<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1998
REGISTRATION NO. 333 REGISTRATION NO. 333 -1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MARINER CAPITAL TRUST
FIRST MARINER BANCORP
(Exact names of registrants as specified in their Charters)
<TABLE>
<S> <C> <C>
DELAWARE 6719 APPLIED FOR
MARYLAND 6022 52-1834860
(States or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Numbers) Numbers)
</TABLE>
1801 SOUTH CLINTON STREET, BALTIMORE, MARYLAND 21224
(410) 342-2600
(Address, including zip code, and telephone number, including area code,
of registrants' principal executive offices)
JOSEPH A. CICERO, 1801 SOUTH CLINTON STREET, BALTIMORE, MARYLAND 21224 (410)
342-2600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES TO:
<TABLE>
<S> <C>
MELISSA ALLISON WARREN THOMAS D. WASHBURNE, JR.
OBER, KALER, GRIMES & SHRIVER VENABLE, BAETJER AND HOWARD, LLP
120 East Baltimore Street 1800 Mercantile Bank & Trust Building
Baltimore, Maryland 21202 2 Hopkins Plaza
(410) 347-7684 Baltimore, Maryland 21201
(410) 244-7400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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<CAPTION>
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED UNIT PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
% Preferred Securities of Mariner Capital
Trust..................................... 2,300,000 $10 $23,000,000 $6,785
% Junior Subordinated Debentures of First
Mariner Bancorp(2) -- -- -- N/A
Guarantee of First Mariner Bancorp of
certain obligations under the Preferred
Securities(3) -- -- -- N/A
Total Registration Fee $6,785
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee,
exclusive of accrued interest and dividends, if any.
(2) The Junior Subordinated Debentures will be purchased by Mariner Capital
Trust. Such securities may later be distributed for no additional
consideration to the holders of the Preferred Securities upon the
dissolution of Mariner Capital Trust and the distribution of its assets.
(3) This Registration Statement is deemed to cover the Guarantee. Pursuant to
Rule 457(n) under the Securities Act, no separate registration fee is
payable for the Guarantee.
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
EXPLANATORY NOTE
The prospectus contained in this Registration Statement will be used in
connection with the offering of the following securities: (1) % Preferred
Securities of Mariner Capital Trust; (2) % Junior Subordinated Debentures of
First Mariner Bancorp; and (3) a Guarantee of First Mariner Bancorp of certain
obligations under the Preferred Securities.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 28, 1998
$20,000,000
(AGGREGATE LIQUIDATION AMOUNT)
MARINER CAPITAL TRUST
% PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY
FIRST MARINER BANCORP
The Preferred Securities offered hereby represent preferred undivided
beneficial interests in the assets of Mariner Capital Trust, a statutory
business trust created under the laws of the State of Delaware (the "Issuer
Trust"). First Mariner Bancorp (together with its subsidiary, First Mariner
Bank, where the context requires, the "Company") will initially be the holder of
all of the beneficial interests represented by common securities of the Issuer
Trust (the "Common Securities" and together with the Preferred Securities, the
"Trust Securities"). The Issuer Trust exists for the sole purpose of issuing the
Trust Securities and investing the proceeds thereof in % Junior Subordinated
Debentures (the "Junior Subordinated Debentures" and together with the Trust
Securities, the "Securities") to be issued by the Company.
(COVER CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" BEGINNING ON PAGE 7 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER INSURER OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS OR PROCEEDS TO THE
PRICE TO PUBLIC(1) COMMISSIONS(2) ISSUER TRUST(3)
<S> <C> <C> <C>
Per Preferred Security............................. $10 (4) $
Total (5).......................................... $20,000,000 (4) $
</TABLE>
(1) Plus accrued Distributions, if any, from , 1998.
(2) The Company and the Issuer Trust have each agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933.
See "Underwriting."
(3) Before deduction of expenses payable by the Company estimated at $ .
(4) In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures, the
Company has agreed to pay to the Underwriters, as compensation for arranging
the investment therein of such proceeds, $ per Preferred Security (or
$ in the aggregate). See "Underwriting."
(5) The Company and the Issuer Trust have granted the Underwriters a 30 day
option to purchase up to an additional $3,000,000 aggregate liquidation
amount of the Preferred Securities at the Price to Public less Underwriting
Discounts and Commissions. If the Underwriters exercise such option in full,
the total Price to Public and Proceeds to Issuer Trust will be $ and
$ , respectively. See "Underwriting."
The Preferred Securities are offered by the Underwriters subject to receipt
and acceptance by them, prior sale and the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the Preferred Securities will be made in
book-entry form through the book-entry facilities of The Depository Trust
Company on or about , 1998 against payment therefor in immediately
available funds.
FERRIS, BAKER WATTS
Incorporated
The date of this Prospectus is , 1998
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(COVER CONTINUED FROM PREVIOUS PAGE)
The Junior Subordinated Debentures will mature on , 2028, which
date may be shortened (such date, as it may be shortened, the "Stated Maturity")
to a date not earlier than , 2003 if certain conditions are met
(including the Company having received the prior approval of the Board of
Governors of the Federal Reserve System (the "Federal Reserve") if then required
under applicable capital guidelines or policies of the Federal Reserve (such
shortening of the maturity date, the "Maturity Adjustment")). See "Description
of Junior Subordinated Debentures--General." The Preferred Securities will have
a preference under certain circumstances over the Common Securities with respect
to cash distributions and amounts payable on liquidation, redemption or
otherwise. See "Description of Preferred Securities--Subordination of Common
Securities."
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust Company,
as depositary ("DTC"). Beneficial interests in the global securities will be
shown on, and transfer thereof will be effected only through, records maintained
by DTC and its participants. Except as described under "Description of Preferred
Securities," Preferred Securities in definitive form will not be issued and
owners of beneficial interests in the global securities will not be considered
holders of the Preferred Securities. Application has been made to list the
Preferred Securities on the Nasdaq National Market under the symbol FMARP.
Settlement for the Preferred Securities will be made in immediately available
funds. The Preferred Securities will trade in DTC's Same-Day Funds Settlement
System, and secondary market trading activity for the Preferred Securities will
therefore settle in immediately available funds.
Holders of the Preferred Securities will be entitled to receive preferential
cumulative cash distributions accumulating from , 1998 and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, commencing , 1998, at the annual rate of % of the Liquidation
Amount of $10 per Preferred Security ("Distributions"). The first Distribution
will be on , 1998. The distribution rate and the distribution payment
dates and other payment dates for the Preferred Securities will correspond to
the interest rate and interest payment dates and other payment dates on the
Junior Subordinated Debentures, which will be the sole assets of the Issuer
Trust. The Company has the right to defer payments of interest on the Junior
Subordinated Debentures at any time from time to time for a period not exceeding
20 consecutive quarters with respect to each deferral period (each, an
"Extension Period"), provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. No interest shall be due
and payable during any Extension Period, except at the end thereof. Upon the
termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Junior Subordinated
Debentures are so deferred, Distributions on the Preferred Securities will also
be deferred and the Company will not be permitted, subject to certain exceptions
described herein, to declare or pay any cash distributions with respect to the
Company's capital stock or with respect to debt securities of the Company that
rank PARI PASSU in all respects with or junior to the Junior Subordinated
Debentures. During an Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue (and the amount of Distributions to which
holders of the Preferred Securities are entitled will accumulate) at the rate of
% per annum, compounded quarterly, and holders of Preferred Securities will
be required to accrue interest income for United States federal income tax
purposes. See "Description of Junior Subordinated Debentures--Option to Extend
Interest Payment Period" and "Certain Federal Income Tax Consequences--US
Holders--Interest Income and Original Issue Discount."
The Company and the Issuer Trust believe that the Company's obligations
under the Guarantee, the Trust Agreement, the Junior Subordinated Debentures and
the Junior Subordinated Indenture (each as defined herein), taken together,
fully, irrevocably and unconditionally guarantee all the Issuer Trust's
obligations under the Preferred Securities as described below. See "Relationship
Among the Preferred Securities, the Junior Subordinated Debentures and the
Guarantee--Full and Unconditional Guarantee." The Guarantee of the Company will
guarantee the payment of Distributions and payments on liquidation or redemption
of the Preferred Securities, but only in each case to the extent of funds held
by the Issuer Trust, as described herein (the "Guarantee"). See "Description of
Guarantee." If the Company does not make payments on the Junior Subordinated
Debentures held by the Issuer Trust, the Issuer Trust may have insufficient
funds to pay Distributions on the Preferred Securities. The Guarantee does not
cover payment of Distributions when the Issuer Trust does not have sufficient
funds to pay such Distributions. In such event, a holder of Preferred Securities
may institute a legal proceeding directly against the Company to enforce payment
of such Distributions to such holder. See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Preferred Securities."
The obligations of the Company under the Guarantee and the Preferred Securities
will be subordinate and junior in right of payment to all Senior Indebtedness
(as defined in "Description of Junior Subordinated Debentures--Subordination")
of the Company.
The Preferred Securities will be subject to mandatory redemption (i) in
whole, but not in part, upon repayment of the Junior Subordinated Debentures at
Stated Maturity or their earlier redemption in whole upon the occurrence of a
Tax Event, an Investment Company Event or a Capital Treatment Event (each as
defined herein) and (ii) in whole or in part at any time on or after ,
2003 contemporaneously with the optional redemption by the Company of the
i
<PAGE>
(COVER CONTINUED FROM PREVIOUS PAGE)
Junior Subordinated Debentures in whole or in part. The Junior Subordinated
Debentures will be redeemable prior to maturity at the option of the Company (i)
on or after , 2003, in whole at any time or in part from time to time, or
(ii) in whole, but not in part, at any time within 90 days following the
occurrence and continuation of a Tax Event, Investment Company Event or Capital
Treatment Event (each as defined herein), in each case at a redemption price set
forth herein, which includes the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption. The
ability of the Company to exercise its rights to redeem the Junior Subordinated
Debentures or to cause the redemption of the Preferred Securities prior to the
Stated Maturity may be subject to prior regulatory approval by the Federal
Reserve, if then required under applicable Federal Reserve capital guidelines or
policies. See "Description of Junior Subordinated Debentures--Redemption" and
"Description of Preferred Securities--Liquidation Distribution Upon
Dissolution."
The Company, as holder of the outstanding Common Securities, will have the
right at any time to dissolve the Issuer Trust and, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law, to
cause the Junior Subordinated Debentures to be distributed to the holders of the
Preferred Securities in liquidation of the Issuer Trust. The ability of the
Company to dissolve the Issuer Trust may be subject to prior regulatory approval
of the Federal Reserve, if then required under applicable Federal Reserve
capital guidelines or policies. See "Description of Preferred
Securities--Liquidation Distribution Upon Dissolution."
In the event of the dissolution of the Issuer Trust, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law, the
holders of the Preferred Securities will be entitled to receive a Liquidation
Amount of $10 per Preferred Security plus accumulated and unpaid Distributions
thereon to the date of payment, subject to certain exceptions, which may be in
the form of a distribution of such amount in Junior Subordinated Debentures. See
"Description of Preferred Securities--Liquidation Distribution Upon
Dissolution."
The Junior Subordinated Debentures will be unsecured and subordinated to all
Senior Indebtedness of the Company. See "Description of Junior Subordinated
Debentures--Subordination."
Prospective purchasers must carefully consider the restrictions on purchase
set forth in "Certain ERISA Considerations."
THE JUNIOR SUBORDINATED DEBENTURES ARE DIRECT AND UNSECURED OBLIGATIONS OF
THE COMPANY, DO NOT EVIDENCE DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
ii
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and Suite
1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can also be obtained at prescribed rates by
writing to the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Such material may also be accessed electronically
by means of the Commission's web site on the Internet at http://www.sec.gov.
The Company and the Issuer Trust have filed with the Commission a
Registration Statement on Form S-1 (together with all amendments thereto, the
"Registration Statement"), of which this Prospectus is a part, under the
Securities Act of 1933, as amended, with respect to the Preferred Securities,
the Junior Subordinated Debentures and the Guarantee. This Prospectus does not
contain all the information set forth in the Registration Statement and exhibits
thereto, to which reference is hereby made.
No separate financial statements of the Issuer Trust have been included or
incorporated by reference herein. The Company and the Issuer Trust do not
consider that such financial statements would be material to holders of the
Preferred Securities because the Issuer Trust is a newly formed special purpose
entity, has no operating history or independent operations and is not engaged in
and does not propose to engage in any activity other than holding as trust
assets the Junior Subordinated Debentures and issuing the Trust Securities. See
"Mariner Capital Trust," "Description of Preferred Securities," "Description of
Junior Subordinated Debentures" and "Description of Guarantee." In addition, the
Company does not expect that the Issuer Trust will be filing reports under the
Exchange Act with the Commission.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTTING THE PREFERRED SECURITIES AND
BIDDING FOR AND PURCHASING THE PREFERRED SECURITIES AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
iii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.
AS USED HEREIN, (I) THE "JUNIOR SUBORDINATED INDENTURE" MEANS THE JUNIOR
SUBORDINATED INDENTURE, AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME, BETWEEN
THE COMPANY AND WILMINGTON TRUST COMPANY, AS TRUSTEE (THE "DEBENTURE TRUSTEE"),
PURSUANT TO WHICH THE JUNIOR SUBORDINATED DEBENTURES WILL BE ISSUED, (II) THE
"TRUST AGREEMENT" MEANS THE AMENDED AND RESTATED TRUST AGREEMENT RELATING TO THE
ISSUER TRUST, AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME, AMONG THE COMPANY,
AS DEPOSITOR, AND WILMINGTON TRUST COMPANY, AS PROPERTY TRUSTEE (THE "PROPERTY
TRUSTEE") AND AS DELAWARE TRUSTEE (THE "DELAWARE TRUSTEE") (COLLECTIVELY, THE
"ISSUER TRUSTEES") AND (III) THE "GUARANTEE" MEANS THE GUARANTEE AGREEMENT
RELATING TO THE PREFERRED SECURITIES, AS AMENDED AND SUPPLEMENTED FROM TIME TO
TIME, BETWEEN THE COMPANY AND WILMINGTON TRUST COMPANY, AS GUARANTEE TRUSTEE
(THE "GUARANTEE TRUSTEE").
FIRST MARINER BANCORP
First Mariner Bancorp, a bank holding company formed in Maryland in 1994,
conducts its business through its wholly owned subsidiary, First Mariner Bank
(the "Bank"). As of May 1, 1998, the Bank, which is headquartered in Baltimore
City, serves the central region of the State of Maryland through 18 full service
branches and 33 Automated Teller Machines ("ATMs"). At March 31, 1998, the
Company had total assets of $263,809,000. The Bank provides residential mortgage
lending services through its wholly owned subsidiary, First Mariner Mortgage
Corporation (the "Mortgage Subsidiary").
As an independent Maryland-based community bank, the Bank is engaged in the
general commercial banking business with particular emphasis on the needs of
individuals and small to mid-sized businesses. The Bank emphasizes personal
attention and professional service to its customers while delivering a range of
traditional and contemporary financial products and performing many of the
essential banking services offered by its larger competitors. The Bank offers
its customers access to local bank officers who are empowered to act with
flexibility to meet customers' needs in order to foster and develop long-term
loan and deposit relationships. The Company believes that individuals and
businesses in its market area are dissatisfied with the large out-of-state
banking institutions which have acquired local banks. Management believes that
the Bank has a window of opportunity to establish business ties with customers
who have been displaced by the consolidations and who are anxious to forge
banking relationships with locally owned and managed institutions. These
consolidations also benefit the Bank by making available experienced and
entrepreneurial managers displaced by such consolidation and acquisition
opportunities from the remaining small independent banks in the Company's market
area.
The Company intends to continue to capture market share and expand in
Central Maryland. See "Business."
MARINER CAPITAL TRUST
The Issuer Trust is a statutory business trust created under Delaware law on
May 14, 1998. The Issuer Trust will be governed by a Trust Agreement among the
Company, as Depositor, and Wilmington Trust Company, as Delaware Trustee and as
Property Trustee. The Issuer Trust exists for the exclusive purposes of (i)
issuing and selling the Trust Securities, (ii) using the proceeds from the sale
of the Trust Securities to acquire the Junior Subordinated Debentures and (iii)
engaging in only those other activities necessary, convenient or incidental
thereto (such as registering the transfer of the Trust Securities). Accordingly,
the Junior Subordinated Debentures will be the sole assets of the Issuer Trust,
and payments under the Junior Subordinated Debentures will be the sole source of
revenue of the Issuer Trust.
1
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THE OFFERING
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SECURITIES OFFERED.................. $20,000,000 aggregate Liquidation Amount of %
Preferred Securities (Liquidation Amount $10 per
Preferred Security).
OFFERING PRICE...................... $10 per Preferred Security (Liquidation Amount $10),
plus accumulated Distributions, if any, from
, 1998.
DISTRIBUTIONS....................... The Distributions payable on each Preferred Security
will be fixed at a rate per annum of % of the
Liquidation Amount of $10 per Preferred Security,
will be cumulative, will accrue from the date of
issuance of the Preferred Securities and will be
payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing
, 1998. See "Description of Preferred
Securities-- Distributions."
JUNIOR SUBORDINATED DEBENTURES...... The Issuer Trust will invest the proceeds from the
issuance of the Preferred Securities and Common
Securities in an equivalent amount of % Junior
Subordinated Debentures of the Company. The Junior
Subordinated Debentures will mature on ,
2028 subject to the Maturity Adjustment. The Junior
Subordinated Debentures will rank subordinate and
junior in right of payment to all Senior Indebtedness
of the Company. In addition, the Company's
obligations under the Junior Subordinated Debentures
will be structurally subordinated to all existing and
future liabilities and obligations of its
subsidiaries.
GUARANTEE........................... Under the terms of the Guarantee, the Company has
guaranteed the payment of Distributions and payments
on liquidation or redemption of the Preferred
Securities, but only in each case to the extent of
funds held by the Issuer Trust described herein. The
Company and the Issuer Trust believe that the
obligations of the Company under the Guarantee, the
Trust Agreement, the Junior Subordinated Debentures
and the Junior Subordinated Indenture taken together,
fully, irrevocably and unconditionally guarantee all
of the Issuer Trust's obligations relating to the
Preferred Securities. The obligations of the Company
under the Guarantee and the Junior Guarantee
Subordinated Debentures are subordinate and junior in
right of payment to all Senior Indebtedness. See
"Description of Guarantee."
</TABLE>
2
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<TABLE>
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RIGHT TO DEFER INTEREST............. The Company has the right, at any time, to defer
payments of interest on the Junior Subordinated
Debentures for a period not exceeding 20 consecutive
quarters; provided that no Extension Period may
extend beyond the Stated Maturity of the Junior
Subordinated Debentures. As a consequence of the
Company's extension of the interest payment period,
quarterly Distributions on the Preferred Securities
will be deferred (though such Distribution would
continue to accrue with interest thereon compounded
quarterly, since interest will continue to accrue and
compound on the Junior Subordinated Debentures during
any such Extension Period). During an Extension
Period, the Company will be prohibited, subject to
certain exceptions described herein, from declaring
or paying any cash distributions with respect to its
capital stock or debt securities that rank pari passu
with or junior to the Junior Subordinated Debentures.
Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may
commence a new Extension Period, subject to the
foregoing requirements. See "Description of Junior
Subordinated Debentures--Option to Extend Interest
Payment Period." Should an Extension Period occur,
Preferred Security holders will continue to accrue
interest income (and DE MINIMIS original issue
discount, if any) for United States federal income
tax purposes. See "Certain Federal Income Tax
Consequences--U.S. Holders--Interest Income and
Original Issue Discount."
LIQUIDATION OF THE ISSUER TRUST..... The Company, as holder of the Common Securities, has
the right at any time to dissolve the Issuer Trust
and cause the Junior Subordinated Debentures to be
distributed to holders of Preferred Securities in
liquidation of the Issuer Trust, subject to the
Company having received prior approval of the Federal
Reserve to do so if then required under applicable
capital guidelines or policies of the Federal
Reserve. See "Description of Preferred
Securities--Liquidation Distribution Upon
Dissolution."
VOTING RIGHTS....................... Generally, the holders of the Preferred Securities
will not have any voting rights. See "Description of
Preferred Securities--Voting Rights; Amendment of
Trust Agreement."
</TABLE>
3
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<TABLE>
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RANKING............................. The Preferred Securities will rank pari passu, and
payments thereon will be made pro rata, with the
Common Securities except as described under
"Description of Preferred Securities--Subordination
of Common Securities." The Junior Subordinated
Debentures will be unsecured and subordinate and
junior in right of payment to the extent and in the
manner set forth in the Junior Subordinated Indenture
to all Senior Indebtedness (as defined herein). See
"Description of Junior Subordinated Debentures." The
Guarantee will constitute an unsecured obligation of
the Company and will rank subordinate and junior in
right of payment to the extent and in the manner set
forth in the Guarantee to all Senior Indebtedness.
See "Description of Guarantee." In addition, because
the Company is a holding company, the Junior
Subordinated Debentures and the Guarantee effectively
will be subordinated to all existing and future
liabilities of the Company's subsidiaries, including
the deposit liabilities of the Bank. See "Description
of Junior Subordinated Debentures --Subordination."
REDEMPTION.......................... The Preferred Securities will be subject to mandatory
redemption (i) in whole, but not in part, at the
Stated Maturity upon repayment of the Junior
Subordinated Debentures, (ii) in whole, but not in
part, contemporaneously with the optional redemption
at any time by the Company of the Junior Subordinated
Debentures upon the occurrence and continuation of a
Tax Event, Investment Company Event or Capital
Treatment Event and (iii) in whole or in part, at any
time on or after , 2003,
contemporaneously with the optional redemption by the
Company of the Junior Subordinated Debentures in
whole or in part, in each case at the applicable
Redemption Price. See "Description of Preferred
Securities--Redemption."
NO RATING........................... The Preferred Securities are not expected to be rated
by any rating service, nor is any other security
issued by the Company so rated.
ERISA CONSIDERATIONS................ Prospective purchasers should carefully consider the
restrictions on purchase set forth under "Certain
ERISA Considerations."
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
USE OF PROCEEDS..................... All proceeds to the Issuer Trust from the sale of the
Trust Securities will be invested by the Issuer Trust
in the Junior Subordinated Debentures. All of the net
proceeds received by the Company from the sale of the
Junior Subordinated Debentures will be used to
finance growth, which may include the acquisition of
branches or other financial institutions, and for
general corporate purposes which may include
investments in or extensions of credit to its direct
or indirect subsidiaries to support internal growth.
See "Use of Proceeds" and "Capitalization." The
Preferred Securities may qualify in whole or in part
as Tier 1 or core capital of the Company, subject to
the 25% Capital Limitation (as defined under "Use of
Proceeds"), under the risk-based capital guidelines
of the Federal Reserve. The portion of the Preferred
Securities that exceeds the 25% Capital Limitation
will qualify as Tier 2 or supplementary capital of
the Company. See "Use of Proceeds."
NASDAQ NATIONAL MARKET SYMBOL....... Application has been made to have the Preferred
Securities listed on The Nasdaq National Market under
the symbol FMARP.
</TABLE>
For additional information regarding the Preferred Securities, see
"Description of Preferred Securities," "Description of Junior Subordinated
Debentures," "Description of Guarantee," "Relationship Among the Preferred
Securities, the Junior Subordinated Debentures and the Guarantee" and "Certain
Federal Income Tax Consequences."
RISK FACTORS
Prospective investors should carefully consider the matters set forth under
"Risk Factors" beginning on page 7.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
The following selected consolidated financial data for, and as of the end
of, each of the years ended December 31, 1997, 1996, 1995 and 1994 (year of
inception) are derived from the audited Consolidated Financial Statements of the
Company. The following selected interim consolidated data for, and as of the end
of, the three month periods ended March 31, 1998 and 1997 have been derived from
unaudited financial statements of the Company, which, in the opinion of
management, have been prepared on the same basis as the audited Consolidated
Financial Statements included herein, and reflect all adjustments, which are of
a normal recurring nature, necessary for a fair presentation of such data. The
results of the interim periods are not necessarily indicative of the results of
a full year. The selected consolidated financial data set forth below should be
read in conjunction with, and are qualified by reference to, the Consolidated
Financial Statements of the Company and the Notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
OPERATIONS DATA:
Interest income...................................... $ 4,661 $ 2,904 $ 14,318 $ 6,736 $ 2,561 $ 1,209
Interest expense..................................... 2,220 1,184 6,565 3,107 1,269 504
Net interest income.................................. 2,441 1,720 7,753 3,629 1,292 705
Provision for loan losses............................ 152 135 472 1,040 190 59
Net interest income after provision for loan
losses............................................. 2,289 1,585 7,281 2,589 1,102 646
Gain on sale of securities........................... 285 13 479 330 9 --
Other noninterest income............................. 748 444 1,872 745 188 75
Other noninterest expenses........................... 3,171 2,018 9,459 5,837 2,581 979
Income (loss) before income tax benefit.............. 151 24 173 (2,173) (1,282) (258)
Income tax benefit................................... -- -- (192) -- -- (17)
Net income (loss).................................... 151 24 365 (2,173) (1,282) (241)
Net income (loss) per share-basic.................... 0.05 0.01 0.13 (1.72) (1.88) (1.07)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
MARCH 31, 1998 1997 1996 1995 1994
------------------- --------- --------- --------- ---------
FINANCIAL CONDITION DATA:
Total assets........................................ $ 263,809 $ 256,984 $ 132,562 $ 52,798 $ 26,303
Available-for-sale securities....................... 33,773 32,852 325 2,338 --
Investment securities, net.......................... 6,603 8,601 1,099 -- 2,631
Loans held for sale................................. 15,730 16,895 3,072 -- --
Loans receivable.................................... 160,531 144,072 92,064 29,935 20,030
Other real estate owned............................. 2,420 1,944 -- -- --
Total deposits...................................... 204,018 197,269 102,289 41,487 20,883
Short-term borrowings............................... 32,166 30,331 6,000 -- 3,150
Total stockholders' equity.......................... 27,204 26,966 23,796 10,702 1,977
OTHER DATA:
Average assets...................................... 237,491 176,283 82,314 37,213 27,063
Average equity...................................... 27,072 26,317 10,030 6,534 1,776
Return on average stockholders' equity.............. 2.23% 1.39% (21.67%) (19.62%) (13.57%)
Return on average total assets...................... 0.25% 0.21% (2.64%) (3.45%) (0.89%)
Average stockholders' equity to average total
assets............................................ 11.40% 14.93% 12.19% 17.56% 6.56%
Net interest spread................................. 3.65% 3.74% 4.08% 3.32% 2.95%
Net interest margin................................. 4.47% 4.72% 4.87% 3.99% 2.89%
Nonperforming loans to period-end loans............. 0.84% 1.08% 1.71% 2.11% 3.45%
Net chargeoffs to average loans..................... 0.26% 0.08% 0.27% 0.26% 0.11%
Allowance as a percent of period-end loans.......... 1.04% 1.12% 1.35% 1.26% 1.22%
Allowance as a percent of period-end nonperforming
loans............................................. 123.30% 104.13% 78.91% 59.40% 35.40%
</TABLE>
6
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE
PREFERRED SECURITIES OFFERED BY THIS PROSPECTUS. CERTAIN STATEMENTS IN THIS
PROSPECTUS ARE FORWARD-LOOKING AND ARE IDENTIFIED BY THE USE OF FORWARD-LOOKING
WORDS OR PHRASES SUCH AS "INTENDED," "WILL BE POSITIONED," "EXPECTS," IS OR ARE
"EXPECTED," "ANTICIPATES," AND "ANTICIPATED." THESE FORWARD-LOOKING STATEMENTS
ARE BASED ON THE COMPANY'S CURRENT EXPECTATIONS. TO THE EXTENT ANY OF THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
CONSTITUTES A "FORWARD-LOOKING STATEMENT," THE RISK FACTORS SET FORTH BELOW ARE
CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENT.
RISK FACTORS RELATING TO THE OFFERING
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES. The obligations of the Company under the Guarantee
issued by the Company for the benefit of the holders of Preferred Securities and
under the Junior Subordinated Debentures are subordinate and junior in right of
payment to all Senior Indebtedness. At March 31, 1998, the Company had no Senior
Indebtedness. None of the Junior Subordinated Indenture, the Guarantee or the
Trust Agreement places any limitation on the amount of secured or unsecured
debt, including Senior Indebtedness, or debt that is PARI PASSU with the Junior
Subordinated Debentures, that may be incurred by the Company. See "Description
of Guarantee--Status of the Guarantee" and "Description of Junior Subordinated
Debentures-- Subordination."
The ability of the Issuer Trust to pay amounts due on the Preferred
Securities is solely dependent upon the Company's making payments on the Junior
Subordinated Debentures as and when required. See "Risk Factors--Limited Sources
for Payments on Junior Subordinated Debentures and Other Indebtedness."
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES. So long as no
Event of Default (as defined in the Junior Subordinated Indenture) has occurred
and is continuing with respect to the Junior Subordinated Debentures (a
"Debenture Event of Default"), the Company has the right under the Junior
Subordinated Indenture to defer the payment of interest on the Junior
Subordinated Debentures at any time or from time to time for a period not
exceeding 20 consecutive quarterly periods with respect to each Extension
Period, provided that no Extension Period may extend beyond the Stated Maturity
of the Junior Subordinated Debentures. See "Description of Junior Subordinated
Debentures--Debenture Events of Default." As a consequence of any such deferral,
quarterly Distributions on the Preferred Securities by the Issuer Trust will be
deferred during any such Extension Period. Distributions to which holders of the
Preferred Securities are entitled will accumulate additional Distributions
thereon during any Extension Period at the rate equal to % per annum,
compounded quarterly from the relevant payment date for such Distributions,
computed on the basis of a 360-day year of twelve 30-day months and the actual
days elapsed in a partial month in such period. Additional Distributions payable
for each full Distribution period will be computed by dividing the rate per
annum by four. The term "Distribution" as used herein shall include any such
additional Distributions. During any such Extension Period, the Company may not
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock or (ii) make any payment of principal of or interest or premium,
if any, on or repay, repurchase or redeem any debt securities of the Company
that rank PARI PASSU in all respects with or junior in interest to the Junior
Subordinated Debentures (other than (a) repurchases, redemptions or other
acquisitions of shares of capital stock of the Company in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of any one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(b) as a result of an exchange or conversion of any class or series of the
Company's capital stock (or any capital stock of a subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or series
of the Company's
7
<PAGE>
indebtedness for any class or series of the Company's capital stock, (c) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights, stock
or other property under any stockholder's rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks PARI PASSU with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Extension Period may
exceed 20 consecutive quarterly periods or extend beyond the Stated Maturity of
the Junior Subordinated Debentures. Upon the termination of any Extension Period
and the payment of all interest then accrued and unpaid (together with interest
thereon at the rate equal to % per annum, compounded quarterly, to the extent
permitted by applicable law), the Company may elect to begin a new Extension
Period subject to the above conditions. No interest shall be due and payable
during an Extension Period, except at the end thereof. The Company must give the
Issuer Trustees notice of its election of such Extension Period at least one
Business Day prior to the earlier of (i) the date the Distributions on the
Preferred Securities would have been payable but for the election to begin such
Extension Period and (ii) the date the Property Trustee is required to give
notice to holders of the Preferred Securities of the record date or the date
such Distributions are payable, but in any event not less than one Business Day
prior to such record date. The Property Trustee will give notice of the
Company's election to begin a new Extension Period to the holders of the
Preferred Securities. Subject to the foregoing, there is no limitation on the
number of times that the Company may elect to begin an Extension Period. See
"Description of Preferred Securities--Distributions" and "Description of Junior
Subordinated Debentures--Option to Extend Interest Payment Period."
Should an Extension Period occur, a holder of Preferred Securities will
continue to accrue income (in the form of original issue discount) for United
States federal income tax purposes in respect of its pro rata share of the
Junior Subordinated Debentures held by the Issuer Trust (which will include a
holder's pro rata share of both the stated interest and DE MINIMIS original
issue discount, if any, on the Junior Subordinated Debentures). As a result, a
holder of Preferred Securities will include such interest income in gross income
for United States federal income tax purposes in advance of the receipt of cash
attributable to such original issue discount interest income, and will not
receive the cash in the form of interest payments related to such income from
the Issuer Trust if the holder disposes of the Preferred Securities prior to the
record date for the payment of Distributions with respect to such Extension
Period. See "Certain Federal Income Tax Consequences--US Holders--Interest
Income and Original Issue Discount" and "--Sales of Preferred Securities."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Preferred Securities is likely to
be adversely affected. A holder that disposes of its Preferred Securities during
an Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its Preferred Securities. In
addition, as a result of the existence of the Company's right to defer interest
payments, the market price of the Preferred Securities (which represent
preferred undivided beneficial interests in the assets of the Issuer Trust) may
be more volatile than the market prices of other securities on which original
issue discount accrues that are not subject to such deferrals.
TAX EVENT, INVESTMENT COMPANY EVENT OR CAPITAL TREATMENT EVENT
REDEMPTION. Upon the occurrence and during the continuation of a Tax Event,
Investment Company Event or Capital Treatment Event, the Company has the right
to redeem the Junior Subordinated Debentures in whole, but not in part, at any
time within 90 days following the occurrence of such Tax Event, Investment
Company Event or Capital Treatment Event and thereby cause a mandatory
redemption of the Preferred Securities and Common Securities. Any such
redemption shall be at a price equal to the liquidation amount of the Preferred
Securities and Common Securities, respectively, together with accumulated
Distributions to but excluding the date fixed for redemption. The ability of the
Company to exercise its rights to redeem the Junior
8
<PAGE>
Subordinated Debentures prior to the stated maturity may be subject to prior
regulatory approval by the Federal Reserve, if then required, as it currently
is, under applicable Federal Reserve capital guidelines or policies. See
"Description of Junior Subordinated Debentures--Redemption" and "Description of
Preferred Securities--Liquidation Distribution Upon Dissolution."
A "Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Preferred Securities, there is more than an insubstantial
risk that (i) the Issuer Trust is, or will be within 90 days of the delivery of
such opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion will not be, deductible by the Company, in whole
or in part, for United States federal income tax purposes or (iii) the Issuer
Trust is, or will be within 90 days of the delivery of the opinion, subject to
more than a DE MINIMIS amount of other taxes, duties or other governmental
charges.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), which change or prospective change becomes
effective or would become effective, as the case may be, on or after the date of
the issuance of the Preferred Securities.
A "Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the
Preferred Securities, there is more than an insubstantial risk that the Company
will not be entitled to treat an amount equal to the Liquidation Amount of the
Preferred Securities as "Tier 1 Capital" (or the then equivalent thereof),
except as otherwise restricted under the 25% Capital Limitation (as defined
herein), for purposes of the risk-based capital adequacy guidelines of the
Federal Reserve, as then in effect and applicable to the Company.
POSSIBLE TAX LAW CHANGES. In both 1996 and 1997, the Clinton Administration
proposed to amend the Internal Revenue Code of 1986, as amended, to deny
deductions of interest and original issue discount on instruments with features
similar to those of the Junior Subordinated Debentures when issued under
arrangements similar to the Issuer Trust. That proposal was not passed by, and
is not currently pending before, Congress. There can be no assurance, however,
that future legislative proposals, future regulations or official administrative
pronouncements, or future judicial decisions will not affect the ability of the
Company to deduct interest on the Junior Subordinated Debentures. Such a change
could give rise to a Tax Event, which may permit the Company, upon approval of
the Federal Reserve if then required under applicable capital guidelines or
policies of the Federal Reserve, to cause a redemption of the Preferred
Securities, as described more fully under "Description of the Preferred
Securities--Redemption."
EXCHANGE OF PREFERRED SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES. The
holders of all the outstanding Common Securities have the right at any time to
dissolve the Issuer Trust and, after satisfaction of liabilities to creditors of
the Issuer Trust as provided by applicable law, cause the Junior Subordinated
Debentures to be distributed to the holders of the Preferred Securities and
Common Securities in liquidation of the Issuer Trust. The Company initially will
be the holder of all of the outstanding Common
9
<PAGE>
Securities. The ability of the Company to dissolve the Issuer Trust may be
subject to prior regulatory approval of the Federal Reserve, if then required
under applicable Federal Reserve capital guidelines or policies. See
"Description of Preferred Securities--Liquidation Distribution Upon
Dissolution." The Junior Subordinated Debentures, if distributed, may be subject
to restrictions on transfer pursuant to applicable securities laws.
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Issuer Trust will not be taxable as a
corporation, a distribution of the Junior Subordinated Debentures upon a
liquidation of the Issuer Trust will not be a taxable event to holders of the
Preferred Securities. However, if a Tax Event were to occur that would cause the
Issuer Trust to be subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, a distribution
of the Junior Subordinated Debentures by the Issuer Trust would be a taxable
event to the Issuer Trust and the holders of the Preferred Securities. See
"Certain Federal Income Tax Consequences--Receipt of Junior Subordinated
Debentures or Cash Upon Liquidation of the Trust."
RIGHTS UNDER THE GUARANTEE. Wilmington Trust Company will act as the
trustee under the Guarantee (the "Guarantee Trustee") and will hold the
Guarantee for the benefit of the holders of the Preferred Securities. Wilmington
Trust Company also will act as Debenture Trustee for the Junior Subordinated
Debentures and as Property Trustee under the Trust Agreement. Wilmington Trust
Company will act as Delaware Trustee under the Trust Agreement. The Guarantee
guarantees to the holders of the Preferred Securities the following payments, to
the extent not paid by or on behalf of the Issuer Trust: (i) any accumulated and
unpaid Distributions required to be paid on the Preferred Securities, to the
extent that the Issuer Trust has funds on hand available therefor at such time,
(ii) the Redemption Price with respect to any Preferred Securities called for
redemption, to the extent that the Issuer Trust has funds on hand available
therefor at such time, and (iii) upon a voluntary or involuntary dissolution of
the Issuer Trust (unless the Junior Subordinated Debentures are distributed to
holders of the Preferred Securities), the lesser of (a) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions to the date of
payment, to the extent that the Issuer Trust has funds on hand available
therefor at such time, and (b) the amount of assets of the Issuer Trust
remaining available for distribution to holders of the Preferred Securities on
liquidation of the Issuer Trust. The Guarantee is subordinated as described
under "--Ranking of Subordinated Obligations Under the Guarantee and the Junior
Subordinated Debentures" and "Description of Guarantee--Status of the Guarantee"
and PARI PASSU with the obligations associated with the Outstanding Capital
Securities.
The holders of not less than a majority in aggregate Liquidation Amount of
the outstanding Preferred Securities have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Guarantee or to direct the exercise of any trust power
conferred upon the Guarantee Trustee under the Guarantee. Any holder of the
Preferred Securities may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Issuer Trust, the Guarantee Trustee or any other
person or entity.
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Issuer Trust would lack funds for
the payment of Distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, if a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Preferred Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of any amounts payable in respect of such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such holder (a "Direct
Action"). In connection with such Direct Action, the Company will have a right
of set-off under the Junior Subordinated Indenture to the extent of any payment
made by the Company to such holder of Preferred Securities in the Direct Action.
Except as described herein, holders of Preferred Securities will not be able to
exercise
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<PAGE>
directly any other remedy available to the holders of the Junior Subordinated
Debentures or assert directly any other rights in respect of the Junior
Subordinated Debentures. See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Preferred Securities,"
"--Debenture Events of Default" and "Description of Guarantee." The Trust
Agreement provides that each holder of Preferred Securities by acceptance
thereof agrees to the provisions of the Guarantee and the Junior Subordinated
Indenture.
LIMITED SOURCES FOR PAYMENTS ON JUNIOR SUBORDINATED DEBENTURES AND OTHER
INDEBTEDNESS. The Company is a legal entity distinct from the Bank, although
the principal source of the Company's cash revenues is dividends from the Bank.
As a holding company, the ability of the Company to pay interest and principal
on the Junior Subordinated Debentures, to pay other indebtedness and to conduct
lending and investment activities directly or in non-banking subsidiaries will
depend significantly on the receipt of dividends or other distributions from the
Bank, as well as any cash reserves and other liquid assets held by the Company
(including proceeds from the sale of the Junior Subordinated Debentures to the
Issuer Trust), the ability of the Company to realize returns on its investments
and any proceeds from any subsequent securities offering or other borrowings.
The ability of the Bank to pay dividends or make other distributions to the
Company is dependent on the Bank's compliance with applicable regulatory capital
requirements and regulatory restrictions. The Bank must obtain approval of the
Maryland Commissioner of Financial Regulation to pay dividends to the Company
for so long as the Bank's balance sheet reflects, as it did at March 31, 1998,
negative undivided profits (accumulated deficit). The Company anticipates that
such approval will be required for the foreseeable future. See "Supervision and
Regulation--Limits on Dividends and Other Payments."
The right of the Company to participate in the assets of any subsidiary upon
the latter's liquidation, reorganization or otherwise (and thus the ability of
the holders of Preferred Securities to benefit indirectly from any such
distribution) will be subject to the claims of its subsidiaries' creditors,
which will take priority except to the extent that the Company may itself be a
creditor with a recognized claim.
The Bank is also subject to restrictions under federal law which limit the
transfer of funds by it to the Company, whether in the form of loans, extensions
of credit, investments, asset purchases or otherwise. Such transfers by the Bank
to the Company or any nonbank subsidiary of the Company are limited in amount of
10% of the Bank's capital and surplus and, with respect to the Company and all
its nonbank subsidiaries, to an aggregate of 20% of the Bank's capital and
surplus. Furthermore, such loans and extensions of credit are required to be
secured in specified amounts. Federal law also prohibits banks from purchasing
"low-quality" assets from affiliates.
TRADING CHARACTERISTICS OF PREFERRED SECURITIES. The Preferred Securities
may trade at prices that do not fully reflect the value of accrued but unpaid
interest with respect to the underlying Junior Subordinated Debentures. See
"Certain Federal Income Tax Consequences--U.S. Holders--Sales of Preferred
Securities." A holder of Preferred Securities that disposes of its Preferred
Securities between record dates for payments of Distributions (and consequently
does not receive a Distribution from the Issuer Trust for the period prior to
such disposition) will nevertheless be required for federal income tax purposes
to include in income as ordinary income an amount equal to the accrued but
unpaid interest on the Junior Subordinated Debentures through the date of
disposition and to add such amount to its adjusted tax basis in the Preferred
Securities disposed of. Such holder will recognize a capital loss to the extent
the selling price (which may not fully reflect the value of accrued but unpaid
interest) is less than its adjusted tax basis (which will include accrued but
unpaid interest). Subject to certain limited exceptions, capital losses cannot
be applied to offset ordinary income for United States federal income tax
purposes.
LIMITED VOTING RIGHTS. Holders of Preferred Securities will have limited
voting rights relating generally to the modification of the Preferred Securities
and the Guarantee and the exercise of the Issuer Trust's rights as holder of
Junior Subordinated Debentures. Holders of Preferred Securities are not entitled
to appoint, remove or replace the Property Trustee or the Delaware Trustee
except upon the occurrence of certain events specified in the Trust Agreement
and described herein. The Property Trustee and the holders of all the Common
Securities may, subject to certain conditions, amend the Trust
11
<PAGE>
Agreement without the consent of holders of Preferred Securities to cure any
ambiguity or make other provisions not inconsistent with the Trust Agreement or
to ensure that the Issuer Trust (i) will not be taxable as a corporation for
United States federal income tax purposes, or (ii) will not be required to
register as an "investment company" under the Investment Company Act. See
"Description of Preferred Securities--Voting Rights; Amendment of Trust
Agreement" and "--Removal of Issuer Trustees; Appointment of Successors."
LIMITED COVENANTS. The Junior Subordinated Indenture contains only limited
covenants and the Trust Agreement does not contain any covenants. As a result,
neither the Junior Subordinated Indenture nor the Trust Agreement protects
holders of the Junior Subordinated Debentures or the Preferred Securities,
respectively, in the event of a material change in the Company's financial
condition or results of operations, and neither document limits the ability of
the Company or any subsidiary to incur or assume additional indebtedness or
other obligations. Additionally, neither the Junior Subordinated Indenture nor
the Trust Agreement contains any financial ratios or specified levels of
liquidity with which the Company must comply. Therefore, the provisions of these
documents should not be considered a significant factor in evaluating whether
the Company will be able to comply with its obligations under the Junior
Subordinated Debentures or the Guarantee.
BROAD DISCRETION AS TO USE OF PROCEEDS OF THE SALE OF JUNIOR SUBORDINATED
DEBENTURES. The Company will use all of the net proceeds of the sale to the
Issuer Trust of the Junior Subordinated Debentures to finance growth, which may
include the acquisition of branches or other financial institutions, and for
general corporate purposes which may include investments in or extensions of
credit to its direct or indirect subsidiaries to support internal growth.
Accordingly, management will have broad discretion with respect to the
expenditure of the net proceeds of the sale of the Junior Subordinated
Debentures, and the amounts and timing of the use of proceeds will depend upon
the funding requirements of the Company and its subsidiaries and the
availability of other funds. See "Use of Proceeds." The Company does not
currently have any agreements, understanding or commitments relating to future
acquisitions, other than an agreement to purchase approximately 19% of the
outstanding common stock of Glen Burnie Bancorp, subject to regulatory approval.
ABSENCE OF MARKET. The Preferred Securities are a new issue of securities
with no established trading market. Application has been made to list the
Preferred Securities on The Nasdaq National Market. One of the requirements for
initial listing is the presence of three market makers for the Preferred
Securities. The Nasdaq National Market maintenance standards require the
existence of two market makers for continued listing. Firms which agree to make
a market are not obligated to do so and market making may be interrupted or
discontinued at any time without notice at their sole discretion. Accordingly,
no assurance can be given as to the development or liquidity of any market for
the Preferred Securities.
MARKET PRICES. There can be no assurance as to the market prices for
Preferred Securities, or the market prices for Junior Subordinated Debentures
that may be distributed in exchange for Preferred Securities if a liquidation of
the Issuer Trust occurs. Accordingly, the Preferred Securities or the Junior
Subordinated Debentures that a holder of Preferred Securities may receive on
liquidation of the Issuer Trust may trade at a discount to the price that the
investor paid to purchase the Preferred Securities offered hereby. Because
holders of Preferred Securities may receive Junior Subordinated Debentures on
termination of the Issuer Trust, prospective purchasers of Preferred Securities
are also making an investment decision with regard to the Junior Subordinated
Debentures and should carefully review all the information regarding the Junior
Subordinated Debentures contained herein. See "Description of Junior
Subordinated Debentures."
RISK FACTORS RELATING TO THE COMPANY
RISKS OF EXPANSION STRATEGIES; RECENT PROFITABILITY. Since May, 1995, it
has been the strategy of the Company to rapidly increase the number of Bank
branches prior to the time that the volume of business is sufficient to generate
profits from branch operations. This strategy was implemented in order to have a
branch network in place to take advantage of business opportunities as they
arose. This strategy anticipates
12
<PAGE>
losses from branch operations until such time, if any, as branch deposits and
the volume of other banking business reach the levels necessary to support
profitable branch operations. The success of the Company's strategy will be
dependent on management's ability to generate business and increase deposits at
levels necessary to support profitable branch operations. See "Business."
It is the intention of management to continue to expand the business of the
Company through the opening of additional branches and the acquisition of
existing banks in the Company's market area. The success of the Company's
expansion strategy will be dependent upon its ability to manage the growth, to
improve its operational and financial systems, to attract and train qualified
employees, and, to a certain extent, on the availability of potential
acquisitions meeting the Company's investment criteria, management's ability to
successfully operate and integrate the acquired business with and into the
business of the Company, and the Bank's ability to obtain required regulatory
approval. See "Business."
There can be no assurance that the Company will be successful in
implementing these strategies and managing its anticipated growth.
DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the continued
services of certain key management personnel, including Edwin F. Hale, Sr.,
Chairman of the Board and Chief Executive Officer of the Company and the Bank,
Joseph A. Cicero, President of the Company and Chief Operating Officer of the
Bank, and George H. Mantakos, Executive Vice President of the Company and
President of the Bank. The Company's continued growth and profitability will
depend upon its ability to attract and retain skilled managerial, marketing and
technical personnel. Competition for qualified personnel in the banking industry
is intense, and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. See "Management."
CONCENTRATIONS IN REAL ESTATE LENDING AND RELATED RISKS. The Bank is
currently dependent on real estate lending activities, which at March 31, 1998
had produced real estate loans totaling approximately 80.73% of the Company's
loan portfolio. Real estate loan origination activity, including refinancings,
generally is greater during periods of declining interest rates and favorable
economic conditions, and has been favorably affected by relatively lower market
interest rates during the past several years. There is no assurance such
favorable conditions will continue.
Real estate loans are subject to the risk that real estate values in a
geographical area or for a particular type of real estate will decrease, and to
the risk that borrowers will be unable to meet their loan obligations.
Commercial real estate and construction loans, which have higher average
balances and greater sensitivity to market conditions than other types of loans
in the Bank's loan portfolio, constitute 55.07% of the Bank's loan portfolio as
of March 31, 1998. The Company attempts to minimize these risks by making real
estate loans that are secured by a variety of different types of real estate,
limiting real estate loans to 80% of the appraised value of the real estate,
generally lending in its market area, and, regardless of collateral, reviewing
the potential borrower's ability to meet debt service obligations. See
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Composition of Loan Portfolio."
COMPETITION. The Company and the Bank operate in a competitive environment,
competing for deposits and loans with commercial banks, thrifts and other
financial entities. Numerous mergers and consolidations involving banks in the
market in which the Bank operates have occurred recently, resulting in an
intensification of competition in the banking industry in the Company's
geographical market. Competition for deposits comes primarily from other
commercial banks, savings associations, credit unions, money market and mutual
funds and other investment alternatives. Competition for loans comes primarily
from other commercial banks, savings associations, mortgage banking firms,
credit unions and other financial intermediaries. Many of the financial
intermediaries operating in the Company's market area offer certain services,
such as trust, investment and international banking services, which the Company
does not offer. In addition, banks with a larger capitalization and financial
intermediaries not subject to bank regulatory restrictions have larger lending
limits and are thereby able to serve the needs of larger customers.
13
<PAGE>
Recent changes in federal banking laws facilitate interstate branching and
merger activity among banks. Such changes may result in an even greater degree
of competition in the banking industry and the Company may be brought into
competition with institutions with which it does not presently compete. There
can be no assurance that the profitability of the Company will not be adversely
affected by the increased competition which may characterize the banking
industry in the future. See "Business-- Competition" and "Supervision and
Regulation--Interstate Banking Legislation."
CONTROL BY MANAGEMENT. A total of 618,213 shares of Common Stock is
beneficially owned by the directors and executive officers of the Company,
representing approximately 21.5% of the Common Stock outstanding at March 31,
1998. In addition, options and warrants to purchase an aggregate of 610,002
shares of Common Stock are beneficially owned by directors and executive
officers. Assuming the directors and executive officers exercise all their stock
options and warrants, the directors and executive officers would beneficially
own approximately 35.3% of the Common Stock outstanding. Edwin F. Hale, Sr., who
is the largest stockholder of the Company, beneficially owns 415,628 shares of
Common Stock, representing approximately 14.5% of the Common Stock outstanding
at March 31, 1998. Mr. Hale also hold options and warrants to purchase 491,672
shares, which, if exercised in total, would represent approximately 27.0% of the
Common Stock outstanding. The foregoing information does not give effect to the
10% stock dividend payable to holders of record as of May 26, 1998 of the
Company's Common Stock. See "Securities Ownership of Certain Beneficial Owners
and Management."
DEVELOPMENTS IN TECHNOLOGY. The market for financial services, including
banking services and consumer finance services, is increasingly affected by
advances in technology including developments in telecommunications, data
processing, computers, automation, Internet-based banking, telebanking, debit
cards and so-called "smart" cards. The ability of the Company, including the
Bank, to compete successfully in its markets may depend on the extent to which
it is able to exploit such technological changes. However, there can be no
assurance that the development of these or any other new technologies, or the
Company's success or failure in anticipating or responding to such developments,
will materially affect the Company's business, financial condition and operating
results.
YEAR 2000 ISSUES. The "Year 2000" issue is the result of computer programs
and equipment which are dependent on "embedded chip technology" using two digits
rather than four to define the applicable year. Any of the Company's computer
programs or equipment that are date dependent may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, a temporary inability to
process transactions, send invoices, or engage in similar normal business
activity. Based on assessments made to date, pursuant to the Company's Year 2000
Action Plan, the Company has determined that it and its vendors may be required
to modify or replace portions of its software and other equipment so that its
and its vendors' computer, security, and communications systems will properly
utilize dates beyond December 31, 1999. The Company believes that with
modifications or conversions of software, and replacement of equipment which
cannot be made Year 2000 compliant, the Year 2000 issue can be mitigated. If
such modifications, conversions or equipment replacements are not made, or are
not completed in a timely manner, the Year 2000 issue could have a material
adverse impact on the operations of the Company. In addition to issues relating
to internal Year 2000 compliance, the Company may be vulnerable to the failure
of third party suppliers and large customers to remedy their own Year 2000
issues. There can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Action Plan."
MARKET VALUE OF INVESTMENTS; SALES OF SECURITIES. Approximately 83.65% of
the Company's investment securities portfolio as of March 31, 1998 has been
designated as available-for-sale pursuant to Statement of Financial Accounting
Standards No. 115 ("SFAS 115") relating to accounting for investments. SFAS 115
requires that unrealized gains and losses in the estimated value of the
available-for-sale portfolio be "marked to market" and reflected as a separate
item in stockholders' equity (net of tax) as accumulated other comprehensive
income. At March 31, 1998, the Company maintained approximately 12.80% of its
14
<PAGE>
total assets in securities available-for-sale. Sales of such securities in the
past have been a source of net income for the Company. In 1997 and the first
quarter of 1998, income from such sales exceeded the net income of the Company.
There can be no assurance that future market performance of the Company's
investment portfolio will continue to enable the Company to realize income from
this source. Stockholders' equity will continue to reflect the unrealized gains
and losses (net of tax) of these investments. There can be no assurance that the
market value of the Company's investment portfolio will not decline, causing a
corresponding decline in stockholders' equity.
Management believes that several factors will affect the market values of
the Company's investment portfolio. These include, but are not limited to,
changes in interest rates or expectations of changes, the degree of volatility
in the securities markets, inflation rates or expectations of inflation and the
slope of the interest rate yield curve. (The yield curve refers to the
differences between longer-term and shorter-term interest rates. A positively
sloped yield curve means shorter-term rates are lower than longer-term rates.)
Also, the passage of time will affect the market values of the securities, in
that the closer they are to maturing, the closer the market price should be to
par value. In addition to the foregoing, there are other factors that impact
specific categories of the portfolio differently.
ALLOWANCE FOR LOAN LOSSES. The inability of borrowers to repay loans can
erode the earnings and capital of banks. Like all financial institutions, the
Company's subsidiaries maintain an allowance for loan losses to provide for loan
defaults and nonperformance. The allowance is based on prior experience with
loan losses, as well as an evaluation of the risks in the current portfolio, and
is maintained at a level considered adequate by management to absorb anticipated
losses. The amount of future losses is susceptible to changes in economic,
operating and other conditions, including changes in interest rates, that may be
beyond management's control, and such losses may exceed current estimates. At
March 31, 1998, the Bank had nonperforming loans (i.e., loans 90 days or more
delinquent on a contractual basis or on a nonaccrual status) of approximately
$1.356 million and an allowance for loan losses of $1.672 million on gross loans
of $160.531 million; thus, the allowance for loan losses at March 31, 1998
represented 1.04% of total loans and 123.30% of nonperforming loans. There can
be no assurance that the Company's allowance for loan losses will be adequate to
cover actual losses. Future provisions for loan losses could materially and
adversely affect results of operations of the Company.
The level of loan loss allowance has been based upon management's continual
review of the loan portfolio. Management reviews the loans by type and nature of
collateral and establishes a provision for loan losses based upon historical
chargeoff experience, the present and prospective financial condition of
specific borrowers, industry concentrations within the loan portfolio, size of
the credit, existence and quality of any collateral, profitability, and general
economic conditions. Although management uses the best information available to
make determinations with respect to the allowance for loan losses, future
adjustments may be necessary in the event there are additional loan losses and
if economic conditions differ substantially from the assumptions used. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses. Such agencies
may require the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
Material additions to the Company's allowance for loan losses would result in a
decrease in the Company's net income and capital.
IMPACT OF INTEREST RATES AND OTHER ECONOMIC CONDITIONS. Results of
operations for financial institutions, including the Company, may be materially
and adversely affected by changes in prevailing economic conditions, including
declines in real estate values, rapid changes in interest rates and the monetary
and fiscal policies of the federal government. The profitability of the Company
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
(net interest income), including advances from the Federal Home Loan Bank of
Atlanta ("FHLB"). Interest rate risk arises from mismatches (i.e., the interest
sensitivity gap) between the dollar amount of repricing or maturing assets and
liabilities and is measured in terms of the ratio of the interest rate
sensitivity gap to total assets. More assets repricing or maturing than
liabilities over a given time period is considered asset-sensitive and is
reflected as a positive gap, and more liabilities repricing or maturing than
assets over a given time period is considered liability-sensitive and is
reflected as negative
15
<PAGE>
gap. An asset-sensitive position (i.e., a positive gap) will generally enhance
earnings in a rising interest rate environment and will negatively impact
earnings in a falling interest rate environment, while a liability-sensitive
position (i.e., a negative gap) will generally enhance earnings in a falling
interest rate environment and negatively impact earnings in a rising interest
rate environment. Fluctuations in interest rates are not predictable or
controllable. The Company has attempted to structure its asset and liability
management strategies to mitigate the impact on net interest income of changes
in market interest rates. The Company believes that at March 31, 1998, its
interest rate exposure is less than 5% of capital in a plus or minus 2% rate
shock scenario. However, there can be no assurance that the Company will be able
to manage interest rate risk so as to avoid significant adverse effects on net
interest income. At March 31, 1998, the Company had a one year cumulative
negative gap of $20.730 million or 7.86% of total assets.
CONSIDERATIONS RELATING TO LOAN PORTFOLIO OF THE BANK. During the past
three years, the Company has experienced significant growth in its loan
portfolio. Loans increased 11.42% during the first three months of 1998 to
$160.531 million at March 31, 1998, from $144.072 million at December 31, 1997.
Commercial real estate loans increased by 9.10% or $7.371 million during the
first three months of 1998 and comprised 55.07% of total loans as of March 31,
1998. The nature of commercial real estate loans is such that they may present
more credit risk to the Company than other types of loans such as home equity or
residential real estate loans. Further, most of these loans are concentrated in
Central Maryland. As a result, a decline in the general economic conditions of
Central Maryland could have a material adverse effect on the Company's financial
condition and results of operations taken as a whole.
SUPERVISION AND REGULATION OF BANK HOLDING COMPANIES AND THEIR
SUBSIDIARIES. Bank holding companies and their subsidiaries operate in a highly
regulated environment and are subject to supervision and examination by several
federal and state regulatory agencies. The Company is subject to the Bank
Holding Company Act of 1956, as amended (the "BHC Act") and to regulation and
supervision by the Federal Reserve and the Maryland Commissioner of Financial
Regulation (the "Maryland Commissioner"), and the Bank is subject to regulation
and supervision by the Maryland Commissioner and the Federal Deposit Insurance
Corporation ("FDIC"). The Bank also is a member of the FHLB and is subject to
regulation thereby. Federal and state banking laws and regulations govern
matters ranging from restrictions on permissible investments and activities, the
regulation of certain debt obligations, changes in the control of bank holding
companies, and the maintenance of adequate capital to the general business
operations and financial condition of the Bank, including permissible types,
amounts and terms of loans and investments, the amount of reserves against
deposits, restrictions on dividends, establishment of branch offices, and the
maximum rate of interest that may be charged by law. The Federal Reserve, the
FDIC, and the Maryland Commissioner also possess cease and desist powers over
bank holding companies and banks, to prevent or remedy unsafe or unsound
practices or violations of law. These and other restrictions limit the manner in
which the Company and the Bank may conduct their business and obtain financing.
Furthermore, the commercial banking business is affected not only by general
economic conditions but also by the monetary policies of the Federal Reserve.
These monetary policies have had and are expected to continue to have
significant effects on the operating results of commercial banks. Changes in
monetary or legislative policies may affect the ability of the Bank to attract
deposits and make loans. See "Supervision and Regulation."
FORWARD-LOOKING INFORMATION. In recent years, significant new federal
legislation has imposed numerous new legal and regulatory requirements on
financial institutions. In addition to the uncertainties posed by possible
legislative change, there are many other uncertainties that may make the
Company's historical performance an unreliable indicator of its future
performance, and forward-looking information, including projections of future
performance, is subject to numerous possible adverse developments, including,
but not limited to, the possibility of adverse economic developments which may
increase default and delinquency risks in the Company's loan portfolios; shifts
in interest rates which may result in shrinking interest margins; deposit
outflows; interest rates on competing investments; shifts in demand for
financial services and loan products; increases generally in competitive
pressure in the banking and financial services industry; changes in accounting
policies or guidelines, or monetary and fiscal policies of the Federal
government; changes in the quality or composition of the Company's loan and
investment portfolios; or other significant uncertainties.
16
<PAGE>
MARINER CAPITAL TRUST
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to the filing of a certificate of trust with the Delaware Secretary of
State on May 14, 1998. The Issuer Trust will be governed by a Trust Agreement
among the Company, as Depositor, and Wilmington Trust Company, as Delaware
Trustee and as Property Trustee. Under the Trust Agreement, two individuals
selected by the holders of the Common Securities will act as administrators with
respect to the Issuer Trust (the "Administrators"). The Company, which initially
will be the holder of the Common Securities, has selected two individuals who
are employees of and affiliated with the Company to serve as the Administrators.
See "Description of Preferred Securities--Miscellaneous." The Issuer Trust
exists for the exclusive purposes of (i) issuing the Trust Securities, (ii)
using the proceeds from the sale of the Trust Securities to acquire the Junior
Subordinated Debentures and (iii) engaging in only those other activities
necessary, convenient or incidental thereto (such as registering the transfer of
Trust Securities). Accordingly, the Junior Subordinated Debentures will be the
sole assets of the Issuer Trust, and payments under the Junior Subordinated
Debentures will be the sole source of revenue of the Issuer Trust.
All the Common Securities initially will be owned by the Company. The Common
Securities rank PARI PASSU, and payments will be made thereon pro rata, with the
Preferred Securities, except that upon the occurrence and during the
continuation of a Debenture Event of Default arising as a result of any failure
by the Company to pay any amounts in respect of the Junior Subordinated
Debentures when due, the rights of the holders of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. See "Description of Preferred Securities--Subordination of Common
Securities." The Company will acquire Common Securities in an aggregate
liquidation amount equal to 3% of the total capital of the Issuer Trust. The
Issuer Trust has a term of 31 years, but may terminate earlier as provided in
the Trust Agreement. The address of the Delaware Trustee, the Property Trustee,
the Guarantee Trustee and the Debenture Trustee is Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890,
telephone number (302) 651-1000.
NEITHER THE PREFERRED SECURITIES NOR THE JUNIOR SUBORDINATED DEBENTURES ARE
OBLIGATIONS OF OR GUARANTEED BY FIRST MARINER BANK OR ANY OTHER BANK.
USE OF PROCEEDS
All of the net proceeds to the Issuer Trust from the sale of the Trust
Securities will be invested by the Issuer Trust in the Junior Subordinated
Debentures. All the net proceeds to be received by the Company from the sale of
the Junior Subordinated Debentures will be used for general corporate purposes,
although it is likely that approximately half of such proceeds will be used
initially to make additional capital contributions to the Bank to fund its
operations and continued expansion. The Bank's ability to pay dividends to the
Company is subject to regulation. See "Supervision and Regulation." Portions of
the net proceeds from the sale of the Junior Subordinated Debentures also may be
used in the future for acquisitions by the Company or the Bank, or extensions of
credit by the Company to the Bank. Pending such uses the net proceeds may be
temporarily invested. The precise amounts and timing of the application of
proceeds will depend upon the funding requirements of the Company and its
subsidiaries and the availability of other funds. The Company may from time to
time engage in additional financings of a character and in amounts to be
determined. The proceeds from the sale of the Preferred Securities may qualify
as Tier 1 or core capital with respect to the Company under the risk-based
capital guidelines established by the Federal Reserve, however, capital received
from the proceeds of the sale of the Preferred Securities cannot constitute more
than 25% of the total Tier 1 capital of the Company (the "25% Capital
Limitation"). Amounts in excess of the 25% Capital Limitation will constitute
Tier 2 or supplementary capital of the Company.
17
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1998, and as adjusted to give effect to the offering of
the Preferred Securities, assuming the Underwriters' over-allotment option is
not exercised. The following data should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Company-obligated, mandatorily redeemable securities of subsidiary trust holding solely
junior subordinated debentures of the Company (1)...................................... $ -- $ 20,000
Stockholders' Equity:
Preferred Stock........................................................................ -- --
Common Stock, $0.05 par value; 20,000,000 shares authorized; 2,869,063 shares
outstanding(2)....................................................................... 143 143
Additional paid-in-capital............................................................. 30,000 30,000
Accumulated deficit.................................................................... (3,180) (3,180)
Accumulated other comprehensive income................................................. 241 241
Total stockholders' equity........................................................... 27,204 27,204
Total capitalization............................................................... 27,204 47,204
Risk-based capital ratios:
Tier 1 capital to risk-adjusted assets................................................. 12.68% 16.59%
Regulatory minimum..................................................................... 4.00% 4.00%
Total capital to risk-adjusted assets.................................................. 13.47% 22.51%
Regulatory minimum..................................................................... 8.00% 8.00%
Leverage ratio......................................................................... 11.27% 13.76%
Regulatory minimum..................................................................... 4.00% 4.00%
</TABLE>
- ------------------------
(1) As described herein, the sole asset of the Issuer Trust will be $20,600,000
principal amount of Junior Subordinated Debentures issued by the Company to
the Issuer Trust (including $600,000 attributable to the issuance of the
Common Securities of the Issuer Trust to the Company). The Junior
Subordinated Debentures will bear interest at a fixed rate of % per annum
and will mature on . The Company will own all of the Common Securities
of the Issuer Trust.
(2) Shares of Common Stock outstanding have not been adjusted to give effect to
the 10% stock dividend payable to holders of record as of May 26, 1998.
18
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
Earnings to Fixed Charges:
Excluding interest on deposits............................ 1.62x 1.26x 1.25x -- -- --
Including interest on deposits............................ 1.07x 1.02x 1.03x -- -- --
</TABLE>
The sum of fixed charges exceeded earnings for both the ratio excluding and
including interest on deposits for the years ended December 31, 1996, 1995 and
1994 by $2.2 million, $1.3 million and $0.3 million, respectively.
For purposes of computing the consolidated ratios, earnings consist of
income before income taxes plus fixed charges (excluding capitalized interest).
Fixed charges consist of interest on short-term debt and one-third of rent
expense, which approximates the interest component of such expense. In addition,
where indicated, fixed charges include interest on deposits.
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of the Company. The
Preferred Securities will be included in the consolidated balance sheets of the
Company and appropriate disclosures about the Preferred Securities, the
Guarantee and the Junior Subordinated Debentures will be included in the notes
to the consolidated financial statements of the Company. For financial reporting
purposes, Distributions on the Preferred Securities will be recorded in the
consolidated statements of income of the Company.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for, and as of the end
of, each of the years ended December 31, 1997, 1996, 1995 and 1994 (year of
inception) are derived from the audited Consolidated Financial Statements of the
Company. The following selected interim consolidated data for, and as of the end
of, the three month periods ended March 31, 1998 and 1997 have been derived from
unaudited financial statements of the Company, which, in the opinion of
management, have been prepared on the same basis as the audited Consolidated
Financial Statements included herein, and reflect all adjustments, which are of
a normal recurring nature, necessary for a fair presentation of such data. The
results of the interim periods are not necessarily indicative of the results of
a full year. The selected consolidated financial data set forth below should be
read in conjunction with, and are qualified by reference to, the Consolidated
Financial Statements of the Company and the Notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
OPERATIONS DATA:
Interest income...................................... $ 4,661 $ 2,904 $ 14,318 $ 6,736 $ 2,561 $ 1,209
Interest expense..................................... 2,220 1,184 6,565 3,107 1,269 504
Net interest income.................................. 2,441 1,720 7,753 3,629 1,292 705
Provision for loan losses............................ 152 135 472 1,040 190 59
Net interest income after provision for loan
losses............................................. 2,289 1,585 7,281 2,589 1,102 646
Gain on sale of securities........................... 285 13 479 330 9 --
Other noninterest income............................. 748 444 1,872 745 188 75
Other noninterest expenses........................... 3,171 2,018 9,459 5,837 2,581 979
Income (loss) before income tax benefit.............. 151 24 173 (2,173) (1,282) (258)
Income tax benefit................................... -- -- (192) -- -- (17)
Net income (loss).................................... 151 24 365 (2,173) (1,282) (241)
Net income (loss) per share-basic.................... 0.05 0.01 0.13 (1.72) (1.88) (1.07)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED MARCH 31, ------------------------------------------
1998 1997 1996 1995 1994
------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets........................................ $ 263,809 $ 256,984 $ 132,562 $ 52,798 $ 26,303
Available-for-sale securities....................... 33,773 32,852 325 2,338 --
Investment securities, net.......................... 6,603 8,601 1,099 -- 2,631
Loans held for sale................................. 15,730 16,895 3,072 -- --
Loans receivable.................................... 160,531 144,072 92,064 29,935 20,030
Other real estate owned............................. 2,420 1,944 -- -- --
Total deposits...................................... 204,018 197,269 102,289 41,487 20,883
Short-term borrowings............................... 32,166 30,331 6,000 -- 3,150
Total stockholders' equity.......................... 27,204 26,966 23,796 10,702 1,977
OTHER DATA:
Average assets...................................... 237,491 176,283 82,314 37,213 27,063
Average equity...................................... 27,072 26,317 10,030 6,534 1,776
Return on average stockholders' equity.............. 2.23% 1.39% (21.67%) (19.62%) (13.57%)
Return on average total assets...................... 0.25% 0.21% (2.64%) (3.45%) (0.89%)
Average stockholders' equity to average total
assets............................................ 11.40% 14.93% 12.19% 17.56% 6.56%
Net interest spread................................. 3.65% 3.74% 4.08% 3.32% 2.95%
Net interest margin................................. 4.47% 4.72% 4.87% 3.99% 2.89%
Nonperforming loans to period-end loans............. 0.84% 1.08% 1.71% 2.11% 3.45%
Net chargeoffs to average loans..................... 0.26% 0.08% 0.27% 0.26% 0.11%
Allowance as a percent of period-end loans.......... 1.04% 1.12% 1.35% 1.26% 1.22%
Allowance as a percent of period-end nonperforming
loans............................................. 123.30% 104.13% 78.91% 59.40% 35.40%
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The principal objective of this financial review is to provide a discussion
and an overview of the financial condition and results of operations of the
First Mariner Bancorp and its subsidiaries for the years ended December 31,
1997, 1996 and 1995, and for the three month period ended March 31, 1998. This
discussion should be read in conjunction with the Consolidated Financial
Statements and Notes thereto, as well as statistical information included
elsewhere in this Prospectus.
In addition to historical information, this document contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans and expectations, and unknown outcomes. The
Company's actual results could differ materially from management's expectations.
Factors that could contribute to those differences include, but are not limited
to, the federal government, changes in tax policies, changes in interest rates,
deposit flow, the cost of funds, demand for loan products and financial
services, changes in the Company's competitive position, changes in the quality
or composition of loan and investment portfolios, and the ability of the Company
to manage growth.
OVERVIEW
First Mariner Bancorp, through its wholly owned subsidiary, First Mariner
Bank, offers consumer and commercial banking services throughout central
Maryland. The Bank provides mortgage lending services through its wholly owned
subsidiary, First Mariner Mortgage Corporation.
The Company is a bank holding company incorporated under the laws of
Maryland and registered under the Bank Holding Company Act of 1956, as amended.
The Company was organized in 1994 and the name changed to First Mariner Bancorp
in May 1995. Since 1995, management has implemented a strategy of building a
branch network in its core market area. This strategy is intended to position
the Bank to optimize the opportunities that management believes have been
created by dislocations caused by the widespread consolidations among local
banks with large out-of-state acquirers.
RESULTS OF OPERATIONS
NET INTEREST INCOME/MARGINS
The primary source of earnings for the Company is net interest income, which
is the difference between income earned on interest-earning assets, such as
loans and investment securities, and expense incurred on interest-bearing
sources of funds, such as deposits and borrowings. The level of net interest
income is determined primarily by the average balances ("volume") and the rate
spreads between the interest-earning assets and the Company's funding sources.
THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED MARCH 31,
1997. First quarter net interest income before provision for loan losses was
$2,440,731 in 1998, an increase of 41.88% over $1,720,339 in 1997, reflecting an
increase of $84,692,000 in average earning assets, partly offset by a decrease
in the net yield on average earning assets. The net yield on earning assets was
4.47% for the first three months of 1998 as compared to 5.10% for the first
three months of 1997.
1997 VERSUS 1996. Net interest income increased to $7,752,567 for the year
ended December 31, 1997, a 113.62% increase from the net interest income of
$3,629,109 earned during the year ended December 31, 1996. Earning assets
averaged $164,312,000 for the year ended December 31, 1997, a 120.64% increase
as compared to $74,470,000 for the year ended December 31, 1996. The increase in
net interest income was due to the growth in average earning assets, especially
the loan portfolio and to a lesser extent increases in yields on the loan
portfolio. Average loans increased by 92.86% to $124,794,000 and average
deposits grew by 106.77% to $141,362,000. The increase in loans reflects the
Company's expansion of its commercial and real estate lending activities among
middle market borrowers in the
21
<PAGE>
Baltimore-Washington area. The increase in deposits was due to the aggressive
expansion of the Company's retail banking network to sixteen branches and the
introduction of new checking and money market products. Interest income on loans
increased to $11,953,680 for 1997 which represents a growth of $5,776,185 or
93.50% from $6,177,495 for 1996. Interest on deposits increased to $6,142,487
for 1997, a growth of $3,143,385 or 104.81% from $2,999,102 for 1996.
The key performance measures for net interest income are net interest margin
(net interest income divided by average earning assets) and net interest spread
(yield on earning assets minus the cost of interest-bearing liabilities). The
Company's net interest margin and spread are affected by loan pricing, mix of
earning assets, and the distribution and pricing of deposits and borrowings. The
Company's net interest margin and spread were 4.72% and 3.74%, respectively, for
1997 as compared to 4.87% and 4.08%, respectively, for 1996. The net margin and
spread decreased due to a decline in average loans as a percentage of total
average earning assets from 86.89% in 1996 to 75.95% in 1997. While average
loans increased by $60,088,000 or 92.86%, average deposits increased by
$72,995,000 or 106.77%. The excess in deposits over loans was invested in
investments.
1996 VERSUS 1995. Net interest income increased to $3,629,109 for the year
ended December 31, 1996, a 180.9% increase from net interest income of
$1,291,819 earned during the year ended December 31, 1995. Earning assets
averaged $74,470,000 for the year ended December 31, 1996, a 129.7% increase as
compared to $32,415,000 for the year ended December 31, 1995. The increase in
net interest income was due to the growth of the loan portfolio and increases in
yields on the loan portfolio. Average loans as a percentage of total average
earning assets increased to 86.9% in 1996 as compared with 70.0% in 1995.
Interest income on loans of $6,177,495 for the year ended December 31, 1996
increased by $4,195,907, or 211.7% from $1,981,588 for the year ended December
31, 1995, reflecting a significant increase in the average balance of loans
which totaled $64,706,000 for 1996 as compared to $22,699,000 for 1995.
The Company's net interest margin was 4.87% for the year ended December 31,
1996 as compared to 3.99% for the year ended December 31, 1995 which was
achieved by adding higher yielding loans in 1996.
The "Comparative Average Balances-Yields and Rates" table below indicates
the Company's average volume of interest-earning assets and interest-bearing
liabilities and average yields and rates. Changes in net interest income from
period to period result from increases or decreases in the volume and mix of
interest-earning assets and interest-bearing liabilities, increases or decreases
in the average rates earned and paid on such assets and liabilities and the
availability of particular sources of funds, such as noninterest bearing
deposits.
22
<PAGE>
COMPARATIVE AVERAGE BALANCES-YIELDS AND RATES
<TABLE>
<CAPTION>
YEAR
ENDED
DECEMBER
THREE MONTHS ENDED MARCH 31, 31,
-------------------------------------------------------------------- ---------
1998 1997 1997
--------------------------------- --------------------------------- ---------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE
--------- ----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans (net of unearned income) (2).... $ 164,701 $ 3,784 9.32% $ 110,287 $ 2,526 9.29% $ 124,794
Mortgage-backed securities available
for sale............................ 24,040 412 6.95% -- -- 0.00% 7,527
Interest-bearing bank balances........ 14,818 201 5.50% 17,177 258 6.09% 21,137
Treasury notes and agencies held to
maturity............................ 8,506 125 5.96% 8,218 107 5.28% 8,704
Other earning assets.................. 9,341 139 6.03% 1,032 13 5.11% 2,150
--------- ----------- --------- ----------- ---------
Total earning assets................ 221,406 4,661 8.54% 136,714 2,904 8.61% 164,312
----------- -----------
Allowance for loan losses............. (1,638) (1,295) (1,441)
Other assets.......................... 17,723 12,153 13,412
--------- --------- ---------
Total assets........................ $ 237,491 $ 147,572 $ 176,283
--------- --------- ---------
--------- --------- ---------
Liabilities and stockholders' equity:
Deposits:
Savings............................. $ 8,615 53 2.50% $ 6,498 37 2.31% $ 7,194
NOW/MMDA............................ 74,493 787 4.28% 18,677 117 2.54% 35,242
Certificates........................ 87,996 1,226 5.65% 78,324 988 5.12% 82,552
--------- ----------- --------- ----------- ---------
Total interest-bearing deposits... 171,104 2,066 4.90% 103,500 1,142 4.47% 124,988
Other borrowed funds.................. 13,058 154 4.78% 3,319 42 5.13% 7,071
--------- ----------- --------- ----------- ---------
Total interest-bearing
liabilities..................... 184,162 2,220 4.89% 106,818 1,184 4.50% 132,059
Demand deposits....................... 25,381 12,554 16,374
Other liabilities..................... 876 1,594 1,533
Stockholders' equity.................. 27,072 26,605 26,317
--------- --------- ---------
Total liabilities and
stockholders' equity............ $ 237,491 $ 147,572 $ 176,283
--------- --------- ---------
--------- --------- ---------
Interest rate spread.................. 3.65% 4.12%
--------- ---------
--------- ---------
(Average yield less average rate)
Net interest income................... $ 2,441 $ 1,720
----------- -----------
----------- -----------
(Interest income less interest
expense)
Net Interest Margin................... 4.47% 5.10%
--------- ---------
--------- ---------
(Net interest income/total earning
assets)
<CAPTION>
1996 1995 (1)
----------------------------------- ------------------------
INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/
EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE
----------- --------- ----------- ----------- --------- ----------- -----------
<S> <C>
Assets:
Loans (net of unearned income) (2).... $ 11,954 9.58% $ 64,706 $ 6,177 9.55% $ 22,699 $ 1,982
Mortgage-backed securities available
for sale............................ 521 6.92% -- -- -- 2,303 177
Interest-bearing bank balances........ 1,212 5.73% 8,878 525 5.91% 7,112 381
Treasury notes and agencies held to
maturity............................ 535 6.15% 88 5 5.68% -- --
Other earning assets.................. 96 4.47% 798 29 3.63% 301 22
----------- ----------- ----------- ----------- -----------
Total earning assets................ 14,318 8.71% 74,470 6,736 9.05% 32,415 2,562
----------- ----------- -----------
Allowance for loan losses............. (670) (256)
Other assets.......................... 8,514 5,054
----------- -----------
Total assets........................ $ 82,314 $ 37,213
----------- -----------
----------- -----------
Liabilities and stockholders' equity:
Deposits:
Savings............................. 195 2.71% $ 4,635 139 3.00% $ 3,081 66
NOW/MMDA............................ 1,311 3.72% 12,588 353 2.80% 6,477 211
Certificates........................ 4,636 5.62% 43,391 2,507 5.78% 16,793 900
----------- ----------- ----------- ----------- -----------
Total interest-bearing deposits... 6,142 4.91% 60,614 2,999 4.95% 26,351 1,177
Other borrowed funds.................. 423 5.98% 1,950 108 5.54% 1,406 93
----------- ----------- ----------- ----------- -----------
Total interest-bearing
liabilities..................... 6,565 4.97% 62,564 3,107 4.97% 27,757 1,270
Demand deposits....................... 7,753 984
Other liabilities..................... 1,967 1,938
Stockholders' equity.................. 10,030 6,534
----------- -----------
Total liabilities and
stockholders' equity............ $ 82,314 $ 37,213
----------- -----------
----------- -----------
Interest rate spread.................. 3.74% 4.08%
--------- ---------
--------- ---------
(Average yield less average rate)
Net interest income................... $ 7,753 $ 3,629 $ 1,292
----------- ----------- -----------
----------- ----------- -----------
(Interest income less interest
expense)
Net Interest Margin................... 4.72% 4.87%
--------- ---------
--------- ---------
(Net interest income/total earning
assets)
<CAPTION>
YIELD/
RATE
---------
Assets:
Loans (net of unearned income) (2).... 8.73%
Mortgage-backed securities available
for sale............................ --
Interest-bearing bank balances........ 5.36%
Treasury notes and agencies held to
maturity............................ 0.00%
Other earning assets.................. 7.31%
Total earning assets................ 7.90%
Allowance for loan losses.............
Other assets..........................
Total assets........................
Liabilities and stockholders' equity:
Deposits:
Savings............................. 2.14%
NOW/MMDA............................ 3.26%
Certificates........................ 5.36%
Total interest-bearing deposits... 4.47%
Other borrowed funds.................. 6.61%
Total interest-bearing
liabilities..................... 4.58%
Demand deposits.......................
Other liabilities.....................
Stockholders' equity..................
Total liabilities and
stockholders' equity............
Interest rate spread.................. 3.32%
---------
---------
(Average yield less average rate)
Net interest income...................
(Interest income less interest
expense)
Net Interest Margin................... 3.99%
---------
---------
(Net interest income/total earning
assets)
</TABLE>
- ------------------------
(1) Average balances were calculated using month end (which approximates daily
averages) as daily averages were not available.
