-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U3Jjn/rI1IiC3d3IxFcf85ZZ4xl2iGqNiB7XU7gSbgbSih7OQvjk6QOLs4vrNblW n4fjNwbzbpLF5cQQq7mt+g== 0000931763-01-502346.txt : 20020412 0000931763-01-502346.hdr.sgml : 20020412 ACCESSION NUMBER: 0000931763-01-502346 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 20011205 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL COMMERCE CAPITAL TRUST II CENTRAL INDEX KEY: 0001162362 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-73638-01 FILM NUMBER: 1807389 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQUARE CITY: MEMPHIS STATE: TN ZIP: 38150 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL COMMERCE FINANCIAL CORP CENTRAL INDEX KEY: 0000101844 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 620784645 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-73638 FILM NUMBER: 1807388 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQ CITY: MEMPHIS STATE: TN ZIP: 38150 BUSINESS PHONE: 9014156416 MAIL ADDRESS: STREET 1: ONE COMMERCE SQ CITY: MEMPHIS STATE: TN ZIP: 38150 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL COMMERCE BANCORPORATION DATE OF NAME CHANGE: 19950822 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TENNESSEE BANCSHARES CORP DATE OF NAME CHANGE: 19780820 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TENNESSEE BANSHARES CORP DATE OF NAME CHANGE: 19780525 S-1/A 1 ds1a.txt FORM S-1/A AMENDMENT 1 As filed with the Securities and Exchange Commission on December 5, 2001 Registration No. 333-73638 333-73638-001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- National Commerce Financial Corporation National Commerce Capital Trust II (Exact name of co-registrants as specified in charters) Tennessee 62-0784645 Delaware 36-7372327 (State or other jurisdiction of incorporation or (I.R.S. Employer (State or other jurisdiction of (I.R.S. Employer organization) Identification Number) incorporation or organization) Identification Number)
6711 (Primary Standard Industrial Classification Code Number) One Commerce Square Memphis, Tennessee 38150 (901) 523-3434 (Address, including zip code, and telephone number, including area code, of co-registrant's principal executive offices) ---------------- CHARLES A. NEALE, ESQ. Vice President And General Counsel National Commerce Financial Corporation One Commerce Square Memphis, Tennessee 38150 (901) 523-3371 (Name, address, including zip code, and telephone number, including area code, of agent for service for co-registrants) ---------------- with copies to: JOHN A. GOOD, ESQ. WILLIAM V. FOGG, ESQ. Bass, Berry & Sims PLC Cravath, Swaine & Moore 100 Peabody Place, Suite 900 Worldwide Plaza, 825 Eighth Ave. Memphis, Tennessee 38103 New York, New York 10019 Telephone: (901) 543-5901 Telephone: (212) 474-1000 Facsimile: (888) 543-4644 Facsimile: (212) 474-3700 Approximate date of commencement of proposed sale to the public: As soon as practicable following the effectiveness of this registration statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If 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 the delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [_] ---------------- (continued on next page) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (continued from previous page) ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and is not soliciting an offer to buy these + +securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED DECEMBER 5, 2001 PROSPECTUS $200,000,000 National Commerce Capital Trust II % Trust Preferred Securities Liquidation Amount $25 per Trust Preferred Security Fully and Unconditionally Guaranteed, to the extent described below, by National Commerce Financial Corporation National Commerce Capital Trust II, a subsidiary of National Commerce Financial Corporation, or "NCF," will issue the trust preferred securities. The trust's only assets will be junior subordinated debentures to be issued by NCF. The junior subordinated debentures will have substantially the same payment terms as the trust preferred securities. The trust can make distributions on the trust preferred securities only if NCF makes interest payments on the junior subordinated debentures. Distributions with respect to the trust preferred securities are payable quarterly, beginning , 2002 and will accumulate from December , 2001. Distributions may be postponed for up to five years, but not beyond the maturity date of the junior subordinated debentures held by the trust. The junior subordinated debentures will mature on , . The trust preferred securities may be redeemed in whole or in part at any time on or after , or earlier upon certain events involving taxation or capital treatment as described in this prospectus. The junior subordinated debentures will be subordinated to all existing and future senior and senior subordinated debt of NCF and effectively subordinated to all liabilities of its subsidiaries. As a result, the trust preferred securities also will be effectively subordinated to the same debt and liabilities. NCF will guarantee payments of amounts due on the trust preferred securities, but only to the extent described in this prospectus. The trust preferred securities have been approved for listing on the New York Stock Exchange, subject to official notice of issuance, under the symbol "NCF Pr". ----------------------------------- See "Risk Factors" beginning on page 11 for a discussion of certain risks that you should consider in connection with an investment in the trust preferred securities. These securities are not deposits or other obligations of a bank and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined that this prospectus is accurate or complete. Any representation to the contrary is a criminal offense. ----------------------------------- Price to Underwriting Proceeds Public/1/ Commissions/2/ To NCF --------- -------------- -------- Per trust preferred security................. $ $ $ Total........................................ $ $ $ /1/Your purchase price will also include any distributions accrued on the trust preferred securities since December , 2001. /2/NCF will pay underwriting commissions of $ per trust preferred security ($ in total). National Commerce Capital Trust II expects to deliver the trust preferred securities to investors through the book-entry facilities of The Depository Trust Company and its direct participants Euroclear and Clearstream on or about December , 2001. JPMorgan Joint Book-Running Managers Merrill Lynch & Co. ---------- NBC Capital Market_sGroup Salomon Smith Barne_ UBSyWarbur_ WachoviagSecurities ---------- Keefe, Bruyette & Woods, Inc. Morgan Keegan & Company, Inc. Sandler O'Neill & Partners, L.P. SunTrust Robinson Humphrey December , 2001. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, the trust preferred securities only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the trust preferred securities. No action is being taken in any jurisdiction outside the U.S. to permit a public offering of the trust preferred securities or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the U.S. are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to that jurisdiction. TABLE OF CONTENTS Summary................................................................... 1 Risk Factors.............................................................. 11 Use of Proceeds........................................................... 19 Capitalization............................................................ 19 Accounting and Regulatory Treatment....................................... 20 Information About National Commerce Financial Corporation................. 21 Selected Historical Consolidated Financial Data of NCF.................... 30 Management's Discussion and Analysis of Financial Condition and Results of Operations of NCF........................................................ 32 Directors and Executive Officers of NCF................................... 62 Description of the Trust.................................................. 76 Description of the Trust Preferred Securities............................. 77 Description of the Junior Subordinated Debentures......................... 91 Book-Entry Issuance....................................................... 101 Description of the Guarantee.............................................. 106 Relationship Among the Trust Preferred Securities, the Junior Subordinated Debentures and the Guarantee............................................. 109 Material Federal Income Tax Consequences.................................. 111 ERISA Considerations...................................................... 117 Certain Transactions with Directors and Management of NCF................. 120 Underwriting.............................................................. 121 Validity of Securities.................................................... 123 Experts................................................................... 123 Where You Can Find More Information....................................... 123 Index to Financial Statements............................................. F-1 SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION This prospectus includes forward-looking statements. NCF has based these statements on its current expectations and projections about future events. When the words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan(s)," "seek(s)," "should," "will" and similar expressions or their negative are used in the prospectus, these are forward-looking statements. Many possible events or factors, including those discussed in "Risk Factors" beginning on page 11 of this prospectus, could affect NCF's future financial results and performance. This could cause results or performance to differ materially from those expressed in NCF's forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only to the date of this prospectus. SUMMARY This summary highlights information contained elsewhere in this prospectus, but does not contain all the information that may be important to you. Therefore, you should read the entire prospectus, including the financial statements and related notes included elsewhere in this prospectus, before making a decision to invest in the trust preferred securities. National Commerce Financial Corporation National Commerce Financial Corporation, referred to as "NCF" in this prospectus, is a regional bank holding company operating commercial banking offices in approximately 390 locations in Tennessee, North Carolina, South Carolina, Georgia, Virginia, West Virginia, Mississippi and Arkansas. NCF also provides trust and asset management, transaction processing, retail banking consulting and securities services. As of September 30, 2001, NCF had consolidated assets of $18.5 billion, consolidated loans of $11.5 billion and consolidated deposits of $11.9 billion. In July 2000 NCF engaged in a merger-of-equals transaction with CCB Financial Corporation, called "CCB" in this prospectus, headquartered in Durham, North Carolina. In the merger NCF combined the retail and supermarket banking strength of its principal banking subsidiary, National Bank of Commerce, referred to as "NBC" in this prospectus, in the Tennessee, Virginia, West Virginia and Georgia markets with the commercial banking strength of Central Carolina Bank and Trust Company, which we call "Central Carolina Bank" in this prospectus, in North and South Carolina. Since the merger, NCF has maintained the NBC and Central Carolina Bank brand names in its historical markets but has consolidated operations and executive functions, achieving significant cost savings in the process. NCF has announced that, effective December 31, 2001, Central Carolina Bank will merge into NBC, and NCF will thereafter conduct substantially all of its banking operations through a single national bank subsidiary. NCF believes this merger will provide for more efficient delivery of banking services. However, NCF will continue to operate under the NBC brand name in Tennessee, Georgia, Virginia, West Virginia, Mississippi and Arkansas and the Central Carolina Bank brand name in North and South Carolina. NCF owns a 49% interest in First Market Bank, FSB, a federal savings bank located in Richmond, Virginia. The remaining 51% is owned by the Ukrop family, which controls Ukrop Supermarkets, a Richmond-based supermarket chain. First Market Bank operates six traditional branch offices and 18 in-store branches in Ukrop Supermarket stores in the Richmond area. On November 19, 2001, NCF expanded its franchise in South Carolina through its acquisition of SouthBanc Shares, Inc., a savings and loan holding company which operates in 11 branches in the Anderson, South Carolina area through its primary operating subsidiary SouthBank, a federally chartered savings bank. In addition, NCF has agreed to acquire 37 bank branches and related ATMs in North Carolina, South Carolina, Georgia and Virginia from First Union National Bank and Wachovia Bank N.A. These branches and ATMs were required by the United States Department of Justice to be divested by First Union and Wachovia to meet antitrust guidelines as a condition to the merger of First Union Corporation and Wachovia Corporation. In connection with NCF's purchase of these branches, NCF will acquire the bank properties and related furniture and fixtures, loans and deposits. NCF intends to close this transaction on or about February 15, 2002. NCF believes that the addition of the SouthBank and First Union/Wachovia locations through these acquisitions further strengthens its brand name and banking franchise in the Carolinas, Virginia and Georgia. Over 90% of NCF's deposits are concentrated in high-growth Southeastern metropolitan statistical areas. These markets include: . Greensboro/Winston Salem/High Point, North Carolina . Raleigh/Durham/Chapel Hill, North Carolina 1 . Charlotte, North Carolina . Greenville/Spartanburg/Anderson, South Carolina . Nashville, Tennessee . Memphis, Tennessee . Knoxville, Tennessee . Roanoke, Virginia . Richmond, Virginia . Charleston, West Virginia In addition to its traditional banking business, NCF operates several non- banking businesses through several subsidiaries. These businesses generate predominately fee-based revenue. Through NCF's subsidiary TransPlatinum Service Corporation, NCF provides financial services, including transaction processing, to the trucking and petroleum industries and bankcard services to merchants. Through NCF's banks and its subsidiaries First Mercantile Trust Company, First Mercantile Capital Management, Inc. and Salem Trust Company, NCF provides trust and investment management services to individuals, businesses, endowment funds, non-profit organizations, governmental bodies and other institutions. Professional asset management and administration for retirement plans, as well as investment management services for employee benefit plans, are provided by First Mercantile through a nationwide network of brokers and agents. Through its banks and broker/dealer subsidiaries, NCF offers retail and institutional securities brokerage services, insurance, annuity and mutual fund products, as well as underwriting of government and corporate debt securities. Leveraging its historical success and expertise in supermarket banking, NCF offers retail banking consulting services to other financial institutions through its subsidiary National Commerce Bank Services. NCF's principal executive offices are located at One Commerce Square, Memphis, Tennessee 38150. Its main telephone number is (901) 523-3434. The trust's principal offices will have the same address and telephone number. National Commerce Capital Trust II National Commerce Capital Trust II, referred to in this prospectus as the "trust," is a business trust organized under the laws of the State of Delaware. The trust was formed for the limited purposes of: . issuing the trust preferred securities and trust common securities; . acquiring junior subordinated debentures with the proceeds it receives from the issuance of the trust preferred securities and the trust common securities; and . engaging in activities related to the foregoing. The trust preferred securities will be offered for sale by the trust to the public. NCF will purchase all the trust common securities to be issued by the trust. The trust common securities will represent an aggregate liquidation amount equal to at least 3% of the total capital of the trust. The junior subordinated debentures will be the only assets of the trust. Payments on the junior subordinated debentures will be the only source of payment of dividends on and liquidation or redemption payments with respect to the trust preferred securities. The Bank of New York will be the property trustee of the trust. The Bank of New York (Delaware) will be the Delaware trustee of the trust. Charles A. Neale and Sheldon M. Fox, the General Counsel and Chief Financial Officer, respectively, of NCF, will be the administrative trustees of the trust. The trust will be governed by a trust agreement among the trustees named above and NCF, as depositor. 2 The Trust Preferred Securities Offering Issuer.................... The issuer of the trust preferred securities is National Commerce Capital Trust II, a single- purpose Delaware statutory business trust and a subsidiary of NCF. The trust was formed by NCF solely for the purposes of issuing the trust preferred securities and trust common securities; acquiring junior subordinated debentures with the proceeds it receives from the issuance of the trust preferred securities and the trust common securities; and engaging in activities related to the foregoing. The Trust Preferred Securities................ The trust will sell its trust preferred securities to the public and its trust common securities to NCF. Each trust preferred security and trust common security will represent an undivided beneficial ownership interest in the assets of the trust. The trust will use the proceeds from the sale of the trust preferred securities to purchase $200,000,000 aggregate principal amount of NCF's % junior subordinated debentures due . NCF will pay interest on the junior subordinated debentures at the same rates and on the same dates as the trust makes payments on the trust preferred securities. The trust will use payments it receives on the junior subordinated debentures to make the corresponding payments on the trust preferred securities. Distributions ............ If you purchase trust preferred securities, you will be entitled to receive cumulative cash distributions at the annual rate of % of the stated liquidation amount of $25 per trust preferred security, which we refer to as the "liquidation amount". Distributions will accumulate from December , 2001. The trust will make distribution payments on the trust preferred securities quarterly in arrears, on , , , and of each year, beginning , 2002, unless those payments are deferred as described below. Deferral of Distributions. NCF may elect, on one or more occasions, to defer the quarterly interest payments on the junior subordinated debentures for a period of up to 20 consecutive quarterly periods. In other words, NCF can declare one or more interest payment moratoriums on the junior subordinated debentures, each of which may last for up to five years. However, no interest deferral may (1) extend beyond the stated maturity date of the junior subordinated debentures or (2) begin during the existence of an event of default with respect to the junior subordinated debentures. If NCF exercises its right to defer interest payments on the junior subordinated debentures, the trust will also defer distribution payments on the trust preferred securities. 3 Although you will not receive distribution payments on the trust preferred securities if interest payments are deferred, interest will continue to accrue, compounded quarterly, on the junior subordinated debentures, and deferred interest payments will accrue additional interest. As a result, distributions on the trust preferred securities will continue to accumulate on the liquidation amount and the deferred distributions at the annual rate of %, compounded quarterly. If NCF defers payments of interest on the junior subordinated debentures, the junior subordinated debentures will be treated as being issued with original issue discount for United States federal income tax purposes. This means that you must include in gross income for United States federal income tax purposes interest income with respect to the deferred distributions on your trust preferred securities prior to receiving any cash distributions. See "Material Federal Income Tax Consequences--Interest Income and Original Issue Discount." Redemption of Trust Preferred Securities...... The trust will redeem the trust preferred securities and the trust common securities on , the stated maturity date of the junior subordinated debentures. If NCF redeems or repays any junior subordinated debenture prior to its stated maturity date, the trust will use the cash it receives to redeem, on a proportionate basis, an equal amount of trust preferred securities and trust common securities. The redemption terms of the junior subordinated debentures are summarized below under "Summary-- Redemption of Junior Subordinated Debentures." Upon any redemption of your trust preferred securities, you will be entitled to receive a redemption price equal to the liquidation amount of the trust preferred securities redeemed, plus any accumulated and unpaid distributions to the date of redemption. Exchange of Trust Preferred Securities...... NCF and any of its affiliates will have the right to exchange any trust preferred securities that they hold or own beneficially for a Like Amount (as defined herein) of junior subordinated debentures on any distribution date for the trust preferred securities. If any trust preferred securities are so exchanged, the trust will on the same day exchange a proportionate amount of trust common securities held by NCF for junior subordinated debentures having a principal amount equal to such proportionate amount of trust common securities. All trust preferred and trust common securities exchanged as described above will then be canceled and no longer be deemed to be outstanding. See "Description of the Trust Preferred Securities-- Exchange Procedures." 4 Liquidation of Trust and Distribution of Junior Subordinated Debentures... NCF may dissolve the trust at any time, subject to its receipt of any required prior approval by the Board of Governors of the Federal Reserve System, which is referred to in this prospectus as the "Federal Reserve." If NCF dissolves the trust, after the trust satisfies all of its liabilities as required by law the trustees will: . distribute the junior subordinated debentures to the holders of the trust preferred securities and the trust common securities; or . if the property trustee determines that a distribution of the junior subordinated debentures is not practical, pay out of the assets of the trust available for distribution to the holders of the trust preferred securities the liquidation amount of the trust preferred securities, plus any accumulated and unpaid distributions to the payment date, in cash. For more information concerning distribution of the junior subordinated debentures, see "Description of the Trust Preferred Securities--Redemption or Exchange--Optional Liquidation of the Trust and Distribution of Junior Subordinated Debentures." Guarantee by NCF ......... NCF will fully and unconditionally guarantee payment of amounts due under the trust preferred securities on a subordinated basis and only to the extent the trust has funds available for payment of those amounts. We refer to this obligation as the "Guarantee." However, the Guarantee does not cover payments if the trust does not have sufficient funds to make the distribution payments, including, for example, if NCF has failed to pay to the trust amounts due under the junior subordinated debentures. NCF, as issuer of the junior subordinated debentures, is also obligated to pay the expenses and other obligations of the trust, other than its obligations to make payments on the trust preferred securities. For more information concerning NCF's guarantee of the trust preferred securities, see "Risk Factors-- Risks Related to an Investment in the Trust Preferred Securities " and "Description of the Guarantee." Ranking .................. NCF's obligations under the Guarantee and the junior subordinated debentures are unsecured and rank junior and are subordinate in right of payment to all of NCF's existing and future Senior Debt. For a definition of "Senior Debt," see page 100. As of September 30, 2001, NCF had $39 million in aggregate principal amount of Senior Debt and $43 million in 5 aggregate principal amount of debt pari passu with the junior subordinated debentures and the Guarantee, consisting of NCF's floating rate junior subordinated deferred interest debentures due 2027, which are referred to as the "1997 Debentures" in this prospectus, and NCF's guarantee of floating rate capital trust pass-through securities, which are referred to as the "1997 Trust Preferred Securities" in this prospectus. In addition, because NCF is a holding company that relies on dividends from its subsidiaries for virtually all of its income, all existing and future borrowings and other liabilities of its subsidiaries will effectively rank senior to the Guarantee and the junior subordinated debentures. As of September 30, 2001, NCF's subsidiaries had approximately $15.3 billion of total liabilities (including trade payables), of which deposits comprise $11.9 billion. See "Risk Factors--Risks Related to an Investment in the Trust Preferred Securities" and the financial statements included elsewhere in this prospectus. The Indenture pursuant to which the junior subordinated debentures are to be issued, which we refer to as the "Indenture," the Guarantee and the Amended and Restated Trust Agreement governing administration of the trust, which we refer to as the "Trust Agreement," do not limit NCF's ability to incur additional secured or unsecured debt, including Senior Debt. Voting Rights ............ As a holder of trust preferred securities, you will have very limited voting rights. See "Risk Factors--Risks Related to an Investment in the Trust Preferred Securities" and "Description of the Trust Preferred Securities--Voting Rights; Amendment of the Trust Agreement." Book Entry ............... You will not receive a certificate for your trust preferred securities. Instead, the trust preferred securities will be represented by a global security that will be deposited with The Depository Trust Company, or "DTC," or its custodian and registered in the name of DTC or its nominee. Listing of the Trust Preferred Securities...... The trust preferred securities have been approved for listing on the New York Stock Exchange, subject to official notice of issuance, under the trading symbol "NCF Pr." The Junior Subordinated Debentures Maturity and Interest..... The junior subordinated debentures will mature on . They will bear interest at the annual rate of % of their principal amount. Interest on the junior subordinated debentures will accrue from December , 2001. NCF will pay interest quarterly in arrears on , , , and , of each year beginning , 2002. 6 Certain Payment Restrictions Applicable to NCF.................... During any period in which NCF has elected to defer interest payments on the junior subordinated debentures, NCF generally may not make payments on its capital stock, debt securities or guarantees, subject to certain limited exceptions. Redemption of Junior Subordinated Debentures... NCF may elect to redeem any or all of the junior subordinated debentures at one or more times on or after . In addition, if certain changes occur relating to the tax or capital treatment of the trust preferred securities, NCF may elect to redeem all, but not less than all, of the junior subordinated debentures. For a description of the changes that would permit such a redemption, see "Description of the Junior Subordinated Debentures--Conditional Right to Redeem Upon a Tax Event or Capital Treatment Event." If required under the capital rules of the Federal Reserve, NCF will obtain the approval of the Federal Reserve prior to exercising the redemption rights described above. The trust will use the proceeds of any redemption of the junior subordinated debentures to redeem the trust preferred securities and trust common securities. The redemption price for any redemption of the junior subordinated debentures will be equal to the principal amount of the junior subordinated debentures being redeemed, plus accrued and unpaid interest on those junior subordinated debentures to the date of redemption. Events of Default Under the Indenture............. The following events, which are referred to as "debenture events of default," are events of default with respect to the junior subordinated debentures: . NCF fails to pay interest within 30 days after the due date; . NCF fails to pay principal or premium when due; . NCF materially breaches a covenant in the Indenture and the breach continues for 90 days after notice from the trustee under the Indenture or from holders of at least 25% in aggregate outstanding principal amount of the junior subordinated debentures; or . Certain events involving the bankruptcy, insolvency or reorganization of NCF. Upon a debenture event of default, the trustee under the Indenture may declare all principal and interest on the junior subordinated debentures immediately due and payable. Under certain limited circumstances, the holders of a majority of the 7 aggregate liquidation amount of trust preferred securities may make that declaration or directly exercise certain rights and remedies under the Indenture. Trustees ................. The trust will have four trustees. Two of the trustees are officers of NCF and will act as "administrative trustees" for the trust. The Bank of New York will act as "property trustee" for the trust, "debenture trustee" for the junior subordinated debentures and "guarantee trustee" for the Guarantee. Its offices are located at 101 Barclay Street 21W, New York, New York 10286 Attention: Corporate Trust Administration. The Bank of New York (Delaware) will act as the "Delaware trustee." Its offices in Delaware are located at 700 White Clay Center, Route 273, Newark, Delaware 19711 Attention: Delaware Trustee. The property trustee, the Delaware trustee and the administrative trustees are collectively referred to in this prospectus as the "trustees." Use of proceeds .......... NCF will use the proceeds from the sale of the junior subordinated debentures for general corporate purposes, including capital investments in NCF's subsidiaries and to finance further expansion of existing product lines and potential acquisitions. See "Use of Proceeds" and "Capitalization." Listing of Junior Subordinated Debentures Upon Distribution ........ If the trustees distribute junior subordinated debentures to holders of the trust preferred securities upon liquidation of the trust, NCF will use its best efforts to have the junior subordinated debentures so distributed listed or quoted on any stock exchange or quotation system on which the trust preferred securities were listed at the time of the trust's termination. See "Risk Factors--Risks Related to an Investment in the Trust Preferred Securities" and "Underwriting." 8 Summary Historical Consolidated Financial Information Of NCF The following table sets forth NCF's summary historical consolidated financial information. The historical consolidated financial information as of December 31, 2000 and December 31, 1999 and for the years ended December 31, 2000, 1999 and 1998 have been derived from, and should be read together with, NCF's audited consolidated financial statements and the related notes included elsewhere in this prospectus. The historical consolidated financial information as of December 31, 1998, December 31, 1997 and December 31, 1996 and for the years ended December 31, 1997 and 1996 have been derived from NCF's audited consolidated financial statements and the related notes, which have not been included in this prospectus. NCF's historical consolidated financial information as of and for the nine months ended September 30, 2001 and September 30, 2000 have been derived from, and should be read together with, NCF's unaudited historical financial statements and the related notes included elsewhere in this prospectus. In the opinion of NCF's management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of NCF's financial position, the results of NCF's operations and cash flows, have been made. The results of operations for the nine months ended September 30, 2001 are not necessarily indicative of the operating results to be expected for the full fiscal year. On July 5, 2000, NCF consummated a merger of equals transaction with CCB which was accounted for as a purchase. The merger with CCB had a material effect on NCF's consolidated financial data as of and for the year ended December 31, 2000, and for the interim periods. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of NCF" and "Unaudited Pro Forma Condensed Combined Financial Statements."
Nine Months Ended September 30, Years Ended December 31, ----------------------- --------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ----------- ---------- ---------- --------- --------- --------- --------- (in thousands) Summary of Operations(1) Interest income......... $ 935,603 603,903 937,976 455,974 379,730 336,993 286,567 Interest expense........ 454,858 331,170 513,403 226,098 189,652 174,172 151,101 ----------- ---------- ---------- --------- --------- --------- --------- Net interest income..... 480,745 272,733 424,573 229,876 190,078 162,821 135,466 Provision for loan losses................. 22,307 11,139 16,456 16,921 10,710 17,013 14,134 ----------- ---------- ---------- --------- --------- --------- --------- Net interest income after provision........ 458,438 261,594 408,117 212,955 179,368 145,808 121,332 Other income(2)......... 232,227 120,245 189,491 87,227 82,784 82,405 69,635 Losses (gains) on interest rate swaps.... 672 20,006 77,227 (1,499) -- -- -- Merger-related expense.. 3,122 44,765 70,657 -- -- -- -- Other expenses(3)....... 422,154 226,077 369,814 161,841 142,716 123,460 103,875 ----------- ---------- ---------- --------- --------- --------- --------- Income before income taxes.................. 264,717 90,991 79,910 139,840 119,436 104,753 87,092 Income taxes............ 99,281 37,269 34,600 47,208 40,569 34,973 29,579 ----------- ---------- ---------- --------- --------- --------- --------- Net income.............. $ 165,436 53,722 45,310 92,632 78,867 69,780 57,513 =========== ========== ========== ========= ========= ========= ========= Average Balances Assets.................. $17,696,543 10,666,900 12,401,982 6,358,828 5,383,017 4,404,852 3,812,114 Loans................... 11,183,586 6,252,886 7,427,320 3,489,625 3,040,662 2,513,327 2,130,810 Earning assets.......... 15,471,233 9,569,993 11,033,301 5,905,404 4,983,531 4,148,590 3,611,580 Deposits................ 11,884,268 6,919,469 8,158,282 4,120,703 3,675,427 2,954,813 2,652,559 Interest-bearing liabilities............ 13,434,871 8,411,882 9,658,886 5,195,698 4,363,458 3,633,713 3,160,897 Stockholders' equity.... 2,410,397 1,227,228 1,522,217 542,259 419,437 333,528 295,826 Selected Period End Balances Assets.................. $18,481,554 17,665,793 17,745,792 6,913,786 5,811,054 4,692,011 4,200,409 Loans................... 11,516,651 10,866,301 11,008,419 3,985,789 3,197,673 2,608,967 2,347,973 Allowance for loan losses................. 150,487 143,510 143,614 59,597 49,122 43,297 35,514 Deposits................ 11,945,208 11,703,489 11,979,631 4,495,900 3,947,275 3,251,242 2,976,430 Stockholders' equity.... 2,414,864 2,389,157 2,364,838 649,241 408,549 352,148 313,329 Ratios Return on average assets................. 1.25% .67 .37 1.46 1.47 1.58 1.51 Return on average equity................. 9.18 5.85 2.98 17.08 18.80 20.92 19.44 Net interest margin, taxable equivalent..... 4.34 4.03 4.06 4.12 4.20 4.04 3.89 Net loan losses to average loans.......... .20 .20 .20 .24 .26 .39 .35 Average equity to average assets......... 13.62 11.51 12.27 8.53 7.79 7.57 7.76 Tier 1 capital.......... 9.72 9.93 9.52 12.15 11.79 12.61 11.05 Total capital........... 10.97 11.13 10.79 13.40 13.04 13.86 12.30 Earnings to combined fixed charges and preference distributions(4) Including interest on deposits.............. 1.57x 1.26x 1.15x 1.59x 1.59x 1.57x 1.57x Excluding interest on deposits.............. 3.22x 1.80x 1.48x 2.70x 2.82x 2.68x 2.89x Pro forma earnings to combined fixed charges and preference distributions(4)(5) Including interest on deposits.............. Excluding interest on deposits..............
