury tax and loan note option
accounts, securities sold under agreements to repurchase, and Federal Home
Loan Bank ("FHLB") borrowings. At March 31, 1997, short-term borrowings were
$15.3 million or 5% of total liabilities as compared to $11.4 million or 4%
of total liabilities at December 31, 1996, $1.0 million or 1% of total
liabilities at December 31, 1995 and $7.4 million or 5% of total liabilities
at December 31, 1994. Short-term borrowings averaged $14.5 million in 1996 as
compared to $7.0 million and $6.0 million in 1995 and 1994, respectively.
The following table provides a summary of the Company's short-term
borrowings, including period end outstandings, average balances, maximum
borrowings and average borrowings outstanding and weighted average interest
rates for the periods presented:
<TABLE>
<CAPTION>
Three
months
ended
March 31, Year ended December 31,
--------- -----------------------------
1997 1996 1995 1994
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Short-term borrowings outstanding at period end $ 15,306 $ 11,437 $ 1,000 $ 7,360
Weighted average interest rate at period end 6.26% 5.60% 6.69% 4.35%
Maximum month-end balance during the period $ 15,306 $ 23,416 $ 34,648 $ 8,952
Average borrowings outstanding for the period $ 11,346 $ 14,532 $ 7,029 $ 6,033
Weighted average interest rate for the period 5.78% 5.60% 5.74% 3.15%
</TABLE>
As of March 31, 1997, the Company's long-term debt included a $3.0 million
term loan from Firstar Bank Milwaukee, N.A., $8.3 million outstanding under
the Firstar Line of Credit and $111,000 attributable to a capital lease at
BNC - North Dakota (for the Company's mainframe computer). In addition,
$185,000 was outstanding under the Windsor Line of Credit. BNC was in
compliance with all related debt covenants as of the date of this Prospectus.
The Company's increased usage of long-term borrowings ($11.6 million at
March 31, 1997 as compared to $4.0 million and $3.4 million at March 31, 1996
and 1995, respectively) has been primarily for the purpose of funding the
asset-based lending at BNC Financial. As of March 31, 1997, BNC Financial had
outstanding loans of $6.5 million. Funding for increased loan growth will be
provided through borrowings under the Company's Revolving Lines of Credit.
See "Use of Proceeds."
Capital Resources and Expenditures. BNC's management actively monitors
compliance with bank regulatory capital requirements, including risk-based
and leverage capital measures. Under the risk-based capital method of capital
measurement, the ratio computed is dependent on the amount and composition of
assets recorded on the balance sheet, and the amount and composition of off-
balance sheet items, in addition to the level of capital. The risk based
and leverage capital ratios of BNC and the Banks as of March 31, 1997 and
December 31, 1996 and 1995, are presented in Note 9 to the Company's
Consolidated Financial Statements included elsewhere herein.
As indicated under "Business - Properties," the Company's newly acquired
office building in Bismarck is currently undergoing remodeling. The initial
cost of the building was $525,000 and expected cost of remodeling is
approximately $250,000. Construction of a branch office in north Bismarck is
expected to be completed during 1997. Architects estimate the cost of this
facility to approximate $600,000. The cost of these two projects will be
funded from current operations.
Liquidity
BNC actively manages its liquidity position to maintain sufficient
funds to respond to the needs of depositors and borrowers, as well as to
take advantage of earnings enhancement opportunities. In addition to
liquidity from core deposit growth, together with repayments and maturities
of loans and investments, BNC utilizes brokered deposits, sells securities
under agreements to repurchase and borrows overnight federal funds. BNC -
North Dakota is a member of the FHLB, which affords the Bank the opportunity
to borrow funds in terms ranging from overnight to 10 years and beyond.
Borrowings from the FHLB are collateralized by the Bank's first mortgage
residential loans and various securities from the Company's investment
portfolio.
In order to monitor its position, BNC's management measures its liquidity
position regularly. Key factors that determine the Company's liquidity are:
the reliability or stability of its deposit base; the maturity structure and
the pledged/nonpledged status of its investments; and potential loan demand.
BNC's liquidity management system divides the balance sheet into liquid
assets, illiquid assets, reliable funds, and volatile funds. The four
variables and other key factors such as expected loan demand, are tied
together to provide a measure of the Company's liquidity. Management has a
targeted range and manages its operations such that these targets can be
achieved.
For the quarter ended March 31, 1997, operating activities provided cash
inflows of $940,000. During the same period, investing activities resulted in
net cash outflows of $17.3 million and included cash outflows of $7.2
million, $2.8 million and $6.5 million for federal funds sold, investment
transactions and increases in loans, respectively. Net cash inflows from
financing activities were $18.4 million, $13.5 million from increases in
deposits, and $4.9 million from borrowing activities.
For the quarter ended March 31, 1996, operating activities resulted in net
cash outflows of $866,000. Investing activities resulted in net cash outflows
of $4.6 million, including primarily, net cash inflows from investment
transactions of $21.1 million offset by net cash outflows from increases in
loans of $28.3 million. Financing activities resulted in net cash outflows of
$175,000 for the first quarter of 1996. Cash outflows from deposit decreases
of $8.1 million was offset by cash inflows from borrowing activities of $7.9
million.
Cash inflows from operating activities exceeded operating cash outflows by
$1.8 million in 1996, $2.6 million in 1995 and $3.4 million in 1994. Interest
received net of interest paid was the principal source of operating cash
inflows in each of these periods.
Net cash outflows from investing activities was $53.1 million in 1996 as
compared to $86.2 million in 1995 and $24.8 million in 1994. Loan growth
accounted for the majority of the cash outflows in 1996 at $82.7 million
while investment activities resulted in a net cash inflow of $34.9 million.
Investment activities was the largest component of cash outflow from
investing activities in 1995 as the Company invested the funds acquired in
the 1995 branch acquisition. The cash payment (outflow) for the acquisition
was $5.4 million and internal loan growth produced cash outflows of $20.3
million. These cash outflows were offset somewhat by cash inflows of $16.2
million for loans and investments and $3.8 million in sales proceeds
associated with the FMB sale. Growth in loans was the most significant
source of cash outflows in 1994 at $26.5 million.
Net cash inflows from financing activities were $46.4 million in 1996, as
compared to $89.4 million in 1995 and $21.5 million in 1994. In 1996, cash
inflows of $7.1 million and $21.6 million resulted from increases in
noninterest-bearing and low cost deposits and time deposits, respectively.
Cash inflows of $10.4 million and $9.9 million resulted from the net change
in short-term borrowings and proceeds from long-term borrowings,
respectively. Cash outflows due to repayments of long-term borrowings totaled
$2.6 million. The most significant cash inflow from financing activities in
1995 was the time deposits of $86.6 million and the noninterest-bearing and
low cost deposits of $18.1 million acquired in the 1995 branch acquisition.
Internal deposit growth contributed $20.9 million of cash inflows while the
initial public offering of the Company's common stock, completed in July
1995, generated $9.7 million of cash inflows. These cash inflows were offset
by cash outflows of $6.4 million from the net change in short-term borrowings
and $39.3 million from the sale of deposits in the FMB sale. Primary sources
of cash inflow in 1994 were increases in time deposits of $18.2 million, $5.1
million caused by the net change in short-term borrowings and $1.5 million in
proceeds from long-term borrowings. These were offset by cash outflows of
$2.4 million due to decreases in noninterest-bearing and low cost deposits
and $550,000 in repayments on long-term debt.
Asset/Liability Management
The mismatch between maturities and interest rate sensitivities of
assets and liabilities results in interest rate risk. Rising and falling
interest rate environments can have various impacts on net interest income,
depending on the interest rate gap (i.e., the difference between the
repricing of interest-earning assets and interest-bearing liabilities), the
relative changes in interest rates that occur when various assets and
liabilities reprice, unscheduled repayments of loans and investments, early
withdrawals of deposits and other factors. As a general rule, banks with
positive interest rate gaps are more likely to be susceptible to declines in
net interest income in periods of falling interest rates, while banks with
negative interest rate gaps are more likely to experience declines in net
interest income in periods of rising interest rates. BNC's policy is to
minimize interest rate risk within policy guidelines by generally
maintaining a position within a narrow range of an "earnings neutral
position," defined as the mix of assets and liabilities that generates a net
interest margin least affected by interest rate changes. At March 31, 1997,
BNC's cumulative interest rate gap for the period of less than one year was
negative 10.62%. Therefore, assuming no change in BNC's gap position, a
rise in interest rates is likely to result in decreased net interest income,
while a decline in interest rates is likely to result in increased net
interest income.
BNC's asset/liability management objectives are to manage, to the degree
possible, its exposure to interest rate risk over both a one year planning
period and a longer-term strategic period and, at the same time, provide a
stable and steadily increasing flow of net interest income. The Company's
primary measurement of interest rate risk is earnings at risk, which is
determined through computerized simulation modeling. The modeling estimates
changes in net interest income in response to increases or decreases in
market interest rates. The model uses the rates and maturities of the
Company's existing interest-earning assets and interest-bearing liabilities
and revises each based on how the market interest rates move and how the
specific Company product would respond to the rates. The structuring of the
Company's balance sheet is determined by ensuring that the earnings at risk
do not exceed predetermined maximum limits. The Company's policy requires
that earnings at risk do not exceed 10% for each 100 basis point increase or
decrease in rates.
The Company also uses static gap analysis to monitor interest rate risk. A
static gap matrix is prepared reflecting repricing and maturity differences
between interest-earning assets and interest-bearing liabilities within
specific time periods. The Company's gap position (see chart below) is
liability sensitive in the short-term (0 to 12 months) and asset sensitive in
the longer term (over one year). Asset sensitive means net interest margin is
impacted positively during periods of rising interest rates and negatively
during periods of falling interest rates. Liability sensitive means net
interest margin is impacted negatively during periods of rising rates and
positively during periods of falling rates. During periods of rising or
falling rates, the negative impacts of rate changes are minimized through
restructuring of the Company's balance sheet. For example, in an asset
sensitive position, management's response to increases in interest rates is
to extend funding to lengthen liabilities and to modify product offerings to
shorten asset maturities. In other words, in expectation of rising rates,
BNC's marketing and sales force would emphasize floating rate loans,
including home equity loans, adjustable rate mortgages and variable rate
commercial loans and longer term certificates of deposit and demand deposits.
In addition, wholesale funding such as funding through the FHLB and/or
brokered certificates of deposit would be extended in term.
The following table sets forth the estimated maturity or repricing, and
the resulting interest rate gap, of BNC's interest-earnings assets and
interest-bearing liabilities at March 31, 1997. Assets and liabilities are
classified by the earliest possible repricing date or maturity, whichever
comes first.
<TABLE>
<CAPTION>
Estimated maturity or repricing at March 31, 1997
-----------------------------------------------------
Three
Less than months to One to Over
three less than five five
months one year years years Total
--------- ---------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Cash equivalents $ 1,146 $ - $ - $ - $ 1,146
Federal funds sold 14,100 - - - 14,100
Investment securities
available for sale (1) 12,215 10,727 32,994 6,017 61,953
Fixed rate loans (2) 10,829 21,839 48,230 11,433 92,331
Floating rate loans (2) 105,540 7,800 4,054 - 117,394
--------- --------- -------- -------- ---------
Total interest-earning
assets 143,830 40,366 85,278 17,450 286,924
========= ========= ======== ======== =========
Interest-bearing liabilities(3):
NOW and money market accounts $ 50,709 $ - $ - $ - $ 50,709
Savings 8,549 - - - 8,549
Time deposits under $100,000 35,654 54,504 36,366 2,214 128,738
Time deposits $100,000 and
over 24,183 16,386 5,633 - 46,202
Borrowings 25,717 1,185 - - 26,902
--------- --------- -------- -------- ---------
Total interest-bearing
liabilities $ 144,812 $ 72,075 $ 41,999 $ 2,214 $ 261,100
========= ========= ======== ======== =========
Interest rate gap $ (982) $ (31,709) $ 43,279 $ 15,236 $ 25,824
========= ========= ======== ======== =========
Cumulative interest rate gap
at March 31, 1997 $ (982) $ (32,691) $ 10,588 $ 5,824
========= ========= ======== ========
Cumulative interest rate gap
to total assets (3.19)% (10.62)% 3.44% 8.39%
</TABLE>
___________________
(1)Investment securities are generally reported in the time frame
representing the earliest of the repricing date, the call date (for
callable securities), the estimated life or the maturity date. Estimated
lives of mortgage-backed securities and collateralized mortgage
obligations are based on published industry prepayment estimates for
securities with comparable weighted average interest rates and contractual
maturities.
(2)Loans are stated gross of the allowance for loan losses and are placed in
the earliest time frame in which maturity or repricing may occur.
(3)The table assumes that all savings and interest-bearing demand deposits
reprice in the earliest period presented, however, BNC's management
believes a significant portion of these accounts constitute a core
component and are generally not rate sensitive. Management's position is
supported by the fact that aggressive reductions in interest rates paid on
these deposits has not caused notable reductions in balances on the
deposits.
The table does not necessarily indicate the future impact of general
interest rate movements on the Company's net interest income because the
repricing of certain assets and liabilities is discretionary and is subject
to competitive and other pressures. As a result, assets and liabilities
indicated as repricing within the same period may in fact reprice at
different times and at different rate levels.
Effects of Inflation
Unlike most industrial companies, the assets and liabilities of
financial institutions are primarily monetary in nature. Therefore, banking
organizations do not necessarily gain or lose due to the effects of
inflation. Changes in interest rates, which are a major determinant of a
financial service organization's profitability, do not necessarily correspond
to changes in the prices of goods and services. An analysis of a banking
organization's asset and liability structure provides the best indication of
how the organization is positioned to respond to changing interest rates and
maintain profitability.
The financial statements and supplementary financial data have been
prepared, primarily, on a historical basis which is mandated by generally
accepted accounting principles. Fluctuations in the relative value of money
due to inflation or recession are generally not considered.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"), issued in February 1997 and effective January 1, 1998,
supersedes AICPA Accounting Principles Board Opinion No. 15, "Earnings per
Share" ("APB 15") and other related accounting pronouncements and
interpretations, and specifies new computation, presentation and disclosure
requirements for earnings per share. Adoption of this standard is not
expected to have a material effect on the calculation of BNC's earnings per
share.
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information About Capital Structure" ("SFAS 129"), also issued in February
1997 and effective January 1, 1998, summarizes disclosure requirements
pertaining to an entity's capital structure. SFAS 129 is a compilation of
several previously issued standards and pronouncements, therefore, adoption
of this standard is not expected to have a material effect on BNC's
consolidated financial statements.
BUSINESS
General
The Company is a bank holding company headquartered in Bismarck, North
Dakota, which provides a broad range of banking and financial services to
small and mid-size businesses and to individuals through its nine full
service banking facilities in North Dakota and Minnesota. BNC operates
primarily through its two commercial banking subsidiaries, BNC - North
Dakota, which is headquartered in Bismarck and has seven additional branches
in North Dakota and BNC - Minnesota, located in Minneapolis, Minnesota. In
addition, the Company provides asset-based commercial financing through its
non-bank subsidiary, BNC Financial, located in St. Cloud, Minnesota.
Growth Strategy
Due to its focus on customer service and local relationship banking
with small and mid-size businesses and individuals, BNC has experienced
significant growth. See "- Market Area." Management believes that the
Company's entrepreneurial approach to banking and the introduction of new
products and services will continue to attract small and mid-size businesses
which often are not of sufficient size to be of interest to the larger banks
in its market areas. Small and mid-size businesses and individuals
frequently have difficulty finding banking services that meet their specific
needs and have sought, and management believes will continue to seek,
banking institutions that are more relationship-oriented. BNC offers an
increasing number of banking and finance-related products and services,
including trust services, asset management, retirement planning, tax
planning and preparation, insurance and other private banking services. See
" - Products and Services."
BNC was formed in 1987 with the objective of acquiring and improving
the performance of strategically located banks in North Dakota. As part of
this strategy, the Company has completed several acquisitions. The largest
of these acquisitions was the Company's July 1995 acquisition of seven North
Dakota branches, with aggregate deposits of approximately $104.8 million,
from First Bank fsb. In January 1996, the Company established a de novo
national bank in Minneapolis, Minnesota which primarily serves small and
mid-size businesses in the Minneapolis/St. Paul metropolitan area. In
addition, the Company acquired BNC Financial, a non-bank commercial finance
subsidiary that primarily engages in asset-based lending, in May 1996.
Management believes that these initiatives have generated significant
growth for the Company. From December 31, 1992 to March 31, 1997, the
Company's net loans increased from $69.3 million to $207.7 million, total
assets increased from $118.0 million to $307.8 million and total deposits
increased from $102.7 million to $253.3 million. During this same period,
the Company's ratio of nonperforming loans to total loans decreased from
5.80% to 0.22%. The Company's goal continues to be the creation of a
well-capitalized $500 million to $1 billion financial services organization
focused on local relationship banking. Efforts are ongoing to ensure that
the executive management team and operating systems are in place to achieve
this goal.
Market Area
BNC's primary market areas are the Bismarck/Mandan (North Dakota)
metropolitan area, the Minneapolis/St. Paul (Minnesota) metropolitan area,
and the rural communities surrounding the branch offices of BNC - North
Dakota (Linton, Ellendale, Garrison, Stanley, Kenmare, Crosby and Watford
City, North Dakota). The asset-based lending activities of BNC Financial have
been conducted primarily in Minnesota. A substantial majority of the
Company's total consolidated net loans are attributable to customers located
in western North Dakota, although in 1996, BNC - Minnesota experienced
significant loan growth in the Minneapolis/St. Paul market area. Generally,
each branch draws most of its deposits from its general market area. The
following table presents certain information about each of BNC's locations:
March 31, 1997
----------------------
Year opened Total Gross
Bank location or acquired deposits loans
--------------------- ----------- ------------ ---------
(In thousands)
BNC - North Dakota
Bismarck 1990 $ 80,748 $ 150,333
Linton 1987 47,289 10,428
Ellendale 1995 12,494 907
Garrison 1995 14,838 460
Stanley 1995 15,408 373
Kenmare 1995 17,806 527
Crosby 1995 18,904 163
Watford City 1995 15,353 139
BNC - Minnesota 1996 30,460 39,401
BNC Financial 1996 - 6,519
BNCCORP (parent company) - - 475
--------- ---------
Total $ 253,300 $ 209,725
========= =========
Products and Services
Loans. The Company's loans primarily consist of commercial and
industrial loans, agricultural loans, real estate mortgage loans, real estate
construction loans, consumer loans and lease financing. In allocating its
assets among loans, investments and other earning assets, BNC attempts to
maximize return while managing risk at acceptable levels. BNC's primary
lending focus is on commercial loans and owner-occupied real estate loans to
small and mid-size businesses and professionals. The Company offers a broad
range of commercial and retail lending services, including commercial
revolving lines of credit, residential and commercial real estate mortgage
loans, consumer loans and equipment financing. For a description of the
types of lending activities engaged in by the Company, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Financial Condition."
Interest rates charged on loans may be fixed or variable and vary with
the degree of risk, loan term, underwriting and servicing costs, loan amount,
and extent of other banking relationships maintained with customers. Rates
are further subject to competitive pressures, the current interest rate
environment, availability of funds and government regulations. As of March
31, 1997, approximately 56% of the loans in BNC's portfolio had interest
rates that float with BNC's base rate or some other reference rate.
The Company also offers asset-based commercial financing through BNC
Financial, the Company's non-bank subsidiary acquired in 1996. BNC
Financial provides asset-based working capital and term financing to small
and mid-size companies for refinancings, recapitalizations, acquisitions and
seasonal borrowing through senior loans secured by business assets such as
equipment, accounts receivable and inventory. Revolving credit facilities
and term loans are cross-collateralized. Management of BNC Financial is
experienced in this type of lending and has adopted policies and procedures
to address the risks associated with this type of lending. Asset-based
lending often involves higher risk than loans traditionally extended by
banks, but often involves higher returns.
Deposits. Each of BNC's Bank branches offers the usual and customary
range of depository products provided by commercial banks, including
checking, savings and money market deposits and certificates of deposit.
Deposits are insured by the FDIC up to statutory limits. The Banks also
purchase brokered deposits from time to time when such transactions are
beneficial to the Banks. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Condition --
Deposits and Borrowed Funds."
Trust, Personal Banking, Investment and Insurance Products. Since
January 1997, BNC - North Dakota's newly established Financial Services
division has been providing a wide array of trust, personal banking,
investment and insurance services for corporations and individuals.
Management believes the introduction of these new services enhances BNC's
ability to meet the banking and financial needs of its current customer base
and establish new customer relationships in its markets. The new division
provides services ranging from fiduciary and personal trust services to tax
planning and preparation, payroll processing, financial planning, retirement
planning, employee stock option plans, employee benefit plans, individual
retirement accounts ("IRAs"), including custodial self-directed IRAs, asset
preservation, charitable giving and related services. Management views the
establishment of this new division as an opportunity to solidify customer
relationships by enhancing BNC's ability to identify and meet a wide variety
of customer financial needs.
Consulting Services. In addition to its asset-based lending program,
BNC Financial manages a consulting services division which provides a number
of services including pre-funding due diligence, collateral review, problem
loan consulting, bankruptcy support and asset valuation.
Investment Portfolio. The purpose of the Company's investment
portfolio is to provide a source of earnings and, secondarily, to manage
liquidity. Investments are centrally managed in order to aid in compliance
with federal laws and regulations, which place certain restrictions on the
amounts and types of investments BNC may hold. BNC maintains, through the
President of BNC - North Dakota, an investment grade portfolio oriented
toward U.S. Treasury securities, U.S. government agency securities and a
small amount of investment grade obligations of state and political
subdivisions. In managing its interest rate exposure, the Company also
invests in mortgage-backed securities and floating rate collateralized
mortgage obligations. Investment securities totaled $62.0 million as of
March 31, 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition -- Investment
Securities."
Competition
The deregulation of the banking industry, the increasing number of
state laws that permit multi-bank holding companies, and the increasing
availability of nationwide interstate banking have heightened the level of
competition in an already intensely competitive market. The North Dakota
and Minnesota market areas are highly competitive banking environments.
Competition is encountered primarily in seeking deposits and in obtaining
loan customers. Principal competitors include multi-regional financial
institutions such as Norwest Corporation, First Bank System, Inc. and
Community First Bankshares, Inc. as well as large and small thrifts,
independent banks, credit unions and many national and regional brokerage
houses. BNC also competes with other nonfinancial institutions, including
retail stores that maintain their own credit programs and government
agencies that make low cost or guaranteed loans available to certain
borrowers. Some of these competitors have substantially greater resources
and lending limits than BNC, and may offer certain services that BNC does
not provide. In addition, some of the nonfinancial institutions that
compete with BNC are not subject to the extensive federal regulations that
govern BNC. Management believes that many competitors have emphasized
retail banking and financial services, leaving the small and mid-size
business market underserved. This has allowed BNC to compete effectively by
emphasizing customer service, establishing long-term customer relationships
and providing services meeting the needs of such businesses and the
individuals associated with them. The banking business is highly
competitive, and the profitability of the Company will depend on its ability
to compete in its market areas.
Properties
The principal offices of BNC and BNC - North Dakota are located in
BNC's main office building at 322 East Main, Bismarck, North Dakota. The
building is owned by BNC - North Dakota. BNC - North Dakota also owns a
branch office located at 219 South 3rd Street in Bismarck. In early 1997, the
Company purchased an office building at 116 North 4th Street in Bismarck,
approximately one half block from the principal office building. Certain bank
and holding company departments will be housed at this facility upon expected
completion of remodeling during the second quarter of 1997. BNC also owns its
banking facilities at Linton, Crosby, Ellendale, Kenmare and Stanley, North
Dakota.
Facilities in Garrison and Watford City, North Dakota and additional
facilities in Bismarck are leased. The Garrison and Watford City leases
expire in June 2000 and April 1998, respectively. Office facilities in
Bismarck are being leased on a month to month basis pending completion of
remodeling at the 4th Street location in Bismarck. The land at BNC - North
Dakota's branch office on South 3rd Street is also leased. This lease expires
in 2006.
The Company also leases the facilities occupied by BNC - Minnesota at
333 South Seventh Street, Minneapolis, Minnesota. Leases on this property
expire in June 2001. Facilities housing BNC Financial at 4150 South 2nd
Street, St. Cloud, Minnesota are leased. The lease on this property expires
in April 2002.
BNC owns land in north Bismarck and intends to construct a branch
office for BNC - North Dakota on this location during 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition -- Capital Resources and Expenditures."
All owned and leased properties are considered in good operating
condition and are believed adequate for the Company's present and foreseeable
future operations. BNC does not anticipate any difficulty in leasing
additional suitable space upon expiration of present lease terms.
Legal Proceedings
BNC is currently not a party to any material legal proceedings.
Periodically, and in the ordinary course of business, various claims and
lawsuits which are incidental to BNC's business may be brought against or by
BNC, such as claims to enforce liens, condemnation proceedings on properties
in which BNC holds security interests, claims involving the making and
servicing of real property loans and other issues incidental to the Company's
business.
Employees
At March 31, 1997, BNC had approximately 132 employees, including 118
full-time employees. None of BNC's employees is covered by a collective
bargaining agreement and management believes that its relationship with its
employees is good.
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information, as of April 1,
1997, with respect to BNC's directors and executive officers.
Name Age Position
_____________________________ _________ ___________________________________
Tracy J. Scott 49 Chairman of the Board, Chief
Executive Officer and
Director
Gregory K. Cleveland 49 President, Chief Financial
Officer and Director
John A. Malmberg 52 President of BNC - North Dakota
and Director
Thomas J. Resch 50 President and Chief Executive
Officer of BNC - Minnesota
and Director
Brad J. Scott 38 Executive Vice President of
Corporate Finance - BNC -
North Dakota and Director
Jeffrey A. Reed 42 President and Chief Executive
Officer of BNC Financial
Brenda L. Rebel 38 Vice President - Corporate
Controller
John A. Hipp, M.D. 50 Director
Richard M. Johnsen, Jr. 52 Director
John M. Shaffer 50 Director
Jerry R. Woodcox 54 Director
There are no family relationships among any of the directors and
executive officers of BNC.
Tracy J. Scott has served as Chairman of the Board, Chief Executive
Officer and a director of BNC since he and Gregory K. Cleveland founded the
Company in 1987. He served as the President of BNC - North Dakota from
September 1990 to March 1993. Mr. Scott also served as the President of FMB
from 1985 to 1990 and as a loan officer of FMB from 1982 to 1985. Prior to
1982, Mr. Scott, a certified public accountant, practiced accounting at an
accounting firm that he established in 1972. He was previously employed by
Arthur Young and Co. from 1969 to 1972. Mr. Scott holds a B.S. in business
administration with a minor in accounting from Dickinson State College.
Gregory K. Cleveland has served as an officer and director of BNC since
its inception in 1987. He has served as Chief Financial Officer of BNC since
February 1994 and as President of BNC since March 1995. From 1978 to 1996,
Mr. Cleveland, a certified public accountant, was a partner of Gregory K.
Cleveland & Company, an accounting firm which he established that was
acquired by the Company in December 1996. See "Certain Transactions." From
1974 to 1977, Mr. Cleveland served as Vice President - Taxation for First &
Merchants Corporation, a bank holding company in Virginia that was the
predecessor of Sovran Bank Corporation. Prior to that time, Mr. Cleveland
was employed by Arthur Andersen LLP from 1970 to 1974. He holds a B.S. in
business administration with a major in accounting from the University of
North Dakota.
John A. Malmberg has served as President of BNC - North Dakota and a
director since April 1993. Mr. Malmberg has over 20 years of experience in
the banking industry. He served as Executive Vice President and Chief
Operating Officer of the Bank of North Dakota from February 1989 to December
1992 at which time he became Acting President and Chief Executive Officer, a
position he held until April 1993. From 1977 to 1989, Mr. Malmberg served in
various capacities for First American National Bank, Wausau, Wisconsin,
including a broad range of senior managerial positions. He also served as a
Trust Officer for American National Bank, St. Paul, Minnesota from 1973 to
1977. Mr. Malmberg holds a B.S. degree from the University of Minnesota and
an M.B.A. from Golden Gate University, San Francisco and is a graduate of the
Stonier Graduate School of Banking, Rutgers University.
Thomas J. Resch became President and Chief Executive Officer of BNC -
Minnesota in January 1996 and has been a director of BNC since June 1995.
From June 1995 to January 1996, he served as Senior Vice President - Loan
Production of BNC - North Dakota. Mr. Resch has over 20 years of experience
in the banking industry. He served as Vice President at National City Bank
of Minneapolis from March 1989 to May 1995 and as Department Manager of the
Business Banking division. From 1985 to 1989, Mr. Resch served as Vice
President of Midwest Federal and as Manager of the St. Paul Corporate Banking
division. From 1984 to 1985 he served as Vice President of United Financial
Savings Bank. Mr. Resch served in various capacities for American National
Bank of St. Paul from 1972 to 1984, including Managing Vice President of
Commercial Lending. He holds a B.S. degree from the University of Minnesota
and is a graduate of the Stonier Graduate School of Banking, Rutgers
University.
Brad J. Scott has served as BNC - North Dakota's Executive Vice
President of Corporate Finance since January 1997. He served as BNC's Chief
Credit Officer between July 1992 and January 1997 and has been a director
since January 1993. He joined BNC in January 1991 as the Senior Vice
President of Commercial Lending at BNC - North Dakota. Mr. Scott previously
worked with the Bismarck branch of First Bank, N.A. where he served as a Vice
President in the Commercial Loan Department from November 1986 to December
1990 and as Agricultural Loan Manager from 1984 to 1986. He also served as a
loan officer for Norwest Bank in Marshall, Minnesota from 1981 to 1984. Mr.
Scott holds an A.S. degree in agricultural business from Bismarck State
College and a B.S. degree in agricultural economics from North Dakota
State University.
Jeffrey A. Reed became President and Chief Executive Officer of BNC
Financial in May 1996. Mr. Reed has been involved in the banking/commercial
finance industry since 1978. From March 1995 to April 1996, Mr. Reed served
as President of Cambridge Bank Professionals, LLC, a bank credit consulting
firm whose assets were acquired by BNC Financial in May 1996. See "Certain
Transactions." He served as Vice President and Manager of the Special
Loans/Collateral Audit Division at National City Bank of Minneapolis from
December 1991 to February 1995. From January 1989 to December 1991, Mr.
Reed was a self-employed consultant to commercial banks in the area of
problem loan management. Mr. Reed served as a Manager of the Business
Investigations Service Unit and Specialized Lender Services Unit during his
employment with Coopers & Lybrand LLP from October 1987 to January 1989.
From November 1985 to October 1987, he served as Vice President and Team
Leader, Special Loans Division of Norwest Bank, Minneapolis. Mr. Reed also
held positions with Barclays American Corporation (Commercial Loan Officer,
Manager of Work-Out Department) and Norwest Business Credit, Inc. (Assistant
Vice President and Audit Manager.) Mr. Reed holds a B.S. degree from
Bemidji State University.
Brenda L. Rebel, a certified public accountant, has served as Vice
President - Corporate Controller since August 1995. She served as Vice
President - Regulatory Compliance from June 1991 to July 1995. From January
1990 to May 1991, she served as Financial Reporting Manager of Comprecare
Health Care Services, Inc., Aurora, Colorado. From 1988 to 1990, Ms. Rebel
was employed by Arthur Andersen LLP, Denver, Colorado. She holds a B.S.
degree in social and behavioral sciences from the University of Mary and a
Master of Accountancy from the University of North Dakota.
John A. Hipp, M.D., who has been a director since 1988, has practiced
medicine in Bismarck since 1980 as a principal in Pathology Consultants, a
professional corporation specializing in medical laboratory and computer
consulting services. Dr. Hipp is board certified in anatomic and clinical
pathology by the American Board of Pathology. He holds a B.A. in history and
natural science and a B.S. in medicine from the University of North Dakota.
Dr. Hipp earned his M.D., C.M. degree from the Faculty of Medicine, McGill
University.
Richard M. Johnsen, Jr., who has been a director since June 1995, has
served since 1979 as Chairman of the Board and Chief Executive Officer of
Johnsen Trailer Sales, Inc., which sells and services trailers in Bismarck
and Fargo, North Dakota. Since 1990, Mr. Johnsen has also been a partner in
Johnsen Real Estate Partnership, which owns and operates rental property in
Bismarck and Fargo, North Dakota. He holds a B.S. degree in management from
the University of North Dakota.
John M. Shaffer has been a director since June 1995, has served as
President of Atlas, Inc., a ready-mix concrete producer and concrete
construction company based in Bismarck, North Dakota. Since 1979, Mr.
Shaffer has also been a partner in Capital Investments, which invests in
property and equipment in North Dakota. He attended Bismarck Junior College
for 1-1/2 years and Dickinson State College for 1-1/2 years.
Jerry R. Woodcox, who has been a director since June 1995, has served
since 1970 as President of Arrowhead Cleaners and Laundry, Inc., a laundry
and dry cleaning services business operating in Bismarck, North Dakota. He
holds a B.S. degree in industrial engineering from North Dakota State
University.
Director Compensation
Each director who is not an employee of BNC is paid a director's fee of
$7,200 per year and fees of $500 for each committee meeting attended.
Directors are reimbursed for expenses incurred in attending board and
committee meetings.
Committees
BNC's Board of Directors has an Executive Committee, Audit Committee
and Compensation Committee. The members of the Executive Committee are
directors Tracy J. Scott (Chairperson), Gregory K. Cleveland, Brad J. Scott,
John A. Malmberg and Thomas J. Resch as well as Michael Miller, the Executive
Vice President of Lending at BNC - North Dakota. The Executive Committee is
authorized to exercise all powers of the Board of Directors to the extent
permitted by Delaware law. All actions taken by the Executive Committee are
submitted to the full Board of Directors for ratification.
The Audit Committee, on which Messrs. Johnsen and Shaffer serve, is
responsible for (i) making recommendations to the Board of Directors
concerning the engagement of independent public accountants, (ii) consulting
with the independent public accountants with regard to the plan of audit,
(iii) consulting directly with BNC's Chief Financial Officer on any matter
that the Audit Committee or the Chief Financial Officer deems appropriate in
connection with carrying out the audit, (iv) reviewing the results of audits
of BNC by its independent public accountants and certain regulatory agencies,
(v) discussing audit recommendations with management and reporting results of
its reviews to the Board of Directors, (vi) reviewing all related party
transactions and all other potential conflict of interests situations, and
(vii) performing such other functions as may be prescribed by the Board of
Directors.
The Compensation Committee is responsible for administering BNC's 1995
Stock Incentive Plan and Incentive Bonus Plan and performing such other
functions as may be prescribed by the Board of Directors. The current
members of the Compensation Committee are Messrs. Hipp and Woodcox.
Executive Compensation
The following table summarizes the compensation that BNC paid to its
chief executive officer and each of its four most highly compensated
executive officers (the "Named Executive Officers") for each of the years
ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
-----------------------
Annual Compensation Awards
-------------------------------- -----------------------
Restricted Securities
Name and All other Stock Underlying
principal position Year Salary Bonus Compensation(1) Awards(2) Options
- ------------------ ---- ------ ----- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tracy J. Scott, Chairman of the 1996 $178,000 $ 0 $6,247 --- ---
Board and Chief Executive 1995 156,000 0 4,902 $75,080 6,034
Officer 1994 156,000 24,305 5,205 --- ---
Gregory K. Cleveland, President 1996 150,000 0 5,997 --- ---
and Chief Financial Officer 1995 128,000 0 4,235 72,570 5,657
1994 128,000 19,942 4,432 --- ---
John A. Malmberg, President of 1996 140,000 0 5,047 --- ---
BNC - North Dakota 1995 140,000 0 5,022 --- 3,226
1994 140,000 20,054 2,954 --- ---
Thomas J. Resch, President and 1996 123,333 0 5,047 --- ---
Chief Executive Officer of 1995 58,333 30,000 117 --- 3,226
BNC - Minnesota(3)
Brad J. Scott, Executive Vice 1996 120,000 0 5,043 --- ---
President of Corporate 1995 100,000 27,750 5,006 25,330 3,813
Finance of BNC - North Dakota 1994 72,000 148,720 5,171 --- ---
</TABLE>
___________________
(1) Comprised of (i) the Company's matching contributions to the Company's
401(k) Plan in the following amounts: Mr. T. Scott ($4,750 in 1996,
$4,500 in 1995 and $4,701 in 1994), Mr. Cleveland ($4,500 in 1996,
$3,840 in 1995 and $3,928 in 1994), Mr. B. Scott ($4,750 in 1996,
$4,620 in 1995 and $4,840 in 1994), Mr. Malmberg ($4,750 in 1996,
$4,620 in 1995 and $2,450 in 1994) and Mr. Resch ($4,750 in 1996); and
(ii) premium payments in the following amounts for life insurance
policies providing death benefits to the executive officers'
beneficiaries: Mr. T. Scott ($1,497 in 1996, $402 in 1995 and $504 in
1994), Mr. Cleveland ($1,497 in 1996, $395 in 1995 and $504 in 1994),
Mr. B. Scott ($293 in 1996, $386 in 1995 and $331 in 1994), Mr.
Malmberg ($297 in 1996, $402 in 1995 and $504 in 1994) and Mr. Resch
($297 in 1996, $117 in 1995).
(2) As of December 31, 1996, the Company had outstanding a total of 20,000
restricted shares valued at $250,000 (based on the fair market value of
the Company's Common Stock at December 31, 1996 of $12.50 per share).
The restricted shares will vest in 33 1/3% increments on July 10, 1998,
1999 and 2000. The Company does not plan to pay dividends on its
restricted shares.
(3) Mr. Resch joined the Company in June 1995.
______________________________
Options
There were no stock options granted during the year ended December 31,
1996 to the Named Executive Officers. The number and value of unexercised
stock options held by the Named Executive Officers at December 31, 1996 is
set forth in the following table. No stock options were exercised during the
year ended December 31, 1996.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-end
Option/SAR Values
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at December 31, 1996 at December 31, 1996(1)
---------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ----------- ------------- ----------- -------------
Tracy J. Scott 2,414 3,620 $6,035 $9,050
Greg K. Cleveland 2,263 3,394 5,658 8,485
John A. Malmberg 1,290 1,936 3,225 4,840
Thomas J. Resch 1,290 1,936 3,225 4,840
Brad J. Scott 1,525 2,288 3,813 5,720
(1) The value of unexercised, in-the-money options is calculated as the
excess of the market value of Common Stock at December 31, 1996
($12.50) over the option price. The values of unexercised in-money
stock options at December 31, 1996 shown above are presented pursuant
to the rules of the Commission. The actual amount, if any, realized
upon exercise of stock options will depend upon the market value of the
Common Stock relative to the exercise price per share of Common Stock
of the stock option at the time the stock option is exercised.
________________
Stock Incentive Plan
In 1995, BNC adopted the 1995 Stock Incentive Plan (the "Stock Plan")
to provide long-term incentives to its key employees, including officers and
directors who are employees of BNC (the "Eligible Employees"). Under the
Stock Plan, which is administered by the Compensation Committee of the Board
(the "Committee"), BNC may grant Eligible Employees incentive stock options,
non-qualified stock options, restricted stock, stock awards or any
combination thereof (the "Incentives"). The Committee establishes the
exercise price of any stock options granted under the Stock Plan, provided
that the exercise price may not be less than the fair market value of a
share of Common Stock on the date of grant.
A total of 250,000 shares of Common Stock are available for issuance
under the Stock Plan. Incentives with respect to no more than 50,000 shares
of Common Stock may be granted to any single Eligible Employee in one
calendar year. Proportionate adjustments will be made to the number of
shares of Common Stock subject to the Stock Plan, including the shares
subject to outstanding Incentives, in the event of any recapitalization,
stock dividend, stock split, combination of shares or other change in the
Common Stock. In the event of such adjustments, the purchase price of any
outstanding option will be adjusted as and to the extent appropriate, in the
reasonable discretion of the Committee, to provide participants with the
same relative rights before and after such adjustment.
All outstanding Incentives will automatically become exercisable and
fully vested and all performance criteria will be deemed to be waived by the
Company upon (a) a reorganization, merger or consolidation of BNC in which
BNC is not the surviving entity, (b) the sale of all or substantially all of
the assets of BNC, (c) a liquidation or dissolution of BNC, (d) a person or
group of persons, other than any employee benefit plan of BNC, becoming the
beneficial owner of 30% or more of BNC's voting stock or (e) the replacement
of a majority of BNC's Board in a contested election (a "Significant
Transaction"). The Committee also has the authority to take several actions
regarding outstanding Incentives upon the occurrence of a Significant
Transaction, including requiring that outstanding options remain exercisable
only for a limited time, providing for mandatory conversion of outstanding
options in exchange for either a cash payment or Common Stock, making
equitable adjustments to Incentives or providing that outstanding options
will become options relating to securities to which a participant would have
been entitled in connection with the Significant Transaction if the options
had been exercised.
Incentive Bonus Plan
In 1995, BNC adopted an Incentive Bonus Plan (the "Incentive Plan") to
provide annual incentive cash bonuses to BNC's employees. Under the
Incentive Plan, which is administered solely by the Committee, each full-
time employee of BNC other than loan officers is eligible to receive a cash
bonus based on a percentage of his or her annual salary to be calculated
according to a formula based on elements of the Company's performance during
the annual performance period. Officers designated by the Committee are
eligible to receive an additional annual cash bonus based on a percentage of
his or her annual salary according to a formula based on an increase in the
Company's stock price during the annual performance period.
Employment Agreements
BNC and each of Messrs. T. Scott, Cleveland, B. Scott and Resch (the
"Executives") have entered into an employment agreement that provides for
minimum annual salaries of $156,000, $128,000, $120,000, and $140,000,
respectively, throughout the term of the agreement, and an annual incentive
bonus as may from time to time be fixed by the Committee. In addition, Mr.
Resch received a $30,000 bonus upon entering into his agreement. Under the
agreements, the Executives will also be provided with benefits under any
employee benefit plan maintained by BNC for its employees generally, or for
its senior executive officers in particular, on the same terms as are
applicable to other senior executives of BNC. The term of the employment
agreements will continue until June 1, 1998, unless earlier terminated as
described below. Thereafter, the employment agreements automatically renew
for consecutive one year terms unless either party terminates the agreement
on 90 days' prior notice.