(2) Loans held for sale and loans on nonaccrual status are included in the
calculation of average balances.
23
<PAGE>
Changes in interest income and interest expense result from variances in
both volume and rates. The Company has an asset and liability management policy
designed to provide a balance between rate sensitive assets and rate sensitive
liabilities to attempt to optimize interest margins and to provide adequate
liquidity for anticipated needs. The "Rate/Volume Analysis" table below
indicates the changes in the Company's net interest income as a result of
changes in volume and rates.
RATE/VOLUME ANALYSIS (IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
COMPARED TO
THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------
<S> <C> <C> <C>
NET
AVERAGE AVERAGE INCREASE/
VOLUME RATE (DECREASE)
--------- ----------- -----------
Interest Income:
Loans (net of unearned income).............................................. $ 1,250 $ 8 $ 1,258
Mortgage-backed securities available for sale............................... 412 -- 412
Interest-bearing bank balances.............................................. (73) 16 (57)
Treasury notes and agencies held to maturity................................ 4 14 18
Other earnings assets....................................................... 127 (1) 126
-----------
Total interest income(1).................................................... 1,783 (26) 1,757
-----------
Interest Expense:
Savings..................................................................... 13 3 16
NOW/MMDA.................................................................... 589 81 670
Certificates................................................................ 135 103 238
Other borrowed funds........................................................ 115 (3) 112
-----------
Total interest expense(1)................................................... 933 103 1,036
-----------
Change in net interest income(1).............................................. 850 (129) $ 721
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
COMPARED TO
YEAR ENDED DECEMBER 31, 1996
-----------------------------------
<S> <C> <C> <C>
NET
AVERAGE AVERAGE INCREASE/
VOLUME RATE (DECREASE)
--------- ----------- -----------
Interest Income:
Loans (net of unearned income)................................................... $ 5,758 $ 19 $ 5,777
Mortgage-backed securities available for sale.................................... 521 -- 521
Interest-bearing bank balances................................................... 703 (16) 687
Treasury notes and agencies held to maturity..................................... 530 -- 530
Other earnings assets............................................................ 60 7 67
-----------
Total interest income(1)......................................................... 8,141 (559) 7,582
-----------
Interest Expense:
Savings.......................................................................... 69 (13) 56
NOW/MMDA......................................................................... 843 115 958
Certificates..................................................................... 2,199 (70) 2,129
Other borrowed funds............................................................. 306 9 315
-----------
Total interest expense (1)....................................................... 3,458 -- 3,458
-----------
Change in net interest income (1).................................................. 4,683 (559) $ 4,124
-----------
-----------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
COMPARED TO
YEAR ENDED DECEMBER 31, 1995
-----------------------------------
<S> <C> <C> <C>
NET
AVERAGE AVERAGE INCREASE/
VOLUME RATE (DECREASE)
--------- ----------- -----------
Interest Income:
Loans (net of unearned income)................................................... $ 4,012 $ 183 $ 4,195
Mortgage-backed securities available for sale.................................... (177) -- (177)
Interest-bearing bank balances................................................... 120 44 164
Other earnings assets............................................................ 3 (11) (8)
-----------
Total interest income(1)......................................................... 3,806 368 4,174
-----------
Interest Expense:
Savings.......................................................................... 47 26 73
NOW/MMDA......................................................................... 171 (29) 142
Certificates..................................................................... 1,537 70 1,607
Other borrowed funds............................................................. 30 (15) 15
-----------
Total interest expense (1)....................................................... 1,730 107 1,837
-----------
Change in net interest income(1)................................................... 2,076 261 $ 2,337
-----------
-----------
</TABLE>
(1) Volume and rate variances are not additive due to the change in product mix.
Changes due to product mix (i.e. combined rate/volume variances) are
reflected in the "Average Rate"column.
NONINTEREST INCOME
Noninterest income is principally derived from mortgage banking activities,
service fees on deposit accounts, ATM fees and gains on sale of investment
securities.
The following table sets forth the principal components of the Company's
noninterest income during the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
------------ ---------- ------------ ------------ ----------
Gain on sale of loans.......................... $ 236,828 $ 143,906 $ 430,353 $ -- $ --
Service fees on deposits....................... 392,366 260,419 864,533 336,662 94,918
Gain on sale of securities..................... 284,797 13,500 479,360 330,030 8,970
Other operating income......................... 118,692 39,480 577,442 407,251 93,126
------------ ---------- ------------ ------------ ----------
Total noninterest income....................... $ 1,032,683 $ 457,305 $ 2,351,688 $ 1,073,943 $ 197,014
------------ ---------- ------------ ------------ ----------
------------ ---------- ------------ ------------ ----------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED MARCH 31,
1997. Noninterest income increased $575,378 or 125.82% for the first quarter
1998 to $1,032,683 from $457,305 in 1997. The principal reasons were an increase
in gains on the sale of securities, an increase in gains on sale of loans sold
by First Mariner Mortgage Corporation, and an increase in deposit related fees,
primarily ATM fees and overdraft fees. First Mariner Mortgage Corporation sold
$28,663,000 of residential mortgage loans in the first quarter of 1998 compared
to approximately $4,900,000 in the first quarter of 1997.
1997 VERSUS 1996. Noninterest income for year ended December 31, 1997 was
$2,351,688 as compared to $1,073,974 for the year ended December 31, 1996, an
increase of $1,277,714 or 118.97%. This increase, to a large extent, was due to
an increase in service fees on deposits and ATM fees as a result of increased
volume and changes in pricing. Deposit service charges rose 156.80% over the
prior year due to
25
<PAGE>
a 153.75% increase in average demand deposits. This growth was the result of the
expanded branch network and continued promotion and sales effort of new retail
deposit products. An increase in ATM fees resulting from higher volume and
changes in pricing account for the majority of the increase in other operating
income. An increase in mortgage production to $79,600,000 in 1997, more than
triple the $24,700,000 in loans closed in 1996, accounted for the increase in
gain on sale of loans. In addition, a gain of $479,360 was realized on the sale
of available-for-sale securities in 1997.
1996 VERSUS 1995. Noninterest income for the year ended December 31, 1996
was $1,073,943 as compared to $197,014 for the year ended December 31, 1995, an
increase of $876,929 or 445.1%. This increase, to a large extent, was due to a
gain realized on the sale of securities in 1996 of $330,030. Other significant
increases were experienced in service fees on loans which increased to $303,353
from $84,173 or 260.4% and service fees on deposits which increased to $336,662
from $94,918 or 254.7%. These increases were due to significantly increased
activity in both deposits and loans.
NONINTEREST EXPENSE
The following table sets forth the principal components of the Company's
noninterest expense during the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
Salaries and employee benefits............. $ 1,471,183 $ 960,721 $ 4,370,685 $ 2,744,057 $ 1,189,172
Net occupancy.............................. 399,518 232,236 1,269,291 786,825 275,660
Deposit insurance premiums................. 27,407 13,025 76,880 229,293 79,783
Furniture, fixtures and equipment.......... 148,497 97,999 360,407 253,394 82,968
Professional services...................... 160,493 38,564 380,124 135,811 233,448
Advertising................................ 170,492 116,400 574,308 379,566 147,549
Data processing............................ 192,000 101,000 533,244 452,090 156,101
Other...................................... 600,015 458,623 1,894,021 855,699 416,730
------------ ------------ ------------ ------------ ------------
Total noninterest expense................ $ 3,169,605 $ 2,018,568 $ 9,458,960 $ 5,836,735 $ 2,581,411
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED MARCH 31, 1997.
First quarter noninterest expense increased $1,151,037 or 57.02% to $3,169,605
in 1998 from $2,018,568 in 1997. Increases in almost all areas were incurred to
support the substantially increased asset base and the expanding branch network.
1997 VERSUS 1996. Noninterest expense totaled $9,458,960 for the year ended
December 31, 1997 as compared to $5,836,735 for the year ended December 31,
1996, an increase of $3,622,225 or 62.06%. This increase reflects management's
continued emphasis on growth through branch expansion as well as significant
increases in loans and deposits and the cost of originating and servicing that
growth.
Salaries and benefits increased $1,626,628 or 59.28% as a result of
additional staffing in the retail branches and mortgage lending offices due to
the Company's expansion programs. Also, additional employees were added to
support the loan and deposit growth. Occupancy costs grew $482,466 or 61.32%
over 1996. This increase is due to the additional branches as well as additional
space requirements at the headquarters building. Advertising expense grew by
$194,742 or 51.31% because of management's decision to increase public awareness
through television, radio and the print media. The increase in other expenses is
primarily due to additional branch locations, expansion of First Mariner
Mortgage Corporation and higher volumes of loans, deposits and transactions.
26
<PAGE>
While total noninterest expense increased $3,622,225, noninterest expense as
a percent of average total assets decreased from 1996 to 1997. Noninterest
expense as a percent of average total assets was 5.37% in 1997 as compared to
7.10% in 1996.
1996 VERSUS 1995. Noninterest expense totaled $5,836,735 for the year ended
December 31,1996 as compared to $2,581,411 for the year ended December 31,1995,
an increase of $3,255,324 or 126.1%. This increase reflects increased
administrative expenses and management's continuing emphasis on growth through
branching. Also included in the operating expenses for 1996 was the accrual of a
one-time federal assessment of $154,000 to recapitalize the Savings Association
Insurance Fund. Noninterest expense as a percentage of average total assets
increased to 7.1% for the year ended December 31,1996 as compared to 6.9% for
the year ended December 31,1995. Salaries and employee benefits continued to
account for the largest component of noninterest expense, comprising 47.0% of
total noninterest expenses for 1996 and 46.1% for 1995. The increase was due to
increased staffing as a result of administrative personnel necessary to
effectively serve a significantly increased customer base. Occupancy expense
increased to $786,825 for 1996 as compared with $275,660 for 1995, an increase
of $511,165, or 185.4%, caused by the Company's continuing expansion into new
local markets. As a result of this growth, other major components of noninterest
expense increased as well.
INCOME TAXES
In assessing the realizability of the deferred tax asset, management has
determined that the valuation allowance was not required for all of the deferred
tax asset at December 31, 1997. Management believes that a portion of the
deferred tax asset will be realized based on expected future operating profits.
The Company did not recognize any income taxes for the three months ended March
31, 1998 or 1997 due to the availability of net operating loss carryforwards.
The amount of the net operating loss carryforward for federal income tax
purposes at December 31, 1997 approximates $2,125,000. As a result of ownership
changes, utilization of a portion of the net operating loss carryforward is
subject to an annual limitation.
FINANCIAL CONDITION
ASSETS
MARCH 31, 1998 VERSUS DECEMBER 31, 1997. The Company's total assets were
$263,809,000 at March 31, 1998, compared to $256,984,000 at December 31, 1997,
increasing $6,825,000 or 2.66% for the first three months of 1998. Earning
assets increased $2,876,000 or 1.22% to $237,973,000 from $235,097,000.
1997 VERSUS 1996. At December 31, 1997, the Company's total assets were
$256,984,000 as compared to $132,562,000 at December 31, 1996, an increase of
93.9%. This increase was primarily due to the continued growth in the branch
network and the successful marketing of deposit and loan products. The Bank's
overall asset size and customer base, both consumer and commercial, increased
significantly during 1996 and this growth continued through 1997.
1996 VERSUS 1995. At December 31, 1996, the Company's total assets were
$132,562,000 as compared to $52,798,000 at December 31, 1995, an increase of
151.1%. This increase was primarily due to the continued growth in the branch
network and marketing of deposit and loan products. The Bank's overall asset
size and customer base, both individual and commercial, increased significantly
during 1995 and this growth continued through 1996.
27
<PAGE>
COMPOSITION OF LOAN PORTFOLIO
Because loans are expected to produce higher yields than investment
securities and other interest-earning assets, the absolute volume of loans and
the volume as a percentage of total earning assets is an important determinant
of net interest margin.
MARCH 31, 1998 VERSUS DECEMBER 31, 1997. Total loans receivable increased
$16,459,000 or 11.42% to $160,531,000 for the first three months of 1998.
Loans held for sale decreased $1,165,000 from $16,895,000 at December 31,
1997 to $15,730,000 at March 31, 1998, reflecting normal mortgage banking
activity in the Bank's mortgage banking subsidiary, First Mariner Mortgage
Corporation. First Mariner Mortgage Corporation sold $28,663,000 of residential
mortgages during the first quarter of 1998 in comparison to approximately
$4,900,000 in 1997.
1997 VERSUS 1996. Total loans receivable at December 31, 1997 were
$144,072,000 as compared to $92,064,000 on December 31, 1996, which represents
an increase of $52,008,000 or 56.49%. During 1997 average loans were
$124,794,000 and constituted 75.95% of earning assets and 70.79% of total
average assets. This average loan balance represents an increase of $60,088,000
or 92.86% over 1996.
Significant growth was experienced in residential real estate which
increased $17,256,000 and commercial real estate and construction loans which
increased $25,151,000. At December 31, 1997 the loan to deposit ratio was 73.03%
as compared to 90.00% at December 31, 1996.
1996 VERSUS 1995. Total loans, at December 31, 1996 were $92,064,000 as
compared to $29,935,000 on December 31, 1995 which represents an increase of
$62,129,000 or 207.6%. Significant growth was experienced in commercial real
estate and construction loans which increased $44,413,000 and commercial loans
which increased $16,227,000. At December 31,1996 the loan to deposit ratio was
90.0% as compared to 72.4% at December 31, 1995. During the year ended December
31, 1996 average loans were $64,706,000 and constituted 86.9% of earning assets
and 78.6% of total assets for the same period. This average loan balance
represents an increase of $42,007,000 or 185.1% over the year ended December 31,
1995. During the year ended December 31, 1995, average loans were $22,699,000
and constituted 70.0% of average earning assets and 61.0% of average total
assets.
The following table sets forth the composition of the Bank's loan portfolio.
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
MARCH 31, 1998 1997 1996 1995 1994
-------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
TYPE OF LOANS
Commercial................................ $ 24,076,283 $ 24,118,724 $ 17,096,663 $ 869,641 $ 886,976
Commercial real estate and
construction(1)......................... 88,410,062 81,039,474 55,888,029 11,474,741 799,177
Residential real estate................... 41,184,604 34,396,190 17,140,556 16,215,918 16,886,708
Consumer.................................. 7,222,533 4,992,111 2,566,226 1,450,721 1,327,400
-------------- -------------- ------------- ------------- -------------
Total loans........................... 160,893,482 144,546,499 92,691,474 30,011,021 19,900,261
Add:
Unamortized loan premiums............... 123,127 139,564 205,311 283,926 375,708
Less:
Unearned income......................... 486,087 614,102 832,712 360,051 171,866
Unearned loan discounts................. -- -- -- -- 73,677
-------------- -------------- ------------- ------------- -------------
Net loans............................. $ 160,530,522 $ 144,071,961 $ 92,064,073 $ 29,934,896 $ 20,030,426
-------------- -------------- ------------- ------------- -------------
-------------- -------------- ------------- ------------- -------------
</TABLE>
- ------------------------
(1) Net of undisbursed principal
28
<PAGE>
Interest rates on variable rate loans adjust to the current interest rate
environment, whereas fixed rates do not allow this flexibility. If interest
rates were to increase in the future, the interest earned on the variable rate
loans would improve, and if rates were to fall the interest earned would
decline, thus impacting the Company's income. See also the discussion under
"Liquidity and Interest Rate Sensitivity" below. The following table sets forth
the maturity distribution, classified according to sensitivity to changes in
interest rate, for the Company's loan portfolio. Some of the loans may be
renewed or repaid prior to maturity. Therefore, the following table should not
be used as a forecast of future cash collections.
MATURITY SCHEDULE OF SELECTED LOANS (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UP TO MORE THAN 5 YEARS UP TO MORE THAN 5 YEARS
ONE 1 YEAR TO 10 + ONE 1 YEAR TO 10 +
YEAR TO 5 YEARS 10 YEARS YEARS TOTAL YEAR TO 5 YEARS 10 YEARS YEARS
--------- ----------- ----------- --------- --------- --------- ----------- ----------- ---------
Residential real
estate.......... $ 2,568 $ 2,008 $ 1,811 $ 28,009 $ 34,396 $ 1,810 $ 3,512 $ 2,475 $ 9,343
Commercial real
estate and
construction.... 41,499 25,658 12,628 1,254 81,039 21,240 26,446 6,176 2,026
Commercial........ 9,111 8,303 6,303 402 24,119 12,159 4,594 344 --
Consumer.......... 696 970 3,254 72 4,992 21 2,482 63 --
--------- ----------- ----------- --------- --------- --------- ----------- ----------- ---------
Total........... $ 53,874 $ 36,939 $ 23,996 $ 29,737 $ 144,546 $ 35,230 $ 37,034 $ 9,058 $ 11,369
--------- ----------- ----------- --------- --------- --------- ----------- ----------- ---------
--------- ----------- ----------- --------- --------- --------- ----------- ----------- ---------
Fixed interest
rate............ $ 9,633 $ 26,984 $ 14,711 $ 11,942 $ 63,270 $ 9,070 $ 25,056 $ 3,835 $ 7,844
Variable interest
rate............ 44,241 9,955 9,285 17,795 81,276 26,160 11,978 5,223 3,525
--------- ----------- ----------- --------- --------- --------- ----------- ----------- ---------
Total........... $ 53,874 $ 36,939 $ 23,996 $ 29,737 $ 144,546 $ 35,230 $ 37,034 $ 9,058 $ 11,369
--------- ----------- ----------- --------- --------- --------- ----------- ----------- ---------
--------- ----------- ----------- --------- --------- --------- ----------- ----------- ---------
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UP TO MORE THAN 5 YEARS
ONE 1 YEAR TO 10 +
TOTAL YEAR TO 5 YEARS 10 YEARS YEARS TOTAL
--------- --------- ----------- ----------- --------- ---------
Residential real
estate.......... $ 17,140 $ 3,811 $ 3,449 $ 1,132 $ 7,824 $ 16,216
Commercial real
estate and
construction.... 55,888 8,886 2,209 15 365 11,475
Commercial........ 17,097 585 166 118 -- 869
Consumer.......... 2,566 399 795 24 233 1,451
--------- --------- ----------- ----------- --------- ---------
Total........... $ 92,691 $ 13,681 $ 6,619 $ 1,289 $ 8,422 $ 30,011
--------- --------- ----------- ----------- --------- ---------
--------- --------- ----------- ----------- --------- ---------
Fixed interest
rate............ $ 45,805 $ 6,567 $ 3,177 $ 619 $ 4,043 $ 14,406
Variable interest
rate............ 46,886 7,114 3,442 670 4,379 15,605
--------- --------- ----------- ----------- --------- ---------
Total........... $ 92,691 $ 13,681 $ 6,619 $ 1,289 $ 8,422 $ 30,011
--------- --------- ----------- ----------- --------- ---------
--------- --------- ----------- ----------- --------- ---------
</TABLE>
LOAN QUALITY
The Bank attempts to manage the risk characteristics of its loan portfolio
through various control processes, such as credit evaluation of borrowers,
establishment of lending limits and application of lending procedures, including
the holding of adequate collateral and the maintenance of compensating balances.
However, the Bank seeks to rely primarily on the cash flow of its borrowers as
the principal source of repayment. Although credit policies are designed to
minimize risk, management recognizes that loan losses will occur and the amount
of these losses will fluctuate depending on the risk characteristics of the loan
portfolio as well as general and regional economic conditions.
The allowance for loan losses represents a reserve for potential losses in
the loan portfolio. The adequacy of the allowance for loan loss is evaluated
periodically based on a review of all significant loans, with a particular
emphasis on nonaccruing, past due and other loans that management believes
require special attention.
For significant problem loans, management's review consists of evaluation of
the financial strengths of the borrower and any guarantor, the related
collateral, and the effects of economic conditions. Specific reserves against
the remaining loan portfolio are based on analysis of historical loan loss
ratios, loan chargeoffs, delinquency trends, previous collection experience, and
the risk rating on each individual loan along with an assessment of the effects
of external economic conditions. The provision for loan losses is a charge to
earnings in the current period to replenish the allowance and to maintain it at
a level management has determined to be adequate.
29
<PAGE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED ----------------------------------------------
MARCH 31, 1998 1997 1996 1995 1994
-------------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses, beginning of
period...................................... $ 1,613,621 $ 1,241,663 $ 376,287 $ 244,847 $ 207,409
-------------- ----------- --------- ---------- ----------
Loans charged off:
Commercial.................................. (95,000) (100,001) (157,365) (8,595) --
Real estate................................. -- -- (48,680) (47,307) (14,825)
Consumer.................................... -- -- (42,147) (3,959) (6,815)
-------------- ----------- --------- ---------- ----------
Total loans charged off................... (95,000) (100,001) (248,192) (59,861) (21,640)
-------------- ----------- --------- ---------- ----------
Recoveries:
Commercial.................................. -- -- 63,000 -- --
Real estate................................. -- -- -- -- --
Consumer.................................... 1,396 -- 10,932 1,250 --
-------------- ----------- --------- ---------- ----------
Total recoveries.......................... 1,396 -- 73,932 1,250 --
-------------- ----------- --------- ---------- ----------
Net chargeoffs (93,604) (100,001) (174,260) (58,611) (21,640)
-------------- ----------- --------- ---------- ----------
Provision for loan losses..................... 152,467 471,959 1,039,636 190,051 59,078
-------------- ----------- --------- ---------- ----------
Allowance for loan losses, end of period...... $ 1,672,484 $ 1,613,621 $1,241,663 $ 376,287 $ 244,847
-------------- ----------- --------- ---------- ----------
-------------- ----------- --------- ---------- ----------
Loans (net of premiums and discounts)
Period-end balance.......................... 160,531,000 144,072,000 92,064,000 29,935,000 20,030,000
Average balance during period............... 147,702,000 124,794,000 64,706,000 22,699,000 19,865,000
Allowance as percentage of period-end loan
balance..................................... 1.04% 1.12% 1.35% 1.26% 1.22%
Percent of average loans:
Provision for loan losses................... 0.42% 0.38% 1.61% 0.84% 0.30%
Net chargeoffs.............................. 0.26% 0.08% 0.27% 0.26% 0.11%
</TABLE>
Management's judgment as to the level of future losses on existing loans is
based on management's internal review of the loan portfolio, including an
analysis of the borrowers' current financial position, the consideration of
current and anticipated economic conditions and their potential effects on
specific borrowers. In determining the collectibility of certain loans,
management also considers the fair value of any underlying collateral. However,
management's determination of the appropriate allowance level is based upon a
number of assumptions about future events, which are believed to be reasonable,
but which may or may not prove valid. Thus, there can be no assurance that
chargeoffs in future period will not exceed the allowance for loan losses or
that additional increases in the allowance for loan losses will not be required.
The table below indicates the specific reserves allocated by loan type and also
the general reserves included in the allowance for loan losses.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
MARCH 31, 1998 1997 1996
------------------------------------ ------------------------------------ -----------------------
PERCENT OF PERCENT OF
PERCENT LOANS TO PERCENT LOANS TO PERCENT
AMOUNT OF TOTAL TOTAL LOANS AMOUNT OF TOTAL TOTAL LOANS AMOUNT OF TOTAL
------------ --------- ----------- ------------ --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.................... $ 208,640 12.5% 15.0% $ 205,463 12.7% 16.7% $ 75,430 6.1%
Real estate................... 946,786 56.6% 80.6% 918,226 56.9% 79.8% 793,014 63.9%
Consumer...................... 21,597 1.3% 4.4% 13,577 0.8% 3.5% 8,460 0.7%
Unallocated................... 495,461 29.6% 476,355 29.6% 364,759 29.3%
------------ --------- ----------- ------------ --------- ----------- ------------ ---------
Total....................... $ 1,672,484 100.0% 100.0% $ 1,613,621 100.0% 100.0% $ 1,241,663 100.0%
------------ --------- ----------- ------------ --------- ----------- ------------ ---------
------------ --------- ----------- ------------ --------- ----------- ------------ ---------
<CAPTION>
1995 1994
---------------------------------- ----------------------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS TO PERCENT LOANS TO PERCENT LOANS TO
TOTAL LOANS AMOUNT OF TOTAL TOTAL LOANS AMOUNT OF TOTAL TOTAL LOANS
----------- ---------- --------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial.................... 18.4% $ 43,879 11.7% 2.9% $ 5,142 2.1% 4.5%
Real estate................... 78.8% 92,449 24.5% 92.3% 157,682 64.4% 88.8%
Consumer...................... 2.8% 28,229 7.5% 4.8% 8,570 3.5% 6.7%
Unallocated................... 211,730 56.3% 73,453 30.0%
----------- ---------- --------- ----------- ---------- --------- -----------
Total....................... 100.0% $ 376,287 100.0% 100.0% $ 244,847 100.0% 100.0%
----------- ---------- --------- ----------- ---------- --------- -----------
----------- ---------- --------- ----------- ---------- --------- -----------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED MARCH 31,
1997. The first quarter provision for loan losses was $152,467 in 1998 compared
to $135,000 for the three month period in 1997.
30
<PAGE>
Net chargeoffs for March 31, 1998 were $93,604 compared to no net chargeoffs
recorded for the same three month period in 1997. The allowance for loan losses
stands at $1,672,484 at March 31, 1998 compared to $1,613,621 at December 31,
1997. As of March 31, 1998 the allowance for loan loss is 1.04% of outstanding
loans as compared to 1.12% on December 31, 1997.
1997 VERSUS 1996. The Company provided $471,959 for loan losses for the
year ended December 31, 1997, as compared to $1,039,636 for the year ended
December 31, 1996.
As of December 31, 1997 the allowance for loan losses was $1,613,621, as
compared with the December 31, 1996 balance of $1,241,663, an increase of
$371,958. Net chargeoffs of $100,001 were recognized for 1997. The growth in the
reserve was warranted by the growth in the loan portfolio. The allowance for
loan losses at December 31, 1997 represented 1.12% of outstanding loans as
compared with 1.35% as of December 31, 1996. The decrease in the percentage was
based on management's evaluation of the loan portfolio as of December 31, 1997
including the individual risk rating of all non consumer loans and the
disproportionate increase in Residential Real Estate loans which traditionally
require a lower allowance for loan losses. Residential Real Estate loans
represented 23.28% of the loan portfolio at year end 1997 versus 18.36% in 1996.
1996 VERSUS 1995. The Company provided $1,039,636 for loan losses for the
year ended December 31, 1996, as compared to $190,051 for the year ended
December 31, 1995.
As of December 31, 1996 the allowance for loan losses was $1,241,663, as
compared with the December 31, 1995 balance of $376,287, an increase of
$865,376. Net chargeoffs of $174,260 were recognized for 1996. The growth in the
reserve was warranted by the growth in the loan portfolio. The allowance for
loan losses at December 31, 1996 represented 1.35% of outstanding loans as
compared with 1.26% as of December 31, 1995. The increase in the percentage was
based on management's evaluation of the loan portfolio as of December 31, 1996.
CREDIT RISK MANAGEMENT
As a result of management's ongoing review of the loan portfolio, a loan may
be classified as nonaccrual even though the presence of collateral or the
borrower's financial strength may be sufficient to provide for ultimate
repayment. Interest on nonaccrual loans is recognized only when received.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
MARCH 31, 1998 1997 1996 1995 1994
-------------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual basis........................... $ 1,356,000 $ 1,550,000 $ 1,574,000 $ 633,000 $ 692,000
Real estate acquired by foreclosure................. 2,420,000 1,944,000 -- -- --
-------------- ------------ ------------ ---------- ----------
Total non-performing assets....................... $ 3,776,000 $ 3,494,000 $ 1,574,000 $ 633,000 $ 692,000
-------------- ------------ ------------ ---------- ----------
-------------- ------------ ------------ ---------- ----------
Loans past-due 90 days or more and accruing......... $ 268,000 $ 276,000 (1) (1) (1)
-------------- ------------ ------------ ---------- ----------
-------------- ------------ ------------ ---------- ----------
</TABLE>
- ------------------------
(1) Data not available
MARCH 31, 1998 VERSUS DECEMBER 31, 1997. Non-performing assets, expressed
as a percentage of total assets, increased to 1.45% at March 31, 1998 from 1.36%
at December 31, 1997, reflecting the increase in real estate acquired by
foreclosure. Nonaccrual loans were $1,356,000 at March 31, 1998 compared to
$1,550,000 at December 31, 1997. At March 31, 1998, the allowance for loan
losses represented 123.3% of nonaccruing loans compared to 104.1% at December
31, 1997. Management believes the allowance for loan losses at March 31, 1998 is
adequate.
31
<PAGE>
At December 31, 1997, impaired loans which are included in nonaccrual loans
amounted to $1,057,000. These impaired loans are classified as collateral
dependent and, accordingly are recorded at the lower of cost or the fair value
of the collateral. The real estate acquired by foreclosure consists of a land
development project consisting of 229 residential building lots with a carrying
value of $1,054,000, and a 24-unit condominium building with a carrying value of
approximately $890,000. The land development project is being completed under
the direction of the Company. As of December 31, 1997, 107 lots were under
contract for settlement through July 2000, and the remainder of the project was
being marketed for sale.
CAPITAL RESOURCES
Banking regulatory authorities have implemented strict capital guidelines
directly related to the credit risk associated with an institution's assets.
Banks and bank holding companies are required to maintain capital levels based
on their "risk adjusted" assets so that categories of assets with higher
"deemed" credit risks will require more capital support than assets with lower
risk. Additionally, capital must be maintained to support certain off-balance
sheet instruments.
The Bank has exceeded its capital adequacy requirements to date. The Company
continually monitors its capital adequacy ratios to assure that the Bank exceeds
its regulatory capital requirements.
Capital is classified as Tier 1 (common stockholders' equity less certain
intangible assets) and Total Capital (Tier 1 plus the allowance for loan
losses). Minimum required levels must at least equal 4% for Tier 1 capital and
8% for Total Capital. In addition, institutions must maintain a minimum 4% Tier
1 leverage capital ratio (Tier 1 capital to average total assets for the
previous quarter). The Bank's capital position was as follows for the periods
presented:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
MARCH 31, 1998 1997 1996 1995
--------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total capital to risk weighted assets................................ 10.4% 12.0% 14.2% 32.1%
Tier 1 capital to risk weighted assets............................... 9.5% 11.0% 13.3% 30.9%
Tier 1 capital leverage ratio........................................ 8.0% 10.2% 14.7% 25.4%
</TABLE>
MARCH 31, 1998 VERSUS DECEMBER 31, 1997. Stockholders' equity increased
$238,485 or 0.88% in 1998 to $27,204,141 from $26,965,656 as of December 31,
1997. No dividends have been declared by the Company since its inception.
1997 VERSUS 1996. Stockholders' equity was $26,965,596 as of December 31,
1997 as compared to $23,796,002 as of December 31, 1996. The increase of
$3,169,594 was primarily the result of the proceeds of the issuance of common
stock in January, 1997 and of the exercise of warrants and options (6,000 and
8,300 respectively) and 1997 income of $365,336.
1996 VERSUS 1995. Stockholders' equity was $23,796,002 as of December 31,
1996 as compared to $10,701,986 as of December 31, 1995. The increase of
$13,094,016 was primarily the result of the proceeds of the stock sale in
December, 1996 of $15,249,410 reduced by the 1996 loss of $2,173,319.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The primary objective of asset/liability management is to ensure the steady
growth of the Company's primary earnings component, net interest income. Net
interest income can fluctuate with significant interest rate movements. To
lessen the impact of these rate swings, management endeavors to structure the
balance sheet so that repricing opportunities exist for both assets and
liabilities in roughly equivalent amounts at approximately the same time
intervals. Imbalances in these repricing opportunities at any point in time
constitute interest rate sensitivity.
The measurement of the Company's interest rate sensitivity, or "gap," is one
of the principal techniques used in asset/liability management. Interest
sensitive gap is the dollar difference between assets
32
<PAGE>
and liabilities which are subject to interest-rate pricing within a given time
period, including both floating rate or adjustable rate instruments and
instruments which are approaching maturity.
The Company's management and the Board of Directors oversee the
asset/liability management function and meet periodically to monitor and manage
the balance sheet, control interest rate exposure, and evaluate pricing
strategies for the Company. The asset mix of the balance sheet is continually
evaluated in terms of several variables; yield, credit quality, appropriate
funding sources and liquidity. Management of the liability mix of the balance
sheet focuses on expanding the various funding sources.
In theory, interest rate risk can be diminished by maintaining a nominal
level of interest rate sensitivity. In practice, this is made difficult by a
number of factors including cyclical variation in loan demand, different impacts
on interest-sensitive assets and liabilities when interest rates change, and the
availability of funding sources. Accordingly, the Company undertakes to manage
the interest-rate sensitivity gap by adjusting the maturity of and establishing
rates on the earning asset portfolio and certain interest-bearing liabilities
commensurate with management's expectations relative to market interest rates.
Management generally attempts to maintain a balance between rate-sensitive
assets and liabilities as the exposure period is lengthened to minimize the
overall interest rate risk to the Bank.
As of March 31, 1998, the Company's interest sensitive liabilities exceeded
interest sensitive assets within a one year period by $21 million or 8% of
assets. The Company's savings products are structured to give management the
ability to reset the rates paid on a monthly basis. This causes the Company to
become more liability sensitive. If interest rates rise, the rate paid on
savings deposits may follow, and the Company's net interest margin may decline.
The Company believes that, as of March 31, 1998, its interest rate exposure is
less than 5% of capital, in a plus or minus 2% rate shock scenario.
The interest rate sensitivity position for period ended March 31, 1998 is
presented below in the table captioned "Rate Sensitivity Analysis." The
difference between rate-sensitive assets and rate-sensitive liabilities, or the
interest rate sensitivity gap, is shown at the bottom of the table.
RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------------------------------------
LONGER THAN
10 YEARS
180 DAYS 181 DAYS- ONE-FIVE FIVE-TEN OR NON-
OR LESS ONE YEAR YEARS YEARS SENSITIVE TOTAL
---------- ---------- --------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Interest-bearing deposits....................... $ 21,436 $ -- $ -- $ -- $ -- $ 21,436
Investment securities........................... 9,651 4,139 20,440 5,102 1,944 41,276
Loans held for sale............................. 15,730 -- -- -- -- 15,730
Loans........................................... 87,075 15,760 40,089 12,562 5,045 160,531
---------- ---------- --------- --------- ------------ ----------
Total interest-earnings assets................ $ 133,892 $ 19,899 $ 60,529 $ 17,664 $ 6,989 $ 238,973
---------- ---------- --------- --------- ------------ ----------
Interest-bearing liabilities:
Savings......................................... $ 2,600 $ 349 $ 2,796 $ 3,493 -- $ 9,238
NOW accounts.................................... 3,301 443 3,548 4,434 -- 11,726
Money market accounts........................... 66,509 -- -- -- -- 66,509
Certificates.................................... 36,257 33,241 16,161 -- -- 85,659
Borrowings...................................... 31,786 35 236 109 -- 32,166
---------- ---------- --------- --------- ------------ ----------
Total interest-bearing liabilities............ $ 140,453 $ 34,068 $ 22,741 $ 8,036 $ -- $ 205,298
---------- ---------- --------- --------- ------------ ----------
Interest rate sensitive gap....................... $ (6,561) $ (14,169) $ 37,788 $ 9,628 $ 6,989 $ 33,675
---------- ---------- --------- --------- ------------ ----------
---------- ---------- --------- --------- ------------ ----------
Cumulative interest rate gap...................... $ (6,561) $ (20,730) $ 17,058 $ 26,686 $ 33,675
---------- ---------- --------- --------- ------------
---------- ---------- --------- --------- ------------
Ratio of rate sensitive assets to rate sensitive
liabilities..................................... 95% 58% 266% 220%
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>
33
<PAGE>
Cash flows from financing activities, which included funds received from new
and existing depositors, provided a large source of liquidity for the years
ended December 31, 1997 and 1996. The Bank seeks to rely primarily on core
deposits from customers to provide stable and cost-effective sources of funding
to support asset growth. The Bank also seeks to augment such deposits with
longer term and higher yielding certificates of deposit. CD's of $100,000 or
more are summarized by maturity in the table below captioned "Maturity of Time
Deposits $100,000 or More." Other sources of funds available to the Bank include
short-term borrowings, primarily in the form of Federal Home Loan Bank
collateralized borrowings.
DEPOSITS
The Bank uses deposits as the primary source of funding of its assets. The
Bank has experienced significant growth in its deposits, especially in CD's. The
following table describes the maturity of time deposits of $100,000 or more.
MATURITY OF TIME DEPOSITS $100,000 OR MORE
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------- ------------- ------------
Under 3 months................................... $ 6,773,625 $ 1,056,043 $ 947,201
3 to 6 months.................................... 8,046,094 3,245,085 470,056
6 to 12 months................................... 4,169,824 2,759,789 521,703
Over 12 months................................... 3,117,059 4,266,016 706,687
------------- ------------- ------------
Total............................................ $ 22,106,602 $ 11,326,933 $ 2,645,647
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
MARCH 31, 1998 VERSUS DECEMBER 31, 1997. Deposits were $204,017,844 as of
March 31, 1998, increasing $6,748,516 or 3.42% from the December 31, 1997
balance of $197,269,328. The increase in deposits is attributable to activity
generated by an advertising campaign and the expanding branch network.
1997 VERSUS 1996. Total deposits have increased to $197,269,328 at December
31, 1997 which is an increase of 92.85% from $102,289,146 as of December 31,
1996.
1996 VERSUS 1995. Total deposits as of December 31, 1996 were $102,289,146
compared to $41,486,641 as of December 31, 1995, an increase of $60,802,505.
While the main source of these increases was CD's, all other types of deposits
increased as well, including savings accounts, money market savings deposits,
interest bearing deposits, and noninterest bearing demand deposits. These
increases reflect management's growth strategy which includes significant
marketing and promotion and the development of a branching network.
The Bank offers individuals and businesses a wide variety of accounts. These
accounts include checking, savings, money market and CD's and are obtained
primarily from communities which the Bank serves. The Bank holds no brokered
deposits. The following tables detail the average amount, the average rate paid
on, and the total of, the following primary deposit categories for the years
ended December 31, 1997, 1996 and 1995.
34
<PAGE>
AVERAGE DEPOSIT COMPOSITION AND COST
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------
AVERAGE AVERAGE PERCENT
BALANCE RATE OF TOTAL
-------------- ----------- -----------
<S> <C> <C> <C>
Noninterest-bearing demand deposits........................................... $ 16,374,000 -- 11.6%
-------------- -----
NOW & money market savings deposits........................................... 35,242,000 3.72% 24.9%
Regular savings deposits...................................................... 7,194,000 2.71% 5.1%
Time deposits................................................................. 82,552,000 5.62% 58.4%
-------------- -----
Total interest-bearing deposits............................................. 124,988,000 4.91% 88.4%
-------------- -----
Total deposits.............................................................. $ 141,362,000 4.34% 100.0%
-------------- --- -----
-------------- --- -----
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------
AVERAGE AVERAGE PERCENT
BALANCE RATE OF TOTAL
-------------- ----------- -----------
<S> <C> <C> <C>
Noninterest-bearing demand deposits........................................... $ 7,753,000 -- 11.3%
-------------- -----
NOW & money market savings deposits........................................... 12,588,000 2.80% 18.4%
Regular savings deposits...................................................... 4,635,000 3.00% 6.8%
Time deposits................................................................. 43,391,000 5.78% 63.5%
-------------- -----
Total interest-bearing deposits............................................. 60,614,000 4.95% 88.7%
-------------- -----
Total deposits.............................................................. $ 68,367,000 4.39% 100.0%
-------------- --- -----
-------------- --- -----
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------
AVERAGE AVERAGE PERCENT
BALANCE RATE OF TOTAL
-------------- ----------- -----------
<S> <C> <C> <C>
Noninterest-bearing demand deposits........................................... $ 984,000 -- 3.6%
-------------- -----
NOW & money market savings deposits........................................... 6,477,000 3.26% 23.7%
Regular savings deposits...................................................... 3,081,000 2.14% 11.3%
Time deposits................................................................. 16,793,000 5.36% 61.4%
-------------- -----
Total interest-bearing deposits............................................. 26,351,000 4.47% 96.4%
-------------- -----
Total deposits.............................................................. $ 27,335,000 4.31% 100.0%
-------------- --- -----
-------------- --- -----
</TABLE>
INVESTMENT SECURITIES
MARCH 31, 1998 VERSUS DECEMBER 31, 1997. The investment portfolio,
consisting of available-for-sale and held-to-maturity securities decreased
$1,077,080 from December 31, 1997. Interest bearing deposits as of March 31,
1998 fell $11,340,231 to $21,336,504 when compared to the December 31, 1997
balance of $32,676,735. Interest bearing deposits and securities designated as
available-for-sale represent a significant source of liquidity as of March 31,
1998.
1997 VERSUS 1996. The investment portfolio, consisting of
available-for-sale and held-to-maturity securities increased $40,029,033 from
December 31, 1996.
1996 VERSUS 1995. The investment portfolio, consisting of
available-for-sale and held-to-maturity securities increased $1,324,875 from
December 31, 1995.
The following table presents the composition of the Company's securities
portfolio as of March 31, 1998 and December 31, 1997, 1996 and 1995.
35
<PAGE>
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, 1998 1997 1996 1995
-------------- ------------- ------------ ---------
Investment securities-available for sale:
Mortgage-backed securities............................. $ 28,292,815 $ 24,255,633 $ -- $ --
FHLB Bonds............................................. 3,995,000 6,432,635 -- --
Other equity securities................................ 1,485,028 2,164,019 324,875 --
-------------- ------------- ------------ ---------
Total securities--available-for-sale................. 33,772,843 32,852,287 324,875 --
-------------- ------------- ------------ ---------
Investment securities--held to maturity:
U.S. Treasury securities............................... 6,503,985 8,501,621 1,000,000 --
Other securities....................................... 99,000 99,000 99,000 99,000
-------------- ------------- ------------ ---------
Total investment securities--held to maturity........ 6,602,985 8,600,621 1,099,000 99,000
-------------- ------------- ------------ ---------
Total investment securities.......................... $ 40,375,828 $ 41,452,908 $ 1,423,875 $ 99,000
-------------- ------------- ------------ ---------
-------------- ------------- ------------ ---------
</TABLE>
BORROWINGS
Short-term borrowings consist of Federal Home Loan Bank at Atlanta (FHLB)
advances and short-term promissory notes. The FHLB advances are available under
a specific collateral pledge and security agreement, which allows the Company to
borrow up to $38,000,000 and requires the Company to maintain collateral for all
of its borrowings in the form of specific first mortgage loans with outstanding
principal equal to 154% of the advances. Certain information regarding
borrowings appears in the following table.
BORROWINGS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------- ------------ ------------
Amount outstanding at year-end:
FHLB advances....................................................... $ 15,000,000 $ 6,000,000 $ --
Short-term promissory notes......................................... 15,330,935 -- --
Weighted average interest rate at year-end:
FHLB advances....................................................... 6.50% 6.95% --
Short-term promissory notes......................................... 4.83% -- --
Maximum outstanding at month-end:
FHLB advances....................................................... $ 15,000,000 $ 6,000,000 $ 3,150,000
Short-term promissory notes......................................... 15,460,935 -- --
Average outstanding:
FHLB advances....................................................... $ 1,904,000 $ 1,950,000 $ 1,406,000
Short-term promissory notes......................................... 4,128,000 -- --
Weighted average interest rate during the year:
FHLB advances....................................................... 6.05% 5.50% 6.60%
Short-term promissory notes......................................... 5.47% -- --
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and notes thereto presented elsewhere
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time and due to inflation. The impact of
inflation is reflected in
36
<PAGE>
the increased cost of the Company's operations. Unlike most industrial
companies, nearly all the assets of the Company are monetary in nature. As a
result, interest rates have a greater impact on the Company's performance than
do the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the price of goods and
services.
YEAR 2000 ACTION PLAN
In 1997, the Company adopted a Year 2000 Action Plan (the "Plan"). The Plan
identifies the process by which the Company will address Year 2000 related
issues. It also establishes a committee represented by all departments of the
Company, lead by senior management, assigned the responsibility to complete Year
2000 preparations, with a targeted completion date of December 31, 1999. The
Plan includes phases as follows: awareness; assessment; renovation; validation;
and implementation.
The Company relies heavily upon its third party service bureau to provide
its data processing services. The Company reviewed the Year 2000 plan
established by its data processing service bureau and regularly evaluates the
progress being made. In addition, the Company is working with other vendors to
ensure timely completion of the Year 2000 project.
Costs associated with the Year 2000 project will primarily include costs
incurred to upgrade existing software and hardware not currently Year 2000
compliant. The Company estimates that these costs will be incurred in the normal
course of business as software and hardware is ordinarily upgraded to keep pace
with technological advances. Actual costs are not expected to exceed $500,000
over a period of eighteen months.
RECENT ACCOUNTING DEVELOPMENTS
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 establishes
standards for the way public business enterprises are to report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997.
37
<PAGE>
BUSINESS
GENERAL
First Mariner Bancorp is a bank holding company formed in Maryland in 1994
under the name MarylandsBank Corp. The business of the Company is conducted
through its wholly owned subsidiary First Mariner Bank, whose deposits are
insured by the Federal Deposit Insurance Corporation. At May 1, 1998, the Bank,
which is headquartered in Baltimore City, serves the central region of the State
of Maryland through 18 full service branches and 33 Automated Teller Machines.
At March 31, 1998, the Company had total assets of $263,809,000.
The Bank is an independent community bank engaged in the general commercial
banking business with particular emphasis on the needs of individuals and small
to mid-sized businesses. The Bank emphasizes personal attention and professional
service to its customers while delivering a range of traditional and
contemporary financial products and performing many of the essential banking
services offered by its larger competitors. The Bank offers its customers access
to local bank officers who are empowered to act with flexibility to meet
customers' needs in order to foster and develop long-term loan and deposit
relationships. The Bank offers residential mortgage lending services through its
wholly owned subsidiary, First Mariner Mortgage Corporation.
The Company's executive offices are located at 1801 South Clinton Street,
Baltimore, Maryland 21224 and its telephone number is (410) 342-2600.
MARKET AREA AND MARKET STRATEGY
The Bank's core market is central Maryland, which consists primarily of
Baltimore City, Baltimore County, Harford County and Anne Arundel County. This
area contains a high concentration of population and businesses and the local
governments are committed to business development in the region. The Company
believes that its market area is economically stable and is largely middle-class
with a median family income of $44,000. Within its core market, the Company
opened 4 branches in 1997, 5 branches in 1996 and 5 branches in 1995. The Bank
opened a branch in Easton (Talbot County) on March 31, 1998 and a branch in
Perry Hall (Baltimore County) on April 20, 1998. The Bank has received
regulatory approvals to open a branch in Rosedale (Baltimore County) and a
branch in Severna Park (Anne Arundel County), and anticipates that these
branches will open during the third quarter of 1998.
As an independent Maryland-based community bank, the Bank is engaged in the
general commercial banking business with particular emphasis on the needs of
individuals and small to mid-sized business. The Bank emphasizes personal
attention and professional service to its customers while delivering a range of
traditional and contemporary financial products and performing many of the
essential banking services offered by its larger competitors. The Bank offers
its customers access to local bank officers who are empowered to act with
flexibility to meet customers' needs in order to foster and develop long-term
loan and deposit relationships. The Company believes that individuals and
businesses in its market area are dissatisfied with the large out-of-state
banking institutions which have acquired local banks. Management believes that
the Bank has a window of opportunity to establish business ties with customers
who have been displaced by the consolidations and who are anxious to forge
banking relationships with locally owned and managed institutions. These
consolidations also benefit the Bank by making available experienced and
entrepreneurial managers displaced by such consolidation and acquisition
opportunities from the remaining small independent banks in the Company's market
area.
38
<PAGE>
GROWTH STRATEGIES
The Company's continuing strategy is to capture market share and build a
community franchise for its shareholders, customers and employees. To do so, the
Company intends to:
--Expand its existing network of traditional branches and ATMs
ultimately to operate a contiguous delivery system to accommodate customers'
needs for a continuum of essential banking services;
--Continue to attract highly experienced, entrepreneurial managers and
staff with in-depth knowledge of the Bank's customers and target market;
--Acquire financial institutions or branches which offer compatible
products, marketing opportunities, potential cost savings or economies of
scale;
--Establish nontraditional joint ventures with retail establishments
such as Mars Super Markets and other retail entities that have high traffic
patterns; and
--Invest in new products and technology.
To implement the strategy to create nontraditional joint ventures with
retail establishments the Bank has opened 5 full service branches and installed
13 ATMs in Mars Super Markets, a local supermarket chain ("Mars"), and intends
to increase its presence in such stores in the future. Mars currently operates
16 markets, all of which are in the Bank's core market area. Christopher R.
D'Anna, executive vice president of Mars, and Dennis McCoy, former chief
executive officer of Mars, are directors of the Company.
The Company intends to expand its branch network through acquisitions
generally of small and mid-sized banks or bank branches that are strategically
placed within the market area. Management expects that future acquisitions will
be able to enhance profitability due to economies of scale or market synergies.
Potential candidates will be screened on the basis of compatibility, location
and size and quality of deposits and loans.
BANKING SERVICES
COMMERCIAL BANKING. The Bank focuses its commercial loan originations on
small and mid-sized businesses (generally up to $20 million in annual sales) and
such loans are generally accompanied by related deposits. Commercial loan
products include residential real estate construction loans; working capital
loans and lines of credit; demand, term and time loans; and equipment, inventory
and accounts receivable financing. The Bank offers a range of cash management
services and deposit products to its commercial customers. Computerized banking
is currently available to the Bank's commercial customers. Additionally, the
Bank has introduced a business credit card to commercial customers for use for
corporate purchases in addition to the more conventional uses for employee
travel and entertainment.
RETAIL BANKING. The Bank's retail banking activities emphasize consumer
deposit and checking accounts. An extensive range of these services is offered
by the Bank to meet the varied needs of its customers from young persons to
senior citizens including its recently developed and promoted "Absolutely Free
Checking." The Bank's services include alternatives to bank accounts, such as
mutual funds and annuities. Consumer loan products offered by the Bank include
home equity lines of credit, fixed rate second mortgages, new and used auto
loans, new and used boat loans, overdraft protection, unsecured personal credit
lines and the debit card.
MORTGAGE BANKING. The Bank's mortgage banking business is structured to
provide a source of fee income largely from the process of originating products
for sale on the secondary market. Mortgage banking capabilities include FHA/VA
origination; conventional and nonconforming mortgage underwriting; and
construction and permanent financing. The Bank intends to improve its
competitive position in
39
<PAGE>
this market by streamlining the mortgage underwriting process through the
introduction of advanced technology.
COMMUNITY REINVESTMENT ACT. The Bank has a strong commitment to its
responsibilities under the Community Reinvestment Act and actively searches for
opportunities to meet the development needs of all members of the community it
serves, including persons of low to moderate income in a manner consistent with
safe and sound banking practices. The Bank currently fulfills this commitment by
participating in loan programs sponsored or guaranteed by the SBA, FHA, VA,
Maryland Industrial Development Financing Authority, and the Settlement Expense
Loan Program.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. At March 31, 1998, the Bank's loan portfolio
totaled $160,531,000 representing approximately 60.9% of its total assets of
$263,809,000. The following table sets forth the Bank's loans by major
categories as of March 31, 1998:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
-------------- -----------
<S> <C> <C>
Commercial....................................................... $ 24,076,000 15.0%
Real Estate Development and Construction......................... 33,976,000 21.2%
Real Estate Mortgage:
Residential.................................................... 41,275,000 25.7%
Commercial..................................................... 53,982,000 33.6%
Consumer......................................................... 7,222,000 4.5%
-------------- -----
Loans Receivable................................................. $ 160,531,000 100.0%
-------------- -----
-------------- -----
</TABLE>
COMMERCIAL LOANS. The Bank originates secured and unsecured loans for
business purposes. Less than one percent of these loans are unsecured. Loans are
made to provide working capital to businesses in the form of lines of credit
which may be secured by real estate, accounts receivable, inventory, equipment
or other assets. The financial condition and cash flow of commercial borrowers
are closely monitored by the submission of corporate financial statements,
personal financial statements and income tax returns. The frequency of
submissions of required financial information depends on the size and complexity
of the credit and the collateral which secures the loan. It is the Bank's
general policy to obtain personal guarantees from the principals of the
commercial borrowers.
REAL ESTATE DEVELOPMENT AND CONSTRUCTION LOANS. The real estate development
and construction loan portfolio consisted of the following as of March 31, 1998:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
------------- -----------
<S> <C> <C>
Residential Construction........................................... $ 7,648,000 22.5%
Commercial Construction............................................ -- --
Residential Land Development....................................... 25,329,000 74.6%
Residential Land Acquisition....................................... 684,000 2.0%
Commercial Land Acquisition........................................ 315,000 0.9%
------------- -----
Total Real Estate--Development and Construction.................... $ 33,976,000 100.0%
------------- -----
------------- -----
</TABLE>
The Bank provides interim residential real estate development and
construction loans to builders, developers, and persons who will ultimately
occupy single family dwellings. Residential real estate construction and
development loans constitute a large portion of the Bank's lending activities.
Residential real estate development and construction loans to provide interim
financing on the property are generally made for 80% or less of the appraised
value of the property. Residential real estate development and construction loan
funds are disbursed periodically at pre-specified stages of completion. Interest
rates on
40
<PAGE>
these loans are generally adjustable. The Bank monitors these loans with on-site
inspections and control of disbursements.
Loans to individuals for the construction of their primary residences are
typically secured by the property under construction, frequently include
additional collateral (such as second mortgage on the borrower's present home),
and commonly have maturities of nine to twelve months.
Loans to residential builders are for the construction of residential homes
for which a binding sales contract exists and the prospective buyers have been
pre-qualified for permanent mortgage financing. Development loans are made only
to developers that meet the Bank's underwriting criteria. Generally, these loans
are extended only when the borrower provides evidence that the lots under
development will be sold to builders satisfactory to the Bank.
Development and construction loans are secured by the properties under
development or construction and personal guarantees are typically obtained.
Further, to assure that reliance is not placed solely in the value of the
underlying property, the Bank considers the financial condition and reputation
of the borrower and any guarantors, the amount of the borrower's equity in the
project, independent appraisals, costs estimates and pre-construction sale
information.
RESIDENTIAL REAL ESTATE MORTGAGE LOANS. The Bank's wholly owned subsidiary,
First Mariner Mortgage Corporation, originates adjustable and fixed-rate
residential first mortgage loans. Such mortgage loans are generally originated
under terms, conditions and documentation acceptable to the secondary mortgage
market. The Bank retains some of these loans in its portfolio.
COMMERCIAL REAL ESTATE MORTGAGE LOANS. The Bank originates mortgage loans
secured by commercial real estate. Such loans are primarily secured by office
buildings, retail buildings, warehouses and general purpose business space.
Although terms may vary, the Bank's commercial mortgages generally have
maturities of five years or less.
The Bank seeks to reduce the risks associated with commercial mortgage
lending by generally lending in its market area, and obtaining periodic
financial statements and tax returns from borrowers. It is also the Bank's
general policy to obtain personal guarantees from the principals of the
borrowers and assignments of all leases related to the collateral.
CONSUMER LOANS. The Bank offers a variety of consumer loans. These loans
are typically secured by residential real estate or personal property, including
automobiles. Home equity loans are typically made in amounts up to 80% of the
appraised value, less the amount of any existing prior liens on the property and
generally have a maximum term of 10 years. The interest rates on home equity
loans generally are adjustable.
CREDIT ADMINISTRATION
The Bank's lending activities are subject to written policies approved by
the Board of Directors to ensure proper management of credit risk. Loans are
subject to a predetermined credit process that includes credit evaluation of
borrowers, risk-rating of credits, establishment of leading limits and
application of lending procedures, including the holding of adequate collateral
and the maintenance of compensating balances, as well as procedures for on-going
identification and management of credit deterioration. Regular portfolio reviews
are performed to identify potential under performing credits, estimate loss
exposure and to ascertain compliance with the Bank's policies. For significant
problem loans, management review consists of evaluation of the financial
strengths of the borrower and any guarantor, the related collateral and the
effects of economic conditions.
The Bank's loan approval policy provides for various levels of individual
lending authority. The maximum lending authority granted by the Bank to any one
individual is $250,000. A combination of approvals from certain officers may be
used to lend up to an aggregate of $500,000. The Board's Loan
41
<PAGE>
Committee is authorized to approve loans up to the Bank's legal lending limit,
which approximates $2,727,000 as of March 31, 1998.
The Bank generally does not make loans outside its market area unless the
borrower has an established relationship with the Bank and conducts its
principal business operations within the Bank's market area. Consequently the
Bank and its borrowers are affected by the economic conditions prevailing in its
market area.
COMPETITION
The Company and the Bank operate in a competitive environment, competing for
deposits and loans with commercial banks, thrifts and other financial entities.
Principal competitors include other community commercial banks and larger
financial institutions with branches in the Bank's market area. Numerous mergers
and consolidations involving banks in the Bank's market area have occurred
recently, requiring the Bank to compete with banks with greater resources.
The primary factors in competing for deposits are interest rates,
personalized services, the quality and range of financial services, convenience
of office locations and office hours. Competition for deposits comes primarily
from other commercial banks, savings associations, credit unions, money market
funds and other investment alternatives. The primary factors in competing for
loans are interest rates, loan origination fees, the quality and range of
lending services and personalized services. Competition for loans comes
primarily from other commercial banks, savings associations, mortgage banking
firms, credit unions and other financial intermediaries. The Bank also competes
with money market mutual funds for deposits. Many of the financial institutions
operating in the Bank's market area offer certain services such as trust,
investment and international banking, which the Bank does not offer, and have
greater financial resources or have substantially higher lending limits than
does the Bank.
To compete with other financial services providers, the Bank principally
relies upon local promotional activities, personal relationships established by
officers, directors and employees with its customers and specialized services
tailored to meet its customers' needs. In those instances where the Bank is
unable to accommodate a customer's needs, the Bank will arrange for those
services to be provided by other banks with which it has a relationship.
EMPLOYEES
At May 1, 1998, the Bank had 161 full time and 9 part time employees, and
the Mortgage Subsidiary had 46 full time and 2 part time employees.
PROPERTY
The principal executive offices of the Company and the main office of the
Bank are located at 1801 South Clinton Street, Baltimore, Maryland. The Company
and the Bank occupy approximately 37,000 square feet of space leased from Edwin
F. Hale, Sr., Chairman and Chief Executive Officer of the Company. Rental for
this space is $566,988 annually, of which $532,000 is allocated for 35,830
square feet of office and $35,000 is allocated for 1,170 square feet of Bank
branch space and drive-up banking and customer parking facilities. Management
believes that such terms are at least as favorable as those that could be
obtained from an unaffiliated third party lessor. See "Management--Certain
Relationships and Related Transactions."
42
<PAGE>
The Bank has branches at the following locations:
<TABLE>
<CAPTION>
SQUARE LEASE RENEWAL
LOCATION FEET ANNUAL RENT EXPIRATION OPTIONS
- ---------------------------------------------------------- ----------- --------------------- ----------- ---------
<S> <C> <C> <C> <C>
1801 South Clinton Street................................. 1,170 $35,000 10/31/02 5 years
(Baltimore City)
115 East Joppa Road....................................... 2,750 Owns building -- --
Towson (Baltimore County) (subject to $25
ground rent)
8631 Loch Raven Boulevard................................. 1,000 $14,100 Month- to- --
Towson (Baltimore County) Month
9833 Liberty Road......................................... 2,800 Owns building -- --
(Baltimore County) (subject to $12,000
ground rent)
12 A S. Bel Air Parkway................................... 2,288 Owns building 06/30/17 --
Bel Air (Harford County) (subject to $35,000
ground rent)
16 South Calvert Street................................... 2,515 $26,595 05/14/01 5 years
(Baltimore City)
2375 Rolling Road (Mars Store)............................ 667 $36,500 11/01/00 5 years
Woodlawn (Baltimore County)
Chesapeake Center Drive................................... 484 $36,500 05/01/00 5 years
(Mars Store)
Glen Burnie
(Anne Arundel County)
1013 Reisterstown Road.................................... 4,156 Owns building -- --
Pikesville (Baltimore County)
60 Painters Mill Road..................................... 2,350 $70,000 10/31/05 5 years
Owings Mills
(Baltimore County)
161 Jennifer Road......................................... 4,400 $85,446 06/30/01 5 years
Annapolis
(Anne Arundel County)
1401 Pulaski Highway...................................... 484 $36,500 12/03/01 5 years
(Mars Store)
Edgewood (Harford County)
1770 Merritt Boulevard.................................... 2,500 $32,500 02/19/07 5 years
Dundalk (Baltimore County)
1740 York Road............................................ 1,200 $36,000 04/30/12 15 years
Lutherville (Baltimore County)
1018 Beards Hill Road..................................... 525 $36,500 05/20/02 5 years
(Mars Store)
Aberdeen (Harford County)
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
SQUARE LEASE RENEWAL
LOCATION FEET ANNUAL RENT EXPIRATION OPTIONS
- ---------------------------------------------------------- ----------- --------------------- ----------- ---------
<S> <C> <C> <C> <C>
15 E. Padonia Road........................................ 276 $36,500 10/19/02 5 years
(Mars Store)
Timonium (Baltimore County)
8443 Bel Air Road......................................... 2,050 Owns building -- --
Baltimore (Baltimore County)
8133 Elliott Road......................................... 2,099 $31,485 3/31/03 5 years
Easton (Talbot County) X 2
8206 Pulaski Highway (1).................................. 6,500 $38,350 2/28/08 5 years
Rosedale (Baltimore County) X 2
360 Gov. Ritchie Highway (1).............................. 2,200 $40,700 5/31/08 5 years
Severna Park (Anne Arundel County) X 2
</TABLE>
- ------------------------
(1) The Rosedale and Severna Park branches are expected to open in the third
quarter of 1998.
LEGAL PROCEEDINGS
None of the Issuer Trust, the Company or the Bank is a party to, nor is any
of their property the subject of, any material pending legal proceedings
incidental to the business of the Company other than those arising in the
ordinary course of business. In the opinion of management no such proceeding
will have a material adverse effect on the financial position or results of
operations of the Company.
44
<PAGE>
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
TERM DIRECTOR
NAME AGE POSITION EXPIRES SINCE
- ------------------------------------------- --- ------------------------------------------- ----------- -----------
<S> <C> <C> <C> <C>
Edwin F. Hale, Sr.......................... 51 Chairman of the Board and Chief Executive 1999 1995
Officer of the Company and of the Bank
Joseph A. Cicero........................... 54 Director and President of the Company and 2000 1996
Chief Operating Officer of the Bank
Barry B. Bondroff.......................... 49 Director 1999 1995
Rose M. Cernak............................. 67 Director 2001 1995
Christopher D'Anna......................... 33 Director 2001 1995
Bruce H. Hoffman........................... 50 Director 1999 1995
Melvin S. Kabik............................ 73 Director 2000 1995
R. Andrew Larkin........................... 45 Director 1999 1995
George H. Mantakos......................... 56 Director and Executive Vice President of 2001 1994
the Company and President of the Bank
Jay J. J. Matricciani...................... 56 Director 2000 1995
Dennis C. McCoy............................ 54 Director 1999 1995
Walter L. McManus, Jr...................... 55 Director 1999 1995
James P. O'Conor........................... 68 Director 1999 1995
John J. Oliver, Jr......................... 52 Director 2000 1997
Hanan Y. Sibel............................. 66 Director 2000 1995
Leonard Stoler............................. 67 Director 2000 1995
Governor William Donald Schaefer........... 76 Director Emeritus N/A N/A
Kevin M. Healey............................ 41 Controller of the Company and Controller N/A N/A
and Senior Vice President of the Bank
</TABLE>
EDWIN F. HALE, SR. is Chairman and Chief Executive Officer of the Company
and of the Bank. He also is Chairman and Chief Executive Officer of Hale Trans,
Inc. the parent company of Hale Intermodal Transport Co., and Hale Intermodal
Marine Co., private Baltimore-based trucking and shipping companies which he
founded in 1975 and 1984, respectively. He is Chairman and Chief Executive
Officer of Peterbilt of Central Maryland, LLC. Mr. Hale is the former Chairman
of the Board and Chief Executive Officer of Baltimore Bancorp, which was
acquired by First Union Bancorp. He is the owner of Baltimore Blast Corp., a
professional indoor soccer team.
BARRY B. BONDROFF has been the managing officer of Grabush, Newman & Co.,
P.A. a certified public accounting firm, since 1982. Mr. Bondroff is a member of
the American Institute of Certified Public Accountants, and is a former member
of the Board of Directors of Baltimore Bancorp.
ROSE M. CERNAK has served as President of Olde Obrycki's Crab House, Inc.,
since 1995. Prior thereto, Ms. Cernak acted as a general manager and vice
president of Obrycki's. She is a former member of the Board of Directors of
Baltimore Bancorp.
JOSEPH A. CICERO is the President of the Company and Chief Operating Officer
of the Bank. Mr. Cicero was Maryland Area President of First Union Bank during
1996 and Maryland Area President for First Fidelity Bank from November, 1994 to
December, 1995. Prior thereto, he was Executive Vice President and Chief
Financial Officer and Director of Baltimore Bancorp from January, 1992 to
November, 1994.
45
<PAGE>
CHRISTOPHER P. D'ANNA is an executive vice president of Mars Super Markets,
Inc., a regional supermarket chain, and has been employed with Mars in various
capacities for more than five years.
BRUCE H. HOFFMAN has served as the Executive Director of the Maryland
Stadium Authority since 1989. Mr. Hoffman is currently responsible for the
operation and maintenance of Oriole Park at Camden Yards, the Baltimore
Convention Center expansion, the Ocean City Convention Center expansion, and the
financing, design, construction, and operation of the National Football League
stadium for the Baltimore Ravens, Baltimore's NFL professional football team. He
is a former member of the Board of Directors of Baltimore Bancorp.
MELVIN S. KABIK operates his own commercial real estate company. He
previously owned and operated Eddie's Supermarkets in Baltimore, Maryland. He is
a former member of the Board of Directors of Baltimore Bancorp.
R. ANDREW LARKIN has served as the President of the Maryland Realty
Investment Corp., a real estate investment firm, since 1985. Mr. Larkin is a
former member of the Board of Directors of Baltimore Bancorp.
GEORGE H. MANTAKOS is Executive Vice President of the Company, and the
President of the Bank. Mr. Mantakos previously served as President of the
Company and Chief Executive Officer for the Bank. Mr. Mantakos began his banking
career with Union Trust Company. In 1985, he resigned his position as Senior
Vice President in charge of the Corporate and Commercial Banking Division of
Union Trust to become President and Chief Executive Officer of Fairview Federal.
Fairview Federal was acquired by Columbia Bancorp in June 1992. Mr. Mantakos was
appointed to the Board of Directors of Columbia Bancorp and to the Executive
Committee/Board of Directors of the Columbia Bank. He resigned from these
positions to become a founder and organizer of MarylandsBank, FSB, the
predecessor of the Bank.
JAY J. J. MATRICCIANI has served as President of The Matricciani Company, a
utility and paving contractor, since 1992. He is also a partner of Matro
Properties, a heavy equipment rental company.
DENNIS C. MCCOY has provided representation in matters relating to state and
local relations with various government bodies and agencies for Government
Affairs-Maryland, Inc., since 1996. Mr. McCoy was the former Chief Executive
Officer and General Counsel of Mars Super Markets, Inc., from January 1995
through November 1995. Prior thereto he was a partner at Polovoy & McCoy, a law
firm.
WALTER L. MCMANUS, JR. has served as President of Castlewood Realty Co.
Inc., a commercial real estate company, since 1970.
JAMES P. O'CONOR has served as Chairman and Chief Executive Officer of
O'Conor, Piper & Flynn, a real estate brokerage company, since 1984. He is a
former member of the Board of Directors of Baltimore Bancorp.
JOHN J. OLIVER, JR. is the Chief Executive Officer and Publisher of the
Afro-American Newspapers.
HANAN Y. SIBEL has served as Chairman and Chief Executive Officer of
Chaimson Brokerage Co., Inc., a food brokerage company, since 1970.
LEONARD STOLER has been the owner and President of Len Stoler Inc., an
automobile dealership, since 1968.
GOVERNOR WILLIAM DONALD SCHAEFER was Governor of the State of Maryland from
1986 to 1995 and was Mayor of the City of Baltimore from 1971 to 1986. He is
presently of counsel to the law firm of Gordon, Feinblatt, Rothman, Hoffberger
and Hollander, LLC.
46
<PAGE>
KEVIN M. HEALEY is the Controller of the Company and Controller and Senior
Vice President of the Bank. From 1984 through 1996, he served as an assistant
controller for Provident Bank of Maryland, a regional bank.
DIRECTOR COMPENSATION
Directors receive fees for their services, and are reimbursed for expenses
incurred in connection with their service as directors. Directors receive $400
for each Board meeting attended. Directors receive no compensation for attending
committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company and the
Bank for the last three fiscal years to the Chief Executive Officer of the
Company and the Bank and to any other executive officer of the Company or the
Bank who received compensation in excess of $100,000 during any of the last
three fiscal years of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- -------------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION UNDERLYING OPTIONS COMPENSATION
- --------------------------------------- --------- --------- --------- ------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Edwin F. Hale, Sr...................... 1997 $ 200,000 $ 100,000 $ 12,050(2) -- $ 1,260(1)
Chairman of the Board and Chief 1996 $ 50,000 -- $ 12,048(2) 120,000 --
Executive Officer of the Company and 1995 -- (3) -- $ 12,048(2) -- --
the Bank
Joseph A. Cicero(4).................... 1997 $ 150,000 -- -- -- $ 1,299(1)
President of the Company and Chief 1996 $ 9,135 -- -- 15,000 --
Operating Officer of the Bank 1995 -- -- -- -- --
George H. Mantakos..................... 1997 $ 110,000 $ 20,000 $ 4,139(2) -- $ 1,580(1)
Executive Vice President of the 1996 $ 110,000 $ 20,000 $ 4,000(2) 10,000 --
Company and President of the Bank 1995 $ 110,000 $ 20,000 $ 3,000(2) 10,500 --
</TABLE>
- ------------------------
(1) The amount disclosed represents the matching funds under the Company's
401(k) Plan.
(2) The amount disclosed represents car lease payments made by the Company on
behalf of Mr. Hale and Mr. Mantakos, respectively.
(3) Mr. Hale did not receive a salary in 1995.
(4) Mr. Cicero joined the Company in December, 1996.
47
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted to the executive officers during 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
No stock options were exercised by the executive officers named in the
Summary Compensation Table during 1997. The following table sets forth certain
information regarding unexercised options held by the named executive officers
as of December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Edwin F. Hale, Sr......................................... 120,000(2) -- $ 720,000 --
Joseph A. Cicero.......................................... 15,000(2) -- 90,000 --
George H. Mantakos........................................ 20,500(2) -- 123,000 --
</TABLE>
- ------------------------
(1) The closing price of the Common Stock on December 31, 1997 was $16.00.
(2) The exercise price of these options is $10.00 per share. The number of
shares has not been adjusted to reflect the 10% stock dividend payable to
stockholders of record as of May 26, 1998.
EMPLOYMENT ARRANGEMENTS AND AGREEMENTS
The Company and the Bank are parties to an Employment Agreement with George
H. Mantakos dated May 1, 1995, pursuant to which Mr. Mantakos is employed as the
President of the Bank. This Employment Agreement will expire on May 1, 1999. The
agreement provides for an annual salary of $110,000 which will be adjusted on
the anniversary date of the agreement to an amount to be approved by the Board
of Directors. Mr. Mantakos is entitled to participate in any management bonus
plans established by the Bank and to receive all benefits offered to employees.
Mr. Mantakos will, at the discretion of the Chairman, have the opportunity to
receive a bonus in a maximum amount of $20,000 per year. Mr. Mantakos receives
the use of an automobile provided by the Bank. The term of the Employment
Agreement is one year, expiring in 1999 and, if not terminated within 90 days of
its termination date, is automatically renewed for one additional year,
provided, however, that the Board of Directors of the Bank may terminate the
agreement at any time. In the event of involuntary termination for reasons other
than gross negligence, fraud or dishonesty (or in the event of the material
diminution of or interference with Mr. Mantakos' duties, or a change of control
of the Bank), the Bank is obligated to pay Mr. Mantakos his salary through the
remaining term plus additional severance equal to the then current annual
salary, but not less than $110,000. In such event, Mr. Mantakos is permitted to
exercise all options, and warrants held by him, and the Company is obligated to
repurchase all or part of Mr. Mantakos' Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has engaged in transactions in the ordinary course of business
with some of its directors, officers, principal stockholders and their
associates. Management believes that all such transactions were made on terms at
least as favorable to the Company as those that could be obtained at the time
between unrelated persons in similar transactions.
The Bank has five full-service branches with ATMs and nine non-branch ATMs
in Mars Super Markets. The Bank pays rent of $36,500 per year to Mars Super
Markets, Inc. for approximately 200-500 square feet of space in each of the
stores where branches are located. The Bank also bears all costs of construction
of each branch. The Bank, however, incurs no charge from Mars in connection with
the
48
<PAGE>
installation of ATMs. The Bank intends to open additional branches in Mars Super
Markets in the future. The terms of the arrangement are described in a Master
Lease Agreement between the Company and Mars dated March 1, 1996. Christopher P.
D'Anna, Executive Vice President of Mars Super Markets, Inc., is a member of the
Board of Directors of the Company and the Bank. Dennis C. McCoy, formerly the
Chief Executive Officer and General Counsel of Mars Super Markets, Inc., is also
a member of the Board of Directors of the Company and the Bank.
The Bank has entered into a 15-year Lease Agreement dated January 17, 1997
with Blakefield Associates, L.L.C. for a 2,200 square foot building utilized as
a full service branch of the Bank located at 1740 York Road, Lutherville,
Maryland. The Company pays rent of $36,000 per year to Blakefield Associates,
L.L.C. Dennis M. Doyle, President of Blakefield Associates, L.L.C., together
with his wife, controls Blakefield Associates, L.L.C. Mr. Doyle was a member of
the Board of Directors of the Company and the Bank until May, 1997.
The Bank has entered into a five year Lease Agreement dated November 1, 1997
with Edwin F. Hale, Sr. for 35,830 square feet used for a full service branch of
the Bank and the headquarters and executive offices of the Bank and the Company
at 1801 South Clinton Street, Baltimore, Maryland. The Company pays rent of
$566,988 per year. Mr. Hale is the Chairman and Chief Executive Officer of the
Company. Subject to approval of the Bank's Board of Directors, the Bank intends
to sublease 656 square feet of office space to Baltimore Blast Corp., a
professional soccer team, for a term of five years with annual base rent equal
to $9,512. Mr. Hale owns Baltimore Blast Corp. Prior to November 1, 1996, the
Company leased space for the branch and limited space for the headquarters and
executive offices from Hale Intermodal Transport Co., pursuant to a lease
entered into as of September 1, 1996. The lease provided for annual rent
payments of approximately $212,700. Mr. Hale is an officer, director and
shareholder of Hale Intermodal Transport Co.
Ronald M. Shapiro was a member of the Board of Directors in 1997 and is
counsel to the law firm of Shapiro and Olander, which had provided legal
services to the Company and the Bank in 1997. Mr. Shapiro resigned from the
Board in 1997.
During the past year the Bank has had banking transactions in the ordinary
course of its business with: (i) its directors; (ii) its executive officers;
(iii) its 5% or greater shareholders; (iv) members of the immediate family of
its directors or executive officers and 5% or greater shareholders; and (v) the
associates of such persons, on substantially the same terms, including interest
rates, collateral, and repayment terms of loans, as those prevailing at the same
time for comparable transactions with others. The extensions of credit by the
Bank to these persons have not and do not currently involve more than the normal
risk of collectibility or present other unfavorable features. At March 31, 1998,
the balance of loans outstanding to directors, executive officers, owners of 5%
or more of the outstanding Common Stock, and their associates, aggregated
$5,982,000.
49
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following sets forth information as of March 31, 1998, relating to the
beneficial ownership of the Common Stock by (i) each person or group known by
the Company to own beneficially more than five percent (5%) of the outstanding
Common Stock; (ii) each of the Company's directors; and (iii) all directors and
executive officers of the Company as a group. Unless otherwise noted below, the
persons named in the table have sole investment powers with respect to each of
the shares reported as beneficially owned by such person. The address of all
individuals named in the table is 1801 South Clinton Street, Baltimore, Maryland
21224.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES(1) PERCENT OF CLASS
- ------------------------------------------------------------------------- ------------------- ---------------------
<S> <C> <C>
Edwin F. Hale, Sr.(2).................................................... 907,300 27.0%
Barry A. Bondroff(3)..................................................... 17,493 0.6%
Rose M. Cernak(4)........................................................ 18,483 0.6%
Joseph A. Cicero(5)...................................................... 17,000 0.6%
Christopher P. D'Anna(6)................................................. 14,983 0.5%
Bruce H. Hoffman(7)...................................................... 20,758 0.7%
Melvin S. Kabik(8)....................................................... 14,383 0.5%
R. Andrew Larkin, Jr.(9)................................................. 10,550 0.4%
George H. Mantakos(10)................................................... 30,500 1.1%
Jay J.J. Matricciani(11)................................................. 21,583 0.8%
Dennis C. McCoy(12)...................................................... 14,333 0.5%
Walter L. McManus, Jr.(13)............................................... 80,066 2.8%
John J. Oliver, Jr....................................................... 100 *
James P. O'Conor(14)..................................................... 23,800 0.8%
Hanan Y. Sibel(15)....................................................... 14,433 0.5%
Leonard Stoler(16)....................................................... 20,900 0.7%
Kevin M. Healey(17)...................................................... 1,550 *
All directors and executive officers as a group (17 persons)(18)......... 1,228,215 35.3%
T. Rowe Price Associates, Inc.(19)....................................... 182,300 6.4%
T. Rowe Price Small Cap Stock Fund, Inc.(19)............................. 170,000 5.9%
100 E. Pratt Street
Baltimore, MD 21202
</TABLE>
- ------------------------
(*) Less than 0.1%.
(1) Includes shares of Common Stock subject to options or warrants held by the
named individual which are exercisable as of, or within 60 days of March 31,
1998.
(2) Includes warrants to purchase 371,672 shares and options to purchase 120,000
shares and 2,300 shares in his Individual Retirement Account.
(3) Includes warrants to purchase 3,333 shares and options to purchase 1,200
shares.
(4) Includes 10,000 shares held jointly with her husband; also includes warrants
to purchase 3,333 shares and options to purchase 1,100 shares.
(5) Includes options to purchase 15,000 shares.
(6) Includes 10,000 shares held by D'Anna Family Enterprise, LLC, of which he is
a member; also includes warrants to purchase 3,333 shares and options to
purchase 1,100 shares
(7) Includes 16,025 shares held jointly with his wife; also includes warrants to
purchase 3,333 shares and options to purchase 1,200 shares.
50
<PAGE>
(8) Includes 10,000 shares held jointly with his wife; also includes warrants to
purchase 3,333 shares and options to purchase 1,000 shares.
(9) Includes 5,000 shares held in an Individual Retirement Account; also
includes warrants to purchase 5,000 shares and options to purchase 500
shares.
(10) Includes 4,000 shares held in an Individual Retirement Account and 1,000
shares held jointly with his wife; also includes warrants to purchase 5,000
shares and options to purchase 20,500 shares.
(11) Includes 3,000 shares held jointly with his wife, 1,000 shares held in an
Individual Retirement Account, and 10,000 shares held by Matro Properties,
of which he is a partner; also includes warrants to purchase 3,333 shares
and options to purchase 1,200 shares.
(12) Includes 9,950 shares held jointly with his wife; also includes warrants to
purchase 3,333 shares and options to purchase 1,000 shares.
(13) Includes warrants to purchase 16,666 shares and options to purchase 1,200
shares.
(14) Includes warrants to purchase 10,000 shares and options to purchase 1,000
shares.
(15) Includes warrants to purchase 3,333 shares and options to purchase 1,100
shares.
(16) Includes warrants to purchase 5,000 shares and options to purchase 900
shares.
(17) Includes options to purchase 1,000 shares.
(18) Includes warrants to purchase 440,002 shares and options to purchase
170,000 shares.
(19) Based upon information disclosed in Schedule 13G filed with the Securities
and Exchange Commission on February 12, 1998, T. Rowe Price Associates, Inc.
disclosed that it had sole power to vote 12,300 shares of Common Stock and
sole power to dispose of 182,300 shares of Common Stock representing 6.4% of
the Common Stock of the Company. T. Rowe Price Small Cap Stock Fund, Inc.
disclosed that it had sole power to vote 170,000 shares of Common Stock, or
5.9%, but no power to dispose of any shares.
51
<PAGE>
DESCRIPTION OF PREFERRED SECURITIES
Pursuant to the terms of the Trust Agreement for the Issuer Trust, the
Property Trustee and the Delaware Trustee (collectively, the "Issuer Trustees")
on behalf of the Issuer Trust will issue the Preferred Securities and the Common
Securities. The Preferred Securities will represent preferred undivided
beneficial interests in the assets of the Issuer Trust. The holders of the
Preferred Securities will be entitled to a preference in certain circumstances
with respect to Distributions and amounts payable on redemption or liquidation
over the Common Securities, as well as other benefits as described in the Trust
Agreement. This summary of certain terms and provisions of the Preferred
Securities and the Trust Agreement does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all the provisions of
the Trust Agreement, including the definitions therein of certain terms.
Wherever particular defined terms of the Trust Agreement are referred to herein,
such defined terms are incorporated herein by reference. A copy of the form of
the Trust Agreement is available from the Issuer Trustees upon request.
GENERAL
The Preferred Securities will be limited to $23,000,000 aggregate
Liquidation Amount outstanding. The Preferred Securities will rank pari passu,
and payments will be made thereon pro rata, with the Common Securities except as
described under "--Subordination of Common Securities." The Junior Subordinated
Debentures will be registered in the name of the Issuer Trust and held by the
Property Trustee in trust for the benefit of the holders of the Preferred
Securities and Common Securities. The Guarantee will be a guarantee on a
subordinated basis with respect to the Preferred Securities but will not
guarantee payment of Distributions or amounts payable on redemption or
liquidation of such Preferred Securities when the Issuer Trust does not have
funds on hand available to make such payments. See "Description of Guarantee."