(footnotes on next page) 9 - -------- (1) The financial results of the acquired companies are included in the historical financial statements for all periods subsequent to the business combinations, including NCF's merger-of-equals with CCB on July 5, 2000. For information regarding other business combinations, see "Information about National Commerce Financial Corporation." (2) Other income in 1997 includes $8 million of gain on the sale of credit card receivables and in 1996 includes $5.9 million of gain on the sales of certain assets. (3) Other expenses include the FDIC's levy of a $1.3 million special assessment to recapitalize the SAIF in 1996. (4) For purposes of calculating the ratio of earnings to combined fixed charges and preference distributions, earnings consist of income before income taxes plus interest and one-half of rental expense (which is deemed representative of the interest factor). Combined fixed charges and preference distributions, excluding interest on deposits, consist of interest on indebtedness, distributions in respect of trust preferred securities and one-half of rental expense (which is deemed representative of the interest factor). Fixed charges, including interest on deposits, consists of the foregoing items plus interest on deposits. (5) Pro forma ratio of earnings to combined fixed charges and preference distributions includes distributions on the trust preferred securities computed as if the trust preferred securities had been issued at the beginning of each period presented. 10 RISK FACTORS Investing in the trust preferred securities involves a number of risks. Please read all of the information contained in this prospectus. In addition, please consider carefully the following factors in evaluating an investment in the trust before you purchase the trust preferred securities. Because the trust will rely on the payments it receives on the junior subordinated debentures to fund all payments on the trust preferred securities, and because the trust may distribute the junior subordinated debentures in exchange for the trust preferred securities, purchasers of the trust preferred securities are making an investment decision that relates to the junior subordinated debentures being issued by NCF as well as the trust preferred securities. Purchasers should carefully review the information in this prospectus about the trust preferred securities, the junior subordinated debentures and the Guarantee. Risks Related to an Investment in National Commerce Financial Corporation If Economic or Political Conditions in General or in NCF's Primary Market Areas in Particular Deteriorate, NCF's Results of Operations and Financial Condition, as well as NCF's Ability to Timely Pay Interest and Principal on the Junior Subordinated Debentures, Could Be Adversely Impacted. NCF's financial results may be adversely affected by changes in prevailing economic conditions, including declines in real estate values, changes in interest rates, adverse employment conditions, the monetary and fiscal policies of the federal government and other significant external events. United States economists have declared that the United States economy is currently in recession. The recession has adversely affected employment and other significant elements of the economy that drive productivity and the financial strength of businesses. These current conditions could have a material adverse affect on loan and deposit growth, loan loss reserves and, as a result, NCF's financial condition and results of operations in future periods. The events of September 11, 2001, in New York and Washington, D.C., as well as the United States' war on terrorism, may have an unpredictable effect on economic conditions in general and in NCF's primary market areas. NCF's results of operations, financial condition and ability to timely pay the principal of or interest on the junior subordinated debentures could be adversely impacted if those events and other related events cause a further decline in the economy in general or in NCF's primary market areas in particular. NCF's Financial Performance May Suffer as a Result of NCF's Merger with CCB and its Purchase and Integration of 37 Former First Union and Wachovia Branches. There are many risks associated with completing a merger-of-equals transaction like the one NCF completed on July 5, 2000 with CCB. The respective businesses of NCF and CCB may not be successfully integrated within the time frame envisioned prior to the merger. The synergies anticipated from this business combination may fail to be achieved within the expected time frame, or at all. Additionally, NCF has announced that it has signed a definitive agreement to acquire 37 branches from First Union and Wachovia, which it expects to close in the first quarter of 2002. NCF may lose deposits or be unable to attract new deposits to these branches. Moreover, NCF may lose key employees in these branches who control key customer relationships. Integration may also divert management's attention from operational matters, which could adversely affect results of operations. These risks may hinder NCF's ability to attain the level of financial performance it has historically achieved. 11 NCF Is Subject to Significant Government Regulation Over Which It Has No Control. Unforeseen Changes in Regulations Applicable to NCF's Business Could Affect Its Financial Condition. The banking industry is heavily regulated under both federal and state law. These regulations are primarily intended to protect customers and the federal deposit insurance funds, not creditors or shareholders. Regulations affecting banks and financial services companies are continuously changing, and NCF cannot predict the ultimate effect of such changes, which could have a material adverse effect on NCF's profitability or financial condition. Regulations and laws may be modified at any time, and new legislation may be enacted that adversely affects NCF and its subsidiaries. In the fourth quarter of 1999, then-President Clinton signed into law the Gramm-Leach-Bliley Act, or the "GLBA," which permits qualifying bank holding companies to become financial holding companies. The GLBA authorized financial holding companies, national banks and their financial subsidiaries to engage in activities that are financial in nature. The GLBA also permits insurance companies and securities companies that meet certain criteria to become financial holding companies and thereby acquire banks and bank holding companies, possibly increasing competition. See "Information about National Commerce Financial Corporation--Government Regulation and Supervision" for further discussion of these matters. NCF Must Act as a Source of Financial and Managerial Strength to Each of its Subsidiary Banks. Under Federal Reserve policy, NCF, as a bank holding company, is expected to maintain resources adequate to support each subsidiary bank. This support may be required at times when NCF may not have the resources to provide it. In addition, Section 55 of the National Bank Act, as amended, permits the Office of the Comptroller of the Currency, or "OCC," to order the pro rata assessment of shareholders of a national bank whose capital has become impaired. If a shareholder fails within three months to pay such an assessment, the OCC can order the sale of the shareholder's stock to cover the deficiency. NCF, as the sole shareholder of its subsidiary banks, is subject to such provisions. Such an assessment could have a material adverse effect on NCF's financial condition and its ability to timely pay the principal of or interest on the junior subordinated debentures. There Are Restrictions on the Ability of NCF's Banking Subsidiaries to Pay Dividends. NCF relies on dividends from its subsidiary banks as its principal source for the payment of interest and principal on its debt. Federal and state banking regulations restrict the ability of the banking subsidiaries to pay dividends. Although NCF expects to continue receiving dividends from its subsidiary banks sufficient to meet its current and anticipated cash needs, a decline in the profitability of those subsidiaries could result in restrictions on the payment of such dividends in the future. Also, there can be no assurance that additional federal or state regulations will not further restrict the ability of banking subsidiaries to pay dividends. Restrictions on the ability of NCF's banking subsidiaries to pay dividends could have a material adverse effect on NCF's ability to pay interest and principal on the junior subordinated debentures and the trust's ability to pay distributions on the trust preferred securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Interest- Sensitivity" and "Information about National Commerce Financial Corporation-- Government Regulation and Supervision." Competition With Other Financial Institutions Could Adversely Affect NCF's Profitability. Vigorous competition for loans and deposits exists in all major geographic and product areas where NCF is presently engaged in business. Its subsidiary banks compete not only with other commercial banks but also with diversified financial institutions such as thrift institutions, money market and other mutual funds, securities firms, mortgage companies, leasing companies, finance companies, insurance companies and a variety of financial services and advisory companies. 12 Moreover, competition is not limited to NCF's immediate geographic markets, as an increased variety of financial services is being offered on the Internet. Larger competing financial institutions may be able to offer services and products that are not cost-efficient for NCF's subsidiary banks to offer. In addition, larger competing financial institutions have access to greater financial resources than NCF's subsidiary banks. NCF's non-banking subsidiaries face competition from other commercial banks, securities firms, transaction processing companies, trust companies, investment advisers and other firms engaged in retirement plan consulting/ administration. Several of these competitors are larger and have more experience, ability to provide broader services and greater financial resources than the NCF subsidiaries. NCF's long- term success will depend on its ability to compete successfully in its markets. If NCF's Allowance for Loan Losses Is Not Sufficient to Cover Actual Loan Losses, NCF's Net Income Could Decrease. NCF's loan customers may not repay their loans according to the terms of these loans, and the collateral securing the payment of these loans may be insufficient to assure repayment. Such loan losses could have a material adverse effect on the company's operating results. NCF makes various assumptions and judgments about the collectibility of its loan portfolio, including the creditworthiness of its borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of its loans. In determining the size of the allowance for loan losses, NCF relies on its experience and its evaluation of economic conditions. If NCF's assumptions prove to be incorrect, its current allowance for loan losses may not be sufficient to cover losses inherent in its loan portfolio and adjustments may be necessary to allow for different economic conditions or adverse developments in its loan portfolio. The current economic downturn could have a material adverse effect on corporate profits, household incomes, real estate values and values of other types of collateral, all of which could result in a larger amount of loan losses than NCF has estimated. Material additions to NCF's allowance for loan losses could materially decrease its net income. In addition, federal and state regulators periodically review NCF's allowance for loan losses and may require NCF to increase its provision for loan losses or recognize additional loan charge-offs. Any increase in NCF's allowance for loan losses or loan charge-offs as required by these regulatory agencies could have a material adverse effect on NCF's results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Asset Quality" for a more complete discussion of NCF's method of estimating loan losses and its loan loss experience over the last five fiscal years and related interim periods. Fluctuations in Interest Rates Could Reduce NCF's Profitability. A major element of NCF's net income is its net interest income, which consists largely of the difference between interest earned on loans and investments and the interest paid on deposits and borrowings. NCF expects to periodically experience "gaps" in the interest rate sensitivities of its assets and liabilities, meaning that either its interest-bearing liabilities will be more sensitive to changes in market interest rates than its interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to NCF's position, NCF's net interest margin and, consequently, its net income may be negatively affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of NCF--Liquidity and Interest Sensitivity" for a more complete discussion of NCF's exposure to and management of its interest rate risk. NCF cannot predict fluctuations of market interest rates, which are affected by, among other factors, changes in the following: . inflation rates; . levels of business activity; 13 . unemployment levels; . monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve; . money supply; and . domestic and foreign financial markets. Decreased Growth Rates in Traditional Deposits May Result in the Need to Fund Loan Growth With Higher-Cost Sources. NCF's loan growth has been more rapid than its growth in lower-cost deposits. Substantially all deposits originate within the subsidiary banks' market areas. As with the rest of the financial institutions industry, NCF has seen decreased growth rates in traditional deposits as consumers elect other savings and investment opportunities. Continued slow growth in traditional deposits may result in the need to fund loan growth in part with higher-cost funding sources, which may contribute to decreases in NCF's net interest margin. This in turn may negatively affect NCF's net income. There is no assurance that NCF will be able to achieve growth in or retain existing deposits in the future. NCF Relies Heavily on Its Management Team, and the Unexpected Loss of Key Managers May Adversely Affect NCF's Operations. NCF's success to date has been influenced strongly by its ability to attract and to retain senior management experienced in banking and financial services. NCF's ability to retain executive officers and the current management teams of each of NCF's lines of business will continue to be important to successful implementation of the company's strategies and integration of its acquisitions. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on NCF's business and financial results. Risks Related to an Investment in the Trust Preferred Securities If NCF Does Not Make Interest Payments Under the Junior Subordinated Debentures, the Trust Will be Unable to Pay Distributions and Liquidation Amounts on the Trust Preferred Securities. The trust will depend solely on NCF's payments on the junior subordinated debentures to pay amounts due to you on the trust preferred securities. If NCF defaults on its obligation to pay the principal or interest on the junior subordinated debentures, the trust will not have sufficient funds to pay distributions or the liquidation amount on the trust preferred securities. In that case, you will not be able to rely on the Guarantee for payment of these amounts because the Guarantee only applies if the trust has sufficient funds to make distributions on or to pay the liquidation amount of the trust preferred securities. Instead, you or the property trustee will have to institute a direct action against NCF to enforce the property trustee's rights under the Indenture relating to the junior subordinated debentures. NCF's Status as a Holding Company. NCF is a holding company and substantially all of its assets are held by its subsidiaries. NCF's ability to make payments on the junior subordinated debentures when due will depend primarily on dividends from its subsidiaries. Dividend payments or extensions of credit from NCF's banking subsidiaries are subject to regulatory limitations that are generally based on capital levels and current and retained earnings. The ability of each banking subsidiary to pay dividends is also subject to its profitability, financial condition, capital expenditures and other cash flow requirements. NCF cannot assure you that its subsidiaries will be able to pay dividends in the future. 14 In addition, NCF's right to participate in any distribution of assets from any subsidiary, upon the subsidiary's liquidation or otherwise, is subject to the prior claims of creditors of that subsidiary, except to the extent that NCF is recognized as a creditor of that subsidiary. As a result, the junior subordinated debentures and the Guarantee will be effectively subordinated to all existing and future liabilities of NCF's subsidiaries. You should look only to the assets of NCF as the source of payment for the junior subordinated debentures and the Guarantee. As of September 30, 2001, NCF's subsidiaries had approximately $15.3 billion of total liabilities (including trade payables), of which deposits comprised $11.9 billion. NCF could also be precluded from making interest payments on the junior subordinated debentures by regulators if in the future they were to perceive deficiencies in liquidity or regulatory capital levels. If this were to occur, NCF may be required to obtain the consent of its regulators prior to paying interest on the junior subordinated debentures. If consent were to be required and NCF's regulators were to withhold their consent, NCF would likely exercise its right to defer interest payments on the junior subordinated debentures, and the trust would not have funds available to make distributions on the trust preferred securities during such period. The Junior Subordinated Debentures and the Guarantee Rank Junior in Right of Payment to Most of NCF's Other Indebtedness, and NCF's Holding Company Structure Effectively Subordinates any Claims Against NCF to Those of Its Subsidiaries' Creditors. NCF's obligations under the junior subordinated debentures and the Guarantee are unsecured and rank junior in right of payment to all of NCF's existing and future Senior Debt. This means that NCF cannot make any payments on the junior subordinated debentures or under the Guarantee if NCF is in default in the payment of principal, premium, interest or any other payment due on any Senior Debt following any grace period, or in the event that the maturity of any Senior Debt has been accelerated because of a default. In addition, in the event of the bankruptcy, insolvency or liquidation of NCF, the company's assets must be used to pay off its Senior Debt in full before any payments may be made on the junior subordinated debentures or under the Guarantee. Substantially all of NCF's existing debt, other than the junior subordinated debentures, is Senior Debt except for the 1997 Debentures held by National Commerce Capital Trust I, which we call the "1997 Trust" in this prospectus. The 1997 Trust purchased the 1997 Debentures with the proceeds from the sale of the 1997 Trust Preferred Securities. The junior subordinated debentures will rank pari passu with the 1997 Debentures and NCF's guarantee of the 1997 Trust Preferred Securities. Consequently, the 1997 Trust and holders of the 1997 Trust Preferred Securities will have an equal claim with the trust and holders of the trust preferred securities to payments from NCF's assets. These equal and competing claims could reduce the amount available to holders of the trust preferred securities. As of September 30, 2001, NCF had $39 million in aggregate principal amount of Senior Debt and $43 million in aggregate principal amount of pari passu debt consisting of the 1997 Debentures and NCF's guarantee of the 1997 Trust Preferred Securities. The Indenture, the Guarantee and the Trust Agreement do not limit NCF's ability to incur additional secured or unsecured debt, including Senior Debt. See "Description of the Guarantee--Status of the Guarantee" and "Description of the Junior Subordinated Debentures--Subordination." NCF Has the Option to Defer Interest Payments on the Junior Subordinated Debentures for Substantial Periods. NCF may, at one or more times, defer interest payments on the junior subordinated debentures for up to 20 consecutive quarters. If NCF defers interest payments on the junior subordinated debentures, the trust will defer distributions on the trust preferred securities. During a deferral period, you will be required to recognize as income for federal income tax purposes the amount 15 approximately equal to the interest that accrues on your proportionate share of the junior subordinated debentures held by the trust in the tax year in which that interest accrues, even though you will not receive these amounts until a later date. You will also not receive the cash related to any accrued and unpaid distributions from the trust if you sell the trust preferred securities before the end of any deferral period. During a deferral period, accrued but unpaid distributions will increase your tax basis in the trust preferred securities. If you sell the trust preferred securities during a deferral period, your adjusted tax basis will decrease the amount of any capital gain or increase the amount of any capital loss that you may have otherwise realized on the sale. For United States federal tax purposes, a capital loss, except in certain limited circumstances, cannot be applied to offset ordinary income. As a result, deferral of distributions could result in ordinary income, and a related tax liability for the holder, and a capital loss that may only be used to offset a capital gain. NCF does not currently intend to exercise its right to defer interest payments on the junior subordinated debentures. However, if NCF exercises its right in the future, the market price of the trust preferred securities would likely be adversely affected. The trust preferred securities may trade at a price that does not fully reflect the value of accrued but unpaid interest on the junior subordinated debentures. If you sell the trust preferred securities during a deferral period, you may not receive the same return on investment as someone who continues to hold the trust preferred securities. Due to NCF's right to defer interest payments, the market price of the trust preferred securities may be more volatile than the market prices of other securities without the deferral feature. NCF May Redeem the Junior Subordinated Debentures. Under the following circumstances, NCF may redeem the junior subordinated debentures before their stated maturity: . NCF may redeem the junior subordinated debentures, in whole or in part, at any time on or after . . NCF may redeem the junior subordinated debentures in whole, but not in part, within 90 days after certain occurrences at any time during the life of the trust. These occurrences include adverse tax or bank regulatory developments. See "Description of the Junior Subordinated Debentures--Conditional Right to Redeem Upon a Tax Event or Capital Treatment Event." You should assume that an early redemption may be attractive to NCF if it is able to obtain capital at a lower cost than it must pay on the junior subordinated debentures or if it is otherwise in its interest to redeem the junior subordinated debentures. If the junior subordinated debentures are redeemed, the trust must redeem trust preferred securities having an aggregate liquidation amount equal to the aggregate principal amount of junior subordinated debentures redeemed. The Trust Can Distribute the Junior Subordinated Debentures to You, Which May Have Adverse Tax Consequences for You and Which May Adversely Affect the Market Price of the Trust Preferred Securities. NCF may dissolve the trust at any time before maturity of the junior subordinated debentures on . As a result, and subject to the terms of the Trust Agreement, the trustees may distribute junior subordinated debentures to you. NCF cannot predict the market prices for the junior subordinated debentures that may be distributed in exchange for trust preferred securities upon liquidation of the trust or whether a trading market will develop. The trust preferred securities, or the junior subordinated debentures that you may receive if the trust is liquidated, may trade at a discount to the price that you paid to purchase 16 the trust preferred securities. Because you may receive junior subordinated debentures, your investment decision with regard to the trust preferred securities will also be an investment decision with regard to the junior subordinated debentures. You should carefully review all of the information contained in this prospectus regarding the junior subordinated debentures. Under current interpretations of United States federal income tax laws supporting classification of the trust as a grantor trust for tax purposes, a distribution of the junior subordinated debentures to you upon the dissolution of the trust would not be a taxable event to you. Nevertheless, if the trust is classified for United States federal income tax purposes as an association taxable as a corporation at the time it is dissolved, the distribution of the junior subordinated debentures would be a taxable event to you. In addition, if there is a change in law, a distribution of junior subordinated debentures upon the dissolution of the trust could be a taxable event to you. There is No Current Public Market for the Trust Preferred Securities and Their Market Price May Be Subject to Significant Fluctuations. There is currently no public market for the trust preferred securities. The trust preferred securities have been approved for listing on the New York Stock Exchange, and trading is expected to commence on or prior to delivery of the trust preferred securities. The underwriters of this offering have advised NCF that they intend to make a market in the trust preferred securities prior to the date the trust preferred securities begin trading on the New York Stock Exchange. However, the underwriters may discontinue market making at any time. There is no guarantee that an active or liquid trading market will develop for the trust preferred securities or that the quotation of the trust preferred securities will continue on the New York Stock Exchange. If an active trading market does not develop, or even if such a market does develop, there is no guarantee that the market price for the trust preferred securities will equal or exceed the price you pay for the trust preferred securities. Future trading prices of the trust preferred securities may be subject to significant fluctuations in response to prevailing interest rates, NCF's future operating results and financial condition, the market for similar securities and general economic and market conditions. The initial public offering price of the trust preferred securities has been set at the liquidation amount of the trust preferred securities, but the market price following the offering may be less than the offering price. The market price for the trust preferred securities, or the junior subordinated debentures that you may receive in a distribution, is also likely to decline during any period that NCF is deferring interest payments on the junior subordinated debentures. You Must Rely on the Property Trustee to Enforce Your Rights if There is an Event of Default Under the Indenture. You may not be able to directly enforce your rights against NCF if an event of default under the Indenture occurs. If an event of default under the Indenture occurs and is continuing, this event will also be an event of default under the Trust Agreement. In that case, you must rely on the enforcement by the property trustee, as holder of the junior subordinated debentures, of its rights against NCF. The holders of a majority in liquidation amount of the outstanding trust preferred securities will have the right to direct the property trustee to enforce its rights. If the property trustee does not enforce its rights following an event of default and a request by the record holders to do so, any record holder may, to the extent permitted by applicable law, take action directly against NCF to enforce the property trustee's rights. If an event of default occurs under the Trust Agreement that is attributable to NCF's failure to pay interest or principal on the junior subordinated debentures, or if NCF defaults under the Guarantee, you may proceed directly against NCF. You will not be able to exercise directly any other remedies available to the holders of the junior subordinated debentures unless the property trustee fails to do so. 17 As a Holder of Trust Preferred Securities, You Have Limited Voting Rights. Holders of the trust preferred securities have limited voting rights. Your voting rights pertain primarily to amendments to the Trust Agreement. In general, only NCF, as holder of the trust common securities, can replace or remove any of the trustees. However, if a debenture event of default occurs and is continuing, the holders of at least a majority in aggregate liquidation amount of the outstanding trust preferred securities may replace the property trustee and the Delaware trustee. The holders of the trust preferred securities do not have the right to appoint, remove or replace the administrative trustees. See "Description of the Trust Preferred Securities--Voting Rights; Amendment of the Trust Agreement" and "--Removal of Trustees." 18 USE OF PROCEEDS The trust will use all of the proceeds from the sale of the trust preferred securities and trust common securities to purchase the junior subordinated debentures. NCF anticipates that the net proceeds from the sale of the junior subordinated debentures will be approximately $ million after underwriting commissions and payment of offering expenses which NCF estimates will be $825,000. NCF expects to use the proceeds from the sale of the junior subordinated debentures for general corporate purposes, including capital investments in NCF's subsidiaries and to finance further expansion of existing product lines and potential acquisitions. CAPITALIZATION The following table sets forth the consolidated capitalization of NCF as of September 30, 2001, and as adjusted to give effect to the issuance of the trust preferred securities and the junior subordinated debentures. You should also read NCF's consolidated historical financial statements and related notes included elsewhere in this prospectus.
September 30, 2001 ------------------------ As Actual Adjusted ---------- ---------- (unaudited, in thousands) Total short-term debt................................. $1,308,387(1) $1,308,387 Federal Home Loan Bank advances....................... 2,243,509 2,243,509 Total long-term debt.................................. 39,375(2) 39,375 ---------- ---------- Total debt............................................ 3,591,271 3,591,271 Capital trust pass-through securities................. 42,642(3) Stockholders' Equity Preferred stock..................................... -- -- Common stock........................................ 408,064 408,064 Additional paid-in capital.......................... 1,726,548 1,726,548 Retained earnings................................... 247,153 247,153 Other comprehensive income (loss)................... 33,099 33,099 ---------- ---------- Total Stockholder's Equity........................ 2,414,864 2,414,864 ---------- ---------- Total Capitalization.............................. $6,048,777 ========== ==========
- -------- (1) Includes federal funds purchased, master notes that mature daily and securities sold under agreements to repurchase. (2) Represents debt of NCF that will rank senior to the junior subordinated debentures. (3) As of September 30, 2001, capital trust pass-through securities consisted entirely of the 1997 Trust Preferred Securities issued by the 1997 Trust on March 27, 1997, which will rank pari passu with the trust preferred securities issued in this offering. 19 ACCOUNTING AND REGULATORY TREATMENT The trust will be treated, for financial reporting purposes, as NCF's subsidiary. Accordingly, the accounts of the trust will be included in NCF's consolidated financial statements. The trust preferred securities will be reported (along with any other outstanding capital trust pass-through securities, including the 1997 Trust Preferred Securities) as a separate line item in NCF's consolidated balance sheet under the caption "Capital Trust Pass- Through Securities" or other similar caption. In addition, appropriate disclosures about the trust preferred securities, the Guarantee and the junior subordinated debentures will be included in the notes to NCF's consolidated financial statements. For financial reporting purposes, NCF will record distributions payable on the trust preferred securities as an expense in its consolidated statements of income. NCF's future reports filed under the Securities Exchange Act of 1934 will include a footnote to the audited consolidated financial statements stating that: (1) the trust is wholly owned; (2) the sole assets of the trust are the junior subordinated debentures, specifying the junior subordinated debentures' outstanding principal amount, interest rate and maturity date; and (3) NCF's obligations described in this prospectus, in the aggregate, constitute a full, irrevocable and unconditional guarantee on a junior subordinated basis of the obligations of the trust under the trust preferred securities. Under accounting rules of the SEC, NCF is not required to include separate financial statements of the trust in this prospectus because it will own all of the trust's voting securities, the trust has no independent operations and NCF guarantees the payments on the trust preferred securities to the extent described in this prospectus. 20 INFORMATION ABOUT NATIONAL COMMERCE FINANCIAL CORPORATION General NCF is a registered bank holding company whose principal business is providing banking and other financial services through its banking and non- banking subsidiaries. NCF's principal office is located at One Commerce Square, Memphis, Tennessee 38103, and its telephone number is (901) 523-3434. At September 30, 2001, NCF had consolidated assets of $18.5 billion, consolidated loans of $11.5 billion and consolidated deposits of $11.9 billion. NCF was incorporated in 1966 in the State of Tennessee as the holding company of NBC, a national banking association. NCF has experienced significant growth in the past several years, due in part to its acquisitions of other financial institutions. In July 2000, NCF merged with CCB in a tax-free share exchange in which each CCB shareholder received 2.45 shares of NCF common stock. CCB had $8.8 billion in consolidated assets at the time of the merger and provided a wide range of banking services through its primary subsidiary, Central Carolina Bank. In addition, in April 2000, NCF acquired the former Piedmont Bancorp, Inc., called "Piedmont" elsewhere in this prospectus, a bank holding company headquartered in Hillsborough, North Carolina that had $151 million in consolidated assets at the time of the merger. The acquisition, for an aggregate purchase price of approximately $32.3 million, was structured as a tax-free share exchange in which the Piedmont shareholders received .60499 NCF shares for each share of Piedmont stock. Also in 2000, TransPlatinum Service Corporation, a wholly owned subsidiary of NCF, acquired Prime Financial Services, Inc., and NCF acquired First Mercantile Trust Company and First Mercantile Capital Management, Inc., collectively called "First Mercantile" elsewhere in this prospectus. In this transaction, First Mercantile shareholders received 1.7 million shares of NCF common stock for all of the First Mercantile stock outstanding. The approximate cost of the acquisition was $32.9 million. In 1999, NCF acquired through mergers Southeastern Mortgage of Tennessee, Inc. and First Financial Corporation of Mt. Juliet, Tennessee, a bank holding company with consolidated assets of $277.7 million at the time of the acquisition. Under the terms of the agreement, FFC shareholders received 2.8502 shares of NCF common stock for each share of FFC held. The approximate cost of the acquisition, including the fair value of stock options assumed and transaction costs, was $77.1 million. During 1998, NCF completed mergers with four financial institutions with combined assets of $312.6 million in transactions accounted for as purchases. Approximately 3.1 million shares of NCF common stock were issued in connection with these mergers. The approximate cost of these acquisitions was $78.0 million. All of these transactions were accounted for as purchases and, accordingly, the results of operations of these acquired companies have been included in NCF's consolidated statements of income from the dates of acquisition. More recently, on August 13, 2001, NCF acquired First Vantage-Tennessee, a financial institution headquartered in Knoxville, Tennessee, that had 10 banking locations and $165 million in consolidated assets at the time of acquisition. In addition, on November 19, 2001, NCF completed its acquisition of SouthBanc Shares, Inc., whose primary operating subsidiary is SouthBank. SouthBank is a federally chartered savings bank headquartered in Anderson, South Carolina that was formerly known as Perpetual Bank, A Federal Savings Bank. SouthBanc Shares, Inc. merged with and into NCF and SouthBank merged with and into Central Carolina Bank immediately thereafter. The transaction was valued at approximately $126 million with total consideration paid 50% in NCF stock and 50% in cash. SouthBanc Shares, Inc. had $655 million in consolidated assets at September 30, 2001. 