Each employment agreement provides for the termination of the
Executive's employment (i) upon the Executive's death; (ii) by the Company
upon the Executive's disability; (iii) by the Company for cause which
includes willful and continuing failure to perform the Executive's duties,
conviction of a felony or willful engaging in gross misconduct injurious to
the Company; provided, however, that prior to termination, three-fourths of
the entire Board of Directors, not including the Executive, must find that
the Executive was guilty of such conduct; (iv) by the Executive for good
reason, which includes changing the Executive's current position with the
Company or diminishing the duties, responsibilities or position of the
Executive; (v) by either the Company or the Executive for a material breach
not cured within thirty days; or (vi) upon the occurrence of a "change in
control" of BNC. Under the agreement, a "change in control" occurs if (a)
any person or group of persons (other than an employee benefit plan of BNC)
acquires the beneficial ownership of 30% or more of BNC's Common Stock,
excluding certain acquisitions approved by BNC's Board of Directors, or (b)
a majority of BNC's Board is replaced within any two year period by
directors not approved by two-thirds of the Board. If the Executive
terminates his employment with BNC for other than good reason, the Executive
will be prohibited from competing with BNC for a two year period following
such termination.
Upon termination due to death or disability, the Company will pay the
Executive, all compensation owing through the date of termination, plus any
deferred compensation and accrued vacation (the "Accrued Obligations") and
benefits ("Other Benefits"), reduced by the amount of any disability
benefits received, if applicable. Upon termination by the Company for cause
or for termination by the Executive for other than good reason, the
Executive will be entitled to all compensation owing through the date of
termination and Other Benefits. Upon termination by the Executive for good
reason, due to a change in control or due to a breach of the agreement by
the Company, the Executive is entitled to all compensation owing through the
date of termination plus three times his current compensation and benefits,
office space, secretarial assistance and other facilities and services for a
period of three years.
Limitation of Directors' Liability and Indemnification
In accordance with the Delaware General Corporation Law, BNC's
Certificate of Incorporation (the "Certificate") contains provisions
eliminating the personal liability of the directors to BNC and its
stockholders for monetary damages for breaches of their fiduciary duties as
directors to the fullest extent permitted by Delaware law. By virtue of
these provisions, under current Delaware law a director of BNC will not be
personally liable for monetary damages for breach of his or her fiduciary
duty except for liability for (a) breach of his or her duty of loyalty to
BNC or to its stockholders, (b) acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (c) dividends
or stock repurchases or redemptions that are unlawful under Delaware law,
and (d) any transaction from which he or she receives an improper personal
benefit. In addition, the Certificate provides that if Delaware law is
amended to authorize the further elimination or limitation of the liability
of a director, then the liability of the directors shall be eliminated or
limited to the fullest extent permitted by Delaware law, as amended. These
provisions pertain only to breaches of duty by directors as directors and
not in any other corporate capacity, such as officers, and limit liability
only for breaches of fiduciary duties under Delaware corporate law and not
for violations of other laws such as the federal securities laws.
BNC's Bylaws require BNC to indemnify its officers and directors
against expenses and costs, judgments, settlements and fines incurred in the
defense of any claim, including any claim brought by or in the right of BNC,
to which they were made parties by reason of being or having been officers
or directors.
In addition, each of BNC's directors has entered into an indemnity
agreement that provides that BNC will indemnify the directors against any
costs and expenses, judgments, settlements and fines incurred in connection
with any claim involving a director by reason of his position as a director;
provided that the director meets certain standards of conduct for claims
that (i) have been successfully defended or (ii) two impartial directors
have determined that, with respect to the conduct giving rise to such claim,
the officer or director acted in good faith. No indemnification may be
made, however, for claims in which the officer or director has been
adjudicated in a final judgment to be liable to BNC except to the extent
that the court finds indemnification to be proper.
Insofar as indemnification for liabilities arising under the Securities
Act of 1993, as amended (the "Securities Act") may be permitted to
directors, officers and controlling persons of BNC pursuant to the foregoing
provisions, or otherwise, BNC has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
CERTAIN TRANSACTIONS
In January 1997, BNC - North Dakota acquired all of the outstanding
common stock of the J.D. Meier Insurance Agency (the "Agency"). Each of
Messrs. T. Scott, Cleveland and David A. Erickson, a 5% stockholder of the
Company, owned 25% of the common stock in the Agency. The purchase price
was determined by an independent appraisal resulting in an approximate total
purchase price for Messrs. T. Scott, Cleveland and Erickson's shares of
$26,000. The Agency is currently operating as a subsidiary of BNC - North
Dakota as a general insurance agency.
In December 1996, BNC - North Dakota acquired the accounting firm of
Gregory K. Cleveland & Co., Bismarck, North Dakota (the "Accounting Firm").
The Accounting Firm was owned by Mr. Cleveland. The purchase price for the
Accounting Firm was approximately $368,000 and was determined by an
independent appraisal. Employees of the Accounting Firm now staff the newly
established trust and private banking division of BNC - North Dakota.
In May 1996, the Company, through BNC Financial, acquired the assets
of Cambridge Bank Professionals, LLC, a bank credit consulting firm owned by
Jeffrey A. Reed, who became an executive officer of the Company after the
acquisition, for $85,000. These assets now are used in the operations of
BNC Financial.
In October 1995, the Company sold FMB to Community First Bankshares,
Inc. Messrs T. Scott, Cleveland and Erickson beneficially owned 113, 112
and 50 shares of common stock of FMB, respectively, which represented 2.83%,
2.80% and 1.25% of the outstanding shares of common stock of FMB,
respectively. Messrs. Scott, Cleveland and Erickson received $121,475,
$120,400 and $53,750, respectively in the sale of FMB.
The executive officers, directors and principal stockholders of BNC and
members of their immediate families and businesses in which they hold
controlling interests are customers of the Banks, and it is anticipated that
such parties will continue to be customers of the Banks in the future. All
outstanding loans and extensions of credit by the Banks to these parties
were made in the ordinary course of business in accordance with applicable
laws and regulations and on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other unaffiliated persons, and in the opinion of
management do not involve more than the normal risk of collectibility or
present other unfavorable features. At March 31, 1997, the aggregate
balance of the Banks' loans and advances under existing lines of credit to
these parties was approximately $397,000 or 0.20% of the Banks' total loans.
SUPERVISION AND REGULATION
BNC and the Banks are extensively regulated under federal and state
laws and regulations. These laws and regulations are primarily intended to
protect depositors and the federal deposit insurance funds, not investors in
the securities of BNC. The following information summarizes certain
material statutes and regulations affecting BNC and the Banks and is
qualified in its entirety by reference to the particular statutory and
regulatory provisions. Any change in applicable laws, regulations or
regulatory policies may have a material effect on the business, operations
and prospects of BNC and the Banks. The Company is unable to predict the
nature or extent of the effects that fiscal or monetary policies, economic
controls or new federal or state legislation may have on its business and
earnings in the future.
BNC
General. BNC is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended ("BHCA"), and is subject to
regulation, supervision and examination by the Board of Governors of the
Federal Reserve System ("FRB"). The BHCA and other federal laws subject
bank holding companies to particular restrictions on the types of activities
in which they may engage, and to a range of supervisory requirements and
activities, including regulatory enforcement actions for violations of laws
and regulations. The Company is required to file quarterly and annual
reports with the FRB, and such additional information as the FRB may require
pursuant to the BHCA. The FRB may examine BNC or any of its subsidiaries,
and charge BNC for the cost of such an examination.
Acquisitions. As a bank holding company, BNC is required to obtain the
prior approval of the FRB before acquiring control of more than 5% of the
voting shares or substantially all the assets of another bank holding
company or merging with another bank holding company. In reviewing
acquisition applications, the FRB considers the competitive effects of the
proposed transaction, and managerial, financial, capital and other factors,
including the record of performance of the applicant and the bank or banks
to be acquired under the Community Reinvestment Act of 1977 ("CRA"). See "-
The Banks -- Community Reinvestment Act."
Permissible Activities. A bank holding company may not engage in, or
acquire direct or indirect control of more than 5% of the voting shares of
any company engaged in a non-banking activity, unless such activity has been
determined by the FRB to be closely related to banking or managing banks.
The FRB has identified certain non-banking activities in which a bank
holding company may engage without notice or prior approval by the FRB, such
as making or servicing loans and certain types of leases, engaging in
certain insurance and discount brokerage activities, performing certain data
processing services, acting as a fiduciary or investment or financial
advisor in certain circumstances, and making investments in certain
corporations or projects designed primarily to promote community welfare.
Safe and Sound Banking Practices. Activities and operations of bank
holding companies are generally subject to FRB review for unsafe and unsound
banking practices. Pursuant to such authority, the FRB may require a bank
holding company to seek FRB approval before the bank holding company may
take certain actions and cause a bank holding company to take certain steps
to prevent unsafe and unsound banking practices, such as requiring a bank
holding company to make funds available to its banking subsidiaries if the
FRB believes it prudent to do so.
Anti-Tying Restrictions. Bank holding companies and their affiliates
are prohibited from tying the provision of certain services, such as
extensions of credit, to other services offered by a holding company or its
affiliates.
Capital Adequacy. The FRB monitors on a consolidated basis the capital
adequacy of bank holding companies by using a combination of risk-based and
leverage ratios. Failure to meet the capital guidelines may result in
supervisory or enforcement actions by the FRB. Under the risk-based capital
guidelines, different categories of assets are assigned different risk
weights, based generally on the perceived credit risk of the asset. These
risk weights are multiplied by corresponding asset balances to determine a
"risk-weighted" asset base. For purposes of the risk-based capital
guidelines, total capital is defined as the sum of "Tier 1" and "Tier 2"
capital elements, with Tier 2 capital being limited to 100% of Tier 1
capital. Tier 1 capital includes, with certain restrictions, common stock,
retained earnings, perpetual preferred stock (no more than 25% of Tier 1
capital being comprised of cumulative preferred stock) and minority
interests in consolidated subsidiaries, less most intangible assets. Tier 2
capital includes, with certain limitations, perpetual preferred stock not
included in Tier 1 capital, certain maturing capital instruments and the
allowance for loan and lease losses (limited to 1.25% of risk-weighted
assets). The Notes offered hereby are expected to qualify as Tier 2
capital. The regulatory guidelines require a minimum ratio of total capital
to risk-weighted assets of 8% (of which at least 4% should be in the form of
Tier 1 capital). The FRB has also implemented a leverage ratio, which is
defined to be a company's Tier 1 capital divided by its average total
consolidated assets. The minimum required leverage ratio for top-rated bank
holding companies is 3%, but most companies are required to maintain an
additional cushion of at least 100 to 200 basis points.
The table below sets forth BNC's ratios of (i) total capital to risk-
weighted assets, (ii) Tier 1 capital to risk-weighted assets and (iii) Tier 1
leverage ratio, at March 31, 1997 and as adjusted to give effect to the
estimated net proceeds from the offering.
At March 31, 1997
-----------------------------------
Minimum
Ratio Actual As adjusted required
----- -------- ------------- ----------
Total capital to risk-weighted assets 8.8% 14.8% 8.0%
Tier 1 capital to risk-weighted assets 8.1% 8.1% 4.0
Tier 1 leverage ratio 6.6% 6.6% 3.0
________________
Support of Banks. As discussed below, the Banks are also subject to
capital adequacy requirements. BNC could be required to guarantee the
capital restoration plan of one or more of its Banks, should such Banks
become "undercapitalized," as defined in the banking laws and regulations.
See "- The Banks -- Capital Adequacy." BNC's maximum liability under any
such guarantee would be the lesser of 5% of the undercapitalized Bank's
total assets at the time it became undercapitalized or the amount necessary
to bring the Bank into compliance with the capital plan. The FRB also has
stated that bank holding companies are subject to the "source of strength
doctrine," which requires bank holding companies to serve as a source of
"financial and managerial" strength to their subsidiary banks.
Federal banking regulators are required to take "prompt corrective
action" with respect to capital-deficient institutions. In addition to
requiring the submission of a capital restoration plan, there are broad
restrictions on certain activities of undercapitalized institutions
involving asset growth, acquisitions, branch establishment, and expansion
into new lines of business. With certain exceptions, an insured depository
institution is prohibited from making capital distributions, including
dividends, and is prohibited from paying management fees to control persons
if the institution would be undercapitalized after any such distribution or
payment.
The Banks
General. As national banking associations, the Banks are principally
supervised, examined and regulated by the OCC. The OCC regularly examines
such areas as capital adequacy, loss reserves, loan portfolio, investments
and management practices. The Banks must also furnish quarterly and annual
reports to the OCC, and the OCC may exercise cease and desist and other
enforcement powers over the Banks if their actions represent unsafe or
unsound practices or violations of law. Since the deposits of the Banks are
insured by the FDIC through the BIF and SAIF, as applicable, the Banks are
also subject to regulations and supervision by the FDIC. The Banks are also
members of the Federal Reserve System.
Community Reinvestment Act. The CRA requires the Banks to adequately
meet the credit needs of their communities. The CRA allows regulators to
turn down an applicant seeking, among other things, to make an acquisition
or establish a branch unless it has performed satisfactorily under the CRA.
Federal regulators regularly conduct CRA examinations to assess the
performance of financial institutions. In each of the last two
examinations, the Banks received satisfactory ratings.
Transactions with Affiliates. The Banks are subject to Section 23A of
the Federal Reserve Act, which limits the amount of loans to, investments
in, and certain other transactions with, affiliates of the Banks, including
BNC, requires certain levels of collateral for such loans or transactions,
and limits the amount of advances to third parties that are collateralized
by the securities or obligations of affiliates, unless the affiliate is a
bank and is at least 80% owned by BNC. If the affiliate is a bank and 80%
or greater ownership exists, the transactions are generally exempted from
these restrictions, except as to "low quality" assets, as defined under the
Federal Reserve Act, provided that such transaction is consistent with safe
and sound banking practices. In addition, Section 23A generally limits
transactions with affiliates of a bank to 10% of the bank's capital and
surplus and generally limits all transactions with affiliates to 20% of the
bank's capital and surplus.
Section 23B of the Federal Reserve Act requires that certain
transactions between any of the Banks and their non-bank affiliates must be
on substantially the same terms, or at least as favorable to the Banks, as
those prevailing at the time for comparable transactions with or involving
nonaffiliated companies or, in the absence of comparable transactions, on
terms and under circumstances, including credit standards, that in good
faith would be offered to or would apply to nonaffiliated companies. The
aggregate amount of an institution's loans to officers, directors and
principal shareholders (or their affiliates) is limited to the amount of its
unimpaired capital and surplus, unless the FDIC determines that a lesser
amount is appropriate.
A violation of the restrictions of Section 23A or Section 23B may
result in the assessment of civil monetary penalties on a bank or a person
participating in the conduct of the affairs of such bank or the imposition
of an order to cease and desist.
Cross-Guarantee. A depository institution insured by the FDIC can be
held liable for any loss incurred by, or reasonably expected to be incurred
by, the FDIC in connection with (i) the default of a commonly controlled
FDIC-insured depository institution or (ii) any assistance provided by the
FDIC to a commonly controlled FDIC-insured institution in danger of default.
Dividend Restrictions. Dividends paid by the Banks provide a
substantial portion of BNC's cash flow. Under both federal and state law,
the approval of a Bank's principal regulator is required prior to the
declaration of any dividend by a bank if the total of all dividends declared
in any calendar year exceed the total of its net profits for that year
combined with its retained net profits for the preceding two years. North
Dakota and Minnesota law prohibit the payment of a dividend that would
impair an institution's capital. In addition, a bank cannot pay a dividend
if it will cause the bank to be "undercapitalized," as discussed below.
Capital Adequacy. Federal regulations establish minimum requirements
for the capital adequacy of depository institutions that are generally the
same as those established for bank holding companies. See "- BNC -- Capital
Adequacy." Banks with capital ratios below the required minimum are subject
to certain administrative actions, including the termination of deposit
insurance and the appointment of a receiver and may also be subject to
significant operating restrictions. See "- BNC -- Support of Banks".
The following table sets forth the respective capital ratios of BNC -
North Dakota and BNC - Minnesota at March 31, 1997.
March 31, 1997
-----------------
Minimum
Ratio Actual required
----- ------ --------
Total capital to risk-weighted assets
BNC - North Dakota 10.6% 8.0%
BNC - Minnesota 11.3 8.0
Tier 1 capital to risk-weighted assets
BNC - North Dakota 9.9 4.0
BNC - Minnesota 10.5 4.0
Tier 1 leverage ratio
BNC - North Dakota 7.2 4.0
BNC - Minnesota 11.5 4.0
________________
Prompt Corrective Action. The OCC is required to take "prompt
corrective action" with respect to any national bank that does not meet
specified minimum capital requirements. The applicable regulations establish
five capital levels, ranging from "well capitalized" to "critically
undercapitalized," which authorize, and in certain cases require, the OCC to
take certain specified supervisory action. Under certain circumstances, a
well capitalized, adequately capitalized or undercapitalized institution may
be treated as if the institution were in the next lower capital category.
With certain exceptions, national banks will be prohibited from making
capital distributions or paying management fees to a holding company if the
payment of such distributions or fees will cause them to become
undercapitalized. Furthermore, undercapitalized national banks will be
required to file capital restoration plans with the OCC. Such a plan will
not be accepted unless, among other things, the banking institution's holding
company guarantees the plan up to a certain specified amount. Any such
guarantee from a depository institution's holding company is entitled to a
priority of payment in bankruptcy. Undercapitalized national banks also will
be subject to restrictions on growth, acquisitions, branching and engaging in
new lines of business unless they have an approved capital plan that permits
otherwise. The OCC also may, among other things, require an undercapitalized
national bank to issue shares or obligations, which could be voting stock, to
recapitalize the institution or, under certain circumstances, to divest
itself of any subsidiary.
The OCC is authorized to take various enforcement actions against any
significantly undercapitalized national bank and any national bank that fails
to submit an acceptable capital restoration plan or fails to implement a plan
accepted by the OCC. These powers include, among other things, requiring the
institution to be recapitalized, prohibiting asset growth, restricting
interest rates paid, requiring primary approval of capital distributions by
any bank holding company which controls the institution, requiring
divestiture by the institution of its subsidiaries or by the holding company
of the institution itself, requiring new election of directors, and requiring
the dismissal of directors and officers.
Significantly and critically undercapitalized national banks may be
subject to more extensive control and supervision. The OCC may prohibit any
such institution from, among other things, entering into any material
transaction not in the ordinary course of business, amending its charter or
bylaws, or engaging in certain transactions with affiliates. In addition,
critically undercapitalized institutions generally will be prohibited from
making payments of principal or interest on outstanding subordinated debt.
Within 90 days of a national bank becoming critically undercapitalized, the
OCC must appoint a receiver or conservator unless certain findings are made
with respect to the prospect for the institution's continued viability.
As of the date of this Prospectus, the Banks met the capital
requirements of "well-capitalized" institutions.
Deposit Insurance. The deposits of the Banks are insured by the FDIC
through the BIF or SAIF, as applicable, to the extent provided by law. Under
the FDIC's risk-based insurance system, BIF- and SAIF-insured institutions
are currently assessed premiums of between zero and twenty seven cents per
$100 of eligible deposits, depending upon the institution's capital position
and other supervisory factors. Congress recently enacted legislation that,
among other things, provides for assessments against BIF- and SAIF-insured
institutions that will be used to pay certain Financing Corporation ("FICO")
obligations which currently range from $0.0130 to $0.0648.
Conservator and Receivership Powers. Federal banking regulators have
broad authority to place depository institutions into conservatorship or
receivership to include, among other things, appointment of the FDIC as
conservator or receiver of an undercapitalized institution under certain
circumstances. In the event the Bank is placed into conservatorship or
receivership, the FDIC is required, subject to certain exceptions, to choose
the method for resolving the institution that is least costly to the BIF,
such as liquidation. In any event, if either of the Banks was placed into
conservatorship or receivership, because of the cross-guarantee provisions of
the Federal Deposit Insurance Act, as amended, the Company as the sole
shareholder of the Bank, would likely lose its investment in the Bank.
Restrictions on Loans to One Borrower. Under federal law, permissible
loans to one borrower by the Banks are generally limited to 15% of their
unimpaired capital, surplus, undivided profits and loan loss reserves. The
Banks seek participations to accommodate borrowers whose financing needs
exceed lending limits.
Consumer Laws and Regulations. In addition to the laws and regulations
discussed herein, the Banks are also subject to certain consumer laws and
regulations that are designed to protect customers in transactions with
Banks. These include but are not limited to the Truth in Lending Act, the
Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds
Availability Act, the Equal Credit Opportunity Act and the Fair Housing Act.
These laws and regulations mandate certain disclosure requirements and
regulate the manner in which financial institutions must deal with customers
when taking deposits or making loans to such customers.
Interstate Banking and Branching
Federal legislation enacted in 1994 removed certain barriers to
interstate banking and permitted de novo interstate branching for the first
time. Effective June 1, 1997, banks may engage in interstate branching by
merging with banks in those states that have not opted out of the federal
legislation. Banks will also be able to establish de novo branches in
states where they do not own any depository institutions, but only if the
state specifically elects to opt in to the de novo branching provisions of
the federal legislation. Both North Dakota and Minnesota have elected to
opt into such provisions.
Changing Regulatory Structure
The FRB, OCC and FDIC have extensive authority to police unsafe or
unsound practices and violations of applicable laws and regulations by
depository institutions and their holding companies. The agencies'
authority has been expanded by federal legislation in recent years, and the
agencies have not yet fully tested the limits of their powers. In addition,
the North Dakota Department of Banking and Financial Institutions and the
Minnesota Department of Commerce possess significant authority to address
violations of their respective state's banking laws by banks operating in
their respective states by enforcement and other supervisory actions.
The laws and regulations affecting banks and bank holding companies
have changed significantly in recent years, and there is reason to expect
that changes will continue in the future, although it is difficult to
predict the outcome of these changes. From time to time, various bills are
introduced in the United States Congress with respect to regulation of
financial institutions. Certain of these proposals, if adopted, could
significantly change the regulation of banks and the financial services
industry. BNC cannot predict whether any of these proposals will be adopted
or, if adopted, how these proposals would affect BNC.
Monetary Policy
The monetary policy of the FRB has a significant effect on the
operating results of bank holding companies and their subsidiaries. The FRB
uses the various means at its disposal to influence overall growth and
distribution of bank loans, investments and deposits, and interest rates
charged on loans or paid on deposits. FRB monetary policies have materially
affected the operations of commercial banks in the past and are expected to
continue to do so in the future. The nature of future monetary policies and
the effect of such policies on the business and earnings of BNC and its
subsidiaries cannot be predicted.
PRINCIPAL STOCKHOLDERS
The following table sets forth as of April 1, 1997 certain information
regarding beneficial ownership of the Common Stock by (i) each stockholder
known by BNC to be the beneficial owner of more than 5% of the outstanding
Common Stock, (ii) each director of BNC, (iii) each Named Executive Officer,
and (iv) all of BNC's directors and executive officers as a group. Unless
otherwise indicated, BNC believes that the stockholders listed below have
sole investment and voting power with respect to their shares based on
information furnished to BNC by such owners. As of April 1, 1997, the
Company had 2,338,720 shares of Common Stock outstanding.
Percent of
Number of shares outstanding
Name of beneficial owner beneficially owned common stock(1)
- ----------------------------------- -------------------- ---------------
Tracy J. Scott(2) 129,700 (3)(4)(5)(6) 5.5%
Gregory K. Cleveland 91,182 (3)(4)(5)(7) 3.9%
John A. Malmberg 42,993 (3)(5) 1.8%
Thomas J. Resch 8,328 (3)(5)(8) *
Brad J. Scott 36,303 (3)(4)(5) 1.6%
David A. Erickson(2) 169,191 (3)(9) 7.2%
John A. Hipp, M.D. 99,900 (10) 4.3%
Richard M. Johnsen, Jr. 1,000 *
John M. Shaffer 3,500 *
Jerry R. Woodcox 2,500 *
BNC National Bank, as Trustee of
the BNCCORP, INC. 401(k) Savings
Plan (the "Plan") (2)(11) 174,501 7.5%
FBL Investment Advisory Services,
Inc. ("FBL")(2)(12) 151,500 6.5%
All directors and executive officers
as a group (11 persons) 417,298 (3)(4)(5) 17.8%
___________________
* Less than 1%.
(1) Shares subject to options exercisable within 60 days of April 1, 1997
are deemed outstanding for computing the percentage of the Company's
common stock owned by a person holding such options and for the
percentage owned by all directors and executive officers as a group but
are not deemed outstanding for computing the ownership percentage of
any other person.
(2) The address of Mr. T. Scott is c/o BNCCORP, Inc., 322 East Main,
Bismarck, North Dakota 58501, the address of Mr. Erickson is 500 East
Elm Street, Linton, North Dakota, 58552, the address of the trustee of
the Plan is 322 East Main, Bismarck, North Dakota 58501 and the address
of FBL is 5400 University Avenue, West Des Moines, Iowa 50266.
(3) Includes shares allocated to such individuals' accounts as of April 1,
1997 under the Company's 401(k) Plan as follows: Mr. T. Scott (13,458
shares), Mr. Cleveland (3,182 shares), Mr. Malmberg (34,443 shares),
Mr. Resch (1,038 shares), Mr. B. Scott (16,105 shares), Mr. Erickson
(38,871 shares) and all directors and executive officers as a group
(68,955 shares).
(4) Includes shares of restricted stock that were issued under, and are
subject to the restrictions of, the Stock Plan, as follows: Mr. T.
Scott (7,508), Mr. Cleveland (7,257), Mr. B. Scott (2,533) and all
directors and executive officers as a group (17,899). See "Management
- Stock Incentive Plan."
(5) Includes shares issuable upon the exercise of stock options that will
be exercisable within 60 days: Mr. T. Scott (2,414), Mr. Cleveland
(2,263), Mr. Malmberg (1,290), Mr. Resch (1,290), Mr. B. Scott (1,525)
and all directors and executive officers as a group (9,144).
(6) Includes 2,000 shares owned of record by Mr. Scott's children.
(7) Includes 78,480 shares owned of record by Mr. Cleveland's wife.
(8) Includes 3,000 shares owned of record by Mr. Resch's wife.
(9) Includes 38,820 shares owned of record by Mr. Erickson's wife.
(10) Includes 60,000 shares owned of record by Dr. Hipp's wife and 3,000
owned by Dr. Hipp's children.
(11) Each participant of the Plan will be entitled to direct the trustee of
the Plan as to the manner in which to vote the shares allocated to the
participant's account.
(12) Pursuant to a Schedule 13G filed on May 13, 1996, FBL reported sole
voting and dispositive power with respect to 151,500 shares of Common
Stock.
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to an Indenture dated as of May
_____, 1997 by and between the Company and Firstar Trust Company, as Trustee
(the "Trustee"). The Notes are not savings accounts or deposits of the
Banks and are not insured by the FDIC, any other governmental agency or
otherwise. A copy of the Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following is
a summary of certain provisions of the Notes and the Indenture. These
summaries do not purport to be complete and are subject to and qualified in
their entirety by the terms of the Notes and the Indenture. Wherever
particular provisions and definitions of the Indenture are referred to, such
provisions and definitions are incorporated by reference as part of the
statements made, and the statements are qualified in their entirety by such
reference. For purposes of the following summary, the term the "Company"
excludes the Company's subsidiaries unless otherwise provided. Capitalized
terms used herein shall have the same meanings as in the Indenture.
General
The Notes will be limited in principal amount to $15,000,000. The
Notes will be offered only in denominations of $1,000 and integral multiples
thereof. The Notes mature on May 31, 2004 and will bear interest at the
rate per annum set forth on the cover page of this Prospectus. Interest
will be payable monthly, on the first Business Day of each month, commencing
with July 1, 1997, to each person in whose name the Note is registered at
the close of business on the fifteenth day of the month immediately
preceding such Interest Payment Date. Interest will be computed on the
basis of a 360-day year of twelve 30-day months. Principal and interest
will be payable at the offices of the Trustee, provided that, at the option
of the Company, if the Notes are no longer in the form of Registered Global
Securities, payment of interest may be made by check mailed to the address
of the person entitled thereto as it appears in the Security Register
maintained by the Security Registrar. The Notes will not be entitled to any
sinking fund.
Subject to the terms of the Indenture and the limitations applicable to
Registered Global Securities, the Notes will be transferable and
exchangeable at the office of the Registrar or any co-registrar and will be
issued in fully registered form, provided that the Company shall not be
required to register a transfer of or to exchange the Notes during the
period of 15 days immediately preceding any selection of Notes for
redemption. The Company may require payment of a sum sufficient to cover
any transfer tax or other similar governmental charge payable in connection
with certain transfers and exchanges.
The Notes will not be secured by the assets of the Company or any of
its Subsidiaries or otherwise and will not have the benefit of a sinking
fund for the retirement of principal. In addition, the rights of the
Company to participate in any distribution of assets of any Subsidiary,
including a Bank, upon its liquidation or reorganization or otherwise (and
thus the ability of the Holders of the Notes to benefit indirectly from such
distribution) are subject to the prior claims of creditors of that
Subsidiary. Claims on the Company's Subsidiaries by creditors other than
the Company may include substantial obligations with respect to deposit
liabilities, federal funds purchased and securities sold under repurchase
agreement and other debt obligations. There are also limitations on the
extent to which the Banks may pay dividends or make other payments to the
Company.
As long as the Company is a reporting company under the Exchange Act,
the Company will furnish to the Holders of the Notes, annual reports of the
Company containing audited financial statements. If the Company ceases to
be a reporting company under the Exchange Act, the Company will furnish to
Holders of the Notes annual audited financial statements.
The Indenture does not contain provisions that would provide protection
to Holders against a sudden and dramatic decline in credit quality resulting
from takeovers, recapitalizations or similar restructurings.
Redemption at the Option of the Company
The Notes may not be redeemed before May 31, 2000. At any time after
May 31, 2000, the Notes will be redeemable, in whole or in part, at the
option of the Company, upon notice given no more than 60 days and no less
than 30 days prior to redemption, given as provided in the Indenture, at par
plus accrued interest to the date fixed for redemption. In case of the
redemption of less than all of the outstanding Notes, the Notes to be
redeemed shall be selected by the Trustee by such method as the Trustee
shall deem fair and appropriate, including the selection for redemption of a
portion of the principal amount of any Note but not less than $1,000. On
and after the Redemption Date, interest will cease to accrue on the Notes or
portions thereof called for redemption. As long as the Notes are
represented in the form of Registered Global Security, a new Registered
Global Security or Securities will be executed and authenticated in exchange
for the unredeemed portion of the principal of any partially redeemed Note.
Subordination
The Notes will be unsecured general obligations of the Company and will
be subordinated to all Senior Indebtedness (as defined below) of the Company
and effectively subordinated to all present and future liabilities of the
Company's subsidiaries.
Upon any payment or distribution of assets or securities of the Company
in any dissolution, winding up, total or partial liquidation or
reorganization of the Company, if (i) an event of default has occurred and
is continuing with respect to any Senior Indebtedness or (ii) an
Acceleration Event shall have occurred and the principal and interest on,
and any other amounts in respect of, the Notes has been declared due and
payable and such declaration has not been rescinded or annulled, then all
Senior Indebtedness, including any interest occurring on such Senior
Indebtedness must be paid in full before any payment of principal or
interest on the Notes can be made. By reason of such subordination, in the
event of insolvency, holders of the Notes may recover less, ratably, than
other creditors of the Company.
"Senior Indebtedness" means all Indebtedness of the Company, including
principal and interest on such Indebtedness whether outstanding on the date
of this Indenture or hereafter created, incurred, assumed or guaranteed by
the Company, unless such Indebtedness, by its terms or the terms of the
instrument creating or evidencing it is subordinate in right of payment to,
or pari passu with, the Notes.
"Indebtedness" means (without duplication), with respect to any Person,
(i) any obligation, contingent or otherwise, of such Person for borrowed
money, (ii) any obligation (including the Notes) of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) any obligation
of such Person to pay the deferred purchase price of property or services
(including conditional sale and title retention arrangements and any
interest accruing subsequent to an event of default with respect to such
obligation), except accounts payable and accrued expenses incurred in the
ordinary course of business, and (iv) any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance
with generally accepted accounting principles.
Events of Default
An Event of Default includes: (a) failure to pay the principal on the
Notes when due at maturity or upon redemption, as provided in the Indenture,
whether or not prohibited by the subordination provisions of the Indenture;
(b) failure to pay any interest on the Notes for 10 days after such interest
shall have become due and payable, whether or not prohibited by the
subordination provisions of the Indenture; (c) failure to perform any other
covenant set forth in the Indenture for 30 days after receipt of written
notice from the Trustee or Holders of at least 25% in principal amount of
the outstanding Notes specifying the default and requiring the Company to
remedy such default; (d) default in the payment at maturity of Indebtedness
of the Company or a Subsidiary having an outstanding principal amount due at
maturity greater than $2.0 million and such default having continued without
being cured, waived or consented to or without such Indebtedness being
discharged for a period of 30 days beyond any applicable grace period; (e)
an event of default as defined in any mortgage, indenture or instrument of
the Company or any Subsidiary shall have happened and resulted in the
acceleration of indebtedness which together with the principal amount of any
other Indebtedness so accelerated, aggregates $2.0 million or more at any
time, and such default shall not have been cured or waived and such
acceleration shall not have been rescinded or annulled; (f) entry of a final
judgment, decree or order against the Company or any Subsidiary for the
payment of money in excess of $1.0 million and such judgment, decree or
order continues unsatisfied for 60 days from the entry thereof, unless
vacated, discharged or stayed pending appeal within such 60-day period; and
(g) certain events of bankruptcy, insolvency, or reorganization of the
Company. Except as described under "- Acceleration Events" below, there is
no right to acceleration in the case of an Event of Default.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a "default" (meaning, for this purpose, the events specified
above without grace periods), give the Holders of the Notes notice of all
defaults known to it which have occurred and remain uncured; provided, that,
except in the case of a default in the payment of principal or interest on
any of the Notes, the Trustee shall be protected in withholding such notice
if and as long as it in good faith determines that the withholding of such
notice is in the interest of the Holders.
The Company must furnish annually to the Trustee an Officers'
Certificate stating whether to the best of the knowledge of the signers the
Company is in default under any of the provisions of the Indenture, and
specifying all such defaults and the nature thereof, of which they have
knowledge.
Upon the occurrence of any Event of Default the Company shall, upon
demand of the Trustee, pay to the Trustee, for the benefit of the Holders of
the Notes, the whole amount then due and payable with respect to such Notes.
If an Event of Default with respect to the Notes occurs and is continuing,
the Trustee may in its discretion proceed to protect and enforce its rights
and the rights of the Holders of the Notes by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce
any such rights, whether for the specific enforcement of any covenant or
agreement in the Indenture or such Notes or in aid of the exercise of any
power granted in the Indenture or the Notes, or to enforce any other proper
remedy.
A Holder will not have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless (a) such Holder
shall have previously given to the Trustee written notice of a continuing
Event of Default, (b) the Holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made a written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, (c) the Trustee shall have failed to institute such proceeding
within 60 days, and (d) the Trustee shall not have received from the Holders
of a majority in aggregate principal amount of the outstanding Notes a
direction inconsistent with such requests. However, the Holder of any Note
will have an absolute right to receive payment of the principal of and
interest on such Note on or after the respective due dates and to institute
suit for the enforcement of any such payment.
Acceleration Events
The Indenture defines an "Acceleration Event" as an Event of Default
relating to bankruptcy, insolvency or reorganization of the Company. If an
Acceleration Event shall occur and be continuing, either the Trustee or the
Holders of at least 25% in aggregate principal amount of outstanding Notes
may accelerate the maturity of all such outstanding Notes. If an
Acceleration Event has occurred and a declaration of acceleration made before
a judgment or decree for payment of money due is obtained, holders of a
majority of the outstanding Notes may rescind the acceleration of the Notes
if all Acceleration Events have been remedied and all payments due, other
than those due as a result of acceleration, have been made.
Limitation on Dividends and Other Payments
The Company has agreed not to declare or pay dividends on, or purchase,
redeem or acquire its capital stock, return any capital to holders of capital
stock, or make any distribution of assets to holders of capital stock, except
that the Company (i) may declare and pay a dividend in capital stock of the
Company and (ii) declare and pay a dividend or make another distribution in
cash or property other than capital stock of the Company if the amount of
such dividend or distribution, together with the amount of all such previous
dividends and distributions after March 31, 1997, would not exceed the sum of
(A) $2 million, (B) 75% of the Company's Consolidated Net Income (or, in the
event such aggregate Consolidated Net Income shall be a loss, minus 100% of
such loss) accrued on a cumulative basis during the period beginning on April
1, 1997 and ending on the last day of the Company's fiscal quarter
immediately preceding such dividend or distribution and (C) 100% of the net
proceeds received by the Company from the issuance or sale (other than to a
Subsidiary) of capital stock of the Company, including any such shares issued
upon exercise of any warrants, options or similar rights (other than
Disqualified Stock), subsequent to the Initial Issuance Date.
Merger, Consolidation or Sale of Assets; Successor Corporation
The Indenture provides that the Company may not consolidate with, merge
with, or transfer all or substantially all of its assets to another entity
unless such other entity assumes the Company's obligations under the
Indenture and unless, after giving effect thereto, no event shall have
occurred and be continuing which, after notice or lapse of time, would
become an Event of Default, each insured institution controlled by the
surviving corporation shall be in compliance with applicable minimum capital
requirements and certain other conditions are met.
Satisfaction, Discharge and Defeasance of Indebtedness
The Company may satisfy and discharge its obligations under the
Indenture by delivery to the Trustee for cancellation all outstanding Notes
or by depositing with the Trustee, after the Notes have become due and
payable, cash sufficient to pay at maturity all of the outstanding Notes and
paying all other sums payable under the Indenture by the Company.
Under terms satisfactory to the Trustee, the Company may discharge
substantially all of its obligations under the Indenture to holders of Notes
which by their terms are due and payable within one year (or are to be
called for redemption within one year) by depositing with the Trustee in
trust for the benefit of the holders money in an amount sufficient to pay
and discharge the principal of and interest on, the Notes then outstanding
at and through the maturity or redemption date ("defeasance"). Under terms
satisfactory to the Trustee, the Company may also discharge substantially
all of its obligations under the Indenture imposed by the covenants
described above ("defeasible events") and omit to comply with such
provisions without creating an Event of Default ("covenant defeasance").
Defeasance or covenant defeasance may be effected only if, among other
things, the Company irrevocably deposits with the Trustee in trust for the
benefit of the holders, Money in an amount of or United States Government
Obligations, which through the payment of interest and principal will
provide, prior to the due date of principal of and each installment of
interest in respect of the Notes, Money in an amount, or a combination
thereof, sufficient to pay and discharge the principal of and interest on
the Notes then outstanding at maturity or at the earliest date at which the
Company may redeem such Notes if the Company has made adequate arrangements
with the Trustee to redeem such Notes at such time and complies with certain
other requirements. The Indenture will not be discharged if, among other
things, an Event of Default (other than a defeasible event), or an event
which with notice or lapse of time would have become such an Event of
Default, shall have occurred and be continuing on the date of such deposit
or during the period ending on the 91st day after such date. In the event
of any such defeasance and discharge, the holders of the Notes will
thereafter be able to look only to such trust fund for payment of principal
and interest on the Notes.
Modification and Waiver
The Indenture provides that modifications and amendments to the
Indenture or the Notes may be made by the Company and the Trustee with the
consent of the holders of a majority in principal amount of the Notes then
outstanding; provided that no such modification or amendment may, without
the consent of the holder of each Note then outstanding, (i) change the
maturity of the principal of, or any installment of interest on, any Note,
reduce the principal amount of a Note or the rate of interest thereon,
change the place of payment where or the coin or currency in which amounts
due on the Notes are payable; (ii) make any reduction in the principal
amount of Notes whose holders must consent to an amendment or any waiver
under the Indenture or modify the Indenture provisions relating to such
amendments or waivers; or (iii) impair or affect the right to institute suit
for the enforcement of any payment with respect to the Notes.
Without the consent of any holder of Notes, the Company and the Trustee
may amend the Indenture to (i) evidence the succession of another Person to
the Company and the assumption by any such successor of the covenants and
agreements of the Company under the Indenture or the Notes; (ii) add
covenants of the Company for the benefit of the Holders of the Note, or to
surrender any right or power conferred upon the Company in the Indenture;
(iii) secure the Notes; or (iv) cure any ambiguity, correct or supplement
any provision of the Indenture which may be inconsistent with any other
provision of the Indenture, or any such other provisions with respect to the
matters or questions arising under the Indenture which shall not be
inconsistent with the provisions of the Indenture, provided such action
pursuant to this clause (iv) shall not adversely affect the interests of the
holders of the Notes in any material respect.
The Indenture will provide that the holders of a majority in aggregate
principal amount of the Notes then outstanding may waive any past default
under the Indenture with respect to the Notes, except a default in the
payment of principal or interest.
Governing Law
The Indenture and the Notes will be governed by and construed in
accordance with the laws of the State of New York, and for all purposes
shall be construed in accordance with the laws of such state.
The Trustee
Firstar Trust Company will initially be the Trustee under the
Indenture. The Company has also appointed the Trustee as the initial
Registrar and as initial Paying Agent under the Indenture. The Indenture
and provisions of the Trust Indenture Act incorporated by reference therein
contain limitations on the right of the Trustee, should it become a creditor
of the Company to obtain payment of claims in certain cases or to realize on
certain property received by it in respect of any such claim as security or
otherwise. The Trustee does banking business on a regular basis with the
Company and is a lender to the Company, including under the Firstar Line of
Credit, outstanding amounts under which will be repaid with proceeds of this
offering. See "Use of Proceeds."