DISTRIBUTIONS
The Preferred Securities represent preferred undivided beneficial interests
in the assets of the Issuer Trust, and Distributions on each Preferred Security
will be payable at an annual rate of % the stated Liquidation Amount of $10
per Preferred Security, payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year (each a "Distribution Date"), to the
holders of the Preferred Securities at the close of business on the 15th day of
each March, June, September and December (whether or not a Business Day (as
defined below)) next preceding the relevant Distribution Date. Distributions on
the Preferred Securities will be cumulative. Distributions will accumulate from
, 1998. The first Distribution Date for the Preferred Securities will be
, 1998. The amount of Distributions payable for any period less than a
full Distribution period will be computed on the basis of a 360-day year of
twelve 30-day months and the actual days elapsed in a partial month in such
period. Distributions payable for each full Distribution period will be computed
by dividing the rate per annum by four. If any date on which Distributions are
payable on the Preferred Securities is not a Business Day, then payment of the
Distributions payable on such date will be made on the next succeeding day that
is a Business Day (without any additional Distributions or other payment in
respect of any such delay), with the same force and effect as if made on the
date such payment was originally payable.
So long as no Debenture Event of Default has occurred and is continuing, the
Company has the right under the Junior Subordinated Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarterly periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such deferral, quarterly Distributions on the Preferred
Securities by the Issuer Trust will be deferred during any such Extension
Period. Distributions to which holders of the Preferred Securities are entitled
will accumulate additional Distributions thereon at the rate of % per annum,
compounded quarterly from the relevant payment date for such Distributions,
computed on the basis of a 360-day year of twelve 30-day months and the
52
<PAGE>
actual days elapsed in a partial month in such period. Additional Distributions
payable for each full Distribution period will be computed by dividing the rate
per annum by four. The term "Distributions" as used herein shall include any
such additional Distributions. During any such Extension Period, the Company may
not (i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock or (ii) make any payment of principal of or interest or premium,
if any, on or repay, repurchase or redeem any debt securities of the Company
that rank pari passu in all respects with or junior in interest to the Junior
Subordinated Debentures, (other than (a) repurchases, redemptions or other
acquisitions of shares of capital stock of the Company in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of any one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(b) as a result of an exchange or conversion of any class or series of the
Company's capital stock (or any capital stock of a subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or series
of the Company's indebtedness for any class or series of the Company's capital
stock, (c) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (d) any declaration of a
dividend in connection with any stockholder's rights plan, or the issuance of
rights, stock or other property under any stockholder's rights plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock). Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no
Extension Period may exceed 20 consecutive quarterly periods or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the termination
of any such Extension Period and the payment of all amounts then due, the
Company may elect to begin a new Extension Period. No interest shall be due and
payable during an Extension Period, except at the end thereof. The Company must
give the Issuer Trustees notice of its election of such Extension Period at
least one Business Day prior to the earlier of (i) the date the Distributions on
the Preferred Securities would have been payable but for the election to begin
such Extension Period and (ii) the date the Property Trustee is required to give
notice to holders of the Preferred Securities of the record date or the date
such Distributions are payable, but in any event not less than one Business Day
prior to such record date. The Property Trustee will give notice of the
Company's election to begin a new Extension Period to the holders of the
Preferred Securities. Subject to the foregoing, there is no limitation on the
number of times that the Company may elect to begin an Extension Period. See
"Description of Junior Subordinated Debentures--Option To Extend Interest
Payment Period" and "Certain Federal Income Tax Consequences--US
Holders--Interest Income and Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders of the
Preferred Securities will be limited to payments under the Junior Subordinated
Debentures. See "Description of Junior Subordinated Debentures." If the Company
does not make payments on the Junior Subordinated Debentures, the Issuer Trust
will not have funds available to pay Distributions or other amounts payable on
the Preferred Securities. The payment of Distributions and other amounts payable
on the Preferred Securities (if and to the extent the Issuer Trust has funds
legally available for and cash sufficient to make such payments) is guaranteed
by the Company on a limited basis as set forth herein under "Description of
Guarantee."
53
<PAGE>
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at maturity or upon earlier redemption as
provided in the Junior Subordinated Indenture, the proceeds from such repayment
or redemption shall be applied by the Property Trustee to redeem a Like Amount
(as defined below) of the Preferred Securities, upon not less than 30 nor more
than 60 days' notice, at a redemption price (the "Redemption Price") equal to
the aggregate Liquidation Amount of such Preferred Securities plus accumulated
but unpaid Distributions thereon to the date of redemption (the "Redemption
Date"). If less than all the Junior Subordinated Debentures are to be repaid or
redeemed on a Redemption Date, then the proceeds from such repayment or
redemption shall be allocated to the redemption pro rata of the Preferred
Securities and the Common Securities. The amount of premium, if any, paid by the
Company upon the redemption of all or any part of the Junior Subordinated
Debentures to be repaid or redeemed on a Redemption Date shall be allocated to
the redemption pro rata of the Preferred Securities and the Common Securities.
The Company has the right to redeem the Junior Subordinated Debentures (i)
on or after , 2003, in whole at any time or in part from time to time, or
(ii) in whole, but not in part, at any time within 90 days following the
occurrence and during the continuation of a Tax Event, Investment Company Event
or Capital Treatment Event (each as defined below), in each case subject to
possible regulatory approval. See "--Liquidation Distribution Upon Dissolution."
A redemption of the Junior Subordinated Debentures would cause a mandatory
redemption of a Like Amount of the Preferred Securities and Common Securities at
the Redemption Price.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Preferred
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds on hand
available for the payment of such Redemption Price. See also "--Subordination of
Common Securities."
If the Issuer Trust gives a notice of redemption in respect of the Preferred
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are available, in the case of Preferred Securities held in
book-entry form, the Property Trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price and will give DTC irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Preferred Securities. With respect to Preferred Securities not held in
book-entry form, the Property Trustee, to the extent funds are available, will
irrevocably deposit with the paying agent for the Preferred Securities funds
sufficient to pay the applicable Redemption Price and will give such paying
agent irrevocable instructions and authority to pay the Redemption Price to the
holders thereof upon surrender of their certificates evidencing the Preferred
Securities. Notwithstanding the foregoing, Distributions payable on or prior to
the Redemption Date for any Preferred Securities called for redemption shall be
payable to the holders of the Preferred Securities on the relevant record dates
for the related Distribution Dates. If notice of redemption shall have been
given and funds deposited as required, then upon the date of such deposit all
rights of the holders of such Preferred Securities so called for redemption will
cease, except the right of the holders of such Preferred Securities to receive
the Redemption Price and any Distribution payable in respect of the Preferred
Securities on or prior to the Redemption Date, but without interest on such
Redemption Price, and such Preferred Securities will cease to be outstanding. If
any date fixed for redemption of Preferred Securities is not a Business Day,
then payment of the Redemption Price payable on such date will be made on the
next succeeding day which is a Business Day (without any interest or other
payment in respect of any such delay), except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Price in
respect of Preferred Securities called for redemption is improperly withheld or
refused and not paid either by the
54
<PAGE>
Issuer Trust or by the Company pursuant to the Guarantee as described under
"Description of Guarantee," Distributions on such Preferred Securities will
continue to accumulate at the then applicable rate, from the Redemption Date
originally established by the Issuer Trust for such Preferred Securities to the
date such Redemption Price is actually paid, in which case the actual payment
date will be the date fixed for redemption for purposes of calculating the
Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its affiliates may at any time and from
time to time purchase outstanding Preferred Securities by tender, in the open
market or by private agreement, and may resell such securities.
If less than all the Preferred Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Preferred Securities and Common Securities to be redeemed shall be allocated pro
rata to the Preferred Securities and the Common Securities based upon the
relative Liquidation Amounts of such classes. The particular Preferred
Securities to be redeemed shall be selected on a pro rata basis not more than 60
days prior to the Redemption Date by the Property Trustee from the outstanding
Preferred Securities not previously called for redemption, or if the Preferred
Securities are then held in the form of a Global Preferred Security (as defined
below), in accordance with DTC's customary procedures. The Property Trustee
shall promptly notify the securities registrar for the Trust Securities in
writing of the Preferred Securities selected for redemption and, in the case of
any Preferred Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of the Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of
Preferred Securities shall relate, in the case of any Preferred Securities
redeemed or to be redeemed only in part, to the portion of the aggregate
Liquidation Amount of Preferred Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each registered holder of Preferred
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Company defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Preferred Securities is withheld or refused and not paid either
by the Issuer Trust or the Company pursuant to the Guarantee, Distributions will
cease to accumulate on the Preferred Securities or portions thereof) called for
redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, and the
Liquidation Distribution in respect of, the Preferred Securities and Common
Securities, as applicable, shall be made pro rata based on the Liquidation
Amount of such Preferred Securities and Common Securities. However, if on any
Distribution Date or Redemption Date a Debenture Event of Default has occurred
and is continuing as a result of any failure by the Company to pay any amounts
in respect of the Junior Subordinated Debentures when due, no payment of any
Distribution on, or Redemption Price of, or the Liquidation Distribution in
respect of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of such Common Securities, shall be
made unless payment in full in cash of all accumulated and unpaid Distributions
on all the outstanding Preferred Securities for all Distribution periods
terminating on or prior thereto, or in the case of payment of the Redemption
Price the full amount of such Redemption Price on all the outstanding Preferred
Securities then called for redemption, or in the case of payment of the
Liquidation Distribution the full amount of such Liquidation Distribution on all
outstanding Preferred Securities shall have been made or provided for, and all
funds available to the Property Trustee shall first be applied to the payment in
full in cash of all Distributions on, or Redemption Price of, the Preferred
Securities then due and payable.
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In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holders of the Common Securities will be deemed
to have waived any right to act with respect to any such Event of Default under
the Trust Agreement until the effects of all such Events of Default with respect
to such Preferred Securities have been cured, waived or otherwise eliminated.
See "--Events of Default; Notice" and "Description of Junior Subordinated
Debentures--Debenture Events of Default." Until all such Events of Default under
the Trust Agreement with respect to the Preferred Securities have been so cured,
waived or otherwise eliminated, the Property Trustee will act solely on behalf
of the holders of the Preferred Securities and not on behalf of the holders of
the Common Securities, and only the holders of the Preferred Securities will
have the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the Preferred Securities in the event of any
liquidation of the Issuer Trust is $10 per Preferred Security plus accumulated
and unpaid Distributions, subject to certain exceptions, which may be in the
form of a distribution of such amount in Junior Subordinated Debentures.
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust.
The Federal Reserve's risk-based capital guidelines currently provide that
redemptions of permanent equity or other capital instruments before stated
maturity could have a significant impact on a bank holding company's overall
capital structure and that any organization considering such a redemption should
consult with the Federal Reserve before redeeming any equity or capital
instrument prior to maturity if such redemption could have a material effect on
the level or composition of the organization's capital base (unless the equity
or capital instrument were redeemed with the proceeds of, or replaced by, a like
amount of a similar or higher quality capital instrument and the Federal Reserve
considers the organization's capital position to be fully adequate after the
redemption).
In the event the Company, while a holder of Common Securities, dissolves the
Issuer Trust prior to the stated maturity of the Preferred Securities and the
dissolution of the Issuer Trust is deemed to constitute the redemption of
capital instruments by the Federal Reserve under its risk-based capital
guidelines or policies, the dissolution of the Issuer Trust by the Company may
be subject to the prior approval of the Federal Reserve. Moreover, any changes
in applicable law or changes in the Federal Reserve's risk-based capital
guidelines or policies could impose a requirement on the Company that it obtain
the prior approval of the Federal Reserve to dissolve the Issuer Trust.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the first
to occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Company or the holder of the Common Securities, (ii) the distribution of a Like
Amount of the Junior Subordinated Debentures to the holders of the Trust
Securities, if the holders of Common Securities have given written direction to
the Property Trustee to dissolve the Issuer Trust (which direction, subject to
the foregoing restrictions, is optional and wholly within the discretion of the
holders of Common Securities), (iii) the repayment of all the Preferred
Securities in connection with the redemption of all the Trust Securities as
described under "--Redemption" and (iv) the entry of an order for the
dissolution of the Issuer Trust by a court of competent jurisdiction.
If dissolution of the Issuer Trust occurs as described in clause (i), (ii)
or (iv) above, the Issuer Trust will be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by distributing,
after satisfaction of liabilities to creditors of the Issuer Trust as provided
by applicable law, to the holders of such Trust Securities a Like Amount of the
Junior Subordinated Debentures, unless such distribution is not practical, in
which event such holders will be entitled to receive out of the assets of the
Issuer Trust available for distribution to holders, after satisfaction of
liabilities to
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creditors of the Issuer Trust as provided by applicable law, an amount equal to,
in the case of holders of Preferred Securities, the aggregate of the Liquidation
Amount plus accumulated and unpaid Distributions thereon to the date of payment
(such amount being the "Liquidation Distribution"). If such Liquidation
Distribution can be paid only in part because the Issuer Trust has insufficient
assets available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by the Issuer Trust on its Preferred Securities shall
be paid on a pro rata basis. The holders of the Common Securities will be
entitled to receive distributions upon any such liquidation pro rata with the
holders of the Preferred Securities, except that if a Debenture Event of Default
has occurred and is continuing as a result of any failure by the Company to pay
any amounts in respect of the Junior Subordinated Debentures when due, the
Preferred Securities shall have a priority over the Common Securities. See
"--Subordination of Common Securities."
After the liquidation date fixed for any distribution of Junior Subordinated
Debentures (i) the Preferred Securities will no longer be deemed to be
outstanding, (ii) DTC or its nominee, as the registered holder of Preferred
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Preferred Securities held by DTC or its nominee and
(iii) any certificates representing the Preferred Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the
Preferred Securities and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on the Preferred Securities until
such certificates are presented to the security registrar for the Trust
Securities for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures prior to
maturity and the Issuer Trust is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Preferred Securities, the
Preferred Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures and the distribution of the Liquidation Distribution to
the holders of the Preferred Securities.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution and liquidation of the Issuer
Trust were to occur. Accordingly, the Preferred Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Issuer Trust, may trade at a discount to the
price that the investor paid to purchase the Preferred Securities offered
hereby.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (an "Event of Default") with respect to the Preferred Securities
(whatever the reason for such Event of Default and whether it is 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):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures--Debenture Events of Default"); or
(ii) default by the Issuer Trust in the payment of any Distribution when
it becomes due and payable, and continuation of such default for a period of
30 days; or
(iii) default by the Issuer Trust in the payment of any Redemption Price
of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trust in the Trust Agreement (other
than a covenant or warranty a default in the
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performance of which or the breach of which is dealt with in clause (ii) or
(iii) above), and continuation of such default or breach for a period of 60
days after there has been given, by registered or certified mail, to the
Issuer Trustees and the Company by the holders of at least 25% in aggregate
Liquidation Amount of the outstanding Preferred Securities, a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" under the Trust Agreement;
or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee or all or substantially all of its property
if a successor Property Trustee has not been appointed within 90 days
thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default has been cured or waived. The
Company, as Depositor, and the Administrators are required to file annually with
the Property Trustee a certificate as to whether or not they are in compliance
with all the conditions and covenants applicable to them under the Trust
Agreement.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Preferred Securities will have a
preference over the Common Securities with respect to payments of any amounts in
respect of the Preferred Securities as described above. See "--Subordination of
Common Securities," "--Liquidation Distribution Upon Dissolution" and
"Description of Junior Subordinated Debentures-- Debenture Events of Default."
REMOVAL OF ISSUER TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding Preferred Securities may remove an Issuer Trustee for cause or, if a
Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding
Preferred Securities, the successor may be appointed by the holders of at least
25% in Liquidation Amount of Preferred Securities. If an Issuer Trustee resigns,
such Trustee will appoint its successor. If an Issuer Trustee fails to appoint a
successor, the holders of at least 25% in Liquidation Amount of the outstanding
Preferred Securities may appoint a successor. If a successor has not been
appointed by the holders, any holder of Preferred Securities or Common
Securities or the other Issuer Trustee may petition a court in the State of
Delaware to appoint a successor. Any Delaware Trustee must meet the applicable
requirements of Delaware law. Any Property Trustee must be a national or
state-chartered bank, and at the time of appointment have securities rated in
one of the three highest rating categories by a nationally recognized
statistical rating organization and have capital and surplus of at least
$50,000,000. No resignation or removal of an Issuer Trustee and no appointment
of a successor trustee shall be effective until the acceptance of appointment by
the successor trustee in accordance with the provisions of the Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Issuer
Trustee is a party, or any entity succeeding to all or substantially all the
corporate trust business of such Issuer Trustee, will be the successor of such
Issuer Trustee under the Trust Agreement, provided such entity is otherwise
qualified and eligible.
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MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER TRUST
The Issuer Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the request
of the holders of the Common Securities and with the consent of the holders of
at least a majority in aggregate Liquidation Amount of the outstanding Preferred
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any State, so long as (i) such
successor entity either (a) expressly assumes all the obligations of the Issuer
Trust with respect to the Preferred Securities or (b) substitutes for the
Preferred Securities other securities having substantially the same terms as the
Preferred Securities (the "Successor Securities") so long as the Successor
Securities have the same priority as the Preferred Securities with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) a
trustee of such successor entity, possessing the same powers and duties as the
Property Trustee, is appointed to hold the Junior Subordinated Debentures, (iii)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, if then rated, (iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect, (v) such successor entity has
a purpose substantially identical to that of the Issuer Trust, (vi) prior to
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, the Issuer Trust has received an opinion from independent counsel
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Issuer Trust nor such successor entity will be
required to register as an investment company under the Investment Company Act,
and (vii) the Company or any permitted successor or assignee owns all the common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, the Issuer Trust may not,
except with the consent of holders of 100% in aggregate Liquidation Amount of
the Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to, any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Issuer Trust or the successor entity to be taxable as a corporation for United
States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "--Removal of Issuer Trustees;
Appointment of Successors" and "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of a
majority of the Common Securities and the Property Trustee, without the consent
of the holders of the Preferred Securities, (i) to cure any ambiguity, correct
or supplement any provisions in the Trust Agreement that may be inconsistent
with any other provision, or to make any other provisions with respect to
matters or questions arising under the Trust Agreement, provided that any such
amendment does not adversely affect in any material respect the interests of any
holder of Trust Securities, or (ii) to modify, eliminate or add to any
provisions of the Trust Agreement to such extent as may be necessary to ensure
that the Issuer Trust will not be taxable as a corporation for United States
federal income tax purposes at any time that any Trust Securities are
outstanding or to ensure that the Issuer Trust will not be required to register
as an "investment company" under the Investment Company Act, and any amendments
of the Trust Agreement will become
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effective when notice of such amendment is given to the holders of Trust
Securities. The Trust Agreement may be amended by the holders of a majority of
the Common Securities and the Property Trustee with (i) the consent of holders
representing not less than a majority in aggregate Liquidation Amount of the
outstanding Preferred Securities and (ii) receipt by the Issuer Trustees of an
opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Issuer Trustees in accordance with such amendment will not
affect the Issuer Trust's not being taxable as a corporation for United States
federal income tax purposes or the Issuer Trust's exemption from status as an
"investment company" under the Investment Company Act, except that, without the
consent of each holder of Trust Securities affected thereby, the Trust Agreement
may not be amended to (i) change the amount or timing of any Distribution on the
Trust Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Trust Securities as of a specified date or
(ii) restrict the right of a holder of Trust Securities to institute suit for
the enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Issuer Trust,
the Property Trustee will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive any past default that is waivable
under Section 5.13 of the Junior Subordinated Indenture, (iii) exercise any
right to rescind or annul a declaration that the Junior Subordinated Debentures
shall be due and payable or (iv) consent to any amendment, modification or
termination of the Junior Subordinated Indenture or the Junior Subordinated
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the holders of at least a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities, except that, if a
consent under the Junior Subordinated Indenture would require the consent of
each holder of Junior Subordinated Debentures affected thereby, no such consent
will be given by the Property Trustee without the prior consent of each such
holder of the Preferred Securities. The Property Trustee may not revoke any
action previously authorized or approved by a vote of the holders of the
Preferred Securities except by subsequent vote of the holders of the Preferred
Securities. The Property Trustee will notify each holder of Preferred Securities
of any notice of default with respect to the Junior Subordinated Debentures. In
addition to obtaining the foregoing approvals of the holders of the Preferred
Securities, before taking any of the foregoing actions, the Property Trustee
will obtain an opinion of counsel experienced in such matters to the effect that
the Issuer Trust will not be taxable as a corporation for United States federal
income tax purposes on account of such action.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be given
to each registered holder of Preferred Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
to redeem and cancel Preferred Securities in accordance with the Trust
Agreement.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
EXPENSES AND TAXES
In the Junior Subordinated Indenture, the Company, as borrower, has agreed
to pay all debts and other obligations (other than with respect to the Preferred
Securities) and all costs and expenses of the Issuer Trust (including costs and
expenses relating to the organization of the Issuer Trust, the fees and expenses
of the Trustees and the costs and expenses relating to the operation of the
Issuer Trust) and to pay any and all taxes and all costs and expenses with
respect thereto (other than United States withholding
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taxes) to which the Issuer Trust might become subject. The foregoing obligations
of the Company under the Junior Subordinated Indenture are for the benefit of,
and shall be enforceable by, any person to whom any such debts, obligations,
costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor
has received notice thereof. Any such Creditor may enforce such obligations of
the Company directly against the Company, and the Company has irrevocably waived
any right or remedy to require that any such Creditor take any action against
the Issuer Trust or any other person before proceeding against the Company. The
Company has also agreed in the Indenture to execute such additional agreements
as may be necessary or desirable to give full effect to the foregoing.
BOOK ENTRY, DELIVERY AND FORM
The Preferred Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of, DTC
and registered in the name of DTC's nominee. Unless and until it is exchangeable
in whole or in part for the Preferred Securities in definitive form, a global
security may not be transferred except as a whole by DTC to a nominee of DTC or
by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such
nominee to a successor of such Depository or a nominee of such successor.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with DTC or its nominee ("Participants") or persons
that may hold interests through Participants. The Company expects that, upon the
issuance of a global security, DTC will credit, on its book-entry registration
and transfer system, the Participants' accounts with their respective interests
in the Preferred Securities represented by such global security. Ownership of
beneficial interests in such global security will be shown on, and the transfer
of such ownership interests will be effected only through, records maintained by
DTC (with respect to interests of Participants) and on the records of
Participants (with respect to interests of Persons held through Participants).
Beneficial owners will not receive written confirmation from DTC of their
purchase, but are expected to receive written confirmations from the
Participants through which the beneficial owner entered into the transaction.
Transfers of ownership interests will be accomplished by entries on the books of
Participants acting on behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Preferred Securities represented by such global security
for all purposes under the Junior Subordinated Indenture. Except as provided
below, owners of beneficial interests in a global security will not be entitled
to receive physical delivery of the Preferred Securities in definitive form and
will not be considered the owners or holders thereof under the Junior
Subordinated Indenture. Accordingly, each person owning a beneficial interest in
such a global security must rely on the procedures of DTC and, if such person is
not a Participant, on the procedures of the Participant through which such
person owns its interest, to exercise any rights of a holder of Preferred
Securities under the Junior Subordinated Indenture. The Company understands
that, under DTC's existing practices, in the event that the Company requests any
action of holders, or an owner of a beneficial interest in such a global
security desires to take any action which a holder is entitled to take under the
Junior Subordinated Indenture, DTC would authorize the Participants holding the
relevant beneficial interests to take such action, and such Participants would
authorize beneficial owners owning through such Participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them. Redemption notices will also be sent to DTC. If less than all of the
Preferred Securities are being redeemed, the Company understands that it is
DTC's existing practice to determine by lot the amount of the interest of each
Participant to be redeemed.
Distributions on the Preferred Securities registered in the name of DTC or
its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such Preferred Securities.
None of the Company, the Trustees, the Administrators, any Paying Agent or any
other agent of the Company or the Trustees will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the global security for
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such Preferred Securities or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. Disbursements of
Distributions to Participants shall be the responsibility of DTC. DTC's practice
is to credit Participants' accounts on a date on which payments are to be made
in accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payment on the date on which
payments are to be made. Payments by Participants to beneficial owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such Participant and not of
DTC, the Company, the Trustees, the Paying Agent or any other agent of the
Company, subject to any statutory or regulatory requirements as may be in effect
from time to time.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice to
the Company or the Trustees. If DTC notifies the Company that it is unwilling to
continue as such, or if it is unable to continue or ceases to be a clearing
agency registered under the Exchange Act and a successor depository is not
appointed by the Company within ninety days after receiving such notice or
becoming aware that DTC is no longer so registered, the Company will issue the
Preferred Securities in definitive form upon registration of transfer of, or in
exchange for, such global security. In addition, the Company may at any time and
in its sole discretion determine not to have the Preferred Securities
represented by one or more global securities and, in such event, will issue
Preferred Securities in definitive form in exchange for all of the global
securities representing such Preferred Securities.
DTC has advised the Company and the Issuer Trust as follows: DTC is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers (such as the Underwriters), banks, trust companies and clearing
corporations and may include certain other organizations. Certain of such
Participants (or their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through, or maintain a custodial
relationship with a Participant, either directly or indirectly.
SAME DAY SETTLEMENT AND PAYMENT
Settlement for the Preferred Securities will be made by the Underwriters in
immediately available funds.
Secondary trading in Preferred Securities of corporate issuers is generally
settled in clearinghouse or next-day funds. In contrast, the Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the Preferred Securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as to
the effect, if any, of settlement in immediately available funds on trading
activity in the Preferred Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Preferred Securities are not held by DTC, such payments will be made
by check mailed to the address of the holder entitled thereto as such address
appears on the securities register for the Trust Securities. The paying agent
(the "Paying Agent") initially will be the Property Trustee and any co-paying
agent chosen by the Property Trustee and acceptable to the Administrators. The
Paying Agent will be permitted to resign as Paying Agent upon 30 days' written
notice
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to the Property Trustee and the Administrators. If the Property Trustee is no
longer the Paying Agent, the Property Trustee will appoint a successor (which
must be a bank or trust company reasonably acceptable to the Administrators) to
act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Preferred Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Issuer Trust, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Issuer Trust will not be required to register or cause to be
registered the transfer of the Preferred Securities after the Preferred
Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically set
forth in the Trust Agreement and, after such Event of Default, must exercise the
same degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Trust Agreement at the request of any holder of Preferred Securities unless it
is offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
For information concerning the relationships between Wilmington Trust
Company, the Property Trustee, and the Company, see "Description of Junior
Subordinated Debentures--Information Concerning the Debenture Trustee."
MISCELLANEOUS
The Administrators and the Property Trustee are authorized and directed to
conduct the affairs of and to operate the Issuer Trust in such a way that the
Issuer Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxable as a corporation for
United States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the Property Trustee and the
holders of Common Securities are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of the Issuer Trust or the Trust
Agreement, that the Property Trustee and the holders of Common Securities
determine in their discretion to be necessary or desirable for such purposes, as
long as such action does not materially adversely affect the interests of the
holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
The Issuer Trust may not borrow money or issue debt or mortgage or pledge
any of its assets.
GOVERNING LAW
The Trust Agreement will be governed by and construed in accordance with the
laws of the State of Delaware.
CERTAIN DEFINED TERMS
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by the Issuer Trust on the
outstanding Preferred Securities and Common Securities of the Issuer Trust will
not be reduced as a result of any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject as a result of
a Tax Event.
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"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day on
which banking institutions in the City of Wilmington or the State of Maryland
are authorized or required by law or executive order to remain closed, or (c) a
day on which the Property Trustee's Corporate Trust Office, the Delaware
Trustee's Corporate Trust Office or the Debenture Trustee's Corporate Trust
Office is closed for business.
"Capital Treatment Event" means the reasonable determination by the Company
that, as a result of the occurrence of any amendment to, or change (including
any announced prospective change) in, the laws (or any rules or regulations
thereunder) of the United States or any political subdivision thereof or
therein, or as a result of any official or administrative pronouncement or
action or judicial decision interpreting or applying such laws or regulations,
which amendment or change is effective or such pronouncement, action or decision
is announced on or after the date of issuance of the Preferred Securities, there
is more than an insubstantial risk that the Company will not be entitled to
treat an amount equal to the Liquidation Amount of the Preferred Securities as
"Tier 1 Capital" (or the then equivalent thereof), except as otherwise
restricted under the 25% Capital Limitation, for purposes of the risk-based
capital adequacy guidelines of the Federal Reserve, as then in effect and
applicable to the Company.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change or
prospective change becomes effective or would become effective, as the case may
be, on or after the date of the issuance of the Preferred Securities.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Junior Subordinated Indenture,
allocated to the Common Securities and to the Preferred Securities based upon
the relative Liquidation Amounts of such classes and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of the Issuer Trust, Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the holder to whom such Junior Subordinated
Debentures are distributed.
"Liquidation Amount" means the stated amount of $10 per Trust Security.
"Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Preferred Securities, there is more than an insubstantial
risk that (i) the Issuer Trust is, or will be within 90 days of the delivery of
such opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion, will not be, deductible by the Company, in
whole or in part, for United States federal income tax purposes or (iii) the
Issuer Trust is, or will be within 90 days of the delivery of such opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
If a Tax Event described in clause (i) or (iii) of the definition of Tax
Event above has occurred and is continuing and the Issuer Trust is the holder of
all the Junior Subordinated Debentures, the Company will pay Additional Sums (as
defined below), if any, on the Junior Subordinated Debentures.
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DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Junior
Subordinated Indenture, under which Wilmington Trust Company is acting as
Debenture Trustee. This summary of certain terms and provisions of the Junior
Subordinated Debentures and the Junior Subordinated Indenture does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, all the provisions of the Junior Subordinated Indenture, including the
definitions therein of certain terms. Whenever particular defined terms of the
Junior Subordinated Indenture (as amended or supplemented from time to time) are
referred to herein, such defined terms are incorporated herein by reference. A
copy of the form of Junior Subordinated Indenture is available from the
Debenture Trustee upon request.
GENERAL
Concurrently with the issuance of the Preferred Securities, the Issuer Trust
will invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in the Junior Subordinated Debentures issued
by the Company. The Junior Subordinated Debentures will bear interest, accruing
from the date of original issuance, at a rate equal to % per annum on the
principal amount thereof, payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year (each, an "Interest Payment Date"),
commencing , 1998, to the person in whose name each Junior Subordinated
Debenture is registered at the close of business on the March 15, June 15,
September 15 or December 15 (whether or not a Business Day) next preceding such
Interest Payment Date. It is anticipated that, until the liquidation, if any, of
the Issuer Trust, each Junior Subordinated Debenture will be registered in the
name of the Issuer Trust and held by the Property Trustee in trust for the
benefit of the holders of the Trust Securities. The amount of interest payable
for any period less than a full interest period will be computed on the basis of
a 360-day year of twelve 30-day months and the actual days elapsed in a partial
month in such period. The amount of interest payable for any full interest
period will be computed by dividing the rate per annum by four. If any date on
which interest is payable on the Junior Subordinated Debentures is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding day that is a Business Day (without any interest or other
payment in respect of any such delay), with the same force and effect as if made
on the date such payment was originally payable. Accrued interest that is not
paid on the applicable Interest Payment Date will bear additional interest on
the amount thereof (to the extent permitted by law) at a rate equal to % per
annum, compounded quarterly and computed on the basis of a 360-day year of
twelve 30-day months and the actual days elapsed in a partial month in such
period. The amount of additional interest payable for any full interest period
will be computed by dividing the rate per annum by four. The term "interest" as
used herein includes quarterly interest payments, interest on quarterly interest
payments not paid on the applicable Interest Payment Date and Additional Sums
(as defined below), as applicable.
The Junior Subordinated Debentures will mature on , 2028, subject to
the Maturity Adjustment (such date, as it may be shortened by the Maturity
Adjustment is referred to herein as the Stated Maturity). The Maturity
Adjustment represents the right of the Company to shorten the maturity date once
at any time to any date not earlier than , 2003, subject to the Company
having received prior approval of the Federal Reserve if then required under
applicable capital guidelines or policies of the Federal Reserve. In the event
the Company elects to shorten the Stated Maturity of the Junior Subordinated
Debentures, it will give notice to the registered holders of the Junior
Subordinated Debentures, the Debenture Trustee and the Issuer Trust of such
shortening no less than 90 days prior to the effectiveness thereof. The Property
Trustee must give notice to the holders of the Trust Securities of the
shortening of the Stated Maturity at least 30 but not more than 60 days before
such date.
The Junior Subordinated Debentures will be unsecured and rank junior and
subordinate in right of payment to all Senior Indebtedness of the Company. The
Junior Subordinated Debentures will not be subject to a sinking fund and are not
eligible as collateral for any loan made by the Bank. The Junior Subordinated
Indenture does not limit the incurrence or issuance of other secured or
unsecured debt by
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the Company, including Senior Indebtedness, whether under the Junior
Subordinated Indenture or any existing or other indenture or agreement that the
Company may enter into in the future or otherwise. See "--Subordination."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing, the
Company has the right at any time during the term of the Junior Subordinated
Debentures to defer the payment of interest at any time or from time to time for
a period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. At the end of such Extension
Period, the Company must pay all interest then accrued and unpaid (together with
interest thereon at a rate equal to % per annum, compounded quarterly and
computed on the basis of a 360-day year of twelve 30-day months and the actual
days elapsed in a partial month in such period, to the extent permitted by
applicable law). The amount of additional interest payable for any full interest
period will be computed by dividing the rate per annum by four. During an
Extension Period, interest will continue to accrue and holders of Junior
Subordinated Debentures (or holders of Preferred Securities while outstanding)
will be required to accrue interest income for United States federal income tax
purposes. See "Certain Federal Income Tax Consequences--US Holders--Interest
Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank PARI PASSU in
all respects with or junior in interest to the Junior Subordinated Debentures,
including the Company's obligations associated with the Outstanding Capital
Securities (other than (a) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the Company (or securities convertible
into or exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights, stock
or other property under any stockholders rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks PARI PASSU with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Extension Period may
exceed 20 consecutive quarterly periods or extend beyond the Stated Maturity of
the Junior Subordinated Debentures. Upon the termination of any such Extension
Period and the payment of all amounts then due, the Company may elect to begin a
new Extension Period subject to the above conditions. No interest shall be due
and payable during an Extension Period, except at the end thereof. The Company
must give the Issuer Trustees notice of its election of such Extension Period at
least one Business Day prior to the earlier of (i) the date the Distributions on
the Preferred Securities would have been payable but for the election to begin
such Extension Period and (ii) the date the Property Trustee is required to give
notice to holders of the Preferred Securities of the record date or the date
such Distributions are payable, but in any event not less than one Business Day
prior to such record date. The Property Trustee will give notice of the
Company's election to begin a new Extension Period to the holders
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of the Preferred Securities. There is no limitation on the number of times that
the Company may elect to begin an Extension Period.
REDEMPTION
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after , 2003, in whole at any time or in
part from time to time, or (ii) in whole, but not in part, at any time within 90
days following the occurrence and during the continuation of a Tax Event,
Investment Company Event or Capital Treatment Event (each as defined under
"Description of Preferred Securities--Redemption"), in each case at the
redemption price described below. The proceeds of any such redemption will be
used by the Issuer Trust to redeem the Preferred Securities.
The Federal Reserve's risk-based capital guidelines, which are subject to
change, currently provide that redemptions of permanent equity or other capital
instruments before stated maturity and that any organization considering such a
redemption, depending on the circumstances, either: (i) must obtain Federal
Reserve approval prior to redemption, or (ii) should consult with the Federal
Reserve before redeeming any equity or capital instrument prior to maturity if
such redemption could have a material effect on the level or composition of the
organization's capital base (unless the equity or capital instrument were
redeemed with the proceeds of, or replaced by, a like amount of a similar or
higher quality capital instrument and the Federal Reserve considers the
organization's capital position to be fully adequate after the redemption).
The redemption of the Junior Subordinated Debentures by the Company prior to
their Stated Maturity would constitute the redemption of capital instruments
under the Federal Reserve's current risk-based capital guidelines and may be
subject, as it currently is, to the prior approval of the Federal Reserve.
The redemption price for Junior Subordinated Debentures is the outstanding
principal amount of the Junior Subordinated Debentures plus accrued interest
(including any Additional Sums) thereon to but excluding the date fixed for
redemption.
ADDITIONAL SUMS
The Company has covenanted in the Junior Subordinated Indenture that, if and
for so long as (i) the Issuer Trust is the holder of all Junior Subordinated
Debentures and (ii) the Issuer Trust is required to pay any additional taxes,
duties or other governmental charges as a result of a Tax Event, the Company
will pay as additional sums on the Junior Subordinated Debentures such amounts
as may be required so that the Distributions payable by the Issuer Trust will
not be reduced as a result of any such additional taxes, duties or other
governmental charges. See "Description of Preferred Securities--Redemption."
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered in the name
of the Issuer Trust. If the Junior Subordinated Debentures are distributed to
holders of Preferred Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Preferred Securities. See "Description of
Preferred Securities--Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
Payments on Junior Subordinated Debentures represented by a global security
will be made to Cede & Co., the nominee for DTC, as the registered holder of the
Junior Subordinated Debentures, as
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described under "Description of the Preferred Securities--Book Entry, Delivery
and Form." If Junior Subordinated Debentures are issued in certificated form,
principal and interest will be payable, the transfer of the Junior Subordinated
Debentures will be registrable, and Junior Subordinated Debentures will be
exchangeable for Junior Subordinated Debentures of other authorized
denominations of a like aggregate principal amount, at the corporate trust
office of the Debenture Trustee in New York, New York or at the offices of any
Paying Agent or transfer agent appointed by the Company, provided that payment
of interest may be made at the option of the Company by check mailed to the
address of the persons entitled thereto. However, a holder of $1 million or more
in aggregate principal amount of Junior Subordinated Debentures may receive
payments of interest (other than interest payable at the Stated Maturity) by
wire transfer of immediately available funds upon written request to the
Debenture Trustee not later than 15 calendar days prior to the date on which the
interest is payable.
The Junior Subordinated Debentures are issuable only in registered form
without coupons in integral multiples of $25. Junior Subordinated Debentures are
exchangeable for other Junior Subordinated Debentures of like tenor, of any
authorized denominations, and of a like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Junior Subordinated Debenture or at the office of any transfer agent designated
by the Company for such purpose without service charge and upon payment of any
taxes and other governmental charges as described in the Junior Subordinated
Indenture. The Company has appointed the Debenture Trustee as securities
registrar under the Junior Subordinated Indenture. The Company may at any time
designate additional transfer agents with respect to the Junior Subordinated
Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption, except,
in the case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or then
held by the Company in trust, for the payment of the principal of (and premium,
if any) or interest on any Junior Subordinated Debenture and remaining unclaimed
for two years after such principal (and premium, if any) or interest has become
due and payable shall, at the request of the Company, be repaid to the Company
and the holder of such Junior Subordinated Debenture shall thereafter look, as a
general unsecured creditor, only to the Company for payment thereof.
RESTRICTIONS ON CERTAIN PAYMENTS; CERTAIN COVENANTS OF THE COMPANY
The Company has covenanted that it will not (i) declare or pay any dividends
or distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment of
principal of or interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company that rank pari passu in all respects with or
junior in interest to the Junior Subordinated Debentures, (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Company in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period or other event referred to below, (b) as a
result of an exchange or conversion of any class or series
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of the Company's capital stock (or any capital stock of a subsidiary of the
Company) for any class or series of the Company's capital stock or of any class
or series of the Company's indebtedness for any class or series of the Company's
capital stock, (c) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any stockholder's rights plan, or
the issuance of rights, stock or other property under any stockholder's rights
plan, or the redemption or repurchase of rights pursuant thereto, or (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks PARI PASSU with or junior to such stock), if at such time (i) there has
occurred any event (a) of which the Company has actual knowledge that with the
giving of notice or the lapse of time, or both, would constitute a Debenture
Event of Default and (b) that the Company has not taken reasonable steps to
cure, (ii) if the Junior Subordinated Debentures are held by the Issuer Trust,
the Company is in default with respect to its payment of any obligations under
the Guarantee or (iii) the Company has given notice of its election of an
Extension Period as provided in the Junior Subordinated Indenture and has not
rescinded such notice, or such Extension Period, or any extension thereof, is
continuing.
The Company has covenanted in the Junior Subordinated Indenture (i) to
continue to hold, directly or indirectly, 100% of the Common Securities,
provided that certain successors that are permitted pursuant to the Junior
Subordinated Indenture may succeed to the Company's ownership of the Common
Securities, (ii) as holder of the Common Securities, not to voluntarily
terminate, windup or liquidate the Issuer Trust, other than (a) in connection
with a distribution of Junior Subordinated Debentures to the holders of the
Preferred Securities in liquidation of the Issuer Trust or (b) in connection
with certain mergers, consolidations or amalgamations permitted by the Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms and
provisions of the Trust Agreement, to cause the Issuer Trust to continue not to
be taxable as a corporation for United States federal income tax purposes.
MODIFICATION OF JUNIOR SUBORDINATED INDENTURE
From time to time, the Company and the Debenture Trustee may, without the
consent of any of the holders of the outstanding Junior Subordinated Debentures,
amend, waive or supplement the provisions of the Junior Subordinated Indenture
to: (1) evidence succession of another corporation or association to the Company
and the assumption by such person of the obligations of the Company under the
Junior Subordinated Debentures, (2) add further covenants, restrictions or
conditions for the protection of holders of the Junior Subordinated Debentures,
(3) cure ambiguities or correct the Junior Subordinated Debentures in the case
of defects or inconsistencies in the provisions thereof, so long as any such
cure or correction does not adversely affect the interest of the holders of the
Junior Subordinated Debentures in any material respect, (4) change the terms of
the Junior Subordinated Debentures to facilitate the issuance of the Junior
Subordinated Debentures in certificated or other definitive form, (5) evidence
or provide for the appointment of a successor Debenture Trustee, or (6) qualify,
or maintain the qualification of, the Junior Subordinated Indentures under the
Trust Indenture Act. The Junior Subordinated Indenture contains provisions
permitting the Company and the Debenture Trustee, with the consent of the
holders of not less than a majority in principal amount of the Junior
Subordinated Debentures, to modify the Junior Subordinated Indenture in a manner
affecting the rights of the holders of the Junior Subordinated Debentures,
except that no such modification may, without the consent of the holder of each
outstanding Junior Subordinated Debenture so affected, (i) change the Stated
Maturity of the Junior Subordinated Debentures, or reduce the principal amount
thereof, the rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the currency in which, any
such amount is payable or impair the right to institute suit for the enforcement
of any Junior Subordinated Debenture or (ii) reduce the percentage of principal
amount of Junior Subordinated Debentures, the holders of which are required to
consent to any such modification of the Junior Subordinated Indenture.
Furthermore, so long as any of the Preferred Securities remain outstanding, no
such modification may be
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made that adversely affects the holders of such Preferred Securities in any
material respect, and no termination of the Junior Subordinated Indenture may
occur, and no waiver of any Debenture Event of Default or compliance with any
covenant under the Junior Subordinated Indenture may be effective, without the
prior consent of the holders of at least a majority of the aggregate Liquidation
Amount of the outstanding Preferred Securities unless and until the principal of
(and premium, if any, on) the Junior Subordinated Debentures and all accrued and
unpaid interest thereon have been paid in full and certain other conditions are
satisfied.
DEBENTURE EVENTS OF DEFAULT
The Junior Subordinated Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Debentures
that has occurred and is continuing constitutes an "Event of Default" with
respect to the Junior Subordinated Debentures:
(i) failure to pay any interest on the Junior Subordinated Debentures
when due and payable, and continuance of such default for a period of 30
days (subject to the deferral of any due date in the case of an Extension
Period); or
(ii) failure to pay any principal of or premium, if any, on the Junior
Subordinated Debentures when due whether at maturity, upon redemption, by
declaration of acceleration or otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Junior Subordinated Indenture for 90 days after
written notice to the Company from the Debenture Trustee or the holders of
at least 25% in aggregate outstanding principal amount of the outstanding
Junior Subordinated Debentures; or
(iv) the occurrence of the appointment of a receiver or other similar
official in any liquidation, insolvency or similar proceeding with respect
to the Company or all or substantially all of its property; or a court or
other governmental agency shall enter a decree or order appointing a
receiver or similar official and such decree or order shall remain unstayed
and undischarged for a period of 60 days.
For purposes of the Trust Agreement and this Prospectus, each such Event of
Default under the Junior Subordinated Debenture is referred to as a "Debenture
Event of Default." As described in "Description of Preferred Securities--Events
of Default; Notice," the occurrence of a Debenture Event of Default will also
constitute an Event of Default in respect of the Trust Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate principal amount of outstanding Junior Subordinated Debentures may
declare the principal due and payable immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Preferred Securities
shall have such right. The holders of a majority in aggregate principal amount
of outstanding Junior Subordinated Debentures may annul such declaration and
waive the default if all defaults (other than the non-payment of the principal
of Junior Subordinated Debentures which has become due solely by such
acceleration) have been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee. Should the holders of Junior
Subordinated Debentures fail to annul such declaration and waive such default,
the holders of a majority in aggregate Liquidation Amount of the outstanding
Preferred Securities shall have such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal (or premium, if any) or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and
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principal due otherwise than by acceleration has been deposited with the
Debenture Trustee) or a default in respect of a covenant or provision which
under the Junior Subordinated Indenture cannot be modified or amended without
the consent of the holder of each outstanding Junior Subordinated Debenture
affected thereby. See "--Modification of Junior Subordinated Indenture." The
Company is required to file annually with the Debenture Trustee a certificate as
to whether or not the Company is in compliance with all the conditions and
covenants applicable to it under the Junior Subordinated Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts payable under the Junior
Subordinated Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Junior Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Preferred Securities may institute a
legal proceeding directly against the Company for enforcement of payment to such
holder of an amount equal to the amount payable in respect of Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities held by such holder (a "Direct
Action"). The Company may not amend the Junior Subordinated Indenture to remove
the foregoing right to bring a Direct Action without the prior written consent
of the holders of all the Preferred Securities. The Company has the right under
the Junior Subordinated Indenture to set-off any payment made to such holder of
Preferred Securities by the Company in connection with a Direct Action.
The holders of the Preferred Securities would not be able to exercise
directly any remedies available to the holders of the Junior Subordinated
Debentures except under the circumstances described in the preceding paragraph.
See "Description of Preferred Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Junior Subordinated Indenture provides that the Company may not
consolidate with or merge into any other Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, and no Person
may consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless (i) if
the Company consolidates with or merges into another Person or conveys or
transfers its properties and assets substantially as an entirety to any Person,
the successor Person is organized under the laws of the United States or any
state or the District of Columbia, and such successor Person expressly assumes
the Company's obligations in respect of the Junior Subordinated Debentures,
provided, however, that nothing in the Junior Subordinated Indenture shall be
deemed to restrict or prohibit, and no supplemental indenture shall be required
in the case of, the merger of a Principal Subsidiary Bank with and into a
Principal Subsidiary Bank or the Company, the consolidation of Principal
Subsidiary Banks into a Principal Subsidiary Bank or the Company, or the sale or
other disposition of all or substantially all of the assets of any Principal
Subsidiary Bank to another Principal Subsidiary Bank or the Company, if, in any
such case in which the surviving, resulting or acquiring entity is not the
Company, the Company would own, directly or indirectly, at least 80% of the
voting securities of the Principal Subsidiary Bank (and of any other Principal
Subsidiary Bank any voting securities of which are owned, directly or
indirectly, by such Principal Subsidiary Bank) surviving such merger, resulting
from such consolidation or acquiring such assets; (ii) immediately after giving
effect thereto, no Debenture Event of Default, and no event which, after notice
or lapse of time or both, would constitute a Debenture Event of Default, has
occurred and is continuing; and (iii) certain other conditions as prescribed in
the Junior Subordinated Indenture are satisfied.
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For purposes of clause (i) above, the term "Principal Subsidiary Bank" means
(i) the Bank, (ii) any other banking subsidiary of the Company, the consolidated
assets of which constitute 20% or more of the consolidated assets of the Company
and its consolidated subsidiaries, (iii) any other banking subsidiary designated
as a Principal Subsidiary Bank pursuant to a resolution of the Board of
Directors of the Company and set forth in an officers' certificate delivered to
the Debenture Trustee, and (iv) any subsidiary of the Company that owns,
directly or indirectly, any voting securities, or options, warrants or rights to
subscribe for or purchase voting securities, of any Principal Subsidiary Bank
under clause (i), (ii) or (iii), and in the case of clause (i), (ii), (iii) or
(iv) their respective successors (whether by consolidation, merger, conversion,
transfer of substantially all their assets and business or otherwise) so long as
any such successor is a banking subsidiary (in the case of clause (i), (ii) or
(iii) or a subsidiary (in the case of clause (iv)) of the Company.
The provisions of the Junior Subordinated Indenture do not afford holders of
the Junior Subordinated Debentures protection in the event of a highly leveraged
or other transaction involving the Company that may adversely affect holders of
the Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Junior Subordinated Indenture provides that when, among other things,
all Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation (i) have become due and payable or (ii) will become due
and payable at the Stated Maturity within one year, and the Company deposits or
causes to be deposited with the Debenture Trustee funds, in trust, for the
purpose and in an amount sufficient to pay and discharge the entire indebtedness
on the Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation, for the principal (and premium, if any) and interest
to the date of the deposit or to the Stated Maturity, as the case may be, then
the Junior Subordinated Indenture will cease to be of further effect (except as
to the Company's obligations to pay all other sums due pursuant to the Junior
Subordinated Indenture and to provide the officers' certificates and opinions of
counsel described therein), and the Company will be deemed to have satisfied and
discharged the Junior Subordinated Indenture.
SUBORDINATION
The Junior Subordinated Debentures will be subordinate and junior in right
of payment, to the extent set forth in the Junior Subordinated Indenture, to all
Senior Indebtedness (as defined below) of the Company. If the Company defaults
in the payment of any principal, premium, if any, or interest, if any, or any
other amount payable on any Senior Indebtedness when the same becomes due and
payable, whether at maturity or at a date fixed for redemption or by declaration
of acceleration or otherwise, then, unless and until such default has been cured
or waived or has ceased to exist or all Senior Indebtedness has been paid, no
direct or indirect payment (in cash, property, securities, by set off or
otherwise) may be made or agreed to be made on the Junior Subordinated
Debentures, or in respect of any redemption, repayment, retirement, purchase or
other acquisition of any of the Junior Subordinated Debentures.
As used herein, "Senior Indebtedness" means, whether recourse is to all or a
portion of the assets of the Company and whether or not contingent, (i) every
obligation of the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of the Company with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of the Company; (iv) every obligation of the Company issued or
assumed as the deferred purchase price of property services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of the Company; (vi) every
obligation of the Company for claims (as defined in Section 101(4) of the United
States Bankruptcy Code of 1978, as amended) in respect of derivative products
such as interest and foreign exchange rate contracts, commodity contracts and
similar arrangements; and (vii) every obligation of the
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type referred to in clauses (i) through (vi) of another person and all dividends
of another person the payment of which, in either case, the Company has
guaranteed or is responsible or liable, directly or indirectly, as obligor or
otherwise. "Senior Indebtedness" shall not include (i) any obligations which, by
their terms, are expressly stated to rank PARI PASSU in right of payment with,
or to not be superior in right of payment to, the Junior Subordinated
Debentures, (ii) any Senior Indebtedness of the Company which when incurred and
without respect to any election under Section 1111(b) of the United States
Bankruptcy Code of 1978, as amended, was without recourse to the Company, (iii)
any Senior Indebtedness of the Company to any of its subsidiaries, (iv) Senior
Indebtedness to any executive officer or director of the Company, or (v) any
indebtedness in respect of debt securities issued to any trust, or a trustee of
such trust, partnership or other entity affiliated with the Company that is a
financing entity of the Company in connection with the issuance of such
financing entity of securities that are similar to the Preferred Securities.
In the event of (i) certain events of bankruptcy, dissolution or liquidation
of the Company or the holder of the Common Securities, (ii) any proceeding for
the liquidation, dissolution or other winding up of the Company, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Company for the benefit of creditors or (iv) any
other marshaling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will be
paid or delivered directly to the holders of Senior Indebtedness in accordance
with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums owing
with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company ranking
on a parity with the Junior Subordinated Debentures, will be entitled to be paid
from the remaining assets of the Company the amounts at the time due and owing
on the Junior Subordinated Debentures and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, will be
made on account of any capital stock or obligations of the Company ranking
junior to the Junior Subordinated Debentures and such other obligations. If any
payment or distribution on account of the Junior Subordinated Debentures of any
character or any security, whether in cash, securities or other property is
received by any holder of any Junior Subordinated Debentures in contravention of
any of the terms hereof and before all the Senior Indebtedness has been paid in
full, such payment or distribution or security will be received in trust for the
benefit of, and must be paid over or delivered and transferred to, the holders
of the Senior Indebtedness at the time outstanding in accordance with the
priorities then existing among such holders for application to the payment of
all Senior Indebtedness remaining unpaid to the extent necessary to pay all such
Senior Indebtedness in full. By reason of such subordination, in the event of
the insolvency of the Company, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures may receive less,
ratably, than the other creditors of the Company. Such subordination will not
prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
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INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee, other than during the occurrence and continuance of a
default by the Company in performance of its obligations under the Junior
Subordinated Debenture, undertakes to perform only such duties as are
specifically set forth in the Junior Subordinated Debenture and, after such
event of default, must exercise the same degree of care and skill as a prudent
person would exercise or use in the conduct of his or her own affairs. Subject
to this provision, the Debenture Trustee is under no obligation to exercise any
of the powers vested in it by the Junior Subordinated Indenture at the request
of any holder of Junior Subordinated Debentures, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities that might
be incurred thereby. The Debenture Trustee is not required to expend or risk its
own funds or otherwise incur personal financial liability in the performance of
its duties if the Debenture Trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it.
The Debenture Trustee may serve from time to time as trustee under other
indentures or trust agreements with the Company or its subsidiaries relating to
other issues of their securities. In addition, the Company and certain of its
affiliates may have other banking relationships with Wilmington Trust Company
and its affiliates.
GOVERNING LAW
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
Maryland.
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DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance of Preferred Securities by the Issuer Trust for the benefit of
the holders from time to time of the Preferred Securities. Wilmington Trust
Company will act as Guarantee Trustee under the Guarantee. This summary of
certain provisions of the Guarantee does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all the provisions of
the Guarantee, including the definitions therein of certain terms. A copy of the
form of Guarantee is available upon request from the Guarantee Trustee. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Preferred Securities.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Preferred Securities, as and when due, regardless of any defense,
right of set-off or counterclaim that the Issuer Trust may have or assert other
than the defense of payment. The following payments with respect to the
Preferred Securities, to the extent not paid by or on behalf of the Issuer Trust
(the "Guarantee Payments"), will be subject to the Guarantee: (i) any
accumulated and unpaid Distributions required to be paid on such Preferred
Securities, to the extent that the Issuer Trust has funds on hand available
therefor at such time, (ii) the Redemption Price with respect to any Preferred
Securities called for redemption, to the extent that the Issuer Trust has funds
on hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution of the Issuer Trust (unless the Junior Subordinated
Debentures are distributed to holders of the Preferred Securities), the lesser
of (a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Issuer Trust has
funds on hand available therefor at such time, and (b) the amount of assets of
the Issuer Trust remaining available for distribution to holders of the
Preferred Securities on liquidation of the Issuer Trust. The Company's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Company to the holders of the Preferred Securities or by
causing the Issuer Trust to pay such amounts to such holders.
The Guarantee is an irrevocable guarantee on a subordinated basis of the
Issuer Trust's obligations under the Preferred Securities, but applies only to
the extent that the Issuer Trust has funds sufficient to make such payments, and
is not a guarantee of collection.
If the Company does not make payments on the Junior Subordinated Debentures
held by the Issuer Trust, the Issuer Trust will not be able to pay any amounts
payable in respect of the Preferred Securities and will not have funds legally
available therefor. The Guarantee ranks subordinate and junior in right of
payment to all Senior Indebtedness of the Company. See "--Status of the
Guarantee." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Indebtedness, whether
under the Junior Subordinated Indenture, any other indenture that the Company
may enter into in the future or otherwise.
The Company believes that it has, through the Guarantee, the Trust
Agreement, the Junior Subordinated Debentures and the Junior Subordinated
Indenture, taken together, fully, irrevocably and unconditionally guaranteed all
the Issuer Trust's obligations under the Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations in respect of the
Preferred Securities. See "Relationship Among the Preferred Securities, the
Junior Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Indebtedness
of the Company and PARI PASSU with the Company's
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obligations associated with the Outstanding Capital Securities in the same
manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Preferred Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
Trust or distribution to the holders of the Preferred Securities of the Junior
Subordinated Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
outstanding Preferred Securities. The manner of obtaining any such approval will
be as set forth under "Description of the Preferred Securities--Voting Rights;
Amendment of Trust Agreement." All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of not less than a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee.
Any registered holder of Preferred Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer Trust,
the Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after the
occurrence of an event of default with respect to the Guarantee, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of the Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
For information concerning the relationship between Wilmington Trust
Company, the Guarantee Trustee, and the Company, see "Description of Junior
Subordinated Debentures--Information Concerning the Debenture Trustee."
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TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of the Preferred Securities, upon full payment
of the amounts payable with respect to the Preferred Securities upon liquidation
of the Issuer Trust or upon distribution of Junior Subordinated Debentures to
the holders of the Preferred Securities. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of the Preferred Securities must restore payment of any sums paid under the
Preferred Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of Maryland.
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RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Issuer Trust has funds available for such payment) are
irrevocably guaranteed by the Company as and to the extent set forth under
"Description of Guarantee." Taken together, the Company's obligations under the
Junior Subordinated Debentures, the Junior Subordinated Indenture, the Trust
Agreement and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of Distributions and other amounts due on
the Preferred Securities. No single document standing alone or operating in
conjunction with fewer than all the other documents constitutes such guarantee.
It is only the combined operation of these documents that has the effect of
providing a full, irrevocable and unconditional guarantee of the Issuer Trust's
obligations in respect of the Preferred Securities. If and to the extent that
the Company does not make payments on the Junior Subordinated Debentures, the
Issuer Trust will not have sufficient funds to pay Distributions or other
amounts due on the Preferred Securities. The Guarantee does not cover payment of
amounts payable with respect to the Preferred Securities when the Issuer Trust
does not have sufficient funds to pay such amounts. In such event, the remedy of
a holder of the Preferred Securities is to institute a legal proceeding directly
against the Company for enforcement of payment of the Company's obligations
under Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Preferred Securities held by such holder.
The obligations of the Company under the Junior Subordinated Debentures and
the Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Junior Subordinated Debentures,
such payments will be sufficient to cover Distributions and other payments
distributable on the Preferred Securities, primarily because (i) the aggregate
principal amount of the Junior Subordinated Debentures will be equal to the sum
of the aggregate stated Liquidation Amount of the Preferred Securities and
Common Securities; (ii) the interest rate and interest and other payment dates
on the Junior Subordinated Debentures will match the Distribution rate,
Distribution Dates and other payment dates for the Preferred Securities; (iii)
the Company will pay for all and any costs, expenses and liabilities of the
Issuer Trust except the Issuer Trust's obligations to holders of the Trust
Securities; and (iv) the Trust Agreement further provides that the Issuer Trust
will not engage in any activity that is not consistent with the limited purposes
of the Issuer Trust.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer Trust
or any other person or entity. See "Description of Guarantee."
A default or event of default under any Senior Indebtedness of the Company
would not constitute a default or Event of Default in respect of the Preferred
Securities. However, in the event of payment defaults under, or acceleration of,
Senior Indebtedness of the Company, the subordination provisions of the Junior
Subordinated Indenture provide that no payments may be made in respect of the
Junior Subordinated Debentures until such Senior Indebtedness has been paid in
full or any payment default
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thereunder has been cured or waived. See "Description of Junior Subordinated
Debentures-- Subordination."
LIMITED PURPOSE OF ISSUER TRUST
The Preferred Securities represent preferred undivided beneficial interests
in the assets of the Issuer Trust, and the Issuer Trust exists for the sole
purpose of issuing its Preferred Securities and Common Securities and investing
the proceeds thereof in Junior Subordinated Debentures. A principal difference
between the rights of a holder of a Preferred Security and a holder of a Junior
Subordinated Debenture is that a holder of a Junior Subordinated Debenture is
entitled to receive from the Company payments on Junior Subordinated Debentures
held, while a holder of Preferred Securities is entitled to receive
Distributions or other amounts distributable with respect to the Preferred
Securities from the Issuer Trust (or from the Company under the Guarantee) only
if and to the extent the Issuer Trust has funds available for the payment of
such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of the Issuer Trust, other
than any such dissolution involving the distribution of the Junior Subordinated
Debentures, after satisfaction of liabilities to creditors of the Issuer Trust
as required by applicable law, the holders of the Preferred Securities will be
entitled to receive, out of assets held by the Issuer Trust, the Liquidation
Distribution in cash. See "Description of Preferred Securities--Liquidation
Distribution Upon Dissolution." Upon any voluntary or involuntary liquidation or
bankruptcy of the Company, the Issuer Trust, as registered holder of the Junior
Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated and junior in right of payment to all Senior Indebtedness as set
forth in the Junior Subordinated Indenture, but entitled to receive payment in
full of all amounts payable with respect to the Junior Subordinated Debentures
before any stockholders of the Company receive payments or distributions. Since
the Company is the guarantor under the Guarantee and has agreed under the Junior
Subordinated Indenture to pay for all costs, expenses and liabilities of the
Issuer Trust (other than the Issuer Trust's obligations to the holders of the
Trust Securities), the positions of a holder of the Preferred Securities and a
holder of such Junior Subordinated Debentures relative to other creditors and to
stockholders of the Company in the event of liquidation or bankruptcy of the
Company are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Ober, Kaler, Grimes & Shriver in its capacity as special
tax counsel to the Company ("Tax Counsel"), the discussion of United States
federal income taxation which follows summarizes the expected material United
States federal income tax consequences of the purchase, ownership and
disposition of the Preferred Securities.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations thereunder, and administrative and judicial
interpretations thereof, each as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. The authorities on which this summary
is based are subject to various interpretations, and the opinions of Tax Counsel
are not binding on the Internal Revenue Service (the "IRS") or the courts,
either of which could take a contrary position. Moreover, no rulings have been
or will be sought from the IRS with respect to the transactions described
herein. Accordingly, there can be no assurance that the IRS will not challenge
the opinions expressed herein or that a court would not sustain such a
challenge.
Except as otherwise stated, this summary deals only with the Preferred
Securities held as a capital asset by a holder who or which (i) purchased the
Preferred Securities upon original issuance at their original offering price and
(ii) is a US Holder (as defined below). This summary does not address all the
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tax consequences that may be relevant to a US Holder, nor does it address the
tax consequences, except as stated below, to holders that are not US Holders
("Non-US Holders") or to holders that may be subject to special tax treatment
(such as banks, thrift institutions, real estate investment trusts, regulated
investment companies, insurance companies, brokers and dealers in securities or
currencies, other financial institutions, tax-exempt organizations, persons
holding the Preferred Securities as a position in a "straddle," as part of a
"synthetic security," "hedging," "conversion" or other integrated investment,
persons having a functional currency other than the U.S. Dollar and certain
United States expatriates). Further, this summary does not address (a) the
income tax consequences to shareholders in, or partners or beneficiaries of, a
holder of the Preferred Securities, (b) the United States federal alternative
minimum tax consequences of the purchase, ownership or disposition of the
Preferred Securities, or (c) any state, local or foreign tax consequences of the
purchase, ownership and disposition of Preferred Securities.
A "US Holder" is a holder of the Preferred Securities who or which is (i) a
citizen or individual resident (or is treated as a citizen or individual
resident) of the United States for income tax purposes, (ii) a corporation or
partnership created or organized (or treated as created or organized for income
tax purposes) in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is includible in its
gross income for United States federal income tax purposes without regard to its
source, or (iv) a trust if (a) a court within the United States is able to
exercise primary supervision over the administration of the trust and (b) one or
more United States trustees have the authority to control all substantial
decisions of the trust.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER
TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION OF THE PREFERRED
SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS SEE "DESCRIPTION OF
PREFERRED SECURITIES--REDEMPTION."
US HOLDERS
CHARACTERIZATION OF THE ISSUER TRUST
In connection with the issuance of the Preferred Securities, Tax Counsel
will render its opinion generally to the effect that, under then current law and
based on the representations, facts and assumptions set forth in this
Prospectus, and assuming full compliance with the terms of the Trust Agreement
(and other relevant documents), and based on certain assumptions and
qualifications referenced in the opinion, the Issuer Trust will be characterized
for United States federal income tax purposes as a grantor trust and will not be
characterized as an association taxable as a corporation. Accordingly, for
United States federal income tax purposes, each holder of the Preferred
Securities generally will be considered the owner of an undivided interest in
the Junior Subordinated Debentures owned by the Issuer Trust, and each US Holder
will be required to include all income or gain recognized for United States
federal income tax purposes with respect to its allocable share of the Junior
Subordinated Debentures on its own income tax return.
CHARACTERIZATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Company and the Issuer Trust will agree to treat the Junior Subordinated
Debentures as indebtedness for all United States federal income tax purposes. In
connection with the issuance of the Junior Subordinated Debentures, Tax Counsel
will render its opinion generally to the effect that, under then current law and
based on the representations, facts and assumptions set forth in this
Prospectus, and assuming full compliance with the terms of the Indenture (and
other relevant documents), and based on certain assumptions and qualifications
referenced in the opinion, the Junior Subordinated Debentures will be
characterized for United States federal income tax purposes as debt of the
Company.
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INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under the terms of the Junior Subordinated Debentures, the Company has the
ability to defer payments of interest from time to time by extending the
interest payment period for a period not exceeding 20 consecutive quarterly
periods, but not beyond the maturity of the Junior Subordinated Debentures.
Treasury regulations under Section 1273 of the Code provide that debt
instruments like the Junior Subordinated Debentures will not be considered
issued with original issue discount ("OID") by reason of the Company's ability
to defer payments of interest if the likelihood of such deferral is "remote."
The Company has concluded, and this discussion assumes, that, as of the date
of this Prospectus the likelihood of deferring payments of interest under the
terms of the Junior Subordinated Debentures is "remote" within the meaning of
the applicable Treasury regulations, in part because exercising that option
would prevent the Company from declaring dividends on its stock and would
prevent the Company from making any payments with respect to debt securities
that rank PARI PASSU with or junior to the Junior Subordinated Debentures.
Therefore, the Junior Subordinated Debentures should not be treated as issued
with OID by reason of the Company's deferral option. Consequently, stated
interest on the Junior Subordinated Debentures will generally be taxable to a US
Holder as ordinary income when paid or accrued in accordance with that holder's
method of accounting for income tax purposes. It should be noted, however, that
it is possible that the IRS could take a position contrary to the interpretation
of the Treasury Regulations described herein in future issued rulings or other
published documents.
In the event the Company exercises its option to defer payments of interest,
the Junior Subordinated Debentures would be treated as reissued for OID purposes
and the sum of the remaining interest payments (and any DE MINIMIS OID) on the
Junior Subordinated Debentures would thereafter be treated as OID, which would
accrue, and be includible in a US Holder's taxable income, on an economic
accrual basis (regardless of the US Holder's method of accounting for income tax
purposes) over the remaining term of the Junior Subordinated Debentures
(including any period of interest deferral), without regard to the timing of
payments under the Junior Subordinated Debentures. (Subsequent distributions of
interest on the Junior Subordinated Debentures generally would not be taxable.)
The amount of OID that would accrue in any period would generally equal the
amount of interest that accrued on the Junior Subordinated Debentures in that
period at the stated interest rate. Consequently, during any period of interest
deferral, US Holders will include OID in gross income in advance of the receipt
of cash, and a US Holder which disposes of a Preferred Security prior to the
record date for payment of distributions on the Junior Subordinated Debentures
following that period will be subject to income tax on OID accrued through the
date of disposition (and not previously included in income), but will not
receive cash from the Issuer Trust with respect to such OID.
If the possibility of the Company's exercise of its option to defer payments
of interest was deemed not remote, the Junior Subordinated Debentures would be
treated as initially issued with OID in an amount equal to the aggregate stated
interest (plus any DE MINIMIS OID) over the term of the Junior Subordinated
Debentures. That OID would generally be includible in a US Holder's taxable
income, over the term of the Junior Subordinated Debentures, on an economic
accrual basis.
CHARACTERIZATION OF INCOME
Because the income underlying the Preferred Securities will not be
characterized as dividends for income tax purposes, corporate holders of the
Preferred Securities will not be entitled to a dividends-received deduction for
any income recognized with respect to the Preferred Securities.
MARKET DISCOUNT AND BOND PREMIUM
U.S. Holders of Preferred Securities may be considered to have acquired
their undivided interests in the Junior Subordinated Debentures with market
discount or acquisition premium (as each phrase is
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defined for United States federal income tax purposes). The Preferred Securities
will, however, initially be acquired at par.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE ISSUER
TRUST
Under certain circumstances described herein (See "Description of the
Preferred Securities--Liquidation Distribution Upon Dissolution"), the Issuer
Trust may distribute the Junior Subordinated Debentures to holders in exchange
for the Preferred Securities and in liquidation of the Issuer Trust. Except as
discussed below, such a distribution would not be a taxable event for United
States federal income tax purposes, and each US Holder would have an aggregate
adjusted basis in its Junior Subordinated Debentures for United States federal
income tax purposes equal to such holder's aggregate adjusted basis in its
Preferred Securities. For United States federal income tax purposes, a US
Holder's holding period in the Junior Subordinated Debentures received in such a
liquidation of the Issuer Trust would include the period during which the
Preferred Securities were held by the holder. If, however, the relevant event is
a Tax Event which results in the Issuer Trust being treated as an association
taxable as a corporation, the distribution would likely constitute a taxable
event to US Holders of the Preferred Securities for United States federal income
tax purposes. In addition, the dollar amount of such distribution could be less
than in a Non-Tax Event distribution because of federal income taxes which could
be imposed on the Issuer Trust.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), the Junior Subordinated Debentures may be redeemed for
cash and the proceeds of such redemption distributed to holders in redemption of
their Preferred Securities. Such a redemption would be taxable for United States
federal income tax purposes, and a US Holder generally would recognize gain or
loss as if it had sold the Preferred Securities for cash. See "--Sales of
Preferred Securities" below.
SALES OF PREFERRED SECURITIES
A US Holder that sells Preferred Securities will recognize gain or loss
equal to the difference between its adjusted basis in the Preferred Securities
and the amount realized on the sale of such Preferred Securities. A US Holder's
adjusted basis in the Preferred Securities generally will be its initial
purchase price, increased by OID previously included (or currently includible)
in such holder's gross income to the date of disposition, and decreased by
payments received on the Preferred Securities (other than any interest received
with respect to the period prior to the effective date of the Company's first
exercise of its option to defer payments of interest). Any such gain or loss
generally will be capital gain or loss, and generally will be a long-term
capital gain or loss if the Preferred Securities have been held for more than
one year prior to the date of disposition.
A holder who disposes of his Preferred Securities between record dates for
payments of distributions thereon will be required to include accrued but unpaid
interest (or OID) on the Junior Subordinated Debentures through the date of
disposition in its taxable income for United States federal income tax purposes
(notwithstanding that the holder may receive a separate payment from the
purchaser with respect to accrued interest), and to deduct that amount from the
sales proceeds received (including the separate payment, if any, with respect to
accrued interest) for the Preferred Securities (or as to OID only, to add such
amount to such holder's adjusted tax basis in its Preferred Securities). To the
extent the selling price is less than the holder's adjusted tax basis (which
will include accrued but unpaid OID, if any), a holder will recognize a capital
loss. Capital losses may be used to offset other recognized capital gains of a
holder, but subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax purposes.
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NON-US HOLDERS
The following discussion applies to a Non-US Holder.
Payments to a holder of a Preferred Security which is a Non-US Holder will
generally not be subject to withholding of income tax, provided that (a) the
beneficial owner of the Preferred Security does not (directly or indirectly,
actually or constructively) own 10% or more of the total combined voting power
of all classes of stock of the Company entitled to vote, (b) the beneficial
owner of the Preferred Security is not a controlled foreign corporation that is
related to the Company through stock ownership, and (c) either (i) the
beneficial owner of the Preferred Securities certifies to the Issuer Trust or
its agent, under penalties of perjury, that it is a Non-US Holder and provides
its name and address, or (ii) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "Financial Institution"), and holds the Preferred
Security in such capacity, certifies to the Issuer Trust or its agent, under
penalties of perjury, that such a statement has been received from the
beneficial owner by it or by another Financial Institution between it and the
beneficial owner in the chain of ownership, and furnishes the Issuer Trust or
its agent with a copy thereof.
A Non-US Holder of a Preferred Security will generally not be subject to
withholding of income tax on any gain realized upon the sale or other
disposition of a Preferred Security.
A Non-US Holder which holds the Preferred Securities in connection with the
active conduct of a United States trade or business will be subject to income
tax on all income and gains recognized with respect to its proportionate share
of the Junior Subordinated Debentures.
INFORMATION REPORTING
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, the Preferred Securities held by a
noncorporate US Holder within the United States. In addition, payments made on,
and payments of the proceeds from the sale of, the Preferred Securities to or
through the United States office of a broker are subject to information
reporting unless the holder thereof certifies as to its non-United States status
or otherwise establishes an exemption from information reporting and backup
withholding. See "--Backup Withholding." Taxable income on the Preferred
Securities for a calendar year is required by the IRS to be reported to US
Holders on the appropriate form by January 31st of the year following its
receipt or accrual.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification or exemption requirements. Any amounts so withheld
will be allowed as a credit against the holder's income tax liability, or
refunded, provided the required information is provided to the IRS.
The preceding discussion is only a summary and does not address the
consequences to a particular holder of the purchase, ownership and disposition
of the Preferred Securities. Potential holders of the Preferred Securities are
urged to contact their own tax advisors to determine their particular tax
consequences.
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CERTAIN ERISA CONSIDERATIONS
The Company and certain affiliates of the Company may each be considered a
"party in interest" within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or a "disqualified person" within the
meaning of Section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code") with respect to certain employee benefit plans ("Plans") that are
subject to ERISA. The purchase of the Preferred Securities by a Plan that is
subject to the fiduciary responsibility provisions of ERISA or the prohibited
transaction provisions of Section 4975(e)(1) of the Code and with respect to
which the Company, or any affiliate of the Company is a service provider (or
otherwise is a party in interest or a disqualified person) may constitute or
result in a prohibited transaction under ERISA or Section 4975 of the Code,
unless the Preferred Securities are acquired pursuant to and in accordance with
an applicable exemption. Any pension or other employee benefit plan proposing to
acquire any Preferred Securities should consult with its counsel.
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SUPERVISION AND REGULATION
The Company and the Bank are extensively regulated under federal and state
law. Generally, these laws and regulations are directed at safe and sound
operation of financial institutions and their holding companies and are not
intended to protect stockholders. The following is a summary description of
certain provisions of certain laws which affect the regulation of bank holding
companies and banks. The discussion is qualified in its entirety by reference to
applicable laws and regulations. Changes in such laws and regulations may have a
material effect on the business and prospects of the Company and the Bank.
FEDERAL BANK HOLDING COMPANY REGULATION AND STRUCTURE
The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended, and as such, it is subject to regulation,
supervision, and examination by the Board of Governors of the Federal Reserve
System ("Federal Reserve"). The Company is required to file annual and quarterly
reports with the Federal Reserve and to provide the Federal Reserve with such
additional information as the Federal Reserve may require. Federal Reserve may
conduct examinations of the Company and its subsidiaries.
With certain limited exceptions, the Company is required to obtain prior
approval from the Federal Reserve before acquiring direct or indirect ownership
or control of more than 5% of any voting securities or substantially all of the
assets of a bank or bank holding company, or before merging or consolidating
with another bank holding company. In acting on applications for such approval,
the Federal Reserve must consider various statutory factors, including among
others, the effect of the proposed transaction on competition in the relevant
geographical and product markets, each party's financial condition and
management resources and record of performance under the Community Reinvestment
Act ("CRA"). Additionally, with certain exceptions any person proposing to
acquire control through direct or indirect ownership of 25% or more of any
voting securities of the Company is required to give 60 days written notice of
the acquisition to the Federal Reserve, which may prohibit the transaction, and
to publish notice to the public.
Generally, a bank holding company may not engage in any activities other
than banking, managing or controlling its bank and other authorized
subsidiaries, and providing services to these subsidiaries. With prior approval
of the Federal Reserve, the Company may acquire more than 5% of the assets or
outstanding shares of a company engaging in nonbank activities determined by the
Federal Reserve to be closely related to the business of banking or of managing
or controlling banks. Under current Federal Reserve regulations, such
permissible nonbank activities include mortgage banking, equipment leasing,
securities brokerage and consumer and commercial finance company operations.
Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions on extensions of credit to the bank
holding company or its subsidiaries on investments in their securities and on
the use of their securities as collateral for loans to any borrower. These
regulations and restrictions may limit the Company's ability to obtain funds
from the Bank for its cash needs including funds for the payment of dividends,
interest and operating expenses. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services. For example, the Bank may not generally require a customer to
obtain other services from itself or the Company, and may not require that a
customer promise not to obtain other services from a competitor as a condition
to and extension of credit to the customer. The Federal Reserve has ended the
anti-tying rules for bank holding companies and their nonbanking subsidiaries.
Such rules were retained for banks.
Under Federal Reserve policy, a bank holding company is expected to act as a
source of financial strength to its subsidiary banks and to make capital
injections into a troubled subsidiary bank, and the Federal Reserve may charge
the bank holding company with engaging in unsafe and unsound practices for
failure to commit resources to a subsidiary bank when required. A required
capital injection may be called
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for at a time when the holding company does not have the resources to provide
it. In addition, depository institutions insured by the FDIC can be held liable
for any losses incurred by, or reasonably anticipated to be incurred by, the
FDIC in connection with the default of, or assistance provided to, a commonly
controlled FDIC-insured depository institution. Accordingly, in the event that
any insured subsidiary of the Company causes a loss to the FDIC, other insured
subsidiaries of the Company could be required to compensate the FDIC by
reimbursing it for the estimated amount of such loss. Such cross guaranty
liabilities generally are superior in priority to the obligations of the
depository institution to its shareholders due solely to their status as
shareholders and obligations to other affiliates.
STATE BANK HOLDING COMPANY REGULATION
As a Maryland bank holding company, the Company is subject to various
restrictions on its activities as set forth in Maryland law, in addition to
those restrictions set forth in federal law. Under Maryland law, a bank holding
company that desires to acquire a bank or bank holding company that has its
principal place of business in Maryland must obtain prior approval from the
Maryland Commissioner of Financial Regulation (the "Maryland Commissioner,).
Also, a bank holding company and its Maryland state-chartered bank or trust
company cannot directly or indirectly acquire banking or nonbanking subsidiaries
or affiliates until the bank or trust company receives the prior approval of the
Maryland Commissioner.
FEDERAL AND STATE BANK REGULATION
The Company's banking subsidiary is a Maryland state-chartered trust
company, with all the powers of a commercial bank, regulated and examined by the
Maryland Commissioner and the Federal Deposit Insurance Corporation (the
"FDIC"). The FDIC has extensive enforcement authority over the institutions it
regulates to prohibit or correct activities which violate law, regulation or
written agreement with the FDIC or which are deemed to constitute unsafe or
unsound practices. Enforcement actions may include the appointment of a
conservator or receiver, the issuance of a cease and desist order, the
termination of deposit insurance, the imposition of civil money penalties on the
institution, its directors, officers, employees and institution-affiliated
parties, the issuance of directives to increase capital, the issuance of formal
and informal agreements, the removal of or restrictions on directors, officers,
employees and institution-affiliated parties and the enforcement of any such
mechanisms through restraining orders or other court actions.
In its lending activities, the maximum legal rate of interest, fees and
charges which a financial institution may charge on a particular loan depends on
a variety of factors such as the type of borrower, the purpose of the loan, the
amount of the loan and the date the loan is made. Other laws tie the maximum
amount which may be loaned to any one customer and its related interest to
capital levels. The Bank is also subject to certain restrictions on extensions
of credit to executive officers, directors, principal shareholders or any
related interest of such persons which generally require that such credit
extensions be made on substantially the same terms as are available to third
persons dealing with the Bank and not involve more than the normal risk of
repayment.
The CRA requires that, in connection with the examination of financial
institutions within their jurisdictions the FDIC evaluate the record of the
financial institution in meeting the credit needs of their communities including
low and moderate income neighborhoods, consistent with the safe and sound
operation of those banks. These factors are also considered by all regulatory
agencies in evaluating mergers, acquisitions and applications to open a branch
or facility. As of the date of its most recent examination report, the Bank has
a CRA rating of "Satisfactory."
Under the Federal Deposit Insurance Corporation Improvement Act of 1991,
each federal banking agency is required to prescribe, by regulation, noncapital
safety and soundness standards for institutions under its authority. The federal
banking agencies, including the FDIC, have adopted standards covering internal
controls, information systems and internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, and compensation,
fees and benefits. An institution which fails to
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meet those standards may be required by the agency to develop a plan acceptable
to the agency, specifying the steps that the institution will take to meet the
standards. Failure to submit or implement such a plan may subject the
institution to regulatory sanctions. The Company, on behalf of the Bank,
believes that it meets substantially all standards which have been adopted.
FDICIA also imposed new capital standards on insured depository institutions.
Before establishing new branch offices, the Bank must meet certain minimum
capital stock and surplus requirements. With each new branch located outside the
municipal area of the Bank's principal banking office, these minimal levels
increase by $120,000 to $900,000, based on the population size of the municipal
area in which the branch will be located. Prior to establishment of the branch,
the Bank must obtain Maryland Commissioner and FDIC approval. The total
investment in bank buildings including branch offices and furnishings cannot
exceed, with certain exceptions, 50% of the Bank's unimpaired capital and
surplus.
DEPOSIT INSURANCE
As a FDIC member institution, deposits of the Bank are currently insured to
a minimum of $100,000 per depositor through the Savings Association Insurance
Fund ("SAIF"), administered by the FDIC. Insured financial institutions are
members of either SAIF or the Bank Insurance Fund ("BIF"). SAIF members
generally are savings and loan associations or savings banks, including banks
and trust companies that have converted from a savings and loan association or
savings bank to a commercial bank or trust company, or bank and trust companies
that have acquired SAIF deposits. The Bank is a converted federal savings bank
and, therefore, its deposits are insured through SAIF. Mergers or transfers of
assets between SAIF and BIF members generally are permitted with the assuming or
resulting depository institution making payments of SAIF assessments on the
portion of liabilities attributable to the SAIF-insured institution.