21 On August 13, 2001, NCF announced that it had signed a definitive agreement to purchase 37 bank branches and corresponding ATMs in North Carolina, South Carolina, Georgia and Virginia from First Union and Wachovia. The branches are to be divested as part of the merger of Wachovia Corporation and First Union Corporation in order to meet U.S. Department of Justice antitrust guidelines. Under the agreement, NCF will acquire bank properties and related furniture and fixtures, loans and deposits and will offer employment to branch personnel. The acquisition is subject to approval of appropriate regulatory authorities and is expected to close in the first quarter of 2002. As a legal entity separate and distinct from its bank and non-bank subsidiaries, NCF's principal sources of revenues are dividends and fees from its bank and non-bank subsidiaries. The subsidiaries that operate in the banking, insurance and securities business can pay dividends only if they are in compliance with the applicable regulatory requirements imposed on them by federal and state regulatory authorities. Banking Services NCF provides banking services primarily through Central Carolina Bank and NBC. Central Carolina Bank offers commercial and retail banking, savings and trust services through 232 offices located in North Carolina and South Carolina. In addition, it offers trust services through its subsidiaries located in Virginia and Florida. Central Carolina Bank provides a full range of financial products including demand and time deposits; secured and unsecured commercial and consumer loans; safe deposit boxes; trust services for corporations, employee benefit plans and individuals; and certain insurance and securities brokerage services. NBC offers commercial and retail banking, savings and trust services through 144 offices in Tennessee, Mississippi, Arkansas, Georgia, Virginia and West Virginia. Eighty-nine of these offices are located within supermarkets as part of NBC's in-store retail banking system. NBC provides the same full range of financial products as Central Carolina Bank. On August 13, 2001, NCF announced that it intends to merge Central Carolina Bank into NBC effective December 31, 2001, and thereafter to provide banking services predominately through a single national banking association. NCF believes that it will achieve additional efficiencies and cost savings in the compliance, regulatory and operations areas as a result of the merger. However, after the merger NCF will continue to operate under the NBC brand name in Tennessee, Georgia, Virginia, West Virginia, Mississippi and Arkansas and the Central Carolina Bank brand name in North and South Carolina. In addition to providing banking products through Central Carolina Bank and NBC, NCF owns a 49% interest in First Market Bank, FSB. A federal savings bank headquartered in Richmond, Virginia, First Market Bank operates six traditional branch offices and 18 in-store branches in Ukrop Supermarkets in the Richmond area, each of which provides traditional banking products and services. First Market Bank had $723.8 million in consolidated assets as of September 30, 2001. NCF also owns 100% of the capital stock of NBC Bank, FSB, a federally chartered bank headquartered in Memphis, Tennessee. It offers commercial and retail banking through two offices located in DeSoto County, Mississippi. Non-Bank Services In addition to traditional banking services, NCF provides non-banking financial services through several subsidiaries of NCF, Central Carolina Bank and NBC. 22 NCF provides financial services, including transaction processing, to the trucking and petroleum industries and bankcard services to merchants through its wholly owned subsidiary TransPlatinum Service Corporation. NCF also provides trust and investment management services to individuals, businesses, endowment funds, non-profit organizations, governmental bodies and other institutions through NBC and Central Carolina Bank, as well as through its wholly owned subsidiaries Commerce Capital Management, Inc. and First Mercantile and through Central Carolina Bank's wholly owned subsidiary Salem Trust Company. In addition, First Mercantile offers professional asset management and administration for retirement plans and investment management services for employee benefit plans through a nationwide network of brokers and agents. NCF offers institutional and retail securities brokerage, insurance, annuities and mutual fund products, as well as underwriting of government and corporate debt securities, through Central Carolina Bank's wholly owned securities broker/dealer subsidiary CCB Investment and Insurance Service Corporation and through NBC's 80% owned securities broker/dealer subsidiary NBC Capital Markets Group, Inc. In addition, NCF provides retail banking consulting services to other financial institutions through its wholly owned subsidiary National Commerce Bank Services, Inc. NCF offers life, property and casualty insurance and annuities in NBC's in-store retail banking system through its wholly owned subsidiary National Bank of Commerce Insurance Services, Inc. Competition Vigorous competition exists in all major geographic and product areas, bank and non-bank, in which NCF is presently engaged in business. NBC and Central Carolina Bank compete in the banking business with commercial banks, diversified financial institutions such as thrift institutions, money market and other mutual funds, securities firms, mortgage companies, leasing companies, insurance companies, finance companies and a variety of financial services and advisory companies. Moreover, competition is not limited to NCF's immediate geographic markets, as an increased variety of financial services is being offered on the Internet. Larger competing financial institutions may be able to offer services and products that are not cost-efficient for NCF's subsidiary banks to offer. In addition, larger competing financial institutions have access to greater financial resources than NCF's subsidiary banks. NCF competes in its non-bank businesses with securities firms, trust companies, other commercial banks, transaction processing companies, investment advisers and other firms engaged in retirement plan consulting/administration. Some of these companies are much larger, more experienced, have the ability to provide broader services and/or have far greater capital and other resources than NCF. In the fourth quarter of 1999, President Clinton signed into law the Gramm- Leach-Bliley Act, or "GLBA," which permits qualifying bank holding companies to become financial holding companies and, by doing so, to affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or complementary thereto. Activities cited by the GLBA as being "financial in nature" include: securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Federal Reserve Board has determined to be closely related to banking. A bank holding company may become a financial holding company if each of its subsidiary banks (i) is well-capitalized under the prompt corrective actions provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991, (ii) is well-managed and (iii) has at least a satisfactory rating under the Community Reinvestment Act. See "Information about National Commerce Financial Corporation--Government Regulation and Supervision" for further discussion of the Federal Deposit Insurance Corporation Improvement Act of 1991 and the Community Reinvestment Act. 23 Subject to certain limitations on investment, the GLBA also authorizes a national bank or its financial subsidiary to engage in activities that are financial in nature, other than insurance underwriting (except through an affiliate that is an insurance company), insurance company portfolio investment, real estate development and real estate investment, so long as the bank is well-capitalized, well-managed and has at least a satisfactory Community Reinvestment Act rating. Subsidiary banks of a financial holding company or national banks with financial subsidiaries must continue to be well- capitalized and well-managed in order to continue to engage in activities that are financial in nature. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has at least a satisfactory Community Reinvestment Act rating. The GLBA permits insurance companies and securities companies that meet certain criteria to become financial holding companies and thereby acquire banks and bank holding companies, possibly increasing competition. The GLBA will continue to change the operating environment of NCF and its subsidiaries in substantial and unpredictable ways. NCF cannot accurately predict the ultimate effect that this legislation, or implementing regulations, will have upon the financial condition or results of operations of NCF or any of its subsidiaries. Government Regulation and Supervision The following discussion sets forth certain of the elements of the regulatory framework applicable to bank holding companies and their subsidiaries and provides certain specific information relevant to NCF and its subsidiaries. This regulatory framework is intended primarily for the protection of depositors and the federal deposit insurance funds and not for the protection of securityholders. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to those provisions. A change in the statutes, regulations or regulatory policies applicable to NCF or its subsidiaries may have a material adverse effect on NCF's business. General. As a bank holding company, NCF is subject to regulation under the Bank Holding Company Act of 1956, as amended, referred to in this prospectus as the "BHCA." NCF is also subject to inspection, examination and supervision by the Federal Reserve. Under the BHCA, bank holding companies generally may not acquire the ownership or control of more than 5% of the voting shares or substantially all the assets of any company, including a bank, without the Federal Reserve's prior approval. Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act, as amended, limit borrowings by NCF and its non-bank subsidiaries from affiliate banks. These requirements also limit various other transactions between NCF and its non-bank subsidiaries, on the one hand, and NCF's affiliate banks, on the other. For example, Section 23A limits to no more than 10% of its total capital the aggregate outstanding amount of any bank's loans and other "covered transactions" with any particular non-bank affiliate, and limits to no more than 20% of its total capital the aggregate outstanding amount of any bank's covered transactions with all of its non-bank affiliates. Section 23A also generally requires that a bank's loans to its non-bank affiliates be secured, and Section 23B generally requires that a bank's transactions with its non-bank affiliates be on arms' length terms. NBC is a national banking association and, as such, is subject to regulation primarily by the OCC and, secondarily, by the FDIC and the Federal Reserve. Central Carolina Bank is a state bank chartered by the State of North Carolina and is subject to regulation primarily by the FDIC, and, in addition, is regulated and examined by the North Carolina Banking Commission and Commissioner of Banks. 24 Liability for Bank Subsidiaries. Under the Federal Reserve policy, NCF, as a bank holding company, is expected to act as a source of financial and managerial strength to each of its subsidiary banks and to maintain resources adequate to support each such subsidiary bank. This support may be required at times when NCF may not have the resources to provide it. In addition, Section 55 of the National Bank Act, as amended, permits the OCC to order the pro rata assessment of shareholders of a national bank whose capital has become impaired. If a shareholder fails within three months to pay such assessment, the OCC can order the sale of the shareholder's stock to cover the deficiency. NCF, as the sole shareholder of its subsidiary banks, is subject to such provisions. In the event of NCF's bankruptcy, any commitment by NCF to a federal bank regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to priority of payment. Any depository institution insured by the FDIC can be held liable for any loss incurred, or reasonably expected to be incurred, by the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservator or receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that a "default" is likely to occur in the absence of regulatory assistance. All of NCF's subsidiary banks are FDIC-insured institutions. Also, in the event that such a default occurred with respect to any of NCF's subsidiary banks, any capital loans from NCF to such bank would be subordinate in right of payment to payment of the bank's depositors and certain of the bank's other obligations. Capital Requirements. NCF is subject to risk-based capital requirements and guidelines imposed by the Federal Reserve. NCF's subsidiary banks are subject to similar capital requirements and guidelines imposed by the Federal Reserve, the OTS, the OCC and the FDIC, as applicable. For this purpose, a depository institution's or holding company's assets and certain specified off-balance sheet commitments are assigned to four risk categories, each weighted differently based on the level of credit risk that is ascribed to such assets or commitments. In addition, risk weighted assets are adjusted for low-level recourse and market risk equivalent assets. A depository institution's or holding company's capital, in turn, is divided into three tiers: . core ("Tier 1") capital, which includes common equity, non-cumulative perpetual preferred stock and a limited amount of cumulative perpetual preferred stock, including trust preferred securities, and related surplus (excluding auction rate issues), and minority interests in equity accounts of consolidated subsidiaries, less goodwill, certain identifiable intangible assets and certain other assets; . supplementary ("Tier 2") capital, which includes, among other items, perpetual preferred stock not meeting the Tier 1 definition, mandatory convertible securities, subordinated debt and allowances for loan and lease losses, subject to certain limitations, less certain required deductions; and . market risk ("Tier 3") capital, which includes qualifying unsecured subordinated debt. NCF, like other bank holding companies, currently is required to maintain Tier 1 and total capital (the sum of Tier 1, Tier 2 and Tier 3 capital) equal to at least 4% and 8% of its total risk-weighted assets, respectively. At December 31, 2000 and September 30, 2001, NCF met both requirements. Tier 1 and total capital were equal to 9.52% and 10.79% of NCF's total risk-weighted assets, respectively, at December 31, 2000 and 9.72% and 10.97%, respectively, at September 30, 2001. The proceeds of this offering of trust preferred securities will provide additional Tier I capital to NCF. The Federal Reserve, the FDIC, the OTS and the OCC have adopted rules to incorporate market and interest rate risk components into their risk-based capital standards. Amendments to the 25 risk-based capital requirements, incorporating market risk, became effective January 1, 1998. Under the new market risk requirements, capital is allocated to support the amount of market risk related to a financial institution's ongoing trading activities. The Federal Reserve also requires bank holding companies to maintain a minimum "leverage ratio" (Tier 1 capital to adjusted total assets) of 3%, if the holding company has the highest regulatory rating or has implemented the risk-based capital measures for market risk, or 4% if the holding company does not meet these requirements. At December 31, 2000, NCF's leverage ratio was 7.15% and at September 30, 2001, it was 7.59%. The Federal Reserve may set capital requirements higher than the minimums noted above for holding companies if circumstances warrant. For example, holding companies experiencing or anticipating significant growth may be expected to maintain capital ratios including tangible capital positions, well above the minimum levels. The Federal Reserve has not, however, imposed any such special capital requirement on NCF. Each of the subsidiary banks is subject to similar risk-based and leverage capital requirements adopted by their respective primary regulators. Failure to meet capital requirements could subject a bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business, which are described below. Each of the bank subsidiaries was in compliance with the applicable minimum capital requirements as of December 31, 2000 and September 30, 2001. FDICIA. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), among other things, identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) and requires the respective federal regulatory agencies to implement systems for "prompt corrective action" for insured depository institutions that do not meet minimum capital requirements within such categories. NCF's subsidiary banks are subject to such regulation. The FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Failure to meet the capital guidelines could also subject a depository institution to capital raising requirements. In the event a depository institution's capital deteriorates to the "undercapitalized" category or below, the FDICIA and OTS regulations prescribe an increasing amount of regulatory intervention, including the adoption by the institution of a capital restoration plan and a guarantee of the plan by its parent holding company and the placement of a hold on increases in assets, number of branches and lines of business. NCF's liability as the parent holding company under any such guarantee is limited to the lesser of 5% of the depository institution's assets at the time it became "undercapitalized" or the amount needed to comply with the plan. Furthermore, in the event of NCF's bankruptcy, such guarantee would take priority over NCF's general unsecured creditors. In addition, FDICIA requires the various regulatory agencies to prescribe certain non-capital standards for safety and soundness relating generally to operations and management, asset quality and executive compensation and permits regulatory action against a financial institution that does not meet such standards. As of December 31, 2000 and September 30, 2001, each of NCF's subsidiary banks was "well capitalized," based on the "prompt corrective action" ratios and guidelines described above. A bank's capital category, however, is determined solely for the purpose of applying the "prompt corrective action" regulations and the capital category may not constitute an accurate representation of the bank's overall financial condition or prospects. Dividend Restrictions. Various federal and state statutory provisions limit the amount of dividends NCF's affiliate banks can pay to NCF without regulatory approval. Dividend payments by national banks, such as NBC, are limited to the lesser of (i) the level of undivided profits and (ii) absent regulatory approval, an amount not in excess of net income for the current year combined with 26 retained net income for the preceding two years. North Carolina State banks, such as Central Carolina Bank, can pay dividends out of the undivided profits. The OTS regulation governing dividends by savings associations generally permits well-capitalized institutions, with certain exceptions, to pay dividends without regulatory notice or approval in an amount not in excess of net income for the current year combined with retained net income for the preceding two years. In addition, federal bank regulatory authorities have authority to prohibit NCF's bank subsidiaries from engaging in an unsafe or unsound practice in conducting their business. The payment of dividends, depending upon the financial condition of the bank in question, could be deemed to constitute such an unsafe or unsound practice. The ability of NCF's bank subsidiaries to pay dividends in the future is currently, and could be further, influenced by bank regulatory policies and capital guidelines. For example, under the FDICIA, each of NCF's bank subsidiaries may not make capital distributions, including the payment of dividends, or pay any management fees to NCF if NCF is undercapitalized or if such payment would cause it to become undercapitalized. See "--FDICIA." Deposit Insurance Assessments. The deposits of each of NCF's bank subsidiaries are insured up to regulatory limits by the FDIC and are subject to the FDIC's deposit insurance assessments to maintain the Bank Insurance Fund ("BIF") and Savings Association Insurance Fund ("SAIF"). The FDIC has adopted regulations establishing a permanent risk-related deposit insurance assessment system. Each financial institution is assigned to one of three capital groups-- well capitalized, adequately capitalized or undercapitalized--and further assigned to one of three subgroups within a capital group, on the basis of supervisory evaluations by the institution's primary federal and, if applicable, other information relevant to the institution's financial condition and the risk posed to the applicable insurance fund. The assessment rate applicable to NCF's bank subsidiaries in the future will depend in part upon the risk assessment classification assigned to each bank by the FDIC and in part on the BIF assessment schedule adopted by the FDIC. Institutions are prohibited from disclosing the risk classification to which they have been assigned. Depositor Preference Statute. Federal legislation has been enacted providing that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such institution, including federal funds and letters of credit, in the "liquidation or other resolution" of the institution by any receiver. Brokered Deposits. Under FDIC regulations, no FDIC-insured depository institution may accept brokered deposits unless the institution (i) is well capitalized or (ii) is adequately capitalized and receives a waiver from the FDIC. In addition, these regulations prohibit any depository institution that is not well capitalized from (y) paying an interest rate on deposits in excess of 75 basis points over certain prevailing market rates or (z) offering "pass through" deposit insurance on certain employee benefit plan accounts unless it provides certain notice to affected depositors. Interstate Banking. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, referred to as "Riegle-Neal" in this prospectus, subject to certain concentration limits and other requirements: . bank holding companies such as NCF are permitted to acquire banks and bank holding companies located in any state; . any bank that is a subsidiary of a bank holding company is permitted to receive deposits, renew time deposits, close loans, service loans and receive loan payments as an agent for any other bank subsidiary of that holding company; and 27 . banks are permitted to acquire branch offices outside their home states by merging with out-of-state banks, purchasing branches in other states, and establishing de novo branch offices in other states. However, in the case of any such purchase or opening of individual branches, the host state must have adopted legislation "opting in" to those provisions of Riegle-Neal and, in the case of a merger with a bank located in another state, the host state must not have adopted legislation "opting out" of that provision of Riegle-Neal. NCF may use Riegle-Neal to acquire banks in additional states and to consolidate its bank subsidiaries under a smaller number of separate charters. The authorization of interstate branching is likely to continue to encourage branching and merger activity and enhance competition among financial institutions. NCF's non-banking subsidiaries are regulated and supervised by applicable bank regulatory agencies, as well as by various other regulatory bodies. For example, Commerce Finance Company is a consumer finance company organized under the laws of the State of Tennessee. It is primarily regulated by the Consumer Finance Division of the Tennessee Department of Financial Institutions. The Federal Trade Commission has primary federal regulatory authority. Commerce Capital Management, Inc. is registered with the Securities and Exchange Commission, referred to in this prospectus as the "SEC," and is an investment adviser pursuant to the Investment Advisers Act of 1940, as amended. NBC Capital Markets Group, Inc. is registered as a broker-dealer with the SEC and the National Association of Securities Dealers, Inc. It is also a member of the Security Investor Protection Corporation. All regulatory agencies require periodic audits and regularly scheduled reports of financial information. Community Reinvestment Act. NCF's subsidiary banks are subject to the Community Reinvestment Act, sometimes referred to in this prospectus as the "CRA." The CRA and the regulations issued under the CRA are intended to encourage banks to help meet the credit needs of their service area, including low and moderate income neighborhoods, consistent with the safe and sound operations of the banks. These regulations also provide for regulatory assessment of a bank's record in meeting the needs of its service area when considering applications to establish branches, merger applications and applications to acquire the assets and assume the liabilities of another bank. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 requires federal banking agencies to make public a rating of a bank's performance under the CRA. In the case of a bank holding company, the CRA performance records of the banks involved in the transaction are reviewed by federal banking agencies in connection with the filing of an application to acquire ownership or control of shares or assets of a bank or thrift or to merge with any other bank holding company. An unsatisfactory record can substantially delay or block the transaction. Each of NCF's banking subsidiaries has received a satisfactory CRA rating from federal banking agencies. Fiscal and Monetary Policy Banking is a business that depends on interest rate differentials. In general, the difference between the interest paid by a bank on its deposits and its other borrowings, and the interest received by a bank on its loan and securities holdings, constitutes the major portion of its earnings. Thus, the earnings and growth of NCF and its subsidiary banks are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The Federal Reserve regulates the supply of money through various means, including open market dealings in United States government securities, setting the discount rate at which banks may borrow from the Federal Reserve, and setting the reserve requirements on deposits. The nature and timing of any changes in such policies and their effect on NCF and its subsidiaries cannot be predicted. 28 Employee Relations As of September 30, 2001, NCF and its subsidiaries employed approximately 4,950 full-time equivalent employees, including approximately 200 employees of First Market Bank. NCF and its subsidiaries are not parties to any collective bargaining agreements and consider their relations with their employees to be good. Properties NCF's principal executive offices are located in leased space at One Commerce Square, Memphis, Tennessee. NCF's Customer Service Center is a leased building located in Durham, North Carolina. NCF's subsidiary banks operate approximately 390 banking offices, approximately 300 of which are either leased buildings or leased property on which the subsidiary banks have constructed banking offices. The subsidiary banks and First Market Bank have 449 ATM locations in operation. Legal Proceedings NCF and certain of its subsidiary banks have been named as defendants in lawsuits that have arisen in the normal course of business. Although NCF cannot determine the amount of any ultimate liability with respect to such matters, in the opinion of management and counsel, none of the lawsuits, individually or in the aggregate, will have a material effect on NCF's financial position or results of operations. 29 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF NCF Set forth below are selected consolidated historical financial data for NCF for the five years ended December 31, 2000 and the nine months ended September 30, 2001 and September 30, 2000. The selected consolidated historical financial data of NCF for and as of the end of each of the periods indicated in the five- year period ended December 31, 2000 have been derived from the audited consolidated financial statements of NCF. The selected historical consolidated financial data for the nine-month periods ended September 30, 2001 and September 30, 2000 and as of September 30, 2001 and September 30, 2000 have been derived from the unaudited consolidated historical financial statements of NCF, which reflect, in the opinion of management of NCF, all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the financial data for such periods. The results for these interim periods are not necessarily indicative of the results for the full year. On July 5, 2000, NCF consummated a merger of equals transaction with CCB which was accounted for as a purchase. The merger with CCB had a material effect on NCF's consolidated financial data as of and for the year ended December 31, 2000, and for the interim periods. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of NCF" and "Unaudited Pro Forma Condensed Combined Financial Statements."
Nine Months Ended September 30, Years Ended December 31, ----------------------- ------------------------------------------------------ 2001 2000 2000 1999 1998 1997 1996 ----------- ---------- ---------- --------- --------- --------- --------- (in thousands) Summary of Operations(1) Interest income......... $ 935,603 603,903 937,976 455,974 379,730 336,993 286,567 Interest expense........ 454,858 331,170 513,403 226,098 189,652 174,172 151,101 ----------- ---------- ---------- --------- --------- --------- --------- Net interest income..... 480,745 272,733 424,573 229,876 190,078 162,821 135,466 Provision for loan losses................. 22,307 11,139 16,456 16,921 10,710 17,013 14,134 ----------- ---------- ---------- --------- --------- --------- --------- Net interest income after provision........ 458,438 261,594 408,117 212,955 179,368 145,808 121,332 Other income(2)......... 232,227 120,245 189,491 87,227 82,784 82,405 69,635 Losses (gains) on interest rate swaps.... 672 20,006 77,227 (1,499) -- -- -- Merger-related expense.. 3,122 44,765 70,657 -- -- -- -- Other expenses(3)....... 422,154 226,077 369,814 161,841 142,716 123,460 103,875 ----------- ---------- ---------- --------- --------- --------- --------- Income before income taxes.................. 264,717 90,991 79,910 139,840 119,436 104,753 87,092 Income taxes............ 99,281 37,269 34,600 47,208 40,569 34,973 29,579 ----------- ---------- ---------- --------- --------- --------- --------- Net income.............. $ 165,436 53,722 45,310 92,632 78,867 69,780 57,513 =========== ========== ========== ========= ========= ========= ========= Average Balances Assets.................. $17,696,543 10,666,900 12,401,982 6,358,828 5,383,017 4,404,852 3,812,114 Loans................... 11,183,586 6,252,886 7,427,320 3,489,625 3,040,662 2,513,327 2,130,810 Earning assets.......... 15,471,233 9,569,993 11,033,301 5,905,404 4,983,531 4,148,590 3,611,580 Deposits................ 11,884,268 6,919,469 8,158,282 4,120,703 3,675,427 2,954,813 2,652,559 Interest-bearing liabilities............ 13,434,871 8,411,882 9,658,886 5,195,698 4,363,458 3,633,713 3,160,897 Stockholders' equity.... 2,410,397 1,227,228 1,522,217 542,259 419,437 333,528 295,826 Selected Period End Balances Assets.................. $18,481,554 17,665,793 17,745,792 6,913,786 5,811,054 4,692,011 4,200,409 Loans................... 11,516,651 10,866,301 11,008,419 3,985,789 3,197,673 2,608,967 2,347,973 Allowance for loan losses................. 150,487 143,510 143,614 59,597 49,122 43,297 35,514 Deposits................ 11,945,208 11,703,489 11,979,631 4,495,900 3,947,275 3,251,242 2,976,430 Stockholders' equity.... 2,414,864 2,389,157 2,364,838 649,241 408,549 352,148 313,329 Ratios Return on average assets................. 1.25% .67 .37 1.46 1.47 1.58 1.51 Return on average equity................. 9.18 5.85 2.98 17.08 18.80 20.92 19.44 Net interest margin, taxable equivalent..... 4.34 4.03 4.06 4.12 4.20 4.04 3.89 Net loan losses to average loans.......... .20 .20 .20 .24 .26 .39 .35 Average equity to average assets......... 13.62 11.51 12.27 8.53 7.79 7.57 7.76 Tier 1 capital.......... 9.72 9.93 9.52 12.15 11.79 12.61 11.05 Total capital........... 10.97 11.13 10.79 13.40 13.04 13.86 12.30 Earnings to combined fixed charges and preference distributions(4) Including interest on deposits.............. 1.57x 1.26x 1.15x 1.59x 1.59x 1.57x 1.57x Excluding interest on deposits.............. 3.22x 1.80x 1.48x 2.70x 2.82x 2.68x 2.89x Pro forma earnings to fixed charges(4)(5) Including interest on deposits.............. Excluding interest on deposits..............
(footnotes next page) 30 - -------- (1) The financial results of the acquired companies are included in the historical financial statements for all periods subsequent to the business combinations, including NCF's merger-of-equals with CCB on July 5, 2000. For more information regarding other business combinations, see "Information about National Commerce Financial Corporation." (2) Other income in 1997 includes $8 million of gain on the sale of credit card receivables and in 1996 includes $5.9 million of gain on the sales of certain assets. (3) Other expenses include the FDIC's levy of a $1.3 million special assessment to recapitalize the SAIF in 1996. (4) For purposes of calculating the ratio of earnings to combined fixed charges and preference distributions, earnings consist of earnings before income taxes plus interest and one-half of rental expense (which is deemed representative of the interest factor). Combined fixed charges and preference distributions, excluding interest on deposits, consist of interest on indebtedness, distributions in respect of trust preferred securities and one-half of rental expense (which is deemed representative of the interest factor). Fixed charges, including interest on deposits, consists of the foregoing items plus interest on deposits. (5) Pro forma ratio of earnings to combined fixed charges and preference distributions includes distributions on the trust preferred securities computed as if the trust preferred securities had been issued at the beginning of each period presented. 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF NCF The following is a discussion and analysis by NCF management of NCF's consolidated financial condition and results of operations as of and for the nine months ended September 30, 2001 and September 30, 2000, and as of and for the years ended December 31, 2000, 1999 and 1998. The discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated audited and unaudited financial statements and accompanying notes appearing elsewhere in this prospectus and "Selected Historical Consolidated Financial Data of NCF." Results of Operations The tragic events of September 11, 2001 further eroded an already weakened economy. The short- and long-term impact of reduced consumer confidence, corporate job reductions and increased costs of security cannot be currently assessed but are expected to translate into decreased spending and negative gross domestic product growth for the rest of 2001 and possibly into 2002. Additionally, the U.S. economic downturn is expected to negatively impact the international economy. All of these factors may have a negative effect on NCF's earnings and asset quality. However, management believes that the long-term economic outlook may be improving. For example, the Federal Reserve cut the target federal funds rate by an additional 50 basis points in both October and November 2001, bringing that rate to its lowest level in 40 years. The Federal Reserve may further cut short-term interest rates to combat recession fears and slowdowns in the economy. U.S. Government spending is starting to rise through aid to New York City, bail-outs of the aviation industry and build-up of U.S. military forces. Additionally, a more general economic stimulus package is currently being negotiated between the Bush Administration and Congress. United States economists have declared that the United States economy is currently in recession. The recession has adversely affected employment and other significant elements of the economy that drive productivity and the financial strength of businesses. These current conditions could have a material adverse affect on loan and deposit growth, loan loss reserves and, as a result, NCF's financial condition and results of operations in future periods. Results of operations for the nine months ended September 30, 2001 as compared to the nine months ended September 30, 2000 are impacted significantly by the acquisitions of Piedmont in April 2000; CCB in July 2000; and First Mercantile in July 2000. Additionally, NCF acquired First Vantage-Tennessee, a financial institution located in Knoxville, Tennessee with $165 million in total consolidated assets, in August 2001. These companies are referred to collectively in the remainder of this discussion as the "acquired companies." Each of these acquisitions was accounted for as a purchase. Consequently, NCF's 2001 and 2000 results include the acquired companies' operating results only from the dates of acquisition. In addition, significant amounts of amortization of goodwill and core deposit intangibles have been recognized since the acquisition dates. Net Income Net income for the nine months ended September 30, 2001 totaled $165.4 million, or diluted earnings per share of $.80 compared to $53.7 million or diluted earnings per share of $.38 for the nine months ended September 30, 2000. Annualized returns on average assets and average stockholders' equity were 1.25% and 9.18%, respectively, for the 2001 period compared to .67% and 5.85% for the 2000 period. A substantial portion of the increase in net income is attributable to earnings generated by the acquired companies. Net income for the year ended December 31, 2000 totaled $45.3 million compared to $92.6 million for the year ended December 31, 1999, or $.28 per diluted share for the year ended December 31, 2000 versus $.87 for the year ended December 31, 1999. Net income per diluted share was $.77 for the year ended December 31, 1998. Returns on average assets and average stockholders' equity for the year ended December 31, 2000 were .37% and 2.98%, respectively, compared to 1.46% and 17.08% for the year ended December 31, 1999. These ratios were 1.47% 32 and 18.80% for the year ended December 31, 1998. NCF's financial results for the year ended December 31, 2000 were significantly impacted by two non- recurring items, merger and conversion-related expenses and losses on interest rate swaps. Excluding these items, NCF's diluted earnings per share for the year ended December 31, 2000 totaled $.92 compared to $.86 for the year ended December 31, 1999 and returns on average assets and average stockholders' equity for the year ended December 31, 2000 were 1.18% and 9.59%, respectively, compared to 1.44% and 16.92%, respectively for the year ended December 31, 1999. The following table compares the contributions to net income per diluted share by income statement caption for the nine months ended September 30, 2001 and 2000, respectively, the years ended December 31, 2000, 1999 and 1998, respectively, and the respective changes from period to period and year to year. Components of Diluted Income Per Share
Increase Nine Months (Decrease) Ended from Prior Year Ended Increase (Decrease) September 30, Period December 31, from Prior Year -------------- ---------- -------------- ------------------- 2001 2000 2000 1999 1998 2000/1999 1999/1998 ------- ------ ---- ---- ---- --------- --------- Interest income......... $ 4.50 4.22 .28 5.89 4.27 3.72 1.62 .55 Interest expense........ 2.19 2.32 (.13) 3.22 2.12 1.86 1.10 .26 ------- ------ ---- ---- ---- ---- ---- --- Net interest income..... 2.31 1.90 .41 2.67 2.15 1.86 .52 .29 Provision for loan losses................. .11 .08 .03 .10 .16 .11 (.06) .05 ------- ------ ---- ---- ---- ---- ---- --- Net interest income after provision........ 2.20 1.82 .38 2.57 1.99 1.75 .58 .24 Other income............ 1.12 .84 .28 1.19 .82 .81 .37 .01 Other expenses(1)....... 2.05 2.03 .02 3.26 1.50 1.39 1.76 .11 ------- ------ ---- ---- ---- ---- ---- --- Income before income taxes.................. 1.27 .63 .64 .50 1.31 1.17 (.81) .14 Income taxes............ .47 .25 .22 .22 .44 .40 (.22) .04 ------- ------ ---- ---- ---- ---- ---- --- Net income(1)........... $ .80 .38 .42 .28 .87 .77 (.59) .10 ======= ====== ==== ==== ==== ==== ==== ===