Book-Entry, Delivery and Form
The Notes will be represented by one or more Registered Global
Securities registered in the name of DTC or its nominee. Unless and until it
is exchanged in whole or in part for Notes in definitive form, a Registered
Global Security may not be transferred except as a whole to a nominee of DTC
for such Registered Global Security, or by a nominee of DTC to DTC or another
nominee of DTC, or by DTC or any such nominee to a successor Depository or a
nominee of such successor Depository. Initially, the Notes will be
registered in the name of Cede & Co., the nominee of DTC.
Ownership of beneficial interests in a Registered Global Security will
be limited to persons who have accounts with DTC or its nominee
("participants") or persons who hold interests through participants.
Ownership of beneficial interests in the Registered Global Security will be
shown on, and the transfer of these ownership interests will be effected only
through, records maintained by DTC or its nominee (with respect to interests
of participants) and the records of participants (with respect to interests
of persons held by such participants on their behalf).
As long as DTC, or its nominee, is the registered owner or holder of a
Registered Global Security, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by such
Registered Global Security for all purposes under the Indenture and the
Notes. In addition, no beneficial owner of an interest in a Registered
Global Security will be able to transfer that interest except in accordance
with the applicable procedures of DTC.
Payments on a Registered Global Security will be made to DTC or its
nominee, as the registered owner thereof. None of the Company, the Trustee
or any paying agent will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial
ownership interests in a Registered Global Security or for maintaining,
supervising or reviewing any records related to such beneficial ownership
interests.
The Company has been advised by DTC that upon receipt of any payment in
respect of a Registered Global Security representing any Notes held by it or
its nominee, DTC will immediately credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Registered Global Security for such Notes as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the
accounts of customers registered in the names of nominees for such
customers. Such payment will be the responsibility of such participants.
None of the Company, the Trustee or any agent of the Company, or the Trustee
shall have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial interests in a
Registered Global Security, or for maintaining, supervising or reviewing any
records relating to such beneficial interests.
Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules. The laws of some states require that
certain persons take physical delivery of securities in definitive form.
Consequently, the ability to transfer beneficial interests in a Registered
Global Security to such persons may be limited. Because DTC can only act on
behalf of participants, who in turn act on behalf of indirect participants
(as defined below) and certain banks, the ability of a person having a
beneficial interest in a Registered Global Security to pledge such interest
to Persons that do not participate in the DTC system, or otherwise take
actions in respect of such interest, may be affected by the lack of a
physical certificate of such interest.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). DTC holds securities that its participants deposit
with DTC and 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. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a direct participant, either
directly or indirectly ("indirect participants"). The rules applicable to
DTC and its participants are on file with the Commission.
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Registered Global Security among
participants of DTC, it is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any
time. Neither the Company nor the Trustee will have any responsibility for
the performance by DTC or the participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
Notes represented by a Registered Global Security will be exchangeable
for Notes in definitive form of like tenor as such Registered Global
Security in denominations of $1,000 and in any greater amount that is an
integral multiple if DTC notifies the Company that it is unwilling or unable
to continue as Depository for such Registered Global Security or if at any
time DTC ceases to be a clearing agency registered under applicable law and
a successor depositary is not appointed by the Company within 90 days or the
Company in its discretion at any time determines not to require all of the
Notes to be represented by a Registered Global Security and notifies the
Trustee thereof. Any Notes that are exchangeable pursuant to the preceding
sentence are exchangeable for Notes issuable in authorized denominations and
registered in such names as DTC shall direct. Subject to the foregoing, a
Registered Global Security is not exchangeable, except for a Registered
Global Security or Registered Global Securities of the same aggregate
denominations to be registered in the name of DTC or its nominee.
Neither the Company nor the Trustee will be liable for any delay by the
related Global Registered Security Holder or DTC in identifying the
beneficial owners of the related Notes, and each such Person may
conclusively rely on, and will be protected in relying on, instructions from
such Global Registered Security Holder or of DTC for all purposes (including
with respect to the registration and delivery, and the respective principal
amounts, of the Notes to be issued).
UNDERWRITING
Dain Bosworth Incorporated (the "Underwriter") has agreed, subject to
the terms and conditions of the Underwriting Agreement, to purchase from the
Company an aggregate of $15,000,000 of Notes at the Price to Public less the
Underwriting Discount set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the Underwriter's obligation
to pay for and accept delivery of the Notes offered hereby is subject to
certain conditions precedent and that the Underwriter will be obligated to
purchase all such Notes, if any are purchased.
The Company has been advised by the Underwriter that it proposes
initially to offer the Notes to the public at the Price to Public set forth
on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of % of principal amount of the
Notes. The Underwriter may allow and such dealers may reallow a concession
not in excess of % of principal amount of Notes to certain other
brokers and dealers. After the offering, the Price to Public, the
concession and reallowances to dealers and other selling terms may be
changed by the Underwriter.
The Notes will be a new issue of securities for which there is
currently no market. The Company does not intend to list the Notes on any
securities exchange, and no active trading market in the Notes is expected
to develop. Although the Underwriter has informed the Company that it
currently intends to make a market in the Notes, it is not obligated to do
so, and any such market making may be discontinued at any time without
notice. Accordingly, there can be no assurances as to the development or
liquidity of any market for the Notes. If the Notes are traded after their
original issuance, they may trade at a discount to their principal amount.
In the Underwriting Agreement the Company has agreed to indemnify the
Underwriter against certain liabilities that may be incurred in connection
with the sale of the Notes, including liabilities arising under the
Securities Act and to contribute to payments that the Underwriter may be
required to make with respect thereto.
In conjunction with the Company's initial public offering of Common
Stock in July 1995, the Underwriter acquired and presently owns warrants to
purchase an aggregate of 50,000 shares of Common Stock of the Company at an
exercise price of $12.00 per share. Such warrants are exercisable at any
time prior to July 13, 2000.
During and after the offering, the Underwriter may purchase and sell
the Notes in the open market. These transactions may include customary
stabilizing transactions which may maintain, stabilize or otherwise affect
the market price of the Notes, which may be higher than the price that might
otherwise prevail in the open market. Such stabilizing transactions, if
commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for BNC by
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., New Orleans,
Louisiana. Oppenheimer Wolff & Donnelly, Minneapolis, Minnesota, is acting
as counsel for the Underwriter in connection with certain legal matters
relating to the Notes offered hereby.
EXPERTS
The consolidated statements of financial condition of BNC as of
December 1996 and 1995 and the consolidated statements of income,
stockholders' equity and cash flows for the years ended December 31, 1996,
1995 and 1994 included in this Prospectus and elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of such firm as experts in
giving said report.
In February 1995, the Company's Board of Directors replaced James J.
Wosepka, CPA with Arthur Andersen LLP as the Company's independent public
accountants. The report of James J. Wosepka, CPA on the Company's financial
statements as of and for the year ended December 31, 1993 did not contain an
adverse opinion or disclaimer of opinion and was not modified as to
uncertainty, audit scope or accounting principles. There were no
disagreements with James J. Wosepka, CPA on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure at the time of the change of independent public accounts or with
respect to the Company's financial statements as of and for the year ended
December 31, 1993. Prior to retaining Arthur Andersen LLP, the Company had
not consulted with Arthur Andersen LLP regarding accounting principles.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form SB-2 under the Securities Act with respect to the Notes being offered
pursuant to this Prospectus. This Prospectus does not contain all
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
Statements contained herein concerning the provisions of any documents are
not necessarily complete and, in each instance, reference is made to the copy
of such document filed as an exhibit to the Registration Statement.
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports, proxy statements and
other information with the Commission. The Registration Statement, as well
as such reports, proxy statements and other information filed with the
Commission by the Company can be inspected and copied at the public reference
facilities of the Commission in Washington, D.C., at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission at the following locations: Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and
the New York Regional Office, 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can be obtained at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
issues that file electronically with the Commission (http://www.sec.gov).
The Company's Common Stock is traded on the Nasdaq National Market. Reports,
proxy statements and other information concerning the Company may also be
inspected at the offices of the National Association of Securities Dealers,
Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants............................. F-2
Consolidated Statements of Financial Condition as of March
31, 1997 (unaudited) and December 31, 1996 and 1995............... F-3
Consolidated Statements of Income for the three months
ended March 31, 1997 and 1996 (unaudited) and the years
ended December 31, 1996, 1995 and 1994............................ F-4
Consolidated Statements of Stockholders' Equity for the three
months ended March 31, 1997 (unaudited) and the years ended
December 31, 1996, 1995 and 1994.................................. F-5
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 (unaudited) and the years
ended December 31, 1996, 1995 and 1994.......................... F-6
Notes to Consolidated Financial Statements........................... F-7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To BNCCORP, Inc.:
We have audited the accompanying consolidated statements of financial
condition of BNCCORP, Inc. (a Delaware corporation) and Subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of BNCCORP's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BNCCORP,
Inc. and Subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 21, 1997
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
As of As of December 31,
March 31, -----------------
1997 1996 1995
--------- --------- --------
ASSETS (unaudited)
<S> <C> <C> <C>
CASH AND DUE FROM BANKS $8,340 $6,360 $11,259
FEDERAL FUNDS SOLD 14,100 6,900 2,950
SECURITIES AVAILABLE FOR SALE (Note 3) 61,953 59,491 94,416
LOANS, net (Note 4) 207,747 201,403 119,635
PREMISES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT,
net (Note 5) 7,354 6,657 5,778
ACCRUED INTEREST RECEIVABLE 2,683 2,442 1,963
OTHER ASSETS 1,805 1,440 439
COST IN EXCESS OF NET ASSETS ACQUIRED, net 3,820 3,865 3,959
-------- -------- ---------
$307,802 $288,558 $240,399
======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing $19,102 $22,218 $16,874
Interest-bearing -
Savings, NOW and money market 59,258 52,483 50,732
Time deposits $100,000 and over 46,202 39,725 16,576
Other time deposits 128,738 125,344 126,866
NOTES PAYABLE (Note 7) 26,902 22,052 4,354
OTHER LIABILITIES 4,697 4,101 4,110
--------- --------- ---------
Total liabilities 284,899 265,923 219,512
========= ========= =========
COMMITMENTS AND CONTINGENCIES (Notes 13 and 14)
STOCKHOLDERS' EQUITY (Note 8):
Preferred stock, $.01 par value, 2,000,000 shares
authorized; no shares issued or outstanding - - -
Common stock, $.01 par value, 10,000,000 shares
authorized; 2,364,100 shares issued,
2,338,720 shares outstanding 23 23 23
Capital surplus 13,768 13,768 13,776
Retained earnings 9,578 9,017 7,170
Treasury stock (25,380 shares) (216) (216) (216)
Unrealized holding gain (loss) on securities
available for sale, net of income tax effects
of $162, $16 and $86 (Note 3) (250) 43 134
--------- --------- ---------
Total stockholders' equity 22,903 22,635 20,887
--------- --------- ---------
$307,802 $288,558 $240,399
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the
three months For the year ended
ended March 31, December 31,
----------------- ---------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $ 4,974 $ 3,189 $16,383 $11,285 $ 8,842
Interest on investment securities -
U.S. Treasury and agency 197 206 770 506 351
State and municipal 18 20 70 134 100
Other 871 1,070 3,734 3,358 970
------- ------- ------- ------- -------
Total interest income 6,060 4,485 20,957 15,283 10,263
------- ------- ------- ------- -------
INTEREST EXPENSE:
Deposits 2,745 2,382 9,738 7,802 3,944
Notes payable 370 155 1,369 740 467
------- ------- ------- ------- -------
Total interest expense 3,115 2,537 11,107 8,542 4,411
------- ------- ------- ------- -------
Net interest income 2,945 1,948 9,850 6,741 5,852
PROVISION FOR LOAN LOSSES (Note 4) 170 84 739 168 179
------- ------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 2,775 1,864 9,111 6,573 5,673
------- ------- ------- ------- -------
NONINTEREST INCOME:
Fees on loans 191 164 1,276 559 650
Service charges 124 99 418 401 259
Rental income 24 9 34 37 126
Net gain (loss) on sales of securities (11) 5 19 (18) 28
Other 153 94 349 757 336
------- ------- ------- ------- -------
Total noninterest income 481 371 2,096 1,736 1,399
------- ------- ------- ------- -------
NONINTEREST EXPENSE:
Salaries and employee benefits 1,284 976 4,311 3,352 2,990
Depreciation and amortization 280 219 980 619 444
Occupancy 221 140 675 413 305
Office supplies, telephone and postage 125 121 505 521 227
Professional services 81 103 360 246 236
Marketing and promotion 87 112 352 424 211
FDIC and other assessments 41 71 239 296 308
Other 221 224 791 640 481
------- ------- ------- ------- -------
Total noninterest expense 2,340 1,966 8,213 6,511 5,202
------- ------- ------- ------- -------
INCOME BEFORE TAXES 916 269 2,994 1,798 1,870
INCOME TAXES (Note 6) 355 127 1,147 641 679
------- ------- ------- ------- -------
NET INCOME $ 561 $ 142 $ 1,847 $ 1,157 $ 1,191
======= ======= ======= ======= =======
EARNINGS PER SHARE $ 0.24 $ 0.06 $ 0.79 $ 0.67 $ 0.98
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Common Stock on Securities
----------------- Capital Retained Treasury Available
Shares Amount Surplus Earnings Stock for Sale, Net Total
----------------- ------- -------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 1,238,100 $ 12 $ 4,070 $ 4,822 $ - $ - $ 8,904
Cumulative effect of change in
accounting for securities
available for sale - - - - - (110) (110)
Purchase of treasury stock - - - - (216) - (216)
Net income - - - 1,191 - - 1,191
Change in unrealized holding
gain (loss) on securities
available for sale, net
of income taxes - - - - - (229) (229)
--------- ------ ------- ------- ----- ------- --------
BALANCE, December 31, 1994 1,238,100 12 4,070 6,013 (216) (339) 9,540
Net income - - - 1,157 - - 1,157
Change in unrealized holding
gain (loss) on securities
available for sale, net
of income taxes - - - - - 473 473
Shares issued 1,126,000 11 9,706 - - - 9,717
--------- ------ ------- ------- ----- ------- --------
BALANCE, December 31, 1995 2,364,100 23 13,776 7,170 (216) 134 20,887
Net income - - - 1,847 - - 1,847
Change in unrealized holding
gain (loss) on securities
available for sale, net
of income taxes - - - - - (91) (91)
Initial public offering costs - - (8) - - - (8)
--------- ------ ------- ------- ----- ------- --------
BALANCE, December 31, 1996 2,364,100 23 13,768 9,017 (216) 43 22,635
Net income (unaudited) - - - 561 - - 561
Change in unrealized holding
gain (loss) on securities
available for sale, net
of income taxes (unaudited) - - - - - (293) (293)
--------- ------ ------- ------- ----- ------- --------
BALANCE, March 31, 1997 (unaudited) 2,364,100 23 13,768 9,578 (216) (250) 22,903
========= ====== ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
<CAPTION>
BNCCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
For the three
months ended For the year ended
March 31, December 31,
------------------- -------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 561 $ 142 $ 1,847 $ 1,157 $ 1,191
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities -
Provision for loan losses 170 84 739 168 179
Depreciation and amortization 152 104 499 377 348
Amortization of intangible assets 128 115 481 242 96
Proceeds from loans recovered 11 5 157 207 152
Change in accrued interest receivable and
other assets (689) (799) (1,866) (935) 662
(Gain) loss on sale of bank premises and
equipment - (10) (10) 23 -
(Gain) loss on sale of securities 11 (5) (19) 18 (28)
Gain on sale of Farmers & Merchants Bank
of Beach (Note 2) - - - (316) -
Change in other liabilities 596 (502) (9) 1,676 766
Originations of loans to be participated (26,854) (3,982) (45,238) (44,231) (16,396)
Proceeds from participations of loans 26,854 3,982 45,238 44,231 16,396
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activites 940 (866) 1,819 2,617 3,366
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in federal funds sold (7,200) 2,950 (3,950) (2,900) 875
Purchases of investment securities (17,823) (544) (22,575) (138,385) (20,033)
Proceeds from sales of investment securities 11,910 19,286 48,700 89,143 17,711
Proceeds from maturities of investment
securities 3,148 2,332 8,727 (26,623) 3,483
Net increase in loans (6,525) (28,266) (82,664) (20,272) (26,530)
Additions to premises, leasehold improvements
and equipment (850) (360) (1,438) (1,973) (345)
Proceeds from sale of Farmers & Merchants
Bank of Beach (Note 2) - - - 3,811 -
Payment for branch acquisition (Note 2) - - - (5,357) -
Loans sold with Farmers & Merchants Bank of
Beach (Note 2) - - - 9,228 -
Investments sold with Farmers & Merchants
Bank of Beach (Note 2) - - - 7,014 -
Proceeds from sale of premises and equipment - 13 70 112 -
-------- -------- -------- -------- --------
Net cash used in investing activities (17,340) (4,589) (53,130) (86,202) (24,839)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, savings,
NOW and money market accounts 3,659 (9,966) 7,095 8,960 (2,399)
Net increase in time deposits 9,871 1,877 21,627 11,964 18,195
Net increase (decrease) in short-term
borrowings 3,869 7,272 10,437 (6,360) 5,109
Repayments of long-term borrowings (11,240) (354) (2,604) (716) (550)
Proceeds from long-term borrowings 12,221 1,000 9,865 500 1,486
Demand, savings, NOW and money market
accounts acquired through branch
acquisition (Note 2) - - - 18,131 -
Demand, savings, NOW and money market
accounts sold with Farmers & Merchants
Bank of Beach (Note 2) - - - (14,520) -
Time deposits acquired through branch
acquisition (Note 2) - - - 86,639 -
Time deposits sold with Farmers & Merchants
Bank of Beach (Note 2) - - - (24,775) -
Purchase of treasury stock - - - - (216)
Proceeds from issuance of stock (Note 1) - - - 9,717 -
Stock offering costs - (4) (8) - -
Dividends paid to minority stockholders - - - (92) (87)
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities 18,380 (175) 46,412 89,448 21,538
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,980 (5,630) (4,899) 5,863 65
CASH AND CASH EQUIVALENTS, beginning of
period 6,360 11,259 11,259 5,396 5,331
CASH AND CASH EQUIVALENTS, end of period $ 8,340 $ 5,629 $ 6,360 $ 11,259 $ 5,396
======== ======== ======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 2,677 $ 2,790 $ 11,347 $ 6,383 $ 4,156
======== ======== ======== ======== ========
Income taxes paid $ 81 $ 76 $ 934 $ 615 $ 309
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
BNCCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1997 and December 31, 1996 and 1995
(Including Data Applicable to Unaudited Periods)
1. Background and Significant Accounting Policies:
BNCCORP, Inc. (BNCCORP) is a bank holding company incorporated in Delaware.
The following is background information and a summary of significant
accounting policies followed by BNCCORP and its subsidiaries in the
determination of financial position, results of operations and cash flows.
Organization
The consolidated financial statements include the accounts of BNCCORP and its
subsidiaries. All significant intercompany accounts have been eliminated in
consolidation. BNCCORP was initially incorporated under the name of Linton
Bancshares and had subsidiary banks in Linton (First National Bank of Linton)
and Bismarck (BNC National Bank of Bismarck), North Dakota. An affiliated
bank holding company, Farmers & Merchants Bancshares, had its subsidiary bank
(Farmers & Merchants Bank of Beach-FMB) in Beach, North Dakota. These two
bank holding companies were merged effective January 1, 1994. This
transaction was recorded in a manner similar to a pooling of interests due to
the common ownership of BNCCORP and Farmers & Merchants Bancshares. In August
1995, the two BNCCORP subsidiaries, BNC National Bank of Bismarck and First
National Bank of Linton, were merged. Also in August 1995, BNC National Bank
of Bismarck acquired seven North Dakota branches from First Bank System, Inc.
(former Metropolitan Federal Bank, fsb branches). In October 1995, FMB was
sold. In January 1996, BNCCORP was granted a charter for BNC National Bank of
Minnesota located in Minneapolis, Minnesota. In May 1996, BNCCORP acquired a
nonbank commercial finance company, BNC Financial Corporation located in St.
Cloud, Minnesota (see Note 2).
As of December 31, 1996, BNCCORP's wholly owned subsidiaries were BNC
National Bank of Bismarck and Bismarck Properties, Inc. operating primarily
in North Dakota, and BNC National Bank of Minnesota and BNC Financial
Corporation operating primarily in Minnesota.
During 1995, BNCCORP sold 1,106,000 shares of common stock (including 106,000
shares sold pursuant to the underwriters' overallotment option) at $10.00 per
share in an initial public offering. Net proceeds from the offering of
approximately $9,717,000 were received by BNCCORP. A portion of the proceeds
was used in January 1996 to capitalize BNC National Bank of Minnesota (see
above) and to inject additional capital into BNC National Bank of Bismarck,
with the remaining proceeds used for working capital and general corporate
purposes. In addition, 20,000 shares of restricted stock were issued to
various company managers and employees under BNCCORP's stock incentive plan
(see Note 15).
Interim Financial Statements
The consolidated Statement of Financial Condition and Consolidated Statement
of Stockholders' Equity as of March 31, 1997, and the related Consolidated
Statements of Income and Cash Flows for the three months ended March 31, 1997
and 1996, are unaudited and are not covered by the report of independent
public accountants. However, in the opinion of management these interim
financial statements include all adjustments (consisting of only normal
recurring adjustments) which are necessary for the fair presentation of the
results for the interim periods presented. The results of operations for the
unaudited three-month period ended March 31, 1997 are not necessarily
indicative of the results which may be expected for the entire 1997 fiscal
year.
Regulatory Environment
BNCCORP and its subsidiary banks are subject to regulations of certain state
and federal agencies, including periodic examinations by those regulatory
agencies. BNCCORP and its subsidiary banks are also subject to minimum
regulatory capital requirements. At December 31, 1996, capital levels exceed
minimum capital requirements (see Note 9).
Securities
BNCCORP follows the accounting prescribed in Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). SFAS 115 addresses accounting and reporting
for all investments in debt and equity securities. Under SFAS 115,
investments are classified into three categories and accounted for as
follows:
Held-to-Maturity
This category includes debt securities that BNCCORP has the
positive intent and ability to hold to maturity. All securities in
this category are recorded at amortized historical cost. BNCCORP
had no securities in the held-to-maturity portfolio at March 31,
1997 or at December 31, 1996 or 1995.
Trading Securities
Trading securities are purchased and sold for the purpose of
generating profits on short-term differences in market prices and
are recorded at fair value, with any unrealized gains and losses
being reflected in earnings. BNCCORP holds no securities for
trading purposes.
Available-for-Sale
Available-for-sale securities do not meet the classification
criteria for held-to-maturity or trading securities and are recorded
at fair value, with any unrealized gains and losses being reflected
as a separate component of stockholders' equity, net of tax effects.
Both amortization and accretion are computed using the estimated effective
interest method. Gains or losses on sales of securities are recognized upon
disposal. The adjusted cost of specific securities sold is used to compute
the gain or loss on sale.
Premises, Leasehold Improvements and Equipment
Premises, leasehold improvements and equipment are reported at cost less
accumulated depreciation and amortization. Depreciation and amortization for
financial reporting purposes is charged to operating expense using the
straight-line method over the estimated useful lives of the assets.
Approximate estimated useful lives are up to 40 years for buildings and three
to ten years for furniture and equipment. Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful life of
the improvement. Accelerated methods of depreciation and amortization are
used for income tax purposes.
Other Real Estate Owned
Other real estate owned, which is included in other assets, represents
properties acquired through foreclosures or other proceedings or those
considered in-substance foreclosures, and is stated at the lower of cost or
fair value at the date of acquisition. Write-downs to fair value at the time
of acquisition are charged to the allowance for loan losses; write-downs and
costs incurred subsequent to acquisition are charged to expense. At March 31,
1997 and December 31, 1996, BNCCORP had a recorded investment in properties
acquired through foreclosures of $159,000. There were no properties acquired
through foreclosures or in-substance foreclosures recorded at December 31,
1995.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal net of unearned fees and
costs and an allowance for loan losses. The allowance for loan losses is
established through a provision for loan losses charged to expense. The
provision for loan losses is based upon BNCCORP's past loan loss experience,
current economic conditions and an evaluation of the loan portfolio. The
allowance for loan losses is increased by the provision for loan losses
charged to expense and is reduced by net loan charge-offs. Current and future
economic developments or other factors may have a significant impact on the
market value of real estate and other collateral. Accordingly, ultimate
losses may vary from current estimates. These estimates are reviewed in
detail quarterly and adjustments, as they become necessary, are reported in
the results of operations in the periods in which they become known. In
management's opinion, the allowance for loan losses is sufficient to
adequately provide for potential loan losses.
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" (SFAS 114), and Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures" (SFAS 118), effective January 1, 1995, modified
the accounting by creditors for impairment of a loan and in-substance
foreclosure, among other things. Adoption of these standards has not had a
material impact on BNCCORP's consolidated financial statements.
Loans, including impaired loans, are generally placed on a nonaccrual basis
for recognition of interest income when, in the opinion of management,
uncertainty exists as to the ultimate collection of principal or interest. At
the time a loan is placed on nonaccrual status, accrued but uncollected
interest income applicable to the current period is reversed against interest
income of the current period. Accrued but uncollected interest income
applicable to previous periods is charged against the loan loss reserve as
BNCCORP provides for a reserve for accrued interest. While a loan is
classified as nonaccrual, collections of principal and interest are generally
applied as a reduction to principal outstanding.
Loans may be returned to accrual status when all principal and interest
amounts contractually due are reasonably assured of repayment within an
acceptable period of time, and there is a sustained period of repayment
performance by the borrower, in accordance with the contractual terms of
principal and interest.
Loan Fee Income
BNCCORP recognizes loan fees and certain direct origination costs over the
estimated life of the loan, utilizing a method that results in a constant
rate of return. Most of the loans originated by BNCCORP are short-term loans.
A significant portion of BNCCORP's loan fee income is derived from loans
which are originated and subsequently sold. Such fees are recognized in
income at the date of sale.
Mortgage Servicing Rights and Transfers of Financial Assets
Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights" (SFAS 122), effective January 1, 1996, requires an entity
to record an asset for mortgage servicing rights when it sells mortgages and
retains the servicing, and then amortize this asset over the period during
which servicing income is expected to be received. The capitalized mortgage
servicing rights must be assessed for impairment based on the current fair
value of those rights and such impairment must be recognized through a
valuation allowance. Adoption of this standard has not had a material effect
on BNCCORP's consolidated financial statements.
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (SFAS 125), effective January 1, 1997, supersedes SFAS 122 and
establishes accounting methods aimed at ensuring that entities recognize only
assets controlled and liabilities incurred and derecognize assets only when
control has been surrendered and liabilities only when they have been
extinguished. Statement of Financial Accounting Standards No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No. 125" (SFAS
127), effective January 1, 1997, defers certain provisions of SFAS 125 until
January 1, 1998. Adoption of these standards is not expected to have a
material effect on BNCCORP's consolidated financial statements.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired represents the premium paid for
deposits assumed and goodwill. Premiums paid for deposits assumed totaling
$4,022,000 are being amortized over their estimated lives of ten years using
the straight-line method. Accumulated amortization was $914,000 as of March
31, 1997. Goodwill totaling $900,000 represents amounts paid for
subsidiaries in excess of the fair value of identifiable assets. Goodwill is
being amortized over its estimated useful life of 15 to 25 years using the
straight-line method. Accumulated amortization was $188,000 as of March 31,
1997.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121), effective January 1, 1996, established accounting standards for
the impairment of long-lived assets. Adoption of this standard has not had a
material impact on BNCCORP's consolidated financial statements.
Income Taxes
BNCCORP and its subsidiaries file a consolidated federal income tax return.
State income tax returns are filed separately by each subsidiary. In
accordance with a tax sharing arrangement, BNCCORP collects for or pays to
each of its subsidiaries the tax or tax benefit resulting from its inclusion
in the consolidated federal return.
Deferred income taxes are reported for temporary differences between items of
income or expense reported for financial statement purposes and those
reported for income tax purposes. The differences relate primarily to
differences in accounting for loan losses, depreciation timing differences,
unrealized gains and losses on investment securities and leases which are
treated as operating leases for tax purposes and capital leases for financial
statement purposes.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks.
Earnings Per Share
Earnings per common share are computed by dividing net profits by the
weighted average number of common and common equivalent shares of stock
outstanding during the period. Primary and fully diluted earnings per share
are the same.
The weighted average number of common and common equivalent shares of stock
utilized in the per share computations was 2,338,720, 1,720,030 and 1,218,909
in 1996, 1995 and 1994, respectively and 2,338,720 for the three month
periods ended March 31, 1997 and 1996.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
The ultimate results could differ from those estimates.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"), issued in February 1997 and effective January 1, 1998,
supersedes AICPA Accounting Principles Board Opinion No. 15, "Earnings per
Share" ("APB 15") and other related accounting pronouncements and
interpretations, and specifies new computation, presentation and disclosure
requirements for earnings per share. Adoption of this standard is not
expected to have a material effect on the calculation of BNC's earnings per
share.
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information About Capital Structure" ("SFAS 129"), also issued in February
1997 and effective January 1, 1998, summarizes disclosure requirements
pertaining to an entity's capital structure. SFAS 129 is a compilation of
several previously issued standards and pronouncements, therefore, adoption
of this standard is not expected to have a material effect on BNC's
consolidated financial statements.
2. Acquisitions and Divestitures:
In August 1995, BNCCORP acquired seven North Dakota branches from First Bank
System, Inc. (First Bank-former Metropolitan Federal Bank, fsb branches). The
purchase price for the seven branches was approximately $5,357,000. The
purchase was funded with proceeds from the sale of common stock in BNCCORP's
initial public offering. The acquisition was accounted for using the purchase
method of accounting. One of the seven branches was sold in October 1995
along with FMB (see below). The resulting premiums paid for deposits of
$3,497,000 and goodwill of $112,000 are being amortized over 10 years and 15
years, respectively.
In October 1995, BNCCORP sold FMB to Community First Bankshares, Inc. BNCCORP
received approximately $3.8 million for its 89.6% interest, resulting in a
gain of $316,000. Proceeds of approximately $238,000 were also received by
two minority shareholders of FMB who are also officers and directors of
BNCCORP. As part of the sale, BNCCORP purchased $17.7 million in loans which
had been participated to FMB and $655,000 in previously nonperforming and
restructured loans.
The following pro forma financial information has been prepared assuming the
sale of FMB had been consummated at the beginning of the respective periods.
Because there did not exist sufficient continuity of the deposits and assets
acquired in connection with the acquisition of the First Bank deposits and
because financial information related to such deposits and assets was not
divisible from the financial information of First Bank, pro forma financial
information regarding the deposits and assets acquired is not included. The
pro forma financial information is not necessarily indicative of the results
of operations that would have occurred had the transactions been consummated
on the assumed dates.
Pro forma financial information for the years ended December 31 (in
thousands, except per share data) is as follows:
1995 1994
-------- --------
Total interest income $ 14,108 $ 9,157
Total interest expense 7,567 3,409
Net interest income 6,541 5,748
Net income 1,381 815
======== ========
Earnings per share $ 0.80 $ 0.67
======== ========
In January 1996, BNCCORP was granted a charter for its de novo BNC National
Bank of Minnesota, Minneapolis, Minnesota, and provided initial capital of
$5.0 million to the wholly-owned bank which is engaged in commercial banking
activities in the Minneapolis/Saint Paul area. The capital injection was
funded through proceeds from the sale of common stock in BNCCORP's initial
public offering (July 1995).
In May 1996, BNCCORP acquired a nonbank commercial finance company, BNC
Financial Corporation, St. Cloud, Minnesota, for $85,000. BNCCORP provided
initial capital of $1.0 million to the wholly-owned subsidiary, which is
engaged primarily in asset-based commercial financing. Goodwill of $66,000
resulting from the transaction is being amortized over 25 years.
In December 1996, BNCCORP acquired the accounting firm of Gregory K.
Cleveland & Company, Bismarck, North Dakota (the Firm). The Firm was owned by
an executive officer/director of BNCCORP. The purchase price for the Firm was
approximately $368,000 and was based on the Firm's customer receivables,
prepaids and certain intangibles. Goodwill of $265,000 resulting from the
transaction is being amortized over 15 years. Employees of the Firm now staff
the newly established trust and private banking division at BNC National Bank
of Bismarck.
Effective January 1997, BNCCORP acquired the stock of the J.D. Meier
Insurance Agency, Linton, North Dakota (the Agency). Three executive officers
of BNCCORP owned stock in the Agency. The purchase price for the stock was
approximately $34,000, and BNCCORP provided additional capital of $75,000 to
the wholly owned subsidiary. The Agency is operating as a subsidiary of BNC
National Bank of Bismarck and engages in insurance business.
3. Securities:
BNCCORP had no securities designated as held-to-maturity or trading in its
portfolio at March 31, 1997 or at December 31, 1996 or 1995. In December
1995, securities with an aggregate amortized cost of $1,129,000 and net
unrealized gains of $134,000 were transferred from held-to-maturity to
available-for-sale in accordance with the implementation provisions of SFAS
115.
Available-for-Sale Securities
The amortized cost, gross unrealized gains and losses, and estimated fair
market value of securities available for sale were as follows as of
December 31 (in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------- ------- ------- --------
1996
U.S. Treasury securities $ 13,814 $ 42 $ - $ 13,856
U.S. government agency
mortgage-backed securities 9,555 4 - 9,559
U.S. government agencies
securities 3,633 13 (4) 3,642
Collateralized mortgage
obligations 23,898 - (43) 23,855
Other securities 7,773 13 (7) 7,779
State and municipal bonds 759 41 - 800
-------- ------- ------- --------
$ 59,432 $ 113 $ (54) $ 59,491
======== ======= ======= ========
1995
U.S. Treasury securities $ 25,041 $ 63 $ (3) $ 25,101
U.S. government agency
mortgage-backed securities 4,798 45 - 4,843
U.S. government agencies
securities 7,513 7 - 7,520
Collateralized mortgage
obligations 44,800 3 - 44,803
Other securities 10,882 7 (4) 10,885
State and municipal bonds 1,162 102 - 1,264
-------- ------- ------- --------
$ 94,196 $ 227 $ (7) $ 94,416
======== ======= ======= ========
Scheduled maturities for securities available for sale were as follows as of
December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------------------- ----------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 11,531 $ 11,538 $ 14,563 $ 14,563
Due after one year through five years 15,062 15,117 25,703 25,796
Due after five years through ten years 18,934 18,971 21,269 21,381
Due after ten years 13,905 13,865 32,661 32,676
--------- --------- --------- ---------
Total $ 59,432 $ 59,491 $ 94,196 $ 94,416
========= ========= ========= =========
</TABLE>
BNCCORP recognized net gains (losses) on sales of securities available for
sale of approximately $19,000, $(18,000) and $28,000 in 1996, 1995 and
1994, respectively and ($11,000) and $5,000 for the three month periods
ended March 31, 1997 and 1996, respectively.
4. Loans:
The composition of the loan portfolio was as follows (in thousands):
As of As of December 31,
March 31, ---------------------
1997 1996 1995
------------ --------- ---------
(unaudited)
Commercial and industrial $ 96,878 $ 94,701 $ 41,639
Agricultural 20,084 20,673 18,046
Real estate:
Mortgage 49,601 47,451 36,606
Construction 11,597 8,806 5,884
Consumer 18,738 18,343 9,580
Lease financing 12,827 12,970 8,660
Other --- 391 380
--------- --------- ---------
Total 209,725 203,335 120,795
Less:
Allowance for loan losses (1,736) (1,594) (1,048)
Deferred loan fees and costs (242) (338) (112)
--------- --------- ---------
$ 207,747 $ 201,403 $ 119,635
========= ========= =========
Loans on a nonaccrual basis, including impaired loans, were approximately
$86,000, $61,000 and $71,000 at March 31, 1997, December 31, 1996 and 1995,
respectively. Interest on those loans included in income amounted to $1,000
and $2,000 in 1996 and 1995, respectively. Total interest income of $12,000
and $13,000 in 1996 and 1995, respectively, would have been recognized under
the original terms of the loans.
The recorded investment in loans for which impairment had been recognized in
accordance with SFAS 114 totaled $4.0 million and $1.5 million at December
31, 1996 and 1995, respectively. The allowance for loan losses on these loans
was $171,000 and $131,000 at December 31, 1996 and 1995, respectively. For
the years ended December 31, 1996 and 1995, the average recorded investment
in impaired loans was approximately $3.6 million and $2.1 million,
respectively. BNCCORP recognized $216,000 and $122,000 of interest on
impaired loans, most of which was recognized on a cash basis in 1996 and
1995, respectively.
Loans to officers, directors and employees totaled $806,000 and $527,000 at
December 31, 1996 and 1995, respectively, and loans to other related parties
totaled $259,000 and $941,000 at December 31, 1996 and 1995, respectively.
As of December 31, 1996, 66% of BNCCORP's loans were to borrowers located in
the North Dakota market area, 24% were to borrowers in the Minnesota market
area, and 10% were to borrowers in other market areas. Commercial loan
borrowers are generally small- to medium-sized corporations, partnerships and
sole proprietors in a wide variety of businesses. Loans to consumers are both
secured and unsecured. Real estate secured loans are fixed or variable rate
and include both amortizing and revolving line-of-credit loans.
Real estate mortgage loans include various types of loans for which BNCCORP
holds real property as collateral. Of the $47.5 million real estate mortgage
loans as of December 31, 1996, approximately $20 million were loans made to
commercial customers where the collateral for the loan is, among other
things, the real estate occupied by the business of the customer.
Accordingly, certain loans categorized as real estate mortgage loans can be
characterized as commercial loans which are secured by real estate.
Transactions in the allowance for loan losses were as follows (in thousands):
For the three
months ended For the year ended
March 31, December 31,
---------------- -------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(unaudited)
Balance, beginning of period $ 1,594 $ 1,048 $ 1,048 $ 1,021 $ 713
Provision for loan losses 170 84 739 168 179
Loans charged off (39) (1) (350) (248) (23)
Loans recovered 11 5 157 207 152
Allowance attributable to
subsidiary sold - - - (100) -
------- ------- ------- ------- -------
Balance, end of period $ 1,736 $ 1,136 $ 1,594 $ 1,048 $ 1,021
======= ======= ======= ======= =======
5. Premises, Leasehold Improvements and Equipment:
Premises, leasehold improvements and equipment consisted of the following as
of (in thousands):
December 31,
March 31, ------------------
1997 1996 1995
--------- -------- --------
(unaudited)
Land and improvements $ 508 $ 508 $ 264
Buildings and improvements 3,879 3,346 3,364
Leasehold improvements 753 719 336
Furniture, fixtures and equipment
3,978 3,701 3,047
--------- -------- --------
Total cost 9,118 8,274 7,011
Less accumulated depreciation and
amortization (1,764) (1,617) (1,233)
--------- -------- --------
Net premises, leasehold
improvements and equipments $ 7,354 $ 6,657 $ 5,778
========= ======== ========
Depreciation and amortization expense on premises, leasehold improvements and
equipment totaled approximately $499,000, $377,000 and $348,000 for the years
ended December 31, 1996, 1995 and 1994, respectively and $152,000 and
$104,000 for the three month periods ended March 31, 1997 and 1996,
respectively.
6. Income Taxes:
The provision for income taxes consists of the following (in thousands):
For the
three months For the year ended
ended March 31, December 31,
--------------- -----------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
Current $ 351 $ 122 $ 965 $ 589 $ 564
Deferred income taxes from the
following timing differences:
Provision for loan losses (56) (20) (274) (11) (105)
Depreciation 11 19 87 6 71
Leases 21 20 129 128 118
Other 28 (14) 240 (71) 31
----- ----- ------- ----- -----
$ 355 $ 127 $ 1,147 $ 641 $ 679
===== ===== ======= ===== =====
The provision for federal income taxes expected at the statutory rate differs
from the actual provision as follows (in thousands):
For the
three months
ended For the year ended
March 31, December 31,
------------- ---------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
Tax at 34% statutory rate $ 311 $ 92 $1,018 $ 611 $ 636
Increase (decrease) resulting from:
State taxes, net of federal benefit 45 37 131 91 116
Minority interest in consolidated
earnings - - - 19 20
Benefit of AMT credit carryforwards - - - (42) (42)
Tax-exempt interest (5) (4) (27) (43) (59)
Other, net 4 2 25 5 8
------ ----- ------ ----- -----
$ 355 $ 127 $1,147 $ 641 $ 679
===== ===== ====== ===== =====
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that result in significant portions of
BNCCORP's deferred tax assets and liabilities are as follows (in thousands):
December 31,
March 31, ---------------------
1997 1996 1995
----------- ---- ----
(unaudited)
Deferred tax asset:
Loans, primarily due to differences
in accounting for loan losses $ 634 $ 577 $ 333
Unrealized loss on securities
available for sale 162 - -
Other 122 145 41
-------- -------- --------
Deferred tax asset 918 722 374
-------- -------- --------
Deferred tax liability:
Unrealized gain on securities
available for sale - 16 86
Leases, primarily due to differences
in accounting for leases 547 524 385
Premises and equipment, primarily
due to differences in original
cost basis and depreciation 463 451 354
-------- -------- --------
Deferred tax liability 1,010 991 825
-------- -------- --------
Net deferred tax liability $ 92 $ 269 $ 451
======== ======== ========
7. Notes Payable:
BNCCORP's notes payable consist of the following as of December 31 (in
thousands):
1996 1995
-------- -------
Federal funds purchased $ 1,437 $ -
Advance from the Federal Home Loan Bank (FHLB), principal
due August 1997, interest payable monthly at 6.60%,
secured by single-family mortgage loans and government
agency securities 1,000 1,000
Advances from FHLB, principal due April 1997, interest
payable monthly at the one-month LIBOR rate minus .3%
(5.59% at December 31, 1996), secured by single-family
mortgage loans and government agency securities 9,000 -
Notes payable to American National Bank, maturing in 2000
with annual paydowns of $550,000 on March 31 of each
year, interest payable quarterly at the prime rate plus
.5% (9.25% at December 31, 1995), secured by stock of
subsidiary bank - 3,354
Notes payable to Firstar Bank Milwaukee, N.A. (Firstar)
including a term note for $3 million and a revolving
line of credit up to $7 million, interest payable
quarterly at either the prime rate or LIBOR rate plus
2% at BNCCORP's option (7.50% at December 31, 1996),
secured by stock of subsidiary banks 10,000 -
Revolving line of credit with Bank Windsor, principal due
September 1997, interest payable quarterly at the prime
rate plus .75% (9.00% at December 31, 1996) 615 -
-------- -------
Total $ 22,052 $ 4,354
======== =======
The notes payable to American National Bank at December 31, 1995 were
refinanced with Firstar in February 1996.