The FDIC is required to establish the semi-annual assessments for BIF- and
SAIF-insured depository institutions at a rate determined to be appropriate to
maintain or increase the reserve ratio of the respective deposit insurance funds
at or above 1.25 percent of estimated insured deposits or at such higher
percentage that the FDIC determines to be justified for that year by
circumstances raising significant risk of substantial future losses to the fund.
SAIF has not met the designated reserve ratio for the fund. Accordingly, federal
legislation that became effective September 30, 1996 assesses a one-time charge
on deposits insured by SAIF. This one-time charge for the Bank of approximately
$154,000, was paid in 1996.
This recapitalization has lowered the semiannual assessments paid by the
Bank as a SAIF member. Assessments are made on a risk-based premium system with
nine risk classifications based on certain capital and supervisory measures.
Financial institutions with higher levels of capital and involving a low degree
of supervisory concern are assessed lower premiums than financial institutions
with lower levels of capital or involving a higher degree of supervisory
concern. Before the recapitalization, the rates assessable on SAIF-insured
deposits ranged from $.23 per $100 of domestic deposits to $.31 per $100 of
domestic deposits; the Bank's assessment stood at $.23 per $100. Rates
assessable to BIF members have been significantly lower at a range of $.03 to
$.27 per $100, with the highest rated BIF institutions paying the statutory
minimum of $2,000 per year. With recapitalization of SAIF, the assessment ranges
for both BIF and SAIF institutions has decreased. The Bank has an assessment
rate of $.06 per $100 starting on January 1, 1997. Currently, federal law calls
for merger of the SAIF and BIF funds by January 1, 1999 if no insured financial
institution is a savings association on such date. It is impossible to predict
whether or when this will occur.
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
The Company's current ability to pay dividends is largely dependent upon the
receipt of dividends from its banking subsidiary, the Bank. Both federal and
state laws impose restrictions on the ability of the Bank to pay dividends.
Federal law prohibits the payment of a dividend by an insured depository
institution
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like the Bank if the depository institution is considered "undercapitalized" or
if the payment of the dividend would make the depository institution
"undercapitalized". See "Federal Deposit Insurance Corporation Improvement Act
of 1991" below. The Company does not anticipate that such provisions will be
applicable to the Bank. The Federal Reserve has issued a policy statement which
provides that, as a general matter, insured banks and bank holding companies may
pay dividends only out of prior operating earnings. For a Maryland
state-chartered bank or trust company, dividends may be paid out of undivided
profits or, with the prior approval of the Maryland Commissioner, from surplus
in excess of 100% of required capital stock. If however, the surplus of a
Maryland bank is less than 100% of its required capital stock, cash dividends
may not be paid in excess of 90% of net earnings. The Bank must obtain approval
of the Maryland Commissioner to pay dividends to the Company for so long as the
Bank's balance sheet reflects, as it did at March 31, 1998, negative undivided
profits. The Company anticipates that such approvals will be required for the
foreseeable future. Approvals are in the discretion of the Maryland
Commissioner. In addition to these specific restrictions bank regulatory
agencies, in general, also have the ability to prohibit proposed dividends by a
financial institution which would otherwise be permitted under applicable
regulations if the regulatory body determines that such distribution would
constitute an unsafe or unsound practice.
CAPITAL REQUIREMENTS
The Federal Reserve and FDIC have adopted certain risk-based capital
guidelines to assist in the assessment of the capital adequacy of a banking
organization's operations for both transactions reported on the balance sheet as
assets and transactions, such as letters of credit and recourse arrangement
which are recorded as off balance sheet items. Under these guidelines, nominal
dollar amounts of assets and credit equivalent amounts of off-balance sheet
items are multiplied by one of several risk adjustment percentages, which range
from 0% for assets with low credit risk, such as certain U.S. Treasury
securities to 100% for assets with relatively high credit risk, such as business
loans.
A banking organization's risk-based capital ratio are obtained by dividing
its qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which include off-balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
capital) and Tier 1 capital. "Tier 1", or core capital includes common equity,
perpetual preferred stock (excluding auction rate issues) and minority interest
in equity accounts of consolidated subsidiaries, less goodwill and other
intangibles, subject to certain exceptions. "Tier 2", or supplementary capital,
includes, among other things limited-life preferred stock, hybrid capital
instruments, mandatory convertible securities, qualifying and subordinated debt,
and the allowance for loan and lease losses subject to certain limitations and
less required deductions. The inclusion of elements of Tier 2 capital is subject
to certain other requirements and limitations of the federal banking agencies.
Banks and bank holding companies. Subject to the risk-based capital guidelines
are required to maintain a ratio of Tier 1 capital to risk-weighted assets of at
least 4% and a ratio of total capital to risk-weighted assets of at least 8%.
The appropriate regulatory authority may set higher capital requirements when
particular circumstances warrant. At December 31, 1997, the Bank's ratio of Tier
1 to risk-weighted assets stood at 11.0% and its ratio of total capital to
risk-weighted assets stood at 12.0%. In addition to risk-based capital banks and
bank holding companies are required to maintain a minimum amount of Tier 1
capital to fourth quarter average assets, referred to as the leverage capital
ratio, of at least 4%. At December 31, 1997, the Bank's leverage capital ratio
stood at 10.2%.
In August, 1995 and May, 1996, the federal banking agencies adopted final
regulations specifying that the agencies will include, in their evaluations of a
Bank's capital adequacy, an assessment of the Bank's interest rate risk ("IRR")
exposure. The standards for measuring the adequacy and effectiveness of a
banking organization's interest rate risk management includes a measurement of
board of director and senior management oversight, and a determination of
whether a banking organization's procedures for comprehensive risk management
are appropriate to the circumstances of the specific banking organization. The
Bank has internal IRR models that are used to measure and monitor IRR.
Additionally, the regulatory agencies have been assessing IRR on an informal
basis for several years. For these reasons of
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the Company does not expect the addition of IRR evaluation to the agencies'
capital guidelines to result in significant changes in capital requirements for
the Bank.
Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority of
a capital directive to increase capital and, in the case of depository
institutions, the termination of deposit insurance by the FDIC, as well as to
the measures described under "Federal Deposit Insurance Corporation Improvement
Act of 1991" below, as applicable to undercapitalized institutions. In addition,
future changes in regulations or practices could further reduce the amount of
capital recognized for purposes of capital adequacy. Such a change could affect
the ability of the Bank to grow and could restrict the amount of profits, if
any, available for the payment of dividends to the Company.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
In December, 1991, Congress enacted the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), which substantially revised the
bank regulatory and funding provisions of the Federal Deposit Insurance Act and
made significant revisions to several other federal banking statutes. FDICIA
provides for, among other things, (i) publicly available annual financial
condition and management reports for financial institutions, including audits by
independent accountants, (ii) the establishment of uniform accounting standards
by federal banking agencies, (iii) the establishment of a "prompt corrective
action" system of regulatory supervision and intervention, based on
capitalization levels with more scrutiny and restrictions placed on depository
institutions with lower levels of capital, (iv) additional grounds for the
appointment of a conservator or receiver, and (v) restrictions or prohibitions
on accepting brokered deposits, except for institutions which significantly
exceed minimum capital requirements. FDICIA also provides for increased funding
of the FDIC insurance funds and the implementation of risked-based premiums.
A central feature of FDICIA is the requirement that the federal banking
agencies take "prompt corrective action" with respect to depository institutions
that do not meet minimum capital requirements. Pursuant to FDICIA, the federal
bank regulatory authorities have adopted regulations setting forth a five tiered
system for measuring the capital adequacy of the depository institutions that
they supervise. Under these regulations, a depository institution is classified
in one of the following capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." An institution may be deemed by the regulators to
be in a capitalization category that is lower than is indicated by its actual
capital position if, among other things, it receives an unsatisfactory
examination rating with respect to asset quality, management, earnings or
liquidity.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a cash dividend) or paying any management
fees to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. If a
depository institution fails to submit an acceptable plan, it is treated as if
it is significantly undercapitalized. Significantly undercapitalized depository
institutions may be subject to a number of other requirements and restrictions
including orders to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and stop accepting deposits
from correspondent banks. Critically undercapitalized institutions are subject
to the appointment of a receiver or conservator, generally within 90 days of the
date such institution is determined to be critically undercapitalized.
FDICIA provides the federal banking agencies with significantly expanded
powers to take enforcement action against institutions which fail to comply with
capital or other standards. Such action may include the termination of deposit
insurance by the FDIC or the appointment of a receiver or conservator for the
institution. FDICIA also limits the circumstances under which the FDIC is
permitted to provide financial assistance to an insured institution before
appointment of a conservator or receiver.
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FINANCIAL SERVICES MODERNIZATION LEGISLATION
On May 13, 1998, the United States House of Representatives approved the
Financial Services Act of 1998 (the "FSA"). The FSA contains provisions that
provide for fundamental changes in the banking and financial services
industries. The FSA repeals the Glass-Steagall Act which generally has separated
the commercial and investment banking industries. FSA also would allow banks and
insurance companies to affiliate. Bank holding companies would be barred from
conducting non-financial activities with certain non-financial activities being
grandfathered for ten years.
The FSA also provides that national bank subsidiaries may conduct certain
activities including insurance, securities and travel agency services, but may
not engage in underwriting, merchant banking or real estate development
activities. National banks would also be permitted to directly underwrite
revenue bonds. The FSA preserves the thrift charter provisions, but bars new
unitary thrift holding companies that have not filed applications with the
Office of Thrift Supervision by March 31, 1998.
It is unknown whether or when the FSA will be enacted into law or if it is
enacted into law whether it will remain in the form approved by the House of
Representatives. It is also unknown what impact FSA will have on the Company or
the Bank. One consequence may be increased competition from large financial
services companies that will provide many types of financial services to
customers. Neither the Company nor the Bank currently conducts any non-financial
activities. While the Bank is a Maryland-chartered commercial bank, certain
provisions of the FSA may impact the Bank due to a Maryland law that gives, with
approval of the Maryland Commissioner of Financial Regulation,
Maryland-chartered commercial banks the authority to engage in activities in
which a national bank may engage.
INTERSTATE BANKING LEGISLATION
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Riegle-Neal") was enacted into law on September 29, 1994. Riegle-Neal
authorized federal banking agencies to approve interstate bank merger
transactions even if such transactions are prohibited by the laws of a state. An
exception to such authorization arises if the home state where one of the banks
which is a party to the merger transaction is located opts out of the merger
provisions of Riegle-Neal by adopting a law after the date of the enactment of
Riegle-Neal and prior to June 1, 1997. These laws must apply equally to all-out-
of-state banks and expressly prohibit merger transactions involving out-of-state
banks. Riegle-Neal also permits interstate branch acquisitions if the law in
which the state where the branch is located permits interstate branch
acquisitions. The interstate merger and branch acquisitions permitted by
Riegle-Neal are subject to nationwide and statewide insured deposit limitations
as described in Riegle-Neal.
Riegle-Neal also authorizes the federal banking agencies to approve de novo
interstate branching by national and state banks in states which specifically
allow for such branching. Only two states, Texas and Montana, have opted out of
the Riegle-Neal provisions relating to interstate mergers, acquisitions of
branches and establishment of de novo branches. The Company anticipates that the
effect of Riegle-Neal may increase competition within the market in which the
Company operates although the Company cannot predict when or the extent to which
competition will increase in such market.
90
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement"), dated , 1998, Ferris, Baker Watts,
Incorporated (the "Underwriters") has agreed to purchase from the Issuer Trust
$20,000,000 aggregate Liquidation Amount of Preferred Securities at the public
offering price.
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the Preferred Securities offered hereby if any of such Preferred
Securities are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Preferred Securities to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $0. per Preferred Security.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $0. per Preferred Security to certain other dealers. After the
public offering, the offering price and other selling terms may be changed by
the Underwriters.
In connection with the offering of the Preferred Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Securities
and Exchange Commission's Regulation M that are intended to stabilize, maintain
or otherwise affect the market price of the Preferred Securities. Such
transactions may include over-allotment transactions in which an Underwriter
creates a short position for its own account by selling more Preferred
Securities than it is committed to purchase from the Issuer Trust. In such a
case, to cover all or part of the short position, the Underwriters may purchase
Preferred Securities in the open market following completion of the initial
offering of the Preferred Securities. The Underwriters also may engage in
stabilizing transactions in which they bid for, and purchase, Preferred
Securities at a level above that which might otherwise prevail in the open
market for the purpose of preventing or retarding a decline in the market price
of the Preferred Securities. The Underwriters also may reclaim any selling
concessions allowed to a dealer if the Underwriters repurchase shares
distributed by that dealer. Any of the foregoing transactions may result in the
maintenance of a price for the Preferred Securities at a level above that which
might otherwise prevail in the open market. Neither the Company nor the
Underwriters make any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Preferred Securities. The Underwriters are not required to engage
in any of the foregoing transactions and, if commenced, such transactions may be
discontinued at any time without notice.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Underwriting Agreement provides that the Company will pay as
compensation for the Underwriters' arranging the investment therein of such
proceeds an amount of $0. per Preferred Security (or $ in the aggregate)
for the account of the Underwriters.
The Company and the Issuer Trust have granted the Underwriters an option
exercisable not later than 30 days after the date of this Prospectus, to
purchase up to an additional $3,000,000 aggregate Liquidation Amount of the
Preferred Securities at the public offering price. To the extent that the
Underwriters exercise such option, the Issuer Trust will be obligated, pursuant
to the option, to sell such Preferred Securities to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Preferred Securities offered hereby. If
purchased, the Underwriters will offer such additional Preferred Securities on
the same terms as those on which the $20,000,000 aggregate Liquidation Amount of
the Preferred Securities are being offered.
91
<PAGE>
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Preferred Securities as interests in a direct participation
program, the offering of the Preferred Securities is being made in compliance
with the applicable provisions of Rule 2810 of the NASD's Conduct Rules.
The Preferred Securities are a new issue of securities with no established
trading market. The Company and the Issuer Trust have been advised by the
Underwriters that they intend to make a market in the Preferred Securities.
However, the Underwriters are not obligated to do so and such market making may
be interrupted or discontinued at any time without notice at the sole discretion
of the Underwriters. Application has been made by the Company and the Issuer
Trust to list the Preferred Securities on the Nasdaq National Market. Nasdaq
National Market maintenance standards require the existence of two market makers
for continued listing, and the presence of such market makers cannot be assured.
Accordingly, no assurance can be given as to the development or liquidity of any
market for the Preferred Securities.
The Company and Issuer Trust have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act.
The Underwriters or their affiliates have in the past performed and may in
the future perform various services to the Company, including investment banking
services, for which they have or may receive customary fees for such services.
Ferris, Baker Watts, Incorporated served as the managing underwriter of the
Company's initial public offering of Common Stock in 1996.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the creation of the
Issuer Trust will be passed upon by Richards, Layton & Finger, special Delaware
counsel to the Company and the Issuer Trust. The validity of the Guarantee and
the Junior Subordinated Debentures will be passed upon for the Company by Ober,
Kaler, Grimes & Shriver, counsel to the Company, and for the Underwriters by
Venable Baetjer and Howard, LLP. Ober, Kaler, Grimes & Shriver and Venable
Baetjer and Howard, LLP will rely as to certain matters of Delaware law on the
opinion of Richards, Layton & Finger.
EXPERTS
The consolidated financial statements of First Mariner Bancorp as of
December 31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997, have been included herein in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
92
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Statements of Financial Condition as of March 31, 1998 (unaudited) and as of December 31, 1997
and 1996................................................................................................. F-3
Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997 (unaudited) and
for the years ended December 31, 1997, 1996 and 1995..................................................... F-4
Consolidated Statements of Stockholders' Equity for the three months ended March 31, 1998 (unaudited) and
the years ended December 31, 1997, 1996 and 1995......................................................... F-5
Consolidated Statements of Cash Flow for the three months ended March 31, 1998 and 1997 (unaudited) and for
the years ended December 31, 1997, 1996 and 1995......................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First Mariner Bancorp:
We have audited the accompanying consolidated statements of financial
condition of First Mariner Bancorp and subsidiary (the Company) as of December
31, 1997 and 1996 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three year
period ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Mariner Bancorp and subsidiary as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Baltimore, MD
February 27, 1998
F-2
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
Assets
Cash and due from banks......................................... $ 16,572,596 $ 13,240,476 $ 5,323,984
Interest-bearing deposits....................................... 21,336,504 32,676,735 27,186,076
Available-for-sale securities, at fair value (note 3)........... 33,772,843 32,852,287 324,875
Investment securities, fair value of $6,642,650, $8,642,595 and
$1,097,438, respectively (note 3)............................. 6,602,985 8,600,621 1,099,000
Loans held for sale............................................. 15,729,757 16,895,062 3,072,163
Loans receivable (notes 4 and 8)................................ 160,530,522 144,071,961 92,064,073
Allowance for loan losses....................................... (1,672,484) (1,613,621) (1,241,663)
-------------- -------------- --------------
Loans, net...................................................... 158,858,038 142,458,340 90,822,410
Other real estate owned (note 5)................................ 2,419,946 1,944,236 --
Federal Home Loan Bank of Atlanta stock, at cost (note 8)....... 1,000,000 1,399,300 480,800
Property and equipment, net (note 6)............................ 5,331,642 4,775,512 2,671,018
Accrued interest receivable..................................... 1,395,659 1,433,529 712,614
Prepaid expenses and other assets............................... 788,614 708,208 868,606
-------------- -------------- --------------
Total assets.................................................... $ 263,808,584 $ 256,984,306 $ 132,561,546
-------------- -------------- --------------
-------------- -------------- --------------
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 7)............................................. $ 204,017,844 $ 197,269,328 $ 102,289,146
Short-term borrowings (note 8)................................ 32,166,466 30,330,935 6,000,000
Accrued expenses and other liabilities........................ 420,133 2,418,387 476,398
-------------- -------------- --------------
Total liabilities............................................... 236,604,443 230,018,650 108,765,544
-------------- -------------- --------------
Stockholders' equity (notes 9, 12 and 13):
Common stock, $.05 par value; 20,000,000 shares authorized;
2,869,063, 2,851,563 and 2,627,263 shares issued and
outstanding, respectively................................... 143,453 142,578 131,363
Additional paid-in capital.................................... 29,999,628 29,825,503 27,350,118
Accumulated deficit........................................... (3,180,226) (3,331,568) (3,696,904)
Accumulated other comprehensive income........................ 241,286 329,143 11,425
-------------- -------------- --------------
Total stockholders' equity...................................... $ 27,204,141 26,965,656 23,796,002
-------------- -------------- --------------
Commitments and contingencies (notes 4 and 6)
-------------- -------------- --------------
Total liabilities and stockholders' equity...................... $ 263,808,584 $ 256,984,306 $ 132,561,546
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Interest income:
Loans........................................... $3,784,390 $2,525,088 $11,953,680 $6,177,495 $1,981,588
Investments..................................... 465,164 379,298 1,839,664 558,950 403,201
Available-for-sale securities................... 411,496 -- 524,657 -- 176,650
---------- ---------- ---------- ---------- ----------
Total interest income............................. 4,661,050 2,904,386 14,318,001 6,736,445 2,561,439
---------- ---------- ---------- ---------- ----------
Interest expense:
Deposits........................................ 2,066,440 1,141,838 6,142,487 2,999,102 1,176,436
Borrowed funds and other (note 8)............... 153,879 42,209 422,947 108,234 93,184
---------- ---------- ---------- ---------- ----------
Total interest expense............................ 2,220,319 1,184,047 6,565,434 3,107,336 1,269,620
---------- ---------- ---------- ---------- ----------
Net interest income............................... 2,440,731 1,720,339 7,752,567 3,629,109 1,291,819
Provision for loan losses (note 4)................ 152,467 135,000 471,959 1,039,636 190,051
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan
losses.......................................... 2,288,264 1,585,339 7,280,608 2,589,473 1,101,768
---------- ---------- ---------- ---------- ----------
Noninterest income:
Gain on sale of loans........................... 236,828 143,906 430,353 303,353 84,173
Service fees on deposits........................ 392,366 260,419 864,533 336,662 94,918
Gain on sale of securities...................... 284,797 13,500 479,360 330,030 8,970
Other operating income.......................... 118,692 39,480 577,442 103,898 8,953
---------- ---------- ---------- ---------- ----------
Total noninterest income.......................... 1,032,683 457,305 2,351,688 1,073,943 197,014
---------- ---------- ---------- ---------- ----------
Noninterest expenses:
Salaries and employee benefits.................. 1,471,183 960,721 4,370,685 2,744,057 1,189,172
Net occupancy................................... 399,518 232,236 1,269,291 786,825 275,660
Deposit insurance premiums...................... 27,407 13,025 76,880 229,293 79,783
Furniture, fixtures and equipment............... 148,497 97,999 360,407 253,394 82,968
Professional services........................... 160,493 38,564 380,124 135,811 233,448
Advertising..................................... 170,492 116,400 574,308 379,566 147,549
Data processing................................. 192,000 101,000 533,244 452,090 156,101
Other (note 11)................................. 600,015 458,623 1,894,021 855,699 416,730
---------- ---------- ---------- ---------- ----------
Total noninterest expenses........................ 3,169,605 2,018,568 9,458,960 5,836,735 2,581,411
---------- ---------- ---------- ---------- ----------
Income (loss) before income tax benefit........... 151,342 24,076 173,336 (2,173,319) (1,282,629)
Income tax benefit (note 10)...................... -- -- (192,000) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)................................. $ 151,342 $ 24,076 $ 365,336 $(2,173,319) $(1,282,629)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income (loss) per common share (note 1):
Basic........................................... $ 0.05 $ 0.01 $ 0.13 $ (1.72) $ (1.88)
Diluted......................................... 0.04 0.01 0.12 (1.72) (1.88)
---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND
THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
NUMBER OF ACCUMULATED
SHARES OF ADDITIONAL OTHER TOTAL
COMMON COMMON PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT INCOME EQUITY
---------- ---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994........ 225,813 $ 11,291 $ 2,206,280 $ (240,956) $ -- $ 1,976,615
Common stock issued............... 1,000,800 50,040 9,957,960 -- -- 10,008,000
Net loss.......................... -- -- -- (1,282,629) -- (1,282,629)
---------- ---------- ------------- ------------- ------------- -------------
Balance at December 31, 1995........ 1,226,613 61,331 12,164,240 (1,523,585) -- 10,701,986
Common stock issued, net of costs
of issuance..................... 1,400,650 70,032 15,185,878 -- -- 15,255,910
Net loss.......................... -- -- -- (2,173,319) -- (2,173,319)
Other comprehensive income........ -- -- -- -- 11,425 11,425
---------- ---------- ------------- ------------- ------------- -------------
Balance at December 31, 1996........ 2,627,263 131,363 27,350,118 (3,696,904) 11,425 23,796,002
Common stock issued, net of costs
of issuance, and exercise of
stock options and warrants...... 224,300 11,215 2,475,385 -- -- 2,486,600
Net income........................ -- -- -- 365,336 -- 365,336
Other comprehensive income........ -- -- -- -- 317,718 317,718
---------- ---------- ------------- ------------- ------------- -------------
Balance at December 31, 1997........ 2,851,563 $ 142,578 29,825,503 (3,331,568) 329,143 26,965,656
Exercise of stock options and
warrants........................ 17,500 875 174,125 -- -- 175,000
Net income........................ -- -- -- 151,342 -- 151,342
Other comprehensive income........ -- -- -- -- (87,857) (87,857)
---------- ---------- ------------- ------------- ------------- -------------
BALANCE AT MARCH 31, 1998........... 2,869,063 $ 143,453 $ 29,999,628 $ (3,180,226) $ 241,286 $ 27,204,141
---------- ---------- ------------- ------------- ------------- -------------
---------- ---------- ------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
FOR THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
------------------------ -------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 151,342 $ 24,076 $ 365,336 $(2,173,319) $(1,282,629)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Amortization of unearned loan fees, net... (197,839) (214,803) (174,629) (587,549) (139,713)
Amortization of premiums and discounts on
mortgage-backed securities, net......... 172 -- (16,778)
Amortization of premiums on deposits...... (6,237) (7,008) (24,186) (28,033) (74,632)
Amortization of premiums on loans......... (16,437) (16,437) 21,766 78,615 83,973
Depreciation and amortization............. 217,085 146,180 541,911 417,760 189,755
Gain on sale of securities................ (284,797) (13,500) (479,360) (330,030) (8,970)
Provision for loan losses................. 152,467 135,000 471,959 1,039,636 190,051
Increase in accrued interest receivable... 37,870 (166,433) (720,915) (510,910) (57,182)
Change in mortgage loans held for sale.... 1,165,305 (614,837) (13,822,899) (3,072,163) --
Net increase (decrease) in accrued
expenses and other liabilities.......... (1,953,463) 899,071 1,734,895 (133,320) 479,629
Net (increase) decrease in prepaids and
other assets............................ (115,505) (874,120) 160,398 (94,204) (518,461)
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities......... (850,209) (702,811) (11,925,552) (5,393,517) (1,154,957)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Loan disbursements, net of principal
repayments................................ (16,786,719) (11,767,313) (53,553,970) (61,794,502) (10,141,583)
Purchase of property and equipment.......... (754,484) (140,238) (2,646,405) (1,216,889) (904,637)
Purchases (redemption) of Federal Home Loan
Bank of Atlanta stock..................... 399,300 (452,100) (918,500) (179,800) --
Sales of available-for-sale securities...... 931,478 (677,013) 5,043,851 -- 2,630,929
Purchase of available-for-sale securities... (5,140,045) -- (43,383,388) (2,153,787) (2,339,505)
Maturities of available-for-sale
securities................................ 2,500,000 -- -- -- --
Maturities of investment securities......... 2,000,000 -- 6,000,000 2,170,367 491,000
Purchase of investment securities........... -- (12,000,000) (7,491,719) (1,000,000) --
Proceeds from securities sold............... -- -- -- 2,337,625 --
Construction disbursements other real estate
owned..................................... (19,842) -- (345,292) -- --
Principal repayments of available-for-sale
securities................................ 947,126 -- 806,223 -- 294,273
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities......... (15,923,186) (25,036,664) (96,489,200) (61,836,986) (9,969,523)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Net increase in deposits.................... 6,754,753 16,607,219 95,004,368 60,830,538 20,461,329
Net increase in other borrowings............ (3,164,469) -- 15,330,935 -- --
Proceeds from Federal Home Loan Bank of
Atlanta advances.......................... 15,000,000 10,000,000 9,000,000 6,000,000 --
Repayments of Federal Home Loan Bank of
Atlanta advances.......................... (10,000,000) (6,000,000) -- -- (3,150,000)
Proceeds of stock options and warrants...... 175,000 -- 143,000 -- --
Proceeds from stock issuance, net........... -- 2,343,600 2,343,600 15,255,910 10,008,000
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities..... 8,765,284 22,950,819 121,821,903 82,086,448 27,319,329
----------- ----------- ----------- ----------- -----------
Increase in cash and cash equivalents......... (8,008,111) (2,788,656) 13,407,151 14,855,945 16,194,849
Cash and cash equivalents at beginning of
period...................................... 45,917,211 32,510,060 32,510,060 17,654,115 1,459,266
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period.... $37,909,100 $29,721,404 $45,917,211 $32,510,060 $17,654,115
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental information:
Interest paid on deposits and borrowed
funds..................................... $ 2,221,033 $ 1,067,047 $ 6,440,215 $ 2,938,407 $ 1,216,424
Real estate acquired in satisfaction of
loans..................................... 455,868 -- 1,598,944 -- --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
First Mariner Bancorp (the "Company") is a bank holding company incorporated
under the laws of Maryland and registered under the Bank Holding Company Act of
1956, as amended. The Company was organized as "MarylandsBank Corp." in May
1994, and the Company's name was changed to "First Mariner Bancorp" in May 1995.
The Company owns 100% of common stock of First Mariner Bank (the "Bank").
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ significantly
from those estimates.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan losses.
In connection with these determinations, management evaluates historical trends
and ratios and where appropriate obtains independent appraisals for significant
properties and prepares fair value analyses as appropriate.
Management believes that the allowance for losses on loans is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions, particularly in the State of Maryland. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for losses on loans. Such agencies may
require the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
LOAN FEES
Origination and commitment fees and direct origination costs on loans held
for investment are deferred and amortized to income over the contractual lives
of the related loans using the interest method. Under certain circumstances,
commitment fees are recognized over the commitment period or upon expiration of
the commitment. Unamortized loan fees are recognized in income when the related
loans are sold or prepaid.
SALES OF MORTGAGE LOANS
Loans originated for sale are carried at the lower of aggregate cost or
market value. Market value is determined based on outstanding investor
commitments or, in the absence of such commitments, based on current investor
yield requirements. Gains and losses on loan sales are determined using the
specific identification method.
INVESTMENT SECURITIES
Debt securities that the Company has the positive intent and ability to hold
to maturity are classified as held to maturity and recorded at amortized cost.
Debt and equity securities are classified as trading securities if bought and
held principally for the purpose of selling them in the near term. Trading
securities
F-7
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are reported at fair value, with unrealized gains and losses included in
earnings. Debt securities not classified as held to maturity and debt and equity
securities not classified as trading securities are considered available for
sale and are reported at fair value, with unrealized gains and losses excluded
from earnings and reported as a separate component of stockholders' equity, net
of tax effects in other comprehensive income.
The Company designates securities into one of the three categories at the
time of purchase. If a decline in value of an individual security classified as
held to maturity or available for sale is judged to be other than temporary, the
cost basis of that security is reduced to its fair value and the amount of the
write-down is reflected in earnings. Fair value is determined based on bid
prices published in financial newspapers or bid quotations received from
securities dealers. Gains or losses on the sales of investments is calculated
using a specific identification basis and is determined on a trade-date basis.
Premiums and discounts on investment and mortgage-backed securities are
amortized over the term of the security using methods that approximate the
interest method.
OTHER REAL ESTATE OWNED
Other real estate owned is recorded at the lower of cost or estimated fair
value on their acquisition dates and at the lower of such initial amount or
estimated fair value less selling costs thereafter. Subsequent write-downs are
included in noninterest expense, along with operating income net of related
expenses of such properties and gains or losses realized upon disposition.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are accumulated using straight-line
and accelerated methods over the estimated useful lives of the assets. Additions
and betterments are capitalized and charges for repairs and maintenance are
expensed when incurred. The cost and accumulated depreciation or amortization
are eliminated from the accounts when an asset is sold or retired and the
resultant gain or loss is credited or charged to income.
INTANGIBLE ASSETS ACQUIRED
Intangible assets acquired in connection with certain acquisitions are
amortized using the straight-line method over the estimated useful lives of the
assets of ten years. Organization costs are being amortized over five years.
These amounts are included in prepaid expenses and other assets.
NONACCRUAL AND IMPAIRED LOANS
The allowance for losses on loans is determined based on management's review
of the loan portfolio and analysis of the borrowers' ability to repay, past
collection experience, risk characteristics of individual loans or groups of
similar loans and underlying collateral, current and prospective economic
conditions and status of nonperforming loans.
Loans are placed in nonaccrual status when they are past-due 90 days as to
either principal or interest, unless the loan is well secured and in the process
of collection or earlier, when in the opinion of management, the collection of
principal and interest is in doubt. A loan remains in nonaccrual status until
F-8
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the loan is current as to payment of both principal and interest and the
borrower demonstrates the ability to pay and remain current. Loans are charged
off when a loan or a portion thereof is considered uncollectible.
The Company identifies impaired loans and measures impairment (i) at the
present value of expected cash flows discounted at the loan's effective interest
rate; (ii) at the observable market price, or (iii) at the fair value of the
collateral if the loan is collateral dependent. If the measure of the impaired
loan is less than the recorded investment in the loan, an impairment is
recognized through a valuation allowance and corresponding charge to provision
for loan losses. The Company does not apply these provisions to larger groups of
smaller-balance homogeneous loans such as consumer installment, residential
first and second mortgage loans and credit card loans. These loans are
collectively evaluated for impairment.
A loan is determined to be impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement. A loan is not
considered impaired during a period of delay in payment if the Company expects
to collect all amounts due, including interest past-due. The Company generally
considers a period of delay in payment to include delinquency up to 90 days.
When the ultimate collectibility of an impaired loan's principal is in
doubt, wholly or partially, all cash receipts are applied to principal. Once the
recorded principal balance has been reduced to zero, future cash receipts are
applied to interest income, to the extent any interest has been foregone, and
then they are recorded as recoveries of any amounts previously charged off. When
this doubt no longer exists, cash receipts are applied under the contractual
terms of the loan agreements.
COMPREHENSIVE INCOME
Effective January 1, 1998 the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" "SFAS No. 130".
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. All items that are required to be recognized under
accounting standards as components of comprehensive income are to be reported in
an annual financial statement that is displayed with the same prominence as
other financial statements. This statement stipulates that comprehensive income
reflect the change in equity of an enterprise during a period of transactions
and other events and circumstances from nonowner sources. Comprehensive income
will thus represent the sum of net income and other accumulated comprehensive
income. The accumulated balance of other accumulated comprehensive income is
required to be displayed separately from retained earnings and additional
paid-in capital in the statement of financial position. The adoption of SFAS No.
130 resulted primarily in the Company reporting unrealized gains and losses on
available-for-sale securities in other comprehensive income.
F-9
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's components of comprehensive income are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------------
1998 1997 1997 1996 1995
---------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net income (loss)............................... $ 151,342 $ 24,076 $ 365,336 $ (2,173,319) $ (1,282,629)
Changes in accumulated other comprehensive
income--unrealized gains and losses on
investments................................... (87,857) 39,125 317,718 11,425 --
---------- --------- ---------- ------------- -------------
Total comprehensive income (loss)............... $ 63,485 $ 63,201 $ 683,054 $ (2,161,894) $ (1,282,629)
---------- --------- ---------- ------------- -------------
---------- --------- ---------- ------------- -------------
</TABLE>
INCOME TAXES
Deferred income taxes are recognized for the tax consequences of temporary
differences between financial statement carrying amounts and the tax bases of
assets and liabilities. Deferred income taxes are provided on income and expense
items when they are reported for financial statement purposes in periods
different from the periods in which these items are recognized in the income tax
returns. Deferred tax assets are recognized only to the extent that it is more
likely than not that such amounts will be realized based upon consideration of
available evidence, including tax planning strategies and other factors.
STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
NET INCOME (LOSS) PER SHARE
On May 12, 1998, the Board of Directors declared a 10% stock dividend.
Average shares outstanding and all per share amounts are based on the increased
number of shares giving retroactive effect to the stock dividend.
The Company adopted Statement of Financial Accounting Standards No. 128,
EARNINGS PER SHARE in 1997 and, as required by the Statement, earnings per share
(EPS) data presented for prior periods have been restated to conform to the new
standard.
In accordance with the provisions of the Statement, basic EPS is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding. Diluted EPS is computed after adjusting the
numerator and denominator of the basic EPS computation for the effects of all
dilutive potential common shares outstanding during the period. The dilutive
effects of options, warrants and their equivalents are computed using the
"treasury stock" method.
F-10
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Information relating to the calculations of earnings per common share is
summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------
1998 1997
-------------------------- --------------------------
BASIC DILUTED BASIC DILUTED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income used in EPS computation....................... $ 151,342 $ 151,342 $ 24,076 $ 24,076
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted-average shares outstanding...................... 3,142,433 3,142,433 3,061,956 3,061,956
Dilutive securities-options and warrants................. -- 455,208 -- 261,304
------------ ------------ ------------ ------------
Adjusted weighted-average shares used in EPS
computation............................................. 3,142,433 3,597,641 3,061,956 3,323,260
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996
-------------------------- ----------------------------
BASIC DILUTED BASIC DILUTED
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) used in EPS computation............... $ 365,336 $ 365,336 $ (2,173,319) $ (2,173,319)
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
Weighted-average shares outstanding..................... 3,151,145 3,151,145 1,391,355 1,391,355
Dilutive securities--stock options and warrants......... -- 300,136 -- --
------------ ------------ ------------- -------------
Adjusted weighted-average shares used in EPS
computation........................................... 3,151,145 3,451,281 1,391,355 1,391,355
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
--------------------------
BASIC DILUTED
------------ ------------
<S> <C> <C>
Net loss used in EPS computation...................................................... $ 1,282,629 $ 1,282,629
------------ ------------
------------ ------------
Weighted-average shares outstanding................................................... 750,082 750,082
Dilutive securities--stock options and warrants....................................... -- --
------------ ------------
Adjusted weighted-average shares used in EPS computation.............................. 750,082 750,082
------------ ------------
------------ ------------
</TABLE>
STOCK-BASED COMPENSATION
The Company uses the intrinsic value method to account for stock-based
employee compensation plans. Under this method, compensation cost is recognized
for awards of shares of common stock to employees only if the quoted market
price of the stock at the grant date (or other measurement date, if later) is
greater than the amount the employee must pay to acquire the stock. Information
concerning the pro forma effects of using an optional fair value-based method to
account for stock-based employee compensation plans is provided in note 9.
On May 12, 1998, the Board of Directors declared a 10% stock dividend. All
stock option activity is based on the increased number of shares giving
retroactive effect to the stock dividend.
F-11
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform to the 1997 presentation.
(2) RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required by the Federal Reserve System to maintain certain cash
reserve balances based principally on deposit liabilities. At both December 31,
1997 and 1996, the required reserve balances were $375,000.
(3) INVESTMENTS
Investments are comprised of the following at December 31:
<TABLE>
<CAPTION>
1997
------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Available for sale securities:
U.S. Government Agency--due after one through five
years.................................................. $ 6,500,000 $ -- $ 67,365 $ 6,432,635
Mortgage-backed securities............................... 24,122,529 133,104 -- 24,255,633
Equity securities........................................ 1,693,521 470,498 -- 2,164,019
------------- ----------- ----------- -------------
Total available for sale securities........................ $ 32,316,050 $ 603,602 $ 67,365 $ 32,852,287
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Investment securities--held to maturity:
U.S. Treasury:
Due in one year or less.............................. $ 4,501,621 $ 41,974 $ -- $ 4,543,595
Due after one year through five years................ 4,000,000 -- -- 4,000,000
Certificate of deposit--
Due after one year through five years................ 99,000 -- -- 99,000
------------- ----------- ----------- -------------
Total held to maturity investment securities............... $ 8,600,621 $ 41,974 $ -- $ 8,642,595
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Available for sale securities.............................. $ 313,450 $ 11,425 $ -- $ 324,875
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Investment securities--held to maturity:
U.S. Treasury--due after one year through five years... $ 1,000,000 -- 1,562 $ 998,438
Certificate of deposit--due one year or less........... 99,000 -- -- 99,000
------------- ----------- ----------- -------------
Total held to maturity investment securities............... $ 1,099,000 $ -- $ 1,562 $ 1,097,438
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
F-12
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(4) LOANS RECEIVABLE
Approximately 70% of the Company's loans receivable are mortgage loans
secured by residential and commercial real estate properties located in the
State of Maryland. Loans are extended only after evaluation by management of
customers' creditworthiness and other relevant factors on a case-by-case basis.
The Company generally does not lend more than 90% of the appraised value of a
property and requires private mortgage insurance on residential mortgages with
loan-to-value ratios in excess of 80%. In addition, the Company generally
obtains personal guarantees of repayment from borrowers and/or others for
construction, commercial and multi-family residential loans and disburses the
proceeds of construction and similar loans only as work progresses on the
related projects.
Residential lending is generally considered to involve less risk than other
forms of lending, although payment experience on these loans is dependent to
some extent on economic and market conditions in the Company's primary lending
area. Commercial and construction loan repayments are generally dependent on the
operations of the related properties or the financial condition of its borrower
or guarantor. Accordingly, repayment of such loans can be more susceptible to
adverse conditions in the real estate market and the regional economy.
Loans receivable are summarized as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
Loans secured by first mortgages on real estate:
Residential..................................................................... $ 33,648,445 $ 17,019,855
Commercial...................................................................... 50,437,255 31,012,097
Construction, net of undisbursed principal...................................... 30,602,219 24,875,932
-------------- -------------
Total first mortgage loans........................................................ 114,687,919 72,907,884
Commercial........................................................................ 24,118,724 17,096,663
Loans secured by second mortgages on real estate.................................. 747,745 120,701
Consumer loans.................................................................... 4,783,977 2,442,888
Loans secured by deposits and other............................................... 208,134 123,338
-------------- -------------
Total loans....................................................................... 144,546,499 92,691,474
-------------- -------------
Unamortized loan premiums......................................................... 139,564 205,311
Unearned loan fees, net........................................................... (614,102) (788,731)
Unearned loan discounts........................................................... -- (43,981)
-------------- -------------
Total loans receivable............................................................ $ 144,071,961 $ 92,064,073
-------------- -------------
-------------- -------------
</TABLE>
Nonaccrual loans totaled approximately $1,550,000 and $1,574,000 at December
31, 1997 and 1996, respectively.
The interest income which would have been recorded under the original terms
of loans in nonaccrual status at December 31, 1997, 1996 and 1995, respectively,
was approximately $85,000, $32,000 and $65,000, respectively. The actual
interest income recorded on these loans in 1997, 1996 and 1995 was approximately
$77,000, $0 and $0, respectively.
Impaired loans totaled $1,057,000 and $850,000 at December 31, 1997 and
1996, respectively, and were all collateral dependent loans. Collateral
dependent loans are measured based in fair value of the
F-13
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(4) LOANS RECEIVABLE (CONTINUED)
collateral. There were no impaired loans at December 31, 1997 and 1996 with an
allocated valuation allowance, and in 1995 there were no impaired loans.
The average recorded investment in impaired loans was approximately $589,000
and $257,000 at December 31, 1997 and 1996, respectively, and no income has been
accrued or collected on these loans while they have been classified as impaired.
Changes in the allowance for losses on loans are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Balance at beginning of year.............................................. $ 1,241,663 $ 376,287 $ 244,847
Provisions for loan losses................................................ 471,959 1,039,636 190,051
Chargeoffs, net of recoveries............................................. (100,001) (174,260) (58,611)
------------ ------------ ----------
Balance at end of year.................................................... $ 1,613,621 $ 1,241,663 $ 376,287
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
Commitments to extend credit are agreements to lend to customers, provided
that terms and conditions established in the related contracts are met. At
December 31, 1997 and 1996, the Company had commitments to originate first
mortgage loans on real estate of approximately $2,890,000 and $2,000,000,
respectively, all of which were committed for sale in the secondary market.
At December 31, 1997 and 1996, the Company also had commitments to loan
funds under unused home-equity lines of credit aggregating approximately
$1,716,000 and $158,000, respectively, and unused commercial lines of credit
aggregating approximately $46,458,000 and $34,000,000, respectively. Such
commitments carry a floating rate of interest.
Commitments for mortgage loans generally expire within sixty days and are
normally funded with loan principal repayments, excess liquidity and savings
deposits. Since certain of the commitments may expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements.
Substantially all of the Company's outstanding commitments at December 31,
1997 and 1996, are for loans which would be secured by real estate with
appraised values in excess of the commitment amounts. The Company's exposure to
credit loss under these contracts in the event of non-performance by the other
parties, assuming that the collateral proves to be of no value, is represented
by the commitment amounts.
During the ordinary course of business, the Company makes loans to its
directors and their affiliates and several policy making officers on
substantially the same terms, including interest rates and collateral, as those
prevailing for comparable transactions with other customers. Loans outstanding,
both direct and indirect, to directors, their affiliates, and policy making
officers totaled $5,208,000, $1,276,000 and $623,000 at December 31, 1997, 1996,
and 1995, respectively. During 1997, $4,458,000 of new loans were made and
repayments totaled $526,000 in 1996, $683,000 of new loans were made and
repayments totaled $25,000.
(5) OTHER REAL ESTATE OWNED
At December 31, 1997, other real estate owned included a land development
project consisting of 229 residential building lots with a carrying value of
approximately $1,054,000 and a 24-unit condominium
F-14
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(5) OTHER REAL ESTATE OWNED (CONTINUED)
building with a carrying value of approximately $890,000. The land development
project is being completed under the direction of the Company. At December 31,
1997, 107 lots were under contract for settlement through July 2000, and the
remainder of the project was being marketed for sale.
(6) PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows at December 31:
<TABLE>
<CAPTION>
ESTIMATED
1997 1996 USEFUL LIVES
------------ ------------ -------------
<S> <C> <C> <C>
Land................................................................... $ 391,540 $ 391,540 --
Buildings and improvements............................................. 1,791,245 924,685 10-39 years
Leasehold improvements................................................. 1,216,242 585,816 10-33 years
Furniture, fixtures and equipment...................................... 2,576,477 1,427,058 5-7 years
------------ ------------ -------------
-------------
Total at cost.......................................................... 5,975,504 3,329,099
Less accumulated depreciation and amortization......................... 1,199,992 658,081
------------ ------------
Property and equipment, net............................................ $ 4,775,512 $ 2,671,018
------------ ------------
------------ ------------
</TABLE>
Rent expense for the years ended December 31, 1997, 1996 and 1995 was
approximately $771,000, $423,000 and $118,000, respectively.
The Company and the Bank occupy space leased from the Chairman and CEO of
the Company, who is paid $566,988 annually for office and branch space. The term
of the lease is five years. Management believes that such terms are at least as
favorable as those that could be obtained from a third party lessor.
The Bank has opened a full-service branch in five Mars Super Markets, and
has installed ATMs in thirteen of the markets. The Bank intends to open
additional branches in Mars Super Markets in the future. The Bank pays rent of
$36,500 per year for approximately 500 square feet of branch space in each
store. There is no charge to the Bank for the operation of ATMs in each store.
Mars Super Markets is represented on the Board of Directors of the Company and
the Bank.
Minimum lease payments due for all locations for each of the next five years
are as follows:
<TABLE>
<S> <C>
1998............................................................................ $1,021,000
1999............................................................................ 1,021,000
2000............................................................................ 1,001,000
2001............................................................................ 903,000
2002............................................................................ 779,000
</TABLE>
F-15
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(7) DEPOSITS
Deposits are summarized as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EFFECTIVE EFFECTIVE
AMOUNT RATE AMOUNT RATE
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Noncertificate:
Savings............................................ $ 8,005,604 2.75% $ 5,574,090 2.75%
Interest-bearing demand deposits................... 14,078,998 0.90% 3,974,082 1.35%
Money market accounts.............................. 58,887,042 4.93% 15,165,312 3.51%
Noninterest bearing demand deposits................ 24,006,079 -- 15,583,651 --
-------------- ------------ -------------- ------------
Total noncertificate deposits........................ 104,977,723 40,297,135
-------------- --------------
Certificates of deposit:
Original maturities:
Under 12 months.................................. 6,460,689 5.16% 3,997,620 5.42%
12 to 60 months 78,345,018 5.85% 53,028,947 5.87%
IRA and KEOGH...................................... 7,168,789 5.97% 4,725,944 5.70%
-------------- ------------ -------------- ------------
Total certificates of deposit........................ 91,974,496 61,752,511
Accrued interest payable............................. 306,460 204,665
Unamortized premium.................................. 10,649 34,835
-------------- --------------
Total deposits....................................... $ 197,269,328 $ 102,289,146
-------------- --------------
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL
------------ ------------
<S> <C> <C> <C> <C>
Scheduled certificates of deposit maturities:
Under 6 months..................................... $ 37,717,676 41.01% $ 10,891,971 17.64%
6 months to 12 months.............................. 26,298,612 28.59% 12,504,458 20.25%
12 months to 24 months............................. 21,602,451 23.49% 35,915,826 58.16%
24 months to 36 months............................. 5,097,825 5.54% 826,104 1.34%
36 months to 48 months............................. 312,798 0.34% 1,614,152 2.61%
Over 48 months..................................... 945,134 1.03% -- --
-------------- ------------ -------------- ------------
Total certificates of deposit........................ $ 91,974,496 100.00% $ 61,752,511 100.00%
-------------- ------------ -------------- ------------
-------------- ------------ -------------- ------------
</TABLE>
Certificates of deposit of $100,000 or more totaled approximately
$22,107,000 and $11,327,000 at December 31, 1997 and 1996, respectively.
(8) SHORT-TERM BORROWINGS
Short-term borrowings consist of Federal Home Loan Bank at Atlanta (FHLB)
advances and short-term promissory notes. The FHLB advances are available under
a specific collateral pledge and security agreement, which allows the Company to
borrow up to $20,000,000 and requires the Company to maintain collateral for all
of its borrowings in the form of specific first mortgage loans with outstanding
principal equal to 154% of the advances. At December 31, 1997, the Company had
approximately $23,100,000 of first mortgage loans pledged as collateral, in
addition to the balance of FHLB stock.
F-16
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(8) SHORT-TERM BORROWINGS (CONTINUED)
Certain information regarding borrowings are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
Amount outstanding at year-end:
FHLB advances...................................................................... $ 15,000,000 $ 6,000,000
Short-term promissory notes........................................................ 15,330,935 --
Weighted average interest rate at year-end:
FHLB advances...................................................................... 6.50% 6.95%
Short-term promissory notes........................................................ 4.83% --
Maximum outstanding at any month-end:
FHLB advances...................................................................... $ 15,000,000 $ 6,000,000
Short-term promissory notes........................................................ 15,460,935 --
Average outstanding:
FHLB advances...................................................................... $ 1,904,000 $ 1,950,000
Short-term promissory notes........................................................ 4,128,000 --
Weighted average interest rate during the year:
FHLB advances...................................................................... 6.05% 5.50%
Short-term promissory notes........................................................ 5.47% --
</TABLE>
(9) EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLAN
The Company established a defined contribution plan in 1997, covering
employees meeting certain age and service eligibility requirements. The Plan
provides for cash deferrals qualifying under Section 401(k). Matching
contributions made by the Company totaled $40,107 in 1997.
STOCK OPTIONS
The Company has stock option award arrangements which provide for the
granting of options to acquire common stock to directors and key employees.
Option prices are equal to the estimated fair market value of the common stock
at the date of the grant. Options are exercisable immediately after the date of
grant and expire ten years after the date of grant.
F-17
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(9) EMPLOYEE BENEFIT PLANS (CONTINUED)
Information with respect to stock options is as follows for the years ended
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ----------------- --------- -----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........................ 198,660 $ 10.00 16,500 $ 10.00
Granted................................................. -- -- 182,930 10.00
Exercised............................................... (4,180) -- -- --
Forfeited............................................... (1,650) -- (770) --
--------- ------ --------- ------
Outstanding at end of year.............................. 192,830 $ 10.00 198,660 $ 10.00
--------- ------ --------- ------
--------- ------ --------- ------
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- -----------------
<S> <C> <C>
Outstanding at beginning of year...................................................... -- --
Granted............................................................................... 16,500 $ 10.00
Exercised............................................................................. -- --
Forfeited............................................................................. -- --
--------- ------
Outstanding at end of year............................................................ 16,500 $ 10.00
--------- ------
--------- ------
</TABLE>
The weighted average remaining life of options outstanding at December 31,
1997 was 8.6 years.
The option price was equal to the market price of the common stock at the
date of grant for all options granted in 1996 and, accordingly, no compensation
expense related to options was recognized. If the Company had applied a fair
value-based method to recognize compensation cost for the options granted, net
income and net income per share would have been changed to the following pro
forma amounts for the year ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C> <C>
Net loss As reported............................................ $ 2,173,319 $ 1,282,629
Pro forma.............................................. 2,908,319 1,348,625
Net loss per share--basic As reported............................................ 1.72 1.88
Pro forma.............................................. 2.30 1.98
</TABLE>
The weighted average fair values of options granted during 1996 and 1995
were $735,000, on the dates of grant. The fair values of options granted were
calculated using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1996 and 1995: risk-free
interest rate of 6.01%; no expected votality; and expected lives of ten years.
The weighted average fair value of options granted was $4.30 for both years.
F-18
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(9) EMPLOYEE BENEFIT PLANS (CONTINUED)
WARRANTS
Warrants to acquire 888,605, 900,155 and 214,500 shares of common stock of
$10.00 per share were outstanding and exercisable at December 31, 1997, 1996 and
1995, respectively.
(10) INCOME TAXES
Income tax benefit consists of the following for the years ended December
31:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current.................................................................... $ -- -- --
Deferred................................................................... (192,000) -- --
----------- ----------- -----------
$ (192,000) -- --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Income taxes (benefit) are reconciled to the amount computed by applying the
federal corporate tax rate of 34% to income before taxes as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income tax expense (benefit) at federal corporate rate..................... $ 59,000 $ (739,000) $ 436,000
Nondeductible expenses..................................................... 12,000 (9,000) (3,000)
Change in valuation allowance.............................................. (216,000) 776,000 (433,000)
Other...................................................................... (47,000) (28,000) --
----------- ----------- -----------
$ (192,000) $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-19
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(10) INCOME TAXES (CONTINUED)
The tax effects of temporary differences between the financial reporting
basis and income tax basis of assets and liabilities relate to the following at
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for losses on loans......................................... $ 518,000 $ 300,000 $ 107,000
Excess of fair value of liabilities acquired over cost................ -- 13,000 25,000
Net operating loss carryforwards...................................... 821,000 1,076,000 407,000
Interest and fees on loans............................................ 59,000 43,000 119,000
Other................................................................. -- -- 3,000
------------ ------------- -----------
Total gross deferred assets............................................. 1,398,000 1,432,000 661,000
Less valuation allowance................................................ (918,000) (1,341,000) (565,000)
------------ ------------- -----------
Net deferred tax assets................................................. 480,000 91,000 96,000
Deferred tax liabilities:
Depreciation.......................................................... 15,000 -- --
Unrealized gain on investments available-for-sale..................... 207,000 -- --
Federal Home Loan Bank stock dividends................................ 12,000 12,000 12,000
Excess of fair value of assets acquired over cost..................... 54,000 79,000 84,000
------------ ------------- -----------
Total gross deferred tax liabilities.................................... 288,000 91,000 96,000
------------ ------------- -----------
Net deferred tax asset.................................................. $ 192,000 $ -- $ --
------------ ------------- -----------
------------ ------------- -----------
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $2,125,000 which are available to
offset future federal taxable income, if any, through 2010. As a result of
ownership changes, utilization of a portion of the net operating loss
carryforward is subject to annual limitations.
A valuation allowance is required to reduce the net deferred tax asset to an
amount that is more likely than not to be realized. During 1997, the Company
reduced the valuation allowance by $423,000, of which $207,000 was attributable
to the unrealized gains on available for sale securities. The net deferred tax
asset of $192,000 represents the amount of tax benefit that management believes
is more likely than not to be realized because of future operating profits.
Because of uncertainty regarding the extent of future profitability, due to
expenses related to branch network expansion, a valuation allowance has been
established for the remaining net deferred tax asset. Management will continue
to assess the required valuation allowance on an ongoing basis.
F-20
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(11) OTHER EXPENSES
Other expense is comprised of the following for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
Service and maintenance.................................................... $ 190,194 $ 122,080 $ 31,338
Office supplies............................................................ 148,624 148,400 121,252
Amortization of cost of intangible assets.................................. 74,927 74,927 64,463
Cost of ATM network........................................................ 240,637 145,207 38,670
Printing................................................................... 192,057 129,849 32,242
Corporate insurance........................................................ 153,535 53,058 20,691
Other (a).................................................................. 894,047 182,178 108,074
------------ ---------- ----------
Total other expenses....................................................... $ 1,894,021 $ 855,699 $ 416,730
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
- ------------------------
(a) No single item included in this category exceeded one percent of total
income.
(12) DIVIDENDS
As a depository institution whose deposits are insured by the Federal
Deposit Insurance Corporation (FDIC), the Bank may not pay dividends or
distribute any of its capital assets while it remains in default on any
assessment due the FDIC. The Bank currently is not in default under any of its
obligations to the FDIC. As a commercial bank under the Maryland Financial
Institution Law, the Bank may declare cash dividends from undivided profits or,
with the prior approval of the Commissioner of Financial Regulation, out of
surplus in excess of 100% of its required capital stock, and after providing for
due or accrued expenses, losses, interest and taxes.
The Company and the Bank, in declaring and paying dividends, are also
limited insofar as minimum capital requirements authorities must be maintained.
The Company and the Bank comply with such capital requirements.
The Company's current ability to pay dividends is largely dependent upon the
receipt of dividends from its banking subsidiary, the Bank. Both federal and
state laws impose restrictions on the ability of the Bank to pay dividends. The
FRB has issued a policy statement which provides that, as a general matter,
insured banks and bank holding companies may pay dividends only out of prior
operating earnings. For a Maryland state-chartered bank or trust company,
dividends may be paid out of undivided profits or, with the prior approval of
the Commissioner, from surplus in excess of 100% of required capital stock. If
however, the surplus of a Maryland bank is less than 100% of its required
capital stock, cash dividends may not be paid in excess of 90% of net earnings.
In addition to these specific restrictions, bank regulatory agencies, in
general, also have the ability to prohibit proposed dividends by a financial
institution which would otherwise be permitted under applicable regulations if
the regulatory body determines at such distribution would constitute an unsafe
or unsound practice.
(13) REGULATORY MATTERS
The Company and Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material
F-21
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(13) REGULATORY MATTERS (CONTINUED)
effect on the Company's financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets, and of Tier I capital to average assets.
Management believes, as of December 31, 1997, that the Bank meets all capital
adequacy requirements to which it is subject. As of December 31, 1997 the Bank
was "well capitalized" under the regulatory framework for prompt corrective
action. There are no conditions or events since that notification that
management believes would change the Bank's category.
Regulatory capital amounts and ratios for the Company and the Bank as of
December 31, 1997 and 1996, were:
<TABLE>
<CAPTION>
MINIMUM REQUIREMENTS TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISION
------------------------ ------------------------ ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997
Total capital (to risk weighted assets):
Consolidated................................... $ 28,040,136 18.2% $ 12,299,264 8.0% $ 15,374,080 10.0%
The Bank....................................... 19,442,427 12.0% 12,988,640 8.0% 16,235,800 10.0%
Tier 1 capital (to risk weighted assets):
Consolidated................................... 26,426,515 17.2% 6,149,632 4.0% 9,224,448 6.0%
The Bank....................................... 17,828,806 11.0% 6,494,324 4.0% 9,741,486 6.0%
Tier 1 capital (to average assets):
Consolidated................................... 26,426,515 15.0% 7,051,320 4.0% 8,814,150 5.0%
The Bank....................................... 17,828,806 10.2% 6,986,280 4.0% 8,732,850 5.0%
AS OF DECEMBER 31, 1996
Total capital (to risk weighted assets):
Consolidated................................... 24,752,739 18.8% 10,532,145 8.0% 13,165,181 10.0%
The Bank....................................... 19,050,803 14.2% 10,710,877 8.0% 13,388,597 10.0%
Tier 1 capital (to risk weighted assets):
Consolidated................................... 23,511,076 17.9% 5,266,072 4.0% 7,899,108 6.0%
The Bank....................................... 17,809,140 13.3% 5,355,439 4.0% 8,033,158 6.0%
Tier 1 capital (to average assets):
Consolidated................................... 23,511,076 19.5% 4,832,127 4.0% 6,040,159 5.0%
The Bank....................................... 17,809,140 14.7% 4,834,224 4.0% 6,042,781 5.0%
</TABLE>
The FDIC, through the Savings Association Insurance Fund (SAIF), insures
deposits of accountholders up to $100,000. The Bank pays an annual premium to
provide for this insurance. The Bank is a member of the Federal Home Loan Bank
System and is required to maintain an investment in the stock of the FHLB equal
to at least 1% of the unpaid principal balances of their residential mortgage
F-22
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(13) REGULATORY MATTERS (CONTINUED)
loans, 0.3% of their total assets or 5% of their outstanding advances from the
bank, whichever is greater. Purchases and sales of stock are made directly with
the bank at par value.
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods, and assumptions are set forth below for the
Company's financial instruments as of December 31, 1997 and 1996.
The carrying value and estimated fair value of financial instruments is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and interest-bearing deposits............................. $ 45,917 $ 45,917 $ 32,510 $ 32,510
Investment securities.......................................... 41,453 41,495 1,424 1,422
Accrued interest receivable.................................... 1,434 1,434 713 713
Loans receivable............................................... 142,458 143,322 90,822 90,933
Loans held for sale............................................ 16,895 16,895 3,072 3,072
Liabilities:
Deposit accounts............................................... 197,269 197,754 102,289 102,629
FHLB advances.................................................. 15,000 15,000 6,000 6,000
Other borrowings............................................... 15,331 15,331 -- --
Off balance sheet instruments:
Commitments to extend credit................................... -- -- -- --
Loans sold with recourse....................................... -- -- -- --
Unused lines of credit......................................... -- -- -- --
</TABLE>
CASH ON HAND AND IN BANKS
The carrying amount for cash on hand and in banks approximates fair value
due to the short maturity of these instruments.
FEDERAL FUNDS SOLD
The carrying amount for federal funds sold approximates fair value due to
the overnight maturity of these instruments.
INVESTMENT SECURITIES
The fair value of investment securities is based on bid prices received from
an external pricing service or bid quotations received from securities dealers.
F-23
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LOANS
Loans were segmented into portfolios with similar financial characteristics,
such as residential, multifamily and nonresidential, construction and land,
second mortgage loans, commercial, and consumer. Each loan category was further
segmented by fixed and adjustable rate interest terms and performing and
nonperforming categories.
The fair value of residential loans was calculated by discounting
anticipated cash flows based on weighted-average contractual maturity,
weighted-average coupon, and discount rate. Variable rate loans were assumed to
be at market.
The fair value for nonperforming loans was determined by reducing the
carrying value of nonperforming loans by the Company's historical loss
percentage for each specific loan category.
ACCRUED INTEREST RECEIVABLE
The carrying amount of accrued interest receivable approximates its fair
value.
DEPOSITS
The fair value of deposits with no stated maturity, such as noninterest
bearing deposits, interest bearing now accounts, money market and statement
savings accounts, is deemed to equal to the carrying amounts. The fair value of
certificates of deposit is based on the discounted value of contractual cash
flows. The discount rate for certificates of deposit was estimated using the
rate currently offered for deposits of similar remaining maturities.
ACCRUED INTEREST PAYABLE
The carrying amount of accrued interest payable approximates its fair value.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The rates and terms of the Company's fixed rate commitments to extend credit
are competitive with others in the various markets in which the Company
operates. It is impractical to assign fair values to these instruments.
The disclosure of fair value amounts does not include the fair values of any
intangibles, including core deposit intangibles. Core deposit intangibles
represent the value attributable to total deposits based on an expected duration
of customer relationships.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market and financial instrument information. Not included was any premium or
discount that could result from offering for sale at one time the Company's
entire holdings of a particular financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. These estimates also
include judgements regarding future economic conditions, expected loss and risk
assessments. Changes in assumptions could significantly affect estimates.
F-24
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(15) FINANCIAL INFORMATION OF PARENT COMPANY
The following is financial information of First Mariner Bancorp (parent
company only):
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Assets:
Cash............................................................................. $ 7,166,876 $ 6,027,542
Available-for-sale securities.................................................... 2,164,019 324,875
Investment in subsidiary......................................................... 18,165,407 18,163,028
Other assets..................................................................... 38,806 18,812
------------- -------------
$ 27,535,108 $ 24,534,257
------------- -------------
------------- -------------
Liabilities and Stockholders' Equity:
Other liabilities................................................................ $ 569,452 $ 738,255
Stockholders' equity............................................................. 26,965,656 23,796,002
------------- -------------
$ 27,535,108 $ 24,534,257
------------- -------------
------------- -------------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ------------- -------------
<S> <C> <C> <C>
Income:
Interest income...................................................... $ 294,488 $ 42,689 $ 40,537
Gain on sale of securities........................................... 455,279 330,030 --
Other income......................................................... 20,158 -- 241
----------- ------------- -------------
Total income........................................................... 769,925 372,719 40,778
----------- ------------- -------------
Expenses:
Salaries and employee benefits....................................... 523,616 239,950 215,000
Amortization of intangibles.......................................... 7,272 7,263 7,272
Professional services................................................ 52,134 -- 56,414
Other expenses....................................................... 15,946 15,116 12,432
----------- ------------- -------------
Total expenses......................................................... 598,968 262,329 291,118
----------- ------------- -------------
Income (loss) before income tax benefit................................ 170,957 110,390 (250,340)
Income tax benefit..................................................... (192,000) -- --
----------- ------------- -------------
Income (loss) before equity in undistributed net income (loss) of the
Bank................................................................. 362,957 110,390 (250,340)
Equity in undistributed net income (loss) in the Bank.................. 2,379 (2,283,709) (1,032,289)
----------- ------------- -------------
Net income (loss)...................................................... $ 365,336 $ (2,173,319) $ (1,282,629)
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
F-25
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997 AND DECEMBER 31, 1997, 1996 AND 1995
(15) FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income before equity in undistributed net income of the Bank..... $ 362,957 $ 110,390 $ (250,340)
Depreciation and amortization.................................... 7,272 7,263 7,272
Increase (decrease) in other liabilities......................... (168,803) 696,224 42,031
Increase in other assets......................................... (27,266) (7,243) (26,055)
Gain on sale of securities....................................... (455,279) (330,030) --
Other............................................................ (90) (3,947) (8,997)
------------- -------------- -------------
Net cash provided by (used in) operating activities................ (281,209) 472,657 (236,089)
------------- -------------- -------------
Net cash flows from investing activities:
Investment in subsidiaries....................................... -- (10,500,000) (8,989,516)
Purchase of available for sale securities........................ (2,111,704) (2,153,787) --
Sale of available for sale securities............................ 1,045,557 2,170,367 --
------------- -------------- -------------
Net cash flows from investing activities........................... (1,066,147) (10,483,420) (8,989,516)
------------- -------------- -------------
Net cash provided by financing activities--proceeds from stock
issuance options and warrants exercised, net..................... 2,486,600 15,255,910 10,008,000
------------- -------------- -------------
Net increase in cash and temporary investments..................... 1,139,244 5,245,147 782,395
Cash and temporary investments at beginning of year................ 6,027,542 782,395 --
------------- -------------- -------------
Cash and temporary investments at end of year...................... $ 7,166,786 $ 6,027,542 $ 782,395
------------- -------------- -------------
------------- -------------- -------------
</TABLE>
F-26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY OR THE ISSUER TRUST SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AND OFFER OR SOLICITATION 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.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................
Risk Factors...................................
Mariner Capital Trust..........................
Use of Proceeds................................
Capitalization.................................
Accounting Treatment...........................
Selected Consolidated Financial Data...........
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................
Business.......................................
Management.....................................
Description of Preferred Securities............
Description of Junior Subordinated
Debentures...................................
Description of Guarantee.......................
Relationship Among the Preferred Securities,
the Junior Subordinated Debentures and the
Guarantee....................................
Certain Federal Income Tax Consequences........
Certain ERISA Considerations...................
Supervision and Regulation.....................
Underwriting...................................
Validity of Securities.........................
Experts........................................
Index to Financial Statements..................
</TABLE>
$20,000,000
AGGREGATE LIQUIDATION AMOUNT
MARINER CAPITAL TRUST
% PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10
PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED,
TO THE EXTENT DESCRIBED HEREIN, BY
FIRST MARINER BANCORP
---------------------
PROSPECTUS
---------------------
FERRIS, BAKER WATTS
Incorporated
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions,
are as follows*:
<TABLE>
<S> <C>
SEC registration fee................................................................ $ 6,785
NASD fee............................................................................ $ 2,800
Printing and engraving.............................................................. $ **
Accounting fees and expenses........................................................ $ **
Legal fees and expenses............................................................. $ **
Transfer agent fee.................................................................. $ **
Trustee counsel fee................................................................. $ **
Listing fees........................................................................ $ **
Blue sky fees and expenses.......................................................... $ **
Miscellaneous....................................................................... $ **
---------
Total............................................................................... $ **
---------
---------
</TABLE>
- ------------------------
* All amounts other than the SEC registration fee and the NASD fee are
estimated.
** To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 2-418 of the Maryland Annotated Code, Corporations and Associations
Article (1993) ("Maryland Code") provides that a corporation may indemnify
directors and officers against liabilities they may incur in such capacities
unless it is established that: (a) the directors act or omission was material
and (i) was committed in bad faith or (ii) was the result of active and
deliberate dishonesty; or (b) the director actually received an improper
personal benefit; or (c) the director had reasonable cause to believe that the
act or omission was unlawful. A corporation is required to indemnify directors
and officers against expenses they may incur in defending actions against them
in such capacities if they are successful on the merits or otherwise in the
defense of such actions.
The Maryland Code provides that the foregoing provisions shall not be deemed
exclusive of any other rights to which a director or officer seeking
indemnification may be entitled under, among other things, any by-law provision.
The Charter of the Company provides that it shall indemnify and advance
expenses to an officer or director to the fullest extent permitted by and in
accordance with the Maryland Code.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The information contained in this Item 15 does not reflect the 10% stock
dividend payable to the holders of record on May 26, 1998 of the Company's
Common Stock.
(1) The Company offered and sold, pursuant to a Private Placement Memorandum
dated May 22, 1995, a total of 500,000 shares of Common Stock at a price per
share of $10 to Accredited Investors. In addition to the Common Stock, each
investor received one warrant, exercisable at $10 for 10 years for each
three shares purchased in the offering and investors who purchased 25,000
shares received one warrant per share purchased. A total of 416,664 warrants
were issued. The Offering was made in
II-1
<PAGE>
reliance upon an exemption from registration under the Securities Act
pursuant to Rule 506 of Regulation D.
(2) The Company offered and sold, pursuant to a Limited Offering Memorandum
dated August 1, 1995, a total of 500,000 shares of Common Stock at a price
per share of $10. In addition to the Common Stock, each investor received
one warrant, exercisable at $10 for 10 years for each three shares purchased
in the offering and investors who purchased 25,000 shares received one
warrant per share purchased. A total of 206,659 warrants were issued. The
Offering was made in reliance upon an exemption from registration under the
Securities Act pursuant to Rule 506 of Regulation D and the shares were sold
to Accredited Investors.
(3) As of May 15, 1998, the Company had sold an aggregate of 31,333 shares of
Common Stock pursuant to the exercise of warrants issued in 1995, as
described in (1) and (2) above. The aggregate exercise price was $313,330.
(4) As of October 31, 1996, the Company had issued to employees and directors of
the Company stock options to purchase an aggregate of 165,600 shares of its
Common Stock. Such options at the time of grant had an exercise prices of
$10 per share. With respect to the grant of stock options, and exemption
from registration was unnecessary in that none of the transactions involved
a "sale" of securities as such term is used in Section 2(3) of the
Securities Act. As of January 12, 1998, an aggregate of 3,800 shares of
Common Stock were sold by the Company pursuant to the exercise of options.
The aggregate exercise price was $38,000.
The issuances of the shares described in (1), (2), (3) and (4) above were
exempt from registration under the Securities Act pursuant to Section 4(2)
of the Securities Act as transactions by an issuer not involving a public
offering. The recipients of securities in such issuances represented their
intention to acquire the securities for investment only and not with view to
or for sale in connection with any distribution thereof. No underwriters
were involved in such issuances.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits and financial statement schedules listed on the Exhibit Index
on page II-6 of this Registration Statement are filed herewith or will be filed
by amendment.
ITEM 17. UNDERTAKINGS
Each of the undersigned Registrants hereby undertakes:
1. That, for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
2. That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the provisions set forth in Item 14 hereof, or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission ("Commission") such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrants of expenses incurred or
paid by a director, officer or controlling person of
II-2
<PAGE>
the Registrants in the successful defense of any action, suit or proceedings) is
asserted by such director, officer or controlling person in connection with the
securities being registered and the Commission remains of the same opinion, the
Registrants will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by either of them is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Baltimore, State of Maryland, on May 27, 1998.
<TABLE>
<S> <C> <C>
FIRST MARINER BANCORP
By: /s/ EDWIN F. HALE, SR.
-----------------------------------------
Edwin F. Hale, Sr.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Chairman and Chief
/s/ EDWIN F. HALE, SR. Executive Officer
- ------------------------------ (Principal Executive May 27, 1998
Edwin F. Hale, Sr. Officer)
/s/ JOSEPH A. CICERO
- ------------------------------ Director and President May 27, 1998
Joseph A. Cicero
/s/ GEORGE H. MANTAKOS
- ------------------------------ Director May 27, 1998
George H. Mantakos
/s/ KEVIN M. HEALEY Controller (Principal
- ------------------------------ Financial and Accounting May 27, 1998
Kevin M. Healey Officer)
/s/ BARRY B. BONDROFF
- ------------------------------ Director May 27, 1998
Barry B. Bondroff
/s/ ROSE M. CERNAK
- ------------------------------ Director May 27, 1998
Rose M. Cernak
/s/ CHRISTOPHER P. D'ANNA
- ------------------------------ Director May 27, 1998
Christopher P. D'Anna
/s/ BRUCE H. HOFFMAN
- ------------------------------ Director May 27, 1998
Bruce H. Hoffman
/s/ MELVIN S. KABIK
- ------------------------------ Director May 27, 1998
Melvin S. Kabik
/s/ R. ANDREW LARKIN
- ------------------------------ Director May 27, 1998
R. Andrew Larkin
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<PAGE>
<TABLE>
<C> <S> <C>
/s/ JAY J.J. MATRICCIANI
- ------------------------------ Director May 27, 1998
Jay J.J. Matricciani
/s/ DENNIS C. MCCOY
- ------------------------------ Director May 27, 1998
Dennis C. McCoy
/s/ WALTER L. MCMANUS, JR.
- ------------------------------ Director May 27, 1998
Walter L. McManus, Jr.
- ------------------------------ Director
James P. O'Conor
/s/ JOHN J. OLIVER, JR.
- ------------------------------ Director May 27, 1998
John J. Oliver, Jr.
/s/ HANAN Y. SIBEL
- ------------------------------ Director May 27, 1998
Hanan Y. Sibel
- ------------------------------ Director
Leonard Stoler
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ----------------- -------------------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement*
3.1 Amended and Restated Articles of Incorporation of First Mariner Bancorp (Incorporated by
reference to Exhibit 3.1 of the Registrant's Registration Statement on Form SB-2, as amended,
file no. 333-16011 (the "1996 Registration Statement"))
3.2 Amended and Restated Bylaws of First Mariner Bancorp (Incorporated by reference to Exhibit 3.2 of
the 1996 Registration Statement)
4.1 Form of Junior Subordinated Indenture
4.2 Form of Amended and Restated Trust Agreement
4.3 Form of Guarantee by First Mariner Bancorp
5.1 Opinion of Ober, Kaler, Grimes & Shriver *
5.2 Opinion of Richards, Layton & Finger *
8 Tax opinion of Ober, Kaler, Grimes & Shriver *
10.1 1996 Stock Option Plan of First Mariner Bancorp (Incorporated by reference to Exhibit 10.1 of the
1996 Registration Statement)
10.2 Employment Agreement dated May 1, 1995 between First Mariner Bancorp and First Mariner Bank and
George H. Mantakos (Incorporated by reference to Exhibit 10.2 of the 1996 Registration Statement)
10.3 Lease Agreement dated March 1, 1996 between First Mariner Bank and Mars Super Markets, Inc.
(Incorporated by reference to Exhibit 10.4 of the 1996 Registration Statement)
10.4 Lease Agreement dated November 1, 1997 between Edwin F. Hale, Sr. and First Mariner Bank*
10.5 1998 Stock Option Plan of First Mariner Bancorp
10.6 Employee Stock Purchase Plan of First Mariner Bancorp
12 Schedule Regarding Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of Registrant
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Ober, Kaler, Grimes & Shriver * (included in Exhibits 5.1 and 8.1)
23.3 Consent of Richards, Layton & Finger * (included in Exhibit 5.2)
24 Powers of Attorney of certain directors of First Mariner Bancorp
25 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of Wilmington Trust
Company, as trustee under the Junior Subordinated Indenture, the Trust Agreement and the
Guarantee*
27.1 Financial Data Schedule for the 12 Months Ended December 31, 1997
27.2 Financial Data Schedule for the Three Months Ended March 31, 1998
</TABLE>
- ------------------------
* To be filed by amendment.
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<PAGE>
EXHIBIT 4.1
JUNIOR SUBORDINATED INDENTURE
Between
FIRST MARINER BANCORP
and
WILMINGTON TRUST COMPANY, AS TRUSTEE
dated as of
______________, 1998
MARINER CAPITAL TRUST
<PAGE>
MARINER CAPITAL TRUST
Certain Sections of this Junior Subordinated Indenture relating to Sections 310
through 318 of the Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Junior Subordinated Indenture Section
<S> <C>
Section 310(a)(1)...............................................................................................6.9
(a)(2).................................................................................................6.9
(a)(3)......................................................................................Not Applicable
(a)(4)......................................................................................Not Applicable
(a)(5).................................................................................................6.9
(b)..............................................................................................6.8, 6.10
Section 311(a).................................................................................................6.13
(b)...................................................................................................6.13
(b)(2)..............................................................................................7.3(a)
Section 312(a)..........................................................................................7.1, 7.2(a)
(b).................................................................................................7.2(b)
(c).................................................................................................7.2(c)
Section 313(a)...............................................................................................7.3(a)
(a)(4)..............................................................................................7.3(a)
(b).................................................................................................7.3(b)
(c).................................................................................................7.3(a)
(d).................................................................................................7.3(c)
Section 314(a)..................................................................................................7.4
(b)....................................................................................................7.4
(c)(1).................................................................................................1.2
(c)(2).................................................................................................1.2
(c)(3)......................................................................................Not Applicable
(e)....................................................................................................1.2
Section 315(a)...............................................................................................6.1(a)
(b)...............................................................................................6.2, 7.3
(c).................................................................................................6.1(b)
(d).................................................................................................6.1(c)
(e)...................................................................................................5.14
Section 316(a).................................................................................................5.12
(a)(1)(A).............................................................................................5.12
(a)(1)(B).............................................................................................5.13
(a)(2)......................................................................................Not Applicable
(b)....................................................................................................5.8
(c).................................................................................................1.4(f)
Section 317(a)(1)...............................................................................................5.3
(a)(2).................................................................................................5.4
(b)...................................................................................................10.3
Section 318(a)..................................................................................................1.7
</TABLE>
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION...................................................................................1
Section 1.1. Definitions.................................................................................1
Section 1.2. Compliance Certificate and Opinions........................................................10
Section 1.3. Forms of Documents Delivered to Trustee....................................................11
Section 1.4. Acts of Holders............................................................................12
Section 1.5. Notices, Etc. to Trustee and Company.......................................................14
Section 1.6. Notice to Holders; Waiver..................................................................14
Section 1.7. Conflict with Trust Indenture Act..........................................................14
Section 1.8. Effect of Headings and Table of Contents...................................................14
Section 1.9. Successors and Assigns.....................................................................15
Section 1.10. Separability Clause.......................................................................15
Section 1.11. Benefits of Indenture.....................................................................15
Section 1.12. Governing Law.............................................................................15
Section 1.13. Non-Business Days.........................................................................15
ARTICLE II
SECURITY FORMS..........................................................................................15
Section 2.1. Generally..................................................................................15
Section 2.2. Form of Face of Security...................................................................16
Section 2.3. Form of Reverse of Securit.................................................................20
Section 2.4. Additional Provisions Required in Global Security..........................................22
Section 2.5. Form of Trustee's Certificate of Authentication............................................23
ARTICLE III
THE SECURITIES..........................................................................................23
Section 3.1. Title and Terms............................................................................23
Section 3.2. Denominations..............................................................................24
Section 3.3. Execution, Authentication, Delivery and Dating.............................................24
Section 3.4. Temporary Securities.......................................................................25
Section 3.5. Global Securities..........................................................................26
Section 3.6. Registration, Transfer and Exchange Generally; Certain Transfers and Exchanges;
Securities Act Legend..........................................................................27
Section 3.7. Mutilated, Lost and Stolen Securities......................................................29
Section 3.8. Payment of Interest and Additional Interest; Interest Rights Preserved.....................30
Section 3.9. Persons Deemed Owners......................................................................31
Section 3.10. Cancellation..............................................................................32
Section 3.11. Computation of Interest...................................................................32
Section 3.12. Deferrals of Interest Payment Dates.......................................................32
</TABLE>
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<TABLE>
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Section 3.13. Right of Set-Off..........................................................................33
Section 3.14. Agreed Tax Treatment......................................................................33
Section 3.15. CUSIP Numbers.............................................................................34
Section 3.16. Shortening of Stated Maturity.............................................................34
ARTICLE IV
SATISFACTION AND DISCHARGE..............................................................................34
Section 4.1. Satisfaction and Discharge of Indenture....................................................34
Section 4.2. Application of Trust Money.................................................................35
ARTICLE V
REMEDIES................................................................................................35
Section 5.1. Events of Default..........................................................................35
Section 5.2. Acceleration of Maturity; Rescission and Annulment.........................................36
Section 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee............................37
Section 5.4. Trustee May File Proofs of Claim...........................................................38
Section 5.5. Trustee May Enforce Claim Without Possession of Securities.................................39
Section 5.6. Application of Money Collected.............................................................39
Section 5.7. Limitation on Suits........................................................................39
Section 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest; Direct Action
by Holders of Preferred Securities.............................................................40
Section 5.9. Restoration of Rights and Remedies.........................................................40
Section 5.10. Rights and Remedies Cumulative............................................................40
Section 5.11. Delay or Omission Not Waiver..............................................................41
Section 5.12. Control by Holders........................................................................41
Section 5.13. Waiver of Past Defaults...................................................................41
Section 5.14. Undertaking for Costs.....................................................................42
Section 5.15. Waiver of Usury, Stay or Extension Laws...................................................42
ARTICLE VI
THE TRUSTEE.............................................................................................42
Section 6.1. Certain Duties and Responsibilities........................................................42
Section 6.2. Notice of Defaults.........................................................................44
Section 6.3. Certain Rights of Trustee..................................................................44
Section 6.4. Responsible for Recitals or Issuance of Securities.........................................45
Section 6.5. May Hold Securities........................................................................45
Section 6.6. Money Held in Trust........................................................................45
Section 6.7. Compensation and Reimbursement.............................................................45
Section 6.8. Disqualification; Conflicting Interests....................................................46
Section 6.9. Corporate Trustee Required; Eligibility....................................................46
Section 6.10. Resignation and Removal; Appointment of Successor.........................................47
Section 6.11. Acceptance of Appointment by Successor....................................................48
Section 6.12. Merger, Conversion, Consolidation or Succession to Business...............................49
</TABLE>
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<TABLE>
<S> <C>
Section 6.13. Preferential Collection of Claims Against Company.........................................49
Section 6.14. Appointment of Authenticating Agent.......................................................49
ARTICLE VII
HOLDERS LISTS AND REPORTS BY TRUSTEE, PAYING AGENT AND
COMPANY........................................................................................51
Section 7.1. Company to Furnish Trustee Names and Addresses of Holders..................................51
Section 7.2. Preservation of Information, Communications to Holders.....................................51
Section 7.3. Reports by Trustee and Paying Agent........................................................51
Section 7.4. Reports by Company.........................................................................52
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE....................................................52
Section 8.1. May Consolidate, Etc., Only on Certain Terms...............................................52
Section 8.2. Successor Company Substitute...............................................................53
ARTICLE IX
SUPPLEMENTAL INDENTURES.................................................................................54
Section 9.1. Supplemental Indentures Without Consent of Holders.........................................54
Section 9.2. Supplemental Indentures with Consent of Holders............................................55
Section 9.3. Execution of Supplemental Indentures.......................................................56
Section 9.4. Effect of Supplemental Indentures..........................................................56
Section 9.5. Conformity with Trust Indenture Act........................................................56
Section 9.6. Reference in Securities to Supplemental Indentures.........................................56
ARTICLE X
COVENANTS...............................................................................................56
Section 10.1. Payment of Principal and Interest.........................................................56
Section 10.2. Maintenance of Office or Agency...........................................................57
Section 10.3. Money for Security Payments to be Held in Trust...........................................57
Section 10.4. Statement as to Compliance................................................................58
Section 10.5. Waiver of Certain Covenants...............................................................59
Section 10.6. Additional Sums...........................................................................59
Section 10.7. Additional Covenants......................................................................59
Section 10.8. Federal Tax Reports.......................................................................60
ARTICLE XI
REDEMPTION OF SECURITIES................................................................................61
Section 11.1. Applicability of this Article.............................................................61
Section 11.2. Election to Redeem; Notice to Trustee.....................................................61
Section 11.3. Selection of Securities to be Redeemed....................................................61
</TABLE>
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<TABLE>
<S> <C>
Section 11.4. Notice of Redemption......................................................................62
Section 11.5. Deposit of Redemption Price...............................................................62
Section 11.6. Payment of Securities Called for Redemption...............................................63
Section 11.7. Right of Redemption of Securities Initially Issued to the Issuer Trust....................63
ARTICLE XII
SINKING FUNDS...........................................................................................64
ARTICLE XIII
SUBORDINATION OF SECURITIES.............................................................................64
Section 13.1. Securities Subordinate to Senior Indebtedness.............................................64
Section 13.2. No Payment When Senior Indebtedness in Default; Payment Over of Proceeds Upon
Dissolution, Etc...............................................................................64
Section 13.3. Payment Permitted if No Default...........................................................66
Section 13.4. Subrogation to Rights of Holders of Senior Indebtedness...................................66
Section 13.5. Provisions Solely to Define Relative Rights...............................................66
Section 13.6. Trustee to Effectuate Subordination.......................................................67
Section 13.7. No Waiver of Subordination Provisions.....................................................67
Section 13.8. Notice to Trustee.........................................................................67
Section 13.9. Reliance on Judicial Order or Certificate of Liquidating Agent............................68
Section 13.10. Trustee Not Fiduciary for Holders of Senior Indebtedness.................................68
Section 13.11. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights.....68
Section 13.12. Article Applicable to Paying Agents......................................................69
Section 13.13. Certain Conversions or Exchanges Deemed Payment..........................................69
Section 13.14. Counterpart..............................................................................69
</TABLE>
v
<PAGE>
JUNIOR SUBORDINATED INDENTURE
THIS JUNIOR SUBORDINATED INDENTURE, dated as of _____ __, 1998 between
FIRST MARINER BANCORP, a Maryland corporation (the "Company"), having its
principal office at 1801 South Clinton Street, Baltimore, Maryland 21224, and
Wilmington Trust Company, as Trustee, having its principal office at Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890 (the
"Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance of its unsecured junior subordinated
debentures due ____ __, 2028 (the "Securities") of substantially the tenor
hereinafter provided, including Securities issued to evidence loans made to the
Company from the proceeds from the issuance from time to time by Mariner
Capital Trust, a Delaware business trust (the "Issuer Trust") of undivided
preferred beneficial interests in the assets of such Issuer Trust (the
"Preferred Securities") and common undivided interests in the assets of such
Issuer Trust (the "Common Securities" and, collectively with the Preferred
Securities, the "Trust Securities"), and to provide the terms and conditions
upon which the Securities are to be authenticated, issued and delivered; and
WHEREAS, all things necessary to make this Indenture a valid agreement
of the Company, in accordance with its terms, have been done.