- -------- (1) Other expenses in 2000 include merger-related and other conversion expense totaling $.44 ($.32 after-tax); losses on interest rate swaps totaling $.48 ($.32 after-tax); goodwill amortization totaling $.17 ($.17 after-tax); and core deposit intangibles amortization representing the premium paid on acquired deposits totaling $.22 ($.13 after-tax). These amounts were not significant in 1999 or 1998. Other expenses for the nine months ended September 30, 2001 include merger-related and other conversion expense totaling $.02 ($.01 after-tax), goodwill amortization totaling $.17 ($.17 after-tax), and core deposit intangibles amortization totaling $.21 ($.12 after-tax). Other expenses for the nine months ended September 30, 2000 include merger-related and other conversion expense totaling $.31 ($.24 after-tax); losses on interest rate swaps totaling $.14 ($.09 after-tax); goodwill amortization totaling $.10 ($.10 after-tax); and core deposit intangibles amortization totaling $.13 ($.08 after-tax). Operating Income Over the past three years, NCF's results of operations have been significantly impacted by the non-recurring items described below: . As a result of its acquisitions of First Vantage and SouthBanc and the pending First Union and Wachovia branch acquisitions, NCF incurred $3.1 million of merger-related expenses for the nine months ended September 30, 2001. These expenses primarily included costs associated with system conversions. The after-tax effect of the merger-related expenses was $1.9 million. . In 2000, NCF recognized $77.2 million ($50.2 million after-tax) of unrealized losses on interest rate swaps which did not qualify for hedge accounting under SFAS No. 133. NCF entered into the swaps in the first half of the year during a rising interest rate environment. 33 By entering into these contracts, NCF reduced its interest rate sensitivity to wholesale funding. When the rate environment changed in the latter half of 2000, NCF incurred losses on the swaps which were recognized as a charge to earnings. The swaps were terminated in the first quarter of 2001. In 1999, NCF recognized $1.5 million ($.9 million after-tax) of unrealized gains on similar interest rate swap contracts. These contracts were called in the first quarter of 2000. . In connection with its merger with CCB and its acquisitions of Piedmont and First Mercantile in 2000, NCF incurred $70.7 million of merger- related expense. This expense included severance and other employee benefit costs, excess facilities costs and system conversion costs. The after-tax effect of the merger-related expense and other conversion expenses was $50.5 million for the year ended December 31, 2000. Net Interest Income Net interest income is one of the major determining factors in a financial institution's performance, as it is generally the principal source of bank earnings. Net interest income is impacted by the volume, yield/cost and relative mix of both earning assets and interest-bearing and non-interest- bearing sources of funds. The difference between earning asset yields (with a taxable equivalent adjustment made to provide comparability between tax-exempt and taxable income) and the average rate paid for interest-bearing funds is measured by the interest rate spread and net interest margin. Average earning assets for the first nine months of 2001 increased by $5.9 billion compared to first nine months of 2000. The increase was primarily attributable to the acquired companies. The net interest margin increased 31 basis points to 4.34% for the nine months ended September 30, 2001 compared to 4.03% for the nine months ended September 30, 2000 and the interest rate spread increased to 3.74% for the first nine months of 2001 compared to 3.39% in the first nine months of 2000. The increase in the net interest margin is primarily attributable to the declining interest rate environment and NCF's ability to lower its cost of interest bearing liabilities faster than its yield on earning assets declines. Average Balances and Net Interest Income Analyses on a taxable equivalent basis for each of the nine month periods are included in the following table. 34 Average Balances and Net Interest Income Analysis (Taxable Equivalent Basis--Dollars in Thousands) (1)
Nine Months Ended Nine Months Ended September 30, 2001 September 30, 2000 ---------------------------- --------------------------- Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate ----------- -------- ------- ---------- -------- ------- Earning assets: Loans(2)................ $11,183,586 729,487 8.72% 6,252,886 440,373 9.40 U.S. Treasury and agency obligations(3)......... 2,939,998 157,940 7.17 2,234,642 119,461 7.13 States and political subdivision obligations............ 169,463 9,275 7.35 148,785 9,024 8.09 Equity securities and other securities(3).... 1,022,784 54,879 7.15 708,240 40,809 7.68 Trading account securities............. 59,529 2,313 5.18 35,074 1,684 6.40 Federal funds sold and other short-term investments............ 68,398 2,609 5.10 166,582 8,075 6.47 Time deposits in other banks.................. 27,475 1,010 4.92 23,784 910 5.11 ----------- -------- ---- ---------- ------- ---- Total earning assets... 15,471,233 957,513 8.27 9,569,993 620,336 8.65 -------- ---- ------- ---- Non-earning assets: Cash due from banks..... 391,440 -- -- 252,282 -- -- Premises and equipment.. 203,873 -- -- 97,925 -- -- Goodwill................ 919,791 -- -- 378,905 -- -- Core deposit premium.... 267,846 -- -- 118,940 -- -- All other assets, net... 442,360 -- -- 248,855 -- -- ----------- ---------- Total assets........... $17,696,543 10,666,900 =========== ========== Interest-bearing liabilities: Savings and time deposits............... $10,485,919 346,223 4.41% 6,144,315 228,283 4.96 Short-term borrowed funds.................. 1,070,108 34,011 4.34 1,160,313 51,728 5.97 FHLB advances........... 1,839,466 72,690 5.28 1,090,271 50,327 6.17 Long-term debt.......... 39,378 1,934 6.58 16,983 832 6.58 ----------- -------- ---- ---------- ------- ---- Total interest-bearing liabilities........... 13,434,871 454,858 4.53 8,411,882 331,170 5.26 -------- ---- ------- ---- Other liabilities and stockholders' equity: Demand deposits......... 1,398,349 -- -- 775,154 -- -- Other liabilities....... 407,913 -- -- 202,722 -- -- Capital trust pass- through securities..... 45,013 -- -- 49,914 -- -- Stockholders' equity.... 2,410,397 -- -- 1,227,228 -- -- ----------- ---------- Total liabilities and stockholders' equity.. $17,696,543 -- -- 10,666,900 -- -- =========== ========== Net interest income and net interest margin(4).............. $502,655 4.34% 289,166 4.03 ======== ==== ======= ==== Interest rate spread(5).............. 3.74% 3.39 ==== ====
- -------- (1) The taxable equivalent basis is computed by grossing up tax-exempt interest income as if it were fully taxable using 35% federal and applicable state tax rates in 2001 and 2000. (2) The average loan balances include non-accruing loans for which interest income is not currently recognized due to concerns about collectibility. Loan fees of $15,783,000 and $9,229,000 for the nine months ended September 30, 2001 and September 30, 2000, respectively, are included in interest income. (3) The average balances for debt and equity securities exclude the effect of their mark-to-market adjustment, if any. (4) Net interest margin is computed by dividing net interest income by total earning assets. (5) Interest rate spread equals the earning asset yield minus the interest- bearing liability rate. The following table presents Average Balances and a Net Interest Income Analysis on a taxable equivalent basis for each of the years in the three-year period ended December 31, 2000. 35 Average Balances and Net Interest Income Analysis
Years Ended December 31, ---------------------------------------------------------------------------------- 2000 1999 1998 ---------------------------- -------------------------- -------------------------- Interest Average Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate ----------- -------- ------- --------- -------- ------- --------- -------- ------- (taxable equivalent basis--dollars in thousands)(1) EARNING ASSETS: Loans(2)................ $ 7,427,320 698,614 9.41% 3,489,625 306,213 8.77 3,040,662 277,141 9.11 U.S. Treasury and U.S. Government agencies and corporations(3)......... 2,488,612 177,307 7.12 1,510,661 100,628 6.66 1,445,551 96,957 6.71 States and political subdivisions............ 158,693 12,815 8.08 137,523 11,521 8.38 159,873 13,214 8.27 Equity and other securities(3)........... 754,632 59,581 7.90 637,899 43,064 6.75 212,394 14,228 6.70 Trading account securities.............. 40,064 2,482 6.20 42,285 2,336 5.52 51,163 3,112 6.08 Federal funds sold and other short-term investments............. 136,043 8,893 6.54 63,804 4,877 7.64 44,562 3,426 7.69 Time deposits in other banks................... 27,937 1,597 5.72 23,607 951 4.03 19,326 1,619 8.38 ----------- ------- --------- ------- --------- ------- Total earning assets... 11,033,301 961,289 8.71 5,905,404 469,590 7.95 4,983,531 409,697 8.22 ------- ------- ------- NON-EARNING ASSETS: Cash and due from banks................... 293,618 -- -- 174,582 -- -- 178,269 -- -- Premises and equipment.. 123,688 -- -- 42,337 -- -- 40,238 -- -- All other assets, net... 951,375 -- -- 236,505 -- -- 180,979 -- -- ----------- --------- --------- Total assets........... $12,401,982 6,358,828 5,383,017 =========== ========= ========= INTEREST-BEARING LIABILITIES: Savings and time deposits................ $ 7,227,569 364,433 5.04 3,673,287 153,120 4.17 3,232,032 132,889 4.11 Short-term borrowed funds................... 1,159,814 69,577 6.00 683,833 31,177 4.56 476,147 22,743 4.78 Federal Home Loan Bank advances................ 1,247,613 77,913 6.24 832,206 41,432 4.98 552,176 27,885 5.05 Long-term debt.......... 22,614 1,480 6.54 6,372 369 5.79 103,103 6,135 5.95 ----------- ------- --------- ------- --------- ------- Total interest-bearing liabilities............ 9,657,610 513,403 5.32 5,195,698 226,098 4.35 4,363,458 189,652 4.35 ------- ------- ------- OTHER LIABILITIES AND STOCKHOLDERS' EQUITY: Demand deposits......... 930,713 -- -- 447,416 -- -- 443,395 -- -- Other liabilities....... 241,526 -- -- 123,552 -- -- 106,836 -- -- Capital trust pass- through securities...... 49,916 -- -- 59,903 -- -- 49,891 -- -- Stockholders' equity.... 1,522,217 -- -- 542,259 -- -- 419,437 -- -- ----------- --------- --------- Total liabilities and stockholders' equity... $12,401,982 6,358,828 5,383,017 =========== ========= ========= Net interest income and net interest margin(4).. 447,886 4.06 243,492 4.12 220,045 4.20 ======= ==== ======= ==== ======= ==== Interest rate spread(5)............... 3.39 3.60 3.87 ==== ==== ====
- ----- (1) The taxable equivalent basis is computed using 35% federal and applicable state tax rates in 2000, 1999 and 1998. (2) The average loan balances include non-accruing loans. (3) The average balances for debt and equity securities exclude the effect of their mark-to-market adjustment, if any. (4) Net interest margin is computed by dividing net interest income by total earning assets. (5) Interest rate spread equals the earning asset yield minus the interest- bearing liability rate. 36 As experienced by most financial institutions during the year ended December 31, 2000, NCF was subject to increased pressure on its net interest margin due to rising interest rates. The net interest margin was 4.06% for the year ended December 31, 2000, 6 basis points lower than the 4.12% for the 1999 year and 14 basis points lower than the 4.20% for the 1998 year. The principal factors impacting NCF's yields, costs of funds and net interest income are discussed below. Interest Rates During the third quarter of 2001, the Federal Reserve decreased the target federal funds rate twice by a total of 75 basis points, which followed 150 and 125 basis point declines in the first and second quarters of 2001, respectively. Upon the action by the Federal Reserve, NCF's subsidiary banks lowered their prime lending rate to keep pace with the changes in funding costs. The subsidiary banks' prime rates have fallen from 9.50% at December 31, 2000 to 6.00% at September 30, 2001, compared to the September 30, 2000 prime rate of 9.50%. Because NCF's interest-bearing liabilities reprice in a shorter period than do its interest-earning assets, its balance sheet is liability sensitive, so that in times of falling interest rates, the decrease in interest expense from the lower cost of interest-bearing liabilities exceeds the decrease in interest income from the lower yield on interest-earning assets. This resulted in a higher net interest margin for the nine months ended September 30, 2001 compared to the nine months ended September 30, 2000. The target federal funds rate decreased again by 50 basis points each in October and November, 2001, and additional decreases in short-term interest rates in 2001 are possible as the Federal Reserve acts to combat recession fears and perceived slowdowns in the economy. NCF expects that such actions will not impact its net interest income significantly. During the second half of 1999, interest rates began to climb in small increments as the Federal Reserve increased the target federal funds rate. Changes in the federal funds rate generally affect other interest rates including the prime interest rate charged to borrowers and rates paid on deposits. This trend continued during the first half of 2000 as the Federal Reserve continued to increase the federal funds rate 25 basis points in February and March. A final 50 basis point increase in the federal funds rate occurred in May 2000. The prime rate began the year at 8.50% and ended the year at 9.50%. Consequently, average yield on loans for the year ended December 31, 2000 improved 64 basis points over 1999 to 9.41% and NCF's average yield on earning assets improved 76 basis points over 1999 to 8.71%. Unfortunately, NCF's cost of interest-bearing liabilities increased also. The cost of savings and time deposits increased for the year ended December 31, 2000 by 87 basis points over 1999 to 5.04% and the cost of total interest-bearing liabilities increased by 97 basis points over 1999 to 5.32%. These changes were consistent with NCF's liability sensitive balance sheet, as increases in interest rates generally decrease NCF's net interest margin. NCF's interest rate spread for the year ended December 31, 2000 tightened to 3.39% compared to 3.60% for 1999 and 3.87% for 1998 due in part to the changes in interest rates discussed above. The following table provides further analysis of the effects of volume and rate on net interest income during the years ended December 31, 2000 and December 31, 1999. 37 Volume and Rate Variance Analysis
Years Ended December 31, 2000 1999 ---------------------------- --------------------------- Volume Rate Total Volume Rate Total Variance Variance Variance Variance Variance Variance -------- -------- -------- -------- -------- -------- (taxable equivalent basis--dollars in thousands)(1)(2) Interest income: Loans................... $368,565 23,836 392,401 39,711 (10,639) 29,072 U.S. Treasury and U.S. Government agencies and corporations........... 69,287 7,392 76,679 3,671 -- 3,671 States and political subdivisions........... 1,719 (425) 1,294 (1,867) 174 (1,693) Equity and other securities............. 8,554 7,963 16,517 28,729 107 28,836 Trading account securities............. (128) 274 146 (507) (269) (776) Federal funds sold and short-term investments............ 4,808 (792) 4,016 1,473 (22) 1,451 Time deposits in other banks.................. 197 449 646 303 (971) (668) -------- ------- ------- ------ ------- ------ Increase (decrease) in interest income........ 453,002 38,697 491,699 71,513 (11,620) 59,893 -------- ------- ------- ------ ------- ------ Interest expense: Savings and time deposits............... 173,832 37,481 211,313 25,731 (5,500) 20,231 Short-term borrowed funds.................. 26,245 12,155 38,400 9,936 (1,502) 8,434 Federal Home Loan Bank advances............... 24,210 12,271 36,481 13,939 (392) 13,547 Long-term debt.......... 1,058 53 1,111 (5,605) (161) (5,766) -------- ------- ------- ------ ------- ------ Increase (decrease) in interest expense....... 225,345 61,960 287,305 44,001 (7,555) 36,446 -------- ------- ------- ------ ------- ------ Increase (decrease) in net interest income.... $227,657 (23,263) 204,394 27,512 (4,065) 23,447 ======== ======= ======= ====== ======= ======
- -------- (1) The taxable equivalent basis is computed using 35% federal and applicable state tax rates in 2000 and 1999. (2) The rate/volume variance for the category has been allocated on a consistent basis between rate and volume variances based on the percentage of the rate or volume variance to the sum of the absolute value of the two variances. Interest-Earning Assets Total average earning assets increased to $15.5 billion for the nine month period ended September 30, 2001 from $9.6 billion for the nine month period ended September 30, 2000. The increase in 2001 was due primarily to the acquired companies, as well as loan growth at both NBC and Central Carolina Bank. Loans constituted 72.3% of average earning assets for the nine month period ended September 30, 2001, compared to 65.3% for the similar period in 2000. Management anticipates continued loan growth in the remainder of 2001 and in 2002, although at a slower rate than in 2000. Total average earning assets increased to $11.0 billion for the year ended December 31, 2000 from $5.9 billion for the year ended December 31, 1999 and $5.0 billion for the year ended December 31, 1998, due primarily to the acquired companies, as well as strong loan demand at both NBC and Central Carolina Bank. Due to this demand, NCF's mix of earning assets shifted to higher yielding categories, with loans constituting 67.3% of average earning assets during 2000 compared to 59.1% in 1999 and 61.0% in 1998. Average earning assets as a percentage of average tangible assets (average total assets reduced by goodwill and core deposit intangibles) has been between 92% and 95% over the last three years. Interest-Bearing Liabilities NCF's loan growth has been more rapid than its growth in lower-cost deposits. This disparity has resulted in the need to fund loan growth in part with higher-cost funding sources, primarily consisting 38 of advances from the Federal Home Loan Bank, or "FHLB," which has in turn contributed to the decreases in NCF's net interest margins between 1998 and 2000. Substantially all deposits originate within the subsidiary banks' market areas. As with the rest of the financial institutions industry, NCF has seen decreased growth rates in traditional deposits as consumers elect other savings and investment opportunities. Non-Interest Income and Non-Interest Expenses NCF's levels of non-interest income are, and will continue to be, a significant factor in determining its financial success. Non-interest income, excluding investment securities transactions, increased from $115.6 million in the first nine months of 2000 to $228.3 million in the first nine months of 2001. Of this increase, $86.1 million is due to the acquired companies and $20.6 million resulted from increased broker/dealer revenues generated by NBC Capital Markets Group, Inc. Annualized non-interest income as a percentage of average tangible assets improved to 1.88% for the nine months ended September 30, 2001 compared to 1.58% for the nine months ended September 30, 2000. Non-interest expenses, after excluding the loss on interest rate swaps incurred in the 2000 period and merger/conversion expenses incurred in both periods, increased to $422.8 million for the first nine months of 2001 from $226.1 million for the same period in 2000. Of this increase, $169.8 million related to the acquired companies and $12.9 million was due to higher expenses incurred by NBC Capital Markets Group, Inc. Amortization of goodwill and core deposit intangibles amounted to $80.2 million and $33.9 million for the first nine months of 2001 and 2000, respectively. Non-interest income, excluding net securities gains and losses, totaled $185.0 million for the year ended December 31, 2000 compared to $90.3 million for the year ended December 31, 1999 and $83.6 million for the year ended December 31, 1998. The acquired companies accounted for $71.4 million of this increase. The remaining increase in non-interest income of $23.3 million was due to growth of the asset and customer bases of NCF's subsidiary banks, a stronger emphasis on the collection of fees for services rendered and revenue growth by NCF's non-bank subsidiaries. Service charges on deposit accounts continue to be NCF's largest source of non-interest income, totaling $68.8 million for the year ended December 31, 2000, $21.0 million for the year ended December 31, 1999 and $18.5 million for the year ended December 31, 1998. The acquired companies contributed $37.6 million to the increase in service charges on deposit accounts over 1999. The remaining increase of $10.2 million was due primarily to an increase in the number of accounts subject to service charges, repricing of certain customer services and ATM surcharge income on NCF's expanding ATM network. Trust and custodian fees increased to $33.0 million for the year ended December 31, 2000 from $8.1 million for the year ended December 31, 1999 due to trust businesses acquired and growth of assets managed. The July 2000 acquisitions of First Mercantile and Central Carolina Bank collectively contributed $25.3 million of trust and custodian fees to the 2000 increase. Managed and custodial assets totaled $10.5 billion at December 31, 2000 and $3 billion at December 31, 1999. Other service charges and fees totaled $29.9 million for the year ended December 31, 2000, $20.0 million for the year ended December 31, 1999 and $17.9 million for the year ended December 31, 1998. Fees from NCF's TransPlatinum subsidiary increased $10.0 million in 2000 due to higher transaction volumes and acquisitions completed in 1999 and 2000. Broker/dealer revenue and other commissions income totaled $28.8 million for the year ended December 31, 2000, $18.1 million for the year ended December 31, 1999 and $20.4 million for the 39 year ended December 31, 1998. The acquired companies contributed $6.4 million of broker/dealer revenue and other commissions income in 2000. Institutional broker/dealer revenue is derived from NBC Capital Markets Group, Inc. and increased $2.5 million during 2000. Retail brokerage services are offered through an affiliation with an independent brokerage firm. Non-interest expense, excluding non-recurring items and amortization of goodwill and core deposit intangibles, increased $154.0 million for the year ended December 31, 2000 to $308.4 million over $154.4 million for the year ended December 31, 1999. Non-interest expense amounted to $139.8 million for the year ended December 31, 1998. NCF's 2000 acquisitions added $126.0 million in non-interest expense in 2000, including $61.6 million of additional personnel expense, $23.0 million of net additional occupancy and equipment expense, and $41.4 million of additional other operating expense. Excluding those amounts, NCF's personnel expense rose $15.6 million from $82.9 million for the year ended December 31, 1999 to $98.5 million for the year ended December 31, 2000, due to mergers completed in the third quarter of 1999, growth of the subsidiary branches, and employee benefits-related expenses. Net of the acquired companies, occupancy and equipment expenses increased 3.7% and other operating expense increased by 13.8% for the year ended December 31, 2000 over the 1999 period. Other operating expense categories which increased in 2000 included legal and professional services, telecommunications and marketing expense. Amortization of goodwill and core deposit intangibles totaled $61.4 million for the year ended December 31, 2000, of which $50.4 million related to the acquired companies. NCF's cash efficiency ratio (non-interest expense, less intangibles amortization and the non-recurring expenses set forth on pages 33 and 34 above, as a percentage of taxable equivalent net interest income and non-interest income) was 46.62% for the nine months ended September 30, 2001 and 46.94% for the nine months ended September 30, 2000. The following table presents various cash efficiency ratios for the nine months ended September 30, 2001 and September 30, 2000 and for the prior five years ended December 31, 2000. Cash Efficiency Ratios
Nine Months Ended September 30, Years Ended December 31, -------------- ----------------------------- 2001 2000 2000 1999 1998 1997 1996 ------ ------ ----- ----- ----- ----- ----- As a percentage of average assets: Non-interest income(1)......... 1.75% 1.50 1.53 1.37 1.54 1.69 1.67 ------ ------ ----- ----- ----- ----- ----- Personnel expense.............. 1.36 1.24 1.29 1.30 1.34 1.28 1.27 Occupancy and equipment expense....................... .35 .35 .36 .33 .32 .35 .35 Other operating expense(2)..... .87 .81 .84 .80 .94 1.17 1.16 ------ ------ ----- ----- ----- ----- ----- Total non-interest expense..... 2.58 2.40 2.49 2.43 2.60 2.80 2.78 ------ ------ ----- ----- ----- ----- ----- Net overhead (non-interest expense less non-interest income)....................... .83% .90 .96 1.06 1.06 1.11 1.11 ------ ------ ----- ----- ----- ----- ----- Non-interest expense as a percentage of net interest income and non-interest income(1)(2)(3)................. 46.62% 46.94 48.38 46.68 46.16 51.04 51.96
- -------- (1) Excludes the sales of credit card receivables in 1997 and gains on sales of certain assets in 1996. (2) Excludes the amortization of intangibles in 2001 and 2000; gains and losses on interest rate swaps in 2000 and 1999; merger-related expenses in 2001 and 2000; and the FDIC special assessment in 1996. (3) Presented using taxable equivalent net interest income. The taxable equivalent basis is computed using a 35% federal tax rate and applicable state tax rates. 40 Income Taxes Income tax expense was $99.3 million and $37.3 million for the nine month periods ended September 30, 2001 and 2000, respectively. NCF's effective income tax rate was 37.5% and 41.0% for the nine months ended September 30, 2001 and 2000, respectively. The higher tax rate in 2000 is primarily attributable to non-deductible merger-related expenses. Income tax expense was $34.6 million for the year ended December 31, 2000, $47.2 million for the year ended December 31, 1999 and $40.6 million for the year ended December 31, 1998. NCF's effective income tax rates were 43.3%, 33.8% and 34.0% for the years ended December 31, 2000, 1999 and 1998, respectively. The increase in the effective tax rate from 1999 to 2000 is attributable to non-deductible goodwill amortization and non-deductible merger- related expenses. Net deferred tax liabilities totaled $120.6 million as of December 31, 2000. NCF has determined that no valuation allowance for deferred tax assets was warranted at December 31, 2000. Financial Position Total assets increased to $18.5 billion at September 30, 2001 from $17.7 billion at September 30, 2000. Quarterly average assets increased to $17.9 billion for the third quarter of 2001 from $17.1 billion for the same quarter in 2000. Loans Loans are the largest category of NCF's earning assets and generate the highest yields. NCF's loan growth and maintenance of a high quality loan portfolio are key ingredients to improving NCF's earnings. NCF's loan portfolio is comprised primarily of diversified credits with no significant borrower or industry concentration. NCF believes its strategy of lending to consumers and small- and medium-sized commercial customers allows a higher interest rate spread, which helps support the net interest margin. Substantially all loans are made on a secured basis with the exception of certain revolving credit accounts and are generally originated for retention in NCF's portfolio, with the exception of marketable mortgage loans, which are typically sold to third parties. Lending officers of NCF's subsidiary banks generally evaluate the cash flow and/or earnings power of the borrower as the primary source of repayment. The subsidiary banks do not engage in highly leveraged transactions or foreign lending activities. The acquired companies added over $6 billion to outstanding loans in 2000. The following table presents the year-end breakdown of the major categories of the loan portfolio as of September 30, 2001 and 2000 and as of December 31 of the previous five years based upon regulatory classifications. Loan Portfolio
As of September 30, As of December 31, ---------------------- -------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ----------- ---------- ---------- --------- --------- --------- --------- (in thousands) Commercial, financial and agricultural....... $ 1,300,819 1,228,165 1,223,032 689,945 592,136 512,534 466,830 Real estate-- construction........... 2,104,567 1,824,774 1,907,533 283,033 242,993 241,334 170,188 Real estate--mortgage... 6,521,943 5,775,029 5,959,114 1,625,374 1,153,717 781,826 602,064 Consumer................ 1,390,120 1,838,633 1,730,940 1,356,824 1,181,659 1,045,420 1,086,104 Revolving credit........ 61,896 70,930 58,840 -- -- -- -- Lease financing......... 155,381 145,569 145,833 33,405 29,568 30,046 22,790 ----------- ---------- ---------- --------- --------- --------- --------- Total gross loans....... 11,534,726 10,883,100 11,025,342 3,988,581 3,200,073 2,611,160 2,347,976 Less unearned income(1).............. 18,075 16,799 16,923 2,792 2,400 2,193 3 ----------- ---------- ---------- --------- --------- --------- --------- Total loans............. $11,516,651 10,866,301 11,008,419 3,985,789 3,197,673 2,608,967 2,347,973 =========== ========== ========== ========= ========= ========= =========
- -------- (1) Represents unearned discount on installment loans, which is recognized as interest income over the lives of the loans utilizing a method which approximates the interest method. 41 Loans in the commercial, financial and agricultural category consist primarily of short-term and/or floating rate commercial loans made to medium- sized companies. There is no substantial loan concentration in any one industry or to any one borrower. Real estate-construction loans are primarily made to commercial developers and residential contractors on a floating rate basis. Cash flow analysis for the project is the primary factor considered in a commercial lending decision, with additional reliance upon collateral values. NCF expects moderate to strong growth in these categories during the remainder of 2001 and in 2002 while maintaining its focus on quality credit underwriting. Real estate-mortgage loans consist of loans secured by first or second mortgages or deeds of trust on primary residences, multifamily residential properties and commercial properties. NCF's general policy is to sell all marketable originations of 30-year, fixed-rate residential mortgages and retain only certain loans in the portfolio. Consequently, NCF expects very modest growth in this category during the remainder of 2001 and in 2002. Consumer loans consist primarily of loans secured by automobiles and other consumer personal property. Lending officers consider the customer's debt obligations, ability and willingness to repay and general economic trends in their decision to extend credit. Revolving credit includes overdraft protection and traditional business credit card products. NCF expects only moderate growth during the remainder of 2001 and in 2002. The leasing portfolio is not concentrated in any one line of business or type of equipment. NCF anticipates moderate growth in this category during the remainder of 2001 and in 2002. The following table presents as of December 31, 2000 the breakdown of maturities of NCF's loan portfolio, including the breakdown between fixed and variable rate loans to reflect sensitivities of the loan portfolio to changes in interest rates. Maturities and Sensitivities of Loans to Changes in Interest Rates
As of December 31, 2000 ----------------------------------- Commercial, Financial and Real Estate- Agricultural Construction Total ------------ ------------ --------- (in thousands) Due in one year or less.................... $ 398,489 185,084 583,573 Due after one year through five years: Fixed interest rates..................... 459,457 789,159 1,248,616 Floating interest rates.................. 99,000 103,665 202,665 Due after five years: Fixed interest rates..................... 154,949 252,945 407,894 Floating interest rates.................. 111,137 576,680 687,817 ---------- --------- --------- Total.................................. $1,223,032 1,907,533 3,130,565 ========== ========= =========
42 Investment Securities Average investment securities increased $1.1 billion from December 31, 1999 to December 31, 2000, primarily due to the acquired companies. Taxable securities remain the primary component of the portfolio. The following table presents additional information about NCF's investment securities portfolio at December 31, 2000, which is segregated into available for sale and held to maturity categories. Investment Securities Portfolio
As of December 31, ---------------------------------------- 2000 1999 -------------------- ------------------ Amortized Carrying Amortized Carrying Cost Value Cost Value ---------- --------- --------- -------- (in thousands) Securities Available for Sale: U.S. Treasury......................... $ 54,580 55,295 28,523 28,386 U.S. Government agencies and corporations......................... 1,550,026 1,582,051 239,554 235,624 States and political subdivisions..... 111,222 113,831 122,076 123,516 Debt and equity securities............ 647,182 650,349 170,608 166,402 ---------- --------- ------- ------- Total securities available for sale.. $2,363,010 2,401,526 560,761 553,928 ========== ========= ======= ======= Maturity and Yield Schedule as of December 31, 2000 Weighted Carrying Average Value Yield(1) ---------- --------- U.S. Treasury: Within 1 year........................ $ 20,905 5.42% After 1 but within 5 years........... 34,390 7.72 ---------- Total U.S. Treasury................. 55,295 6.80 ---------- U.S. Government agencies and corporations: Within 1 year........................ 90,044 11.52 After 1 but within 5 years........... 177,357 7.42 After 5 but within 10 years.......... 476,214 7.14 After 10 years(2).................... 838,436 7.24 ---------- Total U.S. Government agencies and corporations....................... 1,582,051 7.47 ---------- States and political subdivisions: Within 1 year........................ 12,803 7.21 After 1 but within 5 years........... 33,387 7.31 After 5 but within 10 years.......... 57,764 8.69 After 10 years....................... 9,877 8.98 ---------- Total state and political subdivisions....................... 113,831 8.14 ---------- Debt and equity securities............ 650,349 7.48 ---------- Total securities available for sale............................... $2,401,526 7.49 ==========
43
As of December 31, ----------------------------------------- 2000 1999 -------------------- ------------------- Carrying Market Carrying Market Value Value Value Value ---------- --------- --------- --------- (in thousands) Securities Held to Maturity: U.S. Government agencies and corporations........................ $1,434,282 1,407,912 1,322,109 1,250,418 States and political subdivisions.... 75,702 77,109 5,292 5,425 Debt securities...................... 506,811 499,679 431,982 411,740 ---------- --------- --------- --------- Total securities held to maturity.. $2,016,795 1,984,700 1,759,383 1,667,583 ========== ========= ========= ========= Maturity and Yield Schedule as of December 31, 2000 (continued) Weighted Carrying Average Value Yield(1) ---------- --------- U.S. Government agencies and corporations: Within 1 year....................... $ 50,017 7.36% After 1 but within 5 years.......... 3,024 6.23 After 5 but within 10 years......... 838,850 6.68 After 10 years(2)................... 542,391 6.53 ---------- Total U.S. Government agencies and corporations...................... 1,434,282 6.64 ---------- States and political subdivisions: Within 1 year....................... 163 0.93 After 1 but within 5 years.......... 20,159 8.20 After 5 but within 10 years......... 47,416 8.62 After 10 years...................... 7,964 8.61 ---------- Total state and political subdivisions...................... 75,702 8.49 ---------- Debt securities...................... 506,811 7.07 ---------- Total securities held to maturity.. $2,016,795 6.82 ==========
- -------- (1) Where applicable, the weighted average yield is computed on a taxable equivalent basis using a 35% federal tax rate and applicable state tax rates. (2) The amount shown consists primarily of mortgage-backed securities which have monthly curtailments of principal even though the final maturity of the security is in excess of 10 years. NCF segregates debt and equity securities that have readily determinable fair values into one of three categories for accounting and reporting purposes. Debt securities that NCF has the positive intent and ability to hold until maturity are classified as held to maturity and are reported at amortized cost. Securities held to maturity totaled $2 billion, comprising 44.9% of the total securities portfolio at December 31, 2000. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. Trading securities totaled $74.4 million at December 31, 2000. Debt and equity securities not classified as either held to maturity or as trading securities are classified as available for sale securities and are reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders' equity entitled "other comprehensive gains and losses," net of taxes. At December 31, 2000, securities available for sale totaled $2.4 billion, which represented 53.4% of the total portfolio. The 44 mark-to-market adjustment for available for sale securities totaled $38.5 million in net unrealized gains at December 31, 2000. After considering applicable tax benefits, the mark-to-market adjustment resulted in a $22.8 million increase to total stockholders' equity. As of December 31, 1999, the mark-to-market adjustment for unrealized losses on available for sale securities totaled $6.8 million and resulted in a net $4.2 million decrease to total stockholders' equity after applying applicable taxes. NCF does not currently anticipate selling a significant amount of the securities available for sale in the near future. Future fluctuations in stockholders' equity may occur due to changes in the market values of debt and equity securities classified as available for sale. The unrealized gains on investment securities available for sale, net of applicable tax expense, increased $10.3 million from December 31, 2000 to result in an after-tax unrealized gain at September 30, 2001 of $33.1 million. As of September 30, 2001, unrealized gains on investment securities available for sale, net of applicable tax expense, increased book value by $.17 per share. Securities inventory held by NCF's institutional broker-dealer subsidiary is classified as trading securities. Trading securities totaled approximately $131.4 million as of September 30, 2001. Deposits Average deposits increased for the nine-month period ended September 30, 2001 over the same period in 2000 due primarily to the acquisitions of CCB and Piedmont. Average deposits increased during 2000 from 1999 levels due to the acquired companies. Interest-bearing deposits as a percentage of total deposits remained at 89% during 1999 and 2000. As noted previously, NCF has experienced lower levels of deposit growth due to competitive pressures from other investment opportunities available to consumers. In addition, higher interest rates in 2000 resulted in increased debt service payments for consumers and businesses, constraining growth in deposit balances. The following table presents average deposits by type for the nine month periods ended September 30, 2001 and 2000, and three-year period ended December 31, 2000. Average Deposits