The Firstar notes were amended in February 1997 to include a $3 million term
note and a $12 million revolving line of credit, both of which mature in
1998. Collateral, interest rates and timing of payments on those notes are as
indicated above.
BNCCORP was in compliance with all debt covenants at December 31, 1996.
8. Stockholders' Equity:
BNCCORP and its subsidiary banks are subject to certain minimum capital
requirements (see Note 9). In addition, certain regulatory restrictions exist
regarding the ability of the subsidiary banks to transfer funds to BNCCORP in
the form of cash dividends, loans or advances. Approval of the principal
regulator is required for the banks to pay dividends to BNCCORP in excess of
the subsidiary banks' earnings retained in the current year plus retained net
profits for the preceding two years.
Effective June 1995, BNCCORP declared a 60-for-1 stock split of BNCCORP's
common stock and reincorporated BNCCORP in Delaware, in connection with its
initial public offering. This stock split has been retroactively reflected in
the financial statements.
In connection with its initial public offering (see Note 1), BNCCORP agreed
to sell to the underwriters, for nominal consideration, a warrant to purchase
50,000 shares of common stock (the Warrant). The Warrant became exercisable
at $12 per share in June 1996 and remains exercisable for a period of four
years. No warrants had been exercised as of March 31, 1997.
9. Regulatory Capital:
BNCCORP and its subsidiary banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory-and possibly
additional discretionary-actions by regulators that, if undertaken, could
have a direct material effect on the bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, BNCCORP and its subsidiary banks must meet specific
capital guidelines that involve quantitative measures of their assets,
liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. Capital amounts and classifications of
BNCCORP and its banks are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by the regulations to ensure capital
adequacy require BNCCORP and its banks to maintain minimum amounts and
ratios (set forth in the tables that follow) of total and Tier 1 capital
(as defined in the regulations) to risk-weighted assets (as defined), and of
Tier 1 capital (as defined) to average assets (as defined). Management
believes that, as of March 31, 1997, BNCCORP and the Banks meet all capital
adequacy requirements to which they are subject.
As of March 31, 1997, the most recent notifications from the Office of the
Comptroller of the Currency (OCC) categorized BNCCORP's subsidiary banks as
well capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, the banks must maintain minimum
total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth
in the table that follows. There are no conditions or events since that
notification that management believes have changed the institutions'
categories.
Actual capital amounts and ratios of BNCCORP and its subsidiary banks as of
December 31 are also presented in the tables (dollar amounts in thousands):
<TABLE> Capitalized Under
<CAPTION> To Be Well
For Capital Prompt Corrective
Actual Adequacy Provisions Action Purposes
------------------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- -------- -------
Greater Greater
than or than or
equal to equal to
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital (to risk weighted assets):
Consolidated $ 20,109 8.8% $ 18,206 8.0% N/A N/A
BNC National Bank of Bismarck 19,009 10.4 14,644 8.0 $ 18,306 10.0%
BNC National Bank of Minnesota 4,981 12.2 3,255 8.0 4,069 10.0
Tier 1 Capital (to risk weighted assets):
Consolidated 18,515 8.1 9,103 4.0 N/A N/A
BNC National Bank of Bismarck 17,759 9.7 7,322 4.0 10,983 6.0
BNC National Bank of Minnesota 4,688 11.5 1,628 4.0 2,441 6.0
Tier 1 Capital (to average assets):
Consolidated 18,515 6.7 11,112 4.0 N/A N/A
BNC National Bank of Bismarck 17,759 7.1 10,006 4.0 12,508 5.0
BNC National Bank of Minnesota 4,688 12.9 1,453 4.0 1,817 5.0
As of December 31, 1995
Total Capital (to risk weighted assets):
Consolidated 17,768 12.5 11,375 8.0 N/A N/A
BNC National Bank of Bismarck 14,072 10.1 11,202 8.0 14,003 10.0
Tier 1 Capital (to risk weighted assets):
Consolidated 16,720 11.8 5,688 4.0 N/A N/A
BNC National Bank of Bismarck 13,024 9.3 5,601 4.0 8,402 6.0
Tier 1 Capital (to average assets):
Consolidated 16,720 7.0 9,497 4.0 N/A N/A
BNC National Bank of Bismarck 13,024 5.7 9,215 4.0 11,519 5.0
</TABLE>
Ratios of the Company and its subsidiary banks as of March 31, 1997 are
presented below:
To be Well
Capitalized
Minimum Under Prompt
Required Corrective
For Capital Action
Actual Adequacy Provisions
------ ----------- ------------
Greater Greater
than or than or
equal to equal to
Total Capital (to risk weighted assets):
Consolidated 8.8% 8.0% N/A
BNC National Bank of Bismarck 10.6 8.0 10.0%
BNC National Bank of Minnesota 11.3 8.0 10.0
Tier 1 Capital (to risk weighted assets):
Consolidated 8.1 4.0 N/A
BNC National Bank of Bismarck 9.9 4.0 6.0
BNC National Bank of Minnesota 10.5 4.0 6.0
Tier 1 Capital (to average assets):
Consolidated 6.6 4.0 N/A
BNC National Bank of Bismarck 7.2 4.0 5.0
BNC National Bank of Minnesota 11.5 4.0 5.0
10. Fair Value of Financial Instruments:
The estimated fair values of BNCCORP's financial instruments are as
follows as of December 31 (in thousands):
1996 1995
--------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
Assets:
Cash, due from banks and
federal funds sold $ 13,260 $ 13,260 $ 14,209 $ 14,209
Securities available for sale 59,491 59,491 94,416 94,416
Loans, net 201,403 200,669 119,635 119,959
--------- --------- --------- ---------
274,154 $ 273,420 228,260 $ 228,584
Other assets 14,404 ========= 12,139 =========
--------- ---------
$ 288,558 $ 240,399
========= =========
Liabilities:
Deposits, noninterest-bearing $ 22,218 $ 22,218 $ 16,874 $ 16,874
Deposits, interest-bearing 217,552 217,684 194,174 194,017
Notes payable 22,052 22,060 4,354 4,358
--------- --------- --------- ---------
261,822 $ 261,962 215,402 $ 215,249
Other liabilities 4,101 ========= 4,110 =========
Stockholders' equity 22,635 20,887
--------- ---------
$ 288,558 $ 240,399
========= =========
The following methods and assumptions were used to estimate the above fair
values.
Cash and Cash Equivalents, Noninterest-Bearing Deposits and Demand Deposits
The carrying amounts for cash and cash equivalents, as well as noninterest-
bearing deposits, approximate fair value due to the short maturity of the
instruments. The fair value of demand deposits, such as NOW, savings and
money market accounts, is equal to the amount payable on demand at the
reporting date.
Securities
The fair value of BNCCORP's securities equals the quoted market price.
Loans
Fair values for loans are estimated by discounting future cash flow payment
streams using rates at which current loans to borrowers with similar credit
ratings and similar loan maturities are being made.
Interest-Bearing Deposits
Fair values of interest-bearing deposit liabilities are estimated by
discounting future cash flow payment streams using rates at which comparable
current deposits with comparable maturities are being issued.
Borrowings
The carrying amount of short-term borrowings approximates fair value due to
the short maturity and the instruments' floating interest rates, which are
tied to market conditions. The fair values of long-term borrowings, for which
the maturity extends beyond one year, are estimated by discounting future
cash flow payment streams using rates at which comparable borrowings are
currently being offered.
11. Financial Instruments With Off-Balance-Sheet Risk:
BNCCORP is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, including
loan commitments and unused portions of lines of credit, and standby letters
of credit. These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the balance sheet. The contract or
notional amounts of these instruments reflect the extent of involvement
BNCCORP has in particular classes of financial instruments.
BNCCORP's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for the commitments to extend credit and
standby letters of credit is represented by the contractual or notional
amount of those instruments. BNCCORP generally requires collateral or other
security specifically to support off-balance-sheet financial instruments with
credit risk.
Financial instruments with contract amounts representing credit risk are as
follows as of December 31 (in thousands):
1996 1995
--------- ---------
Commitments to extend credit $ 59,553 $ 28,034
Standby letters of credit 1,048 714
--------- ---------
$ 60,601 $ 28,748
========= =========
12. Related-Party Transactions:
BNCCORP has entered into transactions with its stockholders, directors,
officers and other affiliates including the accounting firm and insurance
agency purchases discussed in Note 2. In the opinion of management, such
transactions have been fair and reasonable to BNCCORP and have been entered
into under terms and rates substantially the same as those offered by BNCCORP
in the ordinary course of business.
13. Benefit Plans:
BNCCORP has a 401(k) plan covering all employees of BNCCORP and its
subsidiaries who meet specified age and service requirements. Eligible
employees may elect to defer up to 10% of compensation each year (15%
effective January 1, 1997), not to exceed the dollar limit set by law. At
their discretion, BNCCORP and its subsidiaries provide matching contributions
of up to 50% of employee deferrals up to a maximum employer contribution of
5% of compensation. BNCCORP made matching contributions of $79,000, $65,000
and $55,000 in 1996, 1995 and 1994, respectively. Under the investment
options available under the 401(k) plan, employees may elect to invest their
salary deferrals in BNCCORP stock.
BNCCORP provides no significant postretirement or postemployment benefits.
14. Commitments and Contingencies:
Employment Agreements
BNCCORP has entered into three-year employment agreements with its chief
executive officer, chief financial officer, executive vice president and the
chief executive officer of BNC National Bank of Minnesota (the Executives).
The Executives will be paid minimum annual salaries throughout the terms of
the agreements and annual incentive bonuses as may, from time to time, be
fixed by the board of directors. The Executives will also be provided with
benefits under any employee benefit plan maintained by BNCCORP for its
employees generally, or for its senior executive officers in particular, on
the same terms as are applicable to other senior executives of BNCCORP. Under
the agreements, if the Executives' status as employees with BNCCORP is
terminated for any reason other than cause, as defined in the agreements, or
if they terminate their employment for good reason, as defined in the
agreements, then the Executives will be paid a lump-sum amount equal to three
times their current annual compensation.
Leases
BNCCORP has entered into operating lease agreements for certain facilities
and equipment used in its operations. Rent expense for the years ended
December 31, 1996, 1995 and 1994, was $331,000, $100,000 and $36,000,
respectively. Minimum annual base lease payments for operating leases with
remaining terms of greater than one year are as follows:
1997...................... $ 227,520
1998...................... 162,169
1999...................... 146,072
2000...................... 137,191
2001...................... 86,920
Thereafter................ 93,840
15. Stock-Based Compensation Plan:
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123), issued in October 1995 and effective for
fiscal years beginning after December 15, 1995, allows two alternative
methods of accounting for employee stock options or similar instruments.
Under SFAS 123, an entity may either implement a fair value based method of
accounting for stock options or elect to continue to measure compensation
cost under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25). Entities electing to continue under APB 25
must provide pro forma disclosures of net income and earnings per share as if
the fair value based method of accounting had been applied.
BNCCORP adopted SFAS 123 on January 1, 1996 and has elected to continue to
measure compensation cost under APB 25 and comply with the pro forma
disclosure requirements of SFAS 123. A description of BNCCORP's stock-based
compensation plan accounted for under APB 25 is presented below.
BNCCORP's Stock Incentive Plan (the "Stock Plan"), adopted during 1995, is
intended to provide long-term incentives to its key employees, including
officers and directors who are employees of BNCCORP. The Stock Plan, which is
administered by the Compensation Committee of the Board of Directors (the
"Committee"), provides for an authorization of 250,000 shares of common stock
for issuance thereunder. Under the Stock Plan, BNCCORP may grant employees
incentive stock options, nonqualified stock options, restricted stock, stock
awards or any combination thereof. The Committee establishes the exercise
price of any stock options granted under the Stock Plan provided that the
exercise price may not be less than the fair market value of a share of
common stock on the date of grant. As of December 31, 1996, 20,000 restricted
shares and 30,000 options had been awarded under the Stock Plan. The
restricted stock vests in 33 1/3% increments during 1998, 1999 and 2000. All
of the options are exercisable at a price of $10 per share and vest in 20%
increments on January 18, 1996 and July 18, 1996, 1997, 1998 and 1999. The
options expire on July 18, 2005. No options had been exercised as of December
31, 1996 or March 31, 1997.
Had compensation cost for the plan been determined consistent with SFAS 123,
BNCCORP's net income and earnings per share would have been reduced to the
following pro forma amounts:
For the
three For the year ended
months ended December 31,
March 31, --------------------------
1997 1996 1995
------------ ----------- -----------
(unaudited)
Net income:
As reported................ $ 561,000 $ 1,847,000 $ 1,157,000
Pro forma.................. 557,000 1,814,000 1,157,000
Primary and fully diluted EPS:
As reported................ $ 0.24 $ 0.79 $ 0.67
Pro forma.................. 0.24 0.77 0.67
A summary of the status of the Stock Plan at March 31, 1997, December 31,
1996 and 1995 and changes during the periods then ended is presented in
the table and narrative below:
Three months ended Year Ended December 31,
March 31, 1997 ----------------------------------
(unaudited) 1996 1995
---------------------------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding, beginning
of period 30,000 $ 10 30,000 $ 10 - $ -
Granted - - - - 30,000 10
------ ----- ------ ----- ------ -----
Outstanding, end of
period 30,000 $ 10 30,000 $ 10 30,000 $ 10
====== ===== ====== ===== ====== =====
Exercisable, end of
period 12,000 $ 10 12,000 $ 10 - $ -
====== ===== ====== ===== ====== =====
Weighted average fair
value of options
granted $ - $ - $ 4.50
======= ======= =======
The fair value of the option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions: risk-
free interest rate of 6.08%; expected dividend yields of 0.0%; expected lives
of seven years; and expected volatility of 28.7%.
16. Event Subsequent to Date of Report of Independent Public Accountants
In May 1997 the Company filed a registration statement with the Securities
and Exchange Commission on Form SB-2 in connection with the proposed issuance
of $15,000,000 in subordinated notes. The notes will be unsecured general
obligations of the Company and subordinated in right of payment of all other
outstanding Senior Indebtedness of the Company.
17. Condensed Financial Information-Parent Company Only:
Condensed financial information of BNCCORP on a parent company only basis is
as follows:
PARENT COMPANY ONLY
Condensed Statements of Financial Condition
(In thousands, except share and per share data)
As of
December 31,
As of -----------------------
March 31,1997 1996 1995
-------------- ----------- ----------
Assets: (unaudited)
Cash and short-term investments $ 182 $ 257 $ 6,074
Investment in subsidiaries 27,618 27,241 16,916
Loans 476 545 546
Receivable from subsidiaries 5,516 4,265 277
Cost in excess of net assets
acquired, net 228 232 247
Other 906 574 437
---------- ---------- ----------
$ 34,926 $ 33,114 $ 24,497
========== ========== ==========
Liabilities and stockholders' equity:
Note payable $ 11,549 $ 10,249 $ 3,354
Accrued expenses and other
liabilities 474 185 256
---------- ---------- ----------
12,023 10,434 3,610
---------- ---------- ----------
Preferred stock, $.01 par value,
2,000,000 shares authorized;
no shares issued or outstanding - - -
Common stock, $.01 par value,
10,000,000 shares authorized;
2,364,100 shares issued,
2,338,720 shares outstanding 23 23 23
Capital surplus 13,768 13,768 13,776
Retained earnings 9,578 9,062 7,170
Treasury stock (216) (216) (216)
Unrealized gain (loss) on securities
available for sale (250) 43 134
---------- ---------- ----------
22,903 22,680 20,887
---------- ---------- ----------
$ 34,926 $ 33,114 $ 24,497
========== ========== ==========
PARENT COMPANY ONLY
Condensed Statements of Income
(In thousands)
For the three
months ended For the years ended
March 31, December 31,
--------------- ------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
Income: (unaudited)
Management fee income $ 242 $ 212 $ 927 $ 606 $ 753
Consulting income - 1 1 - 18
Interest 97 14 210 134 12
Other 1 1 137 319 32
------ ------ ------ ------ ------
Total income 340 228 1,275 1,059 815
------ ------ ------ ------ ------
Expenses:
Interest 205 68 546 336 278
Personnel expense 214 256 965 987 1,141
Legal and other professional 20 56 155 103 91
Depreciation and amortization 12 10 49 63 48
Other 97 101 367 300 160
------ ------ ------ ------ ------
Total expenses 548 491 2,082 1,789 1,718
------ ------ ------ ------ ------
Loss before income tax benefit
and equity in undistributed
income of subsidiaries (208) (263) (807) (730) (903)
Income tax benefit 53 88 281 258 344
------ ------ ------ ------ ------
Loss before equity in
undistributed income of
subsidiaries (155) (175) (526) (472) (559)
Equity in undistributed income
of subsidiaries 671 317 2,418 1,629 1,750
------ ------ ------ ------ ------
Net income $ 516 $ 142 $1,892 $1,157 $1,191
====== ====== ====== ====== ======
PARENT COMPANY ONLY
Condensed Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
For the three
months ended For the years ended
March 31, December 31,
------------------- ------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activites:
Net income $ 516 $ 142 $ 1,892 $ 1,157 $ 1,191
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities --
Gain on sale of subsidiary - - - (316) -
Depreciation and amortization 5 5 25 27 9
Amortization of intangible
assets 7 5 24 36 39
Equity in undistributed income
of subsidiaries (671) (317) (2,418) (1,629) (1,750)
Change in prepaid expenses and
other receivables (1,595) 98 (3,816) (168) 1,266
Change in accrued expenses and
other liabilities 289 (28) (71) (228) 263
Other 5 (220) (391) (142) (16)
-------- -------- -------- -------- --------
Net cash provided by (used
in) operating activities (1,444) (315) (4,755) (1,263) 1,002
-------- -------- -------- -------- --------
Cash flows from investing activities:
Net (increase) decrease in loans 69 (137) 1 (546) -
Increase in investment in subsidiaries - (6,000) (8,700) (6,796) (450)
Sale of investment in subsidiary - - - 3,811 -
Net sale (purchases) of premises,
leasehold improvements and equipment - 58 50 (108) (22)
Dividends received - - 700 1,309 -
-------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities 69 (6,079) (7,949) (2,330) (472)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Repayments of long-term borrowings (10,000) (1,004) (1,004) (716) (550)
Proceeds from long-term borrowings 11,300 1,650 7,899 500 216
(Costs) proceeds from issuance of stock - (4) (8) 9,717 -
Payments to repurchase stock - - - - (216)
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities 1,300 642 6,887 9,501 (550)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents (75) (5,752) (5,817) 5,908 (20)
Cash and cash equivalents, beginning
of period 257 6,074 6,074 166 186
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period $ 182 $ 322 $ 257 $ 6,074 $ 166
======== ======== ======== ======== ========
Supplemental cash flow information:
Interest paid $ 148 $ 78 $ 524 $ 338 $ 268
======== ======== ======== ======== ========
Income tax payments received from
subsidiary banks, net of income
taxes paid $ 75 $ 106 $ 441 $ 16 $ 600
======== ======== ======== ======== ========
</TABLE>
============================================= ============================
No dealer, salesperson or any other
person has been authorized to give any
information or to make any representation
other than those contained in this Prospectus
in connection with the offer made by this
Prospectus, and, if given or made, such
information or representation must not be
relied upon as having been authorized by
the Company or the Underwriter. Neither the $15,000,000
delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances,
create any implication that there has been
no change in the affairs of the Company
since any of the dates on which information
is furnished herein or since the date hereof
or that the information herein is correct as BNCCORP, INC.
of any time subsequent to the date of this
Prospectus. This Prospectus does not
constitute an offer to sell, or a
solicitation of an offer to buy, by anyone
in any jurisdiction in which such offer or
solicitation is not authorized or in which
the person making such offer or solicitation
is not qualified to do so or to anyone to
whom it is unlawful to make such offer or
solicitation. ____% Subordinated Notes
Due 2004
____________________
TABLE OF CONTENTS
Page --------------------
----
PROSPECTUS
Prospectus Summary................
Risk Factors...................... --------------------
Use of Proceeds...................
Capitalization....................
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations......................
Business..........................
Management........................
Certain Transactions.............. DAIN BOSWORTH
Supervision and Regulation........ Incorporated
Principal Stockholders............
Description of the Notes..........
Underwriting......................
Legal Matters.....................
Experts...........................
Available Information.............
Index to Consolidated
Financial Statements............ F-1 , 1997
============================================ ============================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify its directors and officers in a variety of
circumstances, which may include liabilities under the Securities Act of
1933, as amended. In addition, Section 9 of the Registrant's Bylaws, a copy
of which is incorporated herein by reference as Exhibit 3.2, provides for the
indemnification of directors and officers against expenses and liabilities
incurred in connection with defending actions brought against them for
negligence or misconduct in their official capacities. The Registrant also
has indemnity agreements, a form of which is incorporated by reference herein
as Exhibit 10.1, with each of its directors, which provide for indemnification
of such directors. The Registrant has purchased insurance permitted by the
Delaware General Corporation Law on behalf of directors and officers, which
may cover liabilities under the Securities Act of 1933, as amended. The
Underwriting Agreement, a form of which is filed as Exhibit 1.1 and
incorporated herein by reference, provides indemnification to directors and
officers of the Registrant under certain conditions.
Item 25. Other Expenses of Issuance and Distribution.
SEC registration fee........................ $ 4,546
NASD filing fee............................. 2,000
Accounting fees............................. 20,000*
Printing expenses........................... 40,000*
Legal fees and expenses..................... 60,000*
Trustee expenses............................ 5,000*
Miscellaneous expenses...................... 18,454*
----------
Total....................................... $ 150,000*
==========
___________________
*Estimated
Item 26. Recent Sales of Unregistered Securities.
The Company issued shares of its Common Stock in a 60 for 1 exchange in
connection with the Company's reincorporation from the State of North Dakota
to the State of Delaware in June of 1995. These shares were issued in a
transaction that did not constitute an offer or sale of securities for
purposes of the registration requirements of the Securities Act of 1933 based
on Rule 145(a)(2).
The Company has periodically issued shares of its Common Stock to
employees of the Company pursuant to its 401(k) Plan. These shares were
offered and sold without registration under the Securities Act inasmuch as
they were deemed not subject to registration pursuant to the exemptions
provided in Section 4(2) of the Securities Act as securities sold in
transactions not involving any public offering.
Item 27. Exhibits.
Exhibit
Number Description of Exhibits
- ------- -----------------------
1.1 Form of Underwriting Agreement
2.1 Plan of Merger of BNCCORP, Inc., a North Dakota corporation,
into BNCCORP, INC., a Delaware corporation, incorporated by
reference to Exhibit 2.1 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-92369)
2.2 Branch Purchase and Assumption Agreement dated as of January 31,
1995 between Metropolitan Federal Bank, FSB and Bismarck
National Bank, a national banking association, incorporated by
reference to Exhibit 2.2 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-92369)
2.3 Stock Purchase Agreement dated as of June 7, 1995, by and among
the Company, Gregory Cleveland, Tracy Scott and Community First
Bankshares, Inc., incorporated by reference to Exhibit 2.3 to
the Registrant's Registration Statement on Form SB-2
(Registration No. 33-92369)
2.4 Agreement and Plan of Merger of the First National Bank of
Linton with and into BNC National Bank dated July 28, 1995,
incorporated by reference to Exhibit 2.4 to the Registrant's
Form 10-KSB dated as of March 29, 1996
2.5 Contract for Sale of Assets dated December 31, 1996 by and
between Gregory K. Cleveland, P.C. and BNC National Bank,
incorporated by reference to Exhibit 2.5 to the Registrant's
Form 10-KSB dated as of March 26, 1997
2.6 Stock Purchase Agreement dated December 31, 1996 by and between
Gregory K. Cleveland, P.C. and BNC National Bank, incorporated
by reference to Exhibit 2.6 to the Registrant's Form 10-KSB
dated as of March 26, 1997
3.1 Certificate of Incorporation of the Company, incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-92369)
3.2 Bylaws of the Company, incorporated by reference to Exhibit 3.2
to the Registrant's Registration Statement on Form SB-2
(Registration No. 33-92369)
4.1 Form of Indenture by and between BNCCORP, Inc. and Firstar Trust
Company, as trustee
5.1 Opinion and consent of Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P. to the legality of the Notes
10.1 Form of Indemnity Agreement by and between the Company and each
of the Company's directors, incorporated by reference to Exhibit
10.1 to the Registrant's Registration Statement on Form SB-2
(Registration No. 33-92369)
10.2 Form of Employment Agreement between the Company and each of
Tracy J. Scott, Gregory K. Cleveland, and Brad J. Scott,
incorporated by reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form SB-2 (Registration No. 33-92369)
10.3 Form of BNCCORP, INC. Stock Incentive Plan, incorporated by
reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-92369)
10.4 Employment Agreement between the Company, Bismarck National Bank
and Thomas Resch, incorporated by reference to Exhibit 10.8 to
Amendment No. 1 to the Registrant's Registration Statement on
Form SB-2 (Registration No. 33-92369) as amended by Amendment
dated June 1, 1996.
10.5 Form of Stock Option Agreement for the Grant of Non-Qualified
Stock Options Under the BNCCORP, INC. 1995 Stock Incentive Plan
dated as of June 7, 1995 between the Company and each of Tracy
J. Scott, Gregory K. Cleveland, Brad J. Scott, John Malmberg,
Michael Miller, and Thomas Resch, incorporated by reference to
Exhibit 10.5 to the Registrant's Form 10-KSB dated as of March
29, 1996
10.6 Term Loan Agreement dated February 19, 1996 by and between
Firstar Bank Milwaukee, N.A. and BNCCORP, Inc., incorporated by
reference to Exhibit 10.6 to the Registrant's Form 10-KSB dated
as of March 29, 1996
10.7 Revolving Credit Agreement dated February 19, 1996 by and
between Firstar Bank Milwaukee, N.A. and BNCCORP, Inc.,
incorporated by reference to Exhibit 10.7 to the Registrant's
Form 10-KSB dated as of March 29, 1996
10.8 Amendment to Term Loan Agreement and Term Note dated February
11, 1997 by and between Firstar Bank Milwaukee, N.A. and
BNCCORP, Inc., incorporated by reference to Exhibit 10.8 to the
Registrant's Form 10-KSB dated as of March 26, 1997
10.9 Amendment to Revolving Credit Agreement and Revolving Credit
Note dated February 11, 1997 by and between Firstar Bank
Milwaukee, N.A. and BNCCORP, Inc., incorporated by reference to
Exhibit 10.9 to the Registrant's Form 10-KSB dated as of March
26, 1997
10.10 Revolving Credit Agreement dated September 27, 1996 by and
between BNC Financial Corporation and Bank Windsor, incorporated
by reference to Exhibit 10.10 to the Registrant's Form 10-KSB
dated as of March 26, 1997
16.1 Letter of James J. Wosepka, CPA regarding Change in Accountants,
incorporated by reference to Exhibit 16 to the Registrant's
Registration Statement on Form SB-2 (Registration No. 33-92369)
21.1 Subsidiaries of the Company, incorporated by reference to
Exhibit 21 to the Registrant's Form 10-KSB dated as of March 26,
1997
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P. (included in Exhibit 5)
24.1 Power of Attorney (included on signature page)
25.1 Statement of Eligibility of Firstar Trust Company, as Trustee
Item 28. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business
issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the small business issuer will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The small business issuer will:
(1) For determining any liability under the Act, treat 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 small business issuer under Rule
424(b)(1) or (4) or 497(h) under the Act as part of this registration
statement as of the time the Commission declared it effective.
(2) For determining any liability under the Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned in the
City of Bismarck, State of North Dakota, on May 8, 1997.
BNCCORP, INC.
By: /s/ Tracy J. Scott
-------------------------------
Tracy J. Scott,
Chairman of the Board
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Tracy J. Scott and Gregory K.
Cleveland, or either one of them, his true and lawful attorney-in-fact and
agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and 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 ratifying and confirming all that said attorney-in-
fact and agent or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
and on the dates stated.
Signature Title Date
/s/ Tracy J. Scott Director, Chairman of the Board May 8, 1997
- --------------------------- and Chief Executive Officer
Tracy J. Scott (Principal Executive Officer)
/s/ Gregory K. Cleveland Director, President and Chief May 8, 1997
- --------------------------- Chief Financial Officer
Gregory K. Cleveland (Principal Financial and
Accounting Officer)
/s/ Brad J. Scott Director May 8, 1997
- ---------------------------
Brad J. Scott
/s/ John A. Malmberg Director May 8, 1997
- ---------------------------
John A. Malmberg
/s/ John A. Hipp, M.D. Director May 8, 1997
- ---------------------------
John A. Hipp, M.D.
/s/ Richard M. Johnson, Jr. Director May 8, 1997
- ---------------------------
Richard M. Johnson, Jr.
/s/ Thomas J. Resch Director May 8, 1997
- ---------------------------
Thomas J. Resch
/s/ John M. Shaffer Director May 8, 1997
- ---------------------------
John M. Shaffer
/s/ Jerry R. Woodcox Director May 8, 1997
- ---------------------------
Jerry R. Woodcox
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits PAGE
- ------- ----------------------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement
2.1 Plan of Merger of BNCCORP, Inc., a North Dakota corporation,
into BNCCORP, INC., a Delaware corporation, incorporated by
reference to Exhibit 2.1 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-92369)
2.2 Branch Purchase and Assumption Agreement dated as of January 31,
1995 between Metropolitan Federal Bank, FSB and Bismarck
National Bank, a national banking association, incorporated by
reference to Exhibit 2.2 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-92369)
2.3 Stock Purchase Agreement dated as of June 7, 1995, by and among
the Company, Gregory Cleveland, Tracy Scott and Community First
Bankshares, Inc., incorporated by reference to Exhibit 2.3 to
the Registrant's Registration Statement on Form SB-2
(Registration No. 33-92369)
2.4 Agreement and Plan of Merger of the First National Bank of
Linton with and into BNC National Bank dated July 28, 1995,
incorporated by reference to Exhibit 2.4 to the Registrant's
Form 10-KSB dated as of March 29, 1996
2.5 Contract for Sale of Assets dated December 31, 1996 by and
between Gregory K. Cleveland, P.C. and BNC National Bank,
incorporated by reference to Exhibit 2.5 to the Registrant's
Form 10-KSB dated as of March 26, 1997
2.6 Stock Purchase Agreement dated December 31, 1996 by and between
Gregory K. Cleveland, P.C. and BNC National Bank, incorporated
by reference to Exhibit 2.6 to the Registrant's Form 10-KSB
dated as of March 26, 1997
3.1 Certificate of Incorporation of the Company, incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-92369)
3.2 Bylaws of the Company, incorporated by reference to Exhibit 3.2
to the Registrant's Registration Statement on Form SB-2
(Registration No. 33-92369)
4.1 Form of Indenture by and between BNCCORP, Inc. and Firstar Trust
Company, as trustee
5.1 Opinion and consent of Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P. to the legality of the Notes
10.1 Form of Indemnity Agreement by and between the Company and each
of the Company's directors, incorporated by reference to Exhibit
10.1 to the Registrant's Registration Statement on Form SB-2
(Registration No. 33-92369)
10.2 Form of Employment Agreement between the Company and each of
Tracy J. Scott, Gregory K. Cleveland, and Brad J. Scott,
incorporated by reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form SB-2 (Registration No. 33-92369)
10.3 Form of BNCCORP, INC. Stock Incentive Plan, incorporated by
reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-92369)
10.4 Employment Agreement between the Company, Bismarck National Bank
and Thomas Resch, incorporated by reference to Exhibit 10.8 to
Amendment No. 1 to the Registrant's Registration Statement on
Form SB-2 (Registration No. 33-92369) as amended by Amendment
dated June 1, 1996.
10.5 Form of Stock Option Agreement for the Grant of Non-Qualified
Stock Options Under the BNCCORP, INC. 1995 Stock Incentive Plan
dated as of June 7, 1995 between the Company and each of Tracy
J. Scott, Gregory K. Cleveland, Brad J. Scott, John Malmberg,
Michael Miller, and Thomas Resch, incorporated by reference to
Exhibit 10.5 to the Registrant's Form 10-KSB dated as of March
29, 1996
10.6 Term Loan Agreement dated February 19, 1996 by and between
Firstar Bank Milwaukee, N.A. and BNCCORP, Inc., incorporated by
reference to Exhibit 10.6 to the Registrant's Form 10-KSB dated
as of March 29, 1996
10.7 Revolving Credit Agreement dated February 19, 1996 by and
between Firstar Bank Milwaukee, N.A. and BNCCORP, Inc.,
incorporated by reference to Exhibit 10.7 to the Registrant's
Form 10-KSB dated as of March 29, 1996
10.8 Amendment to Term Loan Agreement and Term Note dated February
11, 1997 by and between Firstar Bank Milwaukee, N.A. and
BNCCORP, Inc., incorporated by reference to Exhibit 10.8 to the
Registrant's Form 10-KSB dated as of March 26, 1997
10.9 Amendment to Revolving Credit Agreement and Revolving Credit
Note dated February 11, 1997 by and between Firstar Bank
Milwaukee, N.A. and BNCCORP, Inc., incorporated by reference to
Exhibit 10.9 to the Registrant's Form 10-KSB dated as of March
26, 1997
10.10 Revolving Credit Agreement dated September 27, 1996 by and
between BNC Financial Corporation and Bank Windsor, incorporated
by reference to Exhibit 10.10 to the Registrant's Form 10-KSB
dated as of March 26, 1997
16.1 Letter of James J. Wosepka, CPA regarding Change in Accountants,
incorporated by reference to Exhibit 16 to the Registrant's
Registration Statement on Form SB-2 (Registration No. 33-92369)
21.1 Subsidiaries of the Company, incorporated by reference to
Exhibit 21 to the Registrant's Form 10-KSB dated as of March 26,
1997
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P. (included in Exhibit 5)
24.1 Power of Attorney (included on signature page)
25.1 Statement of Eligibility of Firstar Trust Company, as Trustee
</TABLE>
EXHIBIT 1.1
$15,000,000
BNCCORP, Inc.
___% Subordinated Notes due 2004
UNDERWRITING AGREEMENT
May __, 1997
Dain Bosworth Incorporated
Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
BNCCORP, Inc., a Delaware corporation (the "Company") proposes, subject
to the terms and conditions stated herein, to issue and sell to you (the
"Underwriter"), ____% Subordinated Notes due 2004 in an aggregate principal
amount of $15,000,000 (the "Notes"). The Notes will be issued under an
indenture, dated as of May ___, 1997 (the "Indenture"), between the Company
and Firstar Bank Milwaukee, N.A., as trustee (the "Trustee").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (File No. 333-
) and a related preliminary prospectus for the registration of the Notes
under the Securities Act of 1933, as amended (the "Act"). The registration
statement, as amended at the time it was declared effective, including the
information (if any) deemed to be part thereof pursuant to Rule 430A under
the Act is herein referred to as the "Registration Statement." The form of
prospectus first filed by the Company with the Commission pursuant to Rules
424(b) and 430A under the Act is referred to herein as the "Prospectus."
Each preliminary prospectus included in the Registration Statement prior to
the time it becomes effective or filed with the Commission pursuant to Rule
424(a) under the Act is referred to herein as a "Preliminary Prospectus."
Copies of the Registration Statement, including all exhibits and schedules
thereto, any amendments thereto and all Preliminary Prospectuses have been
delivered to you.
The Company hereby confirms its agreements with respect to the purchase
of the Notes by the Underwriter as follows:
1. Representations and Warranties of the Company.
(a) The Company represents and warrants to, and agrees with, the
Underwriter that:
(i) The Registration Statement has been declared effective under
the Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. No stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceeding for that purpose has been instituted or
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, the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act") the rules and regulations
of the Commission promulgated thereunder and Industry Guide 3,
Statistical Disclosure by Bank Holding Companies (collectively, the
"Regulations"), 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, the
Company makes no representation or warranty as to information contained
in or omitted in reliance upon, and in conformity with, written
information furnished to the Company by the Underwriter expressly for
use in the preparation thereof.
(iii) The Registration Statement conforms, and the Prospectus and
any amendments or supplements thereto will conform, in all material
respects to the requirements of the Act, the Trust Indenture Act and
the Regulations. Neither the Registration Statement nor any amendment
thereto, and neither the Prospectus nor any supplement thereto,
contains or will contain, as the case may be, 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 Company makes no representation or warranty
as to 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 Company by the Underwriter, expressly for use in the preparation
thereof.
(iv) The Company is a "small business issuer" as such term is
defined in Rule 405 and Regulation S-B under the Act.
(v) The Company has been duly organized, is validly existing as a
corporation in good standing under the laws of the State of Delaware,
has the corporate power and authority to own or lease its properties
and conduct its business as described in the Prospectus, 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
Company is duly registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended.
(vi) The Company does not own any stock or other equity interest
in any corporation, partnership, joint venture, unincorporated
association or other entity, other than BNC Nationa Bank of Minnesota
(the "Minnesota Bank") and BNC National Bank of Bismarck (the "Bismarck
Bank") (collectively the "Subsidiary Banks"), BNC Financial
Corporation, a Minnesota corporation ("BNC Financial") and Bismarck
Properties, Inc., an inactive North Dakota corporation ("Bismarck
Properties") (the Subsidiary Banks, BNC Financial Corporation, Bismarck
Properties and any such other entity being collectively referred to
herein as the "subsidiaries"). The Company owns all of the issued and
outstanding capital stock of the subsidiaries, free and clear of all
liens, encumbrances and security interests, except as disclosed in the
Prospectus. Except as disclosed in the Prospectus, 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 of the
Company are outstanding. All outstanding shares of capital stock of
each of the subsidiaries of the Company have been duly authorized and
validly issued, are fully paid and non-assessable.
(vii) Each of the Subsidiary Banks are national banking
associations duly organized, validly existing and in good standing
under the laws of the United States and have the power and authority to
own or lease their respective properties and conduct their respective
businesses as described in the Prospectus. The Minnesota Bank is
authorized to conduct the business of banking in the State of Minnesota
and the Bismarck Bank is authorized to conduct the business of banking
in the State of North Dakota. None of the Subsidiary Banks are
required to be qualified to transact business as a foreign corporation
in any jurisdiction. The Minnesota Bank and the Bismarck Bank are
members of the Federal Reserve Bank of Minneapolis, and are each duly
authorized to operate a banking business. Each Subsidiary Bank is a
member of the Bank Insurance Fund of the Federal Deposit Insurance
Corporation (the "FDIC") and its deposit accounts are insured by the
FDIC to the fullest extent provided by law. No proceeding for the
termination of such insurance is pending or is threatened.
(viii) BNC Financial and Bismarck Properties have been duly
incorporated, are validly existing as corporations in good standing
under the laws of their jurisdiction of incorporation, have the
corporate power and authority to own or lease their properties and
conduct their businesses as described in the Prospectus, and are duly
qualified to transact business in all jurisdictions in which the
conduct of their business or their 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.
Bismarck Properties is an inactive North Dakota corporation that does
not own or lease any properties and does not currently conduct
business.
(ix) The Company has the power and authority to enter into this
Agreement and the Indenture and to authorize, issue and sell the Notes
it will sell hereunder as contemplated hereby. This Agreement and the
Indenture have been duly and validly authorized, executed and delivered
by the Company and constitute valid and binding agreements of the
Company in accordance with their terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization or other similar laws
relating to or affecting the rights of creditors generally, by general
principles of equity and, with respect to Section 7 hereof, by the
public policy underlying the federal or state securities laws. The
Notes to be issued and sold by the Company to the Underwriter pursuant
to this Agreement and the Indenture have been duly authorized and, when
executed and authenticated in the manner set forth in the Indenture and
issued, sold and delivered in the manner set forth herein, will be the
valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms and the terms of the Indenture,
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 Indenture
has been duly qualified under the Trust Indenture Act. The Indenture
will be substantially in the form filed as an exhibit to the
Registration Statement and will comply with the Trust Indenture Act and
the regulations thereunder. The Indenture and the Notes conform to the
descriptions thereof contained in the Registration Statement and the
Prospectus.
(x) The outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and
nonassessable. All offers and sales by the Company of outstanding
shares of capital stock and other securities of the Company, prior to
the date hereof, were made in compliance with the Act and all
applicable state securities or blue sky laws. There are no preemptive
rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any shares of capital stock
of the Company pursuant to the Company's Certificate of Incorporation,
Bylaws or any agreement or other instrument to which the Company is a
party or by which the Company is bound. Neither the filing of the
Registration Statement nor the offering or the sale of the Notes as
contemplated by this Agreement gives rise to any rights for, or
relating to, the registration of any shares of capital stock or other
securities of the Company, except such rights which have been validly
waived or satisfied. Except as described in the Prospectus, there are
no outstanding options, warrants, agreements, contracts or other rights
to purchase or acquire from the Company any shares of its capital
stock. The Company has the authorized and outstanding capital stock
as set forth under the heading "Capitalization" in the Prospectus. The
outstanding capital stock of the Company conforms to the description
thereof contained in the Prospectus.
(xi) The financial statements, together with the related notes
and schedules as set forth in the Registration Statement and
Prospectus, present fairly the consolidated financial position, results
of operations and changes in financial position of the Company and its
subsidiaries on the basis stated in the Registration Statement 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, and such financial statements comply in all material respect
with the requirements of the Act and the Regulations and all
adjustments necessary for a fair presentation of results for such
periods have been made, except as otherwise stated therein. The
summary and selected financial and statistical data included in the
Registration Statement present fairly the 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.