NOW THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders (as such term is defined in Section 1.1 hereof)
thereof, it is mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Securities or of any series thereof, and intending
to be legally bound hereby, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
<PAGE>
(c) the words "include," "includes" and "including" shall be deemed to
be followed by the phrase "without limitation";
(d) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles as
in effect at the time of computation;
(e) whenever the context may require, any gender shall be deemed to
include the other;
(f) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may be,
of this Indenture; and
(g) the words "hereby", "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"25% Capital Limitation" means the limitation imposed by the
Federal Reserve that the proceeds of certain qualifying securities like the
Trust Securities will qualify as Tier 1 capital of the issuer up to an amount
not to exceed 25% of the Issuer's Tier 1 capital, or any subsequent
limitation adopted by the Federal Reserve.
"Act" when used with respect to any Holder has the meaning
specified in Section 1.4.
"Additional Interest" means the interest, if any, that shall
accrue on any interest on the Securities of any series the payment of which
has not been made on the applicable Interest Payment Date and which shall
accrue at the rate per annum specified or determined as specified in such
Security.
"Additional Sums" has the meaning specified in Section 10.6.
"Additional Taxes" means any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject from time
to time as a result of a Tax Event.
"Administrator" means, in respect of the Issuer Trust, each
Person appointed in accordance with the Trust Agreement, solely in such
Person's capacity as Administrator of the Issuer Trust and not in such
Person's individual capacity, or any successor Administrator appointed as
therein provided.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any specified Person means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agent Member" means any member of, or participant in, the
Depositary.
2
<PAGE>
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Global Security, in each case
to the extent applicable to such transaction and as in effect from time to
time.
"Authenticating Agent" means any Person authorized by the
Trustee pursuant to Section 6.14 to act on behalf of the Trustee to
authenticate Securities.
"Board of Directors" means the board of directors of the Company
or the Executive Committee of the board of directors of the Company (or any
other committee of the board of directors of the Company performing similar
functions) or, for purposes of this Indenture, a committee designated by the
board of directors of the Company (or such committee), comprised of two or
more members of the board of directors of the Company or officers of the
Company, or both.
"Board Resolution" means a copy of a resolution certified by the
Secretary or any Assistant Secretary of the Company to have been duly adopted
by the Board of Directors, or such committee of the Board of Directors or
officers of the Company to which authority to act on behalf of the Board of
Directors has been delegated, and to be in full force and effect on the date
of such certification, and delivered to the Trustee.
"Business Day" means any day other than (i) a Saturday or
Sunday, (ii) a day on which banking institutions in the State of Maryland or
the City of Wilmington, Delaware are authorized or required by law or
executive order to remain closed, or (iii) a day on which the Corporate Trust
Office of the Trustee, or, with respect to the Securities initially issued to
the Issuer Trust, the "Corporate Trust Office" (as defined in the Trust
Agreement) of the Property Trustee or the Delaware Trustee under the Trust
Agreement, is closed for business.
"Capital Treatment Event" means, in respect of the Issuer Trust,
the reasonable determination by the Company that, as a result of the
occurrence of any amendment to, or change (including any announced
prospective change) in, the laws (or any rules or regulations thereunder) of
the United States or any political subdivision thereof or therein, or as a
result of any official or administrative pronouncement or action or judicial
decision interpreting or applying such laws or regulations, which amendment
or change is effective or such pronouncement, action or decision is announced
on or after the date of the issuance of the Preferred Securities of the
Issuer Trust, there is more than an insubstantial risk that the Company will
not be entitled to treat an amount equal to the Liquidation Amount (as such
term is defined in the Trust Agreement) of such Preferred Securities as "Tier
1 Capital" (or the then equivalent thereof), except as otherwise restricted
under the 25% Capital Limitation, for purposes of the risk-based capital
adequacy guidelines of the Board of Governors of the Federal Reserve System,
as then in effect and applicable to the Company.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this instrument such Commission is not existing
and performing the duties now assigned to it under the Trust Indenture Act,
then the body performing such duties on such date.
"Common Securities" has the meaning specified in the first
recital of this Indenture.
3
<PAGE>
"Common Stock" means the common stock, no par value per share,
of the Company.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor entity shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor entity.
"Company Request" and "Company Order" mean, respectively, the
written request or order signed in the name of the Company by any Chairman of
the Board of Directors, any Vice Chairman of the Board of Directors, its
President or a Vice President, and by its Chief Financial Officer, its
Treasurer, its Secretary or an Assistant Secretary, and delivered to the
Trustee.
"Corporate Trust Office" means the principal office of the
Trustee at which at any particular time its corporate trust business shall be
administered.
"Creditor" has the meaning specified in Section 6.7.
"Defaulted Interest" has the meaning specified in Section 3.8.
"Delaware Trustee" means, with respect to the Issuer Trust, the
Person identified as the "Delaware Trustee" in the Trust Agreement, solely in
its capacity as Delaware Trustee of the Issuer Trust under the Trust
Agreement and not in its individual capacity, or its successor in interest in
such capacity, or any successor Delaware trustee appointed as therein
provided.
"Depositary" means, with respect to the Securities issuable or
issued in whole or in part in the form of one or more Global Securities, the
Person designated as Depositary by the Company pursuant to Section 3.1 (or
any successor thereto).
"Discount Security" means any security that provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 5.2.
"Dollar" or "$" means the currency of the United States of
America that, as at the time of payment, is legal tender for the payment of
public and private debts.
The term "entity" includes a bank, corporation, association,
company, limited liability company, joint-stock company or business trust.
"Event of Default," has the meaning specified in Article V.
"Exchange Act" means the Securities Exchange Act of 1934 and any
successor statute thereto, in each case as amended from time to time.
"Expiration Date" has the meaning specified in Section 1.4.
"Extension Period" has the meaning specified in Section 3.12.
4
<PAGE>
"Global Security" means a Security in the form prescribed in
Section 2.4 evidencing all or part of the Securities, issued to the
Depositary or its nominee, and registered in the name of such Depositary or
its nominee.
"Guarantee" means, with respect to the Issuer Trust, the
Guarantee Agreement, dated _____ __, 1998, executed by the Company for the
benefit of the Holders of the Preferred Securities issued by the Issuer Trust
as modified, amended or supplemented from time to time.
"Holder" means a Person in whose name a Security is registered
in the Securities Register.
"Indenture" means this instrument as originally executed or as
it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Institutional Accredited Investor" means an institutional
accredited investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on such Securities.
"Investment Company Act" means the Investment Company Act of
1940 and any successor statute thereto, in each case as amended from time to
time.
"Investment Company Event" means the receipt by the Issuer Trust
of an Opinion of Counsel experienced in such matters to the effect that, as a
result of the occurrence of a change in law or regulation or a written change
(including any announced prospective change) in interpretation or application
of law or regulation by any legislative body, court, governmental agency or
regulatory authority, there is more than an insubstantial risk that the
Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change or
prospective change becomes effective or would become effective, as the case
may be, on or after the date of the issuance of the Preferred Securities of
the Issuer Trust.
"Issuer Trust" has the meaning specified in the first recital of
this Indenture.
"Maturity" when used with respect to any Security means the date
on which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Notice of Default" means a written notice of the kind specified
in Section 5.1(c).
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chairman of the Board, Chief Executive Officer,
President or a Vice President, and by the Chief Financial Officer, Treasurer,
an Associate Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of such Person, and delivered to the Trustee. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
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(a) a statement by each officer signing the Officers'
Certificate that such officer has read the covenant or condition and the
definitions relating thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by such officer in rendering the
Officers' Certificate;
(c) a statement that such officer has made such
examination or investigation as, in such officer's opinion, is necessary to
enable such officer to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of such
officer, such condition or covenant has been complied with; provided,
however, that the Officers' Certificate delivered pursuant to the provisions
of Section 10.4 hereof shall comply with the provisions of Section 314 of the
Trust Indenture Act.
"Opinion of Counsel" means a written opinion of counsel, who may
be counsel for or an employee of the Company or any Affiliate of the Company.
"Original Issue Date" means the date of issuance specified as
such in each Security.
"Outstanding" means, when used in reference to any Securities,
as of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(a) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) Securities for whose payment money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent in trust for the Holders of such Securities; and
(c) Securities in substitution for or in lieu of other
Securities which have been authenticated and delivered or that have been paid
pursuant to Section 3.6, unless proof satisfactory to the Trustee is
presented that any such Securities are held by Holders in whose hands such
Securities are valid, binding and legal obligations of the Company; provided,
however, that in determining whether the Holders of the requisite principal
amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities
owned by the Company or any other obligor upon the Securities or any
Affiliate of the Company or such other obligor (other than, for the avoidance
of doubt, the Issuer Trust to which Securities of the applicable series were
initially issued) shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Securities that the Trustee knows to be so owned shall be so
disregarded. Securities so owned that have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and
that the pledgee is not the Company or any other obligor upon the Securities
or any Affiliate of the Company or such other obligor (other than, for the
avoidance of doubt, the Issuer Trust). Upon the written request of the
Trustee, the Company shall
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furnish to the Trustee promptly an Officers' Certificate listing and identifying
all Securities, if any, known by the Company to be owned or held by or for the
account of the Company, or any other obligor on the Securities or any Affiliate
of the Company or such obligor (other than, for the avoidance of doubt, the
Issuer Trust), and, subject to the provisions of Section 6.1, the Trustee shall
be entitled to accept such Officers' Certificate as conclusive evidence of the
facts therein set forth and of the fact that all Securities not listed therein
are Outstanding for the purpose of any such determination.
"Paying Agent" means the Trustee or any Person authorized by the
Company to pay the principal of or interest on, or other amounts in respect
of any Securities on behalf of the Company.
"Person" means any individual, partnership, trust,
unincorporated organization or entity (as defined herein) or government or
any agency or political subdivision thereof.
"Place of Payment" means, with respect to the Securities, the
place or places where the principal of and interest on the Securities are
payable pursuant to Section 3.1.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security. For the purposes of this definition,
any security authenticated and delivered under Section 3.7 in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Preferred Securities" has the meaning specified in the first
recital of this Indenture.
"Principal Subsidiary Bank" means each of (i) First Mariner
Bank, (ii) any other banking subsidiary of the Company the consolidated
assets of which constitute 20% or more of the consolidated assets of the
Company and its consolidated subsidiaries, (iii) any other banking subsidiary
designated as a Principal Subsidiary Bank pursuant to a Board Resolution and
set forth in an Officers' Certificate delivered to the Trustee, and (iv) any
subsidiary of the Company that owns, directly or indirectly, any voting
securities, or options, warrants or rights to subscribe for or purchase
voting securities, of any Principal Subsidiary Bank under clause (i), (ii) or
(iii), and in the case of clause (i), (ii), (iii) or (iv) their respective
successors (whether by consolidation, merger, conversion, transfer of
substantially all their assets and business or otherwise) so long as any such
successor is a banking subsidiary (in the case of clause (i), (ii) or (iii))
or a subsidiary (in the case of clause (iv)) of the Company.
"Proceeding" has the meaning specified in Section 13.2.
"Property Trustee" means, with respect to the Issuer Trust, the
Person identified as the "Property Trustee" in the Trust Agreement, solely in
its capacity as Property Trustee of the Issuer Trust under the Trust
Agreement and not in its individual capacity, or its successor in interest in
such capacity, or any successor property trustee appointed as therein
provided.
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"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture or the terms of such Security.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest
Payment Date with respect to the Securities means, unless otherwise provided
pursuant to Section 3.1 with respect to the Securities, the close of business
on March 15, June 15, September 15 or December 15 next preceding such
Interest Payment Date (whether or not a Business Day).
"Responsible Officer", when used with respect to the Property
Trustee means any officer assigned to the Corporate Trust Office, including
any managing director, principal, vice president, assistant vice president,
assistant treasurer, assistant secretary or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above designated officers and having direct responsibility for the
administration of this Indenture, and also, with respect to a particular
matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
"Restricted Security" means each Security required pursuant to
Section 3.6(c) to bear a Restricted Securities Legend.
"Restricted Securities Certificate" means a certificate
substantially in the form set forth in Annex A.
"Restricted Securities Legend" means a legend substantially in
the form of the legend required in the form of Security set forth in Section
2.2 to be placed upon a Restricted Security.
"Rights Plan" means any plan of the Company providing for the
issuance by the Company to all holders of its Common Stock, no par value per
share, of rights entitling the holders thereof to subscribe for or purchase
shares of any class or series of capital stock of the Company which rights
(i) are deemed to be transferred with such shares of such Common Stock, (ii)
are not exercisable, and (iii) are also issued in respect of future issuances
of such Common Stock, in each case until the occurrence of a specified event
or events.
"Securities" or "Security" means any debt securities or debt
security, as the case may be, authenticated and delivered under this
Indenture.
"Securities Act" means the Securities Act of 1933 and any
successor statute thereto, in each case as amended from time to time.
"Securities Register" and "Securities Registrar" have the
respective meanings specified in Section 3.6.
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"Senior Indebtedness" means, whether recourse is to all or a
portion of the assets of the Company and whether or not contingent, (i) every
obligation of the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of
property, assets or businesses; (iii) every reimbursement obligation of the
Company with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of the Company; (iv) every obligation of
the Company issued or assumed as the deferred purchase price of property or
services (but excluding trade accounts payable or accrued liabilities arising
in the ordinary course of business); (v) every capital lease obligation of
the Company; (vi) every obligation of the Company for claims (as defined in
Section 101(4) of the United States Bankruptcy Code of 1978, as amended) in
respect of derivative products such as interest and foreign exchange rate
contracts, commodity contracts and similar arrangements; and (vii) every
obligation of the type referred to in clauses (i) through (vi) of another
person and all dividends of another person the payment of which, in either
case, the Company has guaranteed or is responsible or liable, directly or
indirectly, as obligor or otherwise. Senior Indebtedness shall not include
(i) any obligations which, by their terms, are expressly stated to rank pari
passu in right of payment with, or to not be superior in right of payment to,
the Junior Subordinated Debentures, (ii) any Senior Indebtedness of the
Company which when incurred and without respect to any election under Section
1111(b) of the United States Bankruptcy Code of 1978, as amended, was without
recourse to the Company, (iii) any indebtedness of the Company to any of its
subsidiaries, (iv) indebtedness to any executive officer or director of the
Company, or (v) any indebtedness in respect of debt securities issued to any
trust, or a trustee of such trust, partnership or other entity affiliated
with the Company that is a financing entity of the Company in connection with
the issuance of such financing entity of securities that are similar to the
Preferred Securities.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 3.8.
"Stated Maturity," when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date
specified pursuant to the terms of such Security as the fixed date on which
the principal of such Security or such installment of principal or interest
is due and payable, as such date may, in the case of such principal, be
shortened or extended as provided pursuant to the terms of such Security and
this Indenture.
"Subsidiary" means an entity more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by
one or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For purposes of this definition, "voting stock" means stock
that ordinarily has voting power for the election of directors, whether at
all times or only so long as no senior class of stock has such voting power
by reason of any contingency.
"Successor Security" of any particular Security means every
Security issued after, and evidencing all or a portion of the same debt as
that evidenced by, such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 3.7 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Security
shall be deemed to evidence the same debt as the mutilated, destroyed, lost
or stolen Security.
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"Tax Event" means the receipt by the Issuer Trust of an Opinion
of Counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change
is effective or which pronouncement or decision is announced on or after the
date of issuance of the Preferred Securities of the Issuer Trust, there is
more than an insubstantial risk that (a) the Issuer Trust is, or will be
within 90 days of the delivery of such Opinion of Counsel, subject to United
States federal income tax with respect to income received or accrued on the
corresponding series of Securities issued by the Company to the Issuer Trust,
(b) interest payable by the Company on the Securities is not, or within 90
days of the delivery of such Opinion of Counsel will not be, deductible by
the Company, in whole or in part, for United States federal income tax
purposes, or (c) the Issuer Trust is, or will be within 90 days of the
delivery of such Opinion of Counsel, subject to more than a de minimis amount
of other taxes, duties or other governmental charges.
"Trust Agreement" means the Amended and Restated Trust
Agreement, dated as of _____ __, 1998, as amended, modified or supplemented
from time to time, among the trustees of the Issuer Trust named therein, and
the Company, as depositor, and the holders from time to time of undivided
beneficial ownership interests in the assets of the Issuer Trust.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture, solely in its capacity as such and not in its
individual capacity, until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean or include each Person who is then a Trustee hereunder
and, if at any time there is more than one such Person, "Trustee" as used
with respect to the Securities shall mean the Trustee with respect to
Securities.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990, or any successor statute,
in each case as amended from time to time, except as provided in Section 9.5.
"Trust Securities" has the meaning specified in the first
recital of this Indenture.
"Vice President," when used with respect to the Company, means
any duly appointed vice president, whether or not designated by a number or a
word or words added before or after the title "vice president."
Section 1.2. Compliance Certificate and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent
(including covenants compliance with which constitutes a condition precedent),
if any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent (including covenants compliance with
which constitutes a condition precedent), if any, have
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been complied with, except that in the case of any such application or request
as to which the furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than the
certificates provided pursuant to Section 10.4) shall include:
(a) a statement by each individual signing such certificate or opinion
that such individual has read such covenant or condition and the definitions
herein relating thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions of such individual contained
in such certificate or opinion are based;
(c) a statement that, in the opinion of such individual, he or she has
made such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and
(d) a statement as to whether, in the opinion of such individual, such
condition or covenant has been complied with.
Section 1.3. Forms of Documents Delivered to Trustee.
(a) In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
(b) Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to matters upon which his or her certificate or opinion is based
are erroneous. Any such certificate or Opinion of Counsel may be based, insofar
as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
(c) Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions, or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
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Section 1.4. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given to or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments is or are
delivered to the Trustee, and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 6.1) conclusive in favor of
the Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him or her the execution thereof.
Where such execution is by a Person acting in other than his or her individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his or her authority.
(c) The fact and date of the execution by any Person of any such
instrument or writing, or the authority of the Person executing the same, may
also be provided in any other manner that the Trustee deems sufficient and in
accordance with such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities
Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done or suffered to be done by the Trustee or the Company in reliance
thereon, whether or not notation of such action is made upon such Security.
(f) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given, made or taken by
Holders of Securities, provided that the Company may not set a record date for,
and the provisions of this paragraph shall not apply with respect to, the giving
or making of any notice, declaration, request or direction referred to in the
next succeeding paragraph. If any record date is set pursuant to this paragraph,
the Holders of Outstanding Securities on such record date, and no other Holders,
shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date, provided, however that no such action
shall be effective hereunder unless taken on or prior to the applicable
Expiration Date (as defined below) by Holders of the requisite principal amount
of Outstanding Securities on such record date. Nothing in this paragraph shall
be construed to prevent the Company from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date
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previously set shall automatically and with no action by any Person be cancelled
and of no effect), and nothing in this paragraph shall be construed to render
ineffective any action taken by Holders of the requisite principal amount of
Outstanding Securities on the date such action is taken. Promptly after any
record date is set pursuant to this paragraph, the Company, at its own expense,
shall cause notice of such record date, the proposed action by Holders and the
applicable Expiration Date to be given to the Trustee in writing and to each
Holder of Securities in the manner set forth in Section 1.6.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the
giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.2, (iii) any request to institute
proceedings referred to in Section 5.7(b), or (iv) any direction referred to
in Section 5.12, in each case with respect to Securities. If any record date
is set pursuant to this paragraph, the Holders of Outstanding Securities on
such record date, and no other Holders, shall be entitled to join in such
notice, declaration, request or direction, whether or not such Holders remain
Holders after such record date, provided, however that no such action shall
be effective hereunder unless taken on or prior to the applicable Expiration
Date by Holders of the requisite principal amount of Outstanding Securities
on such record date. Nothing in this paragraph shall be construed to prevent
the Trustee from setting a new record date for any action for which a record
date has previously been set pursuant to this paragraph (whereupon the record
date previously set shall automatically and with no action by any Person be
cancelled and of no effect) and nothing in this paragraph shall be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Trustee, at the
Company's expense, shall cause notice of such record date, the proposed
action by Holders and the applicable Expiration Date to be given to the
Company in writing and to each Holder of Securities in the manner set forth
in Section 1.6.
With respect to any record date set pursuant to this Section,
the party hereto that sets such record date may designate any day as the
"Expiration Date" and from time to time may change the Expiration Date to any
earlier or later day, provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto
in writing, and to each Holder of Securities in the manner set forth in
Section 1.6 on or prior to the existing Expiration Date. If an Expiration
Date is not designated with respect to any record date set pursuant to this
Section, the party hereto that set such record date shall be deemed to have
initially designated the 180th day after such record date as the Expiration
Date with respect thereto, subject to its right to change the Expiration Date
as provided in this paragraph. Notwithstanding the foregoing, no Expiration
Date shall be later than the 180th day after the applicable record date.
(g) Without limiting the foregoing, a Holder entitled hereunder to take
any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any part of such principal amount.
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Section 1.5. Notices, Etc. to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder, any holder of Preferred Securities or
the Company shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its Corporate Trust
Office, or
(b) the Company by the Trustee, any Holder or any holder of Preferred
Securities shall be sufficient for every purpose (except as otherwise provided
in Section 5.1) hereunder if in writing and mailed, first class, postage
prepaid, to the Company addressed to it at the address of its principal office
specified in the first paragraph of this instrument or at any other address
previously furnished in writing to the Trustee by the Company.
Section 1.6. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first class postage prepaid, to each Holder affected
by such event, at the address of such Holder as it appears in the Securities
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. If, by reason of the suspension
of or irregularities in regular mail services or for any other reason, it shall
be impossible or impracticable to mail notice of any event to Holders when said
notice is required to be given pursuant to any provision of this Indenture or of
the Securities, then any manner of giving such notice as shall be satisfactory
to the Trustee shall be deemed to be a sufficient giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
Section 1.7. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act that is required thereunder to be a part of and
govern this Indenture, the provision of the Trust Indenture Act shall control.
If any provision of this Indenture modifies or excludes any provision of the
Trust Indenture Act that may be so modified or excluded, the latter provision
shall be deemed to apply to this Indenture as so modified or to be excluded, as
the case may be.
Section 1.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
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Section 1.9. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 1.10. Separability Clause.
If any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 1.11. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors and
assigns, the holders of Senior Indebtedness, the Holders of the Securities and,
to the extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.1 and
9.2, the holders of Preferred Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
Section 1.12. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND.
Section 1.13. Non-Business Days.
If any Interest Payment Date, Redemption Date or Stated Maturity of any
Security shall not be a Business Day, then (notwithstanding any other provision
of this Indenture or the Securities) payment of interest or principal or other
amounts in respect of such Security need not be made on such date, but may be
made on the next succeeding Business Day (and no interest shall accrue in
respect of the amounts whose payment is so delayed for the period from and after
such Interest Payment Date, Redemption Date or Stated Maturity, as the case may
be, until such next succeeding Business Day) except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day (in each case with the same force and effect
as if made on the Interest Payment Date or Redemption Date or at the Stated
Maturity).
ARTICLE II
SECURITY FORMS
Section 2.1. Generally.
(a) The Securities and the Trustee's certificate of authentication
shall be in substantially the forms set forth in this Article, or in such other
form or forms as shall be established by or pursuant to a Board Resolution or in
one or more indentures supplemental hereto, in each case with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by
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this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with applicable tax laws or the rules of any securities
exchange or as may, consistently herewith, be determined by the officers
executing such securities, as evidenced by their execution of the Securities. If
the form of Securities is established by action taken pursuant to a Board
Resolution, a copy of an appropriate record of such action shall be certified by
the Secretary or an Assistant Secretary of the Company and delivered to the
Trustee at or prior to the delivery of the Company Order contemplated by Section
3.3 with respect to the authentication and delivery of such Securities.
(b) The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods, if required by any
securities exchange on which the Securities may be listed, on a steel engraved
border or steel engraved borders or may be produced in any other manner
permitted by the rules of any securities exchange on which the Securities may be
listed, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
(c) Securities distributed to holders of Global Preferred Securities
(as defined in the Trust Agreement) upon the dissolution of the Issuer Trust
shall be distributed in the form of one or more Global Securities registered in
the name of a Depositary or its nominee, and deposited with the Securities
Registrar, as custodian for such Depositary, or with such Depositary, for credit
by the Depositary to the respective accounts of the beneficial owners of the
Securities represented thereby (or such other accounts as they may direct).
Securities distributed to holders of Preferred Securities other than Global
Preferred Securities upon the dissolution of the Issuer Trust shall not be
issued in the form of a Global Security or any other form intended to facilitate
book-entry trading in beneficial interests in such Securities.
Section 2.2. Form of Face of Security.
FIRST MARINER BANCORP
____% Junior Subordinated Debentures due ____ __, 2028
[If the Security is a Restricted Security, insert -- THE SECURITIES
EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT (A) BY ANY INITIAL INVESTOR THAT IS NOT A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT,
(I) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (II) IN AN OFFSHORE TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903
OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (III) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE), OR (B) BY AN INITIAL INVESTOR THAT IS A QUALIFIED
INSTITUTIONAL BUYER OR BY ANY SUBSEQUENT INVESTOR, AS SET
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<PAGE>
FORTH IN (A) ABOVE AND, IN ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR IN
A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
AND, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE
STATES AND OTHER JURISDICTIONS OF THE UNITED STATES. THE HOLDER OF THIS SECURITY
AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS. SECURITIES OWNED BY
AN INITIAL INVESTOR THAT IS NOT A QUALIFIED INSTITUTIONAL BUYER MAY NOT BE HELD
IN GLOBAL FORM AND MAY NOT BE TRANSFERRED WITHOUT CERTIFICATION THAT THE
TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS, AS PROVIDED IN THE INDENTURE
REFERRED TO BELOW. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE
EXEMPTION PROVIDED BY RULE 144 FOR RESALES OF THE SECURITIES.]
No. $___________
FIRST MARINER BANCORP, a Maryland corporation (hereinafter called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
Mariner Capital Trust, or registered assigns, the principal sum of _________
Dollars on ____ __, 2028, or such other principal amount represented hereby as
may be set forth in the records of the Securities Registrar hereinafter referred
to in accordance with the Indenture provided that the Company may shorten the
Stated Maturity of the principal of this Security to a date not earlier than
____ __, 2003. The Company further promises to pay interest on said principal
from ________ __, 1998, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, quarterly (subject to deferral as
set forth herein) in arrears on March 31, June 30, September 30 and December 31
of each year, commencing ________ __, 1998 at the rate of ____% per annum,
together with Additional Sums, if any, as provided in Section 10.6 of the
Indenture, until the principal hereof is paid or duly provided for or made
available for payment; provided that any overdue principal, premium or
Additional Sums and any overdue installment of interest shall bear Additional
Interest at the rate of ____% per annum (to the extent that the payment of such
interest shall be legally enforceable), compounded quarterly from the dates such
amounts are due until they are paid or made available for payment, and such
interest shall be payable on demand. The amount of interest payable for any
period less than a full interest period shall be computed on the basis of a
360-day year of twelve 30-day months and the actual days elapsed in a partial
month in such period. The amount of interest payable for any full interest
period shall be computed by dividing the applicable rate per annum by four. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in the Indenture, be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest installment,
which shall be the 15th day of March, June, September and December (whether or
not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid or duly provided for shall
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities of this series
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not
17
<PAGE>
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture.
So long as no Event of Default has occurred and is continuing, the
Company shall have the right, at any time during the term of this Security, from
time to time to defer the payment of interest on this Security for up to 20
consecutive quarterly interest payment periods with respect to each deferral
period (each an "Extension Period"), during which Extension Periods the Company
shall have the right to make partial payments of interest on any Interest
Payment Date, and at the end of which the Company shall pay all interest then
accrued and unpaid including Additional Interest, as provided below; provided
however, that no Extension Period shall extend beyond the Stated Maturity of the
principal of this Security, as then in effect, and no such Extension Period may
end on a date other than an Interest Payment Date; and provided further,
however, that during any such Extension Period, the Company shall not (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Company's capital
stock, or (ii) make any payment of principal of or interest or premium, if any,
on or repay, repurchase or redeem any debt securities of the Company that rank
pari passu in all respects with or junior in interest to this Security, (other
than (a) repurchases, redemptions or other acquisitions of shares of capital
stock of the Company in connection with any employment contract, benefit plan or
other similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period, (b) as a result of an exchange or conversion
of any class or series of the Company's capital stock (or any capital stock of a
Subsidiary of the Company) for any class or series of the Company's capital
stock or of any class or series of the Company's indebtedness for any class or
series of the Company's capital stock, (c) the purchase of fractional interests
in shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) any declaration of a dividend in connection with any Rights Plan, or the
issuance of rights, stock or other property under any Rights Plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock). Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no
Extension Period shall exceed 20 consecutive quarterly interest payment periods,
extend beyond the Stated Maturity of the principal of this Security or end on a
date other than an Interest Payment Date. Upon the termination of any such
Extension Period and upon the payment of all accrued and unpaid interest and any
Additional Interest then due on any Interest Payment Date, the Company may elect
to begin a new Extension Period, subject to the above conditions. No interest
shall be due and payable during an Extension Period, except at the end thereof,
but each installment of interest that would otherwise have been due and payable
during such Extension Period shall bear Additional Interest (to the extent that
the payment of such interest shall be legally enforceable) at the rate of ____%
per annum, compounded quarterly and calculated as set forth in the first
paragraph of this Security, from the date on which such amounts would otherwise
have been due and payable until paid or made available for payment. The Company
shall give the Holder of this Security and the Trustee notice of its election to
begin any Extension Period at least
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<PAGE>
one Business Day prior to the next succeeding Interest Payment Date on which
interest on this Security would be payable but for such deferral or so long as
such securities are held by Mariner Capital Trust, at least one Business
Day prior to the earlier of (i) the next succeeding date on which Distributions
on the Preferred Securities of the Issuer Trust would be payable but for such
deferral, and (ii) the date on which the Property Trustee of the Issuer Trust is
required to give notice to holders of such Preferred Securities of the record
date or the date such Distributions are payable, but in any event not less than
one Business Day prior to such record date.
Payment of the principal of and interest on this Security will be made
at the office or agency of the Company maintained for that purpose in the United
States, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided
however, that at the option of the Company payment of interest may be made (i)
by check mailed to the address of the Person entitled thereto as such address
shall appear in the Securities Register, or (ii) if to a Holder of $1,000,000 or
more in aggregate principal amount of this Security, by wire transfer in
immediately available funds upon written request to the Trustee not later than
15 calendar days prior to the date on which the interest is payable.
The indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and subject in right of payments to the prior
payment in full of all Senior Indebtedness, and this Security is issued subject
to the provisions of the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his or her behalf to take
such actions as may be necessary or appropriate to effectuate the subordination
so provided, and (c) appoints the Trustee his or her attorney-in-fact for any
and all such purposes. Each Holder hereof, by his or her acceptance hereof,
waives all notice of the acceptance of the subordination provisions contained
herein and in the Indenture by each holder of Senior Indebtedness, whether now
outstanding or hereafter incurred, and waives reliance by each such holder upon
said provisions.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
ATTEST: FIRST MARINER BANCORP
________________________________ By:______________________
Secretary or Assistant Secretary Name:____________________
Title:___________________
19
<PAGE>
Section 2.3. Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued under the
Junior Subordinated Indenture, dated as of ________ __, 1998 (herein called the
"Indenture"), between the Company and Wilmington Trust Company, as Trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee, the
holders of Senior Indebtedness and the Holders of the Securities, and of the
terms upon which the Securities are, and are to be, authenticated and delivered.
This security is one of the series designated on the face hereof, limited in
aggregate principal amount to $__________.
All terms used in this Security that are defined in the Indenture or in
the Trust Agreement dated as of ________ __, 1998 (as modified, amended or
supplemented from time to time the "Trust Agreement"), relating to Mariner
Capital Trust (the "Issuer Trust") among the Company, as Depositor, the Trustees
named therein and the Holders from time to time of the Trust Securities issued
pursuant thereto shall have the meanings assigned to them in the Indenture or
the Trust Agreement, as the case may be.
The Company has the right to redeem this Security (i) on or after ____
__, 2003 in whole at any time or in part from time to time, or (ii) in whole
(but not in part), at any time within 90 days following the occurrence and
during the continuation of a Tax Event, Investment Company Event, or Capital
Treatment Event, in each case at the Redemption Price described below, and
subject to possible regulatory approval. The Redemption Price shall equal 100%
of the principal amount hereof being redeemed, together with accrued interest to
but excluding the date fixed for redemption.
In the event of redemption of this Security in part only, a new
Security or Securities for the unredeemed portion hereof will be issued in the
name of the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for defeasance at any time of the
entire indebtedness of this Security upon compliance by the Company with
certain conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and obligations
of the Company and of the Holders of the Securities, with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities to be affected by such supplemental indenture. The Indenture also
contains provisions permitting Holders of specified percentages in principal
amount of the Securities at the time Outstanding, on behalf of the Holders of
all Securities, to waive compliance by the Company with certain provisions of
the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued
20
<PAGE>
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.
As provided in and subject to the provisions of the Indenture, if an
Event of Default with respect to the Securities at the time Outstanding
occurs and is continuing, then and in every such case the Trustee or the
Holders of not less than 25% in aggregate principal amount of the Outstanding
Securities may declare the principal amount of all the Securities to be due
and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by Holders), provided that, if upon an Event of Default, the
Trustee or such Holders fail to declare the principal of all the Outstanding
Securities to be immediately due and payable, the holders of at least 25% in
aggregate Liquidation Amount of the Preferred Securities then outstanding
shall have the right to make such declaration by a notice in writing to the
Company and the Trustee; and upon any such declaration the principal amount
of and the accrued interest (including any Additional Interest) on all the
Securities shall become immediately due and payable, provided that the
payment of principal and interest (including any Additional Interest) on such
Securities shall remain subordinated to the extent provided in Article XIII
of the Indenture.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and interest (including
Additional Interest) on this Security at the times, place and rate, and in the
coin or currency, herein prescribed.
21
<PAGE>
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Securities
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained under Section 10.2 of the Indenture
for such purpose, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Securities Registrar duly
executed by, the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Securities, of like tenor, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
As provided in the Indenture and subject to certain limitations therein
set forth, Securities are exchangeable for a like aggregate principal amount of
Securities and of like tenor of a different authorized denomination, as
requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Company and, by its acceptance of this Security or a beneficial
interest therein, the Holder of, and any Person that acquires a beneficial
interest in, this Security agrees that for United States federal, state and
local tax purposes it is intended that this Security constitute indebtedness.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF MARYLAND.
THIS SECURITY IS A DIRECT AND UNSECURED OBLIGATION OF THE COMPANY, DOES
NOT EVIDENCE DEPOSITS AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
Section 2.4. Additional Provisions Required in Global Security.
Unless otherwise specified as contemplated by Section 3.1, any Global
Security issued hereunder shall, in addition to the provisions contained in
Sections 2.2 and 2.3, bear a legend in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE
22
<PAGE>
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY, EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
Section 2.5. Form of Trustee's Certificate of Authentication.
The Trustee's certificates of authentication shall be in substantially
the following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated:___________________ WILMINGTON TRUST COMPANY,
as Trustee
By:______________________
Authorized Signatory
ARTICLE III
THE SECURITIES
Section 3.1. Title and Terms.
(a) The aggregate principal amount of Securities that may be
authenticated and delivered under this Indenture is $23,600,000.
(b) Subject to Section 3.16, the Securities' Stated Maturity shall be
____ __, 2028.
(c) The Securities, established pursuant to a Board Resolution, shall
bear interest at a per annum rate equal to ____% from ________ __, 1998 or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, as the case may be, payable quarterly (subject to deferral as
set forth in Section 3.12), in arrears, on March 31, June 30, September 30 and
December 31 of each year, commencing ________ __, 1998, until the principal
thereof is paid or made available for payment. Interest will compound quarterly
and will accrue at a per annum rate equal to ____% to the extent permitted by
applicable law, on any interest installment in arrears for more than one
quarterly period or during an extension of an interest payment period as set
forth below in Section 3.12.
(d) The principal of and interest on the Securities shall be payable at
the office or agency of the Paying Agent in the United States maintained for
such purpose and at any other office or agency maintained by the Company for
such purpose in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Company payment of interest may be
made (i) by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register or (ii) by wire transfer in
immediately available funds at such place and to such account as may be
designated by the Person entitled thereto as specified in the Security Register.
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<PAGE>
(e) Securities shall be issuable in whole or in part in the form of one
or more Global Securities and, in such case, the Depositary for such Global
Securities shall be The Depository Trust Company.
(f) The securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XIII.
Section 3.2. Denominations.
The Securities shall be in registered form without coupons and shall be
issuable in denominations of $___ and any integral multiple thereof.
Section 3.3. Execution, Authentication, Delivery and Dating.
(a) The Securities shall be executed on behalf of the Company by its
Chairman of the Board, any Vice Chairman of the Board, its President or one of
its Vice Presidents, and attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Securities may be
manual or facsimile.
(b) Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities. At any time and from
time to time after the execution and delivery of this Indenture, the Company may
deliver Securities executed by the Company to the Trustee for authentication,
together with a Company Order for the authentication and delivery of such
Securities, and the Trustee in accordance with the Company Order shall
authenticate and deliver such Securities. If the form or terms of the Securities
have been established by or pursuant to one or more Board Resolutions as
permitted by Sections 2.1 and 3.1, in authenticating such Securities, and
accepting the additional responsibilities under this Indenture in relation to
such Securities, the Trustee shall be entitled to receive, and (subject to
Section 6.1) shall be fully protected in relying upon, an Opinion of Counsel
stating:
(i) if the form of such Securities has been established by or pursuant
to Board Resolution as permitted by Section 2.1, that such form has been
established in conformity with the provisions of this Indenture;
(ii) if the terms of such Securities have been established by or
pursuant to Board Resolution as permitted by Section 3.1, that such terms have
been established in conformity with the provisions of this Indenture; and
(iii) that such Securities, when authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any conditions
specified in such Opinion of Counsel, will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
24
<PAGE>
(c) If such form or terms have been so established, the Trustee shall
not be required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner that
is not reasonably acceptable to the Trustee.
(d) Notwithstanding the provisions of Section 3.1 and the preceding
paragraph, if all Securities are not to be originally issued at one time, it
shall not be necessary to deliver the Officers' Certificate otherwise required
pursuant to Section 3.1 or the Company Order and Opinion of Counsel otherwise
required pursuant to such preceding paragraph at or prior to the authentication
of each Security if such documents are delivered at or prior to the
authentication upon original issuance of the first Security to be issued.
(e) Each Security shall be dated the date of its authentication.
(f) No Security shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose, unless there appears on such Security
a certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
officers, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such security has been duly authenticated and
delivered hereunder. Notwithstanding the foregoing, if any Security shall have
been authenticated and delivered hereunder but never issued and sold by the
Company, and the Company shall deliver such Security to the Trustee for
cancellation as provided in Section 3.10, for all purposes of this Indenture
such Security shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits of this Indenture.
Section 3.4. Temporary Securities.
(a) Pending the preparation of definitive Securities, the Company may
execute, and upon receipt of a Company Order the Trustee shall authenticate and
deliver, temporary Securities that are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
(b) If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for that purpose
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor one or more definitive securities,
of any authorized denominations having the same Original Issue Date and Stated
Maturity and having the same terms as such temporary Securities. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
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<PAGE>
Section 3.5. Global Securities.
(a) Each Global Security issued under this Indenture shall be
registered in the name of the Depositary designated by the Company for such
Global Security or a nominee thereof and delivered to such Depositary or a
nominee thereof or custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.
(b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (i) such Depositary advises the Trustee in writing that such
Depositary is no longer willing or able to properly discharge its
responsibilities as Depositary with respect to such Global Security, and the
Company is unable to locate a qualified successor within ninety days of receipt
of such notice from the Depositary, (ii) the Company executes and delivers to
the Trustee a Company Order stating that the Company elects to terminate the
book-entry system through the Depositary, or (iii) there shall have occurred and
be continuing an Event of Default.
(c) If any Global Security is to be exchanged for other Securities or
cancelled in whole, it shall be surrendered by or on behalf of the Depositary or
its nominee to the Securities Registrar for exchange or cancellation as provided
in this Article III. If any Global Security is to be exchanged for other
Securities or cancelled in part, or if another Security is to be exchanged in
whole or in part for a beneficial interest in any Global Security, then either
(i) such Global Security shall be so surrendered for exchange or cancellation as
provided in this Article III or (ii) the principal amount thereof shall be
reduced, or increased by an amount equal to the portion thereof to be so
exchanged or cancelled, or equal to the principal amount of such other Security
to be so exchanged for a beneficial interest therein, as the case may be, by
means of an appropriate adjustment made on the records of the Securities
Registrar, whereupon the Trustee, in accordance with the Applicable Procedures,
shall instruct the Depositary or its authorized representative to make a
corresponding adjustment to its records. Upon any such surrender or adjustment
of a Global Security by the Depositary, accompanied by registration
instructions, the Trustee shall, subject to Section 3.6(b) and as otherwise
provided in this Article III, authenticate and deliver any Securities issuable
in exchange for such Global Security (or any portion thereof) in accordance with
the instructions of the Depositary. The Trustee shall not be liable for any
delay in delivery of such instructions and may conclusively rely on, and shall
be fully protected in relying on, such instructions.
(d) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article III, Section 9.6 or 11.6 or otherwise,
shall be authenticated and delivered in the form of, and shall be, a Global
Security, unless such Security is registered in the name of a Person other than
the Depositary for such Global Security or a nominee thereof.
(e) The Depositary or its nominee, as the registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under
this Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security shall be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the
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<PAGE>
Depositary or its nominee or agent. Neither the Trustee nor the Securities
Registrar shall have any liability in respect of any transfers effected by the
Depositary.
(f) The rights of owners of beneficial interests in a Global Security
shall be exercised only through the Depositary and shall be limited to those
established by law and agreements between such owners and the Depositary and/or
its Agent Members.
Section 3.6. Registration, Transfer and Exchange Generally; Certain Transfers
and Exchanges; Securities Act Legends.
(a) The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register in which, subject to such reasonable regulations as it
may prescribe, the Company shall provide for the registration of Securities and
transfers of Securities. Such register is herein sometimes referred to as the
"Securities Register." The Trustee is hereby appointed "Securities Registrar"
for the purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security at
the offices or agencies of the Company designated for that purpose, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities
of any authorized denominations of like tenor and aggregate principal amount
and bearing such restrictive legends as may be required by this Indenture.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denominations, of like tenor and aggregate
principal amount and bearing such restrictive legends as may be required by
this Indenture, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any securities are so surrendered for exchange,
the Company shall execute, and the Trustee shall authenticate and deliver,
the Securities that the Holder making the exchange is entitled to receive.
All Securities issued upon any transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such transfer or exchange.
Every Security presented or surrendered for transfer or exchange
shall (if so required by the Company or the Trustee) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Securities Registrar, duly executed by the Holder thereof or
such Holder's attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or
exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Securities.
Neither the Company nor the Trustee shall be required, pursuant
to the provisions of this Section, (i) to issue, register the transfer of or
exchange any Security during a period beginning at the opening of business 15
days before the day of selection for redemption of Securities pursuant to
Article XI and ending at the close of business on the day of mailing of the
notice of redemption,
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or (ii) to register the transfer of or exchange any Security so selected for
redemption in whole or in part, except, in the case of any such Security to be
redeemed in part, any portion thereof not to be redeemed.
(b) Certain Transfers and Exchanges. Notwithstanding any other
provision of this Indenture, transfers and exchanges of Securities and
beneficial interests in a Global Security shall be made only in accordance with
this Section 3.6(b).
(i) Restricted Non-Global Security to Global Security. If the
Holder of a Restricted Security (other than a Global Security) wishes at any
time to transfer all or any portion of such Security to a Person who wishes
to take delivery thereof in the form of a beneficial interest in a Global
Security, such transfer may be effected only in accordance with the
provisions of this clause (b)(i) and subject to the Applicable Procedures.
Upon receipt by the Securities Registrar of (A) such Security as provided in
Section 3.6(a) and instructions satisfactory to the Securities Registrar
directing that a beneficial interest in the Global Security in a specified
principal amount not greater than the principal amount of such Security be
credited to a specified Agent Member's account and (B) a Restricted
Securities Certificate duly executed by such Holder or such Holder's attorney
duly authorized in writing, then the Securities Registrar shall cancel such
Security (and issue a new Security in respect of any untransferred portion
thereof) as provided in Section 3.6(a) and increase the aggregate principal
amount of the Global Security by the specified principal amount as provided
in Section 3.5(c).
(ii) Non-Global Security to Non-Global Security. A Security that
is not a Global Security may be transferred, in whole or in part, to a Person
who takes delivery in the form of another Security that is not a Global
Security as provided in Section 3.6(a), provided that if the Security to be
transferred in whole or in part is a Restricted Security, the Securities
Registrar shall have received a Restricted Securities Certificate duly
executed by the transferor Holder or such Holder's attorney duly authorized
in writing.
(iii) Exchanges Between Global Security and Non-Global Security.
A beneficial interest in a Global Security may be exchanged for a Security
that is not a Global Security as provided in Section 3.5.
(iv) Initial Transfers of Non-Global Securities. In the case of
Securities initially issued other than in global form, an initial transfer or
exchange of such Securities that does not involve any change in beneficial
ownership may be made to an Institutional Accredited Investor or Investors as
if such transfer or exchange were not an initial transfer or exchange;
provided, however that written certification shall be provided by the
transferee and transferor of such Securities to the Securities Registrar that
such transfer or exchange does not involve a change in beneficial ownership.
(c) Restricted Securities Legend. Except as set forth below, all
Securities shall bear a Restricted Securities Legend:
(i) subject to the following clauses of this Section 3.6(c), a
Security or any portion thereof that is exchanged, upon transfer or
otherwise, for a Global Security or any portion thereof shall bear the
Restricted Securities Legend while represented thereby;
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(ii) subject to the following clauses of this Section 3.6(c), a
new Security which is not a Global Security and is issued in exchange for
another Security (including a Global Security) or any portion thereof, upon
transfer or otherwise, shall, if such new Security is required pursuant to
Section 3.6(b)(ii) or (iii) to be issued in the form of a Restricted
Security, bear a Restricted Securities Legend;
(iii) a new Security (other than a Global Security) that does
not bear a Restricted Security Legend may be issued in exchange for or in
lieu of a Restricted Security or any portion thereof that bears such a legend
if, in the Company's judgment, placing such a legend upon such new Security
is not necessary to ensure compliance with the registration requirements of
the Securities Act, and the Trustee, at the written direction of the Company
in the form of an Officer's Certificate, shall authenticate and deliver such
a new Security as provided in this Article III;
(iv) notwithstanding the foregoing provisions of this Section
3.6(c), a Successor Security of a Security that does not bear a Restricted
Securities Legend shall not bear such form of legend unless the Company has
reasonable cause to believe that such Successor Security is a "restricted
security" within the meaning of Rule 144, in which case the Trustee, at the
written direction of the Company in the form of an Officer's Certificate,
shall authenticate and deliver a new Security bearing a Restricted Securities
Legend in exchange for such Successor Security as provided in this Article
III; and
(v) Securities distributed to a holder of Preferred Securities
upon dissolution of an Issuer Trust shall bear a Restricted Securities Legend
if the Preferred Securities so held bear a similar legend.
Section 3.7. Mutilated, Lost and Stolen Securities.
(a) If any mutilated Security is surrendered to the Trustee together
with such security or indemnity as may be required by the Company or the Trustee
to save each of them harmless, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Security, of like tenor and
aggregate principal amount, bearing the same legends, and bearing a number not
contemporaneously outstanding.
(b) If there shall be delivered to the Company and to the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any
Security, and (ii) such security or indemnity as may be required by them to save
each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser or a
protected purchaser, the Company shall execute and upon its request the Trustee
shall authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security, of like tenor and aggregate principal amount and
bearing the same legends as such destroyed, lost or stolen Security, and bearing
a number not contemporaneously outstanding.
(c) If any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
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(d) Upon the issuance of any new Security under this Section 3.7, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
(e) Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
(f) The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
Section 3.8. Payment of Interest and Additional Interest; Interest Rights
Preserved.
(a) Interest and Additional Interest on any Security that is payable,
and is punctually paid or duly provided for, on any Interest Payment Date, shall
be paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest in respect of Securities, except that, unless otherwise
provided in the Securities, interest payable on the Stated Maturity of the
principal of a Security shall be paid to the Person to whom principal is paid.
The initial payment of interest on any Security that is issued between a Regular
Record Date and the related Interest Payment Date shall be payable as provided
in such Security or in the Board Resolution pursuant to Section 3.1 with respect
to the Securities.
(b) Any interest on any Security that is due and payable, but is not
timely paid or duly provided for, on any Interest Payment Date for Securities
(herein called "Defaulted Interest"), shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of having been
such Holder, and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in clause (i) or (ii) below:
(i) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities in respect of which
interest is in default (or their respective Predecessor Securities) are
registered at the close of business on a Special Record Date for the payment
of such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each Security and the date of the proposed
payment, and which shall be fixed at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed to
be paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this clause
provided. Thereupon, the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest, which shall be not more than 15 days and
not less than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special Record
Date and, in the name and at the
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expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed, first
class, postage prepaid, to each Holder of a Security at the address of such
Holder as it appears in the Securities Register not less than 10 days prior to
such Special Record Date. The Trustee may, in its discretion, in the name and at
the expense of the Company, cause a similar notice to be published at least once
in a newspaper, customarily published in the English language on each Business
Day and of general circulation in the Borough of Manhattan, The City of New
York, but such publication shall not be a condition precedent to the
establishment of such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having been mailed
as aforesaid, such Defaulted Interest shall be paid to the Persons in whose
names the Securities (or their respective Predecessor Securities) are registered
on such Special Record Date and shall no longer be payable pursuant to the
following clause (ii).
(ii) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities in respect of which interest is
in default may be listed and, upon such notice as may be required by such
exchange (or by the Trustee if the Securities are not listed), if, after
notice given by the Company to the Trustee of the proposed payment pursuant
to this clause (ii), such payment shall be deemed practicable by the Trustee.
(c) Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon transfer of or in exchange for
or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue interest, that were carried by such other Security.
Section 3.9. Persons Deemed Owners.
(a) The Company, the Trustee and any agent of the Company or the
Trustee shall treat the Person in whose name any Security is registered as the
owner of such Security for the purpose of receiving payment of principal of and
(subject to Section 3.8) any interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and none of the
Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
(b) No holder of any beneficial interest in any Global Security held on
its behalf by a Depositary shall have any rights under this Indenture with
respect to such Global Security, and such Depositary may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the owner of
such Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by a Depositary or impair, as between a Depositary
and such holders of beneficial interests, the operation of customary practices
governing the exercise of the rights of the Depositary (or its nominee) as
Holder of any Security.
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Section 3.10. Cancellation.
All Securities surrendered for payment, redemption, transfer or
exchange shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee, and any such Securities and Securities surrendered
directly to the Trustee for any such purpose shall be promptly canceled by it.
The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder that the Company may
have acquired in any manner whatsoever, and all Securities so delivered shall be
promptly canceled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities canceled as provided in this Section,
except as expressly permitted by this Indenture. All canceled Securities shall
be destroyed by the Trustee and the Trustee shall deliver to the Company a
certificate of such destruction.
Section 3.11. Computation of Interest.
Interest on the Securities for any period shall be computed on the
basis of a 360-day year of twelve 30-day months and the actual number of days
elapsed in any partial month in such period, and interest on the Securities for
a full period shall be computed by dividing the rate per annum by the number of
interest periods that together constitute a full twelve months.
Section 3.12. Deferrals of Interest Payment Dates.
(a) So long as no Event of Default has occurred and is continuing, the
Company shall have the right, at any time during the term of the Securities,
from time to time to defer the payment of interest on such Securities for such
period or periods (each an "Extension Period") not to exceed the number of
consecutive interest periods that equal five years with respect to each
Extension Period, during which Extension Periods the Company shall have the
right to make partial payments of interest on any Interest Payment Date. No
Extension Period shall end on a date other than an Interest Payment Date. At the
end of any such Extension Period, the Company shall pay all interest then
accrued and unpaid on the Securities (together with Additional Interest thereon,
if any, at the rate specified for the Securities to the extent permitted by
applicable law); provided, however, that no Extension Period shall extend beyond
the Stated Maturity of the principal of the Securities; and provided further,
however, that, during any such Extension Period, the Company shall not (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Company's capital
stock, or (ii) make any payment of principal of or interest or premium, if any,
on or repay, repurchase or redeem any debt securities of the Company that rank
pari passu in all respects with or junior in interest to the Securities (other
than (A) repurchases, redemptions or other acquisitions of shares of capital
stock of the Company in connection with any employment contract, benefit plan or
other similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period, (B) as a result of an exchange or conversion
of any class or series of the Company's capital stock (or any capital stock of a
Subsidiary of the Company) for any class or series of the Company's capital
stock or of any class or series of the Company's indebtedness for any class or
series of the Company's capital stock, (C) the purchase of fractional interests
in shares of the Company's capital stock pursuant to the
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conversion or exchange provisions of such capital stock or the security being
converted or exchanged, (D) any declaration of a dividend in connection with any
Rights Plan, or the issuance of rights, stock or other property under any Rights
Plan, or the redemption or repurchase of rights pursuant thereto, or (E) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock). Prior to the termination of any
such Extension Period, the Company may further defer the payment of interest,
provided that no Event of Default has occurred and is continuing and provided
further, that no Extension Period shall exceed the period or periods specified
in such Securities, extend beyond the Stated Maturity of the principal of such
Securities or end on a date other than an Interest Payment Date. Upon the
termination of any such Extension Period and upon the payment of all accrued and
unpaid interest and any Additional Interest then due on any Interest Payment
Date, the Company may elect to begin a new Extension Period, subject to the
above conditions. No interest or Additional Interest shall be due and payable
during an Extension Period, except at the end thereof, but each installment of
interest that would otherwise have been due and payable during such Extension
Period shall bear Additional Interest. The Company shall give the Holders of the
Securities and the Trustee notice of its election to begin any such Extension
Period at least one Business Day prior to the next succeeding Interest Payment
Date on which interest on Securities would be payable but for such deferral or,
with respect to any Securities issued to the Issuer Trust, so long as any such
Securities are held by the Issuer Trust, at least one Business Day prior to the
earlier of (x) the next succeeding date on which Distributions on the Preferred
Securities of the Issuer Trust would be payable but for such deferral, and (y)
the date on which the Property Trustee of the Issuer Trust is required to give
notice to holders of such Preferred Securities of the record date or the date
such Distributions are payable, but in any event not less than one Business Day
prior to such record date.
(b) The Trustee shall promptly give notice of the Company's election to
begin any such Extension Period to the Holders of the Outstanding Securities.
Section 3.13. Right of Set-Off.
With respect to the Securities initially issued to the Issuer Trust,
notwithstanding anything to the contrary herein, the Company shall have the
right to set off any payment it is otherwise required to make in respect of any
such Security to the extent the Company has theretofore made, or is concurrently
on the date of such payment making, a payment under the Guarantee relating to
such Security or to a holder of Preferred Securities pursuant to an action
undertaken under Section 5.8 of this Indenture.
Section 3.14. Agreed Tax Treatment.
Each Security issued hereunder shall provide that the Company and, by
its acceptance of a Security or a beneficial interest therein, the Holder of,
and any Person that acquires a beneficial interest in, such Security agree that
for United States federal, state and local tax purposes it is intended that such
Security constitutes indebtedness.
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Section 3.15. CUSIP Numbers.
The Company, in issuing the Securities, may use "CUSIP" numbers (if
then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in
notice of redemption and other similar or related materials as a convenience to
Holders; provided that any such notice or other materials may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of redemption or other materials
and that reliance may be placed only on the other identification numbers printed
on the Securities, and any such redemption shall not be affected by any defect
in or omission of such numbers.
Section 3.16. Shortening of Stated Maturity.
The Company shall have the right to shorten the Stated Maturity of the
principal of the Securities at any time to any date not earlier than ____ __,
2003, provided that the Company shall give notice to the Holders, the Trustee
and, in the case of Securities issued to an Issuer Trust, the Issuer Trust of
such shortening no less than 90 days prior to the effectiveness thereof.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.1. Satisfaction and Discharge of Indenture.
This Indenture shall, upon Company Request, cease to be of further
effect (except as to any surviving rights of registration of transfer or
exchange of Securities herein expressly provided for and as otherwise provided
in this Section 4.1) and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when:
(a) either
(i) all Securities theretofore authenticated and
delivered (other than (A) Securities that have been destroyed, lost or stolen
and that have been replaced or paid as provided in Section 3.7 and (B)
Securities for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust, as provided in Section 10.3) have been
delivered to the Trustee for cancellation; or
(ii) all such Securities not theretofore delivered to the
Trustee for cancellation
(A) have become due and payable,
(B) will become due and payable at their Stated
Maturity within one year of the date of deposit, or
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(C) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company, and
the Company, in the case of subclause (ii)(A), (B) or (C) above, has deposited
or caused to be deposited with the Trustee as trust funds in trust for such
purpose an amount in the currency or currencies in which the Securities are
payable sufficient to pay and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation, for the
principal and interest (including any Additional Interest) to the date of such
deposit (in the case of Securities that have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be;
(b) the Company has paid or caused to be paid all other
sums payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating that all
conditions precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
(d) Notwithstanding the satisfaction and discharge of
this Indenture, the obligations of the Company to the Trustee under Section
6.7, the obligations of the Company to any Authenticating Agent under Section
6.14 and, if money shall have been deposited with the Trustee pursuant to
subclause (ii) of clause (a) of this Section, the obligations of the Trustee
under Section 4.2 and the last paragraph of Section 10.3 shall survive.
Section 4.2. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all
money deposited with the Trustee pursuant to Section 4.1 shall be held in trust
and applied by the Trustee, in accordance with the provisions of the Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest and
Additional Interest for the payment of which such money or obligations have been
deposited with or received by the Trustee.
ARTICLE V
REMEDIES
Section 5.1. Events of Default.
"Event of Default", wherever used herein with respect to the
Securities, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of any interest upon any Security, including
any Additional Interest in respect thereof, when it becomes due and payable and
continuance of such default for a period of 30 days (subject to the deferral of
any due date in the case of an Extension Period);
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(b) default in the payment of the principal of (or premium, if
any, on) any Security at its Stated Maturity;
(c) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on the part of the Company
in the Securities or in this Indenture for a period of 90 days after the date
on which written notice of such failure, requiring the Company to remedy the
same, shall have been given to the Company by the Trustee by registered or
certified mail or to the Company and the Trustee by the Holders of at least
25% in aggregate principal amount of the Outstanding Securities;
(d) the occurrence of the appointment of a receiver or other
similar official in any liquidation, insolvency or similar proceeding with
respect to the Company or all or substantially all of its property; or a
court or other governmental agency shall enter a decree or order appointing a
receiver or similar official and such decree or order shall remain unstayed
and undischarged for a period of 60 days; or
(e) any other Event of Default provided with respect to the
Securities.
Section 5.2. Acceleration of Maturity; Rescission and Annulment.
(a) If an Event of Default (other than an Event of Default
specified in Section 5.1(d)) with respect to Securities at the time
Outstanding occurs and is continuing, then, and in every such case, the
Trustee or the Holders of not less than 25% in aggregate principal amount of
the Outstanding Securities may declare the principal amount (or, if the
Securities are Discount Securities, such portion of the principal amount as
may be specified in the terms) of all the Securities to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if
given by Holders), provided, however that, if, upon an Event of Default, the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities fail to declare the principal of all the Outstanding
Securities to be immediately due and payable, the holders of at least 25% in
aggregate Liquidation Amount (as defined in the Trust Agreement) of the
Preferred Securities issued by the Issuer Trust then outstanding shall have
the right to make such declaration by a notice in writing to the Company and
the Trustee; and upon any such declaration such principal amount (or
specified portion thereof) of and the accrued interest (including any
Additional Interest) on all the Securities shall become immediately due and
payable. If an Event of Default specified in Section 5.1(d) with respect to
Securities at the time Outstanding occurs, the principal amount of all the
Securities (or, if the Securities are Discount Securities, such portion of
the principal amount of such Securities as may be specified by the terms)
shall automatically, and without any declaration or other action on the part
of the Trustee or any Holder, become immediately due and payable. Payment of
principal and interest (including any Additional Interest) on such Securities
shall remain subordinated to the extent provided in Article XIII
notwithstanding that such amount shall become immediately due and payable as
herein provided.
(b) At any time after such a declaration of acceleration with
respect to the Securities has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in
this Article provided, the Holders of a majority in aggregate principal
amount
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of the Outstanding Securities, by written notice to the Company and the Trustee,
may rescind and annul such declaration and its consequences if:
(i) the Company has paid or deposited with the Trustee a
sum sufficient to pay:
(A) all overdue installments of interest on all
Securities;
(B) any accrued Additional Interest on all
Securities;
(C) the principal of (and premium, if any, on) any
Securities that have become due otherwise than by such declaration of
acceleration and interest and Additional Interest thereon at the rate borne by
the Securities; and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel; and
(ii) all Events of Default with respect to Securities,
other than the non-payment of the principal of Securities that has become due
solely by such acceleration, have been cured or waived as provided in Section
5.13.
(c) If the Holders of Securities fail to annul such declaration
and waive such default, the holders of a majority in aggregate Liquidation
Amount (as defined in the Trust Agreement) of Preferred Securities issued by
the Issuer Trust then outstanding shall also have the right to rescind and
annul such declaration and its consequences by written notice to the Company
and the Trustee, subject to the satisfaction of the conditions set forth in
clauses (a) and (b) above of this Section 5.2.
(d) No such rescission shall affect any subsequent default or
impair any right consequent thereon.
Section 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee.
(a) The Company covenants that if:
(i) default is made in the payment of any installment
of interest (including any Additional Interest) on any Security when such
interest becomes due and payable and such default continues for a period of
30 days or
(ii) default is made in the payment of the principal of
(and premium, if any, on) any Security at the Stated Maturity thereof, the
Company will, upon demand of the Trustee, pay to the Trustee, for the benefit
of the Holders of the Securities, the whole amount then due and payable on
the Securities for principal and interest (including any Additional
Interest), and, in addition thereto, all amounts owing the Trustee under
Section 6.7.
(b) If the Company fails to pay such amounts forthwith upon
such demand, the Trustee, in its own name and as trustee of an express trust,
may institute a judicial proceeding for the collection of the sums so due and
unpaid, and may prosecute such proceeding to judgment or final
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decree, and may enforce the same against the Company or any other obligor upon
such Securities and collect the monies adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Securities, wherever situated.
(c) If an Event of Default with respect to Securities occurs
and is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
Section 5.4. Trustee May File Proofs of Claim.
In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial or
administrative proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors,
(a) the Trustee (irrespective of whether the principal of the
Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have
made any demand on the Company for the payment of overdue principal or
interest (including any Additional Interest)) shall be entitled and
empowered, by intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of
principal and interest (including any Additional Interest) owing and unpaid
in respect to the Securities and to file such other papers or documents as
may be necessary or advisable and to take any and all actions as are
authorized under the Trust Indenture Act in order to have the claims of the
Holders and any predecessor to the Trustee under Section 6.7 allowed in any
such judicial or administrative proceedings; and
(ii) in particular, the Trustee shall be authorized to
collect and receive any monies or other property payable or deliverable on
any such claims and to distribute the same in accordance with Section 5.6; and
(b) any custodian, receiver, assignee, trustee, liquidator,
sequestrator, conservator (or other similar official) in any such judicial or
administrative proceeding is hereby authorized by each Holder to make such
payments to the Trustee for distribution in accordance with Section 5.6, and
in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due to it and any
predecessor Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the
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Trustee may, on behalf of the Holders, vote for the election of a trustee in
bankruptcy or similar official and be a member of a creditors' or other similar
committee.
Section 5.5. Trustee May Enforce Claim Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, subject to
Article XIII and after provision for the payment of all the amounts owing the
Trustee and any predecessor Trustee under Section 6.7, its agents and counsel,
be for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
Section 5.6. Application of Money Collected.
Any money or property collected or to be applied by the Trustee with
respect to the Securities pursuant to this Article shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money or property on account of principal or interest
(including any Additional Interest), upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 6.7;
SECOND: Subject to Article XIII, to the payment of the amounts then due
and unpaid upon Securities for principal and interest (including any Additional
Interest) in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal and interest (including
any Additional Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
Section 5.7. Limitation on Suits.
Subject to Section 5.8, no Holder of any Securities shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver, assignee, trustee, liquidator,
sequestrator (or other similar official) or for any other remedy hereunder,
unless:
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the Securities;
(b) the Holders of not less than 25% in aggregate principal
amount of the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
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(c) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding;
and
(e) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in aggregate principal amount of the Outstanding Securities; it
being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing itself of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Securities, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all such Holders.
Section 5.8. Unconditional Right of Holders to Receive Principal, Premium and
Interest; Direct Action by Holders of Preferred Securities.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and (subject to Sections 3.8 and 3.12)
interest (including any Additional Interest) on such Security on the Stated
Maturity (or in the case of redemption, on the Redemption Date) and to institute
suit for the enforcement of any such payment, and such right shall not be
impaired without the consent of such Holder. Any registered holder of the
Preferred Securities issued by the Issuer Trust shall have the right, upon the
occurrence of an Event of Default described in Section 5.1(a) or 5.1(b), to
institute a suit directly against the Company for enforcement of payment to such
holder of principal of and (subject to Sections 3.8 and 3.12) interest
(including any Additional Interest) on the Securities having a principal amount
equal to the aggregate Liquidation Amount (as defined in the Trust Agreement) of
such Preferred Securities held by such holder.
Section 5.9. Restoration of Rights and Remedies.
If the Trustee, any Holder or any holder of Preferred Securities issued
by the Issuer Trust has instituted any proceeding to enforce any right or remedy
under this Indenture and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to the Trustee, such Holder or such
holder of Preferred Securities, then, and in every such case, the Company, the
Trustee, such Holders and such holder of Preferred Securities shall, subject to
any determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee, such Holder and such holder of Preferred Securities shall continue as
though no such proceeding had been instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as otherwise provided in the last paragraph of Section 3.7, no
right or remedy herein conferred upon or reserved to the Trustee or the Holders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in
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addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
(a) No delay or omission of the Trustee, any Holder of any
Security with respect to the Securities or any holder of any Preferred
Security to exercise any right or remedy accruing upon any Event of Default
with respect to the Securities shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
(b) Every right and remedy given by this Article or by law to
the Trustee or to the Holders and the right and remedy given to the holders
of Preferred Securities by Section 5.8 may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee, the Holders or the
holders of Preferred Securities, as the case may be.
Section 5.12. Control by Holders.
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee, with respect to the
Securities, provided that:
(a) such direction shall not be in conflict with any rule of
law or with this Indenture,
(b) the Trustee may take any other action deemed proper by the
Trustee that is not inconsistent with such direction, and
(c) subject to the provisions of Section 6.1, the Trustee shall
have the right to decline to follow such direction if a Responsible Officer
or Officers of the Trustee shall, in good faith, determine that the
proceeding so directed would be unjustly prejudicial to the Holders not
joining in any such direction or would involve the Trustee in personal
liability.
Section 5.13. Waiver of Past Defaults.
(a) The Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities affected
thereby and, the holders of a majority in aggregate
Liquidation Amount (as defined in the Trust Agreement) of
the Preferred Securities issued by the Issuer Trust may
waive any past default hereunder and its consequences
except a default:
(i) in the payment of the principal of or interest (including
any Additional Interest) on any Security (unless such default has been cured and
the Company has paid to or deposited with the Trustee a sum sufficient to pay
all matured installments of interest (including Additional Interest) and all
principal of all Securities due otherwise than by acceleration), or
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(ii) in respect of a covenant or provision hereof that under
Article IX cannot be modified or amended without the consent of each Holder of
any Outstanding Security affected thereby.
(b) Any such waiver shall be deemed to be on behalf of the
Holders of all the Securities, or in the case of waiver by holders of
Preferred Securities issued by the Issuer Trust, by all holders of Preferred
Securities issued by the Issuer Trust.
(c) Upon any such waiver, such default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Indenture, but no such waiver shall extend
to any subsequent or other default or impair any right consequent thereon.
Section 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may, in
its discretion, require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may, in its
discretion, assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant, but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in aggregate principal amount of the Outstanding
Securities, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of or interest (including any Additional Interest) on
any Security on or after the Stated Maturity.
Section 5.15. Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
Section 6.1. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
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(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the Trustee;
and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture, but in the case of
any such certificates or opinions that by any provisions hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture.
(b) In case an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct except that:
(i) this subsection shall not be construed to limit the
effect of subsection (a) of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of Holders pursuant to Section 5.12 relating to the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this Indenture
with respect to the Securities.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if there shall be reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
(e) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to the
provisions of this Section.
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Section 6.2. Notice of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Securities, the Trustee shall transmit by mail to all Holders of Securities, as
their names and addresses appear in the Securities Register, notice of such
default, unless such default shall have been cured or waived; provided, however,
that, except in the case of a default in the payment of the principal of or
interest (including any Additional Interest) on any Security, the Trustee shall
be protected in withholding such notice if and so long as the board of
directors, the executive committee or a trust committee of directors and/or
Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interests of the Holders of Securities; and
provided further, that, in the case of any default of the character specified in
Section 5.1(c), no such notice to Holders of Securities shall be given until at
least 30 days after the occurrence thereof. For the purpose of this Section, the
term "default" means any event that is, or after notice or lapse of time or both
would become, an Event of Default with respect to the Securities.
Section 6.3. Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, security or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior
to taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its choice and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, indenture, Security or other paper or document, but the Trustee in its
discretion
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may make such inquiry or investigation into such facts or matters as it may see
fit, and, if the Trustee shall determine to make such inquiry or investigation,
it shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed with
due care by it hereunder.
Section 6.4. Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Securities. Neither the
Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of the Securities or the proceeds thereof.
Section 6.5. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Securities
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
6.8 and 6.13, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Securities
Registrar or such other agent.
Section 6.6. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
Section 6.7. Compensation and Reimbursement.
(a) The Company agrees to pay to the Trustee from time to time
such compensation for all services rendered by it hereunder in such amounts
as the Company and the Trustee shall agree from time to time in writing
(which compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust).
(b) The Company agrees to reimburse the Trustee upon its
request for all reasonable expenses, disbursements and advances incurred or
made by the Trustee in accordance with any provision of this Indenture
(including the reasonable compensation and the expenses and disbursements of
its agents and counsel), except any such expense disbursement or advance as
may be attributable to its negligence or bad faith.
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(c) Since the Issuer Trust is being formed solely to facilitate
an investment in the Preferred Securities, the Company, as Holder of the
Common Securities, hereby covenants to pay all debts and obligations (other
than with respect to the Preferred Securities and the Common Securities) and
all reasonable costs and expenses of the Issuer Trust (including without
limitation all costs and expenses relating to the organization of the Issuer
Trust, the fees and expenses of the trustees and all reasonable costs and
expenses relating to the operation of the Issuer Trust) and to pay any and
all taxes, duties, assessments or governmental charges of whatever nature
(other than withholding taxes) imposed on the Issuer Trust by the United
States, or any taxing authority, so that the net amounts received and
retained by the Issuer Trust and the Property Trustee after paying such
expenses will be equal to the amounts the Issuer Trust and the Property
Trustee would have received had no such costs or expenses been incurred by or
imposed on the Issuer Trust. The foregoing obligations of the Company are for
the benefit of, and shall be enforceable by, any person to whom any such
debts, obligations, costs, expenses and taxes are owed (each, a "Creditor")
whether or not such Creditor has received notice thereof. Any such Creditor
may enforce such obligations directly against the Company, and the Company
irrevocably waives any right or remedy to require that any such Creditor take
any action against the Issuer Trust or any other person before proceeding
against the Company. The Company shall execute such additional agreements as
may be necessary or desirable to give full effect to the foregoing.
(d) The Company shall indemnify the Trustee, its directors,
officers, employees and agents for, and hold them harmless against, any loss,
liability or expense (including the reasonable compensation and the expenses
and disbursements of its agents and counsel) incurred without negligence or
bad faith, arising out of or in connection with the acceptance or
administration of this trust or the performance of its duties hereunder,
including the reasonable costs and expenses of defending against any claim or
liability in connection with the exercise or performance of any of its powers
or duties hereunder. This indemnification shall survive the termination of
this Indenture or the resignation or removal of the Trustee.
(e) When the Trustee incurs expenses or renders services after
an Event of Default specified in Section 5.1(d) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under the Bankruptcy Reform Act of 1978 or any successor
statute.
Section 6.8. Disqualification; Conflicting Interests.
The Trustee for the Securities issued hereunder shall be subject to the
provisions of Section 310(b) of the Trust Indenture Act. Nothing herein shall
prevent the Trustee from filing with the Commission the application referred to
in the second to last paragraph of said Section 310(b).
Section 6.9. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be:
(a) a Person organized and doing business under the laws of the
United States of America or of any state or territory thereof or of the
District of Columbia, authorized under such laws to
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exercise corporate trust powers and subject to supervision or examination by
federal, state, territorial or District of Columbia authority, or
(b) an entity organized and doing business under the laws of a
foreign government that is permitted to act as Trustee pursuant to a rule,
regulation or order of the Commission, authorized under such laws to exercise
corporate trust powers, and subject to supervision or examination by
authority of such foreign government or a political subdivision thereof
substantially equivalent to supervision or examination applicable to United
States institutional trustees; in either case having a combined capital and
surplus of at least $50,000,000, subject to supervision or examination by
federal or state authority. If such entity publishes reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then, for the purposes of this Section,
the combined capital and surplus of such entity shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article. Neither the Company nor any Person directly or indirectly
controlling, controlled by or under common control with the Company shall
serve as Trustee for the Securities issued hereunder.
Section 6.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment
of a successor Trustee pursuant to this Article shall become effective until
the acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time with respect to the
Securities by giving written notice thereof to the Company. If an instrument
of acceptance by a successor Trustee shall not have been delivered to the
Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(c) The Trustee may be removed at any time with respect to the
Securities by Act of the Holders of a majority in aggregate principal amount
of the Outstanding Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 6.8 after
written request therefor by the Company or by any Holder who has been a bona
fide Holder of a Security for at least six months,
(ii) the Trustee shall cease to be eligible under Section 6.9
and shall fail to resign after written request therefor by the Company or by any
such Holder, or
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(iii) the Trustee shall become incapable of acting or shall be
adjudged bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation;
then, in any such case, (x) the Company, acting pursuant to the authority of a
Board Resolution, may remove the Trustee with respect to the Securities issued
hereunder, or (y) subject to Section 5.14, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of such Holder and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee with respect to the Securities issued hereunder and
the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of Trustee for any cause
with respect to the Securities, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee with respect to the Securities. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee with respect to the
Securities shall be appointed by Act of the Holders of a majority in
aggregate principal amount of the Outstanding Securities delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor
Trustee with respect to the Securities and supersede the successor Trustee
appointed by the Company. If no successor Trustee with respect to the
Securities shall have been so appointed by the Company or the Holders and
accepted appointment in the manner hereinafter provided, any Holder who has
been a bona fide Holder of a Security for at least six months may, subject to
Section 5.14, on behalf of such Holder and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a
successor Trustee with respect to the Securities.
(f) The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Securities and each appointment of
a successor Trustee with respect to the Securities by mailing written notice
of such event by first-class mail, postage prepaid, to the Holders of
Securities as their names and addresses appear in the Securities Register.
Each notice shall include the name of the successor Trustee with respect to
the Securities and the address of its Corporate Trust Office.
Section 6.11. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee
with respect to all Securities, every such successor Trustee so appointed
shall execute, acknowledge and deliver to the Company and to the retiring
Trustee an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become effective and
such successor Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the retiring
Trustee; but, on the request of the Company or the successor Trustee, such
retiring Trustee shall, upon payment of its charges, execute and deliver an
instrument transferring to such successor Trustee all the rights, powers and
trusts of the retiring Trustee and shall duly assign, transfer and deliver to
such successor Trustee all property and money held by such retiring Trustee
hereunder.
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(b) Upon request of any such successor Trustee, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Trustee all rights, powers and trusts
referred to in paragraph (a) of this Section.
(c) No successor Trustee shall accept its appointment unless,
at the time of such acceptance, such successor Trustee shall be qualified and
eligible under this Article.
Section 6.12. Merger, Conversion, Consolidation or Succession to Business.
Any entity into which the Trustee may be merged or converted or with
which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any entity
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such entity
shall be otherwise qualified and eligible under this Article, 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, and in case any Securities shall not
have been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor Trustee or in the name of such
successor Trustee, and in all cases the certificate of authentication shall have
the full force which it is provided anywhere in the Securities or in this
Indenture that the certificate of the Trustee shall have.
Section 6.13. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
Section 6.14. Appointment of Authenticating Agent.
(a) The Trustee may appoint an Authenticating Agent or Agents
with respect to the Securities, which shall be authorized to act on behalf of
the Trustee to authenticate Securities issued upon original issue and upon
exchange, registration of transfer or partial redemption thereof or pursuant
to Section 3.6, and Securities so authenticated shall be entitled to the
benefits of this Indenture and shall be valid and obligatory for all purposes
as if authenticated by the Trustee hereunder. Wherever reference is made in
this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall
be deemed to include authentication and delivery on behalf of the Trustee by
an Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be an entity organized and doing business
under the laws of the United States of America, or of any state or territory
thereof or of the District of Columbia, authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and subject to supervision or examination by federal or state
authority. If such Authenticating Agent publishes reports of condition at
least annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section the combined
capital and surplus of such Authenticating Agent shall be
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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.
(b) Any entity into which an Authenticating Agent may be merged
or converted or with which it may be consolidated, or any entity resulting
from any merger, conversion or consolidation to which such Authenticating
Agent shall be a party, or any entity succeeding to all or substantially all
of the corporate trust business of an Authenticating Agent shall be the
successor Authenticating Agent hereunder, provided such entity shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating
Agent.