Nine Months Ended September 30, Years Ended December 31, ------------------------------------- ----------------------------------------------------- 2001 2000 2000 1999 1998 ------------------- ----------------- ----------------- ----------------- ----------------- Average Average Average Average Average Average Average Average Average Average Balance Rate Balance Rate Balance Rate Balance Rate Balance Rate ----------- ------- --------- ------- --------- ------- --------- ------- --------- ------- (dollars in thousands) Savings and time deposits: Savings, NOW and money market accounts........ $ 4,546,759 2.69% 2,496,589 3.32 2,960,959 3.85 1,641,984 3.63 1,550,361 3.31 Time deposits........... 5,939,160 5.74% 3,647,726 6.09 4,266,610 6.31 2,031,305 5.08 1,681,671 5.45 ----------- --------- --------- --------- --------- Total savings and time deposits.............. 10,485,919 4.41% 6,144,315 4.96 7,227,569 5.04 3,673,287 4.17 3,232,032 4.11 Demand deposits......... 1,398,349 775,154 930,713 447,416 443,395 ----------- --------- --------- --------- --------- Total deposits......... $11,884,268 6,919,469 8,158,282 4,120,703 3,675,427 =========== ========= ========= ========= =========
Long-Term Debt and Other Borrowings After assuming $33.0 million of long-term debt from the acquired companies, NCF's ratio of average long-term debt to average equity was 1.6% for the year ended December 31, 2000. Average advances from the FHLB increased $415.4 million in 2000 over 1999 due to $498.6 million of FHLB advances assumed from the acquired companies and the need to fund NCF's loan 45 growth. The 2000 FHLB advances consist primarily of advances having maturities in excess of one year. FHLB advances have increased $594.5 million since December 31, 2000, primarily to fund loan growth and to replace other sources of borrowed funds. This source of liquidity had an average rate of 5.28% for the nine months ended September 30, 2001. Other borrowing totaled approximately $39 million at both September 30, 2001 and December 31, 2000. Capital Requirements and Resources NCF's capital position has historically been strong as evidenced by the ratio of average tangible equity to average tangible assets of 7.41% and 7.17% for the nine months ended September 30, 2001 and September 30, 2000, respectively, and of 7.15% and 7.45% for the years ended December 31, 2000 and December 31, 1999, respectively. Equity Capital NCF's management plans to continue its efforts to increase the return on average equity while providing stockholders with a reasonable cash return. A stock repurchase plan was authorized beginning in 1996 for purposes of offsetting stock issuances planned for stock option and other employee benefit plans. During 2000, 1999 and 1998, a total of 4.0 million shares have been repurchased. Substantially all had been re-issued under employee benefit plans as of December 31, 2000. Management plans to maintain a dividend payout ratio between 30 and 40 percent of operating income in order to achieve continued internal capital growth. On October 16, 2001, NCF's Board of Directors declared a quarterly cash dividend of $.15 per common share. The dividend is payable January 2, 2002, to stockholders of record as of December 7, 2001. On July 25, 2001, NCF's common stock was listed on the New York Stock Exchange and began trading under the symbol NCF. Prior to that date, NCF's common stock was traded on the Nasdaq National Market under the symbol NCBC. On September 17, 2001, NCF resumed a share repurchase program announced in July 2001. During the third quarter of 2001, 570,000 shares of common stock were acquired at an average cost of $23.44 and subsequently retired. The share repurchase program has continued into the fourth quarter; the remaining authorization allows for approximately 4 million shares to be repurchased through December 31, 2002. During the nine months ended September 30, 2001, 2.7 million common shares had been repurchased and retired. The following table presents NCF's rate of internal capital growth for the five previous years. Rate of Internal Capital Growth
Year Ended December 31, ------------------------------------- 2000(1) 1999(1) 1998 1997(1) 1996(1) ------- ------- ----- ------- ------- Average assets to average equity times... 8.13x 11.75 12.79 13.24 12.92 Return on average assets equals.......... 1.18% 1.44 1.47 1.47 1.43 Return on average equity equals.......... 9.59% 16.92 18.80 19.46 18.48 Earnings retained equals................. 47.77% 56.72 60.02 65.29 64.59 Rate of internal capital growth.......... 4.58% 9.60 11.28 12.71 11.94
- -------- (1) Excludes the after-tax impact of non-recurring items as applicable: for the year ended December 31, 2000, merger-related and other conversion expenses of $50.5 million and losses from interest rate swaps of $50.2 million; for the year ended December 31, 1999, gains from interest rate swaps of $.9 million; for the year ended December 31, 1997, gain on sales of credit card receivables of $4.9 million; and for the year ended December 31, 1996, gains on sales of certain assets of $3.6 million and special deposit assessments of $.8 million. 46 NCF has announced that it has signed a definitive agreement to purchase 37 bank branches and corresponding ATMs in North Carolina, South Carolina, Georgia and Virginia from First Union and Wachovia. In the branch purchase, NCF will acquire approximately $1.5 billion in deposits and approximately $400 million in loans, as well as related premises and equipment. NCF anticipates that a portion of the capital raised through the issuance of the trust preferred securities will be contributed to NBC to support the branch purchase. Regulatory Capital Bank holding companies are required to comply with the Federal Reserve's risk-based capital guidelines requiring a minimum leverage ratio relative to total assets and minimum capital ratios relative to risk-adjusted assets. The minimum leverage ratio is 3% if the holding company has the highest regulatory rating and meets other requirements but the leverage ratio required may be raised from 100 to 200 basis points if the holding company does not meet these requirements. The minimum risk-adjusted capital ratios are 4% for Tier I capital and 8% for total capital. Additionally, the Federal Reserve may set capital requirements higher than the minimums for holding companies whose circumstances warrant it. NCF and its subsidiary banks continue to maintain higher capital ratios than required under regulatory guidelines. The following table discloses NCF's components of capital, risk-adjusted asset information and capital ratios at September 30, 2001 and December 31, 2001 and 2000, respectively: Capital Information and Ratios
As of September 30, As of December 31, ------------------- -------------------- 2001 2000 1999 ------------------- ---------- --------- (in thousands) Tier I capital......................... $ 1,265,004 1,169,780 572,976 Tier II capital: Allowable loan loss allowance......... 150,487 143,614 58,941 Subordinated debt..................... 13,201 13,194 -- Other................................. 24 -- -- ----------- ---------- --------- Total capital........................ $ 1,428,716 1,326,588 631,917 =========== ========== ========= Risk-adjusted assets................... $13,020,372 12,292,660 4,715,316 Average regulatory assets.............. 16,664,634 16,365,141 6,651,254 Tier I capital ratio................... 9.72% 9.52 12.15 Total capital ratio.................... 10.97 10.79 13.40 Leverage ratio......................... 7.59 7.15 8.61
NCF's subsidiary banks are subject to similar risk-based and leverage capital requirements adopted by their applicable federal banking agency. NCF was in compliance with the applicable capital requirements as of each of the dates presented above. Asset Quality At September 30, 2001, total risk assets (consisting of non-accrual loans, foreclosed real estate, restructured loans and accruing loans 90 days or more past due) amounted to $56.2 million or .49% of outstanding loans plus other assets acquired through loan foreclosures. This compares to $41.5 million or .38% at December 31, 2000 and $39.8 million or .37% at September 30, 2000. The largest increase in total risk assets was experienced in non-accrual loans (primarily in commercial 47 and construction lending) and accruing loans 90 days or more past due (primarily in loans secured by 1-4 family residential properties). The allowance for loan losses to risk assets was 2.68x at September 30, 2001 compared to 3.46x at December 31, 2000 and 3.60x at September 30, 2000. Looking forward, management anticipates that further increases in nonperforming loans could be experienced over the next several quarters as a result of previously discussed economic conditions. Total risk assets as a percentage of total loans outstanding plus other real estate were .38%, .14% and .16% at December 31, 2000, 1999 and 1998, respectively. NCF's allowance for loan losses to total risk assets was 3.46x at December 31, 2000 compared to 10.38x and 9.46x at December 31, 1999 and 1998, respectively. Total risk assets and the ratio of the allowance for loan losses to total risk assets have been impacted significantly by NCF's merger with CCB in 2000. CCB's loan portfolio accounts for approximately 62% of total loans, and CCB's total risk assets represent approximately 75% of total risk assets at December 31, 2000. CCB's allowance for loan losses was 2.48 times total risk assets at the time of the merger. Excluding the CCB total risk assets, NCF's total risk assets increased by 82.5% in 2000 due to increases in non-accrual loans and accruing loans 90 days or more past due. Nonperforming assets (non-accrual loans, other real estate acquired through loan foreclosures and restructured loans) and total risk assets at the end of each of the previous five years are presented in the following table. Nonperforming and Risk Assets
As of December 31, -------------------------------- 2000 1999 1998 1997 1996 ------- ----- ----- ----- ----- (in thousands) Non-accrual loans............................. $ 7,219 -- 533 -- -- Other real estate acquired through loan foreclosures................................. 5,652 271 442 -- -- Restructured loans............................ 2,232 -- -- -- -- ------- ----- ----- ----- ----- Total nonperforming assets.................... 15,103 271 975 -- -- Accruing loans 90 days or more past due....... 26,362 5,470 4,218 3,134 3,482 ------- ----- ----- ----- ----- Total risk assets............................. $41,465 5,741 5,193 3,134 3,482 ======= ===== ===== ===== ===== Ratio of nonperforming assets to: Loans outstanding and other real estate acquired through loan foreclosures.......... .14% .01 .03 -- -- Total assets................................. .09 -- .02 -- -- Ratio of total risk assets to: Loans outstanding and other real estate acquired through loan foreclosures.......... .38 .14 .16 .12 .15 Total assets................................. .23 .08 .09 .07 .08 Allowance for loan losses to total risk assets....................................... 3.46x 10.38 9.46 10.38 10.20
NCF's general non-accrual policy is to place credits in a non-accrual status when there are doubts regarding the collectibility of principal or interest or when payment of principal or interest is 90 days or more past due (unless determined that the collectibility is not reasonably considered in doubt). Subsequent to the 2000 merger with CCB, NCF conformed its non-accrual policy between Central Carolina Bank and the other subsidiary banks. Loans are considered impaired if it is probable that NCF will be unable to collect all amounts due under the terms of the loan agreement. The value of the impaired loan is based on discounted cash flows or the fair value of the collateral for a collateral-dependent loan. Any impairment losses are recognized through charges to the allowance for loan losses. At December 31, 2000, impaired loans 48 amounted to $12.5 million, of which $6 million were not accruing interest. The related allowance for loan losses on these loans amounted to $3.6 million at December 31, 2000. There were no impaired loans at December 31, 1999. The following table presents a summary of loss experience and the allowance for loan losses for the previous five years. Net charge-offs (equal to loan charge-offs less recoveries from earlier charge-offs) in the five-year period ended December 31, 2000 occurred largely in the consumer loan portfolio. Summary of Loan Loss Experience and the Allowance for Loan Losses
Years Ended December 31, ------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- --------- --------- --------- --------- (in thousands) Balance at beginning of year.................. $ 59,597 49,122 43,297 35,514 29,010 Loan losses charged to allowance: Commercial, financial and agricultural..... (1,826) (896) (522) (250) (12) Real estate-- construction......... (29) (40) (946) (95) (70) Real estate-- mortgage............. (3,418) (2,346) (808) (222) (74) Consumer.............. (12,354) (8,440) (8,430) (10,850) (8,270) Revolving credit...... (1,863) -- -- -- -- Lease financing....... (193) (744) (943) (1,382) (1,912) ----------- --------- --------- --------- --------- Total loan losses charged to allowance........... (19,683) (12,466) (11,649) (12,799) (10,338) ----------- --------- --------- --------- --------- Recoveries of loans previously charged- off: Commercial, financial and agricultural..... 258 66 1,152 73 20 Real estate-- construction......... 2 473 197 57 244 Real estate-- mortgage............. 878 222 51 33 61 Consumer.............. 2,809 2,631 2,219 2,221 1,965 Revolving credit...... 819 -- -- -- -- Lease financing....... 250 584 420 560 533 ----------- --------- --------- --------- --------- Total recoveries of loans previously charged-off......... 5,016 3,976 4,039 2,944 2,823 ----------- --------- --------- --------- --------- Net charge-offs........ (14,667) (8,490) (7,610) (9,855) (7,515) Provision charged to operations............ 16,456 16,921 10,710 17,013 14,134 Allowance related to credit card receivables and loans sold.................. -- -- -- -- (403) Allowance related to acquired financial institutions.......... 82,228 2,044 2,725 625 288 ----------- --------- --------- --------- --------- Balance at end of year.................. $ 143,614 59,597 49,122 43,297 35,514 =========== ========= ========= ========= ========= Loans outstanding at end of year........... $11,008,419 3,985,789 3,197,673 2,608,967 2,347,973 Ratio of allowance for loan losses to loans outstanding at end of year.................. 1.30% 1.50 1.54 1.66 1.51 Average loans outstanding........... $ 7,427,320 3,489,625 3,040,662 2,513,327 2,130,810 Ratio of net charge- offs of loans to average loans......... .20% .24 .25 .39 .35 Ratio of recoveries to charge-offs........... 25.48 31.89 34.67 23.00 27.31
49 The provision for loan losses for the nine months ended September 30, 2001 was $22.3 million compared to $11.1 million for the nine months ended September 30, 2000. Net loan charge-offs totaled $16.8 million and $9.5 million for the nine months ended September 30, 2001 and 2000, respectively and as a percentage of average loans (annualized) were .20% in both 2001 and 2000. NCF tracks a number of key performance indicators in establishing the allowance for loan losses. As discussed previously, the U.S. economy continues to show signs of weakening and while general economic conditions have deteriorated, NCF's portfolio quality indicators have not deteriorated as dramatically. As a result, NCF's allowance for loan losses remained stable at 1.31% of loans outstanding at September 30, 2001 compared to 1.30% of loans outstanding at December 31, 2000 and June 30, 2001. The following table summarizes indicators of portfolio quality and the allowance for loan losses as of and for the quarters ended September 30, 2001 and September 30, 2000 (dollars in thousands): Performance Indicators
Quarters ended September 30, ----------------------- 2001 2000 ----------- ---------- (dollars in thousands) Loans outstanding...................................... $11,516,651 10,866,301 Ratio of allowance for loan losses to loans outstanding........................................... 1.31% 1.32 Average loans outstanding for the period............... $11,370,853 10,469,060 Ratio of annualized net charge-offs to average loans for the period........................................ .21% .18 Ratio of recoveries to charge-offs for the period...... 21.09% 28.01 Ratio of non-performing assets to: Loans outstanding and other assets acquired through loan foreclosures.................................... .21% .27 Total assets.......................................... .13% .17 Ratio of total risk assets to: Loans outstanding and other assets acquired through loan foreclosures.................................... .49% .37 Total assets.......................................... .30% .23 Allowance for loan losses to total risk assets......... 2.68x 3.60
Management performs an analysis of the loan portfolio quarterly to determine the adequacy of the allowance for loan losses, as is more fully described below. Based on its review, management believes that the allowance for loan losses at September 30, 2001 is adequate to absorb estimated probable losses inherent in the loan portfolio. The most recent regulatory agency examinations have not revealed any material problem credits that had not been previously identified; however, future regulatory examinations may result in the regulatory agencies requiring additions to the allowance for loan losses based on information available at the date of examination. NCF's provision for loan losses decreased from $16.9 million for the year ended December 31, 1999 to $16.5 million for the year ended December 31, 2000. The ratio of the allowance for loan losses to loans outstanding was 1.30% and 1.50% at December 31, 2000 and 1999, respectively. The provision for loan losses and the ratio of the allowance for loan losses to loans outstanding were impacted significantly by the merger with CCB. The decreases in the provision and the ratio of the allowance to loans outstanding reflect improvements in asset quality as evidenced by the reduction in net charge-offs as a percentage of average loans, from .24% for the year ended December 31, 1999 to .20% for the year ended December 31, 2000, and a favorable change in mix of NCF's loan portfolio. Both trends are direct results of the CCB merger. CCB historically experienced a lower ratio of net charge-offs to average loans than NCF. CCB's portfolio consists predominantly of real estate-construction and real 50 estate-mortgage loans. These categories of loans have historically experienced a low level of net charge-offs; as a result, CCB's ratio of the allowance for loan losses to loans outstanding at the time the merger was completed was lower than NCF's ratio. As a result of the CCB merger and other activity in the loan portfolio in 2000, the combined real estate-construction and real estate- mortgage portfolios increased from 48% of total loans at December 31, 1999 to 71% of total loans at December 31, 2000. Similarly, in 2000, the consumer loan portfolio, which had accounted for approximately 80% of NCF's net charge-offs in past years, declined from 34% of total loans at December 31, 1999 to 16% at December 31, 2000. This decline is attributable to the relatively smaller consumer portfolio of CCB and also to a decision to exit NCF's business affiliation with State Farm, which was a source of indirect auto loans. As a result of the improved mix and decline in net charge-off ratio, NCF reduced its unallocated component of its allowance for loan losses by $5.1 million in 2000. The improved portfolio mix and decline in net charge-off ratio were partially offset by higher levels of total risk assets at December 31, 2000 as compared to December 31, 1999 and higher levels of internally classified assets, primarily in the commercial, financial and agricultural loan category. "Internally classified assets" are those that are past due but not yet deemed non-performing. NCF's provision for loan losses increased from $10.7 million for the year ended December 31, 1998 to $16.9 million for the year ended December 31, 1999. The ratio of the allowance for loan losses to loans outstanding was 1.50% and 1.54% at December 31, 1999 and 1998, respectively. The increase in loan loss provision in 1999 as compared to 1998 was primarily attributable to an increase in net charge-offs of approximately $.9 million in 1999 compared to 1998 and significant growth in NCF's total loan portfolio of approximately 25%. Other key factors were NCF's assessment of increased risk in its consumer loan portfolio, which grew 29% in 1999, and the growth of higher-risk real estate- mortgage products, including more than 80% loan-to-value first and second mortgages, which grew by approximately $165 million, almost 45%, from $368 million at December 31, 1998 to $533 million at December 31, 1999. Management performs an analysis of the loan portfolio quarterly to determine the adequacy of the allowance for loan losses. The overall allowance analysis considers the results of the loan reviews, quantitative and qualitative indicators of the current quality of the loan portfolio and the inherent risk not captured in the reviews and assessments of pools of loans. Members of management responsible for credit and financial matters perform the assessment and establish the amount of the allowance for loan losses. The analysis of individual credit relationships is the first factor in the evaluation process. Individual credit relationships in excess of $500,000 or with specific credit characteristics are evaluated for collectibility and for potential impairment by NCF's independent loan review staff. Impaired loans are measured using the approach specified by SFAS No. 114. Commercial, residential construction, small business and consumer loans not reviewed for impairment under SFAS 114, or not considered impaired after an SFAS 114 review, are considered on a portfolio basis as the second factor in the evaluation process. These loans are evaluated as pools of loans based on payment status for the consumer portfolio and an internal credit risk grading system for commercial and small business loans. An allowance is calculated for the consumer loan pool using loss factors based on a monthly analysis of delinquency trends and historical loss experience. Loss factors for the commercial and small business loan pools are based on average historical yearly loss experience. Various credit quality trends (i.e., internal grading changes, delinquencies, charge-offs, non-accruals, and criticized/classified assets), which may impact portfolio performance, are also considered in determining the loss factors for the loan pool. The third factor in the evaluation process is the unallocated allowance which considers factors including the following: industry, borrower or collateral concentrations; changes in lending policies 51 and underwriting; current loan volumes; experience of NCF's lending staff; current general economic data and conditions; fraud risk; and risk inherent in the loss estimation process for pools of loans. NCF's quarterly evaluation process provides for self-correction through periodic adjustment of loss factors based on actual experience if unanticipated events are encountered within an individual or group of credits. The following table presents an allocation of the allowance for loan losses as of the end of the previous five years. Allocation of the Allowance for Loan Losses
As of December 31 ---------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------------ ------------------ ------------------ ------------------ ------------------ % of % of % of Amount % of % of Amount of Loans in Amount of Loans in Amount of Loans in of Loans in Amount of Loans in Allowance the Allowance the Allowance the Allowance the Allowance the Allocated Category Allocated Category Allocated Category Allocated Category Allocated Category --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- (dollars in thousands) Commercial, financial and agricultural...... $ 33,866 11.1% 7,471 17.3 4,675 18.0 1,934 19.2 1,176 20.0 Real estate-- construction.......... 15,410 17.3 1,640 7.1 1,017 8.1 579 9.0 408 7.0 Real estate--mortgage.. 20,183 54.1 15,324 40.8 11,366 36.0 7,223 30.8 5,539 26.0 Consumer............... 22,086 15.7 10,739 34.0 8,227 37.0 5,056 40.0 6,017 46.0 Revolving credit....... 4,280 .5 -- -- -- -- -- -- -- -- Lease financing........ 1,011 1.3 1,492 .8 1,374 .9 2,634 1.0 2,024 1.0 Unallocated portion of allowance............. 46,778 -- 22,931 -- 22,463 -- 25,871 -- 20,350 -- -------- ----- ------ ----- ------ ----- ------ ----- ------ ----- Total................. $143,614 100.0% 59,597 100.0 49,122 100.0 43,297 100.0 35,514 100.0 ======== ===== ====== ===== ====== ===== ====== ===== ====== =====
The allocated portion related to the commercial segment increased from $4.7 million at December 31, 1998 to $7.5 million at December 31, 1999 primarily due to downgrading of a large customer loan, deterioration in a portion of the aircraft lending sector and an increase in accruing loans 90 days or more past due. The increase in the allocated loss reserves for real estate-mortgage, from $11.4 million at December 31, 1998 to $15.3 million at December 31, 1999, relates primarily to growth of approximately $165 million in the portfolio of higher loan-to-value products and an increase in risk, as evidenced by increases in net charge-offs on these products and an increase in accruing loans 90 days or more past due. The allocation for loan losses in the consumer loan segment increased from $8.2 million at December 31, 1998 to $10.7 million at December 31, 1999, due to continued growth in the indirect automobile portfolio. The loss ratios associated with this sector have been higher than the remainder of the consumer loan portfolio. The unallocated allowance increased slightly from $22.5 million at December 31, 1998 to $22.9 million at December 31, 1999, as there were no significant changes in the factors considered in assessing the unallocated allowance. An analysis of the changes in the allocation of the allowance for loan losses between December 31, 1999 and 2000 is made somewhat more complex by the July 2000 merger of CCB 52 and NCF. As mentioned previously, the CCB loan portfolio comprised approximately 62% of the total loan portfolio at December 31, 2000; accordingly, the allocated portion of the reserve for loan losses related to all loan categories increased significantly from December 31, 1999 to December 31, 2000. Without regard to the CCB transaction, the amount allocated to commercial, financial and agricultural loans increased from $7.5 million at December 31, 1999 to $17.4 million at December 31, 2000. This increase was due to the ongoing systematic loan review processes, which required several credits to be downgraded, which in turn required an additional amount of allocated reserve for loan losses. In the NCF stand alone real estate-mortgage portfolio the allocation increased from $15.3 million at December 31, 1999 to $17.2 million at December 31, 2000, mainly due to loan growth and increases in delinquencies related to the higher loan-to-value products. NCF's losses in the consumer loan portfolio have primarily been in the indirect automobile segment, which consists of loans originated through automobile dealers and sold to NCF. Losses from this segment represented 67% of the net charge-offs in this portfolio in 1999. Due to the termination of its relationship with State Farm, a significant indirect automobile loan provider, and a general tightening of the underwriting guidelines in the remaining portion of this segment, the 2000 net charge-offs from indirect automobile loans dropped to 56% of consumer net charge-offs. As a result of this change, accompanied by the runoff of the State Farm portfolio, the allocation for consumer loans dropped from $10.7 million at December 31, 1999 to $8.3 million at December 31, 2000. The overall approach and methodology used in establishing the allowance for loan losses for CCB was substantially the same as that used by NCF during the period. CCB's commercial, financial and agricultural portfolio carries an allocated allowance for loan losses of 3.1% compared to 2.5% for NCF, reflecting a higher level of risk assets and a higher net charge-off ratio. The real estate-construction portfolio has historically experienced a low level of net charge-offs at both NCF and CCB. The change in the allocation of loan losses between December 31, 1999 and December 31, 2000 is due almost exclusively to the significant real estate--construction portfolio of CCB, which is approximately six times the size of NCF's portfolio. CCB's real estate--construction portfolio carries a slightly higher allowance allocation (.9% of loans vs. .6%) due to the additional risk associated with the concentration of real estate lending in CCB's North Carolina and South Carolina markets. The real estate-mortgage allocation of $20.2 million at December 31, 2000 includes $3.0 million related to the CCB portfolio. As a percentage of total loans, the CCB allowance allocation at .1% is lower than NCF's historical allocation of .9% due to differences in product type between the entities and a significantly lower historical loss rate at CCB. As a result of the CCB merger, the consumer allocation increased by $13.8 million, to $22.1 million at December 31, 2000. As a percentage of total loans, the CCB allowance allocation at 2.8% of loans is higher than historical NCF's allocation of .7% due primarily to a relatively greater amount of credit risk associated with the CCB consumer portfolio. The increased credit risk is evident in the higher percentage of accruing loans 90 days or more past due in CCB's portfolio. In addition, CCB's consumer net charge-off ratio has historically been almost 1.5 times NCF's net charge-off ratio. In addition to its consumer portfolio, CCB has a small revolving credit portfolio, primarily comprised of unsecured overdraft protection credit lines, which have a high historical loss rate 53 relative to other consumer loans and carry a reserve allocation of 7.3% of loans outstanding at December 31, 2000. The unallocated reserve increased by $23.8 million in 2000 from $22.9 million at December 31, 1999 to $46.8 million at December 31, 2000 (including the addition of CCB's unallocated reserve). The net increase of $23.8 million can be broken down into an increase of $29.0 million, which was CCB's unallocated reserve at the date the merger was consummated, and a decrease in the provision for loan losses of $5.2 million. The reduction in the provision related to the unallocated reserve reflects the improved net charge-off profile and portfolio mix following the CCB merger as discussed previously, and results in an unallocated reserve component of .42% of total loans at December 31, 2000 as compared to .58% for NCF at December 31, 1999, prior to the merger. Additional factors in the reduction include a decision during 2000 to withdraw from a correspondent residential construction lending program, allowing the company to begin the process of liquidating a higher risk portfolio, and a determination by management that a drought in the region was less detrimental to agricultural related customers than originally anticipated. Although the allocation of the allowance is an important management process, no portion of the allowance is restricted to any individual or group of loans; rather the entire allowance is available to absorb losses for the entire loan portfolio. Liquidity and Interest-Sensitivity Liquidity ensures that adequate funds are available to meet deposit withdrawals, fund loan and capital expenditure commitments, maintain reserve requirements, pay operating expenses, provide funds for dividends, debt service and other commitments and operate the organization on an ongoing basis. Funds are primarily provided by NCF's subsidiary banks through financial resources from operating activities, expansion of the deposit base, borrowing funds in money market operations and through the sale or maturity of assets. Net cash provided by operating activities and deposits from customers have been NCF's primary sources of liquidity. Correspondent relationships are maintained with several larger banks enabling the subsidiary banks to purchase federal funds when needed. Also available as liquidity sources are access to the Federal Reserve discount window and the subsidiary banks' lines of credit maintained with the FHLB. These lines of credit are secured by blanket collateral agreements on the subsidiary banks' mortgage loan portfolios and certain other loans and securities. Certificates of deposit in denominations of $100,000 or more are an additional source of liquidity. At December 31, 2000, these accounts totaled $2 billion compared to $1.3 billion at December 31, 1999. During 2000, the maximum month-end balance for certificates of deposit in amounts of $100,000 or more was $2.2 billion. The following is a remaining maturity schedule of these deposits at December 31, 2000 (in thousands):
Over 3 Over 6 3 Months Through Through Over or Less 6 Months 12 Months 1 Year Total -------- -------- --------- ------ ---------- Jumbo and brokered deposits...... $929,424 217,812 809,803 49,702 $2,006,741
Maturities of securities held for investment and sales and maturities of securities categorized as available for sale are other sources of liquidity. Securities with carrying values of $734 million mature in 2001. Securities categorized as available for sale are considered in NCF's asset/liability management strategies and may be sold in response to changes in interest rates, liquidity needs and/or significant prepayment risk. 54 NCF's liquidity is provided though cash dividends from its subsidiary banks and its other non-bank subsidiaries as well as its capacity to raise additional borrowed funds as needed. In addition to ensuring adequate liquidity, NCF is concerned with managing interest-sensitivity so as to avoid significant net interest margin fluctuations while promoting consistent net income increases during periods of changing interest rates. Interest sensitivity is NCF's primary market risk and is defined as the risk of economic loss resulting from adverse changes in interest rates. This risk of loss can be reflected in reduced potential net interest income in future periods. NCF's market risk arises primarily from interest rate risk inherent in its lending and deposit-taking activities. The structure of NCF's loan and deposit portfolios is such that a significant rise or decline in interest rates may adversely impact net interest margin and net interest income. Responsibility for both liquidity and interest-sensitivity management rests with the Asset/Liability Management Committee, or "ALCO," comprised of NCF senior management. ALCO reviews interest rate and liquidity exposures and, based on its view of existing and expected market conditions, adopts balance sheet strategies that are intended to optimize net interest income to the extent possible while minimizing the risk associated with changes in interest rates. Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. Overnight federal funds, on which rates change daily, and loans which are tied to the prime rate are much more interest rate sensitive than fixed-rate securities and loans. Similarly, time deposits of $100,000 and over and money market accounts are much more interest rate sensitive than savings accounts. The shorter term interest rate sensitivities are the key to measurement of the interest sensitivity gap, or difference between interest-sensitive earning assets and interest-sensitive liabilities. Trying to minimize this gap is a continual challenge in a changing interest rate environment and one of the objectives of the ALCO. ALCO uses gap analysis to determine and monitor the appropriate balance between interest- sensitive assets and interest-sensitive liabilities. Gap analysis measures the interest-sensitivity of assets and liabilities at a given point in time. The interest-sensitivity of assets and liabilities is based on the timing of contractual maturities and repricing opportunities. A positive interest-sensitive gap occurs when interest-sensitive assets exceed interest-sensitive liabilities. The reverse situation results in a negative gap. NCF management feels that an essentially balanced position (plus or minus 15% of total earning assets) between interest-sensitive assets and liabilities is necessary in order to protect against wide fluctuations in interest rates. An analysis of NCF's interest-sensitivity position at December 31, 2000 is presented in the table below. At December 31, 2000, NCF had a cumulative "negative gap" (interest-sensitive liabilities and interest rate swaps exceed interest-sensitive assets) of $972.7 million or 6.24% of total earning assets over a twelve-month horizon. The ratio of interest-sensitive assets to interest-sensitive liabilities and interest rate swaps was .86x. 55 Interest-Sensitivity Analysis
As of December 31, 2000(1) --------------------------------------------------------------------- 6 Months Beyond 1 30 Days 6 Months to 1 Year Total Year Sensitive Sensitive Sensitive Sensitive Sensitive Total ----------- ---------- --------- ---------- --------- ---------- (in thousands) Earning assets: Time deposits in other banks.................. $ 32,183 -- -- 32,183 -- 32,183 Federal funds sold and other short-term investments............ 52,572 -- -- 52,572 -- 52,572 Investment securities(2).......... 481,574 403,237 266,767 1,151,578 3,228,227 4,379,805 Trading securities...... 74,417 -- -- 74,417 -- 74,417 Loans................... 2,975,931 865,127 834,247 4,675,305 6,333,114 11,008,419 ----------- ---------- --------- ---------- --------- ---------- Total earning assets... 3,616,677 1,268,364 1,101,014 5,986,055 9,561,341 15,547,396 =========== ========== ========= ========== ========= ========== Interest-bearing liabilities: Savings deposits........ 1,769,202 129,170 155,004 2,053,376 2,420,738 4,474,114 Time deposits........... 1,303,158 1,961,355 1,406,260 4,670,773 1,468,566 6,139,339 Short-term borrowed funds.................. 1,000,176 148,044 64,683 1,212,903 -- 1,212,903 Federal Home Loan Bank advances............... 182,809 252,787 46,198 481,794 1,167,261 1,649,055 Long-term debt.......... -- -- -- -- 39,379 39,379 ----------- ---------- --------- ---------- --------- ---------- Total interest-bearing liabilities........... 4,255,345 2,491,356 1,672,145 8,418,846 5,095,643 13,514,790 =========== ========== ========= ========== ========= ========== Interest rate swaps(3): Pay fixed/receive floating(4)............ (1,500,000) -- -- (1,500,000) 1,500,000 -- Pay floating/receive fixed.................. 125,000 -- (75,000) 50,000 (50,000) -- ----------- ---------- --------- ---------- --------- ---------- Total interest rate swaps................. (1,375,000) -- (75,000) (1,450,000) 1,450,000 -- =========== ========== ========= ========== ========= ========== Interest-sensitivity gap.................... $ 736,332 (1,222,992) (496,131) (982,791) ========== ========= ========== Cumulative gap.......... $ 736,332 (486,660) (982,791) =========== ========== ========= Cumulative ratio of interest-sensitive assets to interest- sensitive liabilities and interest rate swaps.................. 1.26x .91 .86 =========== ========== ========= Cumulative gap to total earning assets......... 4.74% (3.13) (6.32) =========== ========== =========