No other financial statements or schedules are required to be included
in the Registration Statement or Prospectus. The allowance for loan
losses of each of the Subsidiary Banks is adequate based on
management's assessment of various factors affecting the loan
portfolio, including a review of problem loans, business conditions,
historical loss experience, evaluation of the quality of the underlying
collateral and holding and disposal costs.
(xii) There is no action or proceeding pending or, to the
knowledge of the Company, threatened or contemplated against the Company
or any of its subsidiaries before any court or administrative or
regulatory agency which, if determined adversely to the Company or any
of its subsidiaries, would, individually or in the aggregate, result in
a material adverse change in the business or condition (financial or
otherwise), results of operations, stockholders' equity or prospects of
the Company and its subsidiaries, taken as a whole, except as set forth
in the Registration Statement.
(xiii) The Company has good and marketable title to all
properties and assets reflected as owned in the financial statements
referred to above (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 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 its subsidiaries; and any real property and
buildings held under lease by the Company and its 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 its subsidiaries.
(xiv) 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 Company and its subsidiaries,
taken as a whole, or the business affairs, management, financial
position, shareholders' equity or results of operations of the Company
and its subsidiaries, taken as a whole, whether or not occurring in the
ordinary course of business, including, without limitation, any
increase in the amount or number of classified assets of the Subsidiary
Banks, any decrease in net interest margin for any month to a level
below [4.25%], 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 Company or any of its subsidiaries which is
material to the Company and its subsidiaries, taken as a whole, other
than transactions described or contemplated in the Registration
Statement, (C) the Company and its 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 Company and its subsidiaries, (D) the Company
and its 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 (other than upon 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 its subsidiaries, taken as a whole,
other than with respect to deposits and Federal Home Loan Bank
advances, (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, other than any dividends or distributions
described or contemplated in the Registration Statement, or (G) there
has not been any issuance of warrants, options, convertible securities
or other rights to purchase or acquire capital stock of the Company.
(xv) Neither the Company nor any of its subsidiaries is in
violation of, or in default under, its charter or bylaws, or any
statute, or any rule, regulation, order, judgment, decree or
authorization of any court or governmental or administrative agency or
body having jurisdiction over the Company or any of its 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 Company or any of its subsidiaries is a party
or by which it or any of them are bound or to which any property or
assets of the Company or any of its subsidiaries is subject, which
violation or default would have a material adverse effect on the
business, condition (financial or otherwise), results of operations,
stockholders' equity or prospects of the Company and its subsidiaries,
taken as a whole.
(xvi) The issuance and sale of the Notes by the Company and the
compliance by the Company with all of the provisions of this Agreement
and the Indenture and the consummation of the transactions contemplated
herein and therein will not violate any provision of the Certificate of
Incorporation or Bylaws of the Company or any of its subsidiaries or
any statute or any order, judgment, decree, rule, regulation or
authorization of any court or governmental or administrative agency or
body having jurisdiction over the Company or any of its subsidiaries or
any of their properties, and will not conflict with, result in a breach
or violation of, or constitute, either by itself or upon notice or
passage of time or both, a default under any indenture, mortgage, deed
of trust, loan agreement, lease, franchise, license or other agreement
or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to
which any property or assets of the Company or any of its subsidiaries
is subject. No approval, consent, order, authorization, designation,
declaration or filing by or with any court or governmental agency or
body is required for the execution and delivery by the Company of this
Agreement and the consummation of the transactions herein contemplated,
except as may be required under the Act, the Trust Indenture Act or any
state securities or blue sky laws.
(xvii) The Company and each of its subsidiaries holds and is
operating in compliance in all material respects with all licenses,
approvals, certificates and permits from governmental and regulatory
authorities, foreign and domestic, 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 approvals of
the Board of Governors of the Federal Reserve System (the "Board of
Governors") to own the stock of its subsidiaries. Neither the Company
nor any of its subsidiaries have received notice of nor have knowledge
of any basis for any proceeding or action relating specifically to the
Company or any of its 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 Company or any of its
subsidiaries that would have a material adverse effect on the Company
and its subsidiaries, taken as a whole. Except as disclosed in the
Prospectus, neither the Company nor any Subsidiary Bank is currently
subject to any cease and desist order, written agreement or memorandum
of understanding with, or is a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or
is a recipient of any extraordinary supervisory agreement letter from,
or have adopted any board resolutions at the request of the Board of
Governors, the FDIC, the Office of the Comptroller of the Currency (the
"OCC"), the North Dakota Department of Banking, the Minnesota
Department of Commerce or any other federal or state governmental
authorities charged with the supervision or regulation of national
banking associations, savings banks, banks, savings and loan companies
or associations, bank holding companies or savings and loan holding
companies or engaged in the insurance of bank deposits (collectively,
the "Bank Regulators"), and neither the Company nor any Subsidiary Bank
has been advised by any of the Bank Regulators that it is contemplating
issuing or requesting (or is considering the appropriateness of issuing
or requesting) any such order, directive, written agreement, memorandum
of understanding, extraordinary supervisory letter, commitment letter,
board resolutions or similar undertaking.
(xviii) Arthur Andersen LLP, which have certified certain of the
financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as required
by the Act and the rules and regulations thereunder.
(xix) The Company has 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 any security of the Company.
(xx) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering
and sale of the Notes other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by
the Company.
The Company is in compliance with all provisions of Florida
Statutes Section 517.075 (Chapter 92-198, laws of Florida). Neither
the Company nor any of its subsidiaries does business, directly or
indirectly, with the government of Cuba or with any person or entity
located in Cuba.
(xxii) The Company and its subsidiaries have filed all federal,
state, local and foreign tax returns or reports required to be filed,
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, except where the Company and
its subsidiaries are contesting in good faith such taxes and
assessments. The Company and each Subsidiary Bank have also filed all
required applications, reports, returns and other documents and
information with all Bank Regulators.
(xxiii) The Company and each of its subsidiaries owns or
possesses all patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations,
copyrights, licenses, inventions, know-how, trade secrets and other
similar rights ("Intellectual Property Rights") necessary for the
conduct of its business as currently carried on or intended to be
carried on and as described in the Prospectus. No name which the
Company or any of its subsidiaries uses and no other aspect of the
business of the Company or any of its subsidiaries involves or gives
rise to any infringement of or conflict with, or license or similar
fees for, any patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets or other similar rights
of others, and neither the Company nor any of its subsidiaries has
received any notice or claim of conflict with the asserted rights of
others with respect any of the foregoing.
(xxiv) The Company is not, and upon completion of the sale of the
Notes contemplated hereby will not be, required to register as an
"investment company" under the Investment Company Act of 1940, as
amended.
(xxv) The Company maintains 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 the rules of Bank Regulators, and to
maintain accountability for assets; (C) access to records is permitted
only in accordance with 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.
(xxvi) Other than as contemplated by this Agreement, 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.
(xxvii) The minute books and stock record books of the Company
and the subsidiaries are complete and correct and accurately reflect
all material actions taken at meetings of the shareholders and
directors of the Company and the subsidiaries, and of all committees
thereof, including, without limitation, the loan committees and the
audit committees of the Subsidiary Banks, and all issuances and
transfers of any shares of the capital stock of the Company and the
subsidiaries.
(xxviii) There has been no unlawful storage, treatment or
disposal of waste by the Company or any of its subsidiaries (or any of
their predecessors-in-interest) at any of the facilities owned thereby,
including, but not limited to, real estate owned property, except for
such violations which would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, affairs or business
prospects of the Company and its subsidiaries, taken as a whole; there
has been no material spill, discharge, leak, emission, ejection,
escape, dumping or release of any kind onto the properties owned by the
Company or any of its subsidiaries, including, but not limited to, real
estate owned property, or into the environment surrounding those
properties of any toxic or hazardous substances as defined under any
federal, state or local regulations, laws or statutes, except for those
releases permissible under such regulations, laws or statutes or
otherwise allowable under applicable permits and except for such
releases which would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, affairs or business
prospects of the Company and its subsidiaries, taken as a whole.
(xxix) No material labor dispute with the employees of the
Company or any of its subsidiaries exists or is imminent.
(xxx) Each employee benefit plan (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), or other bonus, retirement, pension, profit sharing, stock
bonus, thrift, stock option, stock purchase, incentive, severance,
deferred or other compensation, cafeteria, vacation, disability, or
other paid or unpaid leave of absence, health, life or other welfare
benefit plan, program, agreement or arrangement of, or applicable to
current or former employees of or independent contractors providing
services to the Company or any of its subsidiaries, which is presently
in existence, or with respect to which the Company or any subsidiary
could reasonably be expected to have, directly or indirectly, any
liability ("Benefit Plans"), was or has been established, maintained
and operated in all material respects in compliance with its terms and
with all applicable federal, state, and local statutes, orders,
governmental rules and regulations, including, but not limited to,
ERISA and the Internal Revenue Code of 1986, as amended (the "Code").
The Company and its subsidiaries do not, either directly or indirectly
as a member of a controlled group within the meaning of Sections
414(b), (c), (m) and (o) of the Code ("Controlled Group"), have any
material liability that remains unsatisfied for (A) the termination of
any single employer plan under Sections 4062 or 4064 of ERISA, a
cessation of operations pursuant to Section 4062(e) of ERISA or a
withdrawal from a multiple employer plan pursuant to Section 4063 of
ERISA, (B) any interest payments under Section 302(e) of ERISA or
Section 412(m) of the Code, (C) any excise tax imposed by Section 4971,
Section 4972, Section 4975, Section 4976, Section 4977, Section 4979,
Section 4980B, Section 4999 or Section 5000 of the Code or civil
penalty imposed by Section 502 of ERISA, (D) any minimum funding
contributions under Section 302(c)(11) of ERISA or Section 412(c)(11)
of the Code, (E) any accumulated funding deficiency within the meaning
of Section 412(a) of the Code, whether or not waived, or (F) to the
Internal Revenue Service, the Department of Labor, the Pension Benefit
Guaranty Corporation, or any Benefit Plan under Subtitle D or Subtitle
E of Title IV of ERISA, under Subchapter D of Chapter 1 of Subtitle A
of the Code or under Chapter 43 of Subtitle D of the Code. No action,
suit, grievance, arbitration or other matter of litigation or claim
with respect to any Benefit Plan (other than routine claims for
benefits made in the ordinary course of plan administration for which
plan administrative procedures have not been exhausted) is pending or,
to the Company's knowledge, threatened or imminent against or with
respect to any Benefit Plan, any member of a Controlled Group that
includes the Company, or any fiduciary within the meaning of Section
3(21) of ERISA with respect to a Benefit Plan which, if determined
adversely to the Company, would have a material adverse effect on the
Company and its subsidiaries, taken as whole. Neither the Company, any
of its subsidiaries, nor any member of a Controlled Group that includes
the Company or its subsidiaries, has any knowledge of any facts with
respect to any Benefit Plan that could give rise to any action, suit,
grievance, arbitration or any other manner of litigation or claim or
could be expected to have a material adverse effect on the Company and
its subsidiaries taken as a whole.
(xxxi) The Company and its subsidiaries maintain insurance of the
types and in the amounts generally deemed adequate in their respective
businesses and consistent with insurance coverage maintained by similar
companies and businesses, and as required by the rules and regulations
of all governmental agencies having jurisdiction over the Company and
its subsidiaries, including Bank Regulators, all of which insurance is
in full force and effect.
(xxxii) All transactions required to be disclosed pursuant to
Item 404 of Regulation S-B between the Company and its subsidiaries and
the officers, directors and shareholders who beneficially own more than
5% of any class of the Company's voting securities of the Company and
its subsidiaries have been accurately disclosed in the Prospectus.
(xxxiii) Neither the Company nor its subsidiaries have, directly
or indirectly, at any time during the past five years (A) made any
unlawful contribution to any candidate for public office, or failed to
disclose fully any contribution in violation of law, or (B) made any
payment to any federal or state governmental officer or official, or
other person charged with similar public or quasi-public duties, other
than payments required or permitted by the laws of the United States or
any jurisdiction thereof.
(xxxiv) Proceeds from the sale of the Notes will constitute "Tier
II" capital under applicable regulations promulgated by the Board of
Governors.
(b) Any certificate signed by any officer of the Company and
delivered to the Underwriter or counsel to the Underwriter shall be deemed
to be a representation and warranty of the Company to the Underwriter as to
the matters covered thereby.
2. Purchase, Sale and Delivery of Notes.
(a) On the basis of the representations, warranties and covenants
contained herein, and subject to the terms and conditions herein set forth,
the Company agrees to sell to the Underwriter and the Underwriter agrees to
purchase from the Company the aggregate principal amount of Notes. The
Notes will be purchased at a price of 95.0% of par.
(b) The Notes to be purchased by the Underwriter hereunder, will be
registered in such denominations (which shall be authorized denominations
under the Indenture) and names as Dain Bosworth Incorporated may request
upon at least forty-eight hours' prior notice to the Company, shall be
delivered by or on behalf of the Company to you for the account of the
Underwriter at such time and place as shall hereafter be designated by the
Underwriter, against payment by the Underwriter or on its behalf of the
purchase price therefor by certified or official bank check or checks,
payable to the order of the Company in next day funds. The time and date of
such delivery and payment shall be, with respect to the Notes, 8:30 a.m.
Minneapolis time, at the offices of Oppenheimer Wolff & Donnelly, on
June __, 1997, or such other time and date as you and the Company may agree
upon in writing, such time and date being herein referred to as the "Closing
Date," or such other time and date as you and the Company may agree upon in
writing. The Notes will be made available for checking and packaging at
least twenty-four hours prior to the Closing Date at a location as may be
designated by you.
3. Offering by Underwriter. It is understood that the Underwriter
proposes to make a public offering of the Notes as soon as the Underwriter
deems it advisable to do so. The purchase price for the Notes will be 95%
of the principal amount thereof. The Underwriter may from time to time
thereafter change the public offering price and other selling terms.
4. Covenants of the Company. The Company covenants and agrees with
the Underwriter that:
(a) The Company will prepare and timely file with the Commission
under Rule 424(b) under the Act a Prospectus containing information
previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rule 430A under the Act, and will not file any
amendment to the Registration Statement or supplement to the Prospectus of
which the Underwriter shall not previously have been advised and furnished
with a copy and as to which the Underwriter shall have objected in writing
promptly after reasonable notice thereof or which is not in compliance with
the Act or the Regulations.
(b) The Company will advise the Underwriter promptly of any request
of the Commission for amendment of the Registration Statement or for any
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 Notes for offering or sale in any jurisdiction,
or of the institution or threatening of any proceedings for that purpose,
and the Company will use its 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 Company will endeavor to qualify the Notes for sale under the
securities laws of such jurisdictions as the Underwriter may reasonably have
designated in writing and will, or will cause counsel to, make such
applications, file such documents, and furnish such information as may be
reasonably requested by the Underwriter, provided that the Company shall not
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 Company will, from time to time,
prepare and file such statements, reports and other documents as are or may
be required to continue such qualifications in effect for so long a period
as the Underwriter may reasonably request for distribution of the Notes.
(d) The Company will furnish the Underwriter with as many copies of
any Preliminary Prospectus as the Underwriter may reasonably request and,
during the period when delivery of a prospectus is required under the Act,
the Company will furnish the Underwriter with as many copies of the
Prospectus in final form, or as thereafter amended or supplemented, as the
Underwriter may, from time to time, reasonably request. The Company will
deliver to the Underwriter, at or before the Closing Date, two (2) signed
copies of the Registration Statement and all amendments thereto including
all exhibits filed therewith, and will deliver to the Underwriter such
number of copies of the Registration Statement, without exhibits, and of all
amendments thereto, as the Underwriter may reasonably request.
(e) If, during the period in which a prospectus is required by law to
be delivered by the Underwriter or any 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 Company 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 existing when it is so delivered, not misleading, or so that
the Prospectus will comply with law. In case the Underwriter is required to
deliver a prospectus in connection with sales of any Notes at any time nine
months or more after the effective date of the Registration Statement, upon
the request of the Underwriter but at the expense of the Underwriter, the
Company will prepare and deliver to the Underwriter as many copies as the
Underwriter may request of an amended or supplemented Prospectus complying
with Section 10(a)(3) of the Act.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later
than 15 months after the end of the Company's current fiscal quarter, 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 you in writing when such statement has been so made
available.
(g) The Company will, for such period up to five years from the
Closing Date, deliver to the Underwriter 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 the
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) No offering, sale or other disposition of any common stock or
other capital stock of the Company, or warrants, options, convertible
securities or other rights to acquire such common stock or other capital
stock (other than pursuant to employee stock option plans, outstanding
options or on the conversion of convertible securities outstanding on the
date of this Agreement) will be made for a period of 120 days after the date
of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of the Underwriter.
(i) The Company will apply the net proceeds from the sale of the
Notes to be sold by it hereunder substantially in accordance with the
purposes set forth under "Use of Proceeds" in the Prospectus.
(j) So long as any of the Notes are outstanding, the Company will
furnish to the Underwriter the reports required to be filed with the Trustee
pursuant to the Indenture, concurrently with such filing.
5. Costs and Expenses. Whether or not the transactions contemplated
by this Agreement are consummated, the Company will pay (directly or by
reimbursement) all costs, expenses and fees incident to the performance of
the obligations of the Company under this Agreement, including, without
limiting the generality of the foregoing, the following: (i) accounting
fees of the Company; (ii) the fees and disbursements of counsel for the
Company; (iii) the fees and expenses of the Trustee and counsel for the
Trustee; (iv) rating agency fees, if any; (v) the cost of preparing,
printing and filing of the Registration Statement, Preliminary Prospectuses
and the Prospectus and any amendments and supplements thereto and the
printing, mailing and delivery to the Underwriter and dealers of copies
thereof and of this Agreement, any Selected Dealers Agreement, the
Underwriter's Selling Memorandum, the Blue Sky Memorandum and any
supplements or amendments thereto (excluding, except as provided below, fees
and expenses of counsel to the Underwriter); (vi) the filing fees of the
Commission; (vii) the filing fees and expenses (including legal fees and
disbursements of counsel for the Underwriter) incident to securing any
required review by the NASD of the terms of the sale of the Notes; (viii)
listing fees, if any; (ix) transfer taxes and the expenses, including the
fees and disbursements of counsel for the Underwriter incurred in connection
with the qualification of the Notes under state securities or blue sky laws;
(x) the costs of preparing the Notes; (xi) the costs and fees of any
registrar or transfer agent; and (xii) all other costs and expenses incident
to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section 5. In addition, the Company will
pay all travel and lodging expenses incurred by management of the Company in
connection with any informational "road show" meetings held in connection
with the offering and will also pay for the preparation of all materials
used in connection with such meetings. The Company shall not, however, be
required to pay for any of the Underwriter's expenses (other than those
related to qualification of the Notes 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 Notes) except that, if this Agreement shall not be
consummated because the conditions in Section 6 hereof are not satisfied or
by reason of any failure, refusal or inability on the part of the Company to
perform any undertaking or satisfy any condition of this Agreement or to
comply with any of the terms hereof on its part 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 the Underwriter, then the Company shall
promptly upon request by the Underwriter reimburse the Underwriter for all
out-of-pocket accountable expenses, including fees and disbursements of
counsel, incurred in connection with investigating, marketing and proposing
to market the Notes or in contemplation of performing its obligations
hereunder; but the Company shall not in any event be liable to the
Underwriter for damages on account of loss of anticipated profits from the
sale by it of the Notes.
6. Conditions of Obligations of the Underwriter. The obligations of
the Underwriter to purchase the Notes on the Closing Date are subject to the
condition that all representations and warranties of the Company contained
herein are true and correct, at and as of the Closing Date, the condition
that the Company 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 Regulations under the Act and in accordance with Section 4(a) hereof;
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 Underwriter.
(b) The Underwriter shall have received on the Closing Date, the
opinion of Jones, Walker Waechter, Poitevent, Carrere & Denegre, L.L.P.,
counsel for the Company, dated the Closing Date, addressed to the
Underwriter, to the effect that:
(i) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its
properties and conduct its business as described in the Prospectus. The
Company is qualified as a foreign corporation to do business in the
States of North Dakota and Minnesota. The Company is a "small business
issuer" as such term is defined in Rule 405 in Regulation S-B under the
Act.
(ii) Each subsidiary of the Company has been duly organized and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business as
described in the Prospectus. None of the Subsidiary Banks are required
to be qualified to transact business as a foreign corporation in any
jurisdiction. The outstanding shares of capital stock of each
subsidiary have been duly authorized and validly issued, are fully paid
and nonassessable and are owned, directly by the Company, free and
clear of all liens, encumbrances and security interests, other than
security interests specifically disclosed in the Prospectus. To the
knowledge of such counsel, no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to
convert any obligations into any shares of capital stock or ownership
interests in each such subsidiary are outstanding.
(iii) The Company has the corporate power and authority to enter
into this Agreement and to authorize, issue and sell the Notes as
contemplated hereby. This Agreement has been duly and validly
authorized, executed and delivered by the Company and constitutes the
valid and binding agreement of the Company in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting the
rights of creditors generally, by general principles of equity and,
with respect to Section 7 hereof, by the public policy underlying the
federal or state securities laws.
(iv) The Company has all requisite corporate power to execute,
deliver and perform its obligations under the Indenture. The Indenture
has been duly and validly authorized by all requisite corporate action,
duly executed and duly delivered by the Company and constitutes a valid
and binding instrument of the Company, enforceable against the Company
in accordance with its terms 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 Notes have been duly and validly authorized,
and, when executed, authenticated, issued and delivered in accordance
with the terms of the Indenture, will constitute valid and binding
obligations of the Company, enforceable against the Company in
accordance with their terms and entitled to the benefits of the
Indenture, 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
Notes and the Indenture conform, as to legal matters, to the
descriptions thereof contained in the Registration Statement and the
Prospectus. The Indenture complies in all material respects with the
Trust Indenture Act.
(v) The Company has authorized and outstanding capital stock as
described in the Prospectus. The outstanding shares of the Company's
capital stock have been duly authorized and validly issued and are
fully paid and nonassessable. No preemptive or, to the knowledge of
such counsel, other similar subscription rights of shareholders of the
Company, or of holders of warrants, options, convertible securities or
other rights to acquire shares of capital stock of the Company, exist.
To the knowledge of such counsel, no rights to register outstanding
shares of the Company's capital stock, or shares issuable upon the
exercise of outstanding warrants, options, convertible securities or
other rights to acquire shares of such capital stock, exist which have
not been validly exercised or waived with respect to the Registration
Statement. The capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectus.
(vi) The Registration Statement has become effective under the
Act and the Indenture has been qualified under the Trust Indenture Act,
and, to the knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened by
the Commission.
(vii) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material
respects with the requirements of the Act and the Regulations
thereunder (except that such counsel need express no opinion as to the
financial statements and related schedules included therein).
(viii) The descriptions in the Registration Statement and
Prospectus of statutes, legal and governmental proceedings, contracts
and other documents (A) in the Prospectus under the captions "Risk
Factors -- Subordination," "--Dependence on Dividends From Subsidiary
Banks," "--Potential Liability for Undercapitalized Subsidiary," "--
Government Regulation and Recent Legislation," "Business --
Properties," "Management -- Stock Incentive Plan," "--Incentive Bonus
Plan," "--Employment Agreements," "Limitations of Directors' Liability
and Indemnification," "Certain Transactions, "Supervision and
Regulation" and "Description of Notes" and (B) in the Registration
Statement in Item 24, are accurate summaries and fairly present the
information called for with respect to such matters.
(ix) Such counsel does not know of any contracts, agreements,
documents or instruments required to be filed as exhibits to the
Registration Statement, incorporated by reference into the Prospectus,
or described in the Registration Statement or the Prospectus which are
not so filed, incorporated by reference or described as required; and
insofar as any statements in the Registration Statement or the
Prospectus constitute summaries of any contract, agreement, document or
instrument to which the Company is a party, such statements are
accurate summaries and fairly present the information called for with
respect to such matters.
(x) Such counsel knows of no legal or governmental proceeding,
pending or threatened, before any court or administrative body or
regulatory agency, to which the Company or any of its subsidiaries is a
party or to which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in the
Registration Statement or Prospectus and are not so described, or
statutes or regulations that are required to be described in the
Registration Statement or the Prospectus that are not so described.
(xi) The execution and performance of this Agreement, the
Indenture and the Notes and the consummation of the transactions herein
and therein contemplated do not and will not conflict with or result in
a violation of or default under the charter or bylaws of the Company or
any of its subsidiaries, or under any statute, permit, judgment,
decree, order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries, including Bank Regulators, or any of their
properties, or under any lease, contract, indenture, mortgage, loan
agreement or other agreement or other instrument or obligation known to
such counsel to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries is bound or to which
any property or assets of the Company or any of its subsidiaries is
subject, except such agreements, instruments or obligations with
respect to which valid consents or waivers have been obtained by the
Company or any of its subsidiaries.
(xii) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution
and delivery of this Agreement, the Indenture and the Notes and the
consummation of the transactions herein and therein contemplated (other
than as may be required by state securities and blue sky laws, as to
which such counsel need express no opinion) except such as have been
obtained or made, specifying the same.
(xiii) The Company is not, and immediately upon completion of the
sale of Notes contemplated hereby will not be, required to register as
an "investment company" under the Investment Company Act of 1940, as
amended.
(xiv) The Company is duly registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended.
(xv) Each of the Subsidiary Banks are national banking
associations duly organized, validly existing and in good standing
under the laws of the United States and have the requisite power to
carry on their respective businesses as now conducted. The Minnesota
Bank is authorized to conduct the business of banking in the State of
Minnesota. The Bismarck Bank is authorized to conduct the business of
banking in the State of North Dakota. The Bismarck Bank and the
Minnesota Bank are members of the Federal Reserve Bank of Minneapolis,
and are each duly authorized to operate a banking business.
(xvi) The Company has all necessary approvals of the Board of
Governors to own the stock of its subsidiaries. Except as disclosed in
the Prospectus, to the knowledge of such counsel, neither the Company
nor any Subsidiary Bank is subject to any cease and desist order,
written agreement or memorandum of understanding with, or are a party
to any commitment letter or similar undertaking to, or are subject to
any order or directive by, or is a recipient of any extraordinary
supervisory agreement letter from, or has adopted any board resolutions
at the request of any of the Bank Regulators, and, to the knowledge of
such counsel, neither the Company nor any Subsidiary Bank has been
advised by any of the Bank Regulators that it is contemplating issuing
or requesting (or is considering the appropriateness of issuing or
requesting) any such order, directive, written agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter,
board resolutions or similar undertaking. To the knowledge of such
counsel, neither the Company nor any subsidiary has received notice of
or has knowledge of any basis for any proceeding or action relating
specifically to the Company or its 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 Company or its
subsidiaries that would have a material adverse effect on the Company
or any subsidiary.
(xvii) The Company is a "small business issuer" as such term is
defined in Rule 405 and Regulation S-B under the Act.
(xviii) Such counsel has no reason to believe that, as of its
effective date, the Registration Statement or any further amendment
thereto made by the Company prior to the Closing Date (other than the
financial statements and related schedules therein, as to which such
counsel need express no opinion) 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 Company prior to the Closing Date (other
than the financial statements and related schedules therein, as to
which such counsel need express no opinion) 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 Company prior to the
Closing Date (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) 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 required to be filed.
In rendering any such opinion, such counsel may rely (i) as to matters
of fact, to the extent such counsel deems reasonable, on certificates of
responsible officers of the Company and public officials provided that the
extent of such reliance is specified in such opinion and (ii) as to matters
involving the application of laws of any jurisdiction other than the States
of Louisiana or Delaware, to the extent satisfactory in form and scope to
counsel for the Underwriter, upon the opinions of bank regulatory or local
counsel acceptable to counsel for the Underwriter provided that such counsel
shall also state that such opinions of bank regulatory or local counsel are
satisfactory to them and that the Underwriter is justified in relying on
such opinions of such counsel, and copies of such opinions shall be
delivered to the Underwriter and counsel for the Underwriter.
(c) The Underwriter shall have received from ____________, counsel
for the Trustee, an opinion dated the Closing Date, and in form satisfactory
to counsel for the Underwriter, to the effect that:
(i) The Trustee has been duly incorporated and is validly
existing in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to authorize,
execute, deliver and perform its obligations under the Indenture.
(ii) The Indenture has been duly authorized, executed and
delivered by the Trustee and is a valid and binding obligation of the
Trustee, enforceable against the Trustee in accordance with its terms,
except as enforceability may be limited by general equitable principles
and by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally.
(iii) The Notes being delivered on such Closing Date have been
duly authenticated by the Trustee in accordance with the Indenture.
In rendering such opinion such counsel may rely as to matters of fact,
to the extent they deem proper, on certificates of appropriate officers of
the Trustee and of public officials.
(d) On or prior to the Closing Date, the form and validity of the
Notes and the Indenture, the legality and sufficiency of the corporate
proceedings and matters relating to the incorporation of the Company and
other matters incident to the issuance of the Notes, the form of the
Registration Statement and the Prospectus and of any amendment thereof or
supplement thereto filed prior to the Closing Date (other than financial
statements and schedules and other financial or statistical data included
therein), the authorization, execution, and delivery of this Agreement and
the description of the Notes and the Indenture contained in the Prospectus
shall have been reasonably approved by the Underwriter based on the opinion
of Oppenheimer Wolff & Donnelly, counsel for the Underwriter. In connection
with such opinion, the Company shall have furnished to such counsel such
documents as they may have requested for the purpose of enabling them to
pass upon such matters, and such counsel may rely upon representations or
certificates of public officials, of the Trustee and of appropriate officers
of the Company. In addition, in giving such opinion, such counsel may rely
as to matters of law, other than the law of the United States and the State
of Minnesota, upon an opinion or opinions of local counsel, who may be
counsel for the Company, which states that the Underwriter is entitled to
rely thereon, provided that any such opinion or opinions are delivered to
the Underwriter and that Oppenheimer Wolff & Donnelly shall state that they
have no reason to believe that such opinions are not correct.
(e) The Underwriter shall have received on each of the date hereof
and the Closing Date, a signed letter, dated as of the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to the
Underwriter, from Arthur Andersen LLP, to the effect that they are
independent public accountants with respect to the Company and its
subsidiaries within the meaning of the Act and the related rules and
regulations and containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(f) 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 prospective change, in or affecting the general
affairs, management, financial position, shareholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in your judgment, is
material and adverse to the Company and makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Notes
being delivered at the Closing Date on the terms and in the manner
contemplated in the Prospectus.
(g) The Underwriter 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) The Prospectus was filed with the Commission pursuant to Rule
424(b) within the applicable period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 5 of
this Agreement; no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such
purpose have been initiated or are, to his 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.
(h) The Company shall have furnished to the Underwriter such further
certificates and documents as the Underwriter may reasonably have requested.
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 Underwriter and to
Oppenheimer Wolff & Donnelly, counsel for the Underwriter.
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 Underwriter hereunder may be terminated by
the Underwriter by notifying the Company of such termination in writing or
by facsimile at or prior to the Closing Date. In such event, the Company
and the Underwriter shall not be under any obligation to each other (except
to the extent provided in Sections 5 and 7 hereof).
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, each officer and director thereof, and each person, if any, who
controls the Underwriter within the meaning of the Act, against any losses,
claims, damages or liabilities to which the Underwriter or such persons may
became 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, (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 the Underwriter in connection with, or relating in any
manner to, the Notes 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 (i) or (ii) above, and will reimburse the
Underwriter and each such controlling person for any legal or other expenses
reasonably incurred by the 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 Company shall not be
liable 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 Company by the Underwriter specifically
for use therein; and provided, further, that the Company shall not be liable
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 the
Underwriter through its gross negligence or willful misconduct.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or
controlling person 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 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 Company or any such
director, officer or controlling person in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that the 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 Company by the Underwriter specifically for use therein.
(c) 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(d) 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(c) 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), (b) or (c). 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 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
Underwriter and shall be reasonably satisfactory to the Company in the case
of parties indemnified pursuant to Section 7(a) and shall be designated in
writing by the Company and shall be reasonably satisfactory to the
Underwriter 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.
(d) 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 Company on the one hand and the Underwriter on the other from the
offering of the Notes. 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 Company on the one
hand and the Underwriter 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 Company on
the one hand and the Underwriter 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 Company bears to the total underwriting
discounts and commissions received by the Underwriter, in each case as set
forth in the table 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
Company on the one hand or the Underwriter on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company and the Underwriter
agree that it would not be just and equitable if contributions pursuant to
this Section 7(d) were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this Section 7(d). 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(d) 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(d), the Underwriter shall not be required to
contribute any amount in excess of the underwriting discounts and
commissions applicable to the Notes purchased by the 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.
(e) The obligations of the Company under this Section 7 shall be in
addition to any liability which the Company may otherwise have, and the
obligations of the Underwriter under this Section 7 shall be in addition to
any liability which the Underwriter may otherwise have.
8. Notices. All communications hereunder shall be in writing and,
except as otherwise provided herein, will be mailed, delivered or
telegraphed and confirmed as follows: if to the Underwriter, to Dain
Bosworth Incorporated, 60 South Sixth Street, Minneapolis, MN 55402,
Attention: J. David Welch, with copies to Oppenheimer Wolff & Donnelly, 45
South Seventh Street, Plaza VII, Suite 3400, Minneapolis, MN 55402,
Attention: Bruce A. Machmeier, Esq.; and if to the Company, to BNCCORP,
Inc., 322 East Main, Bismarck, ND 58501, Attention: Tracy J. Scott, with
copies to Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P.,
Place St. Charles, 201 St. Charles Avenue, New Orleans, LA 70170,
Attention: William B. Masters.
9. Termination. This Agreement may be terminated by you by notice
to the Company as follows:
(a) at any time prior to the earlier of (i) the time the Notes are
released by you for sale or (ii) 4:00 p.m., Minneapolis time, on the first
business day following the later of the date on which the Registration
Statement becomes effective or the date of this Agreement;
(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 Company
and its subsidiaries taken as a whole or the business affairs, management,
financial position, shareholders' equity or results of operations of the
Company and its 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 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 your judgment, make the offering or delivery
of the Notes 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 the Nasdaq National
Market, or (iv) declaration of a banking moratorium by either federal or New
York State authorities; or
(c) as provided in Section 6 of this Agreement.
10. Written Information. For all purposes under this Agreement
(including, without limitation, Section 1, Section 2 and Section 7 hereof),
the Company understands and agrees with you that the following constitutes
the only written information furnished to the Company by or through the
Underwriter specifically for use in preparation of the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto: (i) the information relating to stabilization on page
two of the Preliminary Prospectus and 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 Underwriter, the Company and their
respective successors, executors, administrators, heirs and assigns, and the
officers, directors and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. The term "successors"
shall not include any purchaser of the Notes 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 the Underwriter or controlling person
thereof, or by or on behalf of the Company or its directors and officers and
(c) delivery of and payment for the Notes 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.
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 your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the
Underwriter in accordance with its terms.
Very truly yours,
BNCCORP, Inc.
By:_________________________________
Tracy J. Scott
Its: Chairman of the Board and Chief
Executive Officer
The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.
DAIN BOSWORTH INCORPORATED
By:_______________________________
J. David Welch
Its:______________________________
11
EXHIBIT 4.1
BNCCORP, INC.
AND
FIRSTAR TRUST COMPANY, Trustee
INDENTURE
Dated as of May _____, 1997
$15,000,000
_____% Subordinated Notes due 2004
BNCCORP, INC.
<PAGE>
Reconciliation and tie between Trust Indenture Act
of 1939, as amended and Indenture, dated as of May _____, 1997
between BNCCORP, INC. and
Firstar Trust Company, as Trustee.
Trust Indenture
Act Section Indenture Section
Section 310 (a)(1) 609
(a)(2) 609
(a)(3) Not Applicable
(a)(4) Not Applicable
(b) 608, 610
(c) Not Applicable
Section 311 (a) 613
(b) 613
Section 312 (a) 701, 702(a)
(b) 702(b)
(c) 702(c)
Section 313 (a) 703(a)
(b)(1) Not Applicable
(b)(2) 703(a)
(c) 703(a)
(d) 703(b)
Section 314 (a) 704, 1005
(b) Not Applicable
(c)(1) 102
(c)(2) 102
(c)(3) Not Applicable
(d) Not Applicable
(e) 102
(f) 1005
Section 315 (a) 601
(b) 602
(c) 601
(d) 601
(e) 514
Section 316 (a)(last sentence) 101
(a)(1)(A) 512
(a)(1)(B) 502, 513
(a)(2) Not Applicable
<PAGE>
(b) 508
(c) 104(c)
Section 317 (a)(1) 503
(a)(2) 504
(b) 1003
Section 318 (a) 107
__________________________
Note: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
Parties.............................................................. 1
Recitals............................................................. 1
ARTICLE ONE - DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions........................................... 1
SECTION 102. Compliance Certificates and Opinions.................. 7
SECTION 103. Form of Documents Delivered to Trustee................ 8
SECTION 104. Acts of Holders; Record Dates......................... 8
SECTION 105. Notices, Etc., to Trustee and Issuer.................. 9
SECTION 106. Notice to Holders; Waiver............................. 10
SECTION 107. Conflict with Trust Indenture Act..................... 10
SECTION 108. Effect of Headings and Table of Contents.............. 10
SECTION 109. Successors and Assigns................................ 10
SECTION 110. Severability Clause................................... 11
SECTION 111. Benefits of Indenture................................. 11
SECTION 112. Governing Law......................................... 11
SECTION 113. Legal Holidays........................................ 11
SECTION 114. Entire Agreement...................................... 11
SECTION 115. Counterparts.......................................... 11
ARTICLE TWO - SECURITY FORMS
SECTION 201. Forms Generally....................................... 12
SECTION 202. CUSIP Number.......................................... 12
ARTICLE THREE - THE SECURITIES
SECTION 301. Title and Terms....................................... 12
SECTION 302. Denominations......................................... 13
SECTION 303. Execution, Authentication, Delivery and Dating........ 13
SECTION 304. Temporary Securities.................................. 14
SECTION 305. Registration, Registration of Transfer and Exchange... 15
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities...... 16
SECTION 307. Payment of Interest; Interest Rights Preserved........ 17
SECTION 308. Persons Deemed Owners................................. 18
SECTION 309. Cancellation.......................................... 18
SECTION 310. Computation of Interest............................... 19
<PAGE>
ARTICLE FOUR - SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture............... 19
SECTION 402. Defeasance and Covenant Defeasance.................... 20
SECTION 403. Application of Trust Money............................ 22
ARTICLE FIVE - REMEDIES
SECTION 501. Events of Default..................................... 23
SECTION 502. Acceleration of Maturity; Rescission and Annulment.... 25
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee.............................. 25
SECTION 504. Trustee May File Proofs of Claim...................... 26
SECTION 505. Trustee May Enforce Claims Without Possession
of Securities....................................... 26
SECTION 506. Application of Money Collected........................ 27
SECTION 507. Limitation of Suits................................... 27
SECTION 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest..................... 28
SECTION 509. Restoration of Rights and Remedies.................... 28
SECTION 510. Rights and Remedies Cumulative........................ 28
SECTION 511. Delay or Omission Not Waiver.......................... 28
SECTION 512. Control by Holders.................................... 29
SECTION 513. Waiver of Past Defaults............................... 29
SECTION 514. Undertaking for Costs................................. 29
SECTION 515. Waiver of Stay or Extension Laws...................... 30
ARTICLE SIX - THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities................... 30
SECTION 602. Notice of Defaults.................................... 30
SECTION 603. Certain Rights of Trustee............................. 31
SECTION 604. Not Responsible for Recitals or Issuance of
Securities.......................................... 32
SECTION 605. May Hold Securities................................... 32
SECTION 606. Money Held in Trust................................... 32
SECTION 607. Compensation and Reimbursement........................ 32
SECTION 608. Disqualification; Conflicting Interests............... 33
SECTION 609. Corporate Trustee Required; Eligibility............... 33
SECTION 610. Resignation and Removal; Appointment of Successor..... 33
SECTION 611. Acceptance of Appointment by Successor................ 34
SECTION 612. Merger, Conversions, Consolidation or
Succession to Business.............................. 35
SECTION 613. Preferential Collection of Claims Against Issuer...... 35
SECTION 614. Appointment of Authenticating Agent................... 35
<PAGE>
ARTICLE SEVEN - HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER
SECTION 701. Issuer to Furnish Trustee Names and Addresses
of Holders.......................................... 37
SECTION 702. Preservation of Information; Communications
to Holders.......................................... 37
SECTION 703. Reports by Trustee.................................... 37
SECTION 704. Reports by Issuer..................................... 38
ARTICLE EIGHT - CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Issuer May Consolidate, Etc., Only on Certain Terms... 38
SECTION 802. Successor Substituted................................. 39
ARTICLE NINE - SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures without Consent of Holders.... 39
SECTION 902. Supplemental Indentures with Consent of Holders....... 40
SECTION 903. Execution of Supplemental Indentures.................. 41
SECTION 904. Effect of Supplemental Indentures..................... 41
SECTION 905. Conformity with Trust Indenture Act................... 41
SECTION 906. Reference in Securities to Supplemental Indentures.... 41
ARTICLE TEN - COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest............ 41
SECTION 1002. Maintenance of Office or Agency....................... 41
SECTION 1003. Money for Security Payments to Be Held in Trust....... 42
SECTION 1004. Existence; Conduct of Operations; Insured
Institution......................................... 43
SECTION 1005. Statement by Officers as to Compliance................ 43
SECTION 1006. Restricted Payments on Capital Stock.................. 43
SECTION 1007. Maintenance of Properties; Insurance.................. 44
SECTION 1008. Payment of Taxes and Other Claims..................... 45
SECTION 1009. Books and Records..................................... 45
ARTICLE ELEVEN - REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption................................... 45
SECTION 1102. Applicability of Article.............................. 45
SECTION 1103. Election to Redeem; Notice of Trustee................. 46
SECTION 1104. Selection by Trustee of Securities to Be Redeemed..... 46
SECTION 1105. Notice of Redemption.................................. 46
SECTION 1106. Deposit of Redemption Price........................... 47
SECTION 1107. Securities Payable on Redemption Date................. 47
SECTION 1108. Securities Redeemed in Part........................... 47
<PAGE>
ARTICLE TWELVE - SUBORDINATION
SECTION 1201. Agreement to Subordinate.............................. 48
SECTION 1202. Payment to Security Holders........................... 48
SECTION 1203. Subrogation........................................... 50
SECTION 1204. Authorization by Holders.............................. 51
SECTION 1205. Notice to Trustee..................................... 51
SECTION 1206. Trustee's Relation to Senior Indebtedness............. 52
SECTION 1207. No Impairment of Subordination........................ 52
TESTIMONIUM
SIGNATURES AND SEALS................................................. 50
SCHEDULE A - FORM OF SECURITY
<PAGE>
THIS INDENTURE, dated as of May _____, 1997, is between BNCCORP, INC.,
a Delaware corporation (the "Issuer"), and Firstar Trust Company, a state
banking association duly organized and existing under the laws of the State
of Wisconsin, as Trustee (the "Trustee").