(c) An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee and to the Company. The Trustee may at
any time terminate the agency of an Authenticating Agent by giving written
notice thereof to such Authenticating Agent and to the Company. Upon
receiving such a notice of resignation or upon such a termination, or in case
at any time such Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section, the Trustee may appoint a
successor Authenticating Agent, which shall be acceptable to the Company and
shall give notice of such appointment in the manner provided in Section 1.6
to all Holders of Securities. Any successor Authenticating Agent upon
acceptance hereunder shall become vested with all the rights, powers and
duties of its predecessor hereunder, with like effect as if originally named
as an Authenticating Agent. No successor Authenticating Agent shall be
appointed unless eligible under the provision of this Section.
(d) The Company agrees to pay to each Authenticating Agent from
time to time reasonable compensation for its services under this Section, and
the Trustee shall be entitled to be reimbursed for such payment, subject to
the provisions of Section 6.7.
(e) If an appointment is made pursuant to this Section, 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.
Wilmington Trust Company, as Trustee
Dated:____________________________________ By:_________________________________
As Authenticating Agent
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ARTICLE VII
HOLDERS LISTS AND REPORTS BY TRUSTEE, PAYING AGENT AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) quarterly, not more than 15 days after March 15, June 15,
September 15, and December 15 in each year, a list, in such form as the
Trustee may reasonably require, of the names and addresses of the Holders as
of such dates, excluding from any such list names and addresses received by
the Trustee in its capacity as Securities Registrar, and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a list
of similar form and content as of a date not more than 15 days prior to the
time such list is furnished, excluding from any such list names and addresses
received by the Trustee in its capacity as Securities Registrar.
Section 7.2. Preservation of Information, Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the
most recent list furnished to the Trustee as provided in Section 7.1 and the
names and addresses of Holders received by the Trustee in its capacity as
Securities Registrar. The Trustee may destroy any list furnished to it as
provided in Section 7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders
with respect to their rights under this Indenture or under the Securities,
and the corresponding rights and privileges of the Trustee, shall be as
provided in the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor
the Trustee nor any agent of either of them shall be held accountable by
reason of the disclosure of information as to the names and addresses of the
Holders made pursuant to the Trust Indenture Act.
Section 7.3. Reports by Trustee and Paying Agent.
(a) The Trustee shall transmit to Holders such reports
concerning the Trustee and its actions under this Indenture as may be
required pursuant to the Trust Indenture Act, at the times and in the manner
provided pursuant thereto.
(b) Reports so required to be transmitted at stated intervals
of not more than 12 months shall be transmitted within 60 days of January 31
in each calendar year, commencing with January 31, 1999.
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(c) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each securities
exchange upon which any Securities are listed and also with the Commission.
The Company will notify the Trustee when any Securities are listed on any
securities exchange.
(d) The Paying Agent shall comply with all withholding, backup
withholding, tax and information reporting requirements under the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations issued
thereunder with respect to payments on, or with respect to, the Securities.
Section 7.4. Reports by Company.
The Company shall file or cause to be filed with the Trustee and with
the Commission, and transmit to Holders, such information, documents and other
reports, and such summaries thereof, as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided in the Trust Indenture
Act. In the case of information, documents or reports required to be filed with
the Commission pursuant to Section 13(a) or Section 15(d) of the Exchange Act,
the Company shall file or cause the filing of such information documents or
reports with the Trustee within 15 days after the same is required to be filed
with the Commission.
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1. May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and no Person shall consolidate with or merge into the
Company or convey, transfer or lease its properties and assets substantially as
an entirety to the Company, unless:
(a) if the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially
as an entirety to any Person, the entity formed by such consolidation or into
which the Company is merged or the Person that acquires by conveyance or
transfer, or that leases, the properties and assets of the Company
substantially as an entirety shall be an entity organized and existing under
the laws of the United States of America or any state thereof or the District
of Columbia and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee,
the due and punctual payment of the principal of , and interest (including
any Additional Interest) on all the Securities of every series and the
performance of every covenant of this Indenture on the part of the Company to
be performed or observed; provided, however, that nothing herein shall be
deemed to restrict or prohibit, and no supplemental indenture shall be
required in the case of, the merger of a Principal Subsidiary Bank with and
into a Principal Subsidiary Bank or the Company, the consolidation of
Principal Subsidiary Banks into a Principal Subsidiary Bank or the Company,
or the sale or other disposition of all or substantially all of the assets of
any Principal Subsidiary Bank to another Principal Subsidiary Bank or the
Company, if, in any such case in which the surviving, resulting or acquiring
entity is not the
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Company, the Company would own, directly or indirectly, at least 80% of the
voting securities of the Principal Subsidiary Bank (and of any other Principal
Subsidiary Bank any voting securities of which are owned, directly or
indirectly, by such Principal Subsidiary Bank) surviving such merger, resulting
from such consolidation or acquiring such assets;
(b) immediately after giving effect to such transaction, no
Event of Default, and no event that, after notice or lapse of time, or both,
would constitute an Event of Default, shall have occurred and be continuing;
and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and any such supplemental indenture
comply with this Article and that all conditions precedent herein provided
for relating to such transaction have been complied with and, in the case of
a transaction subject to this Section 8.1 but not requiring a supplemental
indenture under paragraph (a) of this Section 8.1, an Officer's Certificate
or Opinion of Counsel to the effect that the surviving, resulting or
successor entity is legally bound by the Indenture and the Securities; and
the Trustee, subject to Section 6.1, may rely upon such Officers'
Certificates and Opinions of Counsel as conclusive evidence that such
transaction complies with this Section 8.1.
Section 8.2. Successor Company Substituted.
(a) Upon any consolidation or merger by the Company with or
into any other Person, or any conveyance, transfer or lease by the Company of
its properties and assets substantially as an entirety to any Person in
accordance with Section 8.1, the successor entity formed by such
consolidation or into which the Company is merged or to which such
conveyance, transfer or lease is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this
Indenture with the same effect as if such successor Person had been named as
the Company herein; and in the event of any such conveyance, transfer or
lease the Company shall be discharged from all obligations and covenants
under the Indenture and the Securities.
(b) Such successor Person may cause to be executed, and may
issue either in its own name or in the name of the Company, any or all of the
Securities issuable hereunder that theretofore shall not have been signed by
the Company and delivered to the Trustee; and, upon the order of such
successor Person instead of the Company and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall deliver any Securities that previously shall have been
signed and delivered by the officers of the Company to the Trustee for
authentication pursuant to such provisions and any Securities that such
successor Person thereafter shall cause to be executed and delivered to the
Trustee on its behalf for the purpose pursuant to such provisions. All the
Securities so issued shall in all respects have the same legal rank and
benefit under this Indenture as the Securities theretofore or thereafter
issued in accordance with the terms of this Indenture.
(c) In case of any such consolidation, merger, sale, conveyance
or lease, such changes in phraseology and form may be made in the Securities
thereafter to be issued as may be appropriate.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may amend
or waive any provision of this Indenture or enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any of the
following purposes:
(a) to evidence the succession of another Person to the Company, and
the assumption by any such successor of the covenants of the Company herein and
in the Securities contained;
(b) to convey, transfer, assign, mortgage or pledge any property to or
with the Trustee or to surrender any right or power herein conferred upon the
Company;
(c) to facilitate the issuance of Securities in certificated or
other definitive form;
(d) to add to the covenants of the Company for the benefit of the
Holders of the Securities or to surrender any right or power herein conferred
upon the Company;
(e) to add any additional Events of Default for the benefit of the
Holders of the Securities;
(f) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall not apply to any Outstanding
Securities;
(g) to cure any ambiguity, to correct or supplement any provision
herein that may be defective or inconsistent with any other provision herein, or
to make any other provisions with respect to matters or questions arising under
this Indenture, provided that such action pursuant to this clause (g) shall not
adversely affect the interest of the Holders of Securities in any material
respect or, in the case of the Securities issued to the Issuer Trust and for so
long as any of the Preferred Securities issued by the Issuer Trust shall remain
outstanding, the holders of such Preferred Securities;
(h) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee with respect to the Securities and to add to or change
any of the provisions of this Indenture as shall be necessary to provide for or
facilitate the administration of the trusts hereunder by more than one Trustee,
pursuant to the requirements of Section 6.11(b); or
(i) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust Indenture
Act.
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Section 9.2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Securities under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby:
(a) change the Stated Maturity of the principal of, or any installment
of interest (including any Additional Interest) on, any Security, or reduce the
principal amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or reduce the amount of principal of a Discount
Security that would be due and payable upon a declaration of acceleration of the
Stated Maturity thereof pursuant to Section 5.2, or change the place of payment
where, or the coin or currency in which, any Security or interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof (or, in the case of redemption,
on or after the Redemption Date),
(b) reduce the percentage in aggregate principal amount of the
Outstanding Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or
(c) modify any of the provisions of this Section, Section 5.13 or
Section 10.5, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Security affected thereby; provided, further,
that, in the case of the Securities issued to the Issuer Trust, so long as any
of the Preferred Securities issued by the Issuer Trust remains outstanding, (i)
no such amendment shall be made that adversely affects the holders of such
Preferred Securities in any material respect, and no termination of this
Indenture shall occur, and no waiver of any Event of Default or compliance with
any covenant under this Indenture shall be effective, without the prior consent
of the holders of at least a majority of the aggregate Liquidation Amount (as
defined in the Trust Agreement) of such Preferred Securities then outstanding
unless and until the principal of (and premium, if any, on) the Securities and
all accrued and (subject to Section 3.8) unpaid interest (including any
Additional Interest) thereon have been paid in full, and (ii) no amendment shall
be made to Section 5.8 of this Indenture that would impair the rights of the
holders of Preferred Securities issued by the Issuer Trust provided therein
without the prior consent of the holders of each such Preferred Security then
outstanding unless and until the principal of (and premium, if any, on) the
Securities of such series and all accrued and (subject to Section 3.8) unpaid
interest (including any Additional Interest) thereon have been paid in full.
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It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Section 9.3. Execution of Supplemental Indentures.
In executing or accepting the additional trusts created by any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.1) shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture, and
that all conditions precedent herein provided for relating to such action have
been complied with. The Trustee may, but shall not be obligated to, enter into
any such supplemental indenture that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Section 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.6. 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 Company, bear a notation in form approved by the Company as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
ARTICLE X
COVENANTS
Section 10.1. Payment of Principal and Interest.
The Company covenants and agrees for the benefit of the Securities that
it will duly and punctually pay the principal of and interest (including any
Additional Interest) on the Securities in accordance with the terms of such
Securities and this Indenture.
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Section 10.2. Maintenance of Office or Agency.
(a) The Company will maintain in each Place of Payment an office or
agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company initially appoints the Trustee, acting
through its Corporate Trust Office, as its agent for said purposes. The Company
will give prompt written notice to the Trustee of any change in the location of
any such office or agency. If at any time the Company shall fail to maintain
such office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
(b) The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all of such purposes, and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in each
Place of Payment for Securities for such purposes. The Company will give prompt
written notice to the Trustee of any such designation and any change in the
location of any such office or agency.
Section 10.3. Money for Security Payments to be Held in Trust.
(a) If the Company shall at any time act as its own Paying Agent with
respect to the Securities, it will, on or before each due date of the principal
of or interest (including Additional Interest) on any of the Securities,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal or interest (including Additional Interest)
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided, and will promptly notify the Trustee of its
failure so to act.
(b) Whenever the Company shall have one or more Paying Agents, it will,
prior to 10:00 a.m., New York City time, on each due date of the principal of or
interest, including Additional Interest on any Securities, deposit with a Paying
Agent a sum sufficient to pay the principal or interest, including Additional
Interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal or interest, including Additional Interest,
and (unless such Paying Agent is the Trustee) the Company will promptly notify
the Trustee of its failure so to act.
(c) The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(i) hold all sums held by it for the payment of the principal
of or interest (including Additional Interest) on the Securities in trust for
the benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;
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(ii) give the Trustee notice of any default by the Company (or
any other obligor upon such Securities) in the making of any payment of
principal or interest (including Additional Interest) in respect of any
Security;
(iii) at any time during the continuance of any default with
respect to the Securities, upon the written request of the Trustee, forthwith
pay to the Trustee all sums so held in trust by such Paying Agent; and
(iv) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent.
(d) The Company may, at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same terms as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
(e) Any money deposited with the Trustee or any Paying Agent, or then
held by the Company in trust for the payment of the principal of or interest
(including Additional Interest) on any Security and remaining unclaimed for two
years after such principal or interest (including Additional Interest) has
become due and payable shall (unless otherwise required by mandatory provision
of applicable escheat or abandoned or unclaimed property law) be paid on Company
Request to the Company, or (if then held by the Company) shall (unless otherwise
required by mandatory provision of applicable escheat or abandoned or unclaimed
property law) be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, the City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
Section 10.4. Statement as to Compliance.
The Company shall deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officers'
Certificate covering the preceding calendar year, stating whether or not to the
best knowledge of the signers thereof the Company is in default in the
performance, observance or fulfillment of or compliance with any of the terms,
provisions, covenants and conditions of this Indenture, and if the Company shall
be in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge. For the purpose of this Section 10.4, compliance
shall be determined without regard to any grace period or requirement of notice
provided pursuant to the terms of this Indenture.
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Section 10.5. Waiver of Certain Covenants.
Subject to the rights of holders of Preferred Securities specified in
Section 9.2, if any, the Company may omit in any particular instance to comply
with any covenant or condition provided pursuant to Section 3.1, 9.1(c) or
9.1(d) with respect to the Securities, if before or after the time for such
compliance the Holders of at least a majority in aggregate principal amount of
the Outstanding Securities shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company in respect of any such covenant
or condition shall remain in full force and effect.
Section 10.6. Additional Sums.
So long as no Event of Default has occurred and is continuing and
except as otherwise specified as contemplated by Section 2.1 or Section 3.1, if:
(a) the Issuer Trust is the Holder of all of the Outstanding Securities, and (b)
a Tax Event described in clause (a) or (c) of the definition of "Tax Event" in
Section 1.1 hereof has occurred and is continuing in respect of the Issuer
Trust, the Company shall pay the Issuer Trust (and its permitted successors or
assigns under the Trust Agreement) for so long as the Issuer Trust (or its
permitted successor or assignee) is the registered holder of the Outstanding
Securities, such additional sums as may be necessary in order that the amount of
Distributions (including any Additional Amount (as defined in the Trust
Agreement)) then due and payable by the Issuer Trust on the Preferred Securities
and Common Securities that at any time remain outstanding in accordance with the
terms thereof shall not be reduced as a result of such Additional Taxes (the
"Additional Sums"). Whenever in this Indenture or the Securities there is a
reference in any context to the payment of principal of or interest on the
Securities, such mention shall be deemed to include mention of the payments of
the Additional Sums provided for in this paragraph to the extent that, in such
context, Additional Sums are, were or would be payable in respect thereof
pursuant to the provisions of this paragraph and express mention of the payment
of Additional Sums (if applicable) in any provisions hereof shall not be
construed as excluding Additional Sums in those provisions hereof where such
express mention is not made; provided, however, that the deferral of the payment
of interest pursuant to Section 3.12 or the Securities shall not defer the
payment of any Additional Sums that may be due and payable.
Section 10.7. Additional Covenants.
The Company covenants and agrees with each Holder of Securities that it
shall not: (a) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any shares of
the Company's capital stock, or (b) make any payment of principal of or interest
or premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu in all respects with or junior in interest to the
Securities (other than (i) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the Company (or securities convertible
into or exercisable for such capital stock) as consideration
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in an acquisition transaction entered into prior to the applicable Extension
Period or other event referred to below, (ii) as a result of an exchange or
conversion of any class or series of the Company's capital stock (or any capital
stock of a Subsidiary of the Company) for any class or series of the Company's
capital stock or of any class or series of the Company's indebtedness for any
class or series of the Company's capital stock, (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged, (iv) any declaration of a dividend in connection with any Rights
Plan, or the issuance of rights, stock or other property under any Rights Plan,
or the redemption or repurchase of rights pursuant thereto, or (v) any dividend
in the form of stock, warrants, options or other rights where the dividend stock
or the stock issuable upon exercise of such warrants, options or other rights is
the same stock as that on which the dividend is being paid or ranks pari passu
with or junior to such stock) if at such time (A) there shall have occurred any
event (x) of which the Company has actual knowledge that with the giving of
notice or the lapse of time, or both, would constitute an Event of Default with
respect to the Securities, and (y) which the Company shall not have taken
reasonable steps to cure, (B) if the Securities are held by the Issuer Trust,
the Company shall be in default with respect to its payment of any obligations
under the Guarantee relating to the Preferred Securities issued by the Issuer
Trust, or (C) the Company shall have given notice of its election to begin an
Extension Period with respect to the Securities as provided herein and shall not
have rescinded such notice, or such Extension Period, or any extension thereof,
shall be continuing.
The Company also covenants with each Holder of Securities issued to the
Issuer Trust (a) to hold, directly or indirectly, 100% of the Common Securities
of the Issuer Trust, provided that any permitted successor of the Company as
provided under Section 8.2 may succeed to the Company's ownership of such Common
Securities, (b) as holder of such Common Securities, not to voluntarily
terminate, windup or liquidate the Issuer Trust, other than (i) in connection
with a distribution of the Securities to the holders of the Preferred Securities
in liquidation of the Issuer Trust, or (ii) in connection with certain mergers,
consolidations or amalgamations permitted by the Trust Agreement, and (c) to use
its reasonable efforts, consistent with the terms and provisions of the Trust
Agreement, to cause the Issuer Trust to continue not to be taxable as a
corporation for United States federal income tax purposes.
Section 10.8. Federal Tax Reports.
On or before December 15 of each year during which any Securities are
outstanding, the Company shall furnish to each Paying Agent such information as
may be reasonably requested by each Paying Agent in order that each Paying Agent
may prepare the information which it is required to report for such year on
Internal Revenue Service Forms 1096 and 1099 pursuant to Section 6049 of the
Internal Revenue Code of 1986, as amended. Such information shall include the
amount of original issue discount includible in income for each authorized
minimum denomination of principal amount at Stated Maturity of outstanding
Securities during such year.
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ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1. Applicability of this Article.
Redemption of Securities as permitted or required by any form of
Security issued pursuant to this Indenture shall be made in accordance with such
form of Security and this Article; provided, however, that, if any provision of
any such form of Security shall conflict with any provision of this Article, the
provision of such form of Security shall govern.
Section 11.2. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced
by or pursuant to a Board Resolution. In case of any redemption at the election
of the Company, the Company shall, not less than 30 nor more than 60 days prior
to the Redemption Date (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee and, in the case of Securities held by the Issuer
Trust, the Property Trustee under the Trust Agreement of such date and of the
principal amount of Securities to be redeemed and provide the additional
information required to be included in the notice or notices contemplated by
Section 11.4; provided, that, for so long as such Securities are held by the
Issuer Trust, such notice shall be given not less than 45 nor more than 75 days
prior to such Redemption Date (unless a shorter notice shall be satisfactory to
the Property Trustee under the Trust Agreement). In the case of any redemption
of Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities, the Company shall furnish the Trustee
with an Officers' Certificate and an Opinion of Counsel evidencing compliance
with such restriction.
Section 11.3. Selection of Securities to be Redeemed.
(a) If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of a portion
of the principal amount of any Security, provided that the unredeemed portion of
the principal amount of any Security shall be in an authorized denomination
(which shall not be less than the minimum authorized denomination) for such
Security.
(b) The Trustee shall promptly notify the Company in writing of the
Securities selected for partial redemption and the principal amount thereof to
be redeemed. For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Security redeemed or to be redeemed only in part, to the
portion of the principal amount of such Security that has been or is to be
redeemed.
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Section 11.4. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not later than the thirtieth day, and not earlier than the
sixtieth day, prior to the Redemption Date, to each Holder of Securities to be
redeemed, at the address of such Holder as it appears in the Securities
Register.
With respect to Securities to be redeemed, each notice of redemption
shall state:
(a) the Redemption Date;
(b) the Redemption Price or, if the Redemption Price cannot be
calculated prior to the time the notice is required to be sent, the estimate of
the Redemption Price provided pursuant to the Indenture together with a
statement that it is an estimate and that the actual Redemption Price will be
calculated on the third Business Day prior to the Redemption Date (if such an
estimate of the Redemption Price is given, a subsequent notice shall be given as
set forth above setting forth the Redemption Price promptly following the
calculation thereof);
(c) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of partial redemption, the respective principal
amounts) of the particular Securities to be redeemed;
(d) that, on the Redemption Date, the Redemption Price will become due
and payable upon each such Security or portion thereof, and that interest
thereon, if any, shall cease to accrue on and after said date;
(e) the place or places where such Securities are to be surrendered for
payment of the Redemption Price;
(f) such other provisions as may be required in respect of the terms
of the Securities; and
(g) that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall be irrevocable.
The notice, if mailed in the manner provided above, shall be conclusively
presumed to have been duly given, whether or not the Holder receives such
notice. In any case, a failure to give such notice by mail or any defect in the
notice to the Holder of any Security designated for redemption as a whole or in
part shall not affect the validity of the proceedings for the redemption of any
other Security.
Section 11.5. Deposit of Redemption Price.
Prior to 10:00 a.m., New York City time, on the Redemption Date
specified in the notice of redemption given as provided in Section 11.4, the
Company will deposit with the Trustee or with one or more Paying Agents (or if
the Company is acting as its own Paying Agent, the Company will segregate and
hold in trust as provided in Section 10.3) an amount of money sufficient to pay
the
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Redemption Price of, and any accrued interest (including Additional Interest)
on, all the Securities (or portions thereof) that are to be redeemed on that
date.
Section 11.6. Payment of Securities Called for Redemption.
(a) If any notice of redemption has been given as provided in Section
11.4, the Securities or portion of Securities with respect to which such notice
has been given shall become due and payable on the date and at the place or
places stated in such notice at the applicable Redemption Price, together with
accrued interest (including any Additional Interest) to the Redemption Date. On
presentation and surrender of such Securities at a Place of Payment in said
notice specified, the said Securities or the specified portions thereof shall be
paid and redeemed by the Company at the applicable Redemption Price, together
with accrued interest (including any Additional Interest) to the Redemption
Date; provided, however, that, installments of interest (including Additional
Interest) whose Stated Maturity is on or prior to the Redemption Date will be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant record
dates according to their terms and the provisions of Section 3.8.
(b) Upon presentation of any Security redeemed in part only, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder thereof, at the expense of the Company, a new Security or Securities, of
authorized denominations, in aggregate principal amount equal to the unredeemed
portion of the Security so presented and having the same Original Issue Date,
Stated Maturity and terms.
(c) If any Security called for redemption shall not be so paid under
surrender thereof for redemption, the principal of and premium, if any, on such
Security shall, until paid, bear interest from the Redemption Date at the rate
prescribed therefor in the Security.
Section 11.7. Right of Redemption of Securities Initially Issued to the Issuer
Trust.
(a) The Company, at its option, may redeem such Securities (i) on or
after ____ __, 2003, in whole at any time or in part from time to time, or (ii)
upon the occurrence and during the continuation of a Tax Event, an Investment
Company Event or a Capital Treatment Event, at any time within 90 days following
the occurrence and during the continuation of such Tax Event, Investment Company
Event or Capital Treatment Event, in whole (but not in part), in each case at a
Redemption Price specified in such Security, together with accrued interest
(including Additional Interest) to the Redemption Date.
(b) If less than all the Securities are to be redeemed, the aggregate
principal amount of such Securities remaining Outstanding after giving effect to
such redemption shall be sufficient to satisfy any provisions of the Trust
Agreement.
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ARTICLE XII
SINKING FUNDS
Except as may be provided in any supplemental or amended indenture, no
sinking fund shall be established or maintained for the retirement of
Securities.
ARTICLE XIII
SUBORDINATION OF SECURITIES
Section 13.1. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article, the payment of the principal
of and interest (including any Additional Interest) on each and all of the
Securities are hereby expressly made subordinate and subject in right of payment
to the prior payment in full of all Senior Indebtedness.
Section 13.2. No Payment When Senior Indebtedness in Default; Payment Over of
Proceeds Upon Dissolution, Etc.
(a) If the Company shall default in the payment of any principal of or
interest on any Senior Indebtedness when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration of
acceleration or otherwise, then, upon written notice of such default to the
Company by the holders of Senior Indebtedness or any trustee therefor, unless
and until such default shall have been cured or waived or shall have ceased to
exist, no direct or indirect payment (in cash, property, securities, by set-off
or otherwise) shall be made or agreed to be made on account of the principal of
or interest (including Additional Interest) on any of the Securities, or in
respect of any redemption, repayment, retirement, purchase or other acquisition
of any of the Securities.
(b) In the event of (i) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to the Company, its creditors or its property, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors or
(iv) any other marshaling of the assets of the Company (each such event, if any,
herein sometimes referred to as a "Proceeding"), all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made to any Holder on
account thereof. Any payment or distribution, whether in cash, securities or
other property (other than securities of the Company or any other entity
provided for by a plan of reorganization or readjustment, the payment of which
is subordinate, at least to the extent provided in these subordination
provisions with respect to the indebtedness evidenced by the Securities, to the
payment of all Senior Indebtedness at the time outstanding and to any securities
issued in respect thereof under any such plan of reorganization or
readjustment), which
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would otherwise (but for these subordination provisions) be payable or
deliverable in respect of the Securities shall be paid or delivered directly to
the holders of Senior Indebtedness in accordance with the priorities then
existing among such holders until all Senior Indebtedness (including any
interest thereon accruing after the commencement of any Proceeding) shall have
been paid in full.
(c) In the event of any Proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the Holders of the Securities,
together with the holders of any obligations of the Company ranking on a parity
with the Securities, shall be entitled to be paid from the remaining assets of
the Company the amounts at the time due and owing on account of unpaid principal
of and interest on the Securities and such other obligations before any payment
or other distribution, whether in cash, property or otherwise, shall be made on
account of any capital stock or any obligations of the Company ranking junior to
the Securities, and such other obligations. If, notwithstanding the foregoing,
any payment or distribution of any character or any security, whether in cash,
securities or other property (other than securities of the Company or any other
entity provided for by a plan of reorganization or readjustment the payment of
which is subordinate, at least to the extent provided in these subordination
provisions with respect to the indebtedness evidenced by the Securities, to the
payment of all Senior Indebtedness at the time outstanding and to any securities
issued in respect thereof under any plan of reorganization or readjustment),
shall be received by the Trustee or any Holder in contravention of any of the
terms hereof and before all Senior Indebtedness shall have been paid in full,
such payment or distribution or security shall be received in trust for the
benefit of, and shall be paid over or delivered and transferred to, the holders
of the Senior Indebtedness at the time outstanding in accordance with the
priorities then existing among such holders for application to the payment of
all Senior Indebtedness remaining unpaid, to the extent necessary to pay all
such Senior Indebtedness in full. In the event of the failure of the Trustee or
any Holder to endorse or assign any such payment, distribution or security, each
holder of Senior Indebtedness is hereby irrevocably authorized to endorse or
assign the same.
(d) The Trustee and the Holders shall take such action (including,
without limitation, the delivery of this Indenture to an agent for the holders
of Senior Indebtedness or consent to the filing of a financing statement with
respect hereto) as may, in the opinion of counsel designated by the holders of a
majority in principal amount of the Senior Indebtedness at the time outstanding,
be necessary or appropriate to assure the effectiveness of the subordination
effected by these provisions.
(e) The provisions of this Section 13.2 shall not impair any rights,
interests, remedies or powers of any secured creditor of the Company in respect
of any security interest the creation of which is not prohibited by the
provisions of this Indenture.
(f) The securing of any obligations of the Company, otherwise ranking
on a parity with the Securities or ranking junior to the Securities shall not be
deemed to prevent such obligations from constituting, respectively, obligations
ranking on a parity with the Securities or ranking junior to the Securities.
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Section 13.3. Payment Permitted if No Default.
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Company, at any time, except during
the pendency of the conditions described in the first paragraph of Section 13.2
or of any Proceeding referred to in Section 13.2, from making payments at any
time of principal of or interest (including Additional Interest) on the
Securities, or (b) the application by the Trustee of any monies deposited with
it hereunder to the payment of or on account of the principal of or interest
(including any Additional Interest) on the Securities or the retention of such
payment by the Holders, if, at the time of such application by the Trustee, it
did not have knowledge that such payment would have been prohibited by the
provisions of this Article.
Section 13.4. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all amounts due or to become due on
all Senior Indebtedness, or the provision for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, the Holders of the Securities shall be subrogated to the extent of
the payments or distributions made to the holders of such Senior Indebtedness
pursuant to the provisions of this Article (equally and ratably with the holders
of all indebtedness of the Company that by its express terms is subordinated to
Senior Indebtedness of the Company to substantially the same extent as the
Securities are subordinated to the Senior Indebtedness and is entitled to like
rights of subrogation by reason of any payments or distributions made to holders
of such Senior Indebtedness) to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of (and
premium if any) and interest (including Additional Interest) on the Securities
shall be paid in full. For purposes of such subrogation, no payments or
distributions to the holders of the Senior Indebtedness of any cash, property or
securities to which the Holders of the Securities or the Trustee would be
entitled except for the provisions of this Article, and no payments pursuant to
the provisions of this Article to the holders of Senior Indebtedness by Holders
of the Securities or the Trustee, shall, as among the Company, its creditors
other than holders of Senior Indebtedness, and the Holders of the Securities, be
deemed to be a payment or distribution by the Company to or on account of the
Senior Indebtedness.
Section 13.5. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities is
intended to or shall (a) impair, as between the Company and the Holders of the
Securities, the obligations of the Company, which are absolute and
unconditional, to pay to the Holders of the Securities the principal of and
interest (including any Additional Interest) on the Securities as and when the
same shall become due and payable in accordance with their terms; (b) affect the
relative rights against the Company of the Holders of the Securities and
creditors of the Company other than their rights in relation to the holders of
Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security
(or to the extent expressly provided herein, the holder of any Preferred
Security) from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, including filing and voting claims in any
Proceeding, subject to the rights, if any, under this Article
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of the holders of Senior Indebtedness to receive cash, property and securities
otherwise payable or deliverable to the Trustee or such Holder.
Section 13.6. Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance thereof authorizes
and directs the Trustee on his or her behalf to take such action as may be
necessary or appropriate to acknowledge or effectuate the subordination provided
in this Article and appoints the Trustee his or her attorney-in-fact for any and
all such purposes.
Section 13.7. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior Indebtedness
to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof that any such holder may have or
be otherwise charged with.
(b) Without in any way limiting the generality of the immediately
preceding paragraph, the holders of Senior Indebtedness may, at any time and
from time to time, without the consent of or notice to the Trustee or the
Holders of the Securities, without incurring responsibility to such Holders of
the Securities and without impairing or releasing the subordination provided in
this Article or the obligations hereunder of such Holders of the Securities to
the holders of Senior Indebtedness, do any one or more of the following: (i)
change the manner, place or terms of payment or extent the time of payment of,
or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any
manner Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Indebtedness; (iii) release any Person liable in any manner for
the collection of Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Company and any other Person.
Section 13.8. Notice to Trustee.
(a) The Company shall give prompt written notice to a Responsible
Officer of the Trustee of any fact known to the Company that would prohibit the
making of any payment to or by the Trustee in respect of the Securities.
Notwithstanding the provisions of this Article or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any facts that would prohibit the making of any payment to or by the Trustee in
respect of the Securities, unless and until the Trustee shall have received
written notice thereof from the Company or a holder of Senior Indebtedness or
from any trustee, agent or representative therefor; provided, however, that if
the Trustee shall not have received the notice provided for in this Section at
least two Business Days prior to the date upon which by the terms hereof any
monies may become payable for any purpose (including, the payment of the
principal of (and premium, if any, on) or interest (including any Additional
Interest) on any Security), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
monies and to apply
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the same to the purpose for which they were received and shall not be affected
by any notice to the contrary that may be received by it within two Business
Days prior to such date.
(b) Subject to the provisions of Section 6.1, the Trustee shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself or herself to be a holder of Senior Indebtedness (or a
trustee or attorney-in-fact therefor) to establish that such notice has been
given by a holder of Senior Indebtedness (or a trustee or attorney-in-fact
therefor). In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
Section 13.9. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee, subject to the provisions of Section 6.1, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, conservator,
liquidating trustee, custodian, assignee for the benefit of creditors, agent or
other Person making such payment or distribution, delivered to the Trustee or to
the Holders of Securities, for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
Section 13.10. Trustee Not Fiduciary for Holders of Senior Indebtedness.
To the fullest extent permitted by law, the Trustee, in its capacity as
trustee under this Indenture, shall not be deemed to owe any fiduciary duty to
the holders of Senior Indebtedness and shall not be liable to any such holders
if it shall in good faith mistakenly pay over or distribute to Holders of
Securities or to the Company or to any other Person cash, property or securities
to which any holders of Senior Indebtedness shall be entitled by virtue of this
Article or otherwise.
Section 13.11. Rights of Trustee as Holder of Senior Indebtedness; Preservation
of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness that
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
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Section 13.12. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee.
Section 13.13. Certain Conversions or Exchanges Deemed Payment.
For purposes of this Article only, (a) the issuance and delivery of
junior securities upon conversion or exchange of Securities shall not be deemed
to constitute a payment or distribution on account of the principal of (or
premium, if any, on) or interest (including any Additional Interest) on such
Securities or on account of the purchase or other acquisition of such
Securities, and (b) the payment, issuance or delivery of cash, property or
securities (other than junior securities) upon conversion or exchange of a
Security shall be deemed to constitute payment on account of the principal of
such security. For the purposes of this Section, the term "junior securities"
means (i) shares of any stock of any class of the Company, and (ii) securities
of the Company that are subordinated in right of payment to all Senior
Indebtedness that may be outstanding at the time of issuance or delivery of such
securities to substantially the same extent as, or to a greater extent than, the
Securities are so subordinated as provided in this Article.
Section 13.14. Counterparts
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective seals to be hereunto affixed, all as of the
day and year first above written.
FIRST MARINER BANCORP
By:__________________________
Name:
Title:
WILMINGTON TRUST COMPANY, as Trustee
By:__________________________
Name:
Title:
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ANNEX A
FORM OF RESTRICTED SECURITIES CERTIFICATE
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to Section 3.6(b) of the Indenture referred to below)
[ ],
----------------------------------------
as Securities Registrar
[address]
Re: [Title of Securities] of First Mariner Bancorp (the "Securities")
Reference is made to the Junior Subordinated Indenture, dated as of
____ __, 1998 (the "Indenture"), between First Mariner Bancorp a Maryland
corporation, and Wilmington Trust Company, as Trustee. Terms used herein and
defined in the Indenture or in Regulation S, Rule 144A or Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act") are used here as so
defined.
This certificate relates to $ aggregate principal amount of
Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s).
CERTIFICATE No(s).
CURRENTLY IN GLOBAL FORM: / / Yes / / No (check one)
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (a) it is the sole beneficial owner
of the Specified Securities or (b) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through a Depositary or an Agent Member in the name of the Undersigned, as or on
behalf of the Owner. If the Specified Securities are not represented by a Global
Security, they are registered in the name of the Undersigned, as or on behalf of
the Owner.
The Owner has requested that the Specified Securities be transferred to
a person (the "Transferee") who will take delivery in the form of a Restricted
Security. In connection with such transfer, the Owner hereby certifies that,
unless such transfer is being effected pursuant to an effective registration
statement under the Securities Act, it is being effected in accordance with Rule
144A, Rule 904 of Regulation S or Rule 144 under the Securities Act and all
applicable securities laws of
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the states of the United States and other jurisdictions. Accordingly, the Owner
hereby further certifies that:
(a) Rule 144A Transfers. If the transfer is being effected in
accordance with Rule 144A:
(i) the Specified Securities are being transferred to a person
that the Owner and any person acting on its behalf reasonably believe is a
"qualified institutional buyer" within the meaning of Rule 144A, acquiring for
its own account or for the account of a qualified institutional buyer; and
(ii) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner may be
relying on Rule 144A in connection with the transfer; and
(b) Rule 904 Transfers. If the transfer is being effected in accordance
with Rule 904:
(i) the Owner is not a distributor of the Securities, an
affiliate of the Company or any such distributor or a person acting in behalf
of any of the foregoing;
(ii) the offer of the Specified Securities was not made
to a person in the United States;
(iii) either;
(A) at the time the buy order was originated,
the Transferee was outside the United States or the Owner and any person acting
on its behalf reasonably believed that the Transferee was outside the United
States, or
(B) the transaction is being executed in, on or
through the facilities of the Eurobond market, as regulated by the Association
of International Bond Dealers, or another designated offshore securities market
and neither the Owner nor any person acting on its behalf know that the
transaction has been prearranged with a buyer in the United States;
(iv) no directed selling efforts within the meaning of Rule
902 of Regulation S have been made in the United States by or on behalf of the
Owner or any affiliate thereof; and
(v) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act.
(c) Rule 144 Transfers. If the transfer is being effected pursuant to
Rule 144:
(i) the transfer is occurring after a holding period of at
least two years (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the date the Specified Securities were acquired from the Company
or from an affiliate (as such term is defined in Rule 144) of the Company,
whichever is later, and is being effected in accordance with the applicable
amount, manner of sale and notice requirements of paragraphs (e), (f) and (h) of
Rule 144;
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(ii) the transfer is occurring after a holding period by the
Owner of at least three years has elapsed since the date the Specified
Securities were acquired from the Company or from an affiliate (as such term is
defined in Rule 144) of the Company, whichever is later, and the Owner is not,
and during the preceding three months has not been, an affiliate of the Company;
or
(iii) the Owner is a Qualified Institutional Buyer under Rule
144A or has acquired the Securities otherwise in accordance with Sections (1),
(2) or (3) hereof and is transferring the Securities to an institutional
accredited investor in a transaction exempt from the requirements of the
Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchasers (as defined in
the Trust Agreement relating to the Issuer Trust to which the Securities were
initially issued).
(Print the name of the Undersigned, as such term is defined in the
second paragraph of this certificate.)
Dated: ____________________ By: __________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or fiduciary, the title of the
person signing on behalf of the Undersigned must be stated.)
73
<PAGE>
EXHIBIT 4.2
AMENDED AND RESTATED TRUST AGREEMENT
among
FIRST MARINER BANCORP,
as Depositor
WILMINGTON TRUST COMPANY,
as Property Trustee,
and
WILMINGTON TRUST COMPANY,
as Delaware Trustee
Dated as of _____________, 1998
MARINER CAPITAL TRUST
<PAGE>
Certain Sections of this Amended and Restated Trust Agreement relating to
Sections 310 through 318 of the Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Trust Agreement
Act Section Section
--------------- ---------------
<S> <C>
Section 310
(a)(1).................................................................8.7
(a)(2).................................................................8.7
(a)(3).................................................................8.9
(a)(4)..........................................................2.7(a)(ii)
(b)..........................................................8.8, 10.10(b)
Section 311
(a)...........................................................13, 10.10(b)
Section 312
(a)...............................................................10.10(b)
(b)..........................................................10.10(b), (f)
(c)....................................................................5.7
Section 313
(a)................................................................8.15(a)
(a)(4)............................................................10.10(c)
(b)......................................................8.15(c), 10.10(c)
(c).........................................................10.8, 10.10(c)
(d)...............................................................10.10(c)
Section 314
(a).........................................................8.16, 10.10(d)
(b).........................................................Not Applicable
(c)(1).................................................8.17, 10.10(d), (e)
(c)(2).................................................8.17, 10.10(d), (e)
(c)(3).................................................8.17, 10.10(d), (e)
(e).........................................................8.17, 10.10(e)
Section 315
(a).................................................................8.1(d)
(b)....................................................................8.2
(c).................................................................8.1(c)
(d).................................................................8.1(d)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Trust Indenture Trust Agreement
Act Section Section
--------------- ---------------
<S> <C>
(e).........................................................Not Applicable
Section 316
(a).........................................................Not Applicable
(a)(1)(A)...................................................Not Applicable
(a)(1)(B)...................................................Not Applicable
(a)(2)......................................................Not Applicable
(b)...................................................................5.13
(c)....................................................................6.7
Section 317
(a)(1)......................................................Not Applicable
(a)(2)................................................................8.14
(b)...................................................................5.10
Section 318
(a)................................................................10.10(a)
</TABLE>
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Trust Agreement.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINED TERMS................................................................................1
Section 1.1. Definitions...................................................................1
ARTICLE II
CONTINUATION OF THE ISSUER TRUST............................................................12
Section 2.1. Name.........................................................................12
Section 2.2. Office of the Delaware Trustee; Principal Place of Business..................12
Section 2.3. Initial Contribution of Trust Property; Organizational Expenses..............13
Section 2.4. Issuance of the Preferred Securities.........................................13
Section 2.5. Issuance of the Common Securities; Subscription and Purchase of Junior
Subordinated Debentures.....................................................13
Section 2.6. Declaration of Trust.........................................................13
Section 2.7. Authorization to Enter into Certain Transactions.............................14
Section 2.8. Assets of Trust..............................................................17
Section 2.9. Title to Trust Property......................................................17
ARTICLE III
PAYMENT ACCOUNT.............................................................................17
Section 3.1. Payment Account..............................................................17
ARTICLE IV
DISTRIBUTIONS; REDEMPTION...................................................................18
Section 4.1. Distributions................................................................18
Section 4.2. Redemption...................................................................19
Section 4.3. Subordination of Common Securities...........................................21
Section 4.4. Payment Procedures...........................................................22
Section 4.5. Tax Returns and Reports......................................................22
Section 4.6. Payment of Taxes; Duties, Etc. of the Issuer Trust...........................22
Section 4.7. Payments under Indenture or Pursuant to Direct Actions.......................23
Section 4.8. Liability of the Holder of Common Securities.................................23
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V
TRUST SECURITIES CERTIFICATES...............................................................23
Section 5.1. Initial Ownership............................................................23
Section 5.2. The Trust Securities Certificates............................................23
Section 5.3. Execution and Delivery of Trust Securities Certificates......................24
Section 5.4. Global Preferred Security....................................................24
Section 5.5. Registration of Transfer and Exchange Generally; Certain
Transfers and Exchanges; Preferred Securities Certificates..................25
Section 5.6. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates...........27
Section 5.7. Persons Deemed Holders.......................................................27
Section 5.8. Access to List of Holders' Names and Addresses...............................27
Section 5.9. Maintenance of Office or Agency..............................................28
Section 5.10. Appointment of Paying Agent..................................................28
Section 5.11. Ownership of Common Securities by Depositor..................................28
Section 5.12. Notices to Clearing Agency...................................................29
Section 5.13. Rights of Holders............................................................29
ARTICLE VI
ACTS OF HOLDERS; MEETINGS; VOTING...........................................................31
Section 6.1. Limitations on Holder's Voting Rights........................................31
Section 6.2. Notice of Meetings...........................................................32
Section 6.3. Meetings of Holders..........................................................32
Section 6.4. Voting Rights................................................................33
Section 6.5. Proxies, etc.................................................................33
Section 6.6. Holder Action by Written Consent.............................................33
Section 6.7. Record Date for Voting and Other Purposes....................................33
Section 6.8. Acts of Holders..............................................................34
Section 6.9. Inspection of Records........................................................35
ARTICLE VII
REPRESENTATIONS AND WARRANTIES..............................................................35
Section 7.1. Representations and Warranties of the Property Trustee and the
Delaware Trustee............................................................35
Section 7.2. Representations and Warranties of the Depositor..............................36
ARTICLE VIII
THE ISSUER TRUSTEES; THE ADMINISTRATORS.....................................................37
Section 8.1. Certain Duties and Responsibilities..........................................37
Section 8.2. Certain Notices..............................................................39
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 8.3. Certain Rights of Property Trustee...........................................40
Section 8.4. Not Responsible for Recitals or Issuance of Securities.......................42
Section 8.5. May Hold Securities..........................................................42
Section 8.6. Compensation; Indemnity; Fees................................................42
Section 8.7. Corporate Property Trustee Required; Eligibility of Trustees and
Administrators..............................................................43
Section 8.8. Conflicting Interests........................................................44
Section 8.9. Co-Trustees and Separate Trustee.............................................44
Section 8.10. Resignation and Removal; Appointment of Successor............................46
Section 8.11. Acceptance of Appointment by Successor.......................................47
Section 8.12. Merger, Conversion, Consolidation or Succession to Business..................47
Section 8.13. Preferential Collection of Claims Against Depositor or Issuer Trust..........48
Section 8.14. Trustee May File Proofs of Claim.............................................48
Section 8.15. Reports by Property Trustee..................................................48
Section 8.16. Reports to the Property Trustee..............................................49
Section 8.17. Evidence of Compliance with Conditions Precedent.............................49
Section 8.18. Number of Issuer Trustees....................................................49
Section 8.19. Delegation of Power..........................................................50
Section 8.20. Appointment of Administrators................................................50
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER.........................................................51
Section 9.1. Dissolution Upon Expiration Date.............................................51
Section 9.2. Early Termination............................................................51
Section 9.3. Dissolution..................................................................51
Section 9.4. Liquidation..................................................................52
Section 9.5. Mergers, Consolidations, Amalgamations or Replacements of the Issuer Trust...53
ARTICLE X
MISCELLANEOUS PROVISIONS....................................................................54
Section 10.1. Limitation of Rights of Holders..............................................54
Section 10.2. Amendment....................................................................55
Section 10.3. Separability.................................................................56
Section 10.4. Governing Law................................................................56
Section 10.5. Payments Due on Non-Business Day.............................................56
Section 10.6. Successors...................................................................56
Section 10.7. Headings.....................................................................57
Section 10.8. Reports, Notices and Demands.................................................57
Section 10.9. Agreement Not to Petition....................................................57
Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act.......................58
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 10.11. Acceptance of Terms of Trust Agreement, Guarantee and Indenture..............59
EXHIBIT A
[INSERT CERTIFICATE OF TRUST FILED WITH DELAWARE SECRETARY OF STATE]........................61
EXHIBIT B
[INSERT FORM OF CERTIFICATE DEPOSITARY AGREEMENT] ..........................................62
EXHIBIT C.....................................................................................1
EXHIBIT D.....................................................................................1
ASSIGNMENT....................................................................................3
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT, dated as of ________, 1998, among (a)
FIRST MARINER BANCORP, a Maryland corporation (including any successors or
assigns, the "Depositor"), (b) Wilmington Trust Company, a Delaware banking
corporation, as property trustee (in such capacity, the "Property Trustee" and,
in its separate corporate capacity and not in its capacity as Property Trustee,
the "Bank"), and (c) Wilmington Trust Company, a Delaware banking corporation,
as Delaware trustee (the "Delaware Trustee") (the Property Trustee and the
Delaware Trustee are referred to collectively herein as the "Issuer Trustees")
and (d) the several Holders, as hereinafter defined.
WITNESSETH:
WHEREAS, the Depositor and the Delaware Trustee have heretofore duly
declared and established a business trust pursuant to the Delaware Business
Trust Act by entering into that certain Trust Agreement dated May __, 1998 (the
"Original Trust Agreement) and by the execution and filing by the Delaware
Trustee with the Secretary of State of the State of Delaware of the Certificate
of Trust, filed on May __, 1998 (the "Certificate of Trust"), a copy of which is
attached hereto as Exhibit A; and
WHEREAS, the Depositor and the Delaware Trustee desire to amend and restate
the Original Trust Agreement in its entirety as set forth herein to provide for,
among other things, (a) the issuance of the Common Securities by the Issuer
Trust to the Depositor, (b) the issuance and sale of the Preferred Securities by
the Issuer Trust pursuant to the Underwriting Agreement, (c) the acquisition by
the Issuer Trust from the Depositor of all of the right, title and interest in
the Junior Subordinated Debentures, and (d) the appointment of the
Administrators.
NOW THEREFORE, in consideration of the agreements and obligations set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each party, for the benefit of the
other parties and for the benefit of the Holders, hereby agrees, intending to be
legally bound, as follows:
ARTICLE I
DEFINED TERMS
Section 1.1. Definitions
For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to them in
this Article and include the plural as well as the singular;
<PAGE>
(b) all other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) the words "include," "includes" and "including" shall be deemed to be
followed by the phrase "without limitation";
(d) all accounting terms used but not defined herein have the meanings
assigned to them in accordance with United States generally accepted accounting
principles as in effect at the time of computation;
(e) unless the context otherwise requires, any reference to an "Article" or
a "Section" refers to an Article or a Section, as the case may be, of this Trust
Agreement;
(f) the words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Trust Agreement as a whole and not to any particular
Article, Section or other subdivision; and
(g) all references to the date the Preferred Securities were originally
issued shall refer to the date the ___% Preferred Securities were originally
issued.
"25% Capital Limitation" means the limitation imposed by the Federal
Reserve that the proceeds of certain qualifying securities similar to the Trust
Securities will qualify as Tier 1 capital of the issuer up to an amount not to
exceed 25% of the issuer's Tier 1 capital, or any subsequent limitation adopted
by the Federal Reserve.
"Act" has the meaning specified in Section 6.8.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or for a given period, the amount of Additional Interest
(as defined in the Indenture) paid by the Depositor on a Like Amount of
Debentures for such period.
"Additional Sums" has the meaning specified in Section 10.6 of the
Indenture.
"Administrators" means each Person appointed in accordance with Section
8.20 solely in such Person's capacity as Administrator of the Issuer Trust
heretofore formed and continued hereunder and not in such Person's individual
capacity, or any successor Administrator appointed as herein provided; with the
initial Administrators being Joseph A. Cicero and Kevin M. Healey.
"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
2
<PAGE>
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Preferred Security or beneficial interest therein, the rules
and procedures of the Depositary for such Preferred Security, in each case to
the extent applicable to such transaction and as in effect from time to time.
"Bank" has the meaning specified in the preamble to this Trust Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in the
premises judging such Person a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjudication or
composition of or in respect of such Person under any applicable federal or
state bankruptcy, insolvency, reorganization or other similar law, or appointing
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of such Person or of any substantial part of its property or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive days; or
(b) the institution by such Person of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under any applicable federal or
State bankruptcy, insolvency, reorganization or other similar law, or the
consent by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or similar official) of
such Person or of any substantial part of its property or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due and its willingness
to be adjudicated a bankrupt, or the taking of corporate action by such Person
in furtherance of any such action.
"Bankruptcy Laws" has the meaning specified in Section 10.9.
"Board of Directors" means the board of directors of the Depositor or the
Executive Committee of the board of directors of the Depositor (or any other
committee of the board of directors of the Depositor performing similar
functions) or, for purposes of this Trust Agreement a committee designated by
the board of directors of the Depositor (or any such committee), comprised of
two or more members of the board of directors of the Depositor or officers of
the Depositor, or both.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Depositor to have been duly adopted by the
Depositor's Board of
3
<PAGE>
Directors, or such committee of the Board of Directors or officers of the
Depositor to which authority to act on behalf of the Board of Directors has been
delegated, and to be in full force and effect on the date of such certification,
and delivered to the Issuer Trustees.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in the State of Maryland or in the City of New
York, are authorized or required by law or executive order to remain closed or
(c) a day on which the Property Trustee's Corporate Trust Office or the Delaware
Trustee's Corporate Trust Office or the Corporate Trust Office of the Debenture
Trustee is closed for business.
"Capital Treatment Event" means, in respect of the Issuer Trust, the
reasonable determination by the Depositor that, as a result of the occurrence of
any amendment to, or change (including any announced prospective change) in, the
laws (or any rules or regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such pronouncement, action or decision is announced on or after the date of the
issuance of the Preferred Securities of the Issuer Trust, there is more than an
insubstantial risk that the Depositor will not be entitled to treat an amount
equal to the Liquidation Amount of such Preferred Securities as "Tier 1 Capital"
(or the then equivalent thereof), except as otherwise restricted under the 25%
Capital Limitation, for purposes of the risk-based capital adequacy guidelines
of the Board of Governors of the Federal Reserve System, as then in effect and
applicable to the Depositor.
"Cede" means Cede & Co.
"Certificate Depositary Agreement" means the agreement among the Issuer
Trust, the Depositor and the Depositary, as the initial Clearing Agency, dated
as of the Closing Date, substantially in the form attached hereto as Exhibit B,
as the same may be amended and supplemented from time to time.
"Certificate of Trust" has the meaning specified in the preamble to this
Trust Agreement.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act. The Depositary shall be the initial
Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Closing Date" means the Time of Delivery for the Trust Securities, which
date is also the date of execution and delivery of this Trust Agreement.
4
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended or any successor
statute, in each case as amended from time to time.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Securities Certificate" means a certificate evidencing ownership of
Common Securities, substantially in the form attached hereto as Exhibit C.
"Common Security" means an undivided beneficial interest in the assets of
the Issuer Trust, having a Liquidation Amount of $10 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
"Corporate Trust Office" means the principal office of the Property Trustee
located in the City of Wilmington, Delaware, which at the time of the execution
of this Trust Agreement is located at Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890; Attention: Corporate Trust Administration.
"Debenture Event of Default" means an "Event of Default" as defined in the
Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption of such Debentures
under the Indenture.
"Debenture Trustee" means Wilmington Trust Company, a Delaware banking
corporation and any successor, as trustee under the Indenture.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. C. 3801, et seq., as it may be amended from time to time.
"Delaware Trustee" means the corporation identified as the "Delaware
Trustee" in the preamble to this Trust Agreement solely in its capacity as
Delaware Trustee of the Issuer Trust continued hereunder and not in its
individual capacity, or its successor in interest in such capacity, or any
successor trustee appointed as herein provided.
"Depositary" means the Depository Trust Company or any successor thereto.
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
5
<PAGE>
"Direct Action" has the meaning specified in Section 5.13(c).
"Distribution Date" has the meaning specified in Section 4.1(a).
"Distributions" means amounts payable in respect of the Trust Securities as
provided in Section 4.1.
"Early Termination Event" has the meaning specified in Section 9.2.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the occurrence of a Debenture Event of Default;
(b) default by the Issuer Trust in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of 30
days;
(c) default by the Issuer Trust in the payment of any Redemption Price of
any Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material respect, of any
covenant or warranty of the Issuer Trust in this Trust Agreement (other than a
covenant or warranty a default in the performance of which or the breach of
which is dealt with in clause (b) or (c) above) and continuation of such default
or breach for a period of 60 days after there has been given, by registered or
certified mail, to the Issuer Trustees and the Depositor by the Holders of at
least 25% in aggregate Liquidation Amount of the Outstanding Preferred
Securities, a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default" hereunder;
or
(e) the occurrence of any Bankruptcy Event with respect to the Property
Trustee or all or substantially all of its property if a successor Property
Trustee has not been appointed within a period of 90 days thereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and any successor statute thereto, in each case as amended from time to time.
"Expiration Date" has the meaning specified in Section 9.1.
"Global Preferred Securities Certificate" means a Preferred Securities
Certificate evidencing ownership of Global Preferred Securities.
6
<PAGE>
"Global Preferred Security" means a Preferred Security, the ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 5.4.
"Guarantee Agreement" means the Guarantee Agreement executed and delivered
by the Depositor and Wilmington Trust Company, as trustee, contemporaneously
with the execution and delivery of this Trust Agreement, for the benefit of the
holders of the Preferred Securities, as amended from time to time.
"Holder" means a Person in whose name a Trust Security or Trust Securities
is registered in the Securities Register; any such Person shall be deemed to be
a beneficial owner within the meaning of the Delaware Business Trust Act.
"Indemnified Person" has the meaning specified in Section 8.6(c).
"Indenture" means the Junior Subordinated Indenture, dated as of ______ __,
1998, between the Depositor and the Debenture Trustee (as amended or
supplemented from time to time) relating to the issuance of the Junior
Subordinated Debentures.
"Investment Company Act" means the Investment Company Act of 1940, as
amended or any successor statute, in each case as amended from time to time.
"Investment Company Event" means the receipt by the Issuer Trust of an
Opinion of Counsel experienced in such matters to the effect that, as a result
of the occurrence of a change in law or regulation or a written change
(including any announced prospective change) in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority, there is more than an insubstantial risk that the Issuer
Trust is or will be considered an "investment company" that is required to be
registered under the Investment Company Act, which change or prospective change
becomes effective or would become effective, as the case may be, on or after the
date of the issuance of the Preferred Securities.
"Issuer Trust" means Mariner Capital Trust.
"Issuer Trustees" means, collectively, the Property Trustee and the
Delaware Trustee.
"Junior Subordinated Debentures" means the aggregate principal amount of
the Depositor's_____% junior subordinated debentures, due _______, 2028, which
date may be shortened once at any time by the Company to any date not earlier
than _______, 2003, issued pursuant to the Indenture.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
7
<PAGE>
"Like Amount" means (a) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to that portion of the
principal amount of Junior Subordinated Debentures to be contemporaneously
redeemed in accordance with the Indenture, allocated to the Common Securities
and to the Preferred Securities based upon the relative Liquidation Amounts of
such classes and (b) with respect to a distribution of Junior Subordinated
Debentures to Holders of Trust Securities in connection with a dissolution or
liquidation of the Issuer Trust, Junior Subordinated Debentures having a
principal amount equal to the Liquidation Amount of the Trust Securities of the
Holder to whom such Junior Subordinated Debentures are distributed.
"Liquidation Amount" means the stated amount of $10 per Trust Security.
"Liquidation Date" means the date on which Junior Subordinated Debentures
are to be distributed to Holders of Trust Securities in connection with a
dissolution and liquidation of the Issuer Trust pursuant to Section 9.4.
"Liquidation Distribution" has the meaning specified in Section 9.4(d).
"Majority in Liquidation Amount of the Preferred Securities" or "Majority
in Liquidation Amount of the Common Securities" means, except as provided by the
Trust Indenture Act, Preferred Securities or Common Securities, as the case may
be, representing more than 50% of the aggregate Liquidation Amount of all then
Outstanding Preferred Securities or Common Securities, as the case may be.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman of the Board, Chief Executive Officer, President or a
Vice President and by the Chief Financial Officer, Treasurer, an Associate
Treasurer, an Assistant Treasurer, the Secretary, or an Assistant Secretary, of
the Depositor, and delivered to the Issuer Trustees. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Trust Agreement shall include:
(a) a statement by each officer signing the Officers' Certificate that such
officer has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by such officer in rendering the Officers' Certificate;
(c) a statement that such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
8
<PAGE>
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for or an employee of the Depositor or any Affiliate of the Depositor.
"Outstanding," with respect to Trust Securities, means, as of the date of
determination, all Trust Securities theretofore executed and delivered under
this Trust Agreement, except:
(a) Trust Securities theretofore canceled by the Property Trustee or
delivered to the Property Trustee for cancellation;
(b) Trust Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Property Trustee or any Paying
Agent for the Holders of such Preferred Securities, provided that if such Trust
Securities are to be redeemed, notice of such redemption has been duly given
pursuant to this Trust Agreement; and
(c) Trust Securities which have been paid or in exchange for or in lieu of
which other Trust Securities have been executed and delivered pursuant to
Sections 5.4, 5.5, 5.6 and 5.13; provided, however, that in determining whether
the Holders of the requisite Liquidation Amount of the Outstanding Preferred
Securities have given any request, demand, authorization, direction, notice,
consent or waiver hereunder, Preferred Securities owned by the Depositor, any
Issuer Trustee, any Administrator or any Affiliate of the Depositor shall be
disregarded and deemed not to be Outstanding, except that (i) in determining
whether any Issuer Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Preferred
Securities that such Issuer Trustee or such Administrator, as the case may be,
knows to be so owned shall be so disregarded and (ii) the foregoing shall not
apply at any time when all of the outstanding Preferred Securities are owned by
the Depositor, one or more of the Issuer Trustees, one or more of the
Administrators and/or any such Affiliate. Preferred Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Administrators the pledgee's right so to
act with respect to such Preferred Securities and that the pledgee is not the
Depositor or any Affiliate of the Depositor.
"Owner" means each Person who is the beneficial owner of Global Preferred
Securities as reflected in the records of the Clearing Agency or, if a Clearing
Agency Participant is not the Owner, then as reflected in the records of a
Person maintaining an account with such Clearing Agency, directly or indirectly,
in accordance with the rules of such Clearing Agency.
"Paying Agent" means any paying agent or co-paying agent appointed pursuant
to Section 5.10 and shall initially be the Property Trustee.
"Payment Account" means a segregated non-interest-bearing corporate trust
account maintained by the Property Trustee with the Property Trustee in its
trust department for the benefit
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of the Holders in which all amounts paid in respect of the Junior Subordinated
Debentures will be held and from which the Property Trustee, through the Paying
Agent, shall make payments to the Holders in accordance with Sections 4.1 and
4.2.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, company,
limited liability company, trust, unincorporated organization or government or
any agency or political subdivision thereof, or any other entity of whatever
nature.
"Preferred Securities Certificate" means a certificate evidencing ownership
of Preferred Securities, substantially in the form attached hereto as Exhibit D.
"Preferred Security" means a preferred undivided beneficial interest in the
assets of the Issuer Trust, having a Liquidation Amount of $10 and having the
rights provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
"Property Trustee" means the Person identified as the "Property Trustee" in
the preamble to this Trust Agreement solely in its capacity as Property Trustee
of the Issuer Trust formed and continued hereunder and not in its individual
capacity, or its successor in interest in such capacity, or any successor
property trustee appointed as herein provided.
"Redemption Date" means, with respect to any Trust Security to be redeemed,
the date fixed for such redemption by or pursuant to this Trust Agreement;
provided that each Junior Subordinated Debenture Redemption Date and the stated
maturity of the Junior Subordinated Debentures shall be a Redemption Date for a
Like Amount of Trust Securities, including but not limited to any date of
redemption pursuant to the occurrence of any Special Event.
"Redemption Price" means with respect to a redemption of any Trust
Security, the Liquidation Amount of such Trust Security, together with
accumulated but unpaid Distributions to but excluding the date fixed for
redemption, plus the related amount of the premium, if any, paid by the
Depositor upon the concurrent redemption of a Like Amount of Junior Subordinated
Debentures.
"Relevant Trustee" has the meaning specified in Section 8.10.
"Responsible Officer" when used with respect to the Property Trustee means
any officer assigned to the Corporate Trust Office, including any managing
director, principal, vice president, assistant vice president, assistant
treasurer, assistant secretary or any other officer of the Property Trustee
customarily performing functions similar to those performed by any of the above
designated officers and having direct responsibility for the administration of
this Trust Agreement, and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
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"Securities Act" means the Securities Act of 1933, as amended, and any
successor statute thereto, in each case as amended from time to time.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.5.
"Special Event" means any Tax Event, Capital Treatment Event or Investment
Company Event.
"Successor Preferred Securities Certificate" of any particular Preferred
Securities Certificate means every Preferred Securities Certificate issued
after, and evidencing all or a portion of the same beneficial interest in the
Issuer Trust as that evidenced by, such particular Preferred Securities
Certificate; and, for the purposes of this definition, any Preferred Securities
Certificate executed and delivered under Section 5.6 in exchange for or in lieu
of a mutilated, destroyed, lost or stolen Preferred Securities Certificate shall
be deemed to evidence the same beneficial interest in the Issuer Trust as the
mutilated, destroyed, lost or stolen Preferred Securities Certificate.
"Successor Preferred Security" has the meaning specified in Section 9.5.
"Tax Event" means the receipt by the Issuer Trust of an Opinion of Counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement, action or decision is announced on or after the date of
issuance of the Preferred Securities, there is more than an insubstantial risk
that (a) the Issuer Trust is, or will be within 90 days of the delivery of such
Opinion of Counsel, subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, (b) interest
payable by the Depositor on the Junior Subordinated Debentures is not, or within
90 days of the delivery of such Opinion of Counsel will not be, deductible by
the Depositor, in whole or in part, for United States federal income tax
purposes, or (c) the Issuer Trust is, or will be within 90 days of the delivery
of such Opinion of Counsel, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
"Time of Delivery" means the date and time of delivery and payment
specified at the Closing Date in the Underwriting Agreement.
"Trust Agreement" means this Amended and Restated Trust Agreement, as the
same may be modified, amended or supplemented in accordance with the applicable
provisions hereof, including (a) all Exhibits hereto, and (b) for all purposes
of this Amended and Restated Trust Agreement and any such modification,
amendment or supplement, the provisions of the Trust
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Indenture Act that are deemed to be a part of and govern this Amended and
Restated Trust Agreement and any modification, amendment or supplement,
respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990, or any successor statute, in each case
as amended from time to time.
"Trust Property" means (a) the Junior Subordinated Debentures, (b) any cash
on deposit in, or owing to, the Payment Account, and (c) all proceeds and rights
in respect of the foregoing and any other property and assets for the time being
held or deemed to be held by the Property Trustee pursuant to the trusts of this
Trust Agreement.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Trust Security" means any one of the Common Securities or the Preferred
Securities.
"Underwriters" has the meaning specified in the Underwriting Agreement.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
________, 1998, among the Issuer Trust, the Depositor and the Underwriters, as
the same may be amended from time to time.
ARTICLE II
CONTINUATION OF THE ISSUER TRUST
Section 2.1. Name.
The Issuer Trust continued hereby shall be known as "Mariner Capital
Trust," as such name may be modified from time to time by the Administrators
following written notice to the Holders of Trust Securities and the other
Issuer Trustees, in which name the Administrators and the Issuer Trustees may
engage in the transactions contemplated hereby, make and execute contracts
and other instruments on behalf of the Issuer Trust and sue and be sued.
Section 2.2. Office of the Delaware Trustee; Principal Place of Business.
The address of the Delaware Trustee in the State of Delaware is Wilmington
Trust Company, Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890, Attention: Corporate Trust Administration, or such other address
in the State of Delaware as the Delaware Trustee may designate by written notice
to the Holders and the Depositor. The principal executive office of the Issuer
Trust is in care of First Mariner Bancorp, 1801 South Clinton Street, Baltimore,
Maryland 21224, Attention: President.
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Section 2.3. Initial Contribution of Trust Property; Organizational Expenses.
The Property Trustee acknowledges receipt in trust from the Depositor in
connection with this Trust Agreement of the sum of $10, which constitutes the
initial Trust Property. The Depositor shall pay all organizational expenses of
the Issuer Trust as they arise or shall, upon request of any Issuer Trustee,
promptly reimburse such Issuer Trustee for any such reasonable expenses paid by
such Issuer Trustee. The Depositor shall make no claim upon the Trust Property
for the payment of such expenses.
Section 2.4. Issuance of the Preferred Securities.
On _______, 1998, the Depositor, both on its own behalf and on behalf of
the Issuer Trust, executed and delivered the Underwriting Agreement.
Contemporaneously with the execution and delivery of this Trust Agreement, an
Administrator, on behalf of the Issuer Trust, shall manually execute in
accordance with Section 5.3 and the Property Trustee shall authenticate in
accordance with Section 5.3 and deliver to the Underwriters, Preferred
Securities Certificates, registered in the names requested by the Underwriters,
in an aggregate amount of ________ Preferred Securities having an aggregate
Liquidation Amount of $10, against receipt of the aggregate purchase price of
such Preferred Securities of $________, by the Property Trustee.
Section 2.5. Issuance of the Common Securities; Subscription and Purchase of
Junior Subordinated Debentures.
Contemporaneously with the execution and delivery of this Trust Agreement,
an Administrator, on behalf of the Issuer Trust, shall manually execute in
accordance with Section 5.2 and deliver to the Depositor, Common Securities
Certificates, registered in the name of the Depositor, in an aggregate amount of
______ Common Securities having an aggregate Liquidation Amount of $10 against
receipt by the Property Trustee of the aggregate purchase price of such Common
Securities of $_______ by the Property Trustee. Contemporaneously with the
executions, and deliveries of Common Securities Certificates and any Preferred
Securities Certificates, an Administrator, on behalf of the Issuer Trust, shall
subscribe for and purchase from the Depositor, corresponding amounts of Junior
Subordinated Debentures, registered in the name of the Property Trustee and
having an aggregate principal amount equal to $_________ and, in satisfaction of
the purchase price for such Junior Subordinated Debentures, the Property
Trustee, on behalf of the Issuer Trust, shall deliver to the Depositor the sum
of $_________, and receive on behalf of the Issuer Trust the Junior Subordinated
Debentures.
Section 2.6. Declaration of Trust.
The exclusive purposes and functions of the Issuer Trust are to (a) issue
and sell Trust Securities and use the proceeds from such sale to acquire the
Junior Subordinated Debentures, and (b) engage in only those other activities
necessary, convenient or incidental thereto. The
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Depositor hereby appoints the Issuer Trustees as trustees of the Issuer Trust,
to have all the rights, powers and duties to the extent set forth herein, and
the Issuer Trustees hereby accept such appointment. The Property Trustee hereby
declares that it will hold the Trust Property in trust upon and subject to the
conditions set forth herein for the benefit of the Issuer Trust and the Holders.
The Depositor hereby appoints the Administrators (as agents of the Issuer
Trust), with such Administrators having all rights, powers and duties set forth
herein with respect to accomplishing the purposes of the Issuer Trust, and the
Administrators hereby accept such appointment, provided, however, that it is the
intent of the parties hereto that such Administrators shall not be trustees or,
to the fullest extent permitted by law, fiduciaries with respect to the Issuer
Trust and this Agreement shall be construed in a manner consistent with such
intent. The Property Trustee shall have the right and power to perform those
duties assigned to the Administrators. The Delaware Trustee shall not be
entitled to exercise any powers, nor shall the Delaware Trustee have any of the
duties and responsibilities, of the Property Trustee or the Administrators set
forth herein. The Delaware Trustee shall be one of the trustees of the Issuer
Trust for the sole and limited purpose of fulfilling the requirements of Section
3807 of the Delaware Business Trust Act and for taking such actions as are
required to be taken by a Delaware trustee under the Delaware Business Trust
Act.
Section 2.7. Authorization to Enter into Certain Transactions.
(a) The Issuer Trustees and the Administrators shall conduct the affairs of
the Issuer Trust in accordance with the terms of this Trust Agreement. Subject
to the limitations set forth in paragraph (b) of this Section and in accordance
with the following provisions (i) and (ii), the Issuer Trustees and the
Administrators shall act as follows:
(i) Each Administrator shall have the power and authority to act on
behalf of the Issuer Trust with respect to the following:
(A) the compliance with the Underwriting Agreement regarding the
issuance and sale of the Trust Securities;
(B) the compliance with the Securities Act, applicable state securities
or blue sky laws, and the Trust Indenture Act;
(C) the listing of the Preferred Securities upon such securities
exchange or exchanges or upon the Nasdaq Stock Market, Inc.'s National
Market as shall be determined by the Depositor, with the registration
of the Preferred Securities under the Exchange Act, if required, and
the preparation and filing of all periodic and other reports and other
documents pursuant to the foregoing;
(D) the application for a taxpayer identification number for the Issuer
Trust;
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(E) the preparation of a registration statement and a prospectus in
relation to the Preferred Securities, including any amendments thereto
and the taking of any action necessary or desirable to sell the
Preferred Securities in a transaction or series of transactions subject
to the registration requirements of the Securities Act; and
(F) any action incidental to the foregoing as necessary or advisable to
give effect to the terms of this Trust Agreement.
(ii) The Property Trustee shall have the power and authority to act on
behalf of the Issuer Trust with respect to the following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Junior Subordinated Debentures;
(C) the receipt and collection of interest, principal and any other
payments made in respect of the Junior Subordinated Debentures in the
Payment Account;
(D) the distribution of amounts owed to the Holders in respect of the
Trust Securities;
(E) the exercise of all of the rights, powers and privileges of a
holder of the Junior Subordinated Debentures;
(F) the sending of notices of default and other information regarding
the Trust Securities and the Junior Subordinated Debentures to the
Holders in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance with the terms
of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the winding up of
the affairs of and liquidation of the Issuer Trust and the preparation,
execution and filing of the certificate of cancellation with the
Secretary of State of the State of Delaware; and
(I) after an Event of Default (other than under paragraph (b), (c) or
(d) of the definition of such term if such Event of Default is by or
with respect to the Property Trustee), comply with the provisions of
this Trust Agreement and take any action to give effect to the terms of
this Trust
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Agreement and protect and conserve the Trust Property for the benefit
of the Holders (without consideration of the effect of any such action
on any particular Holder); provided, however, that nothing in this
Section 2.7(a)(ii) shall require the Property Trustee to take any
action that is not otherwise required in this Trust Agreement.
(b) So long as this Trust Agreement remains in effect, the Issuer Trust (or
the Issuer Trustees or Administrators acting on behalf of the Issuer Trust)
shall not undertake any business, activities or transaction except as expressly
provided herein or contemplated hereby. In particular, neither the Issuer
Trustees nor the Administrators (in each case acting on behalf of the Issuer
Trust) shall (i) acquire any investments or engage in any activities not
authorized by this Trust Agreement, (ii) sell, assign, transfer, exchange,
mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or
interests therein, including to Holders, except as expressly provided herein,
(iii) take any action that would reasonably be expected to cause the Issuer
Trust to become taxable as a corporation for United States federal income tax
purposes, (iv) incur any indebtedness for borrowed money or issue any other
debt, or (v) take or consent to any action that would result in the placement of
a Lien on any of the Trust Property. The Property Trustee shall defend all
claims and demands of all Persons at any time claiming any Lien on any of the
Trust Property adverse to the interest of the Issuer Trust or the Holders in
their capacity as Holders.
(c) In connection with the issue and sale of the Preferred Securities, the
Depositor shall have the power and authority to assist the Issuer Trust with
respect to, or effect on behalf of the Issuer Trust, the following (and any
actions taken by the Depositor in furtherance of the following prior to the date
of this Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation by the Issuer Trust of, and the execution and
delivery of, a registration statement, and a prospectus in relation to the
Preferred Securities, including any amendments thereto and the taking of any
action necessary or desirable to sell the Preferred Securities in a transaction
or a series of transactions subject to the registration requirements of the
Securities Act;
(ii) the determination of the States in which to take appropriate
action to qualify or register for sale all or part of the Preferred Securities
and the determination of any and all such acts, other than actions that must be
taken by or on behalf of the Issuer Trust, and the advice to the Issuer Trustees
of actions they must take on behalf of the Issuer Trust, and the preparation for
execution and filing of any documents to be executed and filed by the Issuer
Trust or on behalf of the Issuer Trust, as the Depositor deems necessary or
advisable in order to comply with the applicable laws of any such States in
connection with the sale of the Preferred Securities;
(iii) the negotiation of the terms of, and the execution and delivery
of, the Underwriting Agreement providing for the sale of the Preferred
Securities;
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(iv) the taking of any other actions necessary or desirable to carry
out any of the foregoing activities; and
(v) compliance with the listing requirements of the Preferred
Securities upon such securities exchange or exchanges, or upon the Nasdaq Stock
Market, Inc.'s National Market, as shall be determined by the Depositor, the
registration of the Preferred Securities under the Exchange Act, if required,
and the preparation and filing of all periodic and other reports and other
documents pursuant to the foregoing.
(d) Notwithstanding anything herein to the contrary, the Administrators and
the Property Trustee are authorized and directed to conduct the affairs of the
Issuer Trust and to operate the Issuer Trust so that the Issuer Trust will not
be deemed to be an "investment company" required to be registered under the
Investment Company Act, and will not be taxable as a corporation for the United
States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Depositor for United States
federal income tax purposes. In this connection, the Property Trustee, the
Administrators and the Holders of Common Securities are authorized to take any
action, not inconsistent with applicable law, the Certificate of Trust or this
Trust Agreement, that the Property Trustee, the Administrators and Holders of
Common Securities determine in their discretion to be necessary or desirable for
such purposes, as long as such action does not adversely affect in any material
respect the interests of the Holders of the Outstanding Preferred Securities. In
no event shall the Administrators or the Issuer Trustees be liable to the Issuer
Trust or the Holders for any failure to comply with this section that results
from a change in law or regulations or in the interpretation thereof.
Section 2.8. Assets of Trust.
The assets of the Issuer Trust shall consist solely of the Trust Property.
Section 2.9. Title to Trust Property.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee for the benefit of the Issuer Trust and the Holders in
accordance with this Trust Agreement.
ARTICLE III
PAYMENT ACCOUNT
Section 3.1. Payment Account.
(a) On or prior to the Closing Date, the Property Trustee shall establish
the Payment Account. The Property Trustee and its agents shall have exclusive
control and sole right of withdrawal with respect to the Payment Account for the
purpose of making deposits in and
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withdrawals from the Payment Account in accordance with this Trust Agreement.
All monies and other property deposited or held from time to time in the Payment
Account shall be held by the Property Trustee in the Payment Account for the
exclusive benefit of the Holders and for distribution as herein provided,
including (and subject to) any priority of payments provided for herein.
(b) The Property Trustee shall deposit in the Payment Account, promptly upon
receipt, all payments of principal of or interest on, and any other payments or
proceeds with respect to, the Junior Subordinated Debentures. Amounts held in
the Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
Section 4.1. Distributions.
(a) The Trust Securities represent undivided beneficial interests in the
Trust Property, and Distributions (including Distributions of Additional
Amounts) will be made on the Trust Securities at the rate and on the dates that
payments of interest (including payments of Additional Interest, as defined in
the Indenture) are made on the Junior Subordinated Debentures. Accordingly:
(i) Distributions on the Trust Securities shall be cumulative and will
accumulate whether or not there are funds of the Issuer Trust available for the
payment of Distributions. Distributions shall accumulate from _______ __, 1998,
and, except in the event (and to the extent) that the Depositor exercises its
right to defer the payment of interest on the Debentures pursuant to the
Indenture, shall be payable quarterly in arrears on March 31, June 30, September
30 and December 31 of each year, commencing on _______ __, 1998. If any date on
which a Distribution is otherwise payable on the Trust Securities is not a
Business Day, then the payment of such Distribution shall be made on the next
succeeding day that is a Business Day (without any interest or other payment in
respect of any such delay), with the same force and effect as if made on the
date on which such payment was originally payable (each date on which
distributions are payable in accordance with this Section 4.1(a), a
"Distribution Date").
(ii) The Trust Securities shall be entitled to Distributions payable at
a rate of_____% per annum of the Liquidation Amount of the Trust Securities. The
amount of Distributions payable for any period less than a full Distribution
period shall be computed on the basis of a 360-day year of twelve 30-day months
and the actual number of days elapsed in a partial month in a period.
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by four. The amount of Distributions payable for any
period shall include any Additional Amounts in respect of such period.
(iii) So long as no Debenture Event of Default has occurred and is
continuing, the Depositor has the right under the Indenture to defer the payment
of interest on the Junior
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Subordinated Debentures at any time and from time to time for a period not
exceeding 20 consecutive quarterly periods (an "Extension Period"), provided
that no Extension Period may extend beyond _______, 2028. As a consequence of
any such deferral, quarterly Distributions on the Trust Securities by the Trust
will also be deferred (and the amount of Distributions to which Holders of the
Trust Securities are entitled will accumulate additional Distributions thereon
at the rate per annum of ____% per annum, compounded quarterly) from the
relevant payment date for such Distributions, computed on the basis of a 360-day
year of twelve 30-day months and the actual days elapsed in a partial month in
such period. Additional Distributions payable for each full Distribution period
will be computed by dividing the rate per annum by four (4). The term
"Distributions" as used in Section 4.1 shall include any such additional
Distributions provided pursuant to this Section 4.1(a)(iii).
(iv) Distributions on the Trust Securities shall be made by the
Property Trustee from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Issuer Trust has funds then on
hand and available in the Payment Account for the payment of such Distributions.
(b) Distributions on the Trust Securities with respect to a Distribution
Date shall be payable to the Holders thereof as they appear on the Securities
Register for the Trust Securities at the close of business on the relevant
record date, which shall be at the close of business on the 15th day of March,
June, September or December (whether or not a Business Day).
Section 4.2. Redemption.
(a) On each Junior Subordinated Debenture Redemption Date and on the stated
maturity of the Junior Subordinated Debentures, the Issuer Trust will be
required to redeem a Like Amount of Trust Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date to each Holder of Trust Securities to be redeemed,
at such Holder's address appearing in the Security Register. All notices of
redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price, or if the Redemption Price cannot be
calculated prior to the time the notice is required to be sent, the estimate of
the Redemption Price provided pursuant to the Indenture together with a
statement that it is an estimate and that the actual Redemption Price will be
calculated on the third Business Day prior to the Redemption Date (and if an
estimate is provided, a further notice shall be sent of the actual Redemption
Price on the date, or as soon as practicable thereafter, that notice of such
actual Redemption Price is received pursuant to the Indenture);
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(iii) the CUSIP number or CUSIP numbers of the Preferred Securities
affected;
(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the total Liquidation Amount of the particular
Trust Securities to be redeemed;
(v) that on the Redemption Date the Redemption Price will become due
and payable upon each such Trust Security to be redeemed and that Distributions
thereon will cease to accumulate on and after said date, except as provided in
Section 4.2(d) below; and
(vi) the place or places where Trust Securities are to be surrendered
for the payment of the Redemption Price.
The Issuer Trust in issuing the Trust Securities shall use "CUSIP" numbers,
and the Property Trustee shall indicate the "CUSIP" numbers of the Trust
Securities in notices of redemption and related materials as a convenience to
Holders; provided that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Trust Securities
or as contained in any notice of redemption and related material.
(c) The Trust Securities redeemed on each Redemption Date shall be redeemed
at the Redemption Price with the applicable proceeds from the contemporaneous
redemption of Junior Subordinated Debentures. Redemptions of the Trust
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds then on hand
and available in the Payment Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of any
Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, subject to Section 4.2(c), the Property Trustee will, with respect to
Preferred Securities held in global form, irrevocably deposit with the Clearing
Agency for such Preferred Securities, to the extent available therefor, funds
sufficient to pay the applicable Redemption Price and will give such Clearing
Agency irrevocable instructions and authority to pay the Redemption Price to the
Holders of the Preferred Securities. With respect to Preferred Securities that
are not held in global form, the Property Trustee, subject to Section 4.2(c),
will irrevocably deposit with the Paying Agent, to the extent available
therefor, funds sufficient to pay the applicable Redemption Price and will give
the Paying Agent irrevocable instructions and authority to pay the Redemption
Price to the Holders of the Preferred Securities upon surrender of their
Preferred Securities Certificates. Notwithstanding the foregoing, Distributions
payable on or prior to the Redemption Date for any Trust Securities called for
redemption shall be payable to the Holders of such Trust Securities as they
appear on the Register for the Trust Securities on the relevant record dates for
the related Distribution Dates. If notice of redemption shall have been given
and funds deposited as required, then, upon the date of such deposit, all rights
of Holders holding Trust Securities so called for redemption will cease, except
the right of such Holders to receive the Redemption Price and any Distributions
payable in respect of the Trust Securities on or prior to the Redemption Date,
but
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without interest, and such Securities will cease to be Outstanding. In the event
that any date on which any applicable Redemption Price is payable is not a
Business Day, then payment of the applicable Redemption Price payable on such
date will be made on the next succeeding day that is a Business Day (and without
any interest or other payment in respect of any such delay), except that, if
such Business Day falls in the next calendar year, such payment will be made on
the immediately preceding Business Day, in each case, with the same force and
effect as if made on such date. In the event that payment of the Redemption
Price in respect of any Trust Securities called for redemption is improperly
withheld or refused and not paid either by the Issuer Trust or by the Depositor
pursuant to the Guarantee Agreement, Distributions on such Trust Securities will
continue to accumulate, as set forth in Section 4.1, from the Redemption Date
originally established by the Issuer Trust for such Trust Securities to the date
such applicable Redemption Price is actually paid, in which case the actual
payment date will be the date fixed for redemption for purposes of calculating
the applicable Redemption Price.