- -------- (1) Assets and liabilities that mature in one year or less and/or have interest rates that can be adjusted during this period are considered interest- sensitive. The interest-sensitivity position has meaning only as of the date for which it is prepared. (2) Investment securities are presented at their amortized cost. The mark-to- market adjustment of $38.5 million for available for sale securities is not included. (3) Does not include $100 million of basis swaps that pay floating/receive floating. (4) These positions were closed subsequent to December 31, 2000. NCF management uses both on- and off-balance sheet strategies to manage the balance sheet. The most efficient and cost-effective method of on-balance sheet management is creating desired maturity and repricing streams through the tactical pricing of interest-earning and interest-bearing on-balance sheet products. ALCO reviews the interest-earning and interest-bearing portfolios to ensure a proper mix of fixed and variable rate products. Emphasis will continue to be placed on granting loans with short maturities and floating rates where possible. This strategy increases liquidity and is necessitated by the continued shortening of maturities and more frequent repricing opportunities of NCF's funding sources. NCF utilizes derivative financial instruments to manage interest rate sensitivity by modifying the repricing or maturity of assets or liabilities. As of December 31, 2000, NCF had derivative financial instruments in the form of interest rate swaps with notional principal of $1.7 billion. Notional amounts 56 do not represent amounts to be exchanged between parties and are not a measure of financial risks, but only provide the basis for calculating interest payments between the counterparties. Net interest received or paid on an interest rate swap agreement is recognized over the life of the contract as an adjustment to interest income (expense) of the modified or "hedged" financial asset or liability. Estimating the amount of interest rate risk requires using assumptions about the future. These estimates will be different from actual results for many reasons, including but not limited to changes in the growth of the overall economy, changes in credit spreads, market interest rates moving in patterns other than the patterns chosen for analysis, changes in customer preferences, changes in tactical and strategic plans and changes in Federal Reserve policy. Stress testing is performed on all market risk measurement analyses to help understand the relative sensitivity of key assumptions and thereby better understand NCF's risk profile. The table below provides information about NCF's financial instruments (used for purposes other than trading) that are sensitive to changes in interest rates as of December 31, 2000. Prior to the 2000 acquisitions, exposure to interest rate risk was managed by each of the previously separate companies. Each company used separate risk management models and assumptions in accordance with its unique risk profile. Accordingly, prior period amounts are not presented as such amounts were based on the risk profiles of the previously separate entities and are not comparable to current period amounts. The table below presents principal cash flow and related weighted average interest rates by contractual maturities for loans, securities and liabilities with contractual maturities. NCF included assumptions of the impact of interest rate fluctuations on prepayment of residential and home equity loans and mortgage- backed securities based on NCF's historical experience. For core deposits that have no contractual maturity, the principal cash flows and related weighted average interest rates presented are based upon NCF's historical experience, management's judgment and statistical analysis, as applicable, concerning their most likely withdrawal behaviors. Weighted average variable rates are based on the implied forward rates in the yield curve at December 31, 2000. With the current economic environment, liquidity sources have increased as NCF has experienced increases in deposits and prepayments of loans and securities. NCF's management will continue to monitor its interest-sensitivity position with the goals of ensuring adequate liquidity while at the same time seeking profitable spreads between the yields on funding uses and the rates paid for funding sources. There is a risk that in the short-term NCF may experience a significant increase in securities and loan redemptions and may be unable to quickly reinvest the cash from such redemptions at attractive rates or spreads. 57 Market Risk Disclosure
Approximate Fair Value Principal Amount Maturing in at ------------------------------------------------------------ --------- December 31, 2001 2002 2003 2004 2005 Thereafter Total 2000 ---------- --------- --------- --------- ------- ---------- --------- ------------ (in thousands) Rate Sensitive Assets: Fixed interest rate loans.................. $1,428,236 1,141,614 1,288,610 1,145,083 712,263 1,530,809 7,246,615 7,192,000 Average interest rate.. 8.74% 8.71 8.50 8.22 8.88 8.02 8.47 Variable interest rate loans.................. $ 895,746 331,167 285,756 229,402 283,500 1,736,233 3,761,804 3,762,000 Average interest rate.. 9.08% 8.88 8.83 8.93 8.87 8.73 8.86 Fixed interest rate securities............. $ 716,890 360,931 316,757 224,933 210,762 2,115,809 3,946,082 3,914,000 Average interest rate.. 7.25% 7.14 7.32 7.28 7.30 6.77 6.99 Variable interest rate securities............. $17,000 17,200 20,487 17,000 21,960 378,592 472,239 472,000 Average interest rate.. 6.55% 6.57 6.83 6.55 6.92 7.03 6.97 Rate Sensitive Liabilities: Non-interest-bearing deposits............... $ 792,481 143,425 143,424 143,424 143,424 -- 1,366,178 1,366,000 Average interest rate.. -- -- -- -- -- -- -- Savings and NOW accounts............... $1,035,012 859,775 859,776 859,775 859,776 -- 4,474,114 4,474,000 Average interest rate.. 3.54% 3.40 3.40 3.40 3.40 -- 3.43 Time deposits........... $4,670,138 1,301,887 68,405 31,570 24,180 43,159 6,139,339 6,295,000 Average interest rate.. 6.28% 6.56 5.79 5.53 6.61 6.65 6.33 Fixed interest rate borrowings............. $ 982,724 47,837 69,031 1,497 369 372,084 1,473,542 1,483,000 Average interest rate.. 6.47% 6.10 6.23 4.92 4.40 5.18 6.12 Variable interest rate borrowings............. $1,371,501 -- -- -- -- 56,294 1,427,795 1,428,000 Average interest rate.. 5.93% -- -- -- -- 7.49 5.99 Rate Sensitive Derivative Financial Instruments: Pay fixed/receive variable interest rate swaps.................. $1,500,000 -- -- -- -- -- -- -- Average pay rate....... 5.74% -- -- -- -- -- -- -- Average receive rate... 6.74 -- -- -- -- -- -- -- Pay variable/receive fixed interest rate swaps.................. $ 125,000 -- -- -- -- -- -- -- Average pay rate....... 6.57% -- -- -- -- -- -- -- Average receive rate... 7.14 -- -- -- -- -- -- -- Pay variable/receive variable interest rate swaps.................. $ 100,000 -- -- -- -- -- -- -- Average pay rate....... 5.96% -- -- -- -- -- -- -- Average receive rate... 5.70 -- -- -- -- -- -- --
Quantitative and Qualitative Disclosures About Market Risk Market risk reflects the risk of economic loss resulting from adverse changes in market price and interest rates. This risk of loss can be reflected in diminished current market values and/or reduced potential net interest income in future periods. NCF's market risk arises primarily from interest rate risk inherent in its lending and deposit-taking activities. The structure of NCF's loan and deposit portfolios is such that a significant rise or decline in interest rates may adversely impact net market values and net interest income. NCF is not subject to currency exchange risk or commodity price risk. Responsibility for monitoring interest rate risk rests with ALCO. ALCO regularly reviews NCF's interest rate risk position and adopts balance sheet 58 strategies that are intended to optimize net interest income while maintaining market risk within a set of board-approved guidelines. During the quarter ended March 31, 2001, NCF terminated $1.5 billion notional amount of pay fixed/receive variable interest rate swap agreements. As of September 30, 2001, management believes that there have been no other significant changes in market risk as previously disclosed for the year ended December 31, 2000. Change in Accountants On March 20, 2001, management of NCF notified Ernst & Young LLP that their appointment as independent auditors would be terminated effective upon the issuance of Ernst & Young's report on the consolidated financial statements of NCF and subsidiaries for the year ended December 31, 2000. KPMG LLP was engaged as independent auditors effective upon Ernst & Young's termination. The decision to change auditors was recommended by the audit committee of the board of directors and approved by the board of directors. NCF filed a Current Report on Form 8-K stating (i) the reasons for such termination, (ii) that there had been no disagreements between NCF and Ernst & Young, and (iii) that KPMG had been consulted with respect to the accounting treatment of certain interest rate swap transactions entered into by NCF during the first and second quarters of 2000, had orally advised NCF of its views on such accounting treatment, and had given NCF guidance that was identical to that given by Ernst & Young on such issue. On May 15, 2001, NCF publicly announced that it would restate its financial statements to reflect purchase accounting treatment for certain business combinations that had previously been accounted for as pooling-of-interests transactions. Notwithstanding its termination of Ernst &Young's engagement described above, NCF engaged Ernst & Young to audit the restated financial statements of NCF to be included in an Amended Annual Report on Form 10-K/A. Ernst & Young accepted such engagement and delivered its report on the restated financial statements dated June 22, 2001, which was filed with NCF's Amended Annual Report on Form 10-K/A on July 3, 2001. Through the date of the filing of Ernst & Young's report on the restated financial statements described above, there were no "disagreements" (as such term is defined in Item 304(a)(1)(iv) of Regulation S-K) with Ernst & Young at any time during NCF's two most recent fiscal years or thereafter regarding any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure that, if not resolved to the satisfaction of Ernst & Young, would have caused it to make reference to the subject matter of the disagreement in connection with its report. In addition, during the same period, no "reportable events" (as such term is defined in Item 304(a)(1)(v) of Regulation S-K) arose in the context of NCF's relationship with Ernst & Young. Impact of Recently Issued Accounting Standards In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to the estimated residual values, and reviewed for impairment in 59 accordance with Statement 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. NCF is required to adopt the provisions of Statement 141 immediately, except with regard to business combinations initiated prior to July 1, 2001, which it expects to account for using the pooling-of-interests method, and Statement 142 effective January 1, 2002. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the adoption of Statement 142. Statement 141 will require, upon adoption of Statement 142, that NCF evaluate its existing intangible assets and goodwill that were acquired in prior purchase business combinations, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, NCF will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, NCF will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. In connection with the transitional goodwill impairment evaluation, Statement 142 will require NCF to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. To accomplish this, NCF must identify its reporting units and determine the carrying value of the reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. NCF will then have up to six months from the date of adoption to determine the fair value of the reporting unit and compare it to the reporting unit's carrying amount. To the extent a reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and NCF must perform the second step of the transitional impairment test. In the second step, NCF must compare the implied fair value of the reporting unit's goodwill, determined by allocating the reporting unit's fair value to all of its assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of the year of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in NCF's statement of income. As of the date of adoption, NCF expects to have unamortized goodwill in the amount of $897.5 million and unamortized identifiable intangible assets in the amount of $234.8 million, all of which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill totaled $26.9 million and $36.2 million for the year ended December 31, 2000 and the nine months ended September 30, 2001, respectively. Because of the extensive effort needed to comply with adoption of Statements 141 and 142, it is not currently practicable to reasonably estimate the impact of adopting these Statements on NCF's consolidated financial statements at the date of this prospectus; however, management does not anticipate that any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle. In August 2001, FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes both Statement No. 121, Accounting for the Impairment of 60 Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined in that Opinion). Statement 144 retains the fundamental provisions in Statement 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with Statement 121. For example, Statement 144 provides guidance on how a long-lived asset that is used as part of a group should be evaluated for impairment, establishes criteria for when a long-lived asset is held for sale, and prescribes the accounting for a long-lived asset that will be disposed of other than by sale. Statement 144 retains the basic provisions of Opinion 30 on how to present discontinued operations in the income statement but broadens that presentation to include a component of an entity (rather than a segment of a business). Unlike Statement 121, an impairment assessment under Statement 144 will never result in a write- down of goodwill. Rather, goodwill is evaluated for impairment under Statement 142, as discussed above. NCF is required to adopt Statement 144 no later than the year beginning after December 15, 2001, and plans to adopt its provisions for the quarter ending March 31, 2002. Management does not expect the adoption of Statement 144 for long-lived assets held for use to have a material impact on the company's financial statements because the impairment assessment under Statement 144 is largely unchanged from Statement 121. The provisions of the Statement for assets held for sale or other disposal generally are required to be applied prospectively after the adoption date to newly initiated disposal activities. Therefore, management cannot determine the potential effects that adoption of Statement 144 will have on NCF's financial statements. 61 DIRECTORS AND EXECUTIVE OFFICERS OF NCF NCF's Amended and Restated Charter provides for a board of directors consisting of not less than three and not more than 25 directors. It divides the board into three classes as nearly equal in number as possible, with each class serving a three-year term and one class elected at the annual meeting of shareholders. The board of directors has fixed its number at 20. Currently 19 seats are filled with one unfilled vacancy. Pursuant to NCF's Agreement and Plan of Merger with CCB, for a period of two years after the merger, which was effective July 5, 2000, 10 of NCF's directors are to be nominated by members of the board who were directors of NCF prior to the merger, or their successors, and 10 are to be nominated by members of the board who were directors of CCB prior to the merger, or their successors. The current vacancy may be filled by the CCB directors. The following table sets forth information regarding NCF's current directors: Incumbents to Serve Until the Annual Meeting of Shareholders in 2002
Age (as of Principal Occupation for Year First November 15, Past Five Years and Elected Name 2001) Directorships Director ---- ------------ ------------------------ ---------- Thomas C. Farnsworth, Jr... 63 Chairman of Farnsworth 1977 Investment Co. (real estate developer) R. Lee Jenkins............. 71 Private investor; 1990 Director of RFS Hotel Investors, Inc. Eugene J. McDonald......... 69 Executive Vice President 2000 of Duke University; Founding President and Chief Executive Officer of Duke Management Company (asset management company affiliated with Duke University); Chairman of Winston Hedged Equity Group; Director of RedHat, Inc.; Director of CCB until July 2000 James E. McGehee, Jr....... 72 Chairman of McGehee 1976 Realty and Development Company Phillip H. McNeill, Sr..... 62 Chairman and Chief 1998 Executive Officer of Equity Inns, Inc.; Director of Interstate Hotel Corp. Ernest C. Roessler......... 60 President and Chief 2000 Executive Officer; Chairman of the Board, President and Chief Executive Officer of CCB until July 2000 Dr. Phail Wynn, Jr......... 54 President, Durham 2000 Technical Community College; Director of CCB until July 2000 Incumbents to Serve Until the Annual Meeting of Shareholders in 2003 James B. Brame, Jr......... 56 President and Chief 2000 Executive Officer of Brame Specialty Co., Inc. (paper and office supplies); Director of CCB until July 2000 John D. Canale, III........ 56 President and Chief 1989 Executive Officer of D. Canale & Co; Secretary- Treasurer of D. Canale Beverages, Inc.; President of D. Canale Food Services, Inc. (wholesale food distributor) until September 1999
62
Age (as of Principal Occupation for Year First November 15, Past Five Years and Elected Name 2001) Directorships Director ---- ------------ ------------------------- ---------- James H. Daughdrill, Jr... 67 President of Rhodes 1999 College until his retirement in June 1999 J. Bradbury Reed.......... 61 Member of law firm of 1998 Bass, Berry & Sims PLC; Director of J. Alexander's Corporation Dr. David E. Shi.......... 50 President of Furman 2000 University; Director of CCB until July 2000 Incumbents to Serve Until the Annual Meeting of Shareholders in 2004 Bruce E. Campbell, Jr..... 70 Director of RFS Hotel 1976 Investors, Inc. Blake P. Garrett.......... 61 Partner in Garrett and 2000 Garrett Construction and related companies (commercial real estate development); Director of CCB until July 2000 Thomas M. Garrott......... 64 Chairman of the Board; 1977 Chairman of the Executive Committee of the Board; President and Chief Executive Officer of NCF until July 2000; Chief Executive Officer and Chairman of the Board of National Bank of Commerce until July 1998; Director of Internet Pictures, Inc. C. Dan Joyner............. 64 President and Chief 2000 Executive Officer of The Prudential/C. Dan Joyner Co., Inc. (real estate broker); Director of CCB until July 2000 W. Neely Mallory, Jr...... 67 President of Mallory 1974 Group, Inc. (3rd party logistics) Eric B. Munson............ 58 President and Chief 2000 Executive Officer of University of North Carolina Hospitals; Director of CCB until July 2000 H. Allen Tate, Jr......... 70 President and Chief 2000 Executive Officer of Allen Tate Company, Inc. (real estate broker); Director of Reliance Relocation Services, Inc.; Director of CCB until July 2000
All officers of NCF are appointed by the board of directors to hold their offices at the pleasure of the board. At November 15, 2001, the executive officers of NCF were as follows:
Name Age Office Held - ---- --- ----------- Thomas M. Garrott........... 64 Chairman of the Board and Director Ernest C. Roessler.......... 60 President, Chief Executive Officer and Director William R. Reed, Jr......... 55 Chief Operating Officer Sheldon M. Fox.............. 41 Chief Financial Officer J. Scott Edwards............ 56 Chief Administrative Officer Richard L. Furr............. 52 Chairman and President, Central Carolina Bank David T. Popwell............ 41 Executive Vice President and Secretary
63 The above officers have served as executive officers for more than five years except as noted below. Mr. Roessler served as Chairman of the Board, President and Chief Executive Officer of CCB prior to July 2000. Mr. Fox served as Executive Vice President and Chief Financial Officer of CCB prior to July 2000. Prior to October 1998, he was a partner with KPMG LLP. Messrs. Edwards and Furr served as Senior Executive Vice Presidents of CCB prior to July 2000. Mr. Popwell was elected Executive Vice President of NCF in August 1998 and Secretary in October 1999. Prior to that time, he was an attorney with Baker, Donelson, Bearman and Caldwell. Stock Ownership of Management and Principal Shareholders The following table sets forth the number, rounded to the nearest whole share, and the percentage of shares of NCF's outstanding common stock that were beneficially owned by the company's Chief Executive Officer, each of the four other most highly compensated executive officers (including officers of subsidiaries, if applicable), directors and all directors and named executive officers as a group, as of September 30, 2001. The number of shares of common stock outstanding used in calculating the percentage for the listed individual includes the shares of common stock underlying options or warrants exercisable currently or within 60 days of September 30, 2001 that were held by the listed individuals, but excludes shares of common stock underlying options or warrants held by other persons. NCF knows of no person that is a "beneficial owner," as such term is defined by the rules of the Securities and Exchange Commission, of more than 5% of the outstanding shares of NCF's common stock as of September 30, 2001.
Number of Shares of Percent Common Stock Beneficially Owned as of of Name September 30, 2001(1) Class - ---- ------------------------------------- ------- James B. Brame, Jr.............. 57,896(2) * Bruce E. Campbell............... 499,715(3) * John D. Canale III.............. 5,198,292(4) 2.51 James H. Daughdrill............. 5,452(5) * Thomas C. Farnsworth, Jr........ 957,490(6) * Richard L. Furr................. 381,320(7) * Blake P. Garrett, Jr............ 260,812(8) * Thomas M. Garrott............... 2,152,110(9) 1.04 Lewis E. Holland................ 506,762(10) * R. Lee Jenkins.................. 42,772(11) * C. Dan Joyner................... 116,948(12) * W. Neely Mallory, Jr............ 460,501(13) * Eugene J. McDonald.............. 81,045(14) * James E. McGehee, Jr............ 3,499,829(15) 1.69 Phillip H. McNeill, Sr.......... 105,882(16) * Eric B. Munson.................. 45,529(17) * J. Bradbury Reed................ 16,158(18) * William R. Reed, Jr............. 767,820(19) * Ernest C. Roessler.............. 725,766(20) * Dr. David E. Shi................ 53,661(21) * H. Allen Tate, Jr............... 103,071(22) * Dr. Phail Wynn, Jr.............. 46,907(23) * All directors and named executive officers as a group (22 persons)................... 16,085,738(24) 7.76
(footnotes on next page) 64 - -------- * Less than 1% of the outstanding shares of NCF's common stock. (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting or investment power with respect to securities. Shares of common stock issuable upon the exercise of stock options, warrants or other rights to acquire common stock that are currently exercisable or convertible, or exercisable or convertible within 60 days of September 30, 2001, are deemed outstanding and beneficially owned by the person holding the option, warrant or other right for purposes of computing such person's percentage ownership. Except for shares held jointly with a person's spouse or subject to applicable community property laws, or as indicated in the footnotes to this table, the shareholder identified in the table possesses sole voting power and investment power with respect to all shares of common stock shown as beneficially owned by such shareholder. (2) Includes 29,794 shares of common stock issuable upon exercise of an option held by Mr. Brame. (3) Includes 99,188 shares of common stock held by Mr. Campbell through an individual retirement account; 236,204 shares held jointly by Mr. Campbell and his wife; a total of 82,452 shares held by members of Mr. Campbell's family, as to which Mr. Campbell disclaims any beneficial interest; and 4,772 shares of common stock issuable upon exercise of an option held by Mr. Campbell. (4) Includes 325,500 shares owned by the estate of Mr. Canale's father, John D. Canale. As an executor of the estate, Mr. Canale shares investment and voting power. Also includes 4,711,312 shares held by D. Canale & Co., in which Mr. Canale has a 50% voting interest. Also includes 400 shares held by Mr. Canale as custodian for his nephew and 4,772 shares of common stock issuable upon exercise of an option held by Mr. Canale. (5) Includes 4,772 shares of common stock issuable upon the exercise of an option held by Mr. Daughdrill. (6) Includes 500 shares held by Mr. Farnsworth's wife, as to which Mr. Farnsworth disclaims any beneficial interest, and 4,772 shares of common stock issuable upon exercise of an option held by Mr. Farnsworth. (7) Includes 171,549 shares of common stock issuable upon exercise of stock options held by Mr. Furr; 22,360 shares held by Mr. Furr's wife; 4,900 shares held by Mr. Furr's children; and 23,283 shares attributable to Mr. Furr under NCF's 401(k) plan. (8) Includes 111,206 shares of common stock held by members of Mr. Garrett's family; 1,377 shares held by Inn Circle Limited Partnership, of which Mr. Garrett is a partner; 5,449 shares held by Garrett, Wenck & Garrett, Inc., of which Mr. Garrett is a shareholder; and 38,016 shares issuable upon exercise of an option held by Mr. Garrett. (9) Includes 385,000 shares of common stock issuable upon exercise of stock options held by Mr. Garrott; 95,248 shares held by Mr. Garrott's wife, as to which Mr. Garrott disclaims any beneficial interest; 99,893 shares held in trust for the benefit of Mr. Garrott's children, as to which Mr. Garrott disclaims any beneficial interest; and 2,152,110 shares attributable to Mr. Garrott under NCF's 401(k) plan. (10) Includes 414,100 shares of common stock issuable upon exercise of stock options held by Mr. Holland; 2,729 shares attributable to Mr. Holland under NCF's 401(k) plan; and 49,562 shares held by Mr. Holland's wife, as to which he disclaims any beneficial interest. Mr. Holland retired as an officer of NCF, effective as of July 31, 2001. (11) Includes 6,000 shares of common stock held by Mr. Jenkins's wife, as to which he disclaims any beneficial interest, and 4,772 shares of common stock issuable upon exercise of an option held by Mr. Jenkins. (12) Includes 45,611 shares of common stock issuable upon exercise of stock options held by Mr. Joyner and 5,606 shares held by Mr. Joyner through an individual retirement account. 65 (13) Includes 4,000 shares of common stock held by Mr. Mallory's wife, as to which he disclaims any beneficial interest, and 4,772 shares of common stock issuable upon exercise of an option held by Mr. Mallory. (14) Includes 34,694 shares of common stock issuable upon exercise of stock options held by Mr. McDonald. (15) Includes 3,439,138 shares of common stock held by certain family entities, foundations or members, as to which Mr. McGehee has voting power but as to which Mr. McGehee disclaims any beneficial interest. Of those 3,439,138 shares, Mr. McGehee has no investment power with respect to 1,635,609 shares. Also includes 4,772 shares of common stock issuable upon exercise of an option by Mr. McGehee. (16) Includes 4,772 shares of common stock issuable upon exercise of an option held by Mr. McNeill. (17) Includes 34,694 shares of common stock issuable upon exercise of stock options held by Mr. Munson. (18) Includes 4,772 shares of common stock issuable upon exercise of an option held by Mr. Reed. (19) Includes 225,600 shares of common stock held by Mr. Reed's wife; 255,834 shares issuable upon exercise of stock options held by Mr. Reed; and 60,634 shares attributable to Mr. Reed under NCF's 401(k) plan. (20) Includes 360,806 shares of common stock issuable upon exercise of stock options held by Mr. Roessler; 17,150 shares held by Mr. Roessler's wife, as to which he disclaims any beneficial interest; and 16,774 shares attributable to Mr. Roessler under NCF's 401(k) plan. (21) Includes 33,911 shares of common stock issuable upon exercise of stock options held by Dr. Shi. (22) Includes 34,694 shares of common stock issuable upon exercise of stock options held by Mr. Tate; 4,001 shares held by the Allen Tate Foundation; and 15,381 shares of common stock held by Mr. Tate through an individual retirement account. (23) Includes 34,694 shares of common stock issuable upon exercise of stock options held by Dr. Wynn. (24) Includes an aggregate of 1,916,345 shares of common stock issuable upon the exercise of stock options by all directors and named executive officers as a group. Also includes an aggregate of 197,918 shares under NCF's 401(k) plan. Compensation of Directors Only directors who are not officers or employees of NCF are entitled to receive compensation for their activities carried out in connection with their board membership. The following table summarizes NCF's arrangements for compensation of its outside directors. Annual Retainer(1).................. $15,000 Board Meeting Fee(1)................ $1,000 Executive Committee Retainer(1)..... $7,500 Committee Meeting Fee(1)............ $750 Annual Committee Chair Retainer(1).. $1,000 Annual Equity Compensation.......... Non-qualified stock options valued at $30,000 using the Black-Scholes method.
- -------- (1) All retainer and meeting fees must be invested in either the Director's Fees Deferral Plan or the company's Dividend Reinvestment Plan. During 2000, NCF had a different arrangement for compensating its outside directors, both those who were NCF directors prior to the merger with CCB, or their successors, and those who were 66 directors of CCB prior to the merger and who continued as directors of NCF after the merger. The following table sets forth that compensation:
NCF CCB Directors Directors ---------- --------- Annual Retainer....................................... $4,000 $12,500(3) Executive Committee Retainer.......................... -- 7,500(3) Board Meeting Fee..................................... 2,000(1) 875(1) Committee Meeting Fee................................. 150(1) 750(1) Committee Chairman Fee................................ 250(1) 1,000(1) Stock Grant........................................... 100 shares(2) --
- -------- (1) Per meeting attended. (2) Granted only if all of the board meetings for the year were attended. (3) Prorated for the portion of the year following the merger. At the end of 2000, a director who was an NCF director prior to the merger was given a lump sum payment equal to the difference between what he would have been paid had he been a CCB director prior to the merger and what he was actually paid as an NCF director. Summary Compensation Table The following table sets forth certain summary information for the years indicated with respect to the compensation awarded to, earned by, or paid to NCF's Chief Executive Officer and each of the four other most highly compensated executive officers of NCF and its subsidiaries. The compensation shown for Messrs. Roessler and Furr includes compensation paid to them by CCB prior to the CCB merger in July 2000.
Long-term Compensation ------------------------------- Awards Payouts --------------------- --------- Annual Securities Compensation(1) Restricted Underlying --------------- Stock Options/ LTIP All other Salary Bonus Awards(s) SARs Payouts compensation Name and principal position Year ($) ($) ($)(2) (#)(3) ($)(4) ($)(5) ---------------------------------------------- ---- ------- ------- ---------- ---------- --------- ------------ Ernest C. Roessler President and Chief 2000 650,000 733,107 1,581,250 449,601 1,039,354 3,222,344(6)(8) Executive Officer; 1999 600,000 370,731 -- 84,476 202,000 93,939(8) Director of NBC; 1998 521,000 340,890 -- 84,476 150,000 143,438 Chairman of the Board, President and Chief Executive Officer of CCB until July 2000 Thomas M. Garrott Chairman of the Board 2000 625,000 758,107 2,050,375 360,000 -- 12,251,182(6)(9) and Director; President 1999 535,000 535,000 532,500 65,000 -- 2,414,487(7)(9) and Chief Executive 1998 510,000 510,000 -- 80,000 -- 31,000(9) Officer until July 2000; Director of NBC William R. Reed, Jr. Chief Operating Officer; 2000 322,500 217,787 474,375 137,500 -- 2,526,043(6)(9) Chairman and Director 1999 271,000 184,280 -- 25,000 -- 70,881(7)(9) of NBC; Director of 1998 246,000 184,500 -- 40,000 -- 33,000(9) Central Carolina Bank Lewis E. Holland President of Financial 2000 315,000 201,012 474,375 137,500 -- 3,942,803(6)(9) Enterprises, Vice 1999 271,000 170,730 -- 25,000 -- 70,881(7)(9) Chairman and Director of 1998 291,000 197,250 -- 40,000 -- 33,000(9) NBC; Director of Central Carolina Bank Richard L. Furr Chairman and President 2000 339,400 216,531 474,375 163,754 449,192 1,559,443(6)(8) of Central Carolina 1999 325,800 167,756 -- 35,721 100,000 46,379(8) Bank; Senior Executive 1998 301,658 157,900 -- 35,721 86,000 67,545(8) Vice President of CCB until July 2000
(footnotes on next page) 67 - -------- (1) NCF also provides certain perquisites and other personal benefits to the named executive officers that do not exceed either $50,000 or 10% of the named executive officer's total annual salary and bonus. (2) Dollar amount shown equals number of shares multiplied by stock price on grant date. Dividends are paid on shares of restricted stock at the same rate as on unrestricted shares. The number of shares of restricted stock held by the named executive officer and the value of those shares as of December 31, 2000 are as follows:
Name Aggregate Holdings (# of Shares) Aggregate Value ($) ---- -------------------------------- ------------------- Mr. Roessler............ 100,000 2,475,000 Mr. Garrott............. 100,000 2,475,000 Mr. Reed................ 30,000 742,500 Mr. Holland............. 30,000 742,500 Mr. Furr................ 30,000 742,500
All shares of restricted stock vest in three equal installments on July 5, 2001, 2002 and 2003, except that Mr. Garrott was awarded 30,000 shares in 2000 and 27,000 in 1999, all of which vested on July 5, 2000. (3) Options adjusted for 2-for-1 stock split effective July 1, 1998. The options shown for Messrs. Roessler and Furr for 1999 and 1998 represent options to acquire shares of CCB common stock that were converted into options to acquire shares of NCF's common stock upon completion of the NCF- CCB merger. (4) Reflects amounts paid to Messrs. Roessler and Furr under CCB's Long-Term Incentive Plan ("LTIP"). In connection with the NCF-CCB merger, LTIP awards scheduled to vest in 2001 and 2002 were accelerated for all participants. The amounts listed for Messrs. Roessler and Furr include $762,000 and $332,000, respectively, which amounts were accelerated due to the merger. (5) In addition to the other amounts footnoted below, figures in this column include directors' fees (with respect to service on the boards of NCF and NBC, as applicable) of an aggregate of $26,150 paid to Mr. Garrott, $20,000 paid to Mr. Reed, and $22,000 paid to Mr. Holland for 2000; $24,000 paid to Mr. Garrott, $22,000 paid to Mr. Reed, and $24,000 paid to Mr. Holland for 1999; and $26,000 paid to Mr. Garrott, $32,000 paid to Mr. Reed, and $28,000 paid to Mr. Holland for 1998. (6) The amount listed for the named executive officer includes payments pursuant to contractual obligations made in connection with the NCF-CCB merger, as follows: Mr. Roessler, $3,109,600; Mr. Garrott, $12,131,293; Mr. Reed, $2,464,155; Mr. Holland, $3,873,672; and Mr. Furr, $1,519,518. The amount listed for Mr. Roessler also includes $18,520 in relocation costs paid to him by NCF. The amounts listed for Messrs. Roessler, Garrott, Reed, Holland and Furr also include split dollar life insurance premiums. (7) Includes split dollar life insurance premiums. Also includes a lump sum payment received by Mr. Garrott in 1999 in the amount of $2,296,998 in accordance with an amended employment agreement that extends the date upon which he may elect to be employed on part-time status. (8) The amounts listed for Messrs. Roessler and Furr include an employer's matching contribution on behalf of that officer to the CCB 401(k) plan. The separate amounts for 2000, 1999 and 1998 are as follows: Mr. Roessler-- $30,622, $28,227 and $39,359 and Mr. Furr--$8,715, $14,511 and $20,898. The 1999 and 1998 amounts also include split dollar life insurance premiums. (9) Also includes an employer's matching contribution on behalf of that officer to the NCF 401(k) plan in the amount of $5,250 for the officer in 2000 and $5,000 for the officer in each of 1999 and 1998. 68 Stock Option Plans During 1994, the shareholders approved NCF's 1994 Stock Plan (the "1994 Plan"), under which NCF reserved 6,200,000 shares of common stock. Shares that had not been subject to option or restricted stock grants under previous plans were transferred to reserved shares under the 1994 Plan. In 1997 and 2000, the shareholders approved an additional 2,000,000 and 4,000,000 shares, respectively, for grants under the 1994 Plan. NCF grants options under the 1994 Plan at the then prevailing market price of the common stock. Options become exercisable in equal parts over vesting periods ranging from three to five years. Only eligible officers and key employees are eligible to participate in the 1994 Plan. In addition, in connection with the CCB merger, NCF assumed CCB's obligations under several option plans, including the CCB Long-Term Incentive Plan. CCB shareholders approved all shares available for grant under the CCB LTIP. Immediately following the CCB merger, there were approximately 5,334,650 shares of NCF common stock available for issuance under the CCB LTIP, which remain available for issuance to executive officers and key employees of NCF following the merger. Amounts set forth in the following tables reflect the effect of all stock dividends and splits declared through 2000 and, with respect to Messrs. Roessler and Furr, the effect of the CCB merger with NCF. Option Grants In Last Fiscal Year The following table sets forth certain information with respect to the grant of stock options under NCF's 1994 Plan, to the named executive officers and, with respect to Messrs. Roessler and Furr, the CCB LTIP for the year ended December 31, 2000. Individual Grants
Potential Realizable Value at Number of Assumed Annual Securities Percent of Rates of Stock Underlying Total Options Exercise Price Appreciation Options Granted to or Base for Option Term Granted Employees in Price Expiration ------------------- Name (#)(1) Fiscal Year ($) Date 5% 10% - ---- ---------- ------------- -------- ---------- --------- --------- Thomas M. Garrott....... 60,000 2.5% $19.313 3-9-10 496,633 1,477,189 300,000 12.7% $15.813 7-5-10 2,983,413 7,560,555 Ernest C. Roessler...... 40,330 1.7% $17.625 8-1-10 447,029 1,132,858 12,324 0.5% $16.225 3-16-10 125,752 318,680 96,947 4.1% $16.225 3-16-10 989,229 2,506,901 300,000 12.7% $15.813 7-5-10 2,983,413 7,560,555 Lewis E. Holland........ 37,500 1.6% $19.313 3-9-10 310,396 923,243 100,000 4.2% $15.813 7-5-10 994,471 2,520,185 William R. Reed, Jr..... 37,500 1.6% $19.313 3-9-10 310,396 923,243 100,000 4.2% $15.813 7-5-10 994,471 2,520,185 Richard L. Furr......... 16,860 0.7% $17.625 8-1-10 186,881 473,593 12,324 0.5% $16.225 3-16-10 125,752 318,680 34,570 1.5% $16.225 3-16-10 352,746 893,927 100,000 4.2% $15.813 7-5-10 994,471 2,520,185
- -------- (1) Options become exercisable annually in equal parts over a three- or five- year period following the date of grant. 69 Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values The following table sets forth certain information with respect to options exercised during 2000 and the value of unexercised options and stock appreciation rights held by the named executive officers of NCF and its subsidiaries at December 31, 2000.