RECITALS:
The Issuer has duly authorized the creation of an issue of its _____%
Subordinated Notes due 2004 (the "Securities") of substantially the tenor
and amount hereinafter set forth, and to provide therefor, the Issuer has
duly authorized the execution and delivery of this Indenture.
All things necessary to make the Securities, when executed by the
Issuer and authenticated and delivered hereunder and duly issued by the
Issuer, the valid obligations of the Issuer, and to make this Indenture a
valid, binding and enforceable agreement of the Issuer, in accordance with
their and its terms have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed by the Issuer and
the Trustee, for the equal and proportionate benefit of all Holders of the
Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein; and
(3) the words "herein", "hereof", and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Acceleration Event" shall have the meaning specified in Section 502
hereof.
"Act" when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
<PAGE>
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 614 to act on behalf of the Trustee to authenticate
Securities.
"Board of Directors" of any corporation means either the board of
directors of such corporation or any duly authorized committee of that
Board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the corporation to which such
resolution relates as having been duly adopted by the Board of Directors and
to be in full force and effect on the date of such certification, and
delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in either the
Borough of Manhattan, The City of New York, New York are authorized or
obligated by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, warrants, rights, options or other equivalents
(however designated) of corporate stock or any other equity interest of such
Person, including each class of common stock and preferred stock.
"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 Stock" means the common stock, $.01 par value per share, of the
Issuer or any class of stock issued by the Issuer upon a reclassification of
the Common Stock.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Issuer by its Chairman of the Board, its President
or a Vice President, and by its Treasurer, an Assistant Treasurer, its
Secretary or Assistant Secretary, and delivered to the Trustee.
"Consolidated Net Income" means, for any period, the net income (or
loss) of the Issuer and the Subsidiaries on a consolidated basis for such
period taken as a single accounting period, determined in accordance with
GAAP, provided, however, that there shall not be included in Consolidated
Net Income (1) any net income (loss) of a Subsidiary for any period during
which it was not a Subsidiary or (2) any net income (loss) of businesses,
properties or assets acquired or disposed of (by way of merger,
consolidation, purchase, sale or otherwise) by the Issuer or any Subsidiary
for any period prior to the acquisition thereof or subsequent to the
disposition thereof.
<PAGE>
"Corporate Trust Office" means (i) the principal corporate trust office
of the Trustee located in Milwaukee, Wisconsin and (ii) for purposes of
Section 1002, the corporate trust office of the Trustee's agent located in
the Borough of Manhattan, The City of New York, New York at which at any
particular time its corporate trust business shall be administered.
"Covenant Defeasance" has the meaning specified in Section 402.
"Defaulted Interest" has the meaning specified in Section 307.
"Defeasance" has the meaning specified in Section 402.
"Depositary" means, with respect to any Security issued in the form of
one or more Global Securities, the Person designated as Depositary by the
Issuer in or pursuant to this Indenture, which Person must be, to the extent
required by applicable law or regulation, a clearing agency registered under
the Exchange Act, and any successor to such Person. If at any time there is
more than one such Person, "Depositary" shall mean, with respect to any
Security, the qualifying entity which has been appointed with respect to
such Securities.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exercisable, redeemable or exchangeable), matures, or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part, on or
prior to, the stated final maturity of the Securities.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles, as in effect in
the United States of America, set forth in the opinions and pronouncements
of the Accounting Principles Board of the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity
as is approved by a significant segment of the accounting profession, which
are applicable to the circumstances as of the date of this Indenture.
"Global Security" means a Security bearing the legend specified in
Section 303 evidencing all or part of the Outstanding Securities, issued to
the Depositary or its nominee and registered in the name of such Depositary
or its nominee.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means (without duplication), with respect to any Person,
(i) any obligation, contingent or otherwise, of such Person for borrowed
money, (ii) any obligation (including the Securities) of such Person
evidenced by bonds, debentures, notes or other similar instruments, (iii)
any obligation of such Person to pay the deferred or unpaid purchase price
of property or services, including conditional sale obligations and title
retention arrangements, except accounts payable and accrued expenses
incurred in the ordinary course of business and any interest accruing
subsequent to any event of default with respect to such an obligation, and
(iv) any obligation under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
<PAGE>
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions
hereof, including, for all purposes of this instrument and any such
supplemental indenture, the provisions of the Trust Indenture Act that are
deemed to be a part of and govern this instrument and any such supplemental
indenture, respectively.
"Independent Public Accountants" means a nationally recognized firm of
accountants that, with respect to the Issuer, are independent public
accountants within the meaning of the rules and regulations promulgated by
the Commission under the Securities Act, who may be the independent public
accountants regularly retained by the Issuer or who may be other independent
public accountants.
"Initial Issuance Date" means the date of the original issuance of the
Securities.
"Insured Institution" means any "insured bank," as defined in 12 U.S.C.
Section 1813(h), or a similar definition under any succeeding federal law
hereinafter enacted.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Issuer" means the Person named as the "Issuer" in the initial
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture and thereafter
"Issuer" shall mean each such successor Person.
"Maturity," when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Money," with respect to any payment, deposit or other transfer
pursuant to or contemplated by the terms hereof, means United States dollars
or other equivalent unit of legal tender for payment of public or private
debts in the United States of America.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President or a Vice President, and by the Controller,
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary,
of the Issuer and delivered to the Trustee. One of the officers signing an
Officers' Certificate given pursuant to Section 1005 shall be the principal
executive, financial or accounting officer of the Issuer.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Issuer and who shall be reasonably acceptable to the
Trustee.
<PAGE>
"Outstanding" when used with respect to the Securities, means, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered
to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption Money in the necessary amount has been theretofore
deposited, in accordance with Sections 401 or 402 hereof, with the
Trustee or any Paying Agent (other than the Issuer) in trust or set
aside and segregated in trust by the Issuer (if the Issuer shall act as
its own Paying Agent) for the Holders of such Securities; provided
that, if such Securities, or portions thereof, are to be redeemed prior
to Maturity, notice of such redemption has been duly given pursuant to
this Indenture or provision therefor satisfactory to the Trustee has
been made; and
(iii) Securities which have been paid pursuant to Section 306 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands such Securities are valid
obligations of the Issuer;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request,
demand, authorization, direction, notice, consent or waiver hereunder,
Securities owned by the Issuer or any other obligor upon the Securities or
any Affiliate of the Issuer or of such other obligor shall be disregarded
and deemed not to be Outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which
the Trustee knows to be so owned shall be so disregarded. Securities so
owned which have been pledged in good faith may be regarded as Outstanding
if the pledgee establishes to the satisfaction of the Trustee the pledgee's
right so to act with respect to such Securities and that the pledgee is not
the Issuer or any other obligor upon the Securities or any Affiliate of the
Issuer or of such other obligor.
"Paying Agent" means any Person authorized by the Issuer to pay the
principal of (and premium, if any) or interest on any Securities on behalf
of the Issuer.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated association or organization or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by
such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
<PAGE>
"Redemption Date," when used with respect to any Security or portion
thereof to be redeemed, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price," when used with respect to any Security or portion
thereof to be redeemed, means the price fixed for such redemption by or
pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Security on any
Interest Payment Date means the 15th day (whether or not a Business Day) of
the calendar month next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer,
the cashier, any assistant cashier, any trust officer or assistant trust
officer, the controller or any assistant controller or any other officer of
the Trustee customarily performing functions similar to those performed by
any of the above designated officers and also means, with respect to any
particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"Securities" means the _____% Subordinated Notes due 2004, or any of
them, as amended or supplemented from time to time, that are authenticated
and delivered pursuant to this Indenture, including any Securities
represented by a Global Security or Securities.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Senior Indebtedness" means all Indebtedness of the Issuer, including
principal and interest on such Indebtedness whether outstanding on the date
of this Indenture or hereafter created, incurred, assumed or guaranteed by
the Issuer, unless such Indebtedness, by its terms or the terms of the
instrument creating or evidencing it is subordinate in right of payment to,
or pari passu with, the Securities.
"Special Record Date" for the payment of any Defaulted Interest on any
Security means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity," when used with respect to any Security, any
Indebtedness or any installment of interest thereon, means the date
established by this Indenture or evidence of Indebtedness as the fixed date
on which the principal of such Security or Indebtedness or such installment
of interest is due and payable.
"Subsidiary" means, with respect to the Issuer and its Subsidiaries,
(A) (i) a corporation a majority of whose Capital Stock is at the time,
directly or indirectly, owned (beneficially or of record) by the Issuer, by
one or more Subsidiaries or by the Issuer and one or more Subsidiaries or
(ii) any other Person (other than a corporation) in which the Issuer, one or
more Subsidiaries or the Issuer and one or more Subsidiaries, directly or
indirectly, at the date of determination thereof has at least majority
ownership interest and, either directly or indirectly, has the power to
direct the policies, management and affairs thereof, economic, financial or
otherwise, and (B) that, in accordance with GAAP, the accounts of which
would be included on a consolidated basis in the Issuer's financial
statements.
<PAGE>
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
the "Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended
by the Trust Indenture Reform Act of 1990 and as in force on the date of
this Indenture; provided, however, that in the event the Trust Indenture Act
of 1939 is amended after such date, "Trust Indenture Act" means to the
extent required by any such amendment, the Trust Indenture Act of 1939 as so
amended.
"U.S. Government Obligations" shall mean direct obligations of the
United States of America that are backed by its full faith and credit.
"Vice President," when used with respect to the Issuer or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Issuer to the Trustee to take
any action under any provision of this Indenture, the Issuer shall furnish
to the Trustee such certificates and opinions as may be required under the
Trust Indenture Act. Each such certificate or opinion shall be given in the
form of an Officers' Certificate, if to be given by an officer of the
Issuer, or an Opinion of Counsel, if to be given by counsel, and shall
comply with the requirements of the Trust Indenture Act and any other
requirements set forth in this Indenture.
Every Officers' Certificate and Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, such
individual has made such examination or investigation as is necessary
to enable such individual to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
<PAGE>
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but
one such Person may certify or give an opinion with respect to some matters
and one or more other such Persons as to other matters, and any such Person
may certify or give an opinion as to such matters in one or several
documents.
Any Officers' Certificate or opinion of an officer of the Issuer may be
based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such Opinion of Counsel may be based,
insofar as it relates to the factual matters, upon a certificate or opinion
of, or representations by, an officer or officers of the Issuer stating that
the information with respect to such factual matters is in the possession of
the Issuer, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect
to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be
consolidated and form one instrument.
SECTION 104. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent
duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Issuer. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as
the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to
Section 601) conclusive in favor of the Trustee and the Issuer, if made in
the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual
signing such instrument or writing acknowledged to him the execution
thereof. Where such execution is by a signer acting in a capacity other
than his individual capacity, such certificate or affidavit shall also
constitute sufficient proof of his authority. The fact and date of the
execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner which the Trustee
deems sufficient.
<PAGE>
(c) The Issuer may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining
the Holders entitled to give or take any request, demand, authorization,
direction, notice, consent, waiver or other action, or to vote on any
action, authorized or permitted to be given or taken by Holders. If not set
by the Issuer prior to the first solicitation of a Holder made by any Person
in respect of any such action, or, in the case of any such vote, prior to
such vote, the record date for any such action or vote shall be the 30th day
(or, if later, the date of the most recent list of Holders required to be
provided pursuant to Section 701) prior to such first solicitation or vote,
as the case may be. With regard to any record date, only the Holders on
such date (or their duly designated proxies) shall be entitled to give or
take, or vote on, the relevant action.
(d) If the Securities are represented by one or more Global
Securities, the Issuer may, in the circumstances permitted by the Trust
Indenture Act, fix any date as the record date for the purpose of
determining the Persons who are beneficial owners of interests in any such
Global Security or Securities held by the Depositary entitled under the
procedures of such Depositary to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action, or to
vote on any action authorized or permitted to be given or taken by such
beneficial owners. If not set by the Issuer prior to the first solicitation
of a beneficial owner of interests in such Global Security or Securities
made by any Person in respect of any such action, or, in the case of any
such vote, prior to such vote, the record date for any such action or vote
shall be the 30th day prior to such first solicitation or vote, as the case
may be. With respect to any record date, only the beneficial owners of
interests in such Global Security or Securities, determined in accordance
with the procedures of the Depositary, shall be entitled to give or take, or
vote on, the relevant action.
(e) The ownership of Securities shall be proved by the Security
Register.
(f) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee
or the Issuer in reliance thereon, whether or not notation of such action is
made upon such Security.
SECTION 105. Notices, Etc., to Trustee and Issuer
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture
to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Issuer shall be sufficient
for every purpose hereunder if made, given, furnished or filed in
writing to or with the Trustee at its Corporate Trust Office, or
<PAGE>
(2) the Issuer by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to the
Issuer addressed to it at the address of its principal office specified
on the signature pages of this Indenture or at any other address
previously furnished in writing to the Trustee by the Issuer in
accordance with this Section 105.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each
Holder affected by such event, at such Holder's address as it appears in the
Security Register, not later than the latest date (if any), and not earlier
than the earliest date (if any), prescribed for the giving of such notice.
In any case where notice to Holders is given by mail, neither the failure to
mail such notice, nor any defect in any notice so mailed, to any particular
Holder shall affect the sufficiency of such notice with respect to other
Holders. Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the
validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the
Trustee shall constitute a sufficient notification for every purpose
hereunder.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with the duties
imposed by any required provision of the Trust Indenture Act, by the
operation of Section 318(c) thereof, such imposed duties shall control,
except as, and to the extent, expressly excluded from this Indenture, as
permitted by the Trust Indenture Act. If any provision of this Indenture
modifies or excludes any provision of the Trust Indenture Act that may be so
modified or excluded, the latter provisions shall be deemed to apply to this
Indenture as so modified or to be excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements of the Issuer in this Indenture and in the
Securities shall bind its successors and assigns, whether so expressed or
not. All covenants and agreements of the Trustee in this Indenture shall
bind its successors and assigns whether so expressed or not.
<PAGE>
SECTION 110. Severability Clause.
In case any provision in this Indenture or the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby, and such provisions shall be given effect to the fullest extent
permitted by law.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
and assigns hereunder and the Holders of Securities, any benefit or any
legal or equitable right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York, without regard to
principles of conflicts of law.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding
any other provision of this Indenture or of the Securities) payment of
interest or principal (and premium, if any) need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the Interest Payment Date or Redemption Date, or at the
Stated Maturity, provided that, for purposes of computing such payment, no
interest shall accrue for the period from and after such Interest Payment
Date, Redemption Date or Stated Maturity, as the case may be.
SECTION 114. Entire Agreement.
This Indenture, together with any schedules attached hereto, embodies
the entire agreement and understanding of the Issuer, the Trustee and the
Holders in respect of the subject matter contained herein. This Indenture,
together with any schedules attached hereto, supersedes all prior agreements
and understandings (whether written or oral) between such parties with
respect to such subject matter.
SECTION 115. Counterparts.
This Indenture may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
<PAGE>
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
The Securities and the Trustee's certificates of authentication shall
be in substantially the forms set forth in Schedule A to this Indenture
which is incorporated in and made a part of this Indenture. The Securities
may have such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with any law or
with any rules or regulations issued pursuant thereto or the rules of any
securities exchange or which the Securities may be listed or to conform to
general usage, all as may be determined by the officers executing such
Securities, as evidenced by their execution of the Securities. Any portion
of the text of any Security may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or
may be produced in any other manner permitted by any law or any rules or
regulations issued pursuant thereto or the rules of any securities exchange
on which the Securities may be listed or to conform to general usage, all as
determined by the officers executing such Securities, as evidenced by their
execution of such Securities.
SECTION 202. CUSIP Number.
The Issuer in issuing the Securities may use a "CUSIP" number, and if
so used, the Trustee may use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided, that any such notice may
state that no representation is made as to the correctness or accuracy of
the CUSIP number printed in the notice or on the Securities, and that
reliance may be placed only on the other identification numbers printed on
the Securities. The Issuer will promptly notify the Trustee of any change
in the CUSIP number.
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is limited to $15,000,000, except for
Securities authenticated and delivered upon registration of transfer of, or
in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 906 or 1108. The Company Order shall specify the amount of
Securities to be authenticated and the date on which the original issue of
Securities is to be authenticated. The aggregate principal amount of
Securities outstanding at any time may not exceed the amount set forth in
the preceding sentence, subject to the proviso set forth therein.
<PAGE>
The Securities shall be known and designated as the "_____%
Subordinated Notes due 2004" of the Issuer. Their Stated Maturity shall be
May 31, 2004 and they shall bear interest at the rate of _____% per annum
from the date of issuance or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, as the case may be,
payable monthly, on the first Business Day of each month, commencing July 1,
1997 until the principal thereof is paid or made available for payment.
The principal of (and premium, if any) and interest on the Securities
shall be payable at the office or agency of the Issuer in the Borough of
Manhattan, The City of New York, New York maintained for such purpose and at
any other office or agency maintained by the Issuer for such purpose;
provided, however, that, at the option of the Issuer, payment of interest
may be made by check mailed on or before the Stated Maturity to the address
of the Person entitled thereto as such address shall appear in the Security
Register.
The Securities shall be redeemable as provided in Article Eleven.
SECTION 302. Denominations.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple
thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Issuer by its
Chairman of the Board, its President, one of its Vice Presidents or the
Treasurer, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of
these officers on the Securities may be manual or facsimile.
The Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Issuer shall
bind the Issuer, notwithstanding that such individuals or any of them have
ceased to hold such offices prior to the authentication and delivery of such
Securities or did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Issuer may deliver Securities executed by the Issuer to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in
accordance with such Company Order shall authenticate and deliver such
Securities as in this Indenture provided and not otherwise.
If the Issuer shall establish by Company Order that all or a portion of
the Securities are to be issued in the form of one or more Global
Securities, then the Issuer shall execute and the Trustee shall, in
accordance with this Section 303 and the Company Order with respect to such
Securities, authenticate and deliver one or more Global Securities that (i)
shall represent and shall be denominated in an amount equal to the aggregate
principal amount of all or a portion of the Securities issued and not yet
<PAGE>
cancelled or exchanged to be represented by such Global Securities, (ii)
shall be registered in the name of the Depositary for such Global Security
or Securities or the nominee of such Depositary, (iii) shall be delivered by
the Trustee to such Depositary or a nominee thereof or a custodian therefor
or pursuant to such Depositary's instructions and (iv) shall bear a legend
substantially to the following effect: "This Security is a Registered Global
Security within the meaning of the Indenture hereinafter referred to and is
registered in the name of a Depositary or a nominee thereof. This Security
may not be exchanged in whole or in part for a Security registered, and no
transfer of this Security in whole or in part may be registered in the name
of any Person other than such Depositary or a nominee thereof, except in the
limited circumstances described in the Indenture".
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence that such Security has been duly
authenticated and delivered hereunder and that the Holder is entitled to the
benefits of this Indenture. Each reference in this Indenture to
authentication by the Trustee includes an agent appointed pursuant to
Section 614.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Issuer may
execute, and upon Company Order the Trustee shall authenticate and deliver
in the manner provided in Section 303, temporary Securities which are
printed, lithographed, typewritten, mimeographed or otherwise produced, in
any authorized denomination, substantially of the tenor of the definitive
Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as evidenced by their execution of
such Securities. Such temporary Securities may be Global Securities.
Except in the case of temporary Global Securities, which shall be
exchanged in accordance with the provisions, if temporary Securities are
issued, the Issuer will cause definitive Securities to be prepared without
unreasonable delay. After the preparation of definitive Securities, the
temporary Securities shall be exchangeable for definitive Securities upon
surrender of the temporary Securities at any office or agency of the Issuer
designated pursuant to Section 1002, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Securities, the
Issuer shall execute, and the Trustee shall authenticate and deliver in
exchange therefor, a like principal amount of definitive Securities of
authorized denominations. Unless otherwise provided in or pursuant to this
Indenture with respect to a temporary Global Security, until so exchanged
the temporary Securities shall in all respects be entitled to the same
benefits under this Indenture as definitive Securities.
<PAGE>
SECTION 305. Registration, Registration of Transfer and Exchange.
The Issuer shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to
such reasonable regulations as it may prescribe, the Issuer shall provide
for the registration of Securities and of transfer of Securities. The
Trustee is hereby appointed "Security Registrar" for the purpose of
registering Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at the
Corporate Trust Office or at any other office or agency of the Issuer
designated pursuant to Section 1002 for such purpose, the Issuer shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities of any
authorized denominations and of a like aggregate principal amount.
At the option of the Holder Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Issuer
shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive
Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary or a nominee thereof, and each such
Global Security shall constitute a single security for all purposes of this
Indenture.
Notwithstanding any other provision of this Section 305, unless and
until it is exchanged in whole or in part for Securities in definitive
registered form, a Global Security representing all or a portion of the
Securities may not be transferred except as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the
Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary for such series or a nominee of such
successor Depositary.
If at any time the Depositary for any Global Securities notifies the
Issuer that it is unwilling or unable to continue as Depositary for such
Securities or is no longer eligible because it ceased to be a clearing
agency registered under the Exchange Act or any other applicable statute or
regulation, the Issuer shall appoint a successor Depositary with respect to
such Securities. If a successor Depositary for such Securities is not
appointed by the Issuer within 90 days after the Issuer receives such notice
or becomes aware of such ineligibility, the Issuer's election that such
Registered Securities be represented by one or more Global Securities shall
no longer be effective and the Issuer will execute, and the Trustee, upon
receipt of an Officers' Certificate of the Issuer for the authentication and
delivery of definitive Securities of such series, will authenticate and
deliver, Securities of such series in definitive registered form without
coupons, of like tenor in any authorized denominations, in an aggregate
principal amount equal to the principal amount of the Global Security or
Securities representing such Securities in exchange for such Global Security
or Securities.
<PAGE>
The Issuer may at any time and in its sole discretion determine that
the Securities issued in the form of one or more Global Securities shall no
longer be represented by a Global Security. In such event the Issuer will
execute, and the Trustee, upon receipt of an Officers' Certificate for the
authentication and delivery of definitive Securities of such series, will
authenticate and deliver, Securities of such series in definitive registered
form without coupons, in any authorized denominations, in an aggregate
principal amount equal to the principal amount of the Global Security or
Securities representing such Securities in exchange for such Global Security
or Securities.
None of the Issuer, the Trustee, any Paying Agent or the Security
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Global Security or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Issuer evidencing the same
debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Issuer or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities,
other than exchanges pursuant to Section 304, 906 or 1108 not involving any
transfer.
The Issuer shall not be required (i) to issue, register the transfer of
or exchange any Security during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Securities selected for redemption under Section 1104 and ending at the
close of business on the day of such mailing, or (ii) to register the
transfer of or exchange any Security so selected for redemption in whole or
in part, except the unredeemed portion of any Security being redeemed in
part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Issuer
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount, bearing a number
not contemporaneously outstanding.
<PAGE>
If there shall be delivered to the Issuer and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and
(ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of
notice to the Issuer or the Trustee that such Security has been acquired by
a bona fide purchaser, the Issuer shall execute and upon its request the
Trustee shall authenticate and deliver, in lieu of any such destroyed, lost
or stolen Security, a new Security of like tenor and principal amount,
bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Issuer in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Issuer
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 or its agent)
connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Issuer whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately
with any and all other Securities duly authenticated and delivered
hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on
the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Issuer, at its election in each
case, as provided in clause (1) or (2) below:
(1) The Issuer may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Issuer shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be
<PAGE>
paid on each Security and the date of the proposed payment, and at the
same time the Issuer shall deposit with the Trustee an amount of Money
equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such deposit prior to the date of the proposed payment,
such Money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this clause provided.
Thereupon, the Trustee shall fix a Special Record Date for the payment
of such Defaulted Interest which shall be not more than 15 days and not
less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Issuer of such
Special Record Date and, in the name and at the expense of the Issuer,
shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be mailed, first-class postage
prepaid, to each Holder at such Holder's address as it appears in the
Security Register, not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Securities (or
their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following clause (2).
(2) The Issuer may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Issuer to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer,
the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of (and premium,
if any) and (subject to Section 307) interest on such Security and for all
other purposes whatsoever, whether or not such Security shall be overdue,
and neither the Issuer, the Trustee nor any agent of the Issuer or the
Trustee shall be affected by notice to the contrary.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption or registration of
transfer or exchange, if surrendered to any Person other than the Trustee,
shall be delivered to the Trustee or its agent for cancellation or, if
surrendered to the Trustee, shall be promptly cancelled by it. The Issuer
may at any time deliver to the Trustee or its agent for cancellation any
Securities previously authenticated and delivered hereunder which the Issuer
<PAGE>
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as
provided in this Section, except as expressly permitted by this Indenture.
All cancelled Securities held by the Trustee shall be destroyed and a
certificate of destruction delivered by the Trustee to the Issuer, unless
the Issuer otherwise directs the Trustee by a Company Order. Any Securities
acquired by the Issuer shall not operate as a redemption or satisfaction of
the debt represented by such Securities unless and until such Securities are
delivered to the Trustee or its agent for cancellation.
SECTION 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of a year of
360 days consisting of twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Securities
herein expressly provided for), and the Trustee, on demand of and at the
expense of the Issuer, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 306 and (ii)
Securities for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Issuer and thereafter
repaid to the Issuer or discharged from such trust, as provided in
Section 405) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Issuer,
<PAGE>
and the Issuer, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
funds in trust for such purpose Money in an amount sufficient to pay
and discharge the entire indebtedness on such Securities not
theretofore delivered to the Trustee for cancellation, for principal
(and premium, if any) and interest to the date of such deposit (in the
case of Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer, including amounts owing to the Trustee; and
(3) the Issuer has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuer to the Trustee under Section 607, the obligation
of the Trustee to any Authenticating Agent under Section 614 and, if money
shall have been deposited with the Trustee pursuant to subclause (B) of
clause (1) of this Section, the obligations of the Trustee under Sections
403 and 405 shall survive.
SECTION 402. Defeasance and Covenant Defeasance.
(1) In addition to discharge of the Indenture pursuant to Section 401,
the Issuer, upon the deposit with the Trustee as funds in trust for such
purpose funds sufficient to pay and discharge the entire indebtedness on the
Securities for principal (and premium, if any) and interest to the Stated
Maturity shall be deemed to have paid and discharged the entire debt on all
the Securities on the 91st day after the date of such deposit and the
provisions of this Indenture shall no longer be in effect (except as to the
provisions of Sections 306, 508, 607, 1002, 1003 and Article Four),
(hereinafter "defeasance"), and the Trustee, at the expense of the Issuer,
shall at the Issuer's request, execute proper instruments acknowledging the
same, if the Issuer notifies the Trustee that the provisions of this Section
402(1) are being complied with solely to effect a defeasance and if:
(A) with reference to this provision the Issuer has deposited with
the Trustee as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of the Securities (a) Money in an
amount, or (b) U.S. Government Obligations, maturing as to principal
and interest at such times and in such amounts as will insure (without
investment of such cash or reinvestment of any interest or proceeds
from such U.S. Government Obligations) the availability of Money or (c)
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 the
principal of and interest on all Securities on each date that such
principal and interest is due and payable;
(B) no Default or Event of Default with respect to the Securities
of such series shall have occurred and be continuing on the date of
such deposit or, insofar as Section 501(7) is concerned, at any time
during the period ending on and including the 91st day after the date
of such deposit (it being understood that this condition shall not be
deemed satisfied until the expiration of such period);
<PAGE>
(C) such defeasance shall not cause the Trustee to have a
conflicting interest for purposes of the Trust Indenture Act with
respect to any securities of the Issuer;
(D) such defeasance shall not result in a breach or violation of,
or constitute a Default or Event of Default under, the Indenture, the
Securities or any other agreement or instrument to which the Issuer is
a party or by which it is bound;
(E) the Issuer has delivered to the Trustee an Opinion of Counsel
to the effect, and such opinion shall confirm, (i) that, based on the
fact that (x) the Issuer has received from, or there has been published
by, the Internal Revenue Service a ruling or (y) since the date hereof,
there has been a change in the applicable federal income tax law, in
either case, Holders of the Securities will not recognize income, gain
or loss for federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to federal income tax on
the same amount and in the same manner and at the same times as would
have been the case if such deposit, defeasance and discharge had not
occurred; and (ii) that the trust arising from such deposit shall not
constitute an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment
Company Act of 1940, as amended; and
(F) the Issuer has paid or caused to be paid all other sums then
payable hereunder by the Issuer, including amounts owing to the
Trustee, and the Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to the defeasance contemplated by this
provision have been complied with.
(2) The Issuer shall be released from its obligations under Articles
Eight and Ten, other than the obligation to provide that any successor to
the Issuer, as a condition to such succession, assume the performance of any
covenant of this Indenture of the Issuer relating to the compensation,
reimbursement of expenses and indemnities of the Trustee and any predecessor
Trustee, on and after the date the conditions set forth below are satisfied
(hereinafter, "covenant defeasance"). For this purpose, such covenant
defeasance means that, with respect to the Outstanding Securities, the
Issuer may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in such Article or any such
covenant, whether directly or indirectly by reason of any reference
elsewhere herein to such Article or any such covenant or by reason of any
reference in such Article to any other provision herein or in any other
document and such omission to comply shall not constitute an Event of
Default under Section 501, but the remainder of this Indenture and the
Securities shall be unaffected thereby. The following shall be the
conditions to application of this subsection (2) of this Section 402:
<PAGE>
(A) the Issuer has deposited with the Trustee as trust funds in
trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of the Securities, (a) Money in an amount, or (b) U.S.
Government Obligations maturing as to principal and interest at such
times and in such amounts as will insure (without investment of such
cash or reinvestment of any interest or proceeds from such U.S.
Government Obligations) the availability of Money in an amount or (c) 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 the
principal and interest on all Securities on each date that such
principal or interest is due and payable;
(B) no Default or Event of Default or event which with notice or
lapse of time or both would become an Event or Default with respect to
the Securities shall have occurred and be continuing on the date of
such deposit or, insofar as Section 501(7) is concerned, at any time
during the period ending on the 91st day after the date of such deposit
(it being understood that this condition shall not be deemed satisfied
until the expiration of such period);
(C) such covenant defeasance will not result in a breach or
violation of, or constitute a Default or Event of Default under, this
Indenture, the Securities or any agreement or instrument to which the
Issuer is a party or by which it is bound;
(D) such covenant defeasance shall not cause the Trustee to have a
conflicting interest as defined in Section 310(b) of the Trust
Indenture Act;
(E) such covenant defeasance shall not cause any Securities then
listed on any registered national securities exchange to be delisted;
(F) the Issuer shall have delivered to the Trustee an Opinion of
Counsel to the effect (i) that the Holders of the Securities will not
recognize income, gain or loss for Federal income tax purposes as a
result of such covenant defeasance and will be subject to Federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred; and (ii) that the trust arising from such deposit shall not
constitute an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in The Investment
Company Act of 1940, as amended; and
(G) the Issuer shall have paid or cause to be paid all other sums
then payable hereunder by the Issuer, including amounts owing to the
Trustee, and the Issuer shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent relating to the covenant defeasance contemplated
by this provision have been complied with.
SECTION 403. Application of Trust Money.
Subject to the provisions of Section 405, all Money and U.S. Government
Obligations deposited with the Trustee pursuant to Sections 401 and 402 and
all Money received by the Trustee in respect of U.S. Government Obligations
<PAGE>
deposited with the Trustee pursuant to Section 402 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Issuer acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium,
if any) and interest for whose payment such money has been deposited with
the Trustee.
SECTION 404. Repayment of Monies Held by Paying Agent.
Upon the satisfaction and discharge of this Indenture with respect to
the Securities in accordance with Section 401, all Money in excess of the
amount necessary to satisfy and discharge this Indenture (subject to Section
405 hereof) then held by any Paying Agent under the provisions of this
Indenture with respect to the Securities shall, upon demand of the Issuer,
be repaid to it or paid to the Trustee and thereupon such Paying Agent shall
be released from all further liability with respect to such Money.
SECTION 405. Return of Monies Held by Trustee and Paying Agent Unclaimed
for Two Years.
Any Money deposited with or paid to the Trustee or any Paying Agent for
the payment of the principal of and interest on the Securities and not
applied but remaining unclaimed for two years after the date upon which such
principal and interest shall have become due and payable, shall, upon the
written request of the Issuer and unless otherwise required by mandatory
provisions of applicable escheat or abandoned or unclaimed property law, be
repaid to the Issuer by the Trustee or such Paying Agent, and the Holder of
the Securities shall, unless otherwise required by mandatory provisions of
applicable escheat or abandoned or unclaimed property laws, thereafter look
only to the Issuer for any payment which such Holder may be entitled to
collect, and all liability of the Trustee or any Paying Agent with respect
to such monies shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment with
respect to Money deposited with it for any payment, shall at the expense of
the Issuer, mail by first class mail to Holders of such Securities at their
addresses as they shall appear on the Security Register notice, that such
Money remain unpaid and that, after a date specified therein, which shall
not be less than thirty days from the date of such mailing or publication,
any unclaimed balance of such money then remaining will be repaid to the
Issuer.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
<PAGE>
(1) failure by the Issuer or any successor thereto to pay the
principal on any Security when due at Maturity or upon a redemption of
such Security when and as due by the terms of Article Eleven; or
(2) failure by the Issuer or any successor thereto to pay any
interest on any Security for a period of 10 days after such interest
shall have become due and payable; or
(3) failure to perform any other covenant set forth in this
Indenture and continuance of such failure for a period of 30 days after
there has been given, by registered or certified mail, to the Issuer by
the Trustee or to the Issuer and the Trustee by the Holders of at least
25% in aggregate principal amount of the Outstanding Securities a
written notice specifying such default and requiring such default to be
remedied and stating that such notice is a "Notice of Default"
hereunder; or
(4) default in the payment at Stated Maturity of Indebtedness of
the Issuer or a Subsidiary having an outstanding principal amount due
at Stated Maturity greater than $2.0 million and such default shall
have continued without being cured, waived or consented to or without
such Indebtedness being discharged for a period of 30 days beyond any
applicable grace period; or
(5) an event of default as defined in any mortgage, indenture or
instrument of the Issuer or any Subsidiary shall have happened and
resulted in the acceleration of Indebtedness, which together with the
principal amount of any other Indebtedness so accelerated, aggregates
$2.0 million or more at any time, and such default shall not have been
cured or waived and such acceleration shall not have been rescinded or
annulled; or
(6) entry of a final judgment, decree or order against the Issuer
on any Subsidiary for the payment of money in excess of $1.0 million
and such judgment, decree or order continues unsatisfied for 60 days
from the entry thereof, unless vacated, discharged or stayed pending
appeal within such 60-day period; or
(7) the entry by a court or agency or supervisory authority having
competent jurisdiction of:
(a) a decree or order for relief in respect of the Issuer or any
of its Subsidiaries in an involuntary proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar law and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or
(b) a decree or order adjudging the Issuer or any of its
Subsidiaries to be insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of the Issuer or its
Subsidiaries and such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or
<PAGE>
(c) a decree or order appointing the Federal Deposit Insurance
Corporation (the "FDIC") or any other Person to act as a custodian,
receiver, liquidation, assignee, trustee or other similar official of the
Issuer, any of its Subsidiaries or of any substantial part of the property
of the Issuer or its Subsidiaries, as the case may be, or ordering the
winding up or liquidation of the affairs of the Issuer or its Subsidiaries
and such decree or order shall remain unstayed and in effect for a period of
60 consecutive days; or
(d) the commencement by the Issuer or any of its Subsidiaries of
a voluntary proceeding under any applicable bankruptcy, insolvency,
reorganization or other similar law or of a voluntary proceeding seeking to
be adjudicated insolvent or the consent by the Issuer or any of its
Subsidiaries to the entry of a decree or order for relief in an involuntary
proceeding under any applicable bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any insolvency proceedings
against it, or the filing by the Issuer or any of its Subsidiaries of a
petition or answer or consent seeking reorganization or relief under any
applicable law, or the consent by the Issuer or any of its Subsidiaries to
the filing of such petition or to the appointment of or taking possession by
a custodian, receiver, liquidator, assignee, trustee or similar official of
the Issuer or any of its Subsidiaries or any substantial part of the
property of the Issuer or any of its Subsidiaries or the making by the
Issuer or any of its Subsidiaries of an assignment for the benefit of
creditors, or the taking of corporate action by the Issuer or any of its
Subsidiaries in furtherance of any such action.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default described in Section 501(7) (an "Acceleration
Event") shall occur and be continuing, then and in every such case the
Trustee or the Holders of not less than 25% in aggregate principal amount of
the Outstanding Securities may declare the principal of all the Securities
to be due and payable immediately, by a notice in writing to the Issuer (and
to the Trustee if given by Holders), and upon any such declaration such
principal and accrued interest to the date of acceleration shall become
immediately due and payable.
At any time after such declaration of acceleration has been made and
before a judgment or decree for payment of the Money due has been obtained
by the Trustee as hereinafter in this Article provided, the Holders of a
majority in aggregate principal amount of the Outstanding Securities, by
written notice to the Issuer and the Trustee, may rescind and annul such
declaration and its consequences if all Acceleration Events have been
remedied and all payments due, other than those due as a result of
acceleration, have been made.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Issuer covenants that if an Event of Default occurs, the Issuer
will, upon demand of the Trustee, pay to it, for the benefit of the Holders
of such Securities, the whole amount of Money then due and payable on such
Securities for principal (and premium, if any) and interest, and, to the
extent that payment of such interest shall be legally enforceable, interest
on any overdue principal (and premium, if any) and on any overdue interest,
at the rate borne by the Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel.
<PAGE>
In the event that the Issuer fails to pay such amounts forthwith upon
such demand, the Trustee, in its own name and as trustee of an express
trust, may institute a judicial proceeding for the collection of the Money
so due and unpaid, may prosecute such proceeding to judgment or final decree
and may enforce the same against the Issuer or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Issuer or any other
obligor upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other
proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of any judicial or regulatory proceeding relative to the Issuer
or any other obligor upon the Securities, its property or its creditors, the
Trustee shall be entitled and empowered (irrespective of whether the
principal of the Securities shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand on the Issuer for the payment of any
overdue principal or interest), by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture
Act in order to have claims of the Holders and the Trustee allowed in any
such proceeding. In particular, the Trustee shall be authorized to collect
and receive any Money or other property payable or deliverable on any such
claims and to distribute the same and any custodian, receiver, assignee,
trustee, liquidator, sequestrator or other similar official in any such
judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee
any amount due it for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts
due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any
plan of reorganization, agreement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee
to vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any
of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought
in its own name as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
be for the ratable benefit of the Holders of the Securities in respect of
which such judgment has been recovered.
<PAGE>
SECTION 506. Application of Money Collected.
Any Money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such Money on account of principal (or
premium, if any) or interest, upon presentation of the Securities and the
notation thereon of the payment, if only partially paid, and upon surrender
thereof, if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607;
SECOND: In the case the principal of the Securities shall not have
become due and payable, to the payment of the amounts then due and
unpaid upon the Securities for interest in respect of which or for the
benefit of which such Money has been collected, in the order of the
Maturity of the installments of such interest, with interest, to the
extent that such interest has been collected by the Trustee, upon
overdue installments of interest at the rate borne by the Securities,
such payments to be made ratably, without preference or priority of any
kind, according to the aggregate amounts due and payable on such
Securities for interest;
THIRD: In the case the principal of the Securities shall have
become due and payable, to the payment of the amounts then due and
unpaid upon the Securities for principal and interest in respect of
which or for the benefit of which such Money has been collected, with
interest, to the extent that such interest has been collected by the
Trustee, upon overdue installments of interest at the rate borne by the
Securities, such payments to be made ratably, without preference or
priority of any kind, according to the aggregate amounts due and
payable on such Securities for principal and interest, respectively;
and
FOURTH: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. Limitation of Suits.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount
of the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
<PAGE>
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request (including counsel fees and expenses);
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in aggregate principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders, or to obtain or to seek to obtain priority or preference over any
other Holders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all the
Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Section 307) interest on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption pursuant to
Section 1101, on the Redemption Date) and to institute suit for the
enforcement of any such payment and such rights shall not be impaired
without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely
to the Trustee or to such Holder, then and in every such case, subject to
any determination in such proceeding, the Issuer, the Trustee and the
Holders shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee
and the Holders shall continue as though no such proceeding had been
instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in Section 306, no right
or remedy herein conferred upon or reserved to the Trustee or to the Holders
is intended to be exclusive of any other right or remedy, and every right
and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of
any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
<PAGE>
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default
or an acquiescence therein. Subject to the provisions of Section 507, every
right and remedy given by this Article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
SECTION 512. Control by Holders.
The Holders of a majority in aggregate principal amount of the
Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law
or with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
This Section 512 shall be in lieu of Section 316(a)(1)(A) of the
Trust Indenture Act, and such Section 316(a)(1)(A) is hereby expressly
excluded from this Indenture, as permitted by the Trust Indenture Act.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities
waive any past default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent
or other default or impair any right consequent thereon.
This Section 513 shall be in lieu of Section 316(a)(1)(B) of the Trust
Indenture Act, and such Section 316(a)(1)(B) is hereby expressly excluded
from this Indenture, as permitted by the Trust Indenture Act.