(e) Subject to Section 4.3(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the particular
Preferred Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Property Trustee from the Outstanding
Preferred Securities not previously called for redemption in such a manner as
the Property Trustee shall deem fair and appropriate.
Section 4.3. Subordination of Common Securities.
(a) Payment of Distributions (including Additional Amounts, if applicable)
on, the Redemption Price of, and the Liquidation Distribution in respect of, the
Trust Securities, as applicable, shall be made, subject to Section 4.2(e), pro
rata among the Common Securities and the Preferred Securities based on the
Liquidation Amount of such Trust Securities; provided, however, that if on any
Distribution Date or Redemption Date any Event of Default resulting from a
Debenture Event of Default in Section 5.1(a) or 5.1(b) of the Indenture shall
have occurred and be continuing, no payment of any Distribution (including any
Additional Amounts) on, Redemption Price of, or Liquidation Distribution in
respect of, any Common Security, and no other payment on account of the
redemption, liquidation or other acquisition of Common Securities, shall be made
unless payment in full in cash of all accumulated and unpaid Distributions
(including any Additional Amounts) on all Outstanding Preferred Securities for
all Distribution periods terminating on or prior thereto, or, in the case of
payment of the Redemption Price, the full amount of such Redemption Price on all
Outstanding Preferred Securities then called for redemption, or in the case of
payment of the Liquidation Distribution the full amount of such Liquidation
Distribution on all Outstanding Preferred Securities, shall have been made or
provided for, and all funds immediately available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions (including
any Additional Amounts) on, or the Redemption Price of, Preferred Securities
then due and payable. The existence of an Event of Default does not entitle the
Holders of Preferred Securities to accelerate the maturity thereof.
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(b) In the case of the occurrence of any Event of Default resulting from any
Debenture Event of Default, the Holder of the Common Securities shall have no
right to act with respect to any such Event of Default under this Trust
Agreement until the effects of all such Events of Default with respect to the
Preferred Securities have been cured, waived or otherwise eliminated. Until all
such Events of Default under this Trust Agreement with respect to the Preferred
Securities have been so cured, waived or otherwise eliminated, the Property
Trustee shall act solely on behalf of the Holders of the Preferred Securities
and not on behalf of the Holder of the Common Securities, and only the Holders
of the Preferred Securities will have the right to direct the Property Trustee
to act on their behalf.
Section 4.4. Payment Procedures.
Payments of Distributions (including any Additional Amounts) in respect of
the Preferred Securities shall be made by check mailed to the address of the
Person entitled thereto as such address shall appear on the Securities Register
or, if the Preferred Securities are held by a Clearing Agency, such
Distributions shall be made to the Clearing Agency in immediately available
funds, which will credit the relevant accounts on the applicable Distribution
Dates. Payments of Distributions to Holders of $1,000,000 or more in aggregate
Liquidation Amount of Preferred Securities may be made by wire transfer of
immediately available funds upon written request of such Holder of Preferred
Securities to the Securities Registrar not later than 15 calendar days prior to
the date on which the Distribution is payable. Payments in respect of the Common
Securities shall be made in such manner as shall be mutually agreed between the
Property Trustee and the Holder of the Common Securities.
Section 4.5. Tax Returns and Reports.
The Administrators shall prepare and file (or cause to be prepared and
filed), at the Depositor's expense, all United States federal, state and local
tax and information returns and reports required to be filed by or in respect of
the Issuer Trust. In this regard, the Administrators shall (i) prepare and file
(or cause to be prepared and filed) all Internal Revenue Service forms required
to be filed in respect of the Issuer Trust in each taxable year of the Issuer
Trust and (ii) prepare and furnish (or cause to be prepared and furnished) to
each Holder all Internal Revenue Service forms required to be provided by the
Issuer Trust. The Administrators shall provide the Depositor and the Property
Trustee with a copy of all such returns and reports promptly after such filing
or furnishing. The Issuer Trustees and the Administrators shall comply with
United States federal withholding and backup withholding tax laws and
information reporting requirements with respect to any payments to Holders under
the Trust Securities.
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Section 4.6. Payment of Taxes; Duties, Etc. of the Issuer Trust.
Upon receipt under the Junior Subordinated Debentures of Additional Sums,
the Property Trustee shall, at the written request of an Administrator or the
Depositor, promptly pay any taxes, duties or governmental charges of whatsoever
nature (other than withholding taxes) imposed on the Issuer Trust by the United
States or any other taxing authority.
Section 4.7. Payments under Indenture or Pursuant to Direct Actions.
Any amount payable hereunder to any Holder of Preferred Securities shall be
reduced by the amount of any corresponding payment such Holder has directly
received pursuant to Section 5.8 of the Indenture or Section 5.13 of this Trust
Agreement.
Section 4.8. Liability of the Holder of Common Securities.
The Holder of Common Securities shall be liable for the debts and
obligations of the Issuer Trust as set forth in Section 6.7(c) of the Indenture
regarding allocation of expenses.
ARTICLE V
TRUST SECURITIES CERTIFICATES
Section 5.1. Initial Ownership.
Upon the formation of the Issuer Trust and the contribution by the Depositor
pursuant to Section 2.3 and until the issuance of the Trust Securities, and at
any time during which no Trust Securities are outstanding, the Depositor shall
be the sole beneficial owner of the Issuer Trust.
Section 5.2. The Trust Securities Certificates.
(a) The Trust Securities Certificates shall be executed on behalf of the
Issuer Trust by manual or facsimile signature of at least one Administrator
except as provided in Section 5.3. Trust Securities Certificates bearing the
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Issuer Trust, shall be validly
issued and entitled to the benefits of this Trust Agreement, notwithstanding
that such individuals or any of them shall have ceased to be so authorized prior
to the delivery of such Trust Securities Certificates or did not hold such
offices at the date of delivery of such Trust Securities Certificates. A
transferee of a Trust Securities Certificate shall become a Holder, and shall be
entitled
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to the rights and subject to the obligations of a Holder hereunder, upon due
registration of such Trust Securities Certificate in such transferee's name
pursuant to Section 5.5.
(b) Upon their original issuance, Preferred Securities Certificates shall be
issued in the form of one or more fully registered Global Preferred Securities
Certificates which will be deposited with or on behalf of Cede as the
Depositary's nominee and registered in the name of the Depositary's nominee.
Unless and until it is exchangeable in whole or in part for the Preferred
Securities in definitive form, a global security may not be transferred except
as a whole by the Depositary to a nominee of the Depositary or by a nominee of
the Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor of such Depositary or a nominee of
such successor.
(c) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
Section 5.3. Execution and Delivery of Trust Securities Certificates.
At the Time of Delivery, an Administrator shall cause Trust Securities
Certificates, in an aggregate Liquidation Amount as provided in Sections 2.4 and
2.5, to be executed on behalf of the Issuer Trust and delivered to the Property
Trustee and upon such delivery the Property Trustee shall authenticate such
Trust Securities Certificates and deliver such Trust Securities Certificates
upon the written order of the Trust, executed by an Administrator thereof,
without further corporate action by the Trust, in authorized denominations.
Section 5.4. Global Preferred Security.
(a) Any Global Preferred Security issued under this Trust Agreement shall be
registered in the name of the nominee of the Clearing Agency and delivered to
such custodian therefor, and such Global Preferred Security shall constitute a
single Preferred Security for all purposes of this Trust Agreement.
(b) Notwithstanding any other provision in this Trust Agreement, a Global
Preferred Security may not be exchanged in whole or in part for Preferred
Securities registered, and no transfer of the Global Preferred Security in whole
or in part may be registered, in the name of any Person other than the Clearing
Agency for such Global Preferred Security, Cede or other nominee thereof unless
(i) such Clearing Agency advises the Property Trustee in writing that such
Clearing Agency is no longer willing or able to properly discharge its
responsibilities as Clearing Agency with respect to such Global Preferred
Security, and the Depositor is unable to locate a qualified successor within 90
days of receipt of such notice from the Depositary, (ii) the Issuer Trust at its
option advises the Depositary in writing that it elects to terminate the
book-entry system through the Clearing Agency, or (iii) there shall have
occurred and be continuing an Event of Default.
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(c) If a Preferred Security is to be exchanged in whole or in part for a
beneficial interest in a Global Preferred Security, then either (i) such Global
Preferred Security shall be so surrendered for exchange as provided in this
Article V or (ii) the Liquidation Amount thereof shall be reduced or increased
by an amount equal to the portion thereof to be so exchanged, or equal to the
Liquidation Amount of such other Preferred Security to be so exchanged for a
beneficial interest therein, as the case may be, by means of an appropriate
adjustment made on the records of the Security Registrar, whereupon the Property
Trustee, in accordance with the Applicable Procedures, shall instruct the
Clearing Agency or its authorized representative to make a corresponding
adjustment to its records. Upon any such adjustment of a Global Preferred
Security by the Clearing Agency, accompanied by registration instructions, the
Property Trustee shall, subject to Section 5.4(b) and as otherwise provided in
this Article V, authenticate and deliver any Preferred Securities issuable in
exchange for such Global Preferred Security (or any portion thereof) in
accordance with the instructions of the Clearing Agency. The Property Trustee
shall not be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be fully protected in relying on, such
instructions.
(d) Every Preferred Security authenticated and delivered upon registration
of transfer of, or in exchange for or in lieu of, a Global Preferred Security or
any portion thereof, whether pursuant to this Article V or Article IV or
otherwise, shall be authenticated and delivered in the form of, and shall be, a
Global Preferred Security, unless such Global Preferred Security is registered
in the name of a Person other than the Clearing Agency for such Global Preferred
Security or a nominee thereof.
(e) The Clearing Agency or its nominee, as the registered owner of a Global
Preferred Security, shall be considered the Holder of the Preferred Securities
represented by such Global Preferred Security for all purposes under this Trust
Agreement and the Preferred Securities, and owners of beneficial interests in
such Global Preferred Security shall hold such interests pursuant to the
Applicable Procedures and, except as otherwise provided herein, shall not be
entitled to receive physical delivery of any such Preferred Securities in
definitive form and shall not be considered the Holders thereof under this Trust
Agreement. Accordingly, any such owner's beneficial interest in the Global
Preferred Security shall be shown only on, and the transfer of such interest
shall be effected only through, records maintained by the Clearing Agency or its
nominee. Neither the Property Trustee, the Securities Registrar nor the
Depositor shall have any liability in respect of any transfers effected by the
Clearing Agency.
(f) The rights of owners of beneficial interests in a Global Preferred
Security shall be exercised only through the Clearing Agency and shall be
limited to those established by law and agreements between such owners and the
Clearing Agency.
Section 5.5. Registration of Transfer and Exchange Generally; Certain Transfers
and Exchanges; Preferred Securities Certificates.
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(a) The Property Trustee shall keep or cause to be kept at its Corporate
Trust Office a register or registers for the purpose of registering Preferred
Securities Certificates and transfers and exchanges of Preferred Securities
Certificates in which the registrar and transfer agent with respect to the
Preferred Securities (the "Securities Registrar"), subject to such reasonable
regulations as it may prescribe, shall provide for the registration of Preferred
Securities Certificates and Common Securities Certificates (subject to Section
5.11 in the case of Common Securities Certificates) and registration of
transfers and exchanges of Preferred Securities Certificates as herein provided.
Such register is herein sometimes referred to as the "Securities Register." The
Property Trustee is hereby appointed "Securities Registrar" for the purpose of
registering Preferred Securities and transfers of Preferred Securities as herein
provided.
Upon surrender for registration of transfer of any Preferred Security at the
offices or agencies of the Property Trustee designated for that purpose, the
Depositor shall execute and authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Preferred Securities of
the same series of any authorized denominations of like tenor and aggregate
Liquidation Amount and bearing such legends as may be required by this Trust
Agreement.
At the option of the Holder, Preferred Securities may be exchanged for other
Preferred Securities of any authorized denominations, of like tenor and
aggregate Liquidation Amount and bearing such legends as may be required by this
Trust Agreement, upon surrender of the Preferred Securities to be exchanged at
such office or agency. Whenever any securities are so surrendered for exchange,
the Property Trustee shall execute and authenticate and deliver the Preferred
Securities that the Holder making the exchange is entitled to receive.
All Preferred Securities issued upon any transfer or exchange of Preferred
Securities shall be the valid obligations of the Issuer Trust, evidencing the
same interest, and entitled to the same benefits under this Trust Agreement, as
the Preferred Securities surrendered upon such transfer or exchange.
Every Preferred Security presented or surrendered for transfer or exchange
shall (if so required by the Property Trustee) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Property Trustee and the Securities Registrar, duly executed by the Holder
thereof or such Holder's attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or exchange of
Preferred Securities, but the Property Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any transfer or exchange of Preferred Securities.
Neither the Issuer Trust nor the Property Trustee shall be required,
pursuant to the provisions of this Section, (i) to issue, register the transfer
of, or exchange any Preferred Security
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during a period beginning at the opening of business 15 days before the day of
selection for redemption of Preferred Securities pursuant to Article IV and
ending at the close of business on the day of mailing of the notice of
redemption, or (ii) to register the transfer of or exchange any Preferred
Security so selected for redemption in whole or in part, except, in the case of
any such Preferred Security to be redeemed in part, any portion thereof not to
be redeemed.
(b) Certain Transfers and Exchanges. Trust Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Trust Agreement. To the fullest extent permitted by law, any
transfer or purported transfer of any Trust Security not made in accordance with
this Trust Agreement shall be null and void.
(i) Non-Global Security to Non-Global Security. A Trust Security that
is not a Global Preferred Security may be transferred, in whole or in part, to a
Person who takes delivery in the form of another Trust Security that is not a
Global Security as provided in Section 5.5(a).
(ii) Free Transferability. Subject to this Section 5.5, Preferred
Securities shall be freely transferable.
(iii) Exchanges Between Global Preferred Security and Non-Global
Preferred Security. A beneficial interest in a Global Preferred Security may be
exchanged for a Preferred Security that is not a Global Preferred Security as
provided in Section 5.4.
Section 5.6. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates.
If (a) any mutilated Trust Securities Certificate shall be surrendered to
the Securities Registrar, or if the Securities Registrar shall receive evidence
to its satisfaction of the destruction, loss or theft of any Trust Securities
Certificate and (b) there shall be delivered to the Securities Registrar and the
Administrators such security or indemnity as may be required by them to save
each of them harmless, then in the absence of notice that such Trust Securities
Certificate shall have been acquired by a bona fide purchaser or a protected
purchaser, the Administrators, or any one of them, on behalf of the Issuer Trust
shall execute and make available for delivery, and the Property Trustee shall
authenticate, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Trust Securities Certificate, a new Trust Securities Certificate of
like class, tenor and denomination. In connection with the issuance of any new
Trust Securities Certificate under this Section, the Administrators or the
Securities Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
Any duplicate Trust Securities Certificate issued pursuant to this Section shall
constitute conclusive evidence of an undivided beneficial interest in the assets
of the Issuer Trust corresponding to that evidenced by the lost, stolen or
destroyed Trust Certificate, as if originally issued, whether or not the lost,
stolen or destroyed Trust Securities Certificate shall be found at any time.
Section 5.7. Persons Deemed Holders.
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The Issuer Trustees, the Administrators, the Paying Agent, the Securities
Registrar or the Depositor shall treat the Person in whose name any Trust
Securities are issued as the owner of such Trust Securities for the purpose of
receiving Distributions and for all other purposes whatsoever, and none of the
Issuer Trustees, the Administrators, the Paying Agent, the Securities Registrar
nor the Depositor shall be bound by any notice to the contrary.
Section 5.8. Access to List of Holders' Names and Addresses.
Each Holder and each Owner shall be deemed to have agreed not to hold the
Depositor, the Property Trustee, or the Administrators accountable by reason of
the disclosure of its name and address, regardless of the source from which such
information was derived.
Section 5.9. Maintenance of Office or Agency.
The Property Trustee shall designate, with the consent of the
Administrators, which consent shall not be unreasonably withheld, an office or
offices or agency or agencies where Preferred Securities Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Issuer Trustees in respect of the Trust Securities
Certificates may be served. The Property Trustee initially designates its
Corporate Trust Office at Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890, Attention: Corporate Trust Administration, as its
corporate trust office for such purposes. The Property Trustee shall give prompt
written notice to the Depositor, the Administrators and the Holders of any
change in the location of the Securities Register or any such office or agency.
Section 5.10. Appointment of Paying Agent.
The Paying Agent shall make Distributions to Holders from the Payment
Account and shall report the amounts of such Distributions to the Property
Trustee and the Administrators. Any Paying Agent shall have the revocable power
to withdraw funds from the Payment Account solely for the purpose of making the
Distributions referred to above. The Property Trustee may revoke such power and
remove any Paying Agent in its sole discretion. The Paying Agent shall initially
be the Property Trustee. Any Person acting as Paying Agent shall be permitted to
resign as Paying Agent upon 30 days' written notice to the Administrators and
the Property Trustee. In the event that the Property Trustee shall no longer be
the Paying Agent or a successor Paying Agent shall resign or its authority to
act be revoked, the Property Trustee shall appoint a successor (which shall be a
bank or trust company) that is reasonably acceptable to the Administrators to
act as Paying Agent. Such successor Paying Agent or any additional Paying Agent
appointed by the Administrators shall execute and deliver to the Issuer Trustees
an instrument in which such successor Paying Agent or additional Paying Agent
shall agree with the Issuer Trustees that as Paying Agent, such successor Paying
Agent or additional Paying Agent will hold all sums, if any, held by it for
payment to the Holders in trust for the benefit of the Holders entitled thereto
until such sums shall be paid to such Holders. The Paying Agent shall return all
unclaimed funds to the Property Trustee and upon removal of a Paying
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Agent such Paying Agent shall also return all funds in its possession to the
Property Trustee. The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply
to the Bank also in its role as Paying Agent, for so long as the Bank shall act
as Paying Agent and, to the extent applicable, to any other paying agent
appointed hereunder. Any reference in this Trust Agreement to the Paying Agent
shall include any co-paying agent chosen by the Property Trustee unless the
context requires otherwise.
Section 5.11. Ownership of Common Securities by Depositor.
At each Time of Delivery, the Depositor shall acquire and retain beneficial
and record ownership of the Common Securities except (a) in connection with a
consolidation or merger of the Depositor into another corporation or any
conveyance, transfer or lease by the Depositor of its properties and assets
substantially as an entirety to any Person, pursuant to Section 81 of the
Indenture, or (b) a transfer to an Affiliate of the Depositor in compliance with
applicable law (including the Securities Act and applicable state securities and
blue sky laws). To the fullest extent permitted by law, any other attempted
transfer of the Common Securities shall be void. The Administrators shall cause
each Common Securities Certificate issued to the Depositor to contain a legend
stating "THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO A SUCCESSOR IN INTEREST
TO THE DEPOSITOR OR AN AFFILIATE OF THE DEPOSITOR IN COMPLIANCE WITH APPLICABLE
LAW AND SECTION 5.11 OF THE TRUST AGREEMENT."
Section 5.12. Notices to Clearing Agency.
To the extent that a notice or other communication to the Holders is
required under this Trust Agreement, for so long as Preferred Securities are
represented by a Global Preferred Securities Certificate, the Administrators and
the Issuer Trustees shall give all such notices and communications specified
herein to be given to the Clearing Agency, and shall have no obligations to the
Owners.
Section 5.13. Rights of Holders.
(a) The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 2.9, and
the Holders shall not have any right or title therein other than the undivided
beneficial interest in the assets of the Issuer Trust conferred by their Trust
Securities and they shall have no right to call for any partition or division of
property, profits or rights of the Issuer Trust except as described below. The
Trust Securities shall be personal property giving only the rights specifically
set forth therein and in this Trust Agreement. The Trust Securities shall have
no preemptive or similar rights and when issued and delivered to Holders against
payment of the purchase price therefor will be fully paid and nonassessable by
the Issuer Trust. Subject to Section 4.8 hereof, the Holders of the Trust
Securities, in their capacities as such, shall be entitled to the same
limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of the State
of Delaware.
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(b) For so long as any Preferred Securities remain Outstanding, if, upon a
Debenture Event of Default, the Debenture Trustee fails, or the holders of not
less than 25% in principal amount of the outstanding Junior Subordinated
Debentures fail, to declare the principal of all of the Junior Subordinated
Debentures to be immediately due and payable, the Holders of at least 25% in
Liquidation Amount of the Preferred Securities then Outstanding shall have such
right to make such declaration by a notice in writing to the Property Trustee,
the Depositor and the Debenture Trustee.
At any time after such a declaration of acceleration with respect to the
Junior Subordinated Debentures has been made and before a judgment or decree for
payment of the money due has been obtained by the Debenture Trustee as provided
in the Indenture, the Holders of a Majority in Liquidation Amount of the
Preferred Securities, by written notice to the Property Trustee, the Depositor
and the Debenture Trustee, may rescind and annul such declaration and its
consequences if:
(i) the Depositor has paid or deposited with the Debenture Trustee a
sum sufficient to pay:
(A) all overdue installments of interest on all of the Junior
Subordinated Debentures,
(B) any accrued Additional Interest on all of the Junior Subordinated
Debentures,
(C) the principal of (and premium, if any, on) any Junior Subordinated
Debentures which have become due otherwise than by such declaration of
acceleration and interest and Additional Interest thereon at the rate
borne by the Junior Subordinated Debentures, and
(D) all sums paid or advanced by the Debenture Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and
advances of the Debenture Trustee and the Property Trustee, their
agents and counsel; and (ii) all Events of Default with respect to the
Junior Subordinated Debentures, other than the non-payment of the
principal of the Junior Subordinated Debentures which has become due
solely by such acceleration, have been cured or waived as provided in
Section 5.13 of the Indenture.
The Holders of at least a Majority in Liquidation Amount of the Preferred
Securities may, on behalf of the Holders of all the Preferred Securities, waive
any past default under the Indenture, except a default in the payment of
principal or interest (unless such default has been cured and a sum sufficient
to pay all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee) or a default in
respect of a covenant
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or provision which under the Indenture cannot be modified or amended without the
consent of the holder of each outstanding Junior Subordinated Debentures
affected thereby. No such rescission shall affect any subsequent default or
impair any right consequent thereon.
Upon receipt by the Property Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, by Holders of the Preferred
Securities all or part of which is represented by Global Preferred Securities, a
record date shall be established for determining Holders of Outstanding
Preferred Securities entitled to join in such notice, which record date shall be
at the close of business on the day the Property Trustee receives such notice.
The Holders on such record date, or their duly designated proxies, and only such
Persons, shall be entitled to join in such notice, whether or not such Holders
remain Holders after such record date; provided, that, unless such declaration
of acceleration, or rescission and annulment, as the case may be, shall have
become effective by virtue of the requisite percentage having joined in such
notice prior to the day which is 90 days after such record date, such notice of
declaration of acceleration, or rescission and annulment, as the case may be,
shall automatically and without further action by any Holder be canceled and of
no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy
of a Holder, from giving, after expiration of such 90-day period, a new written
notice of declaration of acceleration, or rescission and annulment thereof, as
the case may be, that is identical to a written notice which has been canceled
pursuant to the proviso to the preceding sentence, in which event a new record
date shall be established pursuant to the provisions of this Section 5.13(b).
(c) For so long as any Preferred Securities remain Outstanding, to the
fullest extent permitted by law and subject to the terms of this Trust Agreement
and the Indenture, upon a Debenture Event of Default specified in Section 5.1(a)
or 5.1(b) of the Indenture, any Holder of Preferred Securities shall have the
right to institute a proceeding directly against the Depositor, pursuant to
Section 5.8 of the Indenture, for enforcement of payment to such Holder of the
principal amount of or interest on Junior Subordinated Debentures having an
aggregate principal amount equal to the aggregate Liquidation Amount of the
Preferred Securities of such Holder (a "Direct Action"). Except as set forth in
Sections 5.13(b) and 5.13(c) of this Trust Agreement, the Holders of Preferred
Securities shall have no right to exercise directly any right or remedy
available to the holders of, or in respect of, the Junior Subordinated
Debentures.
ARTICLE VI
ACTS OF HOLDERS; MEETINGS; VOTING
Section 6.1. Limitations on Holder's Voting Rights.
(a) Except as provided in this Trust Agreement and in the Indenture and as
otherwise required by law, no Holder of Preferred Securities shall have any
right to vote or in any manner otherwise control the administration, operation
and management of the Issuer Trust or the obligations of the parties hereto, nor
shall anything herein set forth or contained in the terms
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of the Trust Securities Certificates be construed so as to constitute the
Holders from time to time as members of an association.
(b) So long as any Junior Subordinated Debentures are held by the Property
Trustee on behalf of the Issuer Trust, the Property Trustee shall not (i) direct
the time, method and place of conducting any proceeding for any remedy available
to the Property Trustee, or executing any trust or power conferred on the
Debenture Trustee with respect to such Junior Subordinated Debentures, (ii)
waive any past default that may be waived under Section 5.13 of the Indenture,
(iii) exercise any right to rescind or annul a declaration that the principal of
all the Junior Subordinated Debentures shall be due and payable, or (iv) consent
to any amendment, modification or termination of the Indenture or the Junior
Subordinated Debentures, where such consent shall be required, without, in each
case, obtaining the prior approval of the Holders of at least a Majority in
Liquidation Amount of the Preferred Securities, provided, however, that where a
consent under the Indenture would require the consent of each Holder of Junior
Subordinated Debentures affected thereby, no such consent shall be given by the
Property Trustee without the prior written consent of each such Holder of
Preferred Securities. The Property Trustee shall not revoke any action
previously authorized or approved by a vote of the Holders of Preferred
Securities, except by a subsequent vote of the Holders of Preferred Securities.
The Property Trustee shall notify all Holders of the Preferred Securities of any
notice of default received with respect to the Junior Subordinated Debentures.
In addition to obtaining the foregoing approvals of the Holders of the Preferred
Securities, prior to taking any of the foregoing actions, the Property Trustees
shall, at the expense of the Depositor, obtain an Opinion of Counsel experienced
in such matters to the effect that such action will not cause the Issuer Trust
to be taxable as a corporation for United States federal income tax purposes.
(c) If any proposed amendment to the Trust Agreement provides for, or the
Issuer Trust otherwise proposes to effect, (i) any action that would adversely
affect in any material respect the interests, powers, preferences or special
rights of the Preferred Securities, whether by way of amendment to the Trust
Agreement or otherwise, or (ii) the dissolution of the Issuer Trust, other than
pursuant to the terms of this Trust Agreement, then the Holders of Outstanding
Trust Securities as a class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of the Holders of at least a Majority in Liquidation Amount of the
Preferred Securities. Notwithstanding any other provision of this Trust
Agreement, no amendment to this Trust Agreement may be made if, as a result of
such amendment, it would cause the Issuer Trust to be taxable as a corporation
for United States federal income tax purposes.
Section 6.2. Notice of Meetings.
Notice of all meetings of the Holders, stating the time, place and purpose
of the meeting, shall be given by the Property Trustee pursuant to Section 10.8
to each Holder of record, at his registered address, at least 15 days and not
more than 90 days before the meeting. At any such
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meeting, any business properly before the meeting may be so considered whether
or not stated in the notice of the meeting. Any adjourned meeting may be held as
adjourned without further notice.
Section 6.3. Meetings of Holders.
(a) No annual meeting of Holders is required to be held. The Property
Trustee, however, shall call a meeting of Holders to vote on any matter upon the
written request of the Holders of record of 25% of the aggregate Liquidation
Amount of the Preferred Securities and the Administrators or the Property
Trustee may, at any time in their discretion, call a meeting of Holders of
Preferred Securities to vote on any matters as to which Holders are entitled to
vote.
(b) Holders of at least a Majority in Liquidation Amount of the Preferred
Securities, present in person or represented by proxy, shall constitute a quorum
at any meeting of Holders of Preferred Securities.
(c) If a quorum is present at a meeting, an affirmative vote by the Holders
of record present, in person or by proxy, holding Preferred Securities
representing at least a Majority in Liquidation Amount of the Preferred
Securities held by the Holders present, either in person or by proxy, at such
meeting shall constitute the action of the Holders of Preferred Securities,
unless this Trust Agreement requires a greater number of affirmative votes.
Section 6.4. Voting Rights.
Holders shall be entitled to one vote for each $10 of Liquidation Amount
represented by their Outstanding Trust Securities in respect of any matter as to
which such Holders are entitled to vote.
Section 6.5. Proxies, etc.
At any meeting of Holders, any Holder entitled to vote thereat may vote by
proxy, provided that no proxy shall be voted at any meeting unless it shall have
been placed on file with the Property Trustee, or with such other officer or
agent of the Issuer Trust as the Property Trustee may direct, for verification
prior to the time at which such vote shall be taken. Pursuant to a resolution of
the Property Trustee, proxies may be solicited in the name of the Property
Trustee or one or more officers of the Property Trustee. Only Holders of record
shall be entitled to vote. When Trust Securities are held jointly by several
persons, any one of them may vote at any meeting in person or by proxy in
respect of such Trust Securities, but if more than one of them shall be present
at such meeting in person or by proxy, and such joint owners or their proxies so
present disagree as to any vote to be cast, such vote shall not be received in
respect of such Trust Securities. A proxy purporting to be executed by or on
behalf of a Holder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger. No
proxy shall be valid more than three years after its date of execution.
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Section 6.6. Holder Action by Written Consent.
Any action which may be taken by Holders at a meeting may be taken without a
meeting if Holders holding at least a Majority in Liquidation Amount of all
Trust Securities entitled to vote in respect of such action (or such larger
proportion thereof as shall be required by any other provision of this Trust
Agreement) shall consent to the action in writing.
Section 6.7. Record Date for Voting and Other Purposes.
For the purposes of determining the Holders who are entitled to notice of
and to vote at any meeting or by written consent, or to participate in any
Distribution on the Trust Securities in respect of which a record date is not
otherwise provided for in this Trust Agreement, or for the purpose of any other
action, the Administrators or the Property Trustee may from time to time fix a
date, not more than 90 days prior to the date of any meeting of Holders or the
payment of a Distribution or other action, as the case may be, as a record date
for the determination of the identity of the Holders of record for such
purposes.
Section 6.8. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided or permitted by this Trust Agreement to be given, made
or taken by Holders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as otherwise expressly provided herein,
such action shall become effective when such instrument or instruments are
delivered to the Property Trustee. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Trust Agreement and (subject to Section
8.1) conclusive in favor of the Issuer Trustees, if made in the manner provided
in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which any Issuer Trustee or Administrator receiving the same deems
sufficient.
(c) The ownership of Trust Securities shall be proved by the Securities
Register.
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(d) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Trust Security shall bind every future Holder
of the same Trust Security and the Holder of every Trust Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Issuer
Trustees, the Administrators or the Issuer Trust in reliance thereon, whether or
not notation of such action is made upon such Trust Security.
(e) Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Trust Security may do so with
regard to all or any part of the Liquidation Amount of such Trust Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
(f) If any dispute shall arise among the Holders, the Administrators or the
Issuer Trustees with respect to the authenticity, validity or binding nature of
any request, demand, authorization, direction, consent, waiver or other Act of
such Holder or Issuer Trustee under this Article VI, then the determination of
such matter by the Property Trustee shall be conclusive with respect to such
matter.
(g) A Holder may institute a legal proceeding directly against the Depositor
under the Guarantee Agreement to enforce its rights under the Guarantee
Agreement without first instituting a legal proceeding against the Guarantee
Trustee (as defined in the Guarantee Agreement), the Issuer Trust, any Issuer
Trustee, any Administrator or any other person.
Section 6.9. Inspection of Records.
Upon reasonable notice to the Administrators and the Property Trustee, the
records of the Issuer Trust shall be open to inspection by Holders during normal
business hours for any purpose reasonably related to such Holder's interest as a
Holder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.1. Representations and Warranties of the Property Trustee and the
Delaware Trustee.
The Property Trustee and the Delaware Trustee, each severally on behalf of
and as to itself, hereby represents and warrants for the benefit of the
Depositor and the Holders that:
(a) The Property Trustee is a banking corporation with trust powers, duly
organized, validly existing and in good standing under the laws of Delaware,
with trust power and authority to execute and deliver, and to carry out and
perform its obligations under the terms of this Trust Agreement.
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(b) The execution, delivery and performance by the Property Trustee of this
Trust Agreement has been duly authorized by all necessary corporate action on
the part of the Property Trustee; and this Trust Agreement has been duly
executed and delivered by the Property Trustee, and constitutes a legal, valid
and binding obligation of the Property Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' rights
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law).
(c) The execution, delivery and performance of this Trust Agreement by the
Property Trustee does not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Property Trustee.
(d) At the Time of Delivery, the Property Trustee has not knowingly created
any liens or encumbrances on the Trust Securities.
(e) No consent, approval or authorization of, or registration with or notice
to, any state or federal banking authority is required for the execution,
delivery or performance by the Property Trustee, of this Trust Agreement.
(f) The Delaware Trustee is duly organized, validly existing and in good
standing under the laws of the State of Delaware, with trust power and authority
to execute and deliver, and to carry out and perform its obligations under the
terms of, the Trust Agreement.
(g) The execution, delivery and performance by the Delaware Trustee of this
Trust Agreement has been duly authorized by all necessary corporate action on
the part of the Delaware Trustee; and this Trust Agreement has been duly
executed and delivered by the Delaware Trustee, and constitutes a legal, valid
and binding obligation of the Delaware Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' right
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law).
(h) The execution, delivery and performance of this Trust Agreement by the
Delaware Trustee does not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Delaware Trustee.
(i) No consent, approval or authorization of, or registration with or notice
to any state or federal banking authority is required for the execution,
delivery or performance by the Delaware Trustee, of this Trust Agreement.
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(j) The Delaware Trustee is an entity which has its principal place of
business in the State of Delaware or otherwise satisfies the requirements of
Section 3807 of the Delaware Business Trust Act.
Section 7.2. Representations and Warranties of the Depositor.
The Depositor hereby represents and warrants for the benefit of the Holders
that:
(a) the Trust Securities Certificates issued at the Time of Delivery on
behalf of the Issuer Trust have been duly authorized and will have been duly and
validly executed, and, subject to payment therefor, issued and delivered by the
Issuer Trustees pursuant to the terms and provisions of, and in accordance with
the requirements of, this Trust Agreement, and the Holders will be, as of each
such date, entitled to the benefits of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by the
Issuer Trust (or the Issuer Trustees on behalf of the Issuer Trust) under the
laws of the State of Delaware or any political subdivision thereof in connection
with the execution, delivery and performance by either the Property Trustee or
the Delaware Trustee, as the case may be, of this Trust Agreement.
ARTICLE VIII
THE ISSUER TRUSTEES; THE ADMINISTRATORS
Section 8.1. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Issuer Trustees and the
Administrators shall be as provided by this Trust Agreement and, in the case
of the Property Trustee, by the Trust Indenture Act. Notwithstanding the
foregoing, no provision of this Trust Agreement shall require the Issuer
Trustees or the Administrators to expend or risk their own funds or otherwise
incur any financial liability in the performance of any of their duties
hereunder, or in the exercise of any of their rights or powers, if they shall
have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it or them. Whether or not therein expressly so provided, every provision
of this Trust Agreement relating to the conduct or affecting the liability of
or affording protection to the Issuer Trustees or the Administrators shall be
subject to the provisions of this Section. Nothing in this Trust Agreement
shall be construed to release an Administrator or the Issuer Trustees from
liability for his or its own negligent action, his or its own negligent
failure to act, or his or its own willful misconduct. To the extent that, at
law or in equity, an Issuer Trustee or Administrator has duties and
liabilities relating to the Issuer Trust or to the Holders, such Issuer
Trustee or Administrator shall not be liable to the Issuer Trust or to any
Holder for such Issuer Trustee's or Administrator's good faith reliance on
the provisions of this Trust Agreement. The provisions of this Trust
Agreement, to the extent that they restrict the duties and liabilities of the
Issuer Trustees and Administrators otherwise existing at law or in equity,
are agreed by the Depositor and the Holders to replace his or such other
duties
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and liabilities of the Issuer Trustees and Administrators. To the fullest
extent permitted by law, the Administrators shall not be considered
fiduciaries.
(b) All payments made by the Property Trustee or a Paying Agent in respect
of the Trust Securities shall be made only from the revenue and proceeds from
the Trust Property and only to the extent that there shall be sufficient revenue
or proceeds from the Trust Property to enable the Property Trustee or a Paying
Agent to make payments in accordance with the terms hereof. Each Holder, by his
or its acceptance of a Trust Security, agrees that he or it will look solely to
the revenue and proceeds from the Trust Property to the extent legally available
for distribution to it or him as herein provided and that neither the Issuer
Trustees nor the Administrators are personally liable to it or him for any
amount distributable in respect of any Trust Security or for any other liability
in respect of any Trust Security. This Section 8.1(b) does not limit the
liability of the Issuer Trustees expressly set forth elsewhere in this Trust
Agreement or, in the case of the Property Trustee, in the Trust Indenture Act.
(c) The Property Trustee, before the occurrence of any Event of Default and
after the curing of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Trust Agreement (including pursuant to Section 10.10), and no implied covenants
shall be read into this Trust Agreement against the Property Trustee. If an
Event of Default has occurred (that has not been cured or waived pursuant to
Section 5.13 of the Indenture), the Property Trustee shall enforce this Trust
Agreement for the benefit of the Holders and shall exercise such of the rights
and powers vested in it by this Trust Agreement, and use the same degree of care
and skill in its exercise thereof, as a prudent person would exercise or use
under the circumstances in the conduct of his or her own affairs.
(d) No provision of this Trust Agreement shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Property Trustee shall be
determined solely by the express provisions of this Trust Agreement
(including pursuant to Section 10.10), and the Property Trustee shall
not be liable except for the performance of such duties and obligations
as are specifically set forth in this Trust Agreement (including
pursuant to Section 10.10); and
(B) in the absence of bad faith on the part of the Property Trustee,
the Property Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Property Trustee and
conforming to the
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requirements of this Trust Agreement; but in the case of any such
certificates or opinions that by any provision hereof or of the Trust
Indenture Act are specifically required to be furnished to the Property
Trustee, the Property Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of this
Trust Agreement;
(ii) the Property Trustee shall not be liable for any error of judgment
made in good faith by an authorized officer of the Property Trustee, unless it
shall be proved that the Property Trustee was negligent in ascertaining the
pertinent facts;
(iii) the Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of at least a Majority in Liquidation Amount of the
Preferred Securities relating to the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or exercising any
trust or power conferred upon the Property Trustee under this Trust Agreement;
(iv) the Property Trustee's sole duty with respect to the custody, safe
keeping and physical preservation of the Junior Subordinated Debentures and the
Payment Account shall be to deal with such Property in a similar manner as the
Property Trustee deals with similar property for its own account, subject to the
protections and limitations on liability afforded to the Property Trustee under
this Trust Agreement and the Trust Indenture Act;
(v) the Property Trustee shall not be liable for any interest on any
money received by it except as it may otherwise agree with the Depositor; and
money held by the Property Trustee need not be segregated from other funds held
by it except in relation to the Payment Account maintained by the Property
Trustee pursuant to Section 3.1 and except to the extent otherwise required by
law;
(vi) the Property Trustee shall not be responsible for monitoring the
compliance by the Administrators or the Depositor with their respective duties
under this Trust Agreement, nor shall the Property Trustee be liable for the
default or misconduct of any other Issuer Trustee, the Administrators or the
Depositor; and
(vii) no provision of this Trust Agreement shall require the Property
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if the Property Trustee shall have reasonable grounds for
believing that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Trust Agreement or adequate indemnity
against such risk or liability is not reasonably assured to it.
(e) The Administrators shall not be responsible for monitoring the
compliance by the Issuer Trustees or the Depositor with their respective duties
under this Trust Agreement, nor shall
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either Administrator be liable for the default or misconduct of any other
Administrator, the Issuer Trustees or the Depositor.
Section 8.2. Certain Notices.
(a) Within five Business Days after the occurrence of any Event of Default
actually known to a Responsible Officer of the Property Trustee, the Property
Trustee shall transmit, in the manner and to the extent provided in Section
10.8, notice of such Event of Default to the Holders and the Administrators,
unless such Event of Default shall have been cured or waived.
(b) Within five Business Days after the receipt of notice of the Depositor's
exercise of its right to defer the payment of interest on the Junior
Subordinated Debentures pursuant to the Indenture, the Property Trustee shall
transmit, in the manner and to the extent provided in Section 10.8, notice of
such exercise to the Holders and the Administrators, unless such exercise shall
have been revoked.
(c) In the event the Property Trustee receives notice of the Depositor's
exercise of its right to shorten the stated maturity of the Junior Subordinated
Debentures as provided in Section 3.16 of the Indenture, the Property Trustee
shall give notice of such shortening of the stated maturity to the Holders at
least 30 but not more than 60 days before the effective date thereof.
Section 8.3. Certain Rights of Property Trustee.
Subject to the provisions of Section 8.1:
(a) the Property Trustee may rely and shall be fully protected in acting or
refraining from acting in good faith upon any resolution, Opinion of Counsel,
certificate, written representation of a Holder or transferee, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any direction or act of the Depositor contemplated by this Trust
Agreement shall be sufficiently evidenced by an Officers' Certificate;
(c) the Property Trustee shall have no duty to see to any recording, filing
or registration of any instrument (including any financing or continuation
statement or any filing under tax or securities laws) or any re-recording,
refiling or reregistration thereof;
(d) the Property Trustee may consult with counsel of its own choosing (which
counsel may be counsel to the Depositor or any of its Affiliates, and may
include any of its employees) and the advice of such counsel shall be full and
complete authorization and protection in respect of any
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action taken suffered or omitted by it hereunder in good faith and in reliance
thereon and in accordance with such advice; the Property Trustee shall have the
right at any time to seek instructions concerning the administration of this
Trust Agreement from any court of competent jurisdiction;
(e) the Property Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Holders pursuant to this Trust Agreement, unless such
Holders shall have offered to the Property Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction; provided that,
nothing contained in this Section 8.3(e) shall be taken to relieve the Property
Trustee, upon the occurrence of an Event of Default, of its obligation to
exercise the rights and powers vested in it by this Trust Agreement;
(f) the Property Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Holders, but the Property
Trustee may make such further inquiry or investigation into such facts or
matters as it may see fit;
(g) the Property Trustee may execute any of the trusts or powers hereunder
or perform any of its duties hereunder either directly or by or through its
agents or attorneys, provided that the Property Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder;
(h) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder, the Property
Trustee (i) may request instructions from the Holders (which instructions may
only be given by the Holders of the same proportion in Liquidation Amount of the
Trust Securities as would be entitled to direct the Property Trustee under the
terms of the Trust Securities in respect of such remedy, right or action), (ii)
may refrain from enforcing such remedy or right or taking such other action
until such instructions are received, and (iii) shall be fully protected in
acting in accordance with such instructions;
(i) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement.;
(j) if (i) in performing its duties under this Trust Agreement the Property
Trustee is required to decide between alternative courses of action; or (ii) in
construing any of the provisions of this Trust Agreement the Property Trustee
finds the same ambiguous or inconsistent with other provisions contained herein;
or (iii) the Property Trustee is unsure of the application of any provision of
this Trust Agreement, then, except as to any matter as to which the Preferred
Securityholders are
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entitled to vote under the terms of this Trust Agreement, the Property Trustee
shall deliver a notice to the Depositor requesting written instructions of the
Depositor as to the course of action to be taken and the Property Trustee shall
take such action, or refrain from taking such action, as the Property Trustee
shall be instructed in writing to take, or to refrain from taking, by the
Depositor, and shall have no liability for acting in accordance with such
instructions; provided, however, that if the Property Trustee does not receive
such instructions of the Depositor within 10 Business Days after it has
delivered such notice, or such reasonably shorter period of time set forth in
such notice (which to the extent practicable shall not be less than 2 Business
Days), it may, but shall be under no duty to, take or refrain from taking such
action not inconsistent with this Trust Agreement as it shall deem advisable and
in the best interests of the securityholders, in which event the Property
Trustee shall have no liability except for its own bad faith, negligence or
willful misconduct; and
(k) whenever in the administration of this Trust Agreement, the Property
Trustee shall deem it desirable that a matter be established before undertaking,
suffering or omitting any action hereunder, the Property Trustee (unless other
evidence is herein specifically prescribed) may, in the absence of bad faith on
its part, request and conclusively rely upon an Officers' Certificate which,
upon receipt of such request, shall be promptly delivered by the Depositor or
the Administrators.
No provision of this Trust Agreement shall be deemed to impose any duty or
obligation on any Issuer Trustee or Administrator to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to any Issuer Trustee or
Administrator shall be construed to be a duty.
Section 8.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Trust Securities Certificates shall
be taken as the statements of the Issuer Trust, and the Issuer Trustees and the
Administrators do not assume any responsibility for their correctness. The
Issuer Trustees and the Administrators shall not be accountable for the use or
application by the Depositor of the proceeds of the Junior Subordinated
Debentures.
Section 8.5. May Hold Securities.
Except as provided in the definition of the term "Outstanding" in Article I,
the Administrators, any Issuer Trustee or any other agent of any Issuer Trustee
or the Issuer Trust, in its individual or any other capacity, may become the
owner or pledgee of Trust Securities and, subject to Sections 8.8 and 8.13, may
otherwise deal with the Issuer Trust with the same rights it would have if it
were not an Administrator, Issuer Trustee or such other agent.
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Section 8.6. Compensation; Indemnity; Fees.
The Depositor agrees:
(a) to pay to the Issuer Trustees from time to time reasonable compensation
for all services rendered by them hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust);
(b) to reimburse the Issuer Trustees and the Administrators upon request for
all reasonable expenses, disbursements and advances incurred or made by the
Issuer Trustees in accordance with any provision of this Trust Agreement
(including the reasonable compensation, expenses and disbursements of its agents
and counsel), except any such expense, disbursement or advance as may be
attributable to their negligence or willful misconduct; and
(c) to the fullest extent permitted by applicable law, to indemnify and hold
harmless (i) each Issuer Trustee, (ii) each Administrator, (iii) any Affiliate
of any Issuer Trustee, (iv) any officer, director, shareholder, employee,
representative or agent of any Issuer Trustee, and (v) any employee or agent of
the Issuer Trust, (referred to herein as an "Indemnified Person") from and
against any loss, damage, liability, tax (excluding income taxes, other than
taxes referred to in Sections 4.5 and 4.6 hereunder), penalty, expense or claim
of any kind or nature whatsoever incurred by such Indemnified Person arising out
of or in connection with the creation, operation or dissolution of the Issuer
Trust or any act or omission performed or omitted by such Indemnified Person in
good faith on behalf of the Issuer Trust and in a manner such Indemnified Person
reasonably believed to be within the scope of authority conferred on such
Indemnified Person by this Trust Agreement, except that no Indemnified Person
shall be entitled to be indemnified in respect of any loss, damage or claim
incurred by such Indemnified Person by reason of negligence or willful
misconduct with respect to such acts or omissions.
The provisions of this Section 8.6 shall survive the termination of this
Trust Agreement.
No Issuer Trustee may claim any lien or charge on any Trust Property as a
result of any amount due pursuant to this Section 8.6.
The Depositor, any Administrator and any Issuer Trustee may engage in or
possess an interest in other business ventures of any nature or description,
independently or with others, similar or dissimilar to the business of the
Issuer Trust, and the Issuer Trust and the Holders of Trust Securities shall
have no rights by virtue of this Trust Agreement in and to such independent
ventures or the income or profits derived therefrom, and the pursuit of any such
venture, even if competitive with the business of the Issuer Trust, shall not be
deemed wrongful or improper. Neither the Depositor, any Administrator, nor any
Issuer Trustee shall be obligated to present any particular investment or other
opportunity to the Issuer Trust even if such opportunity is of a character that,
if presented to the Issuer Trust, could be taken by the Issuer Trust, and the
Depositor, any Administrator or any Issuer Trustee shall have the right to take
for its own account (individually or
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as a partner or fiduciary) or to recommend to others any such particular
investment or other opportunity. Any Issuer Trustee may engage or be interested
in any financial or other transaction with the Depositor or any Affiliate of the
Depositor, or may act as depository for, trustee or agent for, or act on any
committee or body of holders of, securities or other obligations of the
Depositor or its Affiliates.
Section 8.7. Corporate Property Trustee Required; Eligibility of Trustees and
Administrators.
(a) There shall at all times be a Property Trustee hereunder with respect
to the Trust Securities. The Property Trustee shall be a Person that is a
national or state chartered bank and eligible pursuant to the Trust Indenture
Act to act as such and has a combined capital and surplus of at least
$50,000,000. If any such Person publishes reports of condition at least
annually, pursuant to law or to the requirements of its supervising or
examining authority, then for the purposes of this Section, the combined
capital and surplus of such Person shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so published.
If at any time the Property Trustee with respect to the Trust Securities
shall cease to be eligible in accordance with the provisions of this Section,
it shall resign immediately in the manner and with the effect hereinafter
specified in this Article. At the time of appointment, any Property Trustee
succeeding the initial Property Trustee must have securities rated in one of
the three highest rating categories by a nationally recognized statistical
rating organization.
(b) There shall at all times be one or more Administrators hereunder. Each
Administrator shall be either a natural person who is at least 21 years of age
or a legal entity that shall act through one or more persons authorized to bind
that entity. An employee, officer or Affiliate of the Depositor may serve as an
Administrator.
(c) There shall at all times be a Delaware Trustee. The Delaware Trustee
shall either be (i) a natural person who is at least 21 years of age and a
resident of the State of Delaware or (ii) a legal entity with its principal
place of business in the State of Delaware and that otherwise meets the
requirements of applicable Delaware law that shall act through one or more
persons authorized to bind such entity.
Section 8.8. Conflicting Interests.
(a) If the Property Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Property Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
(b) The Guarantee Agreement and the Indenture shall be deemed to be
specifically described in this Trust Agreement for the purposes of clause (i) of
the first proviso contained in Section 310(b) of the Trust Indenture Act.
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Section 8.9. Co-Trustees and Separate Trustee.
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust Property may
at the time be located, the Property Trustee shall have power to appoint, and
upon the written request of the Property Trustee, the Depositor and the
Administrators shall for such purpose join with the Property Trustee in the
execution, delivery, and performance of all instruments and agreements necessary
or proper to appoint, one or more Persons approved by the Property Trustee
either to act as co-trustee, jointly with the Property Trustee, of all or any
part of such Trust Property, or to the extent required by law to act as separate
trustee of any such property, in either case with such powers as may be provided
in the instrument of appointment, and to vest in such Person or Persons in the
capacity aforesaid, any property, title, right or power deemed necessary or
desirable, subject to the other provisions of this Section. Any co-trustee or
separate trustee appointed pursuant to this Section shall either be (i) a
natural person who is at least 21 years of age and a resident of the United
States or (ii) a legal entity with its principal place of business in the United
States that shall act through one or more persons authorized to bind such
entity.
Should any written instrument from the Depositor be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right, or power, any and
all such instruments shall, on request, be executed, acknowledged and delivered
by the Depositor.
Every co-trustee or separate trustee shall, to the extent permitted by law,
but to such extent only, be appointed subject to the following terms, namely:
(a) The Trust Securities shall be executed by one or more Administrators,
and the Trust Securities shall be executed and delivered and all rights, powers,
duties, and obligations hereunder in respect of the custody of securities, cash
and other personal property held by, or required to be deposited or pledged
with, the Property Trustees specified hereunder, shall be exercised, solely by
the Property Trustee and not by such co-trustee or separate trustee.
(b) The rights, powers, duties, and obligations hereby conferred or imposed
upon the Property Trustee in respect of any property covered by such appointment
shall be conferred or imposed upon and exercised or performed by the Property
Trustee and such co-trustee or separate trustee jointly, as shall be provided in
the instrument appointing such co-trustee or separate trustee, except to the
extent that under any law of any jurisdiction in which any particular act is to
be performed, the Property Trustee shall be incompetent or unqualified to
perform such act, in which event such rights, powers, duties and obligations
shall be exercised and performed by such co-trustee or separate trustee.
(c) The Property Trustee at any time, by an instrument in writing executed
by it, with the written concurrence of the Depositor, may accept the resignation
of or remove any co-trustee
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or separate trustee appointed under this Section, and, in case a Debenture Event
of Default has occurred and is continuing, the Property Trustee shall have power
to accept the resignation of, or remove, any such co-trustee or separate trustee
without the concurrence of the Depositor. Upon the written request of the
Property Trustee, the Depositor shall join with the Property Trustee in the
execution, delivery and performance of all instruments and agreements necessary
or proper to effectuate such resignation or removal. A successor to any
co-trustee or separate trustee so resigned or removed may be appointed in the
manner provided in this Section.
(d) No co-trustee or separate trustee hereunder shall be personally liable
by reason of any act or omission of the Property Trustee or any other trustee
hereunder.
(e) The Property Trustee shall not be liable by reason of any act of a
co-trustee or separate trustee.
(f) Any Act of Holders delivered to the Property Trustee shall be deemed to
have been delivered to each such co-trustee and separate trustee.
Section 8.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of any Issuer Trustee (the "Relevant Trustee")
and no appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 8.11.
(b) Subject to the immediately preceding paragraph, a Relevant Trustee
may resign at any time by giving written notice thereof to the Holders. The
Relevant Trustee shall appoint a successor by requesting from at least three
Persons meeting the eligibility requirements to serve as the successor
Trustee on a form provided by the Administrators, and selecting the Person
who agrees to the lowest expenses and charges, subject to the prior consent
of the Depositor which consent shall not be unreasonably withheld. If the
instrument of acceptance by the successor Trustee required by Section 8.11
shall not have been delivered to the Relevant Trustee within 60 days after
the giving of such notice of resignation, the Relevant Trustee may petition,
at the expense of the Issuer Trust, any court of competent jurisdiction for
the appointment of a successor Trustee.
successor Trustee on a form provided by the Administrators, and selecting the
Person who agrees to the lowest expenses and charges, subject to the prior
consent of the Depositor which consent shall not be unreasonably withheld. If
the instrument of acceptance by the successor Trustee required by Section 8.11
shall not have been delivered to the Relevant Trustee within 60 days after the
giving of such notice of resignation, the Relevant Trustee may petition, at the
expense of the Issuer Trust, any court of competent jurisdiction for the
appointment of a successor Trustee.
(c) The Property Trustee or the Delaware Trustee may be removed at any time
by Act of the Holders of at least a Majority in Liquidation Amount of the
Preferred Securities, delivered to the Relevant Trustee (in its individual
capacity and on behalf of the Issuer Trust) (i) for cause, or (ii) if a
Debenture Event of Default shall have occurred and be continuing at any time.
(d) If a resigning Relevant Trustee shall fail to appoint a successor, or if
a Relevant Trustee shall be removed or become incapable of acting as Issuer
Trustee, or if any vacancy shall
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occur in the office of any Issuer Trustee for any cause, the Holders of the
Preferred Securities, by Act of the Holders of record of not less than 25%
aggregate Liquidation Amount of the Preferred Securities then Outstanding
delivered to such Relevant Trustee, shall promptly appoint a successor Trustee
or Trustees, and such successor Issuer Trustee shall comply with the applicable
requirements of Section 8.11. If no successor Trustee shall have been so
appointed by the Holders of the Preferred Securities and accepted appointment in
the manner required by Section 8.11, any Holder, on behalf of himself and all
others similarly situated, or any other Issuer Trustee, may petition any court
of competent jurisdiction in the State of Delaware for the appointment of a
successor Trustee.
(e) The Property Trustee shall give notice of each resignation and each
removal of a Relevant Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 10.8 and shall give notice to the
Depositor and to the Administrators. Each notice shall include the name of the
Relevant Trustee and the address of its Corporate Trust Office if it is the
Property Trustee.
(f) Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Delaware Trustee who is a natural person dies or
becomes, in the opinion of the Holders of the Common Securities, incompetent or
incapacitated, the vacancy created by such death, incompetence or incapacity may
be filled by the Property Trustee following the procedures regarding expenses
and charges set forth above (with the successor in each case being a Person who
satisfies the eligibility requirement for Administrators or Delaware Trustee, as
the case may be, set forth in Section 8.7).
Section 8.11. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee, the
retiring Relevant Trustee and each such successor Trustee with respect to the
Trust Securities shall execute, acknowledge and deliver an instrument wherein
each successor Trustee shall accept such appointment and which shall contain
such provisions as shall be necessary or desirable to transfer and confirm to,
and to vest in, each successor Trustee all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Trust Securities and the Issuer
Trust, and upon the execution and delivery of such instrument the resignation or
removal of the retiring Relevant Trustee shall become effective to the extent
provided therein and each such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the Relevant Trustee; but, on request of the Issuer Trust or any
successor Trustee such Relevant Trustee shall duly assign, transfer and deliver
to such successor Trustee all Trust Property, all proceeds thereof and money
held by such Relevant Trustee hereunder with respect to the Trust Securities and
the Trust.
(b) Upon request of any such successor Trustee, the Issuer Trust shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all
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such rights, powers and trusts referred to in the first or second preceding
paragraph, as the case may be.
(c) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 8.12. Merger, Conversion, Consolidation or Succession to Business.
Any Person into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Relevant
Trustee shall be a party, or any Person succeeding to all or substantially all
the corporate trust business of such Relevant Trustee, shall be the successor of
such Relevant Trustee hereunder, provided that such Person shall be otherwise
qualified and eligible under this Article VIII, without the execution or filing
of any paper or any further act on the part of any of the parties hereto.
Section 8.13. Preferential Collection of Claims Against Depositor or Issuer
Trust.
If and when the Property Trustee shall be or become a creditor of the
Depositor (or any other obligor upon the Trust Securities), the Property Trustee
shall be subject to the provisions of the Trust Indenture Act regarding the
collection of claims against the Depositor (or any such other obligor) as is
required by the Trust Indenture Act.
Section 8.14. Trustee May File Proofs of Claim.
In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other similar judicial
proceeding relative to the Issuer Trust or any other obligor upon the Trust
Securities or the property of the Issuer Trust or of such other obligor, the
Property Trustee (irrespective of whether any Distributions on the Trust
Securities shall then be due and payable and irrespective of whether the
Property Trustee shall have made any demand on the Issuer Trust for the payment
of any past due Distributions) shall be entitled and empowered, to the fullest
extent permitted by law, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of any Distributions
owing and unpaid in respect of the Trust Securities and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Property Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Property Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each
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Holder to make such payments to the Property Trustee and, in the event the
Property Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Property Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Property Trustee, its
agents and counsel, and any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or compensation affecting the Trust
Securities or the rights of any Holder thereof or to authorize the Property
Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 8.15. Reports by Property Trustee.
(a) Within 60 days of January 31 of each year commencing with January 31,
1999, the Property Trustee shall transmit to all Holders in accordance with
Section 10.8, and to the Depositor, a brief report dated as of the immediately
preceding January 31 with respect to:
(i) its eligibility under Section 8.7 or, in lieu thereof, if to the
best of its knowledge it has continued to be eligible under said Section, a
written statement to such effect; and
(ii) any change in the property and funds in its possession as Property
Trustee since the date of its last report and any action taken by the Property
Trustee in the performance of its duties hereunder which it has not previously
reported and which in its opinion materially affects the Trust Securities.
(b) In addition, the Property Trustee shall transmit to Holders such reports
concerning the Property Trustee and its actions under this Trust Agreement as
may be required pursuant to the Trust Indenture Act at the times and in the
manner provided pursuant thereto as set forth in Section 10.10 of this Trust
Agreement.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Property Trustee with the Depositor.
Section 8.16. Reports to the Property Trustee.
The Depositor and the Administrators on behalf of the Issuer Trust shall
provide to the Property Trustee such documents, reports and information as
required by Section 314 of the Trust Indenture Act and the compliance
certificate required by Section 314(a) of the Trust Indenture Act in the form,
in the manner and at the times required by Section 314 of the Trust Indenture
Act, as set forth in Section 10.10 of this Trust Agreement. The Depositor and
the Administrators shall annually file with the Property Trustee a certificate
specifying whether such Person is in compliance with all the terms and covenants
applicable to such Person hereunder.
Section 8.17. Evidence of Compliance with Conditions Precedent.
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Each of the Depositor and the Administrators on behalf of the Issuer Trust
shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Trust Agreement that relate
to any of the matters set forth in Section 314(c) of the Trust Indenture Act as
set forth in Section 10.10 of this Trust Agreement. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c)(1) of the Trust
Indenture Act shall be given in the form of an Officers' Certificate.
Section 8.18. Number of Issuer Trustees.
(a) The number of Issuer Trustees shall be two; except that the Property
Trustee and the Delaware Trustee may be the same Person, in which event the
number of Issuer Trustees shall be one.
(b) If an Issuer Trustee ceases to hold office for any reason, a vacancy
shall occur. The vacancy shall be filled with an Issuer Trustee appointed in
accordance with Section 8.10.
(c) The death, resignation, retirement, removal, bankruptcy, incompetence or
incapacity to perform the duties of an Issuer Trustee shall not operate to
dissolve, terminate or annul the Issuer Trust.
Section 8.19. Delegation of Power.
(a) Any Administrator may, by power of attorney consistent with applicable
law, delegate to any other natural person over the age of 21 his or her power
for the purpose of executing any documents contemplated in Section 2.7(a) or
making any governmental filing.
(b) The Administrators shall have power to delegate from time to time to
such of their number the doing of such things and the execution of such
instruments either in the name of the Issuer Trust or the names of the
Administrators or otherwise as the Administrators may deem expedient, to the
extent such delegation is not prohibited by applicable law or contrary to the
provisions of this Trust Agreement.
Section 8.20. Appointment of Administrators.
(a) The Administrators (other than the initial Administrators) shall be
appointed by the Holders of a Majority in Liquidation Amount of the Common
Securities and all Administrators (including the initial Administrators) may be
removed by the Holders of a Majority in Liquidation Amount of the Common
Securities or may resign at any time. Each Administrator shall sign an agreement
agreeing to comply with the terms of this Trust Agreement. If at any time there
is no Administrator, the Property Trustee or any Holder who has been a Holder of
Trust Securities for at least six months may petition any court of competent
jurisdiction for the appointment of one or more Administrators.
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(b) Whenever a vacancy in the number of Administrators shall occur, until
such vacancy is filled by the appointment of an Administrator in accordance with
this Section 8.20, the Administrators in office, regardless of their number (and
notwithstanding any other provision of this Trust Agreement), shall have all the
powers granted to the Administrators and shall discharge all the duties imposed
upon the Administrators by this Trust Agreement.
(c) Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrator or a Delaware Trustee who is a natural
person dies or becomes, in the opinion of the Holders of a Majority in
Liquidation Amount of the Common Securities, incompetent, or incapacitated, the
vacancy created by such death, incompetence or incapacity may be filled by the
remaining Administrators, if there were at least two of them prior to such
vacancy or by the Depositor, if there were not two such Administrators
immediately prior to such vacancy (with the successor in each case being a
Person who satisfies the eligibility requirement for Administrators or Delaware
Trustee, as the case may be, set forth in Section 8.7).
(d) Except as otherwise provided in this Trust Agreement or by applicable
law, any one Administrator may execute any document or otherwise take any action
which the Administrators are authorized to take under this Trust Agreement.
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER
Section 9.1. Dissolution Upon Expiration Date.
Unless earlier dissolved, the Issuer Trust shall automatically dissolve on
_________, 2029 (the "Expiration Date"), following the distribution of the Trust
Property in accordance with Section 9.4.
Section 9.2. Early Termination.
The first to occur of any of the following events is an "Early Termination
Event":
(a) the occurrence of the appointment of a receiver or other similar
official in any liquidation, insolvency or similar proceeding with respect to
the Depositor or all or substantially all of its property, or a court or other
governmental agency shall enter a decree or order and such decree or order shall
remain unstayed and undischarged for a period of 60 days, unless the Depositor
shall transfer the Common Securities as provided by Section 5.11, in which case
this provision shall refer instead to any such successor Holder of the Common
Securities;
(b) the written direction to the Property Trustee from the Holder of the
Common Securities at any time to dissolve the Issuer Trust and to distribute the
Junior Subordinated
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Debentures to Holders in exchange for the Preferred Securities (which
direction, subject to Section 9.4(a), is optional and wholly within the
discretion of the Holder of the Common Securities);
(c) the redemption of all of the Preferred Securities in connection with the
redemption of all the Junior Subordinated Debentures; and
(d) the entry of an order for dissolution of the Issuer Trust by a court of
competent jurisdiction.
Section 9.3. Dissolution.
The respective obligations and responsibilities of the Issuer Trustees, the
Administrators and the Issuer Trust created and continued hereby shall terminate
upon the latest to occur of the following: (a) the distribution by the Property
Trustee to Holders of all amounts required to be distributed hereunder upon the
liquidation of the Issuer Trust pursuant to Section 9.4, or upon the redemption
of all of the Trust Securities pursuant to Section 4.2, (b) the payment of any
expenses owed by the Issuer Trust, (c) the discharge of all administrative
duties of the Administrators, including the performance of any tax reporting
obligations with respect to the Issuer Trust or the Holders, and (d) the filing
of a certificate of cancellation with the Delaware Secretary of State pursuant
to Section 3810 of the Delaware Business Trust Act.
Section 9.4. Liquidation.
(a) If an Early Termination Event specified in clause (a), (b) or (d) of
Section 9.2 occurs or upon the Expiration Date, the Issuer Trust shall be
liquidated by the Property Trustee as expeditiously as the Property Trustee
determines to be possible by distributing, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, to each Holder a
Like Amount of Junior Subordinated Debentures, subject to Section 9.4(d). Notice
of liquidation shall be given by the Property Trustee by first-class mail,
postage prepaid, mailed not later than 15 nor more than 45 days prior to the
Liquidation Date to each Holder of Trust Securities at such Holder's address
appearing in the Securities Register. All notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that, from and after the Liquidation Date, the Trust
Securities will no longer be deemed to be Outstanding and any Trust Securities
Certificates not surrendered for exchange will be deemed to represent a Like
Amount of Junior Subordinated Debentures; and
(iii) provide such information with respect to the mechanics by which
Holders may exchange Trust Securities Certificates for Junior Subordinated
Debentures, or if Section 9.4(d) applies receive a Liquidation Distribution, as
the Administrators or the Property Trustee shall deem appropriate.
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(b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect the
liquidation of the Issuer Trust and distribution of the Junior Subordinated
Debentures to Holders, the Property Trustee shall establish a record date for
such distribution (which shall be not more than 30 days prior to the Liquidation
Date) and, either itself acting as exchange agent or through the appointment of
a separate exchange agent, shall establish such procedures as it shall deem
appropriate to effect the distribution of Junior Subordinated Debentures in
exchange for the Outstanding Trust Securities Certificates.
(c) Except where Section 9.2(c) or 9.4(d) applies, after the Liquidation
Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii)
the Clearing Agency for the Preferred Securities or its nominee, as the
registered holder of the Global Preferred Securities Certificate, shall receive
a registered global certificate or certificates representing the Junior
Subordinated Debentures to be delivered upon such distribution with respect to
Preferred Securities held by the Clearing Agency or its nominee, and (iii) any
Trust Securities Certificates not held by the Clearing Agency for the Preferred
Securities or its nominee as specified in clause (ii) above will be deemed to
represent Junior Subordinated Debentures having a principal amount equal to the
stated Liquidation Amount of the Trust Securities represented thereby and
bearing accrued and unpaid interest in an amount equal to the accumulated and
unpaid Distributions on such Trust Securities until such certificates are
presented to the Securities Registrar for transfer or reissuance.
(d) If, notwithstanding the other provisions of this Section 9.4, whether
because of an order for dissolution entered by a court of competent jurisdiction
or otherwise, distribution of the Junior Subordinated Debentures is not
practical, or if any Early Termination Event specified in clause (c) of Section
9.2 occurs, the Trust Property shall be liquidated, and the Issuer Trust shall
be dissolved by the Property Trustee in such manner as the Property Trustee
determines. In such event, on the date of the dissolution of the Issuer Trust,
Holders will be entitled to receive out of the assets of the Issuer Trust
available for distribution to Holders, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, an amount equal to
the aggregate of the Liquidation Amount per Trust Security plus accumulated and
unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If, upon any such dissolution, the Liquidation
Distribution can be paid only in part because the Issuer Trust has insufficient
assets available to pay in full the aggregate Liquidation Distribution, then,
subject to the next succeeding sentence, the amounts payable by the Issuer Trust
on the Trust Securities shall be paid on a pro rata basis (based upon
Liquidation Amounts). The Holders of the Common Securities will be entitled to
receive Liquidation Distributions upon any such dissolution pro rata (determined
as aforesaid) with Holders of Preferred Securities, except that, if a Debenture
Event of Default has occurred and is continuing, the Preferred Securities shall
have a priority over the Common Securities as provided in Section 4.3.
Section 9.5. Mergers, Consolidations, Amalgamations or Replacements of the
Issuer Trust.
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The Issuer Trust may not merge with or into, consolidate, amalgamate, or
be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except pursuant to this Section
9.5. At the request of the Holders of the Common Securities, and with the
consent of the Holders of at least a majority in Liquidation Amount of the
Preferred Securities but without the consent of Delaware Trustee or the
Property Trustee, the Issuer Trust may merge with or into, consolidate,
amalgamate, or be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to a trust organized as such under the
laws of any State; provided, however, that (a) such successor entity either
(i) expressly assumes all of the obligations of the Issuer Trust with respect
to the Preferred Securities or (ii) substitutes for the Preferred Securities
other securities having substantially the same terms as the Preferred
Securities (the "Successor Preferred Securities") so long as the Successor
Preferred Securities have the same priority as the Preferred Securities with
respect to distributions and payments upon liquidation, redemption and
otherwise, (b) a trustee of such successor entity possessing the same powers
and duties as the Property Trustee is appointed to hold the Junior
Subordinated Debentures, (c) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the Preferred
Securities (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization if the Preferred
Securities were rated by any nationally recognized statistical rating
organization immediately prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, (d) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Preferred Securities) in any material
respect, (e) such successor entity has a purpose substantially identical to
that of the Issuer Trust, (f) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Issuer Trustee
has received an Opinion of Counsel from independent counsel experienced in
such matters to the effect that (i) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the
rights preferences and privileges of the holders of the Preferred Securities
(including any Successor Preferred Securities) in any material respect, and
(ii) following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Issuer Trust nor such successor
entity will be required to register as an "investment company" under the
Investment Company Act, and (g) the Depositor or any permitted transferee to
whom it has transferred the Common Securities hereunder owns all of the
Common Securities of such successor entity and guarantees the obligations of
such successor entity under the Successor Securities at least to the extent
provided by the Guarantee Agreement. Notwithstanding the foregoing, the
Issuer Trust shall not, except with the consent of holders of 100% in
Liquidation Amount of the Preferred Securities, consolidate, amalgamate,
merge with or into, or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to any other entity or
permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Issuer Trust or the successor
entity to be taxable as a corporation for United States federal income tax
purposes. Any merger or similar agreement shall be executed by the
Administrators on behalf of the Issuer Trust.
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ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1. Limitation of Rights of Holders.
Except as set forth in Section 9.2, the death or incapacity of any person
having an interest, beneficial or otherwise, in Trust Securities shall not
operate to terminate this Trust Agreement, nor entitle the legal representatives
or heirs of such person or any Holder for such person, to claim an accounting,
take any action or bring any proceeding in any court for a partition or
winding-up of the arrangements contemplated hereby, nor otherwise affect the
rights, obligations and liabilities of the parties hereto or any of them.
Section 10.2. Amendment.
(a) This Trust Agreement may be amended from time to time by the Property
Trustee and the Holders of a Majority in Liquidation Amount of the Common
Securities, without the consent of any Holder of the Preferred Securities, (i)
to cure any ambiguity, correct or supplement any provision herein which may be
inconsistent with any other provision herein, or to make any other provisions
with respect to matters or questions arising under this Trust Agreement,
provided, however, that such amendment shall not adversely affect in any
material respect the interests of any Holder or (ii) to modify, eliminate or add
to any provisions of this Trust Agreement to such extent as shall be necessary
to ensure that the Issuer Trust will not be taxable as a corporation for United
States federal income tax purposes at any time that any Trust Securities are
Outstanding or to ensure that the Issuer Trust will not be required to register
as an investment company under the Investment Company Act.
(b) Except as provided in Section 10.2(c) hereof, any provision of this
Trust Agreement may be amended by the Property Trustee and the Holders of a
Majority in Liquidation Amount of the Common Securities with (i) the consent of
Holders of at least a Majority in Liquidation Amount of the Preferred Securities
and (ii) receipt by the Issuer Trustees of an Opinion of Counsel to the effect
that such amendment or the exercise of any power granted to the Issuer Trustees
in accordance with such amendment will not cause the Issuer Trust to be taxable
as a corporation for United States federal income tax purposes or affect the
Issuer Trust's exemption from status of an "investment company" under the
Investment Company Act.
(c) In addition to and notwithstanding any other provision in this Trust
Agreement, without the consent of each affected Holder (such consent being
obtained in accordance with Section 6.3 or 6.6 hereof), this Trust Agreement may
not be amended to (i) change the amount or timing of any Distribution on the
Trust Securities or otherwise adversely affect the amount of any
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Distribution required to be made in respect of the Trust Securities as of a
specified date or (ii) restrict the right of a Holder to institute suit for the
enforcement of any such payment on or after such date.
(d) Notwithstanding any other provisions of this Trust Agreement, no Issuer
Trustee shall enter into or consent to any amendment to this Trust Agreement
which would cause the Issuer Trust to fail or cease to qualify for the exemption
from status as an "investment company" under the Investment Company Act or be
taxable as a corporation for United States federal income tax purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor and the Administrators, this Trust
Agreement may not be amended in a manner which imposes any additional obligation
on the Depositor or the Administrators.
(f) In the event that any amendment to this Trust Agreement is made, the
Administrators or the Property Trustee shall promptly provide to the Depositor a
copy of such amendment.
(g) Neither the Property Trustee nor the Delaware Trustee shall be required
to enter into any amendment to this Trust Agreement which affects its own
rights, duties or immunities under this Trust Agreement. The Property Trustee
shall be entitled to receive an Opinion of Counsel and an Officers' Certificate
stating that any amendment to this Trust Agreement is in compliance with this
Trust Agreement.
(h) Any amendments to this Trust Agreement shall become effective when
notice of such amendment is given to the Holders of the Trust Securities.
Section 10.3. Separability.
In case any provision in this Trust Agreement or in the Trust Securities
Certificates shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.4. Governing Law.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE HOLDERS,
THE ISSUER TRUST, THE DEPOSITOR, THE ISSUER TRUSTEES AND THE ADMINISTRATORS WITH
RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
Section 10.5. Payments Due on Non-Business Day.
56
<PAGE>
If the date fixed for any payment on any Trust Security shall be a day that
is not a Business Day, then such payment need not be made on such date but may
be made on the next succeeding day that is a Business Day (except as otherwise
provided in Sections 4.2(d)), with the same force and effect as though made on
the date fixed for such payment, and no Distributions shall accumulate on such
unpaid amount for the period after such date.
Section 10.6. Successors.
This Trust Agreement shall be binding upon and shall inure to the benefit of
any successor to the Depositor, the Issuer Trust, the Administrators and any
Issuer Trustee, including any successor by operation of law. Except in
connection with a consolidation, merger or sale involving the Depositor that is
permitted under Article VIII of the Indenture and pursuant to which the assignee
agrees in writing to perform the Depositor's obligations hereunder, the
Depositor shall not assign its obligations hereunder.
Section 10.7. Headings.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
Section 10.8. Reports, Notices and Demands.
(a) Any report, notice, demand or other communication that by any provision
of this Trust Agreement is required or permitted to be given or served to or
upon any Holder or the Depositor may be given or served in writing by deposit
thereof, first class postage prepaid, in the United States mail, hand delivery
or facsimile transmission, in each case, addressed, (i) in the case of a Holder
of Preferred Securities, to such Holder as such Holder's name and address may
appear on the Securities Register; and (ii) in the case of the Holder of Common
Securities or the Depositor, to First Mariner Bancorp, 1801 South Clinton
Street, Baltimore, Maryland 21224, Attention: President, facsimile no.: (410)
563-1594 or to such other address as may be specified in a written notice by the
Depositor to the Property Trustee. Such notice, demand or other communication to
or upon a Holder shall be deemed to have been sufficiently given or made, for
all purposes, upon hand delivery, mailing or transmission. Such notice, demand
or other communication to or upon the Depositor shall be deemed to have been
sufficiently given or made only upon actual receipt of the writing by the
Depositor.
(b) Any notice, demand or other communication which by any provision of this
Trust Agreement is required or permitted to be given or served to or upon the
Issuer Trust, the Property Trustee, the Delaware Trustee, the Administrators, or
the Issuer Trust shall be given in writing addressed (until another address is
published by the Issuer Trust) as follows: (i) with
57
<PAGE>
respect to the Property Trustee to Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration;
(ii) with respect to the Delaware Trustee to Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890, Attention: Corporation Trust
Administration, and (iii) with respect to the Administrators, to them at the
address above for notices to the Depositor, marked "Attention: President." Such
notice, demand or other communication to or upon the Issuer Trust or the
Property Trustee shall be deemed to have been sufficiently given or made only
upon actual receipt of the writing by the Issuer Trust, the Property Trustee, or
such Administrator.
Section 10.9. Agreement Not to Petition.
Each of the Issuer Trustees, the Administrators and the Depositor agree for
the benefit of the Holders that, until at least one year and one day after the
Issuer Trust has been dissolved in accordance with Article IX, they shall not
file, or join in the filing of, a petition against the Issuer Trust under any
bankruptcy, insolvency, reorganization or other similar law (including, without
limitation, the United States Bankruptcy Code) (collectively, "Bankruptcy Laws")
or otherwise join in the commencement of any proceeding against the Issuer Trust
under any Bankruptcy Law. In the event the Depositor takes action in violation
of this Section 10.9, the Property Trustee agrees, for the benefit of Holders,
that at the expense of the Depositor, it shall file an answer with the
bankruptcy court or otherwise properly contest the filing of such petition by
the Depositor against the Issuer Trust or the commencement of such action and
raise the defense that the Depositor has agreed in writing not to take such
action and should be estopped and precluded therefrom and such other defenses,
if any, as counsel for the Issuer Trustee or the Issuer Trust may assert. If any
Issuer Trustee or Administrator takes action in violation of this Section 10.9,
the Depositor agrees, for the benefit of the Holders, that at the expense of the
Depositor, it shall file an answer with the bankruptcy court or otherwise
properly contest the filing of such petition by such Person against the
Depositor or the commencement of such action and raise the defense that such
Person has agreed in writing not to take such action and should be estopped and
precluded therefrom and such other defenses, if any, as counsel for the Issuer
Trustee or the Issuer Trust may assert. The provisions of this Section 10.9
shall survive the termination of this Trust Agreement.
Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act.
(a) Trust Indenture Act; Application. (i) This Trust Agreement is subject to
the provisions of the Trust Indenture Act that are required to be a part of this
Trust Agreement and shall, to the extent applicable, be governed by such
provisions; (ii) if and to the extent that any provision of this Trust Agreement
limits, qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control; (iii)
for purposes of this Trust Agreement, the Property Trustee, to the extent
permitted by applicable law and/or the rules and regulations of the Commission,
shall be the only Issuer Trustee which is a trustee for the purposes of the
Trust Indenture Act; and (iv) the application of the Trust Indenture Act to this
Trust
58
<PAGE>
Agreement shall not affect the nature of the Preferred Securities and the Common
Securities as equity securities representing undivided beneficial interests in
the assets of the Issuer Trust.
(b) Lists of Holders of Preferred Securities. (i) Each of the Depositor and
the Administrators on behalf of the Issuer Trust shall provide the Property
Trustee with such information as is required under Section 312(a) of the Trust
Indenture Act at the times and in the manner provided in Section 312(a) and (ii)
the Property Trustee shall comply with its obligations under Sections 310(b),
311 and 312(b) of the Trust Indenture Act.
(c) Reports by the Property Trustee. Within 60 days after January 31 of each
year, the Property Trustee shall provide to the Holders of the Trust Securities
such reports as are required by Section 313 of the Trust Indenture Act, if any,
in the form, in the manner and at the times provided by Section 313 of the Trust
Indenture Act. The Property Trustee shall also comply with the requirements of
Section 313(d) of the Trust Indenture Act.
(d) Periodic Reports to Property Trustee. Each of the Depositor and the
Administrators on behalf of the Issuer Trust shall provide to the Property
Trustee, the Commission and the Holders of the Trust Securities, as applicable,
such documents, reports and information as required by Section 314(a)(1)-(3) (if
any) of the Trust Indenture Act and the compliance certificates required by
Section 314(a)(4) and (c) of the Trust Indenture Act (provided that any
certificate to be provided pursuant to Section 314(a)(4) of the Trust Indenture
Act shall be provided within 120 days of the end of each fiscal year of the
Issuer Trust).
(e) Evidence of Compliance with Conditions Precedent. Each of the Depositor
and the Administrators on behalf of the Issuer Trust shall provide to the
Property Trustee such evidence of compliance with any conditions precedent, if
any, provided for in this Trust Agreement which relate to any of the matters set
forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given pursuant to Section 314(c) shall comply with Section 314(e)
of the Trust Indenture Act.
(f) Disclosure of Information. The disclosure of information as to the names
and addresses of the Holders of Trust Securities in accordance with Section 312
of the Trust Indenture Act, regardless of the source from which such information
was derived, shall not be deemed to be a violation of any existing law or any
law hereafter enacted which does not specifically refer to Section 312 of the
Trust Indenture Act, nor shall the Property Trustee be held accountable by
reason of mailing any material pursuant to a request made under Section 312(b)
of the Trust Indenture Act.