Number of Securities Underlying Shares Unexercised Value of Unexercised Acquired Options/SARs at In-the-Money on Value FY-End (#) Options/SARs at FY- Exercise Realized Exercisable / End($)(2) Exercisable / Name (#) ($)(1) Unexercisable Unexercisable - ---- -------- -------- ----------------- ----------------------- Thomas M. Garrott....... -- -- 357,000 / 348,000 $4,664,990 / $3,056,250 Ernest C. Roessler...... 8,718 $ 59,074 243,138 / 449,601 1,332,460 / 3,898,204 Lewis E. Holland........ -- -- 284,500 / 130,000 4,065,153 / 1,128,125 William R. Reed, Jr..... 60,000 $809,048 252,500 / 130,000 3,632,641 / 1,128,125 Richard L. Furr......... 10,648 $ 64,790 116,963 / 163,754 702,022 / 1,413,672
- -------- (1) Market value of underlying securities at exercise minus the exercise price. (2) Market price at year end less exercise price. Pension Plans Prior to the CCB merger, NCF and CCB had established separate pension plans for the benefit of their respective employees. A new plan has now been put into place that covers all employees of the combined company; however, the old NCF and CCB plans remain in effect with respect to certain employees of the company, including the named executive officers, pursuant to the grandfathering provisions of the new plan. The plans in which the named executive officers participate are described below. The following table describes estimated retirement benefits payable under NCF's non-contributory, defined benefit retirement plan to employees in the specified period-of-service and compensation classifications, assuming retirement at age 65. Retirement benefits are not subject to social security deductions or offsets. The benefit amounts reflect grandfathered minimum benefits based on plan provisions in effect prior to an amendment to the plan effective July 15, 1996.
Credited Service --------------------------------------------------------------------- Final Pay 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years - --------- -------- -------- -------- -------- -------- -------- $125,000 $22,283 $33,426 $44,568 $55,710 $66,851 $ 77,994 150,000 27,130 40,696 54,261 67,827 81,391 94,957 200,000 31,007* 46,512* 62,016* 77,520* 93,023* 108,527* 175,000 31,007* 46,512* 62,016* 77,520* 93,023* 108,527* 225,000 31,007* 46,512* 62,016* 77,520* 93,023* 108,527* 250,000 31,007* 46,512* 62,016* 77,520* 93,023* 108,527* 300,000 31,007* 46,512* 62,016* 77,520* 93,023* 108,527* 400,000 31,007* 46,512* 62,016* 77,520* 93,023* 108,527* 450,000 31,007* 46,512* 62,016* 77,520* 93,023* 108,527* 500,000 31,007* 46,512* 62,016* 77,520* 93,023* 108,527*
- -------- * Compensation is limited to $170,000 under Internal Revenue Code Section 401(a)(17). 70 The NCF pension plan contains a five-year vesting requirement, effective January 1, 1989, and provides remuneration upon retirement at age 65 based generally upon average compensation for the five calendar years preceding retirement and years of service, with additional preretirement disability and death benefits. Benefits are calculated on the normal retirement option available to participants, which is ten years certain and life. Compensation covered by the retirement plan includes base salaries, overtime pay, commissions and bonuses. Covered compensation for commissioned employees is limited to $100,000. In 2000, covered compensation for Messrs. Garrott, Reed, and Holland was $1,383,107, $546,287, and $516,012, respectively. At December 31, 2000, Messrs. Garrott, Reed, and Holland had approximately 18, 31, and 7 years of credited service, respectively, under the retirement plan. The board of directors has also adopted a restoration pension plan that would both restore any portion of the pension payable to any participant in the retirement plan that cannot be paid from such retirement plan due to the maximum benefit limitations imposed by Section 415 and by the maximum compensation limitations imposed by Section 401(a)(17) of the Internal Revenue Code as well as provide certain additional benefits to participants. Since the adoption of this plan, NCF has annually funded actuarially determined accrued benefits under the plan. In accordance with the terms of the restoration pension plan and their respective employment agreements, the CCB merger caused the participation of Messrs. Garrott, Reed and Holland in the plan to terminate, and they received payments of $7,551,605, $2,456,690 and $904,094, respectively. These payments represented the present value of the officer's expected lifetime benefits under the plan, reflecting an additional three years of age and service as provided in their employment agreements and assuming immediate retirement. Effective August 1, 2000, Messrs. Garrott, Reed and Holland were eligible for reentry into the restoration pension plan, but only with respect to future services. Under the plan, if Messrs. Garrott and Reed work for NCF until age 65 at their 2000 rate of compensation, the plan will provide them with lifetime annuities of $36,288 and $63,385, respectively. CCB maintained a tax-qualified, defined benefit pension plan that NCF is continuing to maintain for certain employees pursuant to the grandfathering provisions described above. Compensation covered by the CCB pension plan each year is a participant's annual base salary and short term bonus. At his or her retirement, a participant's annual benefit under the CCB pension plan is based on his or her average covered compensation for any five consecutive plan years during the last ten years preceding normal retirement age. However, under tax laws in effect at December 31, 2000, the amount of a participant's annual compensation taken into account for benefit calculation purposes under the CCB pension plan may not exceed $170,000, and maximum annual benefits payable under the pension plan are $135,000. CCB therefore adopted a supplemental retirement plan that operates in conjunction with the CCB pension plan and under which a retiree will receive annual benefits in an amount equal to the difference, if any, between his actual benefit under the CCB pension plan and the amount he would receive under the CCB pension plan in the absence of the above limitations. The following table shows the estimated annual aggregate benefit payable under the CCB pension plan and the supplemental retirement plan to participants following retirement at age 65, which is the "normal retirement age" under the CCB pension plan, based on various specified numbers of years of service and various levels of compensation covered under the CCB pension plan:
Credited Service ------------------------------------------------------------------------- Final Pay 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years - --------- -------- -------- -------- -------- -------- -------- $125,000 $12,000 $18,000 $24,000 $30,000 $ 36,000 $ 42,000 150,000 18,000 27,000 36,000 45,000 54,000 63,000 200,000 24,000 36,000 48,000 60,000 72,000 84,000 250,000 30,000 45,000 60,000 75,000 90,000 105,000 300,000 36,000 54,000 72,000 90,000 108,000 126,000
71
Credited Service ------------------------------------------------------------------------- Final Pay 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years - --------- -------- -------- -------- -------- -------- -------- $350,000 $42,000 $ 63,000 $ 84,000 $105,000 $126,000 $147,000 400,000 48,000 72,000 96,000 120,000 144,000 168,000 450,000 54,000 81,000 108,000 135,000 162,000 189,000 500,000 60,000 90,000 120,000 150,000 180,000 210,000 550,000 66,000 99,000 132,000 165,000 198,000 231,000 600,000 72,000 108,000 144,000 180,000 216,000 252,000 650,000 78,000 117,000 156,000 195,000 234,000 273,000 700,000 84,000 126,000 168,000 210,000 252,000 294,000 750,000 90,000 135,000 180,000 225,000 270,000 315,000
Benefits shown in the table are computed as straight life annuities beginning at age 65 and are not subject to a deduction for Social Security benefits or any other offset amount. The covered compensation in 2000 and years of service at December 31, 2000 for each of the named executive officers who participate in the CCB pension plan and the supplemental retirement plan are as follows: Mr. Roessler--$1,402,607 and 12 years, and Mr. Furr--$566,113 and 29 years. Employment Agreements In connection with the CCB merger, NCF entered into employment agreements with each of Messrs. Garrott, Roessler, Reed, Holland and Furr. Each employment agreement is for an initial term of three years (five years in the case of Mr. Roessler) commencing July 5, 2000, subject to automatic renewals on the anniversary of the effective time until the executive attains age 65 (other than Mr. Garrott's agreement, which does not automatically renew). The employment agreements of Messrs. Garrott and Roessler were amended and restated effective November 1, 2001. During the employment period, Mr. Garrott will serve as the Chairman of NCF's board of directors and as Chairman of the executive committee of the board, and Mr. Roessler will serve as Chief Executive Officer and President and as a member of the board of directors. Mr. Reed will serve as Chief Operating Officer and Mr. Furr will serve as President of the company's Carolina and Virginia banks. Mr. Garrott and Mr. Roessler will each be entitled to an annual base salary of at least $750,000. The annual base salary of each of Messrs. Reed and Furr will be $340,000. Each employment agreement provides that the executive will be eligible to receive an annual bonus on the same basis as peer executives of NCF. Mr. Holland retired as an officer of NCF on July 31, 2001. Prior to his retirement, Mr. Holland had entered into an employment agreement with the company pursuant to which he would serve as President of NCF's Financial Enterprises division for an annual base salary of $325,000. That employment agreement was superseded effective as of June 29, 2001, when Mr. Holland entered into a Retirement and Consulting Agreement with the company. Pursuant to this new agreement, Mr. Holland agreed to make himself available to consult with the company on any matters consistent with his previous duties and responsibilities as an employee of NCF for the two-year period beginning August 1, 2001. Mr. Holland is entitled under the agreement to a retirement bonus totaling approximately $1,600,000, which is payable over a period of two years. The agreement also provides for Mr. Holland's continued eligibility for certain benefits under the company's various retirement, deferred compensation and other employee benefit plans. The agreement contains restrictive covenants that prohibit Mr. Holland from disclosing confidential information during the consulting period and thereafter and from competing with NCF during the consulting period and for two years thereafter. Mr. Garrott's employment agreement provides that, at any time after January 1, 2002 and prior to July 5, 2003 or upon the occurrence of specific events, including a breach of the agreement by 72 NCF, Mr. Garrott may elect to be employed on part-time status until July 5, 2006. NCF also has the right to elect to place Mr. Garrott on part-time status. In the absence of an election by Mr. Garrott or NCF, Mr. Garrott will automatically assume part-time status on July 5, 2003. While on part-time status, Mr. Garrott will be entitled to receive the following payments and benefits: (1) if Mr. Garrott goes on part-time status on or after January 1, 2002 through July 5, 2003 NCF shall pay him an amount equal to 75% of the average annual direct compensation paid to him for the two highest of the three compensation years preceding the year of part-time status election; (2) if Mr. Garrott is on part-time status on July 5, 2003 and has been paid in accordance with clause (1) above, then NCF shall pay him from July 5, 2003 until July 5, 2006 an amount equal to one-third of the part-time base salary in effect on July 5, 2003; (3) if Mr. Garrott goes on part-time status on July 5, 2003, then NCF shall pay him an amount equal to 25% of the average annual direct compensation for the two highest of the three compensation years immediately preceding the 2003 compensation year; (4) continued participation in NCF's retirement, compensation and welfare benefit plans; (5) an office and support services on the same basis as all of NCF's executive officers; and (6) except in the case of termination for cause after termination of Mr. Garrott's full or part-time employment, he will remain an affiliate and will continue to be available to consult with NCF and its employees, and all options and restricted stock held by Mr. Garrott on the date of the amended and restated agreement and thereafter granted will vest according to their terms while he remains an affiliate. In addition, the agreement provides Mr. Garrott and his spouse with lifetime medical and dental insurance coverage. The agreement also provides Mr. Garrott with change of control protection in the event of a change of control of NCF completed or approved by NCF's Board of Directors on or before July 5, 2003. Upon the occurrence of a change of control of NCF on or before the prescribed date (as defined in the employment agreement), Mr. Garrott may, during the 18 months following the change of control (12 months if Mr. Garrott is then on part-time status), give NCF notice of his intention to exercise his rights under the change of control provisions of the agreement. Within five days after Mr. Garrott gives such notice, NCF must pay Mr. Garrott an amount equal to one dollar less than three times Mr. Garrott's "base amount," as determined under Section 280G of the Internal Revenue Code, provided that the base amount shall not include amounts received in connection with the CCB merger. Mr. Garrott will also be entitled to receive a prorated bonus based on the highest bonus he received during the three-year period prior to giving notice in connection with the change of control and the actuarial equivalent of the expected benefit that would have been payable to him under NCF's defined benefit retirement plan and supplemental executive retirement plan, calculated as if he had continued his employment for three years following such notice. Mr. Roessler's employment agreement provides that, on or after April 7, 2003 and while employed by NCF on active status, Mr. Roessler may elect to be employed on part-time status until July 5, 2006. While on part-time status, Mr. Roessler will be entitled to receive the following payments and benefits: (1) an annual base salary equal to 75% of the average annual direct compensation paid to him for the two highest of the three compensation years preceding the year of part-time status election, increased (but not decreased) annually, on a compound basis, by the same percentage increase (if any) in the Consumer Price Index; (2) continued participation in NCF's retirement, compensation and welfare benefit plans; and (3) an office and support services on the same basis as all of NCF's executive officers. In addition, the agreement provides Mr. Roessler and his spouse with lifetime medical and dental insurance coverage. The agreement also provides Mr. Roessler with change of control protection in the event of a change of control of NCF. Upon the occurrence of a change of control of NCF (as defined in the employment agreement), Mr. Roessler may, during the 18 months following the change of control (12 months if Mr. Roessler is then on part-time status), give NCF notice of his intention to exercise his rights under the change of control provisions of the agreement. Within five days after Mr. Roessler gives such notice, NCF must pay Mr. Roessler an amount equal to three times his average total annual direct compensation for the two highest of the three compensation years immediately preceding the compensation year in which the notice is given. Mr. Roessler will also be entitled to receive a prorated bonus based on the 73 highest bonus he received during the three-year period prior to giving notice in connection with the change of control and the actuarial equivalent of the expected benefit that would have been payable to him under NCF's defined benefit retirement plan and supplemental executive retirement plan, calculated as if he had continued his employment for three years following such notice. Pursuant to the employment agreements with Messrs. Reed and Furr, each of the executives will be entitled to participate in the employee benefit plans, practices and policies provided to peer executives of NCF. The employment agreement of each of the executives provides that, upon the termination of the executive's employment with NCF other than for "cause," or by reason of death or disability, or upon the executive's termination of employment for "good reason," other than in connection with a change of control, the executive is entitled to a lump-sum cash payment equal to the sum of (1) any unpaid base salary; (2) a pro rata annual bonus, based on the annual bonus payable to the executive in the year prior to the date of termination (the "recent annual bonus") and (3) the product of (x) the number of months from the date of termination until the end of the employment period divided by 12 and (y) the sum of the executive's base salary and the recent annual bonus. Upon any such termination, restrictions on restricted stock will lapse immediately, and stock options will vest immediately, and medical and dental benefits will continue through the end of the original employment period. The employment agreement also contains restrictive covenants that prohibit the executive from disclosing confidential information during the employment period and thereafter and from competing with NCF while employed and for two years following termination of employment. The executives are also entitled to change of control protection pursuant to separate change of control agreements. This protection is structured such that the executive has an employment period of three years that begins on the date (the "effective date") that a change of control (as defined in the agreement) occurs. During the employment period the executive will receive: (i) an annual base salary at least equal to twelve times the highest monthly base salary payable prior to the effective date; (ii) an annual bonus at least equal to the highest annual bonus paid for the three years prior to the effective date; (iii) the ability to participate in NCF's normal employee benefit plans at an appropriate level; (iv) reimbursement for expenses in accordance with NCF policy; and (v) fringe benefits consistent with those previously afforded the executive. If, during the three-year period following the change in control, NCF terminates the executive's employment other than for "Cause" or "Disability", or the executive terminates his or her employment for "Good Reason" (all as defined in the agreement), the executive will be paid a lump sum payment equal to the sum of the following: (1) unpaid base salary through the date of termination, a prorated annual bonus amount, any previously deferred compensation and accrued vacation pay; (2) three times the sum of annual compensation plus bonus; and (3) the actuarial present value of accrued benefits under NCF's qualified defined benefit plan and any supplemental retirement plan in which the executive participates, calculated as if the executive's employment had continued for three years following the change of control. Upon such termination, all restrictions on restricted stock will lapse immediately, and all stock options will vest immediately and medical and dental benefits will continue through the end of the employment period. Both Mr. Garrott's and Mr. Roessler's employment agreements and the employment and change of control agreements of the other top executives provide that if any amounts payable to an executive would subject such executive to the excise tax under section 4999 of the U.S. tax code, NCF will make a payment such that after the payment of all income and excise taxes, the executive will be in the same after-tax position as if no excise tax under section 4999 had been imposed. On December 1, 1983, NCF and Mr. Garrott entered into a Deferred Compensation Agreement entitling Mr. Garrott to receive monthly retirement benefits equal to the excess, if any, of the monthly benefits that would have been payable to him under the NCF pension plan if he had been employed by NCF since January 1, 1964, over the monthly benefits actually payable to him under his previous employer's pension plan. 74 Compensation Committee Interlocks And Insider Participation Messrs. Farnsworth, McNeill, Mallory, McDonald and Munson, all of whom are non-employee directors, serve as members of NCF's compensation committee. No executive officer of NCF has served as a director or member of the compensation committee, or other committee serving an equivalent function, of any entity whose executive officer served as a member of the compensation committee of NCF. In December 1987, National Bank of Commerce issued $1,025,000 in term notes to the Mallory Partners, a Tennessee general partnership of which W. Neely Mallory, Jr., one of NCF's directors, and two trusts for the benefit of his sons are general partners. The term notes were issued on substantially the same terms, including interest rates, as those prevailing for comparable transactions with other unaffiliated persons. 75 DESCRIPTION OF THE TRUST The trust is a statutory business trust created under Delaware law pursuant to (i) a trust agreement executed by NCF, as depositor of the trust, the Delaware trustee and the two administrative trustees of the trust and (ii) the filing of a certificate of trust with the Delaware Secretary of State. The trust agreement of the trust will be amended and restated in its entirety by NCF, as depositor of the trust, the property trustee, the Delaware trustee and the two administrative trustees (as so amended and restated, the "Trust Agreement") prior to the issuance of the trust preferred securities. The Trust Agreement will be qualified as an indenture under the Trust Indenture Act of 1939. The trust exists for the exclusive purposes of (i) issuing and selling its trust preferred securities and trust common securities (ii) using the proceeds from the sale of such trust preferred and trust common securities to acquire the junior subordinated debentures issued by NCF, and (iii) engaging in only those other activities necessary or incidental thereto (such as registering the transfer of the trust preferred securities). Accordingly, the junior subordinated debentures will be the sole assets of the trust, and payments under the junior subordinated debentures will be the sole revenue of the trust. All of the trust common securities will be owned by NCF. The trust common securities will rank pari passu, and payments will be made thereon pro rata with, the trust preferred securities, except that upon the occurrence and continuance of an event of default under the Trust Agreement resulting from an event of default under the Indenture, the rights of NCF as holder of the trust common securities to payment in respect of distributions and payments upon liquidation or redemption will be subordinated to the rights of the holders of the trust preferred securities. See "Description of the Trust Preferred Securities -- Subordination of Trust Common Securities." NCF will acquire trust common securities in an aggregate liquidation amount equal to not less than 3% of the total capital of the trust. The trust has a term of approximately , but may dissolve earlier as provided in the Trust Agreement. The trust's business and affairs are conducted by its trustees, each appointed by NCF as holder of the trust common securities. The trustees for the trust will be The Bank of New York, as the property trustee, The Bank of New York (Delaware), as the Delaware trustee, and two individual trustees (referred to in this prospectus as the "administrative trustees") who are employees or officers of or affiliated with NCF. The property trustee, Delaware trustee and administrative trustees are collectively referred to in this prospectus as the "trustees." The Bank of New York, as property trustee, will act as sole trustee under the Trust Agreement for purposes of compliance with the Trust Indenture Act. The Bank of New York will also act as trustee under the Guarantee and the Indenture. See "Description of the Guarantee" and "Description of the Junior Subordinated Debentures." The holder of the trust common securities, or the holders of a majority in liquidation amount of the trust preferred securities if an event of default under the Trust Agreement has occurred and is continuing, will be entitled to appoint, remove or replace the property trustee and/or the Delaware trustee for the trust. In no event will the holders of the trust preferred securities have the right to vote to appoint, remove or replace the administrative trustees; such voting rights are vested exclusively in the holder of the trust common securities. The duties and obligations of the trustees are governed by the Trust Agreement. NCF will pay all fees and expenses related to the trust and the offering of the trust preferred securities and will pay, directly or indirectly, all ongoing costs, expenses and liabilities of the trust. 76 DESCRIPTION OF THE TRUST PREFERRED SECURITIES Pursuant to the terms of the Trust Agreement, the trustees on behalf of the trust will issue the trust preferred securities and the trust common securities. The trust preferred securities represent undivided beneficial ownership interests in the trust, and the holders of the trust preferred securities will be entitled to a preference in certain circumstances with respect to distributions and amounts payable on redemption or liquidation over the trust common securities, as well as other benefits as described in the Trust Agreement. This summary of certain provisions of the trust preferred securities and the Trust Agreement is not complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Trust Agreement, including the definitions therein, and the Trust Indenture Act. The form of the Trust Agreement has been filed as an exhibit to the registration statement of which this prospectus forms a part. General The trust preferred securities will rank pari passu, and payments will be made thereon pro rata, with the trust common securities except as described under "--Subordination of Trust Common Securities." Legal title to the junior subordinated debentures will be held by the property trustee in trust for the benefit of the holders of the trust preferred securities and trust common securities. The Guarantee Agreement executed by NCF for the benefit of the holders of the trust preferred and trust common securities will be a guarantee on a subordinated basis with respect to the trust preferred and trust common securities but will not guarantee payment of distributions or amounts payable on redemption or liquidation of the trust preferred and trust common securities when the trust does not have funds on hand available to make such payments. See "Description of the Guarantee." Distributions You will be entitled to receive quarterly distributions on the trust preferred securities at the annual rate of % of the stated liquidation amount of each trust preferred security ($25), which is the same as the rate payable on the junior subordinated debentures. The trust will pay distributions quarterly in arrears on each , , and , beginning , 2002. Distributions will be cumulative and will accumulate from December , 2001. In the event that any date on which distributions are payable on the trust preferred securities is not a business day (as defined below), payment of the distribution 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 to any such delay) except that, if such business day is in the next succeeding calendar year, payment of such distribution shall be made on the immediately preceding business day, in either case with the same force and effect as if made on such date. Any date on which distributions are payable will be referred to in this prospectus as a "distribution date." A "business day" shall mean any day other than a Saturday or a Sunday, or a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed or a day on which the corporate trust office of the property trustee or debenture trustee is closed for business. The period beginning on and including December , 2001 and ending on but excluding the first distribution date and each period after that period beginning on and including a distribution date and ending on but excluding the next distribution date is called a "distribution period." The amount of distributions payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Interest on the junior subordinated debentures that is not paid on the applicable interest payment date will accrue additional interest, to the extent permitted by law, at the annual rate of % compounded quarterly, from the relevant interest payment date. As a result, distributions that are not paid on the applicable distribution date will accumulate additional distributions. References to "distributions" in this prospectus include these additional distributions. 77 The revenue of the trust available for distribution to holders of the trust preferred securities will be limited to payments under the junior subordinated debentures in which the trust will invest the proceeds from the issuance and sale of the trust preferred and trust common securities. See "Description of the Junior Subordinated Debentures." If NCF does not make interest payments on such junior subordinated debentures, the property trustee will not have funds available to pay distributions on the trust preferred securities. The payment of distributions if and to the extent the trust has funds legally available for the payment of such distributions and cash sufficient to make such payments is guaranteed by NCF on the basis set forth under "Description of the Guarantee." Distributions on the trust preferred securities will be payable to the holders thereof as they appear on the register of the trust on the relevant record dates, which, as long as the trust preferred securities remain in book- entry form, will be one business day prior to the relevant distribution date. Subject to any applicable laws and regulations and the provisions of the Trust Agreement, such payment will be made as described under "Book-Entry Issuance." In the event any trust preferred securities are not in book-entry form, the relevant record date for such trust preferred securities shall be the date at least 15 days prior to the distribution date. Deferral of Distributions If the junior subordinated debentures are not in default, NCF has the right under the Indenture, on one or more occasions, to defer the payment of interest on the junior subordinated debentures for up to 20 consecutive distribution periods (each, a "deferral period") but not beyond the stated maturity of the junior subordinated debentures. If NCF exercises this right, the trust will also defer paying quarterly distributions on the trust preferred securities during the deferral period. During such deferral period, NCF may not, and may not permit any subsidiary of NCF to: . declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of NCF's capital stock; . make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of NCF that rank pari passu with or junior in interest to the junior subordinated debentures; or . make any guarantee payments with respect to any guarantee by NCF of debt securities of any subsidiary of NCF if such guarantee ranks pari passu with or junior in interest to the junior subordinated debentures, other than - dividends or distributions in capital stock of NCF; - any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the redemption or repurchase of any such rights under such plan; - payments under the Guarantee with respect to the trust preferred securities; and - purchases of common stock related to the issuance of common stock or rights under any of NCF's benefit plans for its directors, officers or employees, related to the issuance of common stock or rights under a dividend reinvestment and stock purchase plan, or related to the issuance of common stock (or securities convertible into or exchangeable for common stock), as consideration in an acquisition transaction that was entered into prior to the commencement of such deferral period. Although no interest or distribution payments will be made during a deferral period, interest on the junior subordinated debentures will continue to accrue and, as a result, distributions on the trust 78 preferred securities will continue to accumulate at the annual rate of %, compounded quarterly. References to "distributions" in this prospectus include these additional distributions. Once NCF makes all deferred interest payments on the junior subordinated debentures, it can once again defer interest payments, subject to the limitations discussed above. As a result, there could be multiple periods of varying length during which you would not receive cash distributions on your trust preferred securities. Redemption or Exchange Mandatory Redemption. Upon the repayment or redemption, in whole or in part, of any junior subordinated debentures, whether at maturity or upon earlier redemption as provided in the Indenture, the proceeds from such repayment or redemption shall be applied by the property trustee to redeem a Like Amount (as defined below), upon not less than 30 nor more than 60 days' notice prior to the date of any redemption, of trust preferred securities and trust common securities, at a redemption price equal to the aggregate liquidation amount of the trust preferred securities and trust common securities plus accumulated but unpaid distributions to the date of redemption and the related amount of the premium, if any, paid by NCF upon the concurrent redemption of the junior subordinated debentures. See "Description of the Junior Subordinated Debentures - -- Redemption." If less than all of 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 outstanding trust preferred securities and the trust common securities. The amount of premium, if any, paid by NCF 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 trust preferred securities and trust common securities. Optional Liquidation of the Trust and Distribution of Junior Subordinated Debentures. Subject to NCF's having received prior approval of the Federal Reserve to do so if then required under applicable capital guidelines or policies, NCF has the right at any time to terminate the trust and, after satisfaction of the liabilities of the creditors of the trust as provided by applicable law, cause the junior subordinated debentures issued by the trust to be distributed to the holders of the trust preferred securities and trust common securities upon liquidation of the trust. If the property trustee determines that a distribution of the junior subordinated debentures is not practical, it will pay out of the assets of the trust available for distribution to the holders of the trust preferred securities, the liquidation amount of the trust preferred securities, plus any accumulated and unpaid distributions to the payment date, in cash. After the liquidation date fixed for the distribution of junior subordinated debentures for the trust preferred securities: . the trust preferred securities will no longer be deemed to be outstanding; . DTC or its nominee, as the record holder of the trust preferred securities, will receive a registered global certificate or certificates representing the junior subordinated debentures to be delivered upon such distribution; and . any certificates representing the trust 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 trust preferred securities, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid distributions on the trust preferred securities until such certificates are presented to the administrative trustees or their agent for transfer or reissuance. There can be no assurance as to the market prices for the trust preferred securities or the junior subordinated debentures that may be distributed in exchange for trust preferred securities if a dissolution and liquidation of the trust occurs. Accordingly, the trust preferred securities that you may 79 purchase, or the junior subordinated debentures that you may receive on dissolution and liquidation of the trust, may trade at a discount to the price that you paid to purchase the trust preferred securities offered hereby. Tax Event or Capital Treatment Event Redemption. If a Tax Event or Capital Treatment Event relating to the trust preferred securities and trust common securities shall occur and be continuing, NCF has the right to redeem the junior subordinated debentures in whole (but not in part) and thereby cause a mandatory redemption of the trust preferred securities and trust common securities in whole (but not in part) at the redemption price within 90 days following the occurrence of such Tax Event or Capital Treatment Event. In the event a Tax Event or Capital Treatment Event has occurred and is continuing and NCF does not elect to redeem the junior subordinated debentures and thereby cause a mandatory redemption of the trust preferred securities and trust common securities or to terminate the trust and cause the junior subordinated debentures to be distributed to holders of the trust preferred securities and trust common securities in exchange therefor upon liquidation of the trust as described above, the trust preferred securities will remain outstanding. A "Capital Treatment Event" means the reasonable determination by NCF that, as a result of: . any amendment to, or change in, the laws or regulations of the United States or any political subdivision thereof or therein that becomes effective on or after the date of the initial issuance of the trust preferred securities; . any proposed change in those laws or regulations that is announced on or after the date of the initial issuance of the trust preferred securities; or . any official administrative decision, judicial decision, administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced on or after the date of the initial issuance of the trust preferred securities; there is more than an insubstantial risk that NCF will not be entitled to treat an amount equal to the liquidation amount of the trust preferred securities as "Tier 1 Capital" (or its equivalent) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to NCF. "Like Amount" means (i) with respect to a redemption of the trust preferred securities and trust common securities, trust preferred securities and trust common 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, the proceeds of which will be used to pay the redemption price of the trust preferred securities and the trust common securities; and (ii) with respect to a distribution of junior subordinated debentures to holders of trust preferred securities and trust common securities in exchange therefor in connection with a dissolution or liquidation of the trust, junior subordinated debentures having a principal amount equal to the liquidation amount of the trust preferred securities and trust common securities of the holder to whom such junior subordinated debentures would be distributed. A "Tax Event" means the receipt by the trust or NCF of an opinion of counsel experienced in such matters to the effect that, as a result of: . any amendment to or change in the laws or regulations of the United States or any political subdivision or taxing authority thereof or therein that becomes effective on or after the date of the initial issuance of the trust preferred securities; . any proposed change in those laws or regulations that is announced on or after the date of the initial issuance of the trust preferred securities; or . any official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced on or after the date of the initial issuance of the trust preferred securities; 80 there is more than an insubstantial risk that: . the trust is, or within 90 days of the date of that opinion will be, subject to United States federal income tax with respect to income received or accrued on the junior subordinated debentures; . interest payable by NCF on the junior subordinated debentures is not, or within 90 days of the date of that opinion, will not be, deductible by NCF, in whole or in part, for United States federal income tax purposes; or . the trust is, or within 90 days of the date of that opinion will be, subject to more than a de minimis amount of other taxes, duties or other governmental charges. "Liquidation amount" means $25 per trust preferred security. Redemption Procedures Trust 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 trust preferred securities shall be made and the redemption price shall be payable on the redemption date only to the extent that the trust has funds on hand available for the payment of such redemption price. See also "-- Subordination of Trust Common Securities." If the trust gives a notice of redemption of its trust preferred securities, then, by 12:00 noon, New York City time, on the redemption date, to the extent funds are available, the property trustee will deposit irrevocably with DTC funds sufficient to pay the redemption price and will give DTC irrevocable instructions and authority to pay the redemption price to the holders of such trust preferred securities. See "Book-Entry Issuance." If such trust preferred securities are no longer in book-entry form, the property trustee, to the extent funds are available, will irrevocably deposit with the paying agent for the trust preferred securities funds sufficient to pay the 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 such trust preferred securities. Notwithstanding the foregoing, distributions payable on or prior to the redemption date for any trust preferred securities called for redemption shall be payable to the holders of such trust 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 the trust preferred securities so called for redemption will cease, except the right of the holders of the trust preferred securities to receive the redemption price and any distribution payable on or prior to the redemption date, but without interest on such redemption price, and such trust preferred securities will cease to be outstanding. In the event that any date fixed for redemption of trust 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 (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 the event that payment of the redemption price in respect of trust preferred securities called for redemption is improperly withheld or refused and not paid either by the trust or by NCF pursuant to the Guarantee as described under "Description of the Guarantee," distributions on such trust preferred securities will continue to accrue at the then applicable rate, from the redemption date originally established by the trust for such trust 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 law, NCF or its subsidiaries may at any time and from time to time purchase outstanding trust preferred securities by tender, in the open market or by private agreement. 