<PAGE>
SECTION 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered
or omitted by it as Trustee, a court may require any party litigant in such
suit to file an undertaking to pay the costs of such suit, and may assess
costs against any such party litigant, in the manner and to the extent
provided in the Trust Indenture Act; provided that neither this Section nor
the Trust Indenture Act shall be deemed to authorize any court to require
such an undertaking or to make such an assessment in any suit instituted by
the Issuer and any provision of the Trust Indenture Act to such effect is
hereby expressly excluded from this Indenture, as permitted by the Trust
Indenture Act.
SECTION 515. Waiver of Stay or Extension Laws.
The Issuer covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect
the covenants herein or the performance of this Indenture; and the Issuer
(to the extent that it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law and covenants that they will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of
this Indenture shall require the Trustee to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it. Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section.
SECTION 602. Notice of Defaults.
The Trustee shall give the Holders notice of any default hereunder as
and to the extent provided by the Trust Indenture Act; provided, however,
that in the case of any default of the character specified in Section
501(3), no such notice to Holders shall be given until at least 30 days
after the occurrence thereof. For the purpose of this Section, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default. The Trustee shall not be deemed to have
knowledge of any default or Event of Default specified in Sections 501(3)
through 501(7) unless a Responsible Officer shall have received written
notice thereof from the Issuer or a Holder.
<PAGE>
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate or
any other certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Issuer mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order; and
any resolution of the Board of Directors may be sufficiently evidenced
by a Board Resolution;
(c) Whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence
of bad faith on its part, conclusively rely upon an Officers'
Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document but the Trustee, in its sole discretion, may make
such further inquiry or investigation into such facts or matters as it
may see fit, and, if the Trustee shall determine to make such further
inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Issuer, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents
or attorneys and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder; and
<PAGE>
(h) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or
within the discretion, rights or powers conferred upon it by this
Indenture.
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements
of the Issuer, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture, the Securities, or any prospectus used in
connection with the sale of the Securities. The Trustee shall not be
accountable for the use or application by the Issuer of Securities or the
proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Issuer, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to
Sections 608 and 613, may otherwise deal with the Issuer and receive,
collect, hold and retain collections from the Issuer with the same rights it
would have if it were not Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except
as otherwise agreed with the Issuer.
SECTION 607. Compensation and Reimbursement.
The Issuer covenants and agrees:
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses, disbursements
and advances incurred or made by the Trustee in accordance with any
provision of this Indenture (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), except any
such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without gross negligence or bad
faith on its part, arising out of or in connection with the acceptance
or administration of this trust, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.
<PAGE>
The obligations under this Section 607 to compensate and indemnify the
Trustee and to pay or reimburse the Trustee for expenses, disbursements and
advances shall constitute additional indebtedness hereunder, shall survive
the satisfaction and discharge of this Indenture or the resignation or
removal of the Trustee. When the Trustee incurs expenses or renders
services in connection with an Event of Default specified in Article Five
hereof, the expenses (including the reasonable fees and expenses of its
counsel) and the compensation for the services in connection therewith are
intended to constitute expenses of administration under any bankruptcy law.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire any conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
conflicting interest or resign in the manner provided by, and subject to the
provisions of the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation or national banking association organized and doing business
under the laws of the United States of America, any State thereof or the
District of Columbia, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $10,000,000,
subject to supervision or examination by Federal or State authority and
having a Corporate Trust Office in the Borough of Manhattan, The City of New
York, New York. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately
in the manner and with the effect hereinafter specified in Section 610.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice
thereof to the Issuer. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation, the resigning Trustee may petition
any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Issuer.
<PAGE>
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Issuer or by any Holder who has been a
bona fide Holder of a Security for at least six months, unless the
Trustee's duty to resign is stayed in accordance with the provisions of
Section 310(b) of the Trust Indenture Act, or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Issuer or by
any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conversation or liquidation,
then, in any such case, (i) the Issuer by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause,
the Issuer, by a Board Resolution shall promptly appoint a successor
Trustee. If, within one year after such resignation, removal or
incapability, on the occurrence of such vacancy, a successor Trustee shall
be appointed by Act of the Holders of majority in principal amount of the
Outstanding Securities delivered to the Issuer and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor
Trustee appointed by the Issuer. If no successor Trustee shall have been so
appointed by the Issuer or the Holders and accepted appointment in the
manner hereinafter provided, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for 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.
(f) The Issuer shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Holders in
the manner provided for in Section 106. Each notice shall include the name
of the successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Issuer and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without
any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on request
<PAGE>
of the Issuer or the successor Trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trusts of the retiring
Trustee and shall duly assign, transfer and deliver to such successor
Trustee all property and Money held by such retiring Trustee hereunder.
Upon request of any such successor Trustee, the Issuer shall execute any and
all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. Merger, Conversions, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party,
or any corporation succeeding to all or substantially all the corporate
trustee business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be otherwise qualified and
eligible under this Article, without the execution or filing of any paper or
any further act on the part of any of the parties hereto. In case any
Securities shall have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the
Securities so authenticated with the same effect as if such successor
Trustee had itself authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Issuer.
If and when the Trustee shall be or become a creditor of the Issuer (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims
against the Issuer (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents which shall
be authorized to act on behalf of the Trustee to authenticate Securities
issued upon original issue and upon exchange, registration of transfer or
partial redemption or pursuant to Section 306, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall
be valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating
Agent and a certificate of authentication executed on behalf of the Trustee
by an Authenticating Agent. Each Authenticating Agent shall be acceptable
to the Issuer and shall at all times be a corporation authorized and doing
business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not less than
$10,000,000 and subject to supervision or examination by Federal or State
authority. If such Authenticating Agent publishes reports of condition at
<PAGE>
least annually, pursuant to law or to the requirements of said supervising
or examining authority, then for the purposes of this Section, the combined
capital and surplus of such Authenticating Agent shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease
to be eligible in accordance with the provisions of this Section, such
Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating
Agent shall be a party, or any corporation succeeding to the corporate
agency or corporate trust business of an Authenticating Agent, shall
continue to be an Authenticating Agent, provided such corporation shall be
otherwise eligible under this Section, without the execution or filing of
any paper or any further act on the part of the Trustee or the
Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Issuer. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Issuer. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time
such Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Issuer and shall mail
written notice of such appointment by first-class mail, postage prepaid, to
all Holders as their names and addresses appear in the Security Register.
Any successor Authenticating Agent upon acceptance of its appointment
hereunder shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 607.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the
following form:
This is one of the Securities referred to in the within mentioned
Indenture.
_______________________________________
As Trustee
By: ___________________________________
As Authenticating Agent
By: ___________________________________
Authorized Signatory
<PAGE>
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER
SECTION 701. Issuer to Furnish Trustee Names and Addresses of Holders.
The Issuer will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each June 15 and
December 15, a list in such form as the Trustee may reasonably require,
of the names and addresses of the Holders as of the applicable date,
and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Issuer, as the case may be, of
any such request, a list of similar form and content as of a date not
more than 15 days prior to the time such list is furnished;
excluding from any such list names and addresses received by the Trustee in
its capacity as Security Registrar.
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and
the corresponding rights and duties of the Trustee, shall be as provided by
the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Issuer and the Trustee that neither the Issuer nor the
Trustee nor any agent of any of them shall be held accountable by reason of
any disclosure of information as to names and addresses of Holders made
pursuant to the Trust Indenture Act.
SECTION 703. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to
the Trust Indenture Act at the times and in the manner provided pursuant
thereto. The interval between transmissions of reports to be transmitted at
<PAGE>
intervals shall be twelve months or such shorter time required by the Trust
Indenture Act. If the Trust Indenture Act does not specify the first date
on which a report is due, the first such date shall be June 15 commencing
with the year in which the Securities are first issued.
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange or market upon
which the Securities are listed or quoted, with the Commission and with the
Issuer. The Issuer will notify the Trustee if the Securities are listed on
any stock exchange or quoted on any other market.
SECTION 704. Reports by Issuer.
(a) The Issuer covenants and agrees to file or cause to be filed with
the Trustee and the Commission, and transmit to Holders, such information,
documents and other reports, and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant to such Act; provided that any such information, documents or
reports required to be filed with the Commission pursuant to Section 13 or
15(d) of the Exchange Act shall be filed with the Trustee within 15 days
after the same is so required to be filed with the Commission.
(b) The Issuer shall transmit, or cause to be transmitted, to the
Holders of Securities within 30 days after the filing thereof with the
Commission its annual report prepared in accordance with Rule 14a-3 under
the Exchange Act. If the Issuer is no longer required to file such a report
with the Commission, the Issuer shall transmit a report prepared in
accordance with Rule 14a-3 under the Exchange Act to the Holders of
Securities on or before May 31 of each year.
(c) If the Issuer is not required to furnish annual or quarterly
reports to its stockholders pursuant to the Exchange Act, the Issuer shall
cause its financial statements, including any notes thereto and, with
respect to annual reports, an auditors' report by an accounting firm of
established national reputation to be so filed with the Trustee within 120
days after the end of each of the fiscal years and within 60 days after the
end of each of the first three quarters of each such fiscal year and, after
the date such reports are so required to be filed with the Trustee, to be
furnished to each Holder. The Issuer also shall provide the Trustee with
such additional copies of such reports as they may reasonably request, and
the Trustee may provide said reports to any other Person.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Issuer May Consolidate, Etc., Only on Certain Terms.
The Issuer shall not consolidate with or merge into any other Person or
sell, convey, transfer or lease all or substantially all of its properties
and assets to any such Person, and the Issuer shall not permit any such
Person to consolidate with or merge into the Issuer or sell, convey,
transfer or lease all or substantially all of its properties and assets to
the Issuer, unless:
<PAGE>
(1) the Issuer shall be the continuing Person, or in case the
Issuer shall consolidate with or merge into another Person or sell,
convey, transfer or lease all or substantially all of its properties
and assets to any Person, the Person formed by such consolidation or
into which the Issuer is merged or the Person which acquires by sale,
conveyance or transfer, or which leases, all or substantially all of
the properties and assets of the Issuer, shall be a corporation
organized and validly existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee the due
and punctual payment of the principal of (and premium, if any) and
interest on all the Securities and the due and punctual performance or
observance of each of the other covenants and agreements of this
Indenture on the part of the Issuer to be performed or observed;
(2) immediately after giving effect to such transaction, no event
which, after notice or lapse of time, or both, would become an Event of
Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, each
Subsidiary controlled by the Company or the successor Person that is a
national or state banking association shall be in compliance with all
applicable minimum capital requirements and shall have filed a capital
plan acceptable to its primary regulator; and
(4) the Issuer has delivered to the Trustee an Officers'
Certificate and, if a supplemental indenture is required in connection
with such transaction, also an Opinion of Counsel, stating that such
consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with this Article and that all
conditions precedent herein provided for relating to such transaction
have been complied with.
SECTION 802. Successor Substituted.
Upon any consolidation of the Issuer with, or merger of the Issuer
into, any other Person or any sale, conveyance, transfer or lease of the
properties and assets of the Issuer substantially as an entirety in
accordance with Section 801, the successor Person formed by such
consolidation or into which the Issuer is merged or to which such sale,
conveyance, transfer or lease is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Issuer under this
Indenture with the same effect as if such successor Person had been named as
the Issuer herein, and thereafter, except in the case of a lease of
properties and assets, the predecessor Person shall be relieved of all
obligations and covenants under this Indenture and the Securities.
<PAGE>
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures without Consent of Holders.
Without the consent of any Holders the Issuer, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form satisfactory
to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Issuer and
the assumption by any such successor of the covenants and agreements of
the Issuer herein or in the Securities; or
(2) to add to the covenants of the Issuer for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Issuer; or
(3) to secure the Securities; or
(4) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the
provisions of this Indenture, provided such action pursuant to this
clause (4) shall not adversely affect the interests of the Holders in
any material respect.
SECTION 902. Supplemental Indentures with Consent of Holders.
(a) With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities, by Act of said
Holders delivered to the Issuer and the Trustee, the Issuer, when authorized
by a Board Resolution, and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this
Indenture or of modifying in any manner the rights of the Holders under this
Indenture; provided, however, that no such supplemental indenture shall,
without the consent of the Holder of each Outstanding Security affected
thereby:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or change the place of payment where, or
the coin or currency in which, any Security or any premium or the
interest thereon is payable, or impair the right to institute suit for
the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption
Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for
any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture, or
<PAGE>
(3) modify any of the provisions of this Section or Section 513,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be
entitled to receive, and (subject to Section 601) shall be fully protected
in relying upon, an Opinion of Counsel stating that the execution of such
supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes;
and every Holder theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture. If the Issuer or the
Trustee shall so determine, new Securities so modified as to conform, in the
opinion of the Trustee and the Issuer, to any such supplemental indenture
may be prepared and executed by the Issuer and authenticated and delivered
by the Trustee in exchange for Outstanding Securities.
<PAGE>
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest.
The Issuer will duly and punctually pay the principal of (and premium,
if any) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Issuer will maintain in the Borough of Manhattan, The City of New
York, New York, an office or agency where Securities may be presented or
surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or
upon the Issuer in respect of the Securities and this Indenture may be
served. The Corporate Trust Office of the Trustee shall initially be such
office or agency for all of the aforesaid purposes. The Issuer will give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Issuer shall fail to
maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices
and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Issuer hereby appoints the Trustee as its agent to receive
all such presentations, surrenders, notices and demands.
The Issuer may also from time to time designate one or more other
offices or agencies (in or outside of the above location) where the
Securities may be presented or surrendered for any or all such purposes and
may from time to time rescind such designations; provided, however, that no
such designation or rescission shall in any manner relieve the Issuer of its
obligation to maintain an office or agency in the Borough of Manhattan, The
City of New York, New York for such purposes. The Issuer agrees to give
prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Issuer agrees to maintain, and to cause each of its Subsidiaries to
maintain, copies of all minute books, stock records, financial statements
and bank account information at the principal executive offices of the
Issuer, or those of its counsel, in the United States.
SECTION 1003. Money for Security Payments to Be Held in Trust.
If the Issuer shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or
interest on any of the Securities, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum of Money sufficient to pay the
principal (and premium, if any) or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided
and will promptly notify the Trustee of its action or failure so to act.
<PAGE>
Whenever the Issuer shall have one or more Paying Agents, it will, on
or before each due date of the principal of (and premium, if any) or
interest on any Securities, deposit with a Paying Agent a sum of Money
sufficient to pay such amount, such sum to be held as provided by the Trust
Indenture Act, and (unless such Paying Agent is the Trustee) the Issuer will
promptly notify the Trustee of its action or failure so to act.
The Issuer will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section,
that such Paying Agent will: (i) comply with the provisions of the Trust
Indenture Act applicable to it as a Paying Agent and (ii) during the
continuance of any default by the Issuer (or any other obligor upon the
Securities) in the making of any payment in respect of the Securities, upon
the written request of the Trustee, forthwith pay to the Trustee all sums
held in trust by such Paying Agent as such.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay,
or by Company Order direct any Paying Agent to pay, to the Trustee all Money
held in trust by the Issuer or such Paying Agent, such Money to be held by
the Trustee upon the same terms as those upon which such Money was held by
the Issuer 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 1004. Existence; Conduct of Operations; Insured Institution.
(1) Subject to Article Eight, the Issuer will do or cause to be done
all things necessary to preserve and keep in full force and effect its
existence, rights (charter and statutory) and franchises of the Issuer and
its subsidiaries, and shall comply with all material statutes, rules,
regulations and orders of and restrictions imposed by governmental and
administrative authorities and agencies applicable to the Issuer and its
Subsidiaries; provided, however, subject to paragraph (2) of this Section
1004, that the Issuer shall not be required to preserve any such right or
franchise if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Issuer
and its Subsidiaries and that the loss thereof is not disadvantageous in any
material respect to the Holders.
(2) The Issuer shall do or cause to be done all things necessary to
preserve and keep in full force and effect any Subsidiary that is chartered
as a bank as an Insured Institution and do all things necessary to ensure
that savings accounts of any such Subsidiary are insured by the FDIC or any
successor organization up to the maximum amount permitted by the Federal
Deposit Insurance Act and regulations thereunder or any succeeding federal
law hereinafter enacted.
SECTION 1005. Statement by Officers as to Compliance.
(1) The Company will deliver to the Trustee, within 120 days after the
end of each fiscal year, an Officers' Certificate, stating whether or not to
the best knowledge of the signers thereof the Issuer is in default in the
performance and observance of any of the terms, provisions and conditions of
<PAGE>
this Indenture, (other than a term, provision or condition specifically
dealt with in Clause (2) of this Section 1006) setting forth the
arithmetical computations required to show compliance with the provisions of
Section 1007 during the previous year, and, if the Issuer shall be in
default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
(2) The Issuer will deliver to the Trustee, within five days after the
occurrence thereof, written notice of any event which after notice or lapse
of time or both would become an Event of Default.
SECTION 1006. Restricted Payments on Capital Stock.
The Issuer will not declare or pay dividends on, or purchase, redeem or
acquire its Capital Stock, return any capital to holders of Capital Stock,
or make any distribution of assets to holders of Capital Stock, except that
the Issuer (i) may declare and pay a dividend in Capital Stock of the Issuer
and (ii) declare and pay a dividend or make another distribution in cash or
property other than Capital Stock of the Issuer if the amount of such
dividend or distribution, together with the amount of all such previous
dividends and distributions after March 31, 1997, would not exceed the sum
of (A) $2 million, (B) 75% of the Issuer's Consolidated Net Income (or, in
the event such aggregate Consolidated Net Income shall be a loss, minus 100%
of such loss) accrued on a cumulative basis during the period beginning on
April 1, 1997 and ending on the last day of the Issuer's fiscal quarter
immediately preceding such dividend or distribution (treated as a single
accounting period), and (C) 100% of the net proceeds received by the Issuer
from the issuance or sale (other than to a Subsidiary) of Capital Stock of
the Issuer, including any such shares issued upon exercise of any warrants,
options or similar rights (other than Disqualified Stock), subsequent to
March 31, 1997.
The foregoing provisions will not prevent the payment of any dividend
or distribution within 60 calendar days after the date of its declaration if
the dividend or distribution would have been permitted on the date of
declaration. The provisions of clause (ii) above shall not prevent (A)
acquisitions of Capital Stock from the Issuer by any Subsidiary and (B) the
retirement, redemption or exchange of any shares of the Issuer's Capital
Stock by exchange for, or out of the proceeds of the substantially
concurrent sale of, other shares of Capital Stock of the Issuer other than
Disqualified Stock. For purposes of calculating the aggregate amount of the
dividends or distributions made pursuant to clause (ii) of the immediately
preceding paragraph, dividend payments or distributions made under this
paragraph shall be included in such amount, provided that dividends or
distributions paid within 60 calendar days of the date of declaration shall
be deemed to be paid at the date of declaration.
Prior to making any dividend or distribution under this Section 1006,
the Issuer shall deliver to the Trustee an Officers' Certificate setting
forth the computation by which the amount available for such dividend or
distribution was determined. The Trustee shall have no duty or
responsibility to determine the accuracy or correctness of this computation
and shall be fully protected in relying on such Officers' Certificate.
<PAGE>
SECTION 1007 Maintenance of Properties; Insurance
The Issuer will:
(1) cause its properties and the properties of its Subsidiaries
used or useful in the conduct of the business of the Issuer and its
Subsidiaries to be maintained and kept in good condition, repair and
working order and supplied with all necessary facilities and equipment
and will cause to be made all necessary repairs, renewals,
replacements, and improvements thereof, all as in the judgment of the
Issuer may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times;
provided, however, that the foregoing shall not prevent the Issuer or a
Subsidiary from discontinuing the operation and maintenance of any of
its properties if such discontinuance is, in the judgment of the
Issuer, desirable in the conduct of its business and not
disadvantageous in any material respect to any Holder; and
(2) take all appropriate steps to preserve, protect and maintain
the trademarks, trade names, copyrights, licenses and permits used in
the conduct of the business of the Issuer and its Subsidiaries;
provided, however, that the foregoing shall not prevent the Issuer or a
Subsidiary from selling, abandoning or otherwise disposing of any such
trademark, trade name, copyright, license or permit if such sale,
abandonment or disposition is, in the judgment of the Issuer, desirable
in the conduct of its business and not disadvantageous in any material
respect to any Holder.
(3) The Issuer will maintain or cause to be maintained in effect,
with reputable insurers or associations of recognized responsibility,
such types and amounts of insurance as are customarily carried by
persons engaged in the same or similar businesses as the Issuer and may
provide for self-insurance, by way of retention or deductible, in such
amounts as are customary in the industry for persons engaged in the
same or similar businesses as the Issuer.
SECTION 1008. Payment of Taxes and Other Claims.
The Issuer will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Issuer or any Subsidiary or
upon the income, profits or property of the Issuer or any Subsidiary and (2)
all lawful claims for labor, material and supplies which, if unpaid, might
by law become a lien upon the property of the Issuer or any Subsidiary;
provided, however, that the Issuer shall not be required to pay or discharge
or cause to be paid or discharged any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which disputed amounts adequate reserves
have been established.
SECTION 1009. Books and Records.
The Issuer shall, and shall cause each Subsidiary to, at all times keep
proper books of record and account in which proper entries shall be made in
accordance with GAAP and, to the extent applicable, regulatory accounting
principles.
<PAGE>
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption.
The Securities may not be redeemed prior to May 31, 2000. On and after
May 31, 2000, the Securities may be redeemed at the election of the Issuer,
as a whole or from time to time in part, at par together with accrued and
unpaid interest to the Redemption Date (subject to the right of the Holder
of Securities on a Regular Record Date for an interest payment to receive
such interest payment payable on the corresponding Interest Payment Date).
SECTION 1102. Applicability of Article.
Redemption of Securities as permitted by any provision of this
Indenture, shall be made in accordance with such provisions and this
Article.
SECTION 1103. Election to Redeem; Notice of Trustee.
The election of the Issuer to redeem any Securities pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at
the election of the Issuer of less than all the Securities, the Issuer
shall, at least 60 days prior to the Redemption Date fixed by the Issuer
(unless a shorter notice shall be satisfactory to the Trustee), notify the
Trustee of such Redemption Date and of the principal amount of Securities to
be redeemed.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed pursuant to Section
1101, the particular Securities to be redeemed shall be selected not more
than 35 days prior to the Redemption Date by the Trustee, from the
Outstanding Securities not previously called for redemption, by such method
as the Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions (equal to $1,000 or any integral
multiple thereof) of the principal amount of Securities of a denomination
larger than $1,000.
The Trustee shall promptly notify the Issuer and each Security
Registrar in writing of the Securities selected for redemption and, in the
case of any Securities selected for partial redemption, the principal amount
thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall
relate, in the case of any Securities redeemed or to be redeemed only in
part, to the portion of the principal amount of such Securities which has
been or is to be redeemed.
<PAGE>
SECTION 1105. Notice of Redemption.
Notice of redemption of any Securities pursuant to Section 1101 shall
be given by first-class mail, postage prepaid, mailed not less than 30 days
nor more than 60 days prior to the Redemption Date, to each Holder of
Securities to be redeemed, at his address appearing in the Security
Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities are to be
redeemed, the identification (and, in the cases of partial redemption,
the principal amounts) of the particular Securities to be redeemed,
(4) that on the Redemption Date the Redemption Price will become
due and payable upon each such Security to be redeemed and that
interest thereon will cease to accrue on and after said date,
(5) in case any Security is to be redeemed in part only, the
notice which relates to such Security shall state that on and after the
Redemption Date, upon surrender of such Security, the Holder of such
Security will receive, without charge to such Holder, a new Security or
Securities of authorized denominations for the principal amount thereof
remaining unredeemed;
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price; and
(7) the CUSIP number of such Securities, if any (or any other
numbers used by a Depositary to identify such Securities).
Notice of redemption of Securities to be redeemed shall be given by the
Issuer or, at the Issuer's request, by the Trustee in the name and at the
expense of the Issuer.
SECTION 1106. Deposit of Redemption Price.
On or before any Redemption Date relating to a redemption pursuant to
Section 1101, the Issuer shall deposit with the Trustee or with a Paying
Agent (or, if the Issuer is acting as its own Paying Agent, segregate and
hold in a trust as provided in Section 1003) an amount of Money sufficient
to pay the Redemption Price of, and (except if the Redemption Date shall be
an Interest Payment Date) accrued interest on, all the Securities which are
to be redeemed on that date.
<PAGE>
SECTION 1107. Securities Payable on Redemption Date.
(a) Notice of redemption pursuant to Section 1105 having been given as
aforesaid, the Securities so to be redeemed shall, on the Redemption Date,
become due and payable at the Redemption Price therein specified, and from
and after such date (unless the Issuer shall default in the payment of the
Redemption Price and accrued interest) such Securities shall cease to bear
interest. Upon surrender of any such Security for redemption in accordance
with said notice, such Security shall be paid by the Issuer at the
Redemption Price, together with accrued and unpaid interest to the
Redemption Date; provided, however, that installments of interest whose
Stated Maturity is on or after the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities,
registered as such at the close of business on the relevant Record Dates
according to their terms and the provisions of Section 307.
(b) If any Security surrendered for redemption shall not be paid on
the Redemption Date therefor, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Security.
SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered
at the Corporate Trust Office or at another office or agency of the Issuer
designated for that purpose pursuant to Section 1002 (with, if the Issuer or
the Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Issuer and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing), and the
Issuer shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Security without service charge, a new Security or
Securities, of any authorized denomination as requested by such Holder, in
aggregate principal amount equal to and in exchange for the unredeemed
portion of the principal of the Security so surrendered.
ARTICLE TWELVE
SUBORDINATION
SECTION 1201. Agreement to Subordinate.
The Issuer covenants and agrees, and each Holder of a Security by his
acceptance thereof, likewise covenants and agrees, that all Securities shall
be issued subject to the provisions of this Article; and each Person holding
any Security, whether upon original issue or upon transfer, assignment or
exchange thereof, accepts and agrees that the principal of and interest on
all Securities shall, to the extent and in the manner herein set forth, be
subordinated and subject in right of payment to the prior payment in full of
all Senior Indebtedness, and that the subordination is for the benefit of
the holders of the Senior Indebtedness.
<PAGE>
SECTION 1202. Payment to Security Holders.
In the event of the occurrence and continuation of the following: (i)
the Issuer shall commence any proceeding seeking to have an order for relief
entered on its behalf as a debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of the Issuer or its debts under any law relating
to bankruptcy, insolvency, reorganization or relief of debtors or seeking
appointment of a receiver, trustee, liquidator, custodian or other similar
official for the Issuer or for all or substantially all of its property or
shall file an answer or other pleading in any such proceeding admitting the
material obligations of any petition, complaint on similar pleading filed
against it or consenting to the relief sought therein; or shall take any
action to authorize any of the foregoing; (ii) any involuntary proceeding
against the Issuer shall be commenced seeking to have an order for relief
entered on its behalf as a debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of the Issuer or its debts under any law relating
to bankruptcy, insolvency, reorganization or relief of debtors or seeking
appointment of a receiver, trustee, liquidator, custodian or other similar
official for the Issuer or for all or substantially all of its property,
(iii) the Issuer shall fail to pay the principal or interest on any Senior
Indebtedness when such amounts become due and payable, (iv) an event of
default relating to any Senior Indebtedness, as defined in the Senior
Indebtedness or in the mortgage, indenture or other instrument relating to
or under which the Senior Indebtedness is outstanding, permitting the holder
or holders thereof to accelerate the maturity thereof, and such default or
event of default shall not be cured or was continued beyond the period of
grace, if any, in respect thereof, and such default or event of default
shall not have been waived or shall not have ceased to exist, or (v) that
the principal of and accrued interest on the Securities shall have been
declared due and payable pursuant to Section 502 and such declaration shall
not have been rescinded and annulled as provided in Section 502, then the
holders of all Senior Indebtedness shall first be entitled to receive
payment in full of all amounts due or to become due thereon, or provision
shall be made, in accordance with the terms of such Senior Indebtedness, for
such payment in money or money's worth, before the Holders of the Securities
entitled to receive a payment on account of the principal of or interest on
the indebtedness evidenced by the of Securities.
Upon any such proceeding referred to in clauses (i) or (ii) of the
immediately preceding paragraph, any payment or distribution of assets of
the Issuer of any kind or character, whether in cash, property or
securities, to which the Holders of the Securities or the Trustee under this
Indenture would be entitled, except for the provisions hereof, shall be paid
by the Issuer or by any receiver, trustee, custodian, liquidator or other
Person making such payment or distribution or, to the extent required by the
next succeeding paragraph, by the Holders of the Securities or the Trustee,
if received by them or it, directly to the holders of Senior Indebtedness
(pro rata to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders) or their respective representatives, or
to the trustee or trustees under any indenture pursuant to which any
instruments evidencing any of such Senior Indebtedness may have been issued,
as their respective interests may appear, to the extent necessary to pay all
Senior Indebtedness in full after giving effect to any concurrent payment or
distribution (or provision therefor) to or for the holders of Senior
Indebtedness, before any payment or distribution is made to the Holders of
the indebtedness evidenced by the Securities or to the Trustee under this
Indenture.
<PAGE>
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Issuer of any kind or character, whether in
cash, property or securities, prohibited by the foregoing provisions of this
Section, shall be received by the Trustee under this Indenture or the
Holders of the Securities before all Senior Indebtedness is paid in full or
provision is made for such payment in accordance with its terms, and if such
fact shall, at or prior to the time of such payment or distribution, have
been known to the Trustee, then 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 respective representatives, or
to the trustee or trustees under any indenture pursuant to which any
instruments evidencing any of such Senior Indebtedness may have been issued,
as their respective interests may appear, for application to the payment of
all Senior Indebtedness remaining unpaid until all such Senior Indebtedness
shall have been paid in full in accordance with its terms, after giving
effect to any concurrent payment or distribution to or for the holders of
such Senior Indebtedness.
For purposes of this Article Twelve only, the words, "cash, property or
securities" shall not be deemed to include shares of Capital Stock of the
Issuer as reorganized or readjusted, or securities of the Issuer or any
other corporation provided for by a plan of arrangement, reorganization or
readjustment, the payment of which is subordinated (at least to the extent
provided in this Article Twelve with respect to the Securities) to the
payment of all Senior Indebtedness which may at the time be outstanding;
provided that (i) the Senior Indebtedness is assumed by the new corporation,
if any, resulting from any such arrangement, reorganization or readjustment,
and (ii) the rights of the holders of the Senior Indebtedness are not,
without the consent of such holders, altered by such arrangement,
reorganization or readjustment. The consolidation of the Issuer with, or
the merger of the Issuer with or into, another corporation or the
liquidation or dissolution of the Issuer following the conveyance or
transfer of all or substantially all of its assets to another corporation
upon the terms and conditions provided in Article Eight shall not be deemed
a dissolution, winding-up, liquidation or reorganization for the purposes of
this Section Twelve if such other corporation shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the conditions
stated in Article Eight. Nothing in this Section Twelve shall apply to
claims of, or payments to, the Trustee under or pursuant to Article Six,
except as expressly provided therein. This Section shall be subject to the
further provisions of Section 1205.
SECTION 1203. Subrogation.
Subject to the payment in full of all Senior Indebtedness, the Holders
of the Securities subject to the provisions of Section 1202 shall be
subrogated (equally and ratably with the holders of all obligations of the
Issuer which by their express terms are subordinated to Senior Indebtedness
of the Issuer to the same extent as the Securities are subordinated and
which are entitled to like rights of subrogation) to the rights of the
holders of Senior Indebtedness to receive payments or distributions of cash,
property or securities of the Issuer applicable to the Senior Indebtedness
until all amounts owing on the Securities shall be paid in full; and, for
the purpose of such subrogation, no payments or distributions to the holders
of the Senior Indebtedness of any cash, property or securities to which the
Holders of the Securities or the Trustee on their behalf would be entitled
except for the provisions of this Article, and no payment over pursuant to
the provisions of this Article to the holders of Senior Indebtedness by
Holders of the Securities or the Trustee on their behalf shall, as between
<PAGE>
the Issuer, its creditors other than holders of Senior Indebtedness and the
Holders of the Securities be deemed to be a payment by the Issuer to or on
account of the Senior Indebtedness; and no payments or distributions of
cash, property or securities to or for the benefit of the Holders pursuant
to the subrogation provision of this Article Twelve, which would otherwise
have been paid to the holders of Senior Indebtedness, shall be deemed to be
a payment by the Issuer to or for the account of the Securities. The
provisions of this Article Twelve are intended solely for the purpose of
defining the relative rights of the Holders of the Securities, on the one
hand, and the holders of the Senior Indebtedness, on the other hand.
Nothing contained in this Article Twelve or elsewhere in this Indenture
or in the Securities is intended to or shall impair, as between the Issuer,
its creditors other than the holders of Senior Indebtedness, and the Holders
of the Securities, the obligation of the Issuer, which is absolute and
unconditional, to pay to the Holders of the Securities the principal of and
interest on the Securities 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 against the Issuer of the Holders of the Securities and
creditors of the Issuer other than the holders of Senior Indebtedness, nor
shall anything herein or therein prevent the Holder of any Security or the
Trustee on his behalf from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if
any, under this Article Twelve of the holders of Senior Indebtedness in
respect of cash, property or securities of the Issuer received upon the
exercise of any such remedy.
Upon any payment or distribution of assets of the Issuer referred to in
this Article Twelve, the Trustee, subject to the provisions of Sections 601
and 603, and the Holders of the Securities shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction in which
such insolvency, bankruptcy, dissolution, winding-up, liquidation,
arrangement or reorganization proceedings are pending, or a certificate of
the receiver, trustee in bankruptcy, liquidating trustee, agent or other
Person making such payment or distribution, delivered to the Trustee or to
the Holders of the Securities for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Issuer, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article Twelve.
SECTION 1204. Authorization by Holders.
Each Holder of a Security by his acceptance thereof authorizes the
Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article Twelve and appoints
the Trustee his attorney-in-fact for any and all such purposes.
SECTION 1205. Notice to Trustee.
The Issuer shall give prompt written notice to the Trustee and to any
Paying Agent of any fact known to the Issuer which would prohibit the making
of any payment of monies to or by the Trustee or any Paying Agent in respect
of the Securities pursuant to the provisions of this Article Twelve.
Regardless of anything to the contrary contained in this Article Twelve or
elsewhere in this Indenture, the Trustee shall not be charged with knowledge
<PAGE>
of the existence of any Senior Indebtedness or of any default or event of
default with respect to any Senior Indebtedness or of any other facts which
would prohibit the making of any payment of monies to or by the Trustee in
respect of the Securities, unless and until the Trustee shall have received
notice in writing (which may be by telegram, telecopy or other similar
writing) at its Corporate Trust Office to that effect signed by an officer
of the Issuer, or by a holder or agent of a holder of Senior Indebtedness
who shall have been certified by the Issuer or otherwise established to the
reasonable satisfaction of the Trustee to be such holder or agent, or by the
trustee under any indenture pursuant to which Senior Indebtedness shall be
outstanding, and, prior to the receipt of any such written notice, the
Trustee shall, subject to Sections 601 and 603, be entitled to assume that
no such facts exist; provided that if on a date at least two Business Days
prior to the date upon which by the terms hereof any such monies shall
become payable for any purpose (including, without limitation, the payment
of the principal of or interest on any Security) the Trustee shall not have
received with respect to such monies the notice provided for in this Section
1205, then, regardless of anything herein to the contrary, the Trustee shall
have full power and authority to receive such monies and to apply the same
to the purpose for which they were received, and shall not be affected by
any notice to the contrary which may be received by it on or after such
prior date.
Regardless of anything to the contrary herein (but subject, in the case
of clause (a) of this paragraph, to the second paragraph of Section 1302),
nothing shall prevent (a) any payment by the Issuer or the Trustee to the
Holders of amounts in connection with a redemption of Securities if (i)
notice of such redemption has been given pursuant to Article Eleven prior to
the receipt by the Trustee of written notice as aforesaid, and (ii) such
notice of redemption is given not earlier than 60 days before the Redemption
Date, or (b) any payment by the Trustee to the Holders of amounts deposited
with it pursuant to Section 401 or 402, provided, that, in the case of
Section 402, the Securities are deemed to have been paid and discharged, and
in the case of Section 401, the Trustee shall not have received, by at least
two Business Days prior to the date of execution of instruments
acknowledging the satisfaction of and discharge of this Indenture with
respect to the Securities, the notice provided in the preceding paragraph.
Subject to Sections 601 and 603, the Trustee shall be entitled to rely
on the delivery to it of a written notice by a Person representing himself
to be a holder of Senior Indebtedness (or a trustee on behalf of such
holder) to establish that such notice has been given by a holder of Senior
Indebtedness or a trustee on behalf of any such holder. In the event that
the Trustee determines in good faith that further evidence is required with
respect to the right of any Person as a holder of Senior Indebtedness to
participate in any payment or distribution pursuant to this Article Twelve,
the Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Indebtedness held by
such Person, the extent to which such Person is entitled to participate in
such payment or distribution and any other facts pertinent to the rights of
such Person under this Article Twelve, and if such evidence is not furnished
the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
<PAGE>
SECTION 1206. Trustee's Relation to Senior Indebtedness.
The Trustee and any agent of the Issuer or the Trustee shall be
entitled to all the rights set forth in this Article Twelve with respect to
any Senior Indebtedness which may at any time be held by it in its
individual or any other capacity to the same extent as any other holder of
Senior Indebtedness and nothing in Section 614 or elsewhere in this
Indenture shall deprive the Trustee or any such agent of any of its rights
as such holder. Nothing in this Article Twelve shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 607.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Twelve, and no
implied covenants or obligations with respect to the holders of 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
Senior Indebtedness and, subject to the provisions of Sections 601 and 603,
the Trustee shall not be liable to any holder of Senior Indebtedness if it
shall in good faith pay over or deliver to Holders of Securities, the Issuer
or any other Person monies or assets to which any holder of Senior
Indebtedness shall be entitled by virtue of this Article Twelve or
otherwise.
SECTION 1207. No Impairment of Subordination.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the
Issuer or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Issuer with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof which any
such holder may have or otherwise be charged with.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
Address for Notices: BNCCORP, INC.
Issuer
322 East Main
P. O. Box 2316
Bismarck, ND 58502
Attention: Gregory K. Cleveland By: ___________________________________
Gregory K. Cleveland
President
Attest:
_____________________________
Annette Eckroth
Secretary
Address for Notices: FIRSTAR TRUST COMPANY
615 East Michigan Street Trustee
Fourth Floor
P. O. Box 2077
Milwaukee, WI 53201-2077
Attention: Securities Processing
Corporate Trust
By: ___________________________________
Name:__________________________________
Title:_________________________________
Attest:
_____________________________
Trust Officer
<PAGE>
SCHEDULE A
Form of Face of Security.
- ------------------------
(The immediate following legend shall be included on a Global Security only)
Unless this certificate is presented by an authorized representative
of the Depository Trust Company, a New York corporation ("DTC"), to the
Issuer or its agent for registration of transfer, exchange or payment, and
any certificate issued is registered in the name of Cede & Co. or in such
other name as is required by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is required by an
authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.
THIS SECURITY IS NOT A SAVINGS ACCOUNT OR A DEPOSIT AND IS NOT INSURED
BY THE UNITED STATES OR ANY AGENCY OF THE UNITED STATES.
BNCCORP, INC.
No. ________ $________
________% Subordinated Note due 2004
BNCCORP, Inc., a corporation duly organized and existing under the
laws of Delaware (herein called the "Issuer", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to ________, or registered assigns, the
principal sum of ________ Dollars on May 31, 2004 and to pay interest
thereon from the date of issuance or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, monthly on the
first Business Day of each month, commencing July 1, 1997, at the rate of
________% per annum, until the principal hereof is paid or made available
for payment. The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record
Date for such interest, which shall be the 15th day (whether or not a
Business Day), of the calendar month, next preceding such Interest Payment
Date. Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and
may either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in
said Indenture. Payment of the principal of (and premium, if any) and
interest on this Security will be made at the Corporate Trust Office or at
another office or agency of the Issuer maintained for that purpose in the
Borough of Manhattan, The City of New York, New York in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at
the option of the Issuer payment of interest may be made by check mailed on
or before the Stated Maturity to the address of the Person entitled thereto
as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed under its corporate seal.
Dated:
BNCCORP, INC.
By: __________________________
Attest:
______________________________
<PAGE>
Form of Reverse of Security.
- ----------------------------
BNCCORP, INC.
________% Subordinated Note due 2004
This Security is one of a duly authorized issue of Securities of the
Issuer designated as its ________% Subordinated Notes due 2004 (herein
called the "Securities"), limited in aggregate principal amount to
$15,000,000, issued and to be issued under an Indenture, dated as of May
____, 1997, (herein called the "Indenture"), between BNCCORP, Inc. (the
"Issuer"), and Firstar Trust Company, as Trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture),
to which Indenture and all indentures supplemental thereto reference is
hereby made for a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Issuer, the Trustee and the Holders
of the Securities and of the terms upon which the Securities are, and are to
be, authenticated and delivered.
The Securities are general unsecured obligations of the Issuer. The
Indenture imposes certain limitations on the ability of the Issuer to, among
other things, make payments in respect of its Capital Stock, merge or
consolidate with any other Person or sell, lease, transfer or otherwise
dispose of substantially all of its properties or assets. All such
covenants and limitations are subject to a number of important
qualifications and exceptions. The Issuer must report periodically to the
Trustee on compliance with the covenants in the Indenture.