Section 10.11. Acceptance of Terms of Trust Agreement, Guarantee and Indenture.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY OR
ON BEHALF OF A HOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR FURTHER
MANIFESTATION OF ASSENT, SHALL CONSTITUTE
59
<PAGE>
THE UNCONDITIONAL ACCEPTANCE BY THE HOLDER AND ALL OTHERS HAVING A BENEFICIAL
INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST
AGREEMENT, THE GUARANTEE AGREEMENT AND THE INDENTURE, AND THE AGREEMENT TO THE
SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AGREEMENT AND THE
INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE ISSUER TRUST, SUCH HOLDER
AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE
BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE ISSUER TRUST AND SUCH HOLDER AND
SUCH OTHERS.
[Signatures Appear on Next Page]
IN WITNESS WHEREOF, the parties have caused this Amended and Restated Trust
Agreement to be duly executed as of the day and year first above written.
FIRST MARINER BANCORP, as Depositor
By:
-----------------------------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY,
as Property Trustee
By:
-----------------------------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY,
as Delaware Trustee and not in its individual capacity
By:
-----------------------------------------------------
Name:
Title:
60
<PAGE>
Subscribed to and Accepted by,
as the Initial Administrators:
- ---------------------------------------
- ---------------------------------------
61
<PAGE>
EXHIBIT A
[INSERT CERTIFICATE OF TRUST FILED WITH DELAWARE SECRETARY OF STATE]
<PAGE>
EXHIBIT B
[INSERT FORM OF CERTIFICATE DEPOSITARY AGREEMENT]
<PAGE>
EXHIBIT C
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO A SUCCESSOR IN INTEREST TO
THE DEPOSITOR OR AN AFFILIATE OF THE DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW
AND SECTION 5.11 OF THE TRUST AGREEMENT.
Certificate Number Number of Common Securities
C-__
Certificate Evidencing Common Securities
Mariner Capital Trust
____% Common Securities
(liquidation amount $10 per Common Security)
First Mariner Capital Trust, a statutory business trust formed under the
laws of the State of Delaware (the "Issuer Trust"), hereby certifies that
First Mariner Bancorp (the "Holder") is the registered owner of (_____)
common securities of the Issuer Trust representing undivided beneficial
interests in the assets of the Issuer Trust and has designated the Mariner
Capital Trust _____% Common Securities (liquidation amount $10 per Common
Security) (the "Common Securities"). Except in accordance with Section 5.11
of the Trust Agreement (as defined below) the Common Securities are not
transferable and any attempted transfer hereof other than in accordance
therewith shall be void. The designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Common Securities are set
forth in, and this certificate and the Common Securities represented hereby
are issued and shall in all respects be subject to the terms and provisions
of, the Trust Agreement of the Issuer Trust, dated as of ________, 1998, as
the same may be amended from time to time (the "Trust Agreement") among First
Mariner Bancorp, as Depositor, Wilmington Trust Company, as Property Trustee,
Wilmington Trust Company, as Delaware Trustee, and the Holders of Trust
Securities, including the designation of the terms of the Common Securities
as set forth therein. The Issuer Trust will furnish a copy of the Trust
Agreement to the Holder without charge upon written request to the Issuer
Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust Agreement
and is entitled to the benefits thereunder.
Terms used but not defined herein have the meanings set forth in the Trust
Agreement.
<PAGE>
IN WITNESS WHEREOF, one of the Administrators of the Issuer Trust has
executed this certificate this ___ day of ______________, ____.
MARINER CAPITAL TRUST
By:
--------------------------------
Name:
Administrator
COUNTERSIGNED AND REGISTERED:
- -----------------------------
as Securities Registrar
By:
--------------------------
Name:
Signatory Officer
2
<PAGE>
EXHIBIT D
[IF THE PREFERRED SECURITIES CERTIFICATE IS TO BE A GLOBAL PREFERRED
SECURITIES CERTIFICATE, INSERT - This Preferred Securities Certificate is a
Global Preferred Securities Certificate within the meaning of the Trust
Agreement hereinafter referred to and is registered in the name of a Depositary
or a nominee of a Depositary. This Preferred Securities Certificate is
exchangeable for Preferred Securities Certificates registered in the name of a
person other than the Depositary or its nominee only in the limited
circumstances described in the Trust Agreement and may not be transferred except
as a whole by the Depositary to a nominee of the Depositary or by a nominee of
the Depositary to the Depositary or another nominee of the Depositary, except in
the limited circumstances described in the Trust Agreement.
Unless this Preferred Securities Certificate is presented by an
authorized representative of The Depository Trust Company, a New York
Corporation ("DTC"), to Mariner Capital Trust or its agent for registration
of transfer, exchange or payment, and any Preferred Securities Certificate
issued is registered in the name of such nominee as is requested by an
authorized representative of DTC (and any payment is made to such entity as
is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO A PERSON IS WRONGFUL
inasmuch as the registered owner hereof, has an interest herein.]
CERTIFICATE NUMBER NUMBER OF PREFERRED SECURITIES P-__
CUSIP NO. ________________________
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF MARINER CAPITAL TRUST
____% PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
Mariner Capital Trust, a statutory business trust formed under the laws
of the State of Delaware (the "Issuer Trust"), hereby certifies that
_______________ (the "Holder") is the registered owner of (_____) preferred
securities of the Issuer Trust representing a preferred undivided beneficial
interest in the assets of the Issuer Trust and has designated the First
Mariner Capital Trust ____% Preferred Securities (liquidation amount $10 per
Preferred Security) (the "Preferred Securities"). The Preferred Securities
are transferable on the books and records of the Issuer Trust, in person or
by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer as provided in Section 5.5 of the
Trust Agreement (as defined below). The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Preferred
Securities are set forth in, and this certificate and the Preferred
Securities represented hereby are issued and shall in all respects be subject
to the terms and provisions of, the Trust Agreement of the Issuer Trust,
dated as of _______ __, 1998, as the
<PAGE>
same may be amended from time to time (the "Trust Agreement"), among First
Mariner Bancorp, as Depositor, Wilmington Trust Company, as Property Trustee,
Wilmington Trust Company, as Delaware Trustee, and the Holders of Trust
Securities, including the designation of the terms of the Preferred Securities
as set forth therein. The Holder is entitled to the benefits of the Guarantee
Agreement entered into by First Mariner Bancorp, a Maryland corporation, and
Wilmington Trust Company, as guarantee trustee, dated as of _______ __, 1998
(the "Guarantee Agreement"), to the extent provided therein. The Issuer Trust
will furnish a copy of the Trust Agreement and the Guarantee Agreement to the
Holder without charge upon written request to the Issuer Trust at its principal
place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust Agreement
and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, one of the Administrators of the Issuer Trust has
executed this certificate this _______ day of ____________, 19__.
MARINER CAPITAL TRUST
By:
--------------------------------
Name:
Administrator
COUNTERSIGNED AND REGISTERED:
Wilmington Trust Company,
as Securities Registrar
By:
-------------------------------
Name:
Authorized Signatory
2
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Securities Certificate to:
- ----------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- ----------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- ----------------------------------------------------------------
- ----------------------------------------------------------------
- ----------------------------------------------------------------
agent to transfer this Preferred Securities Certificate on the books of the
Issuer Trust. The agent may substitute another to act for him or her.
Date:
--------------------------------
Signature:
----------------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Preferred
Securities Certificate)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
3
<PAGE>
EXHIBIT 4.3
GUARANTEE AGREEMENT
Between
FIRST MARINER BANCORP
(as Guarantor)
and
WILMINGTON TRUST COMPANY
(as Guarantee Trustee)
dated as of
_____ __, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS.................................................................2
Section 1.1. Definitions....................................................2
ARTICLE II
TRUST INDENTURE ACT.........................................................5
Section 2.1. Trust Indenture Act; Application...............................5
Section 2.2. List of Holders................................................6
Section 2.3. Reports by the Guarantee Trustee...............................6
Section 2.4. Periodic Reports to the Guarantee Trustee......................6
Section 2.5. Evidence of Compliance with Conditions Precedent...............6
Section 2.6. Events of Default; Waiver......................................6
Section 2.7. Event of Default; Notice.......................................7
Section 2.8. Conflicting Interests..........................................7
ARTICLE III
POWERS, DUTIES AND RIGHTS OF THE
GUARANTEE TRUSTEE...........................................................7
Section 3.1. Powers and Duties of the Guarantee Trustee.....................7
Section 3.2. Certain Rights of Guarantee Trustee............................9
Section 3.3. Indemnity.....................................................10
Section 3.4. Expenses......................................................11
ARTICLE IV
GUARANTEE TRUSTEE..........................................................11
Section 4.1. Guarantee Trustee; Eligibility................................11
Section 4.2. Appointment, Removal and Resignation of the
Guarantee Trustee............................................11
ARTICLE V
GUARANTEE..................................................................12
Section 5.1. Guarantee.....................................................12
Section 5.2. Waiver of Notice and Demand...................................12
Section 5.3. Obligations Not Affected......................................13
Section 5.4. Rights of Holders.............................................14
Section 5.5. Guarantee of Payment..........................................14
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 5.6. Subrogation...................................................14
Section 5.7. Independent Obligations.......................................14
ARTICLE VI
COVENANTS AND SUBORDINATION................................................15
Section 6.1. Subordination.................................................15
Section 6.2. Pari Passu Guarantees.........................................15
ARTICLE VII
TERMINATION................................................................15
Section 7.1. Termination...................................................15
ARTICLE VIII
MISCELLANEOUS..............................................................15
Section 8.1. Successors and Assigns........................................15
Section 8.2. Amendments....................................................16
Section 8.3. Notices.......................................................16
Section 8.4. Benefit.......................................................17
Section 8.5. Interpretation................................................17
Section 8.6. Governing Law.................................................18
Section 8.7. Counterparts..................................................18
</TABLE>
<PAGE>
MARINER CAPITAL TRUST
Certain Sections of this Guarantee Agreement relating to Sections 310
through 318 of the Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Act Section Guarantee Agreement Section
- --------------------------- ---------------------------
<S> <C>
Section 310
(a)(1)...........................................................4.1 (a)
(a)(2)...........................................................4.1 (a)
(a)(3)....................................................Not Applicable
(a)(4)....................................................Not Applicable
(b).........................................................2.8, 4.1 (c)
Section 311
(a).......................................................Not Applicable
(b).......................................................Not Applicable
Section 312
(a)..............................................................2.2 (a)
(b)..............................................................2.2 (b)
(c).......................................................Not Applicable
Section 313
(a)..............................................................2.3
(a)(4)...........................................................2.3
(b) .............................................................2.3
(c)..............................................................2.3
(d)..............................................................2.3
Section 314
(a)..............................................................2.4
(b)..............................................................2.4
(c)(1)...........................................................2.5
(c)(2)...........................................................2.5
(c)(3)...........................................................2.5
(e) ...................................................1.1, 2.5, 3.2
Section 315
(a)..............................................................3.1 (d)
(b)..............................................................2.7
(c)..............................................................3.1 (c)
(d)..............................................................3.1 (d)
(e)......................................................Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Trust Indenture Act Section Guarantee Agreement Section
- --------------------------- ---------------------------
<S> <C>
Section 316
(a)....................................................1.1, 2.6, 5.4
(a)(1)(A)........................................................5.4
(a)(1)(B)........................................................5.4
(a)(2)...................................................Not Applicable
(b)..............................................................5.3
(c)......................................................Not Applicable
Section 317
(a)(1)...................................................Not Applicable
(a)(2)...................................................Not Applicable
(b)......................................................Not Applicable
Section 318
(a)..............................................................2.1
</TABLE>
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Guarantee Agreement.
<PAGE>
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT, dated as of _______ __, 1998 is executed and
delivered by FIRST MARINER BANCORP, a Maryland corporation (the "Guarantor"),
having its principal office at 1801 South Clinton Street, Baltimore, Maryland
21224, and Wilmington Trust Company, a Delaware banking corporation, as
trustee (the "Guarantee Trustee"), for the benefit of the Holders (as defined
herein) from time to time of the Preferred Securities (as defined herein) of
Mariner Capital Trust, a Delaware statutory business trust (the "Issuer
Trust").
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "Trust
Agreement"), dated as of _______ __, 1998, among First Mariner Bancorp, as
Depositor, Wilmington Trust Company, as Property Trustee (the "Property
Trustee"), Wilmington Trust Company, as Delaware Trustee (the "Delaware
Trustee") (collectively, the "Issuer Trustees") and the Holders from time to
time of preferred undivided beneficial ownership interests in the assets of the
Issuer Trust, the Issuer Trust is issuing $_________ aggregate Liquidation
Amount (as defined herein) of its ____% Preferred Securities, Liquidation Amount
$10 per preferred security (the "Preferred Securities"), representing preferred
undivided beneficial ownership interests in the assets of the Issuer Trust and
having the terms set forth in the Trust Agreement;
WHEREAS, the Preferred Securities will be issued by the Issuer Trust and the
proceeds thereof, together with the proceeds from the issuance of the Issuer
Trust's Common Securities (as defined herein), will be used to purchase the
Junior Subordinated Debentures due _______, 2028 (as defined in the Trust
Agreement) (the "Junior Subordinated Debentures") of the Guarantor which will be
deposited with Wilmington Trust Company, as Property Trustee under the Trust
Agreement, as trust assets; and
WHEREAS, as incentive for the Holders to purchase Preferred Securities, the
Guarantor desires irrevocably and unconditionally to agree, to the extent set
forth herein, to pay to the Holders of the Preferred Securities the Guarantee
Payments (as defined herein) and to make certain other payments on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase of Preferred Securities by
each Holder, which purchase the Guarantor hereby acknowledges shall benefit the
Guarantor, and intending to be legally bound hereby, the Guarantor executes and
delivers this Guarantee Agreement for the benefit of the Holders from time to
time of the Preferred Securities.
1
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1. Definitions.
As used in this Guarantee Agreement, the terms set forth below shall, unless
the context otherwise requires, have the following meanings. Capitalized terms
used but not otherwise defined herein shall have the meanings assigned to such
terms in the Trust Agreement as in effect on the date hereof.
"Additional Amount" has the meaning specified in the Trust Agreement.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Issuer Trust.
"Delaware Trustee" shall have the meaning specified in the first recital of
this Guarantee Agreement.
"Distributions" means preferential cumulative cash distributions
accumulating from _______ __, 1998 and payable quarterly in arrears on March 31,
June 30, September 30, and December 31 of each year, commencing _______ __, 1998
at the annual rate of ____% of the Liquidation Amount.
"Event of Default" means (a) a default by the Guarantor in any of its
payment obligations under this Guarantee Agreement, or (b) a default by the
Guarantor in any other obligation hereunder that remains unremedied for 30 days.
"Guarantee Agreement" means this Guarantee Agreement, as modified, amended
or supplemented from time to time.
"Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Preferred Securities, to the extent not paid or
made by or on behalf of the Issuer Trust: (a) any accrued and unpaid
Distributions (as defined in the Trust Agreement) required to be paid on the
Preferred Securities, to the extent the Issuer Trust shall have funds on hand
available
2
<PAGE>
therefor at such time, (b) the Redemption Price, with respect to the
Preferred Securities called for redemption by the Issuer Trust to the extent
that the Issuer Trust shall have funds on hand available therefor at such
time, and (c) upon a voluntary or involuntary termination, winding-up or
liquidation of the Issuer Trust, unless Junior Subordinated Debentures are
distributed to the Holders, the lesser of (i) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions to the date
of payment to the extent the Issuer Trust shall have funds on hand available
to make such payment at such time and (ii) the amount of assets of the Issuer
Trust remaining available for distribution to Holders in liquidation of the
Issuer Trust (in either case, the "Liquidation Distribution").
"Guarantee Trustee" means Wilmington Trust Company, until a Successor
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Guarantee Agreement and thereafter means each such
Successor Guarantee Trustee.
"Guarantor" shall have the meaning specified in the first paragraph of this
Guarantee Agreement.
"Holder" means any holder, as registered on the books and records of the
Issuer Trust, of any Preferred Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor, the Guarantee Trustee, or any Affiliate of the
Guarantor or the Guarantee Trustee.
"Indenture" means the Junior Subordinated Indenture dated as of _______ __,
1998, between First Mariner Bancorp and Wilmington Trust Company, as trustee, as
may be modified, amended or supplemented from time to time.
"Issuer Trust" shall have the meaning specified in the first paragraph of
this Guarantee Agreement.
"Issuer Trustees" shall have the meaning specified in the first recital of
this Guarantee Agreement.
"Junior Subordinated Debentures" shall have the meaning specified in the
first recital of this Guarantee Agreement.
"Like Amount" means (a) with respect to a redemption of Preferred
Securities, Preferred Securities having a Liquidation Amount equal to the
principal amount of Junior Subordinated Debentures to be contemporaneously
redeemed in accordance with the Indenture, the proceeds of which will be used to
pay the Redemption Price of such Preferred Securities, (b) with respect to a
distribution of Junior Subordinated Debentures to Holders of Preferred
Securities in connection with a dissolution or liquidation of the Issuer Trust,
Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Preferred Securities of the
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Holder to whom such Junior Subordinated Debentures are distributed, and (c) with
respect to any distribution of an Additional Amount to Holders of Preferred
Securities, Junior Subordinated Debentures having a principal amount equal to
the Liquidation Amount of the Preferred Securities in respect of which such
distribution is made.
"Liquidation Amount" means the stated amount of $10 per Preferred Security.
"Majority in Liquidation Amount of the Preferred Securities" means, except
as provided by the Trust Indenture Act, Preferred Securities representing more
than 50% of the aggregate Liquidation Amount of all then outstanding Preferred
Securities issued by the Issuer Trust.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman of the Board, Chief Executive Officer, President or a
Vice President, and by the Chief Financial Officer, Treasurer, an Associate
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
such Person, and delivered to the Guarantee Trustee. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Guarantee Agreement shall include:
(a) a statement by each officer signing the Officers' Certificate that
such officer has read the covenant or condition and the definitions relating
thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by such officer in rendering the Officers' Certificate;
(c) a statement that such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of such officer, such
condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Securities" shall have the meaning specified in the first recital
of this Guarantee Agreement.
"Property Trustee" shall have the meaning specified in the first recital of
this Guarantee Agreement.
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"Redemption Date" means, with respect to any Preferred Security to be
redeemed, the date fixed for such redemption by or pursuant to the Trust
Agreement; provided that each Junior Subordinated Debenture Redemption Date (as
such term is defined in the Indenture) and the stated maturity of the Junior
Subordinated Debentures shall be a Redemption Date for a Like Amount of
Preferred Securities.
"Redemption Price" shall have the meaning specified in the Trust Agreement.
"Responsible Officer" means, when used with respect to the Guarantee
Trustee, any officer assigned to the Corporate Trust Office, including any
managing director, principal, vice president, assistant vice president,
assistant treasurer, assistant secretary or any other officer of the Guarantee
Trustee customarily performing functions similar to those performed by any of
the above designated officers and having direct responsibility for the
administration of this Guarantee Agreement, and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
"Senior Indebtedness" shall have the meaning specified in the Indenture.
"Successor Guarantee Trustee" means a successor Guarantee Trustee possessing
the qualifications to act as Guarantee Trustee under Section 4.1.
"Trust Agreement" means the Amended and Restated Trust Agreement dated as of
______________ 1998, executed by First Mariner Bancorp, as Depositor, Wilmington
Trust Company, as Delaware Trustee and as Property Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990, or any successor statute, in each case
as amended from time to time.
ARTICLE II
TRUST INDENTURE ACT
Section 2.1. Trust Indenture Act; Application.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act that is required under such Act to be a part of and
govern this Guarantee Agreement, the provision of the Trust Indenture Act shall
control. If any provision of this Guarantee Agreement modifies or excludes any
provision of the Trust Indenture Act that may be so modified or excluded, the
latter provision shall be deemed to apply to this Guarantee Agreement as so
modified or excluded, as the case may be.
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Section 2.2. List of Holders.
(a) The Guarantor will furnish or cause to be furnished to the Guarantee
Trustee:
(i) quarterly, not more than 15 days after March 15, June 15, September
15 and December 15 in each year, a list, in such form as the Guarantee Trustee
may reasonably require, of the names and addresses of the Holders as of such
date; and
(ii) at such other times as the Guarantee Trustee may request in
writing, within 30 days after the receipt by the Guarantor of any such request,
a list of similar form and content as of a date not more than 15 days prior to
the time such list is furnished.
(b) The Guarantee Trustee shall comply with the requirements of Section
312(b) of the Trust Indenture Act.
Section 2.3. Reports by the Guarantee Trustee.
Within 60 days of January 31 of each year commencing January 31, 1999, the
Guarantee Trustee shall provide to the Holders such reports, if any, as are
required by Section 313 of the Trust Indenture Act in the form and in the manner
provided by Section 313 of the Trust Indenture Act. The Guarantee Trustee shall
also comply with the requirements of Section 313(d) of the Trust Indenture Act.
Section 2.4. Periodic Reports to the Guarantee Trustee.
The Guarantor shall provide to the Guarantee Trustee and the Holders such
documents, reports and information, if any, as required by Section 314 of the
Trust Indenture Act and the compliance certificate required by Section 314 of
the Trust Indenture Act, in the form, in the manner and at the times required by
Section 314 of the Trust Indenture Act.
Section 2.5. Evidence of Compliance with Conditions Precedent.
The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of an
Officers' Certificate.
Section 2.6. Events of Default; Waiver.
The Holders of a Majority in Liquidation Amount of the Preferred Securities
may, by vote, on behalf of the Holders, waive any past Event of Default and its
consequences. Upon such waiver, any such Event of Default shall cease to exist,
and any Event of Default arising therefrom
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shall be deemed to have been cured, for every purpose of this Guarantee
Agreement, but no such waiver shall extend to any subsequent or other default
or Event of Default or impair any right consequent therefrom.
Section 2.7. Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the occurrence of an
Event of Default, transmit by mail, first class postage prepaid, to the Holders,
notices of all Events of Default known to the Guarantee Trustee, unless such
Events of Default have been cured before the giving of such notice; provided
that, except in the case of a default in the payment of a Guarantee Payment, the
Guarantee Trustee shall be protected in withholding such notice if and so long
as the Board of Directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Guarantee Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of any Event
of Default unless a Responsible Officer charged with the administration of this
Guarantee Agreement shall have received written notice of such Event of Default.
Section 2.8. Conflicting Interests.
The Trust Agreement shall be deemed to be specifically described in this
Guarantee Agreement for the purposes of clause (i) of the first proviso
contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF THE
GUARANTEE TRUSTEE
Section 3.1. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee Agreement shall be held by the Guarantee Trustee for the
benefit of the Holders, and the Guarantee Trustee shall not transfer this
Guarantee Agreement to any Person except to a Holder exercising his or her
rights pursuant to Section 5.4(d) or to a Successor Guarantee Trustee on
acceptance by such Successor Guarantee Trustee of its appointment to act as
Successor Guarantee Trustee hereunder. The right, title and interest of the
Guarantee Trustee, as such, hereunder shall automatically vest in any Successor
Guarantee Trustee, upon acceptance by such Successor Guarantee Trustee of its
appointment hereunder, and such vesting and cessation of title shall be
effective whether or not conveyancing documents have been executed and delivered
pursuant to the appointment of such Successor Guarantee Trustee.
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(b) If an Event of Default has occurred and is continuing, the Guarantee
Trustee shall enforce this Guarantee Agreement for the benefit of the Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of Default and
after the curing of all Events of Default that may have occurred, shall be
obligated to perform only such duties as are specifically set forth in this
Guarantee Agreement (including pursuant to Section 2.1), and no implied
covenants shall be read into this Guarantee Agreement against the Guarantee
Trustee. If an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.6), the Guarantee Trustee shall exercise such of the
rights and powers vested in it by this Guarantee Agreement, and use the same
degree of care and skill in its exercise thereof, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(d) No provision of this Guarantee Agreement shall be construed to relieve
the Guarantee Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee shall be
determined solely by the express provisions of this Guarantee Agreement
(including pursuant to Section 2.1), and the Guarantee Trustee shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Guarantee Agreement (including pursuant to
Section 2.1); and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Guarantee Trustee and conforming to
the requirements of this Guarantee Agreement; but in the case of any such
certificates or opinions that by any provision hereof or of the Trust Indenture
Act are specifically required to be furnished to the Guarantee Trustee, the
Guarantee Trustee shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee Trustee,
unless it shall be proved that the Guarantee Trustee was negligent in
ascertaining the pertinent facts upon which such judgment was made;
(iii) the Guarantee Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of not less than a Majority in Liquidation Amount of
the Preferred Securities relating to the time, method
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and place of conducting any proceeding for any remedy available to the Guarantee
Trustee, or exercising any trust or power conferred upon the Guarantee Trustee
under this Guarantee Agreement; and
(iv) no provision of this Guarantee Agreement shall require the
Guarantee Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers if the Guarantee Trustee shall have reasonable
grounds for believing that the repayment of such funds or liability is not
assured to it under the terms of this Guarantee Agreement or adequate indemnity
against such risk or liability is not reasonably assured to it.
Section 3.2. Certain Rights of Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) the Guarantee Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document reasonably believed by it to be genuine and to have been signed, sent
or presented by the proper party or parties;
(ii) any direction or act of the Guarantor contemplated by this
Guarantee Agreement shall be sufficiently evidenced by an Officers' Certificate
unless otherwise prescribed herein;
(iii) whenever, in the administration of this Guarantee Agreement, the
Guarantee Trustee shall deem it desirable that a matter be proved or established
before taking, suffering or omitting to take any action hereunder, the Guarantee
Trustee (unless other evidence is herein specifically prescribed) may, in the
absence of bad faith on its part, request and conclusively rely upon an
Officers' Certificate which, upon receipt of such request from the Guarantee
Trustee, shall be promptly delivered by the Guarantor;
(iv) the Guarantee Trustee may consult with legal counsel, and the
advice or written opinion of such legal counsel with respect to legal matters
shall be full and complete authorization and protection in respect of any action
taken, suffered or omitted to be taken by it hereunder in good faith and in
accordance with such advice or opinion. Such legal counsel may be legal counsel
to the Guarantor or any of its Affiliates and may be one of its employees. The
Guarantee Trustee shall have the right at any time to seek instructions
concerning the administration of this Guarantee Agreement from any court of
competent jurisdiction;
(v) the Guarantee Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Guarantee Agreement at the request
or direction of any Holder, unless such Holder shall have provided to the
Guarantee Trustee such security and indemnity
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as would satisfy a reasonable person in the position of the Guarantee Trustee,
against the costs, expenses (including attorneys' fees and expenses) and
liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Guarantee Trustee;
(vi) the Guarantee Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Guarantee Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit;
(vii) the Guarantee Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through its
agents or attorneys, and the Guarantee Trustee shall not be responsible for any
negligence or willful misconduct on the part of any such agent or attorney
appointed with due care by it hereunder. Nothing herein shall be construed as
limiting or restricting the right of the Guarantor to bring any action directly
against any agent or attorney appointed by the Guarantee Trustee for any
negligence or willful misconduct on the part of such agent or attorney; and
(viii) whenever in the administration of this Guarantee Agreement the
Guarantee Trustee shall deem it desirable to receive instructions with respect
to enforcing any remedy or right or taking any other action hereunder, the
Guarantee Trustee (A) may request instructions from the Holders, (B) may refrain
from enforcing such remedy or right or taking such other action until such
instructions are received and (C) shall be fully protected in acting in
accordance with such instructions.
(b) No provision of this Guarantee Agreement shall be deemed to impose any
duty or obligation on the Guarantee Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the Guarantee Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty to act in accordance with such power and
authority.
Section 3.3. Indemnity.
The Guarantor agrees to indemnify the Guarantee Trustee, its directors,
officers, employees and agents for, and to hold them harmless against, any loss,
liability or expense incurred without negligence, willful misconduct or bad
faith on the part of the Guarantee Trustee, its directors, officers, employees
and agents, arising out of or in connection with the acceptance or
administration of this Guarantee Agreement, including the costs and expenses of
defending against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The Guarantee Trustee will
not claim or exact any lien or charge on any Guarantee
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Payments as a result of any amount due to it under this Guarantee Agreement.
Section 3.4. Expenses.
The Guarantor shall from time to time reimburse the Guarantee Trustee for
its reasonable expenses and costs (including reasonable attorneys' or agents'
fees) incurred in connection with the performance of its duties hereunder.
ARTICLE IV
GUARANTEE TRUSTEE
Section 4.1. Guarantee Trustee; Eligibility.
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the Trust Indenture Act
to act as such and has a combined capital and surplus of at least $50,000,000,
and shall be a corporation meeting the requirements of Section 310(a) of the
Trust Indenture Act. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or examining
authority, then, for the purposes of this Section and to the extent permitted by
the Trust Indenture Act, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to so
act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 4.2(b).
(c) If the Guarantee Trustee has or shall acquire any "conflicting interest"
within the meaning of Section 310(b) of the Trust Indenture Act, the Guarantee
Trustee and Guarantor shall in all respects comply with the provisions of
Section 310(b) of the Trust Indenture Act.
Section 4.2. Appointment, Removal and Resignation of the Guarantee Trustee.
(a) No resignation or removal of the Guarantee Trustee and no appointment of
a Successor Guarantee Trustee pursuant to this Article shall become effective
until the acceptance of appointment by the Successor Guarantee Trustee by
written instrument executed by the Successor Guarantee Trustee and delivered to
the Holders and the Guarantee Trustee.
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(b) Subject to the immediately preceding paragraph, a Guarantee Trustee may
resign at any time by giving written notice thereof to the Holders. The
Guarantee Trustee shall appoint a successor by requesting from at least three
Persons meeting the eligibility requirements such Person's expenses and charges
to serve as the Guarantee Trustee, and selecting the Person who agrees to the
lowest expenses and charges. If the instrument of acceptance by the Successor
Guarantee Trustee shall not have been delivered to the Guarantee Trustee within
60 days after the giving of such notice of resignation, the Guarantee Trustee
may petition, at the expense of the Guarantor, any court of competent
jurisdiction for the appointment of a Successor Guarantee Trustee.
(c) The Guarantee Trustee may be removed for cause at any time by Act
(within the meaning of Section 6.8 of the Trust Agreement) of the Holders of at
least a Majority in Liquidation Amount of the Preferred Securities, delivered to
the Guarantee Trustee.
(d) If a resigning Guarantee Trustee shall fail to appoint a successor, or
if a Guarantee Trustee shall be removed or become incapable of acting as
Guarantee Trustee, or if any vacancy shall occur in the office of any Guarantee
Trustee for any cause, the Holders of the Preferred Securities, by Act of the
Holders of record of not less than 25% in aggregate Liquidation Amount of the
Preferred Securities then outstanding delivered to such Guarantee Trustee, shall
promptly appoint a successor Guarantee Trustee. If no Successor Guarantee
Trustee shall have been so appointed by the Holders of the Preferred Securities
and such appointment accepted by the Successor Guarantee Trustee, any Holder, on
behalf of himself and all others similarly situated, may petition any court of
competent jurisdiction for the appointment of a Successor Guarantee Trustee.
ARTICLE V
GUARANTEE
Section 5.1. Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay in full on a
subordinated basis as set forth in Section 6.1 hereof to the Holders the
Guarantee Payments (without duplication of amounts theretofore paid by or on
behalf of the Issuer Trust), as and when due, regardless of any defense, right
of set-off or counterclaim which the Issuer Trust may have or assert, except the
defense of payment. The Guarantor's obligation to make a Guarantee Payment may
be satisfied by direct payment of the required amounts by the Guarantor to the
Holders or by causing the Issuer Trust to pay such amounts to the Holders. The
Guarantor shall give prompt written notice to the Guarantee Trustee in the event
it makes any direct payment hereunder.
Section 5.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of the Guarantee Agreement
and of any liability to which it applies or may apply, presentment, demand for
payment, any right to require a proceeding first against the Guarantee Trustee,
the Issuer Trust or any other Person
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before proceeding against the Guarantor, protest, notice of nonpayment, notice
of dishonor, notice of redemption and all other notices and demands.
Section 5.3. Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor under
this Guarantee Agreement shall in no way be affected or impaired by reason of
the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer Trust of any express or implied
agreement, covenant, term or condition relating to the Preferred Securities to
be performed or observed by the Issuer Trust;
(b) the extension of time for the payment by the Issuer Trust of all or any
portion of the Distributions (other than an extension of time for payment of
Distributions that results from the extension of any interest payment period on
the Junior Subordinated Debentures as so provided in the Indenture), Redemption
Price, Liquidation Distribution or any other sums payable under the terms of the
Preferred Securities or the extension of time for the performance of any other
obligation under, arising out of, or in connection with, the Preferred
Securities;
(c) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Preferred Securities, or
any action on the part of the Issuer Trust granting indulgence or extension of
any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer Trust or any of the assets of
the Issuer Trust;
(e) any invalidity of, or defect or deficiency in, the Preferred Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor (other than payment of
the underlying obligation), it being the intent of this Section 5.3 that the
obligations of the Guarantor hereunder shall be absolute and unconditional under
any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain the
consent of, the Guarantor with respect to the happening of any of the foregoing.
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Section 5.4. Rights of Holders.
The Guarantor expressly acknowledges that: (a) this Guarantee Agreement will
be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (b) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (c) the Holders of a Majority in Liquidation
Amount of the Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of this Guarantee Agreement or exercising any trust or power
conferred upon the Guarantee Trustee under this Guarantee Agreement; and (d) any
Holder may institute a legal proceeding directly against the Guarantor to
enforce its rights under this Guarantee Agreement, without first instituting a
legal proceeding against the Guarantee Trustee, the Issuer Trust or any other
Person.
Section 5.5. Guarantee of Payment.
This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment of
the Guarantee Payments in full (without duplication of amounts theretofore paid
by the Issuer Trust) or upon the distribution of Junior Subordinated Debentures
to Holders as provided in the Trust Agreement.
Section 5.6. Subrogation.
The Guarantor shall be subrogated to all rights (if any) of the Holders
against the Issuer Trust in respect of any amounts paid to the Holders by the
Guarantor under this Guarantee Agreement; provided, however, that the Guarantor
shall not (except to the extent required by mandatory provisions of law) be
entitled to enforce or exercise any rights which it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in all cases as
a result of payment under this Guarantee Agreement, if at the time of any such
payment, any amounts are due and unpaid under this Guarantee Agreement. If any
amount shall be paid to the Guarantor in violation of the preceding sentence,
the Guarantor agrees to hold such amount in trust for the Holders and to pay
over such amount to the Holders.
Section 5.7. Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are independent of
the obligations of the Issuer Trust with respect to the Preferred Securities and
that the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Guarantee Agreement
notwithstanding the occurrence of any event referred to in subsections (a)
through (g), inclusive, of Section 5.3 hereof.
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ARTICLE VI
COVENANTS AND SUBORDINATION
Section 6.1. Subordination.
This Guarantee Agreement will constitute an unsecured obligation of the
Guarantor and will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Guarantor to the extent and in the manner set forth in the
Indenture with respect to the Junior Subordinated Debentures, and the provisions
of Article XIII of the Indenture will apply, mutatis mutandis, to the
obligations of the Guarantor hereunder. The obligations of the Guarantor
hereunder do not constitute Senior Indebtedness of the Guarantor.
Section 6.2. Pari Passu Guarantees.
The obligations of the Guarantor under this Guarantee Agreement shall rank
pari passu with any similar guarantee agreements issued by the Guarantor on
behalf of the holders of preferred or capital securities issued by the Issuer
Trust and with any other security, guarantee or other obligation that is
expressly stated to rank pari passu with the obligations of the Guarantor under
this Guarantee Agreement.
ARTICLE VII
TERMINATION
Section 7.1. Termination.
This Guarantee Agreement shall terminate and be of no further force and
effect upon (a) full payment of the Redemption Price of all Preferred
Securities, (b) the distribution of Junior Subordinated Debentures to the
Holders in exchange for all of the Preferred Securities or (c) full payment of
the amounts payable in accordance with Article IX of the Trust Agreement upon
liquidation of the Issuer Trust. Notwithstanding the foregoing, this Guarantee
Agreement will continue to be effective or will be reinstated, as the case may
be, if at any time any Holder is required to repay any sums paid with respect to
the Preferred Securities or this Guarantee Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Successors and Assigns.
All guarantees and agreements contained in this Guarantee Agreement shall
bind the successors, assigns, receivers, trustees and representatives of the
Guarantor and shall inure to the
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benefit of the Holders of the Preferred Securities then outstanding. Except in
connection with a consolidation, merger or sale involving the Guarantor that is
permitted under Article VIII of the Indenture and pursuant to which the assignee
agrees in writing to perform the Guarantor's obligations hereunder, the
Guarantor shall not assign its obligations hereunder, and any purported
assignment that is not in accordance with these provisions shall be void.
Section 8.2. Amendments.
Except with respect to any changes that do not materially adversely affect
the rights of the Holders (in which case no consent of the Holders will be
required), this Guarantee Agreement may only be amended with the prior approval
of the Holders of not less than a Majority in Liquidation Amount of the
Preferred Securities. The provisions of Article VI of the Trust Agreement
concerning meetings of the Holders shall apply to the giving of such approval.
Section 8.3. Notices.
Any notice, request or other communication required or permitted to be given
hereunder shall be in writing, duly signed by the party giving such notice, and
delivered, telecopied (confirmed by delivery of the original) or mailed by first
class mail as follows:
(a) if given to the Guarantor, to the address or telecopy number set forth
below or such other address or telecopy number or to the attention of such other
Person as the Guarantor may give notice to the Holders:
First Mariner Bancorp
1801 South Clinton Street
Baltimore, Maryland 21224
Facsimile No. (410) 563-1594
Attention: President
(b) if given to the Issuer Trust, in care of the Guarantee Trustee, at the
Issuer Trust's (and the Guarantee Trustee's) address set forth below or such
other address or telecopy number or to the attention of such other Person as the
Guarantee Trustee on behalf of the Issuer Trust may give notice to the Holders:
Mariner Capital Trust
First Mariner Bancorp
1801 South Clinton Street
Baltimore, Maryland 21224
Facsimile No. (410) 563-1594
Attention: President
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with a copy to:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
(c) if given to the Guarantee Trustee:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
(d) if given to any Holder, at the address set forth on the books and
records of the Issuer Trust.
All notices hereunder shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
Section 8.4. Benefit.
The guarantee obligation set forth in Articles V and VI of this Guarantee
Agreement is solely for the benefit of the Holders and this Guarantee
Agreement is not separately transferable from the Preferred Securities.
Section 8.5. Interpretation.
In this Guarantee Agreement, unless the context otherwise requires:
(a) capitalized terms used in this Guarantee Agreement but not defined in
the preamble hereto have the respective meanings assigned to them in Section
1.1;
(b) a term defined anywhere in this Guarantee Agreement has the same meaning
throughout;
(c) all references to "the Guarantee Agreement" or "this Guarantee
Agreement" are to this Guarantee Agreement as modified, supplemented or amended
from time to time;
(d) all references in this Guarantee Agreement to Articles and Sections are
to Articles and Sections of this Guarantee Agreement unless otherwise specified;
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(e) a term defined in the Trust Indenture Act has the same meaning when used
in this Guarantee Agreement unless otherwise defined in this Guarantee Agreement
or unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice versa; and
(g) the masculine, feminine or neuter genders used herein shall include the
masculine, feminine and neuter genders.
Section 8.6. Governing Law.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND WITHOUT REGARD
TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
Section 8.7. Counterparts.
This instrument may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.
FIRST MARINER BANCORP
as Guarantor
By:
----------------------------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY,
as Guarantee Trustee
By:
----------------------------------------------------
Name:
Title:
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EXHIBIT 10.5
FIRST MARINER BANCORP
1998 STOCK OPTION PLAN
First Mariner Bancorp (the "Corporation") sets forth herein the terms of
this 1998 Stock Option Plan (the "Plan") as follows:
1. PURPOSE.
The Plan is intended to advance the interests of the Corporation by
providing eligible individuals (as designated pursuant to Section 4 below) with
an opportunity to acquire or increase a proprietary interest in the Corporation,
which thereby will create a stronger incentive to expend maximum effort for the
growth and success of the Corporation and its subsidiaries, and will encourage
such eligible individuals to remain in the employ of the Corporation or that of
one or more of its subsidiaries. Each stock option granted under the Plan (an
"Option") is intended to be an "incentive stock option" ("Incentive Stock
Option") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, or the corresponding provision of any subsequently enacted tax
statute (the "Code"), except (i) to the extent that any such Option would exceed
limitations set forth in Section 7 below; and (ii) for Options specifically
designated at the time of grant as not being Incentive Stock Options.
2. ADMINISTRATION.
(a) COMMITTEE. The Board of Directors of the Corporation (the "Board") shall
appoint a compensation committee (the "Committee") to the extent permitted by
the By-Laws of the Corporation and applicable law and such Committee shall be
composed solely of two or more Non-Employee Directors as such term is defined in
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or
shall otherwise be constituted in accordance with Rules promulgated under
Section 16 of said Act from time to time. The Board may remove members, add
members, and fill vacancies on the Committee from time to time, all in
accordance with the Corporation's Articles of Incorporation and By-Laws, and
with applicable law. The majority vote of the Committee, or acts reduced to or
approval in writing by a majority of the members of the Committee, shall be
valid acts of the Committee.
(b) ADMINISTRATION. The Plan shall be administered by the Committee which
shall have full power and authority to take all actions, and to make all
determinations required or provided for under the Plan or any Option granted or
Option Agreement (as defined in Section 8 below) entered into hereunder and all
such actions and determinations not inconsistent with the specific terms and
provisions of the Plan deemed by the Committee to be necessary or appropriate to
the administration of the Plan or any Option granted or Option Agreement entered
into hereunder. Unless otherwise expressly determined by the Board, the
interpretation and construction by the Committee of any provision of the Plan or
of any Option granted or Option Agreement entered into hereunder shall be final
and conclusive. The Committee may make different determinations for different
Plan participants regarding the Plan, Options or Option Agreement. The Committee
shall cause a copy of this Plan to be delivered to each participant in the Plan.
(c) NO LIABILITY. No member of the Board or of the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any Option granted or Option Agreement entered into hereunder.
(d) DELEGATION TO THE COMMITTEE. In the event that the Plan or any Option
granted or Option Agreement entered into hereunder provides for my action to be
taken by or determination to be made by the Board, such action may be taken by
or such determination may be made by the Committee if the power and authority to
do so has been delegated to the Committee by the Board as provided for in
Section 2(a) above.
<PAGE>
3. STOCK.
The stock that may be issued pursuant to Options granted under the Plan
shall be shares of Common Stock, par value $.05 per share, of the Corporation
(the "Stock"), which shares may be authorized but unissued shares or shares that
may be purchased by the Corporation in the open market or in private
transactions. The number of shares of Stock that may be issued pursuant to
Options granted under the Plan shall not exceed in the aggregate 275,000 shares,
which number of shares is subject to adjustment as hereinafter provided in
Section 17 below. If any Option expires, terminates, or it terminated or
canceled for any reason prior to exercise in full, the shares of Stock that were
subject to the unexercised portion of such Option shall be available for future
Options granted under the Plan. Shares withheld or surrendered for the payment
of taxes or shares surrendered in payment of the exercise price of an Option may
not be again available for awards under the Plan.
4. ELIGIBILITY.
Options may be granted under the Plan to any full-time employee of the
Corporation or any Subsidiary (including any such employee who is an officer or
director of the Corporation or any Subsidiary) as the Committee shall determine
and designate from time to time prior to expiration or termination of the Plan.
For this purpose, a full-time employee is one who is customarily employed at
least 1,000 hours per year.
5. EFFECTIVE DATE AND TERM OF THE PLAN.
(a) EFFECTIVE DATE. The Plan shall be effective as of May 12, 1998 (the
"Effective Date"), subject to approval by the Board and the approval by holders
of a majority of the shares of the Stock voted. If the stockholders do not
approve the Plan within 12 months after the Board approves the Plan, then the
Plan and any grants of Options hereunder shall be void.
(b) TERM. The Plan shall terminate on the 10th anniversary of the Effective
Date.
6. GRANT OF OPTIONS.
Subject to the terms and conditions of the Plan, the Committee may, at any
time and from time to time, prior to the date of termination of the Plan, grant
to such eligible individuals as the Committee may determine ("Optionees"),
Options to purchase such number of shares of the Stock on such terms and
conditions as the Committee may determine, including any terms or conditions
which may be necessary to qualify such Options as Incentive Stock Options under
Section 422 of the Code. The date on which the Committee approves the grant of
an Option shall be considered the date on which such Option is granted.
7. LIMITATION ON OPTIONS RECEIVED IN CALENDAR YEAR.
An Option (other than an Option described in exception (i) or (ii) of
Section 1) shall constitute an Incentive Stock Option to the extent that the
aggregate fair market value (determined at the time the Option is granted) of
the Stock with respect to which Incentive Stock Options are exercisable for the
first time by an Optionee during any calendar year (under the Plan and all other
plans of the Optionee's employer corporation and its parent and subsidiary
corporations within the meaning of Section 422(d) of the Code) does not exceed
$100,000. This limitation shall be applied by taking Options into account in the
order in which they were granted.
8. OPTION AGREEMENTS.
All Options granted pursuant to the Plan shall be evidenced by written
agreements ("Option Agreements"), to be executed by the Corporation and by the
Optionee, in such form or forms as the Committee shall from time to time
determine. Option Agreements covering Options granted from time to
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time or at the same time need not contain similar provisions; provided, however,
that all such Option Agreements shall comply with all terms of the Plan.
9. OPTION PRICE.
The purchase price of each share of the Stock subject to an Option (the
"Option Price") shall be fixed by the Committee and stated in each Option
Agreement; provided, however that the purchase price of any Option intended to
be an Incentive Stock Option shall be not less than the greater of par value or
100% of the fair market value of a share of the Stock on the date the Option is
granted; provided further, that in the event the Optionee would otherwise be
ineligible to receive an Incentive Stock Option by reason of the provisions of
Sections 422(b)(6) and 424(d) of the Code (relating to stock ownership of more
than 10%), the Option Price of an Option which is intended to be an Incentive
Stock Option shall be not less than the greater of par value or 110% of the fair
market value of a share of Stock at the time such Option is granted. In the
event that the Stock is listed on an established national or regional stock
exchange, is quoted on a quotation system of The Nasdaq Stock Market, Inc., or
is publicly traded in an established securities market, in determining the fair
market value of the Stock, the Committee shall use the closing price of the
Stock on such exchange or system or in such market (the highest such closing
price if there is more than one such exchange or market) on the date the Option
is granted or, if such date was not a trading date, on the trading date
immediately preceding the date the Option is granted (or, if there is no such
closing price, then the Committee shall use the mean between the highest bid and
the lowest asked prices or between the high and low priced on such date). If
there is no established market for the Stock, then the fair market value shall
be established by the Committee in good faith.
10. TERM AND EXERCISE OF OPTIONS.
(a) TERM. Each Option granted under the Plan shall terminate, and all rights
to purchase shares thereunder shall cease no later than the expiration of ten
years from the date such Option is granted, as may be fixed by the Committee and
stated in the Option Agreement relating to such Option; provided, however, that
in the event the Optionee would otherwise be ineligible to receive an Incentive
Stock Option by reason of the provisions of Sections 422(b)(6) and 424(d) of the
Code (relating to stock ownership of more than 10%), an Option granted to such
Optionee which is intended to be an Incentive Stock Option shall in no event be
exercisable after the expiration of five years from the date it is granted.
(b) OPTION PERIOD AND LIMITATIONS ON EXERCISE. Except as otherwise provided
in an Option Agreement, each Option granted may be exercised in whole or in part
at any time after the date of grant. Notwithstanding the foregoing, the
Committee, subject to the terms and conditions of the Plan, may in its sole
discretion provide other time periods during which an Option may be exercised in
whole or in part while such Option is outstanding. Any limitation on the
exercise of an Option may be rescinded, modified or waived by the Committee, in
its sole discretion, at any time and from time to time after the date of grant
of such Option, so as to accelerate the time at which the Option may be
exercised.
(c) METHOD OF EXERCISE. An Option that is exercisable hereunder may be
exercised by delivery to the Corporation on any business day, at its principal
office, addressed to the attention of the Committee, of written notice of
exercise, which notice shall specify the number of shares with respect to which
the Option is being exercised, accompanied by payment of the Option Price except
as provided in this Subsection (c). The minimum number of shares of Stock with
respect to which an Option may be exercised, in whole or in part, at any time
shall be the lesser of 100 shares or the maximum number of shares available for
purchase under the Option at the time of exercise. Payment of the Option Price
for the shares of Stock purchased pursuant to the exercise of an Option shall be
made (i) in cash or in cash equivalents; (ii) through the tender to the
Corporation of shares of Stock, which shares shall be valued, for purposes of
determining the extent to which the Option Price has been paid thereby, at their
fair market value (determined in the manner described in Section 9 above) on the
date of exercise; (iii) through the tender to the Corporation of Options, to the
extent of the difference between the Option Price and the fair market value of
the shares
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of Stock subject to such Option (determined in the manner described in Section 9
above) on the exercise date; or (iv) by combination of the methods described in
(i), (ii), and (iii) above. Payment in full of the Option Price need not
accompany the written notice of exercise provided the notice of exercise directs
that the Stock certificate or certificates for the shares for which the Option
is exercised be delivered to a licensed broker applicable to the Corporation as
the agent for the individual exercising the Option and, at the time such Stock
certificate or certificates are delivered, the broker tenders to the Corporation
cash (or cash equivalents acceptable to the Corporation) equal to the Option
Price for the shares of Stock purchased pursuant to the exercise of the Option
plus the amount (if any) of federal and/or the taxes which the Corporation may,
in its judgment, be required to withhold with respect to the exercise of the
Option. An attempt to exercise any Option granted hereunder other than as set
forth above shall be invalid and of no force and effect. Promptly after the
exercise of an Option and the payment in full of the Option Price of the shares
of Stock covered thereby, the individual exercising the Option shall be entitled
to the issuance of a Stock certificate or certificates evidencing his ownership
of such shares; provided, however, that the Corporation shall have the right to
withhold and deduct from the number of shares of Stock deliverable upon exercise
of an Option, a number of shares having an aggregate fair market value
(determined in the manner described in Section 9 above) equal to the amount of
any taxes and other charges the Corporation or any Subsidiary is obligated to
withhold or deduct from amounts payable to such individual. A separate Stock
certificate or certificates shall be issued for any shares purchased pursuant to
the exercise of an Option which is an Incentive Stock Option, which certificate
or certificates shall not include any shares which were purchased pursuant to
the exercise of an Option which is not an Incentive Stock Option. An individual
holding or exercising an Option shall have none of the rights of a shareholder
until the shares of Stock covered thereby are fully paid and issued to him and,
except as provided in Section 17 below, no adjustment shall be made for
dividends or other rights, if any, for which the record date is prior to the
date of such issuance.
11. TRANSFERABILITY OF OPTIONS.
During the lifetime of an Optionee to whom an Option is granted, only such
Optionee (or, in the event of legal incapacity or incompetency, the Optionee's
guardian or legal representative) may exercise the Option. No Option shall be
assignable or transferable by the Optionee to whom it is granted, other than by
will or the laws of the descent and distribution.
12. TERMINATION OF EMPLOYMENT.
Upon the termination of the employment of an Optionee with the Corporation
or a Subsidiary, any Option granted pursuant to the Plan shall terminate three
months after the date of such termination of employment, unless earlier
terminated pursuant to Section 10(a) above, and such Optionee shall have no
further right to purchase shares of Stock pursuant to such Option; provided
however, that if such termination is by reason of (i) the death or "permanent
and total disability" (within the meaning of Section 22(e)(3) of the Code) of
such Optionee, then termination of the Option shall be governed by Section 13
hereof, or (ii) the dismissal of such Optionee for dishonesty or commission of a
crime or for any reason constituting "cause" under the terms of an employment
agreement, if any, between the Optionee and the Corporation or a Subsidiary, or
for "cause" as otherwise determined by the Corporation in good faith, then the
Option shall terminate on the effective date of such dismissal. Notwithstanding
the foregoing, however, the Committee may provide, by inclusion of appropriate
language in an Option Agreement, that an Optionee may (subject to the general
limitations on exercise set forth in Section 10(b) above), in the event of
termination of employment of the Optionee with the Corporation or a Subsidiary,
exercise an Option, in whole or in part, at any time subsequent to such
termination of employment and prior to termination of the Option as provided in
Section 10(a) above either subject to or without regard to any installment
limitation or exercise imposed pursuant to Section 10(b) above. Whether a leave
of absence or leave on military or government services shall constitute a
termination of employment for purposes of the Plan shall be determined by the
Committee, which determination shall be final and conclusive. For purposes of
the
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Plan, a termination of employment with the Corporation or a Subsidiary shall not
be deemed to occur if immediately thereafter the Optionee is employed with the
Corporation or any Subsidiary.
13. RIGHTS IN THE EVENT OF DEATH OR DISABILITY.
(a) DEATH OF AN EMPLOYEE OR SUBSIDIARY DIRECTOR. If an Optionee dies while
employed by the Corporation or a Subsidiary, the executors or administrators or
legatees or distributees of such Optionee's estate shall have the right (subject
to the general limitations on exercise set forth in Section 10(b) above), at any
time within one year after the date of such Optionee's death and prior to
termination of the Option as provided in Section 10(a) above, to exercise, in
whole or in part, any Option held by such Optionee at the date of such
Optionee's death, whether or not such Option was exercisable immediately prior
to such Optionee's death; provided, however, that the Committee may provide, by
inclusion of appropriate language in an Option Agreement, that, in the event of
the death of the Optionee, the executors or administrators or legatees or
distributees of such Optionee's estate may exercise an Option (subject to the
general limitations on exercise set forth in Section 10(b) above), in whole or
in part, at any time subsequent to such Optionee's death and prior to
termination of the Option as provided in Section 10(a) above, either subject to
or without regard to any installment limitation on exercise imposed pursuant to
Section 10(b) above.
(b) DISABILITY OF AN EMPLOYEE. If an Optionee terminates employment with the
Corporation or a Subsidiary by reason of the "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code) of such Optionee, then such
Optionee shall have the right (subject to the general limitations on exercise
set forth in Section 10(b) above), at any time within one year after such
termination of employment and prior to termination of the Option as provided in
Section 10(a) above, to exercise, in whole or in part, any Option held by such
Optionee at the date of such termination of employment, whether or not such
Option was exercisable immediately prior to such termination of employment;
provided, however, that the Committee may provide, by inclusion of appropriate
language in the Option Agreement, that the Optionee may (subject to the general
limitations on exercise set forth in Section 10(b) above), in the event of the
termination of employment of the Optionee with the Corporation or a Subsidiary
by reason of the "permanent and total disability" (within the meaning of Section
22(e)(3) of the Code) of such Optionee, exercise an Option , in whole or in
part, at any time subsequent to such termination of employment and prior to
termination of the Option as provided in Section 10(a) above, either subject to
or without regard to any installment limitation on exercise imposed pursuant to
Section 10(b) above. Whether a termination of employment is to be considered by
reason of "permanent and total disability" for purposes of this Plan shall be
determined by the Committee, which determination shall be final and conclusive.
14. USE OF PROCEEDS.
The proceeds received by the Corporation from the sale of Stock pursuant to
Options granted under the Plan shall constitute general funds of the
Corporation.
15. REQUIREMENTS OF LAW.
(a) VIOLATIONS OF LAW. The Corporation shall not be required to sell or
issue any share of Stock under any Option if the sale or issuance of such shares
would constitute a violation by the individual exercising the Option or the
Corporation of any provision of any law or regulation of any governmental
authority, including without limitation any federal or state securities laws or
regulations. Specifically in connection with the Securities Act of 1933, as
amended, (as now in effect with respect to the shares covered by any Option),
unless a registration statement under such Act is in effect with respect to the
shares of Stock covered by such Option, the Corporation shall not be required to
sell or issue such shares unless the Corporation has received evidence
satisfactory to it that the holder of such Option may acquire such shares
pursuant to an exemption from registration under such Act, and the shares of
Stock to be issued upon the
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exercise of all or any portion of any Option granted under the Plan shall be
issued on the condition that the Optionee represents that the purchase of Stock
upon such exercise shall be for investment purposes and not with a view to
resale, distribution, offering, transferring, mortgaging, pledging,
hypothecating or otherwise disposing of any such Stock under the circumstances
which would constitute a public offering or distribution under the Securities
Act of 1933, as amended, or the securities laws of any state. No share of Stock
shall be issued upon the exercise of any Option unless the Corporation shall
have received from the Optionee a written statement satisfactory to legal
counsel for the Corporation containing the above representations, stating that
certificates representing such shares may bear a legend restricting their
transfer and stating that the Corporation's transfer agent or agents may be
given instructions to stop transfer of any certificate bearing such legend. Such
representation and restrictions provided for herein shall not be required if (i)
an effective registration statement for such shares under the Securities Act of
1933, as amended, and any applicable state laws has been filed with the
Securities and Exchange Commission and with the appropriate agency or commission
of any state whose laws apply to the transaction, or (ii) an opinion of counsel
satisfactory to the Corporation has been delivered to the Corporation to the
effect that registration is not required under the Securities Act of 1933, as
amended, or under the applicable securities laws of any state. Any determination
by the Committee regarding the foregoing shall be final, binding, and conclusive
. The Corporation shall not be obligated to take any affirmative action in order
to cause the exercise of an Option or the issuance of shares pursuant thereto to
comply with any law or regulation or any governmental authority.
(b) RESTRICTION ON TRANSFER OF STOCK. Unless a registration statement under
the Securities Act of 1933, as amended, is in effect, the certificate or
certificates for Stock issued upon the exercise of an Option shall bear the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
PURSUANT TO AN INVESTMENT REPRESENTATION ON THE PART OF THE HOLDER
THEREOF AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED, OR
OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, EXCEPT
UPON THE ISSUANCE TO THE ISSUER OF A FAVORABLE OPINION OF ITS
COUNSEL AND/OR THE SUBMISSION OF OTHER EVIDENCE SATISFACTORY TO
COUNSEL TO THE ISSUER, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL
NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS.
16. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may, at any time and from time to time, amend, suspend or
terminate the Plan as to any shares of Stock as to which Options have not been
granted. Except as permitted under Section 17 hereof, no amendment, suspension
or termination of the Plan shall, without the consent of the holder of the
Option, alter or impair rights or obligations under any Option theretofore
granted under the Plan. In no event, however, shall any amendment result in any
of the following, unless holders of at least a majority of the shares voted
approve such amendment:
1) Increasing the number of shares available for Options (except subject
to adjustments as provided in Section 17 of the Plan); or
2) Materially increasing benefits available to participants in the Plan.
17. EFFECT OF CHANGES IN CAPITALIZATION.
(a) CHANGES IN STOCK. If the outstanding shares of Stock are increased or
decreased or changed into or exchanged for a different number of kind of shares
or other securities of the Corporation by reason of any recapitalization,
reclassification, stock split-up, combination of shares, exchange of shares,
stock
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divided or other distribution payable in capital stock, or other increase or
decrease in such shares effected without receipt of consideration by the
Corporation, occurring after the effective date of the Plan, the number and
kinds of shares for the purchase of which Options may be granted under the Plan
shall be adjusted proportionately and accordingly by the Corporation. In
addition, the number and kind of shares for which Options are outstanding shall
be adjusted proportionately and accordingly so that the proportionate interest
of the holder of the Option immediately following such event shall, to the
extent practicable, be the same as immediately prior to such event. Any such
adjustment in outstanding Options shall not change the aggregate Option Price
payable with respect to shares subject to the unexercised portion in the Option
outstanding but shall include a corresponding proportionate adjustment in the
Option price per share.
(b) REORGANIZATION IN WHICH THE CORPORATION IS THE SURVIVING
CORPORATION. Subject to Subsection (d) hereof, if the Corporation shall be the
surviving corporation in any reorganization, merger, share exchange or
consolidation of the Corporation with one or more other corporations, any Option
theretofore granted pursuant to the Plan shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to such
Option would have been entitled immediately following such reorganization,
merger, or consolidation, with a corresponding proportionate adjustment of the
Option Price per share so that the aggregate Option Price thereafter shall be
the same as the aggregate Option Price of the shares remaining subject to the
Option immediately prior to such reorganization, merger, or consolidation.
(c) REORGANIZATION IN WHICH THE CORPORATION IS NOT THE SURVIVING CORPORATION
OR SALE OF ASSETS OR STOCK. In the event of the commencement of a tender offer
(other than by the Corporation) for any shares of the corporation or a sale or
transfer, in one or a series of transactions, of assets having a fair market
value of 50% or more of the fair market value of all assets of the Corporation,
or a merger, consolidation or share exchange pursuant to which shares of the
Corporation may be exchanged for or converted into cash, property or securities
of another issuer, or the liquidation of the Corporation (an "Extraordinary
Event"), then regardless of whether or not any Option granted pursuant to the
Plan shall have vested or become fully exercisable, all Options granted pursuant
to the Plan shall immediately vest and become fully exercisable for the full
number of shares subject to any such Option on and at all times after the "Event
Date" of the Extraordinary Event.
(i) The "Event Date" is the date of the commencement of the tender
offer, if the Extraordinary event is a tender offer, and in the case of any
other Extraordinary Event, the day preceding the date as of which
shareholders of record become entitled to the consideration payable in
respect of such Extraordinary Event.
(ii) In the event of the exercise pursuant to this Section of any Option
the Option Price for which shall not have been fixed as of the Event Date,
the Option Price in respect of such Option shall be equal to the average
fair market value (determined in the manner described in Section 9 above)
for the 30 days preceding the announcement or other publication of the
Extraordinary Event.
(iii) In the event that an Optionee fails to exercise his or her Option,
in whole or in part, pursuant to this Section upon an Extraordinary Event,
the Corporation shall take such action as may be necessary to enable each
Optionee to receive upon any subsequent exercise of his or her Option, in
whole or in part, in lieu of shares of the Corporation, securities or other
assets as were issuable or payable upon such Extraordinary Event in respect
of, or in exchange for, such shares.
(d) ADJUSTMENTS. Adjustments under this Section 17 related to stock or
securities of the Corporation shall be made by the Committee, whose
determination in that respect shall be final, binding, and conclusive. No
fractional shares of Stock or units of other securities shall be issued pursuant
to any such adjustment, and any fractions resulting from any such adjustment
shall be eliminated in each case by rounding downward to the nearest whole share
or unit.
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(e) NO LIMITATIONS ON CORPORATION. The grant of an Option pursuant to the
Plan shall not affect or limit in any way the right or power of the Corporation
to make adjustments, to effect reclassifications, reorganizations or changes of
its capital or business structure or to merge, consolidate, dissolve or
liquidate, or sell or transfer all or any part of its business or assets.
18. DISCLAIMER OF RIGHTS.
No provision in the Plan or in any Option granted or Option Agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain in the employ or service of the Corporation or
any Subsidiary, or to interfere in any way with the right and authority of the
Corporation or any Subsidiary either to increase or decrease the compensation of
any individual at any time, or to terminate any employment or other relationship
between any individual and the Corporation or any Subsidiary.
19. NON-EXCLUSIVITY OF THE PLAN.
Neither the adoption of the Plan nor the submission of the Plan to the
shareholders of the Corporation for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individual or specifically to a particular
individual or individual(s) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan.
20. WITHHOLDING.
All awards and payments under the Plan which are made to employees of the
Corporation are subject to withholding of all applicable taxes and the
Corporation shall have the right to withhold from any such award under the Plan
or to collect as a condition of any payment under the Plan, as applicable, any
taxes required by law to be withheld. To the extent provided by the Committee,
an Optionee may elect to have shares of Stock withheld upon the exercise of an
Option, or to surrender to the Corporation shares of Stock already owned by the
Optionee, to fulfill any tax withholding obligation.
8
<PAGE>
EXHIBIT 10.6
FIRST MARINER BANCORP
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE OF PLAN
This Employee Stock Purchase Plan (the "Plan") is designed to provide a
method for all eligible employees of First Mariner Bancorp (the "Company") and
participating subsidiaries may purchase shares of the Company's Common Stock,
par value $.05 per share (the "Common Stock") at favorable prices through
regular payroll deductions. The Plan is intended to permit eligible employees to
acquire or increase their proprietary interest in the growth and success of the
Company, and to encourage them to remain in the employ of the Company.
2. ADMINISTRATION
2.1. The Plan will be administered by the Compensation Committee of the
Company, none of whom shall be eligible to participate in the Plan (the
"Committee") composed solely of two or more Non-Employee Directors (as defined
in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended). No member of the Board of Directors or the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any option granted under it.
2.2. Subject to the provisions of the Plan, the Committee shall have
authority to interpret the Plan, to prescribe, amend, and rescind rules
regulating to it and to make all other determinations necessary or advisable in
administering the Plan. These determinations shall be final and binding upon all
persons unless otherwise determined by the Board of Directors.
2.3. A quorum of the Committee shall consist of a majority of its members.
The Committee may act by vote of a majority of its members at a meeting at which
a quorum is present; or without a meeting if a written consent setting forth the
action taken is signed by all members of the Committee.
3. OPTIONS RESTRICTED TO EMPLOYEES
The options granted under the Plan shall only be granted to eligible
employees of the Company or its participating subsidiaries to purchase shares of
the Company's Common Stock.
4. EFFECTIVE DATE OF PLAN
The Plan shall not take effect until approved by the holders of a majority
of the outstanding shares of the Company within twelve months before or after
the Plan is adopted by the Board of Directors.
5. NUMBER OF SHARES
The Board of Directors of the Company has reserved an aggregate of 100,000
shares of the Company's Common Stock for purchase by employees under the Plan,
subject to adjustment as provided in Section 20. The Company may use authorized
unissued shares to fund the Plan. The Company may also purchase outstanding
shares, upon such terms as the Company may approve, for delivery under the Plan.
6. ELIGIBLE EMPLOYEES
All full-time regular employees of the Company and its participating
subsidiaries with 30 days or more of continuous employment with the Company
and/or its participating subsidiaries will be eligible to participate in the
Plan. The term "full-time regular employee" does not include persons whose
customary employment with the Company is less than 20 hours per week. No member
of the Board of Directors who is not an employee of the Company or a subsidiary
or who is a member of the Committee will be eligible to participate. No employee
may be granted an option to purchase shares under the Plan if such employee,
immediately after the option is granted, owns stock possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company or
any subsidiary. For purposes of the preceding
<PAGE>
sentence, the rules of Section 424(d) of the Internal Revenue Code shall apply
in determining the stock ownership of an employee, and stock which the employee
may purchase under outstanding options shall be treated as stock owned by the
employee.
7. PARTICIPATING SUBSIDIARIES
The term "participating subsidiary" shall mean any subsidiary of the Company
which is designated by a resolution of the Board of Directors of the Company to
participate in the Plan.
8. PAYMENT PERIODS
Each bi-weekly pay period, commencing each Sunday and ending the following
Saturday two weeks later is a Payment Period during which payroll deductions
will be accumulated under the Plan. The Committee, in its discretion, may
establish other Payment Periods for certain designated classes of participating
employees.
9. PARTICIPATION
An eligible employee may enroll as a participant in the Plan at any time by
completing and forwarding a payroll deduction authorization form to the Company.
The form will state the amount of salary or wages to be deducted regularly from
the employee's pay and will authorize the purchase of stock for the employee in
accordance with the terms of the Plan. The form will contain an undertaking by
the employee to notify the Company in the event that the employee disposes of a
share purchased under the Plan within two years after the date of the granting
of the option to purchase such shares or one year after the date of purchase.
Enrollment will become effective as soon as practicable after the Company's
receipt of the authorization form.
10. AMOUNT OF PAYROLL DEDUCTIONS
The Company will maintain payroll deduction accounts for all participating
employees. No interest will be paid on such accounts. An employee may authorize
payroll deductions not less than $10 per Payment Period but not more than $150
per Payment Period or a lesser amount if so determined by the Committee during a
Payment Period.
11. CHANGE IN PAYROLL DEDUCTIONS
An employee may at any time (but in no event more than twice during the any
calendar year) increase or decrease the employee's payroll deduction by
completing and forwarding a new payroll deduction authorization form to the
Company in accordance with Section 10. The change may not become effective
sooner than the next Payment Period after the Company's receipt of the form.
12. WITHDRAWAL FROM THE PLAN
An employee may withdraw from the Plan, in whole but not in part, by
submitting written notice of withdrawal to the payroll department. As soon as
practicable following receipt of such notice, the Company will refund to the
employee the entire cash balance accumulated in the employee's account and will
issue to the employee a stock certificate representing the number of full shares
credited to his account.
13. GRANT OF OPTIONS
13.1. On the effective date of each offering period, which shall commence on
the first day of each month or, as directed by the Committee, on the first day
of each quarter of a calendar year, the Company will grant to each eligible
employee who is then a participant in the Plan an option to purchase such number
of full shares of Common Stock as will not exceed the maximum amount allowed
under the Plan.
2
<PAGE>
13.2. No employee shall be granted an option which permits his right to
purchase Common Stock under this Plan, and any other stock purchase plan of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of fair
market value of such stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time.
14. EXERCISE OF OPTION AND PURCHASE PRICE
14.1. Each eligible employee who continues to be a participant in the Plan
on the last business day of a Payment Period shall be deemed to have exercised
an option to purchase from the Company the number of full shares of Common Stock
as such employee's accumulated payroll deductions during such Payment Period
will pay for at the option price provided for in this Section 14. Subsequent
shares covered by the employee's option will be purchased in the same manner,
whenever sufficient funds to purchase one or more full shares have again
accumulated in the employee's account.
14.2. The option price for each share purchased under this Plan will not be
less than 90% of the fair market value of the Common Stock on the last business
day of each Payment Period. In the event that the Common Stock is listed on an
established national or regional stock exchange, is quoted on a quotation system
of the Nasdaq Stock Market, Inc., or is publicly traded in an established
securities market, in determining the fair market value of the Common Stock, the
Committee shall use the closing price of the Common Stock on such exchange or
system or in such market (the highest such closing price if there is more than
one such exchange or market) on the date the option is granted or, if such date
was not a trading date, on the trading date immediately preceding the date the
option is granted (or, if there is no such closing price, then the Committee
shall use the mean between the highest bid and the lowest asked prices or
between the high and low prices on such date). If there is no established market
for the Common Stock, then the fair market value shall be established by the
Committee in good faith.
15. PARTICIPANTS' ACCOUNTS
15.1. At the time of purchase, each participating employee will immediately
acquire full beneficial ownership of all shares purchased for his account. All
shares will be registered in the name of a nominee for the account of the
employee until delivery is requested. Stock certificates will be issued to
participating employees only upon their request or at the time of termination of
the Plan or an employee's withdrawal from the Plan. Stock certificates will be
issued only in the name of the employee as it appears on the employee's payroll
deduction authorization form, or in the employee's name jointly with a member of
the employee's family, with right of survivorship. A participating employee who
requests a stock certificate prior to termination of the Plan or his withdrawal
from the Plan may not receive such stock certificate until such time as his
account is credited with at least 50 full shares, and may not in any event
receive more than one full stock certificate in any calendar quarter.
15.2. Each participating employee will receive a semi-annual statement from
the Company as soon as practicable following the end of each period of six
calendar months. The statement will reflect the total amount of deductions for
the employee's account during such six month period, the purchase prices, and
the amount of cash held at the end of the period.
15.3. The Company will deliver to each participating employee as promptly as
practicable by mail or otherwise, all notices of meetings, proxy statements and
other materials distributed by the Company to its stockholders. There will be no
charge to participants for the Company's retention or delivery of stock
certificates, or in connection with notices, proxies or other such material.
16. RIGHTS AS A STOCKHOLDER
None of the rights or privileges of a stockholder of the Company shall exist
with respect to shares purchased under this Plan unless and until a stock
certificate representing such shares shall have been issued to the nominee for
each participating employee or directly to the employee. In the case of shares
3
<PAGE>
held in the name of the nominee holder, such rights and privileges shall only
inure indirectly to the employee as a beneficial owner, and the Company shall be
entitled to treat the nominee as the record owner of such shares.
17. RIGHTS NOT TRANSFERABLE
Rights under this Plan are not transferable by a participating employee and
are exercisable during the employee's lifetime only by the employee.
18. RIGHTS ON RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT
An employee's participation in the Plan shall terminate immediately upon
such employee's retirement, death, or termination of employment. No payroll
deduction shall be taken from any pay due and owing to an employee at such time,
and the balance in the employee's account shall be paid to the employee or, in
the event of the employee's death, to the employee's estate or (with respect to
an employee who opened a joint account with right of survivorship) to the
employee's survivor. Whether authorized leave of absence for military or
governmental service shall constitute termination of employment for the purpose
of the Plan, shall, unless otherwise required by law, be determined by the
Committee, which determination, unless overruled by the Board of Directors,
shall be final and conclusive.
19. APPLICATION OF FUNDS
All funds received or held by the Company under this Plan may be used for
any corporate purpose.
20. ADJUSTMENTS IN CASE OF CHANGES AFFECTING COMMON STOCK
If the outstanding shares of Common Stock of the Company shall at any time
be changed or exchanged by declaration of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation or other
corporate reorganization in which the Company is the surviving corporation, the
number and kind of shares subject to this Plan and option prices shall be
appropriately and equitably adjusted so as to maintain the proportionate number
of shares without changing the aggregate purchase price. The determination of
the Committee as to the terms of any such adjustment shall be conclusive. In the
event of a dissolution or liquidation of the Company or a merger, consolidation,
sale of all or substantially all of its assets, or other corporate
reorganization in which the Company is not the surviving corporation, or any
merger in which the Company is the surviving corporation but the holders of its
Common Stock receive securities of another corporation, any outstanding options
hereunder shall terminate and the amount in each participating employee's
account shall be refunded. The existence of the plan or options hereunder shall
not in any way prevent any transaction described herein and no holder of any
option shall have the right to prevent such transaction.
21. AMENDMENT OF THE PLAN
The Board of Directors may at any time, or from time to time, amend this
Plan in any respect; provided, however, that without the prior approval of the
holders of a majority of the shares of Common Stock of the Company then issued
and outstanding and entitled to vote, no amendment shall be made (i) increasing
or decreasing the number of shares approved for this Plan (other than as
provided in Section 20), (ii) materially modifying the eligibility requirements
for participation in the Plan, (iii) materially increasing the benefits accruing
to participants under the Plan, or (iv) amending the Plan in any manner which
will cause options issued under it to fail to meet the requirements of an
"employee stock purchase plan" as defined in Section 423 of the Internal Revenue
Code.
22. TERMINATION OF THE PLAN
This Plan and all rights of employees hereunder shall terminate:
4
<PAGE>
(a) on the day that accumulated payroll deductions of participating
employees are sufficient to purchase a number of shares equal to or greater
than the number of shares remaining available for purchase; or
(b) at any time, at the discretion of the Board of Directors; or
(c) on July 1, 2003.
If at any time shares remain available for purchase, but not in sufficient
number to satisfy all then unfilled purchase requirements, the available shares
shall be allocated by the Committee among participating employees in such manner
as it deems equitable. Upon termination of this Plan all amounts in the accounts
of participating employees not applied to the purchase of shares hereunder shall
be promptly refunded.
23. PAYMENT OF EXPENSES RELATED TO THE PLAN
The Company will bear all costs of administering and carrying out the Plan.
24. GOVERNMENTAL REGULATIONS
The Company's obligation to sell and deliver its Common Stock under this
Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance, or sale of such stock.
25. QUALIFIED PLAN
This Plan is intended to qualify as an "employee stock purchase plan" as
defined in Section 423 of the Internal Revenue Code.
26. NO EMPLOYMENT RIGHTS
The Plan does not, directly or indirectly, create any right for the benefit
of any employee or class of employment to purchase any shares under the Plan, or
create in any employee or class of employees any right with respect to
continuation of employment by the Company, and it shall not be deemed to
interfere in any way with the Company's right to terminate, or otherwise modify,
an employee's employment at any time.
27. GOVERNING LAW
The law of the State of Maryland will govern all matters relating to the
Plan, except to the extent it is superseded by the laws of the United States.
5
<PAGE>
EXHIBIT 12
FIRST MARINER BANCORP
SCHEDULE REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
1998 1997 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EARNINGS BEFORE FIXED CHARGES:
Net income (loss) before taxes........................ $ 151 24 173 (2,173) (1,283) (258)
Interest on borrowed funds............................ 154 42 423 108 93 92
Interest portion of rent expense(1)................... 88 50 257 141 39 8
--------- --------- --------- --------- --------- ---------
Earnings before fixed charges......................... 393 116 853 (1,924) (1,151) (158)
Interest on deposits.................................. 2,066 1,142 6,142 2,999 1,176 411
--------- --------- --------- --------- --------- ---------
Earnings before fixed charges including interest on
deposits............................................ $ 2,459 1,258 6,995 1,075 25 253
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
FIXED CHARGES:
Interest on borrowed funds............................ $ 154 42 423 108 93 92
Interest portion of rent expense(1)................... 88 50 257 141 39 8
--------- --------- --------- --------- --------- ---------
Fixed charges......................................... 242 92 680 249 132 100
Interest on deposits.................................. 2,066 1,142 6,142 2,999 1,176 411
--------- --------- --------- --------- --------- ---------
Fixed charges including interest on deposits.......... $ 2,308 1,234 6,822 3,248 1,308 511
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
RATIO OF EARNINGS TO FIXED CHARGES:
Excluding interest on deposits........................ 1.62 1.26 1.25 -- -- --
Including interest on deposits........................ 1.07 1.02 1.03 -- -- --
Excess of Fixed Charges over Earnings--both including
and excluding interest on deposits...................... $ -- -- -- 2,173 1,283 258
</TABLE>
- ------------------------
(1) Amount reflects a one-third portion of rentals, the portion deemed
representative of the interest factor.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
FIRST MARINER BANK
Subsidiaries of First Mariner Bank:
- Compass Properties, Inc.
- First Mariner Mortgage Corporation
- First Mariner Investments Corporation
<PAGE>
EXHIBIT 23.1
The Board of Directors
First Mariner Bancorp:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Baltimore, Maryland
May 27, 1998
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Joseph A. Cicero and Kevin M.
Healey, and each of them, as his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, to sign any and all
amendments to the Registration Statement on Form S-1 of First Mariner Bancorp
and Mariner Capital Trust, as co-registrants, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each of said attorneys-in-fact
and agents full power and authority to do and perform each and every act and
thing necessary or advisable to be done in connection therewith, as fully to all
intents and purposes as he or she might or could do in persons, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their substitutes,
may lawfully do or cause to be done by virtue thereof. This power of attorney
may be executed in counterparts.
/s/ Joseph A. Cicero
- --------------------------- Director May 27, 1998
Joseph A. Cicero
/s/ George H. Mantakos
- --------------------------- Director May 27, 1998
George H. Mantakos
/s/ Barry B. Bondroff
- --------------------------- Director May 27, 1998
Barry B. Bondroff
/s/ Rose M. Cernak
- --------------------------- Director May 27, 1998
Rose M. Cernak
/s/ Christopher P. D'Anna
- --------------------------- Director May 27, 1998
Christopher P. D'Anna
/s/ Bruce H. Hoffman
- --------------------------- Director May 27, 1998
Bruce H. Hoffman
/s/ Melvin S. Kabik
- --------------------------- Director May 27, 1998
Melvin S. Kabik
/s/ R. Andrew Larkin
- --------------------------- Director May 27, 1998
R. Andrew Larkin
/s/ Jay J.J. Matricciani
- --------------------------- Director May 27, 1998
Jay J.J. Matricciani
/s/ Dennis C. McCoy
- --------------------------- Director May 27, 1998
Dennis C. McCoy
/s/ Walter L. McManus, Jr.
- --------------------------- Director May 27, 1998
Walter L. McManus, Jr.
- --------------------------- Director
James P. O'Conor
/s/ John J. Oliver, Jr.
- --------------------------- Director May 27, 1998
John J. Oliver, Jr.
/s/ Hanan Y. Sibel
- --------------------------- Director May 27, 1998
Hanan Y. Sibel
- --------------------------- Director
Leonard Stoler
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 13240476
<INT-BEARING-DEPOSITS> 32676735
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32852787
<INVESTMENTS-CARRYING> 8600621
<INVESTMENTS-MARKET> 8642595
<LOANS> 144071961
<ALLOWANCE> 1613621
<TOTAL-ASSETS> 256984306
<DEPOSITS> 197269328
<SHORT-TERM> 30330935
<LIABILITIES-OTHER> 2418387
<LONG-TERM> 0
0
0
<COMMON> 142578
<OTHER-SE> 26823078
<TOTAL-LIABILITIES-AND-EQUITY> 256984306
<INTEREST-LOAN> 11953680
<INTEREST-INVEST> 2364321
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 14318001
<INTEREST-DEPOSIT> 6142487
<INTEREST-EXPENSE> 6565434
<INTEREST-INCOME-NET> 7752567
<LOAN-LOSSES> 471959
<SECURITIES-GAINS> 479360
<EXPENSE-OTHER> 9458960
<INCOME-PRETAX> 173336
<INCOME-PRE-EXTRAORDINARY> 173336
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 365336
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.12
<YIELD-ACTUAL> 4.72
<LOANS-NON> 1550265
<LOANS-PAST> 276491
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1241663
<CHARGE-OFFS> 100001
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1613621
<ALLOWANCE-DOMESTIC> 1613621
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 16,572,596
<INT-BEARING-DEPOSITS> 21,336,504
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,772,843
<INVESTMENTS-CARRYING> 6,602,985
<INVESTMENTS-MARKET> 6,642,650
<LOANS> 160,530,522
<ALLOWANCE> 1,672,484
<TOTAL-ASSETS> 263,808,584
<DEPOSITS> 204,017,844
<SHORT-TERM> 32,166,466
<LIABILITIES-OTHER> 420,133
<LONG-TERM> 0
0
0
<COMMON> 143,453
<OTHER-SE> 27,060,688
<TOTAL-LIABILITIES-AND-EQUITY> 263,808,584
<INTEREST-LOAN> 3,784,390
<INTEREST-INVEST> 876,660
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,661,050
<INTEREST-DEPOSIT> 2,066,440
<INTEREST-EXPENSE> 2,220,319
<INTEREST-INCOME-NET> 2,440,731
<LOAN-LOSSES> 152,467
<SECURITIES-GAINS> 284,797
<EXPENSE-OTHER> 3,169,605
<INCOME-PRETAX> 151,342
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,342
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.04
<YIELD-ACTUAL> 4.47
<LOANS-NON> 1,355,956
<LOANS-PAST> 268,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,613,621
<CHARGE-OFFS> 95,000
<RECOVERIES> 1,396
<ALLOWANCE-CLOSE> 1,672,484
<ALLOWANCE-DOMESTIC> 1,672,484
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