An Event of Default is: (i) failure by the Issuer or any successor
thereto to pay the principal on any Security when due at Maturity or upon a
redemption of such Security when and as due by the terms of the Indenture;
(ii) failure by the Issuer or any successor thereto to pay the interest on
any Security for a period of 10 days after such interest shall have become
due and payable; (iii) failure to perform any other covenant set forth in
the Indenture and continuance of such failure for a period of 30 days after
there has been given by registered or certified mail, to the Issuer by the
Trustee or to the Issuer and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Securities then outstanding a written
notice specifying such default and requiring such default to be remedied and
stating that such notice is a "Notice of Default" under the Indenture;
(iv) a default in any payment at Stated Maturity of on any Indebtedness
(other than under the Securities) having an aggregate principal amount due
at Stated Maturity greater than $2.0 million and such default shall have
continued without being cured, waived or consented to or without such
Indebtedness being discharged for a period of 30 days beyond any applicable
grace period; (v) an event of default as defined in any mortgage, indenture
or instrument of the Issuer or any Subsidiary shall have happened and
resulted in the acceleration of Indebtedness which together with the
principal amount of any other Indebtedness so accelerated, aggregates $2.0
million or more at any time, and such default shall not have been cured or
waived and such acceleration shall not have been rescinded or annulled; (vi)
entry of a final judgment, decree or order against the Issuer or any
Subsidiary for the payment of money in excess of $1.0 million and such
judgment, decree or order continues unsatisfied for 60 days from the entry
thereof unless vacated, discharged or stayed pending appeal within such 60-
day period; (vii) the occurrence and continuation of the following: the
entry by a court or agency or supervisory authority having competent
jurisdiction of: (a) a decree or order for relief in respect of the Issuer
or any of its Subsidiaries in an involuntary proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar law and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or (b) a decree or order adjudging the Issuer or any of its
Subsidiaries to be insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of the Issuer or its
Subsidiaries and such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or (c) a decree or order appointing the
Federal Deposit Insurance Corporation (the "FDIC") or any other Person to
act as a custodian, receiver, liquidation, assignee, trustee or other
similar official of the Issuer, any of its Subsidiaries or of any
substantial part of the property of the Issuer or its Subsidiaries, as the
case may be, or ordering the winding up or liquidation of the affairs of the
Issuer or its Subsidiaries and such decree or order shall remain unstayed
and in effect for a period of 60 consecutive days; or (d) the commencement
by the Issuer or any of its Subsidiaries of a voluntary proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law or of
a voluntary proceeding seeking to be adjudicated insolvent or the consent by
the Issuer or any of its Subsidiaries to the entry of a decree or order for
relief in an involuntary proceeding under any applicable bankruptcy,
insolvency, reorganization or other similar law or to the commencement of
any insolvency proceedings against it, or the filing by the Issuer or any of
its Subsidiaries of a petition or answer or consent seeking reorganization
or relief under any applicable law, or the consent by the Issuer or any of
its Subsidiaries to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee or
similar official of the Issuer or any of its Subsidiaries or any substantial
part of the property of the Issuer or any of its Subsidiaries or the making
by the Issuer or any of its Subsidiaries of an assignment for the benefit of
creditors, or the taking of corporate action by the Issuer or any of its
Subsidiaries in furtherance of any such action. If an Event of Default
described in clause (vii) above occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Securities may declare the principal of
all the Securities to be due and payable immediately and, upon such
declaration, the Securities will become immediately due and payable in the
manner and with the effect provided in the Indenture.
<PAGE>
The indebtedness of the Issuer evidenced by the Securities, including
the principal thereof and interest thereon (including post-default
interest), (1) is expressly subordinated, to the extent and to the manner
set forth in the Indenture, in right of payment to the prior payment in full
of all of the Issuer's obligations to holders of Senior Indebtedness and (2)
is unsecured by any collateral, including the assets of the Issuer or any of
its Subsidiaries or affiliates. Each Holder of Securities, by acceptance
thereof, (a) agrees to and shall be bound by such provisions of the
Indenture and all other provisions of the Indenture; (b) authorizes and
directs the Trustee to take such action on such Holder's behalf as may be
necessary or appropriate to effectuate the subordination of the Securities
as provided in the Indenture; and (c) appoints the Trustee as such Holder's
attorney-in-fact for any and all such purposes.
The Securities are not subject to any sinking fund.
The Securities will not be redeemable at the option of the Issuer
prior to May 31, 2000. On and after May 31, 2000, the Securities are
subject to redemption upon not less than 30 days' nor more than 60 days'
notice by mail, at any time as a whole or in part, at the election of the
Issuer, at par together in the case of any such redemption with accrued and
unpaid interest to the Redemption Date, but interest installments whose
Stated Maturity is on or after such Redemption Date will be payable to the
Holders of such Securities, or one or more Predecessor Securities, of record
at the close of business on the relevant Record Dates referred to on the
face hereof, all as provided in the Indenture. If less than all Securities
are redeemed, the Trustee will select the Securities to be redeemed by such
method as the Trustee may deem fair and appropriate.
Interest installments whose Stated Maturity is on the Redemption Date
will be payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on the relevant
Regular Record Date referred to on the face hereof; all as provided in the
Indenture. In the event of redemption or repayment of this Security in part
only, a new Security or Securities for the unredeemed or unrepaid portion
hereof shall be issued in the name of the Holder hereof upon the surrender
hereof.
In the event of redemption of this Security in part only, a new
Security or Securities for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
The Indenture permits, with certain exceptions, as therein provided,
the amendment thereof and the modification of the rights and obligations of
the Issuer and the rights of the Holders of the Securities under the
Indenture at any time by the Issuer and the Trustee with the consent of the
Holders of a majority in aggregate principal amount of the Securities at the
time Outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the
Securities at the time Outstanding on behalf of the Holders of all the
Securities, to waive compliance by the Issuer with certain provisions of the
Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Security
shall be conclusive and binding upon such Holder and upon all future Holders
of this Security and of any Security issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
No provision of this Security or of the Indenture shall alter or
impair the obligation of the Issuer, which is absolute and unconditional, to
pay the principal of (and premium, if any) and interest on this Security at
the times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the
Security Register, upon surrender of this Security for registration at the
Corporate Trust Office or at another office or agency of the Issuer in the
Borough of Manhattan, The City of New York, New York duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Issuer and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
<PAGE>
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in
the Indenture and subject to certain limitations therein set forth,
Securities are exchangeable for a like aggregate principal amount of
Securities of a different authorized denomination, as requested by the
Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Issuer may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentation of this Security for registration of
transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and
neither the Issuer, the Trustee nor any such agent shall be affected by
notice to the contrary.
All capitalized terms used in this Security and not specifically
defined herein are defined in the Indenture and shall have the meanings
assigned to them in the Indenture.
This is one of the Securities referred to in the within mentioned
Indenture.
FIRSTAR TRUST COMPANY
as Trustee
By:___________________________________
Authorized Signatory
EXHIBIT 5.1
[LETTERHEAD OF JONES, WALKER, WAECHTER,
POITEVENT, CARRERE & DENEGRE, L.L.P.]
May 8, 1997
BNCCORP, INC.
322 East Main
Bismarck, North Dakota 58501
Gentlemen:
We have acted as counsel to BNCCORP, INC., a Delaware corporation
(the "Company"), in connection with the Company's registration statement
on Form SB-2 (the "Registration Statement") with respect to the offering
by the Company of $15,000,000 principal amount of its Subordinated Notes
due 2004 (the "Notes"). We have examined originals or copies, certified
or otherwise identified to our satisfaction, of such documents, corporate
records, certificates of public officials and other instruments as we have
deemed necessary or advisable for purposes of this opinion.
Based upon the foregoing, and upon our examination of such matters as
we deem necessary in order to furnish this opinion, we are of the opinion
that the Notes when issued in accordance with the Indenture to be entered
into between the Company and Firstar Trust Company, as Trustee, against
payment therefor as described in the Registration Statement, will
constitute valid and binding obligations of the Company.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our name in the Prospectus
contained therein. In giving this consent, we do not admit that we are
within the category of person whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the general rules and
regulations of the Commission.
Yours very truly,
/s/ Jones, Walker Waechter, Poitevent,
Carrere & Denegre, L.L.P.
JONES, WALKER, WAECHTER,
POITEVENT, CARRERE & DENEGRE, L.L.P.
EXHIBIT 10.4
Amendment
The Employment Agreement among BNCCORP, Inc., Bismarck National Bank (now known
as "BNC National Bank"), and Thomas Resch dated as of May 16, 1995 is hereby
amended as follows:
An annual salary of $140,000 is agreed upon by all parties
involved in lieu of the previously agreed-upon personal incentive
program described in Section 5 Incentive Payments. Section 5 is
hereby eliminated from said Employment Agreement.
Dated this 1st day of June, 1996.
BNCCORP, Inc.
By: /s/ Tracy Scott
-----------------------------
Name: Tracy Scott
Title: Chairman and CEO
BNC NATIONAL BANK
By: /s/ John A. Malmberg
-----------------------------
Name: John A. Malmberg
Title: President
Executive:
/s/ Thomas J. Resch
--------------------------------
Thomas J. Resch
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
/s/ Arthur Andersen
Minneapolis, Minnesota
May 8, 1997
EXHIBIT 25.1
Securities and Exchange Commission
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility of a Trustee
Pursuant to Section 305(b)(2) _________
FIRSTAR TRUST COMPANY
(Exact name of trustee as specified in its charter)
Wisconsin 39-0281260
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U. S. National Bank) Identification Number)
777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
(Address of principal executive offices) (Zip Code)
Kevin C. Schuller, Vice President and Assistant Secretary
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Telephone (414) 765-5725
(Name,address, and telephone number of agent for service)
BNCCORP, Inc.
(Exact name of obligor as specified in its charter)
Delaware 45-0402816
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
322 East Main
Bismarck, North Dakota 58501
(Address of principal executive offices) (Zip Code)
Subordinated Notes
(Title of indenture securities)
Item 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.
Office of Commissioner of Banking, Madison, Wisconsin
Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The corporate trustee is authorized to exercise corporate trust
powers.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee.
Item 3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting
securities of the trustee:
As of May 7, 1997
Col. A Col. B
Title of class Amount outstanding
Per General Instruction B to Form T-1, no response is required to
this item as the obligor is not presently in default.
Item 4. Trusteeships under Other Indentures.
If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or participation
in any other securities, of the obligor are outstanding, furnish
the following information:
(a) Title of the securities outstanding under each such other
indenture.
Per General Instruction B to Form T-1, no response is required to
this item as the obligor is not presently in default.
(b) A brief statement of the facts relied upon as a basis for the
claim that no conflicting interest within the meaning of Section
310(b)(1) of the Act arises as a result of the trusteeship under
any such other indenture, including a statement as to how the
indenture securities will rank as compared with the securities
issued under such other indenture.
Per General Instruction B to Form T-1, no response is required to
this item as the obligor is not presently in default.
Item 5. Interlocking Directorates and Similar Relationships with the
Obligor or Underwriters.
If the trustee or any of the directors or executive officers of
the trustee is a director, officer, partner, employee, appointee,
or representative of the obligor or of any underwriter for the
obligor, identify each such person having any such connection and
state the nature of each such connection.
Per General Instruction B to Form T-1, no response is required to
this item as the obligor is not presently in default.
Item 6. Voting Securities of the Trustee Owned by the Obligor or its
Officials.
Furnish the following information as to the voting securities of
the trustee owned beneficially by the obligor and each director,
partner, and executive officer of the obligor:
As of May 7, 1997
Col. A Col. B Col. C Col. D
Name of owner Title of class Amount owned Percentage of voting
beneficially securities represented by
amount given in Col. C
Per General Instruction B to Form T-1, no response is required to
this item as the obligor is not presently in default.
Item 7. Voting Securities of the Trustee Owned by Underwriters or their
Officials.
Furnish the following information as to the voting securities of
the trustee owned beneficially by each underwriter for the obligor
and each director, partner, and executive officer of each such
underwriter:
As of May 7, 1997
Col. A Col. B Col. C Col. D
Name of owner Title of class Amount owned Percentage of voting
beneficially securities represented by
amount given in Col. C
Per General Instruction B to form T-1, no response is required to
this item as the obligor is not presently in default.
Item 8. Securities of the Obligor Owned or Held by the Trustee.
Furnish the following information as to securities of the obligor
owned beneficially or held as collateral security for obligations
in default by the trustee:
As of May 7, 1997
Col. A Col. B Col. C Col. D
Title of class Whether the Amount owned Percent of
securities beneficially or held class represented
are voting as collateral security by amount given
or nonvoting for obligations in Col. C
securities in default
Per General Instruction B to Form T-1, no response is required to
this item as the obligor is not presently in default.
Item 9. Securities of Underwriters Owned or Held by the Trustee.
If the trustee owns beneficially or holds as collateral security
for obligations in default any securities of an underwriter for
the obligor, furnish the following information as to each class
of securities of such underwriter any of which are so owned or
held by the trustee:
As of May 7, 1997
Col. A Col. B Col. C Col. D
Name of Amount Amount owned Percent of
issuer and outstanding beneficially or held class represented
title of class as collateral security by amount given
for obligations in in Col. C
default by trustee
Per General Instruction B to Form T-1, no response is required to
this item as the obligor is not presently in default.
Item 10. Ownership or Holdings by the Trustee of Voting Securities of
Certain Affiliates or Security Holders of the Obligor.
If the trustee owns beneficially or holds as collateral security
for obligations in default voting securities of a person who, to
the knowledge of the trustee (1) owns 10 percent or more of the
voting securities of the obligor or (2) is an affiliate, other
than a subsidiary, of the obligor, furnish the following
information as to the voting securities of such person:
As of May 7, 1997
Col. A Col. B Col. C Col. D
Name of Amount Amount owned Percent of
issuer and outstanding beneficially or held class represented
title of class as collateral security by amount given
for obligations in in Col. C
default by trustee
Per General Instruction B to Form T-1, no response is required to
this item as the obligor is not presently in default.
Item 11. Ownership or Holdings by the Trustee of any Securities of a Person
Owning 50 Percent or More of the Voting Securities of the Obligor.
If the trustee owns beneficially or holds as collateral security
for obligations in default any securities of a person who, to the
knowledge of the trustee, owns 50 percent or more of the voting
securities of the obligor, furnish the following information as to
each class of securities of such person any of which are so owned
or held by the trustee:
As of May 7, 1997
Col. A Col. B Col. C Col. D
Name of Amount Amount owned Percent of
issuer and outstanding beneficially or held class represented
title of class as collateral security by amount given
for obligations in in Col. C
default by trustee
Per General Instruction B to Form T-1, no response is required to
this item as the obligor is not presently in default.
Item 12. Indebtedness of the Obligor to the Trustee.
Except as noted in the instructions, if the obligor is indebted to
the trustee, furnish the following information:
As of May 7, 1997
Col. A Col. B Col. C
Nature of indebtedness Amount outstanding Date due
Per General Instruction B to Form T-1, no response is required to
this item as the obligor is not presently in default.
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such
default.
Per General Instruction B to Form T-1, no response is required to
this item as the obligor is not presently in default.
(b) If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or participation
in any other securities, of the obligor are outstanding, or
is trustee for more than one outstanding series of securities
under the indenture, state whether there has been a default under
any such indenture or series, identify the indenture or series
affected, and explain the nature of any such default.
Per General Instruction B to Form T-1, no response is required to
this item as the obligor is not presently in default.
Item 14. Affiliations with the Underwriters.If any underwriter is an
affiliate of the trustee, describe each such affiliation.
Per General Instruction B to Form T-1, no response is required to
this item as the obligor is not presently in default.
Item 15. Foreign Trustee.
Identify the order or rule pursuant to which the foreign trustee
is authorized to act as sole trustee under indentures qualified or
to be qualified under the Act.
Not applicable
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
1. A copy of the Articles of Association of Firstar Trust Company
(f/k/a First Wisconsin Trust Company) as now in effect (filed
herewith).
2. Certificate of authority of the Trustee to commence business
(contained in Exhibit 1).
3. Authorization of the Trustee to exercise trust powers
(contained in Exhibit 1).
4. A copy of the existing By-laws of Firstar Trust Company (f/k/a
First Wisconsin Trust Company) (filed herewith).
6. The consent of the Trustee required by Section 321(b) of the
Trust Indenture Act of 1939 (filed herewith).
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirement of its supervising
or examining authority.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, Firstar Trust Company, a corporation organized and existing under
the laws of the State of Wisconsin, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Milwaukee, and State of Wisconsin, on the 7th
day May, 1997.
FIRSTAR TRUST COMPANY
(Trustee)
By: /s/ Gene E. Ploeger
------------------------------------
Gene E. Ploeger, Vice President
(Name and title)
By: /s/ Yvonne Siira
------------------------------------
Yvonne Siira, Assistant Secretary
(Name and title)
EXHIBIT 1
STATE OF WISCONSIN
OFFICE OF COMMISSIONER OF BANKING
BANKS DIVISION
POST OFFICE BOX 7876
MADISON, WISCONSIN 53707-7876
(Telephone: 608-266-1621)
AMENDMENT TO ARTICLES
CERTIFICATION
I, Toby E. Sherry, Commissioner of Banking of the State of Wisconsin, do
hereby certify that an amendment to the original Articles of Incorporation of
First Wisconsin Trust Company, Milwaukee, Wisconsin, of which a duly verified
copy is hereto attached, was on the 17th day of August, A.D. 1992, approved
and filed in the Office of Commissioner of Banking. This amendment relates
to corporate name and was adopted by stockholders of the above bank on July
16, 1992.
IN TESTIMONY WHEREOF, I have set my
handand affixed my official seal.
Done at my office inthe City of
Madison this 17th day of August,
A.D.1992.
Toby E. Sherry
Commissioner of Banking
IMPORTANT: TO BE RECORDED BY THE REGISTER OF DEEDS TOGETHER WITH THE
ATTACHED COPY OF THE AMENDMENT
We, Robert L. Webster as President, and James D. Hintz as Cashier of First
Wisconsin Trust Company do hereby certify that the foregoing is a true copy
of an amendment to the Articles of Incorporation of this bank and that at the
annual or special meeting of the stockholders of the bank, called for that
purpose and held pursuant to the provisions of law, in the office of the bank
in the City of Milwaukee, State of Wisconsin, on the 16th day of July, A.D.
1992, the said amendment was duly adopted by the affirmative vote of
two-thirds of all capital stock outstanding; that the majority stockholder
was present or represented at said meeting; that the entire number of shares
outstanding is 10,000; that the number of shares represented at the meeting
was 9,952; that upon the adoption of such resolution 9,952 votes were cast in
the affirmative; one vote for each share, and that 0 votes were cast in the
negative.
In Testimony Whereof, First Wisconsin Trust Company has caused these presents
to be executed by the President and Cashier thereof and the corporate seal of
said bank is hereunto affixed this 28th day of July, A.D. 1992, by its
authority.
First Wisconsin Trust Company
In presence of
Sharon L. Gazzana By Robert L. Webster, President
Sandra L. Belongia James Hintz, Cashier
State of Wisconsin
Milwaukee County
Personally came before me this 28th
day of July, A.D. 1992, Robert L. Webster as President, and James D. Hintz as
Cashier of the First Wisconsin Trust Company, who are to me known to be such
President and Cashier, respectively, and to be the persons who executed the
foregoing instrument, and acknowledged the same as such officers, for the
purposes therein mentioned.
Diane M. Rampacek
Notary Public
Milwaukee County, Wisconsin
My commission expires 1/3/99
Amendment to Articles of Incorporation
Which Articles were filed/recorded in the office of the Register of Deeds for
Milwaukee County on the 6th day of July, 1903. Recorded in Volume S of
Corporations, Page 134.
At a meeting of the stockholders of First Wisconsin Trust Company of
Milwaukee, Wisconsin, held at the office of said bank in said City on the
16th day of July, A.D. 1992, at 9:30 o'clock A.M., of that day, which meeting
was called for the purpose of amending the Articles of Incorporation of said
bank, and at which meeting 9,952 shares of the capital stock of said bank
were duly represented, the following resolutions were adopted:
"Resolved That the Articles of Incorporation of the bank be amended by
striking out the paragraph relating to the name reading as follows:
"The name of this corporation shall be "FIRST WISCONSIN TRUST COMPANY, and
its location shall be at the City and County of Milwaukee and State of
Wisconsin."
And Inserting in lieu thereof the following paragraph:
"The title of the Corporation shall be Firstar Trust Company, and its
location shall be at the City and County of Milwaukee and State of
Wisconsin."
"It was further resolved, That the President and Cashier of said bank be
authorized, under the seal of the Corporation, to file proper certificates of
such amendment with the Commissioner of Banking as provided by law."
ARTICLES OF ASSOCIATION
OF FIRSTAR TRUST COMPANY
MILWAUKEE, WISCONSIN
KNOW ALL MEN BY THESE PRESENTS, that we, Frederick Pabst, L.J. Petit,
Frederick Kasten, Oliver C. Fuller, and Edward P. Vilas, of the City and
County of Milwaukee and State of Wisconsin, have associated and do hereby
associate for the purpose of forming a corporation, to wit, a trust company
bank under and pursuant to the privileges and restrictions of the statutes of
the State of Wisconsin, in that behalf made and provided; and particularly
Chapters 221 and 223 of said statutes, and thereto adopt the following:
Article 1
The purpose and business of this corporation shall be those of both a state
bank and a trust company bank as defined by Wisconsin law, this corporation
being a trust company bank which has been converted into a state bank in
accordance with such law.
Article 2
The name of this corporation shall be "FIRST WISCONSIN TRUST COMPANY," and
its location shall be at the City and County of Milwaukee and State of
Wisconsin.
Article 3
The capital stock of this Corporation shall be One Million Dollars
($1,000,000), divided into ten thousand (10,000) shares of the par value of
One Hundred Dollars ($100) each.
Article 4
The Board of Directors shall consist of such number of individuals, not less
than fifteen nor more than sixty, as from time to time shall be prescribed in
the By-laws, at least two-thirds of whom shall be residents of Wisconsin and
the majority of whom shall be residents of Milwaukee County or adjacent
counties. Each of said directors shall be elected for a term of one year and
until his successor has been elected and qualified.
In witness whereof, we have hereunto subscribed our names at Milwaukee,
Wisconsin, on this first day of July, A.D. 1903.
(Signed) Frederick Pabst
L.J. Petit
Fred Kasten
Oliver C. Fuller
Edward P. Vilas
State of Wisconsin
Milwaukee County
On this first day of July, A.D. 1903, personally appeared before me the above
signed Frederick Pabst, L.J. Petit, Frederick Kasten, Oliver C. Fuller, and
Edward P. Vilas, to me known to be the persons who executed the foregoing
instrument and severally acknowledge the same.
My commission will expire on the 30th day of December, 1906.
(Signed) W.L. Cheney
Notary Public
Milwaukee County,
Wisconsin
EXHIBIT 4
As Amended through February 19, 1997
RESTATED BY-LAWS OF
FIRSTAR TRUST COMPANY
ADOPTED JANUARY 15, 1963
Article 1
The annual meeting of this Corporation for the election of its directors and
the transaction of its general business shall be held on the third Thursday
of February at the general office of this Corporation in the City of
Milwaukee, at 8 o'clock in the morning, or at such other hour and place in
the City of Milwaukee as shall be designated by the Board of Directors. If
any hour other than 8 o'clock in the morning or any place other than the
general office of this Corporation shall be so designated, notice thereof
shall be given by mailing the same to each stockholder at his last known
address at least ten (10) days prior to the holding of said meeting.
Article 2
Special meetings of the stockholders of this Corporation shall be held in the
City of Milwaukee and may be called at any time by order of the Chairman of
the Board, the President, or one of the Vice Presidents, or by the Board of
Directors, by mailing to each stockholder at his last known address at least
ten (10) days prior to the date of the holding of such special meeting, a
notice specifying the time and place of such special meeting and the business
to be transacted thereat, and no other business shall be transacted at said
meeting.
Article 3
Section 1. Every stockholder may vote and participate at any meeting of
stockholders, either in person or by proxy. No proxy shall be recognized
unless the same shall be in writing, subscribed by the stockholder nor unless
filed with the Secretary prior to the meeting. No active or salaried officer
may act as a proxy for a stockholder.
Section 2. The Cashier shall maintain a stock book showing the name,
residence, and number of shares held by each stockholder, which shall at all
times, during the usual hours for transacting business, be subject to
inspection by the officers, directors, and stockholders of the Company.
Article 4
Section 1. The Board of Directors shall consist of not less than five nor
more than thirty directors, the number of directors to be determined by
resolution adopted at each annual stockholders' meeting, or at any special
stockholders' meeting duly called for such purpose. On and after January 1,
1978, no person shall be eligible to be elected or re-elected as a member of
the Board of Directors if he shall have attained 70 years of age at the date
of election.
Section 2. The election of directors by the stockholders shall be by ballot
or other method as shall be adopted by the stockholders by resolution or
motion adopted at the stockholders' meeting.
Section 3. A majority of the Board of Directors shall constitute a quorum
for the transaction of business; provided that the directors may, once in six
(6) months, designate by resolution nine (9) members, any five (5) of whom
shall constitute a quorum.
Section 4. Minutes of each meeting of the Board of Directors shall disclose
the date and location of such meeting, and the names of directors absent;
shall be subscribed by the presiding officer; and shall be approved by the
Board of Directors at the next succeeding meeting, the minutes of which shall
show such fact.
Section 5. A regular meeting of the Board of Directors shall be held at the
general office of this Corporation in the City of Milwaukee at least once
each calendar quarter, immediately following the annual meeting of the
shareholders of this Corporation on the third Thursday of February, at 8:00
a.m. on the third Thursday of May, August and November of each year, or at
such other time or place as shall from time to time, be designated by the
president or by resolution of the Board of Directors. If any other time or
any place other than the general office of this Corporation shall be so
designated, notice thereof shall be given by mailing the same to each
director at his last known address at least two (2) days prior to the holding
of said meeting.
Section 6. Special meetings of the Board of Directors shall be held at the
general office of the Corporation in the City of Milwaukee or at such other
place in the City of Milwaukee as shall be designated, and may be called by
order of the Chairman of the Board, the President, or by any two of the
directors by mailing notice of such meeting and the designated time and place
thereof to each of the directors at his last known address two (2) days prior
to the holding of such meeting.
Article 5
Section 1. An Executive Committee consisting of the Chairman of the Board,
the President, and not less than six (6) or more than twelve (12) other
directors may be appointed by the Board of Directors to serve until their
successors shall be appointed, and such Executive Committee shall direct the
management of the affairs of this Corporation in the interim between meetings
of the Board of Directors, subject to the control of the Board. The Chairman
of the Board, or in his absence (through failure of the Board of Directors to
elect a Chairman or otherwise), the President, shall preside at meetings of
the Executive Committee. The person from time to time elected Secretary of
the Board shall also serve as Secretary of the Executive Committee.
Section 2. Meetings of the Executive Committee may be held at any time when
the Board of Directors is not in session, and may be prescribed by the Board
of Directors or may be called by order of the Chairman of the Board, the
President, or by any two (2) members of the Executive Committee, by mailing
notice of such meeting designating the time and place thereof, addressed to
each member of the Committee at his last known address two (2) days prior to
the holding of such meeting, or by personal notice thereof given a sufficient
length of time before such meeting to enable members to attend.
Section 3. The Executive Committee shall keep full and true minutes of all
business transacted at each meeting and shall submit its report together with
a copy of the minutes of its proceedings to the Board of Directors at its
next meeting thereafter.
Section 4. The Board of Directors shall appoint Trust Investment Committee
consisting of at least two (2) officers and at least four (4) directors who
are not officers, which Committee shall meet at the general office of the
Corporation at least once each calendar quarter, at 8:00 a.m. on the third
Thursday of January, March, June and December of each year, or at such other
time or place as shall from time to time be designated by the President or by
resolution of the Board of Directors. If any hour other than 8:00 in the
morning or any place other than the general office of this Corporation shall
be so designated, notice thereof shall be given by mailing the same to each
committee member at his last known address at least two (2) days prior to
the holding of said meeting. The Trust Investment Committee shall have such
duties and authority as the Board of Directors shall from time to time
prescribe. Members of such committee shall serve for such periods as the
Board shall from time to time prescribe..
Section 5. The Board of Directors may appoint a Loan Committee consisting of
two (2) or more directors, which, if appointed, shall meet at least once
calendar quarter at such time and place as shall from time to time be
designated by the resolution of the Board of Directors, and shall determine
policies as to renewals and applications for new loans. All loans in excess
of the amount officers designated by the Board have been authorized by
resolution to make shall be presented to the Loan Committee (or, if the Loan
Committee has not been appointed, to the Board of Directs or the Executive
Committee) for approval. The Board of Directors may by resolution designate
officers who may make loans without the prior approval of the Loan Committee
or the Board, subject to the provisions of the Wisconsin Statutes, the
regulations of the Commissioner of Banks, and these By-laws.
Section 6. Each year the Board of Directors shall appoint, from among its
members, an Examining Committee consisting of at least three (3) directors,
which upon receipt of a report of examination of the Corporation by the
Division of Banking, shall have the duties specified in 221.0611(2), Wis.
Stats... The Examining Committee shall also study and, if it deems necessary,
recommend corrective action in response to any criticisms or suggestions
contained in, reports of examination prepared by any other regulatory agency
or the Firstar Corporation Auditing or Compliance areas, and shall perform
such other duties as shall be prescribed from time to time by resolution of
the Board of Directors. Meetings of the Examining Committee shall be called
by the President as needed, and notice of a meeting shall be given by mailing
the same to each committee member at his last known address at least two (2)
days prior to the holding of said meeting.
Section 7. The Board of Directors shall have the power to set the banking
hours of this bank, subject to the provisions of the Wisconsin Statutes and
the regulations of the Commissioner of Banks. Certified copies of all
resolutions of the Board pertaining to banking hours shall be furnished to
the State Banking Department.
Section 8. A detailed statement of all current expenses and taxes paid shall
be presented to the Board in writing every month, or more often if required
by the Board.
Article 6
A written waiver signed by any director or member of any committee shall be
the equivalent of due notice to him of any meeting therein mentioned. Actual
attendance at or participation in any meeting by any director or member of
any committee waives any required notice unless the director or member, at
the beginning of the meeting or promptly upon his arrival, objects to holding
the meeting or transacting business at the meeting and does not thereafter
vote for or assent to action taken at the meeting.
Article 7
Directors and members of committees appointed by the Board of Directors,
except directors or members who are salaried officers or employees of this
Corporation, shall be paid such fees for services and attendance at meetings
as the Board of Directors shall from time to time prescribe.
Article 8
Section 1. The general officers of this Corporation shall be a president,
two or more vice presidents, a cashier and one or more assistant cashiers, a
secretary and one or more assistant secretaries, one or more trust officers,
and such other officers as may be appropriate for the transaction of its
business. The officers of this Corporation shall be elected by a viva voce
vote of the Board of Directors unless objection is made, whereupon such
election shall be by ballot; provided, however, that whenever he deems it
appropriate to take such action in the interim periods between meetings of
the Board of Directors, the president may appoint any other officer. Any
appointment made by the president shall take effect immediately but shall be
reported and confirmed at the next regular meeting of the Board of Directors.
The Chairman of the Board, if there be one, the senior executive officer in
charge of conducting the business of this Corporation and the officer in
charge of the Trust Department of this Corporation shall be chosen from among
the directors.
Section 2. The Board of Directors and, with respect to other officers and to
the extent not inconsistent with actin taken by the Board of Directors, the
president, shall have authority to define the duties and obligations of all
officers, and to fill vacancies in offices. The Board of Directors and, with
respect to other officers appointed by him and to the extent not inconsistent
with action taken by the Board of Directors, the president, shall have the
authority to fix the compensation of officers, to dismiss them at pleasure,
and to require any officer to provide a satisfactory bond for the faithful
performance of his duties. Unless otherwise prescribed by the Board of
Directors or, with respect to other officers, the president, each officer
shall have the duties and authority prescribed by law or ordinarily
incidental to his office in similar corporations.
Section 3. The Board of Directors shall designate the officer to be the
chief executive officer in charge of the Trust Department of this
Corporation. All fiduciary powers of this Corporation shall be exercised
through such officer who shall be generally responsible for and supervise and
direct the activities of the Trust Department and do and perform all acts and
things necessary and proper in carrying on the business of the Trust
Department in accordance with the provisions of applicable laws and
regulations and the directions of the Board of Directors, appropriate
committees of the Board and his superior officers and shall cause to be kept
under his supervision books of account of the transactions of this
Corporation in a fiduciary capacity.
Section 4. The executive officers shall have authority to employ and
discharge all necessary agents and servants of this Corporation whose
appointments shall not be provided for by the Board, to define their duties,
and to fix their compensations.
Article 9
The Board of Directors may by resolution provide for this Corporation to
indemnify each director or officer, whether or not then in office, against
all expense and liability relating to a claim, action, suit, or proceeding
against him or to which he may be made a party by reason of his being or
having been a director or officer of this Corporation, or of any other
company which he served as a director of officer at the request of this
Corporation, except in any case where he was finally adjudged to have been
derelict in the performance of his duties as such director or officer. Such
resolution may include provisions for this Corporation (1) to assume or
provide at its expense and risk the defense or settlement of any such action,
(2) to purchase commercial insurance for the benefit of a director or
officer, including one adjudged guilty of negligence or misconduct, and (3)
to assume or share any additional expense or liability as the Board of
Directors deems warranted upon consideration of the circumstances.
Article 10
The Board of Directors may by resolution adopt emergency provisions to
prevail notwithstanding any contrary provisions of these By-laws, to take
effect when a state of emergency results in this Corporation being unable to
continue its normal functions under the direction of established management
or at its regular location (which provisions may include, but shall not be
limited to procedures for establishing temporary offices, an emergency
executive committee, and emergency officer succession).
Article 11
The shares of stock of this Corporation shall be transferable only on the
books of this Corporation upon surrender of the certificate issued therefor.
Article 12
These by-laws may be altered, amended, or repealed in whole or in part in any
manner not inconsistent with the provisions of law at any time by a
resolution of the Board of Directors adopted at any regular or special
meeting of the Board, or by vote of the stockholders representing a majority
of the capital stock, such a vote to be taken at an annual or special
meeting.
EXHIBIT 6
CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939
Firstar Trust Company, as Trustee herein named, hereby consents that reports
of examination of said Trustee by Federal and State authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
FIRSTAR TRUST COMPANY,
as Trustee
By: /s/Gene E. Ploeger
-------------------------------
Gene E. Ploeger, Vice President
(Name and title)
By: /s/Yvonne Siira
-------------------------------
Yvonne Siira, Assistant Secretary
(Name and title)
Dated: May 7, 1997
EXHIBIT 7
FIRSTAR TRUST COMPANY
BALANCE SHEET
December 31,
1996 1995
--------------------
$(000) $(000)
ASSETS
- ------
Cash and balances due from depository institutions:
Noninterest-bearing balances 71,523 58,893
Interest-bearing balances 0 0
Securities 35,030 31,640
Federal funds sold and securities purchased under
agreements to resell:
Federal funds sold 151,887 136,802
Securities purchased under agreements to resell 0 0
Loans and lease financing receivables:
Loans and leases, net of unearned income 38,249 13,192
LESS: Allowance for loan and lease losses 73 73
LESS: Allocated transfer risk reserve 0 0
------- -------
Loans and leases, net of unearned income, allowance,
and reserve 38,176 13,119
Assets held in trading accounts 0 0
Premises and fixed assets (including capitalized
leases) 1,984 1,150
Other real estate owned 0 0
Investments in unconsolidated subsidiaries and
associated companies 0 0
Customers' liability to this bank on acceptances
outstanding 0 0
Intangible assets 0 0
Other assets 17,422 11,067
------- -------
Total assets 316,022 252,671
======= =======
LIABILITIES
- -----------
Deposits:
In domestic offices:
Noninterest-bearing 288,221 226,031
Interest-bearing 215 221
------- -------
Total domestic deposits 288,436 226,252
In foreign offices: 0 0
Federal funds purchased and securities sold under
agreements to repurchase:
Federal funds purchased 744 580
Securities sold under agreements to repurchase 0 0
Demand notes issued to the U.S. Treasury 0 0
Other borrowed money 0 0
Mortgage indebtedness and obligations under
capitalized leases 0 0
Bank's liability on acceptances executed and
outstanding 0 0
Notes and debentures subordinated to deposits 0 0
Other liabilities 7,131 7,788
------- -------
Total liabilities 296,311 234,620
Limited-life preferred stock 0 0
EQUITY CAPITAL
- --------------
Perpetual preferred stock 0 0
Common stock 1,000 1,000
Surplus 12,638 12,141
Undivided profits and capital reserves 5,935 4,409
LESS: Net unrealized loss on marketable equity
securities 138 501
------- -------
Total equity capital 19,711 18,051
------- -------
Total liabilities, limited-life preferred stock,
and equity capital 316,022 252,671
======= =======
FIRSTAR TRUST COMPANY
INCOME STATEMENT
December 31,
1996 1995
--------------------
$(000) $(000)
Interest Income
Interest and fee income on loans:
Loans secured by real estate 14 23
Loans to finance agricultural production and
other loans to farmers 0 0
Commercial and industrial loans 155 199
Loans to individuals for household, family,
and other personal expenditures:
Credit cards and related plans 0 0
Other 0 0
Loans to foreign governments and official
institutions 0 0
Obligations (other than securities and leases)
of states and political subdivisions in the
U.S.:
Taxable obligations 0 0
Tax-exempt obligations 0 0
All other loans 0 0
Income from lease financing receivables:
Taxable leases 0 0
Tax-exempt leases 0 0
Interest income on balances due from depository
institutions 0 0
Interest and dividend income on securities:
U.S. Treasury securities and U.S. Government
agency and corporation obligations 2,254 1,804
Securities issued by states and political
subdivisions in the U.S.:
Taxable securities 0 0
Tax-exempt securities 38 39
Other domestic debt securities 34 130
Foreign debt securities 0 0
Equity securities (including investments in
mutual funds) 0 581
Interest income from assets held in trading accounts 0 0
Interest income on federal funds sold and securities
purchased under agreements to resell 4,876 2,961
------- -------
Total interest income 7,371 5,737
Interest expense
Interest on deposits:
Transaction accounts (NOW accounts, ATS
accounts, and telephone and preauthorized
transfer accounts) 0 0
Nontransaction accounts:
Money market deposit accounts (MMDAs) 0 0
Other savings deposits 7 7
Time certificates of deposit of $100,000 or more 0 0
All other time deposits 0 0
Expense of federal funds purchased and securities
sold under agreements to repurchase 47 73
Interest on demand notes issued to the U.S. Treasury
and on other borrowed money 0 13
Interest on mortgage indebtedness and obligations
under capitalized leases 0 0
Interest on notes and debentures subordinated to
deposits 0 0
------- -------
Total interest expense 54 93
------- -------
Net interest income 7,317 5,644
Provisions:
Provision for loan and lease losses 0 0
Provision for allocated transfer risk 0 0
Noninterest income
Income from fiduciary activities 67,306 62,124
Service charges on deposit accounts 0 0
Trading gains (losses) and fees from foreign
exchange transactions 0 0
Other foreign transaction gains (losses) 0 0
Gains (losses) and fees from assets held in
trading accounts 0 0
Other noninterest income:
Other fee income 729 2,291
All other noninterest income 3,735 2,872
------- -------
Total noninterest income 71,770 67,287
Gains (losses) on securities not held in
trading accounts 0 0
Noninterest expense
Salaries and employee benefits 25,803 22,442
Expenses of premises and fixed assets (net
of rental income) (excluding salaries and
employee benefits and mortgage interest) 6,139 6,125
Other noninterest expense 24,457 21,651
------- -------
Total noninterest expense 56,399 50,218
------- -------
Income (loss) before taxes and extraordinary
items and other adjustments 22,688 22,713
Applicable income taxes 9,162 9,165
Income (loss) before extraordinary items and
other adjustments 13,526 13,548
------- -------
Extraordinary items and other adjustments:
Extraordinary items and other adjustments,
gross of income taxes 0 0
Applicable income taxes 0 0
Extraordinary items and other adjustments,
net of income taxes 0 0
------- -------
Net income (loss) 13,526 13,548
======= =======
CHANGES IN EQUITY CAPITAL
- -------------------------
Total equity capital originally reported at end
of previous calendar year 18,051 15,379
Equity capital adjustments from amended Reports
of Income, net 0 0
------- -------
Amended balance at end of previous calendar year 18,051 15,379
Net income (loss) 13,526 13,548
Sale, conversion, acquisition, or retirement of
capital stock, net 497 27
Changes incident to business combination, net 0 0
LESS: Cash dividends declared on preferred stock 0 0
LESS: Cash dividends declared on common stock 12,000 11,500
Cumulative effect of changes in accounting
principles from prior years 0 0
Corrections of material accounting errors from
prior years 0 0
Change in net unrealized loss on marketable
equity securities (363) 597
Other transactions with parent holding company 0 0
------- -------
Total equity capital at end of period 19,711 18,051
======= =======
FIRSTAR TRUST COMPANY
CHANGES IN ALLOWANCE FOR LOAN AND LEASE LOSSES
AND IN ALLOCATED TRANSFER RISK RESERVE
December 31,
1996 1995
--------------------
$(000) $(000)
Allowance for loan and lease losses:
Balance originally reported at end of previous
year 73 73
Recoveries 0 0
LESS: Charge-offs 0 0
Provision for loan and lease losses 0 0
Adjustments 0 0
------- -------
Balance at end of period 73 73
======= =======
Allocated transfer risk reserve:
Balance originally reported at end of previous
year 0 0
Recoveries 0 0
LESS: Charge-offs 0 0
Provision for allocated transfer risk 0 0
Adjustments 0 0
------- -------
Balance at end of period 0 0
======= =======
PAST DUE AND NONACCRUAL LOANS, LEASES AND OTHER ASSETS
- ------------------------------------------------------
Loans, leases, and other assets past due 90 days
or more and still accruing:
Real estate loans 0 0
Installment loans 0 0
Credit cards and related plans 0 0
Commercial (time and demand) and all other loans 469 0
Lease financing receivables 0 0
------- -------
Total past due and still accruing 469 0
======= =======
Nonaccrual:
Real estate loans 0 0
Installment loans 0 0
Credit cards and related plans 0 0
Commercial (time and demand) and all other
loans 0 0
Lease financing receivables 0 0
------- -------
Total nonaccrual 0 0
======= =======
OFF BALANCE SHEET ITEMS
- -----------------------
Standby letters of credit 0 0
Amount of standby letters of credit conveyed
to others 0 0
======= =======