81 Payment of the redemption price on the trust preferred securities and any distribution of junior subordinated debentures to holders of trust preferred securities shall be made to the applicable recordholders thereof as they appear on the register for such trust preferred securities on the relevant record date, which shall be one business day prior to the relevant redemption date or liquidation date, as applicable; provided, however, that in the event any trust preferred securities are not in book-entry form, the relevant record date for such trust preferred securities shall be the date at least 15 days prior to the redemption date or the distribution date, as applicable. If less than all of the trust preferred securities and trust common securities are to be redeemed on a redemption date, then the aggregate liquidation amount of such trust preferred securities and trust common securities to be redeemed shall be allocated pro rata to the trust preferred securities and the trust common securities based upon the relative liquidation amounts of such classes. The particular trust 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 trust preferred securities not previously called for redemption, by such method as the property trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $25 or an integral multiple of $25 in excess thereof) of the liquidation amount of trust preferred securities of a denomination larger than $25.00. The property trustee shall promptly notify the trust registrar in writing of the trust preferred securities selected for redemption and, in the case of any trust 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 trust preferred securities shall relate, in the case of any trust preferred securities redeemed or to be redeemed only in part, to the portion of the aggregate liquidation amount of trust 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 the holder of trust preferred securities and trust common securities to be redeemed at its registered address. Exchange Procedures If NCF is at any time the holder or beneficial owner of any trust preferred securities, it shall have the right on any distribution date to exchange those trust preferred securities for a Like Amount of junior subordinated debentures. NCF must give the property trustee written notice of its election to exchange trust preferred securities. This notice must specify the liquidation amount of the trust preferred securities to be exchanged and the distribution date on which the exchange will occur, which may not be less than 10 business days after the date the property trustee receives the notice. In order for this exchange to be completed, NCF must deliver (or cause to be delivered) the trust preferred securities to be exchanged to the property trustee by 10:00 a.m. New York time on the distribution date on which the exchange is to take place. After the exchange, the trust preferred securities exchanged will be canceled and no longer be deemed to be outstanding. If such an exchange occurs, the trust shall determine the proportional amount of trust preferred securities exchanged by dividing the aggregate liquidation amount of trust preferred securities exchanged by the aggregate liquidation amount of the trust preferred securities outstanding immediately prior to such exchange. The trust will then exchange (i) such proportional amount of the trust common securities for (ii) that number of junior subordinated debentures having a principal amount equal to the proportional amount of the liquidation amount of the trust common securities. Such exchange will take place on the same date as the exchange of the trust preferred securities. In order for the exchange of trust common securities for junior subordinated debentures to be completed, NCF must deliver (or cause to be delivered) the trust common securities to be exchanged to the property trustee by 10:00 a.m. New York time on the distribution date on which the exchange is to take place. After the exchange, the trust common securities exchanged will be canceled and no longer be deemed to be outstanding. 82 Any affiliate of NCF shall also have the right to exchange trust preferred securities, subject to the terms and conditions set forth in the preceding paragraphs. Subordination of Trust Common Securities Payment of distributions on, and the redemption price of, the trust preferred securities and trust common securities, as applicable, shall be made pro rata based on the liquidation amount of such trust preferred securities and trust common securities; provided, however, that if on any distribution date or redemption date a debenture event of default shall have occurred and be continuing, no payment of any distribution on, or redemption price of, any of the trust common securities, and no other payment on account of the redemption, liquidation or other acquisition of the trust common securities, shall be made unless payment in full in cash of all accumulated and unpaid distributions on all of the trust 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 of the trust preferred securities then called for redemption, 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 trust preferred securities then due and payable. In the case of any event of default under the Trust Agreement resulting from any debenture event of default, NCF as holder of the trust 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 effect of all such events of default with respect to the trust preferred securities have been cured, waived or otherwise eliminated. Until all events of default under the Trust Agreement with respect to the trust preferred securities have been so cured, waived or otherwise eliminated, the property trustee shall act solely on behalf of the holders of the trust preferred securities and not on behalf of NCF as holder of the trust common securities, and only the holders of the trust preferred securities will have the right to direct the property trustee to act on their behalf. Liquidation Distribution Upon Dissolution Pursuant to the Trust Agreement, the trust shall automatically dissolve upon expiration of its term and shall dissolve on the first to occur of: (i) certain events of bankruptcy, dissolution or liquidation of NCF; (ii) the distribution of a Like Amount of the junior subordinated debentures to the holders of its trust securities, if NCF, as depositor, has given written direction to the property trustee to terminate the trust (subject to NCF having received prior approval of the Federal Reserve if so required under applicable capital guidelines or policies); (iii) redemption of all of the trust preferred securities as described under "--Redemption or Exchange--Mandatory Redemption"; or (iv) the entry of an order for the dissolution of the trust by a court of competent jurisdiction. If an early dissolution occurs as described in the first, second or fourth items listed above, the trust shall be liquidated by the trustees as expeditiously as the trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the trust as provided by applicable law, to the holders of such trust preferred securities and trust common securities in exchange therefor a Like Amount of the junior subordinated debentures, unless such distribution is determined by the property trustee not to be practical, in which event such holders will be entitled to receive out of the assets of the trust available for distribution to holders, after satisfaction of liabilities to creditors of the trust as provided by applicable law, an amount equal to, in the case of holders of trust preferred securities, the aggregate liquidation amount plus accrued and unpaid distributions thereon to the date of payment. Such amount is the "liquidation distribution." If such liquidation distribution can be paid only 83 in part because the trust has insufficient assets available to pay in full the aggregate liquidation distribution, then the amounts payable directly by the trust on its trust preferred securities shall be paid on a pro rata basis. The holder of the trust's common securities will be entitled to receive distributions upon any such liquidation pro rata with the holders of its trust preferred securities, except that if a debenture event of default has occurred and is continuing, the trust preferred securities shall have priority over the trust common securities. Events of Default; Notice Any one of the following events constitutes an "event of default" under the Trust Agreement, 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: (i) the occurrence of a debenture event of default under the Indenture (see "Description of the Junior Subordinated Debentures--Debenture Events of Default"); or (ii) default by the trust in the payment of any distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or (iii) default by the trust in the payment of any redemption price of any trust preferred security or trust common 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 trustees in the 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 (ii) or (iii) above), and continuation of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the trust or defaulting trustee or trustees by the holders of at least 25% in aggregate liquidation amount of the outstanding trust preferred securities of the trust, 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 and the failure by NCF to appoint a successor property trustee within 90 days thereof. Within ten business days after the occurrence of any event of default actually known to the property trustee, the property trustee shall transmit notice of such event of default to the holders of the trust preferred securities, the administrative trustees and NCF, as depositor, unless such event of default shall have been cured or waived. NCF, as depositor, and the administrative trustees are required to file annually with the property trustee a certificate as to whether or not they are in compliance with all the conditions and covenants applicable to them under the Trust Agreement. If a debenture event of default has occurred and is continuing, the trust preferred securities shall have a preference over the trust common securities as described above. See "--Subordination of Trust Common Securities" and "-- Liquidation Distribution Upon Dissolution." The existence of an event of default does not entitle the holders of trust preferred securities to accelerate the maturity thereof. Removal of Trustees Unless a debenture event of default shall have occurred and be continuing, any trustee may be removed at any time by the holder of the trust common securities. If a debenture event of default has occurred and is continuing, the property trustee and the Delaware trustee may be removed at such time by the holders of a majority in liquidation amount of the outstanding trust preferred securities. In 84 no event will the holders of the trust preferred securities have the right to vote to appoint, remove or replace the administrative trustees, which voting rights are vested exclusively in NCF as the holder of the trust common securities. No resignation or removal of the trustees 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. Co-Trustees and Separate Property Trustee Unless an event of default shall have occurred and be continuing, at any time or from time to time, 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, NCF, as the holder of the trust common securities, and the administrative trustees shall have power to appoint one or more persons either to act as a co-trustee, jointly with the property trustee, of all or any part of such Trust property, or to act as a 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 such capacity any property, title, right or power deemed necessary or desirable, subject to the provisions of the Trust Agreement. In case a debenture event of default has occurred and is continuing, the property trustee alone shall have power to make such appointment. Merger or Consolidation of Trustees Any person or entity into which the property trustee, the Delaware trustee or any administrative trustee that is not a natural person 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 trustee shall be a party, or any person or entity succeeding to all or substantially all the corporate trust business of such trustee, shall be the successor of such trustee under the Trust Agreement, provided such person or entity shall be otherwise qualified and eligible. Mergers, Consolidations, Amalgamations or Replacements of the Trust The trust may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any person or entity, except as described below or as otherwise described in the Trust Agreement. The trust may, at the request of NCF, with the consent of the administrative trustees and without the consent of the holders of the trust 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; provided, that: (i) such successor entity either: - expressly assumes all of the obligations of the trust with respect to the trust preferred securities, or - substitutes for the trust preferred securities other securities having substantially the same terms as the trust preferred securities, referred to in this prospectus as the "successor securities," so long as the successor securities rank the same as the trust preferred securities in priority with respect to distributions and payments upon liquidation, redemption and otherwise; (ii) NCF, as the holder of the junior subordinated debentures, expressly appoints a trustee of such successor entity possessing the same powers and duties as the property trustee; (iii) the successor securities are listed, or any successor securities will be listed upon notification of issuance, on any national securities exchange or other organization on which the trust preferred securities are then listed, if any; 85 (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the trust preferred securities (including successor securities) to be downgraded by any nationally recognized statistical rating organization; (v) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the trust preferred securities, including any successor securities, in any material respect; (vi) such successor entity has a purpose substantially identical to that of the trust; (vii) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, NCF has received an opinion from independent counsel to the trust 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 trust preferred securities, including any successor securities, in any material respect; and (b) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the trust nor such successor entity will be required to register as an investment company under the Investment Company Act of 1940, as amended; and (viii) NCF or any permitted successor or assignee owns all of the trust common securities of such successor entity and guarantees the obligations of such successor entity under the successor securities at least to the extent provided by the Guarantee. Notwithstanding the foregoing, the trust shall not, except with the consent of holders of 100% in liquidation amount of the trust preferred securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause the trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. Voting Rights; Amendment of the Trust Agreement Except as provided below and under "Description of the Guarantee--Amendments and Assignment" and as otherwise required by law and the Trust Agreement, the holders of the trust preferred securities will have no voting rights. The Trust Agreement may be amended from time to time by NCF, the property trustee and the administrative trustees, without the consent of the holders of the trust 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, which shall not be inconsistent with the other provisions of the Trust Agreement; or (ii) to modify, eliminate or add to any provisions of the Trust Agreement to such extent as shall be necessary to ensure that the trust will be classified for United States federal income tax purposes as a grantor trust at all times that any trust preferred securities and trust common securities are outstanding or to ensure that the trust will not be required to register as an "investment company" under the Investment Company Act of 1940, as amended; 86 provided, however, that in the case of either clause (i) or (ii) above, such action shall not adversely affect in any material respect the interests of any holder of trust preferred securities, and any such amendments of the Trust Agreement shall become effective when notice thereof is given to the holders of trust preferred securities and trust common securities. The Trust Agreement may be amended by the trustees and NCF with: (i) the consent of holders representing not less than a majority, based upon liquidation amounts, of the outstanding trust preferred securities and trust common securities; and (ii) receipt by the trustees of an opinion of counsel to the effect that such amendment or the exercise of any power granted to the trustees in accordance with such amendment will not affect the trust's status as a grantor trust for United States federal income tax purposes or the trust's exemption from status as an "investment company" under the Investment Company Act. However, without the consent of the holder of trust preferred securities and trust common securities, such Trust Agreement may not be amended to: (i) change the amount or timing of any distribution on the trust preferred securities and trust common securities or otherwise adversely affect the amount of any distribution required to be made in respect of the trust preferred securities and trust common securities as of a specified date, or (ii) restrict the right of a holder of trust preferred securities and trust common 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 property trustee, the trustees shall 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 such junior subordinated debentures; (ii) waive any past default that is waivable under 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 a majority in aggregate liquidation amount of all outstanding trust preferred securities. However, 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 consent of each holder of the trust preferred securities. The trustees shall not revoke any action previously authorized or approved by a vote of the holders of the trust preferred securities except by subsequent vote of the holders of the trust preferred securities. The property trustee shall notify the holder of trust 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 trust preferred securities, prior to taking any of the foregoing actions, the trustees shall obtain an opinion of counsel experienced in such matters to the effect that such action would not cause the trust to be classified as other than a grantor trust for United States federal income tax purposes. Any required approval of holders of trust preferred securities may be given at a meeting of holders of trust preferred securities convened for such purpose or pursuant to written consent. The 87 property trustee will cause a notice of any meeting at which holders of trust preferred securities are entitled to vote to be given to each holder of record of trust preferred securities in the manner set forth in the Trust Agreement. No vote or consent of the holders of trust preferred securities will be required for the trust to redeem and cancel its trust preferred securities in accordance with the Trust Agreement. Notwithstanding that holders of trust preferred securities are entitled to vote or consent under any of the circumstances described above, any of the trust preferred securities that are owned by NCF, the trustees or any affiliate of NCF or any trustees, shall, for purposes of such vote or consent, be treated as if they were not outstanding. Global Trust Preferred Securities The trust preferred securities will be issued in the form of one or more global trust preferred securities registered in the name of DTC or its nominee. Global trust preferred securities may be issued only in fully registered form and in either temporary or permanent form. Unless and until it is exchanged in whole or in part for the individual trust preferred securities represented thereby, a global trust preferred security may not be transferred except (i) as a whole by DTC to a nominee of DTC, (ii) by a nominee of DTC to DTC or another nominee of DTC or (iii) by DTC or any nominee to a successor depositary or any nominee of such successor. Upon the issuance of a global trust preferred security, and the deposit of such global trust preferred security with or on behalf of DTC, DTC or its nominee will credit, on its book-entry registration and transfer system, the respective aggregate liquidation amounts of the individual trust preferred security represented by such global trust preferred security to the accounts of participants, which may include Euroclear and Clearstream. Such accounts shall be designated by the dealers, underwriters or agents with respect to such trust preferred securities or by NCF if such trust preferred securities are offered and sold directly by NCF. Ownership of beneficial interests in a global trust preferred security will be limited to participants or persons that may hold interests through participants including Euroclear and Clearstream and their participants. Ownership of beneficial interests in such global trust preferred security will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons who hold through participants). The laws of some states require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a global trust preferred security. So long as DTC or its nominee is the registered owner of such global trust preferred security, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the trust preferred securities represented by such global trust preferred security for all purposes under the Trust Agreement. Except as provided below, owners of beneficial interests in a global trust preferred security will not be entitled to have any of the individual trust preferred securities represented by such global trust preferred security registered in their names, will not receive or be entitled to receive physical delivery of any such trust preferred securities in definitive form and will not be considered the owners or holders thereof under the Trust Agreement. Payments of principal of (and premium, if any) and interest on individual trust preferred securities represented by a global trust preferred security 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 trust preferred security representing such trust preferred securities. None of NCF, the property trustee, any paying agent, or the securities registrar for such trust preferred securities will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial 88 ownership interests of the global trust preferred security representing such trust preferred securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. NCF expects that DTC or its nominee, upon receipt of any payment of liquidation amount, redemption price, premium or distributions in respect of a permanent global trust preferred security representing any of such trust preferred securities, immediately will credit participants' accounts with payments in amounts proportionate to their respective beneficial interest in the aggregate liquidation amount of such global trust preferred security for such trust preferred securities as shown on the records of DTC or its nominee. NCF also expects that payments by participants to owners of beneficial interests in such global trust preferred security held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name." Such payments will be the responsibility of such participants. If DTC is at any time unwilling, unable or ineligible to continue as depositary and a successor depositary is not appointed by the trust within 90 days, the trust will issue individual trust preferred securities in exchange for the global trust preferred security representing the trust preferred securities. In addition, NCF may at any time and in its sole discretion advise the trustees in writing that it elects to terminate the book-entry system or after the occurrence of a debenture event of default, owners of beneficial interests in global trust preferred securities aggregating at least a majority in liquidation amount thereof may advise the administrative trustees in writing that the continuation of the book-entry system is no longer in the best interests of such owners. In either such event, the trust will issue individual trust preferred securities in exchange for the global trust preferred security representing such trust preferred securities. An owner of a beneficial interest in a global trust preferred security will be entitled to physical delivery of individual trust preferred securities represented by such global trust preferred security equal in principal amount to such beneficial interest and to have such trust preferred securities registered in its name. Payment and Paying Agency Payments in respect of the trust preferred securities shall be made to DTC, which shall credit the relevant accounts at DTC on the applicable distribution dates or, if the trust preferred securities are not held by DTC, such payments shall be made by check mailed to the address of the holder entitled thereto as such address shall appear on the register. The paying agent shall initially be the property trustee and any co-paying agent chosen by the property trustee and acceptable to the administrative trustees and NCF. The paying agent shall be permitted to resign as paying agent upon 30 days' written notice to the property trustee and NCF. In the event that the property trustee shall no longer be the paying agent, the administrative trustees shall appoint a successor (which shall be a bank or trust company acceptable to the administrative trustees and NCF) to act as paying agent. Registrar and Transfer Agent The property trustee will act as registrar and transfer agent for the trust preferred securities. Registration of transfers of trust preferred securities will be effected without charge by or on behalf of the trust, but upon payment of any tax or other governmental charges that may be imposed in connection with any transfer or exchange. The trust will not be required to register or cause to be registered the transfer of the trust preferred securities after such trust preferred securities have been called for redemption. 89 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 trust preferred securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. If no event of default has occurred and is continuing and the property trustee is required to decide between alternative causes of action, construe ambiguous provisions in the Trust Agreement or is unsure of the application of any provision of the Trust Agreement, and the matter is not one on which holders of trust preferred securities are entitled under the Trust Agreement to vote, then the property trustee shall take such action as is directed by NCF and, if not so directed, shall take such action as it deems advisable and in the best interests of the holders of the trust preferred securities and trust common securities and will have no liability except for its own bad faith, negligence or willful misconduct. Miscellaneous The administrative trustees are authorized and directed to conduct the affairs of and to operate the trust in such a way that the trust will not be deemed to be an "investment company" required to be registered under the Investment Company Act of 1940, as amended, or classified as other than a grantor trust for United States federal income tax purposes and so that the junior subordinated debentures will be treated as indebtedness of NCF for United States federal income tax purposes. In this connection, NCF and the administrative trustees are authorized to take any action, not inconsistent with applicable law, the certificate of trust of the trust or the Trust Agreement, that NCF and the administrative trustees 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 related trust preferred securities. Holders of the trust preferred securities have no preemptive or similar rights. The trust may not borrow money or issue debt or mortgage or pledge any of its assets. 90 DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES The junior subordinated debentures are to be issued under the Indenture, dated as of December , 2001, as supplemented from time to time (as so supplemented, the "Indenture"), between NCF and The Bank of New York, as trustee. The trustee under the Indenture shall be referred to as the "debenture trustee" in this prospectus. This summary of certain terms and provisions of the junior subordinated debentures and the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Indenture, a copy of which is filed as an exhibit to the registration statement of which this prospectus forms a part, and to the Trust Indenture Act, to each of which reference is hereby made. The Indenture is qualified under the Trust Indenture Act. Whenever particular defined terms of the Indenture (as supplemented or amended from time to time) are referred to in this prospectus, such defined terms are incorporated herein by reference. General The junior subordinated debentures will be issued under the Indenture with terms corresponding to the terms of the trust preferred securities. Concurrently with the issuance of the trust preferred securities, the trust will invest the proceeds thereof and the consideration paid by NCF for the trust common securities in the junior subordinated debentures issued by NCF to the trust. The junior subordinated debentures will be in the principal amount equal to the aggregate liquidation amount of the trust preferred securities and the trust common securities. Holders of the trust preferred securities will have the rights, in connection with modifications to the Indenture or upon occurrence of debenture events of default, as described under "--Modification of Indenture," "--Debenture Events of Default" and "--Enforcement of Certain Rights by Holders of Trust Preferred 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 Indenture to all senior debt of NCF. A large portion of NCF's existing indebtedness is senior debt. See "--Subordination." Because NCF is a holding company, the right of NCF to participate in any distribution of assets of any subsidiary of NCF upon such subsidiary's liquidation or reorganization or otherwise is restricted except to the extent NCF may itself be recognized as a creditor of that subsidiary. Accordingly, the junior subordinated debentures and the Guarantee will be effectively subordinated to all existing and future liabilities of NCF's subsidiaries, and holders of junior subordinated debentures should look only to the assets of NCF for payments on the junior subordinated debentures. The Indenture does not limit the incurrence or issuance of other secured or unsecured debt of NCF, including senior debt, whether under any existing indenture or any other indenture that NCF may enter into in the future or otherwise. See "--Subordination." NCF will covenant: . to maintain directly or indirectly 100% ownership of the trust common securities of the trust, provided that certain successors which are permitted pursuant to the Indenture may succeed to NCF's ownership of the trust common securities; . not to voluntarily terminate, wind up or liquidate the trust, except (a) in connection with a distribution of the junior subordinated debentures to the holders of the trust preferred securities in exchange therefor upon liquidation of the trust, or (b) in connection with certain mergers, consolidations or amalgamations permitted by the Trust Agreement; and . to use its reasonable efforts, consistent with the terms and provisions of the Trust Agreement, to cause the trust to remain classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes. 91 Interest Rate and Maturity The junior subordinated debentures will bear interest at the annual rate of % of their principal amount. Interest will be payable quarterly in arrears, on each of , , and , beginning , 2002, and at maturity. The amount of interest payable for any interest period will be computed on the basis of a 360-day year of twelve 30-day months. An interest period for the junior subordinated debentures will be (1) the period beginning on and including December , 2001 and ending on but excluding the first interest payment date and (2) each subsequent period beginning on and including an interest payment date and ending on but excluding the next interest payment date. In the event that any interest payment date would fall on a day that is not a business day, that interest payment date will be postponed until the next day that is a business day and no interest or other payment will accrue as a result of that postponement. However, if the postponement would cause the interest payment date to fall in the next calendar year, the interest payment date will instead be brought forward to the preceding business day. To the extent permitted by law, accrued interest that is not paid on the applicable interest payment date will bear additional interest from that date on the unpaid amount at the annual rate of %, compounded quarterly. References to "interest" in this prospectus include quarterly interest payments and interest on unpaid amounts. The junior subordinated debentures will mature on , . If the maturity date of the junior subordinated debentures falls on a day that is not a business day, the amount due at maturity will be paid on the following business day, and no interest on that amount will accrue after the stated maturity date. Option to Defer Interest Payments NCF may elect at one or more times to defer payment of interest on the junior subordinated debentures for up to 20 consecutive quarterly periods if the junior subordinated debentures are not in default. However, no deferral period may extend beyond the stated maturity date of the junior subordinated debentures. During the deferral period, interest will continue to accrue on the junior subordinated debentures, and, to the extent permitted by law, additional interest will accrue on the unpaid interest at the annual rate of %, compounded quarterly. At the end of each deferral period, or, if earlier, upon redemption of the junior subordinated debentures, NCF will pay all accrued and unpaid interest on the junior subordinated debentures. NCF at any time may pay all or any portion of the interest accrued to that point during a deferral period. Once NCF pays all accrued and unpaid interest on the junior subordinated debentures, it can again defer interest payments on the junior subordinated debentures as described above. During any deferral period, neither NCF nor its subsidiaries will be permitted to: . declare or pay any dividends or distributions on any of NCF's capital stock; . redeem, purchase, acquire or make a liquidation payment on any of NCF's capital stock; . repay, repurchase or redeem, or make any principal, interest or premium payment on, any of NCF's debt securities that have the same rank as or rank junior to the junior subordinated debentures (including other junior subordinated debentures); or 92 . make any guarantee payment with respect to debt securities of any of NCF's subsidiaries if the guarantee has the same rank as or ranks junior to the junior subordinated debentures. However, the following will not be prohibited: . dividends or distributions paid in NCF's capital stock; . any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the redemption or repurchase of any rights under the plan; . payments under the Guarantee; . purchases of NCF's common stock in connection with any of its benefit plans for directors, officers or employees; and . purchases of common stock related to the issuance of common stock or rights under a dividend reinvestment and stock purchase plan or the issuance of common stock (or securities convertible or exchangeable for common stock) as consideration in an acquisition transaction entered into prior to the beginning of the deferral period. NCF must notify the property trustee, the administrative trustees, the debenture trustee and, if the property trustee is not the sole holder of the junior subordinated debentures, the holders of the junior subordinated debentures, of its election to begin to defer interest payments. That notice must be given at least one business day prior to the earliest of: . the next date distributions on the trust preferred securities and the trust common securities would be payable in absence of the deferral election; . the date the administrative trustees are required to specify the record date for those distributions to the applicable stock exchange or quotation system on which the trust preferred securities are then listed or quoted or to the holders of the junior subordinated debentures; and . one business day prior to that record date. Trust Costs and Expenses NCF has agreed in the Indenture to pay: . all debts and other obligations of the trust, other than with respect to the trust preferred securities and the trust common securities; . all costs and expenses of the trust, including costs and expenses relating to the organization of the trust, the fees and expenses of the trustees and the costs and expenses relating to the operation of the trust; and . all taxes and related costs and expenses to which the trust might become subject, other than United States withholding taxes. Redemption At one or more times on or after , , NCF may, at its option, redeem some or all of the junior subordinated debentures. In addition, NCF may, subject to certain conditions, redeem all, but not less than all, of the junior subordinated debentures within 90 days after the occurrence of a Tax Event or Capital Treatment Event. See "--Conditional Right to Redeem Upon a Tax Event or a Capital Treatment Event" below. If required under applicable capital guidelines or policies, NCF will obtain the prior approval of the Federal Reserve before effecting any redemption. 93 The trust will use the proceeds of any redemption of the junior subordinated debentures to redeem the trust preferred securities and trust common securities. The redemption price for any redemption of the junior subordinated debentures will be equal to the principal amount of the junior subordinated debentures being redeemed, plus accrued and unpaid interest on those junior subordinated debentures to the date of redemption. The junior subordinated debentures will not be subject to any sinking fund. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of junior subordinated debentures to be redeemed at its registered address. Unless NCF defaults in payment of the redemption price, on and after the redemption date, interest will cease to accrue on such junior subordinated debentures or portions thereof called for redemption. Distribution of Junior Subordinated Debentures As described above, the junior subordinated debentures may be distributed in exchange for the trust preferred securities upon dissolution and liquidation of the trust, after satisfaction of the trust's liabilities to its creditors. See "Description of the Trust Preferred Securities--Redemption or Exchange-- Optional Liquidation of the Trust and Distribution of Junior Subordinated Debentures" above. If the junior subordinated debentures are distributed to the holders of trust preferred securities, NCF anticipates that the depositary arrangements for the junior subordinated debentures will be substantially identical to those in effect for the trust preferred securities. See "Book-Entry Issuance." If the junior subordinated debentures are distributed to the holders of trust preferred securities, NCF will use its best efforts to list the junior subordinated debentures on the New York Stock Exchange or any other stock exchange or quotation system on which the trust preferred securities are then listed or quoted. Conditional Right to Redeem Upon a Tax Event or Capital Treatment Event At any time within 90 days after a Tax Event or a Capital Treatment Event, NCF will have the right, subject to prior approval of the Federal Reserve if then so required under applicable capital guidelines or policies, to redeem all, but not less than all, of the junior subordinated debentures at a redemption price equal to 100% of the principal amount then outstanding plus accrued and unpaid interest to the redemption date. This right of redemption is subject to the provisions of the Indenture. The proceeds of any such redemption will be used by the trust to redeem the trust preferred securities and the trust common securities in accordance with their terms. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of junior subordinated debentures to be redeemed at its registered address. Unless NCF defaults in payment of the redemption price, on and after the redemption date, interest will cease to accrue on the junior subordinated debentures or portions thereof called for redemption. 94 Denominations, Registration and Transfer The junior subordinated debentures will be issuable only in registered form without coupons. The junior subordinated debentures will be exchangeable for other junior subordinated debentures of any authorized denominations and of a like aggregate principal amount. The 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 appropriate securities registrar or at the office of any transfer agent designated by NCF for such purpose, without service charge and upon payment of any taxes and other governmental charges as described in the Indenture. NCF will appoint the debenture trustee as securities registrar under the Indenture. In the event of any redemption, neither NCF 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 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. Global Junior Subordinated Debentures The junior subordinated debentures will be issued in the form of one or more global junior subordinated debentures that will be deposited with, or on behalf of, DTC or its nominee. Global junior subordinated debentures may be issued only in fully registered form and in either temporary or permanent form. Unless and until it is exchanged in whole or in part for the individual definitive junior subordinated debentures represented thereby, a global junior subordinated debenture may not be transferred except (i) as a whole by DTC to a nominee of DTC; (ii) by a nominee of DTC to DTC or another nominee of DTC; or (iii) by DTC or any nominee to a successor depositary or any nominee of such successor. Upon the issuance of a global junior subordinated debenture, and the deposit of such global junior subordinated debenture with or on behalf of DTC, DTC will credit, on its book-entry registration and transfer system, the respective principal amounts of the individual junior subordinated debentures represented by such global junior subordinated debenture to the accounts of DTC participants, which may include Euroclear and Clearstream. Such accounts shall be designated by the dealers, underwriters or agents with respect to such junior subordinated debentures or by NCF if such junior subordinated debentures are offered and sold directly by NCF. Ownership of beneficial interests in a global junior subordinated debenture will be limited to participants or persons that may hold interests through participants, including Euroclear and Clearstream and their participants. Ownership of beneficial interests in such global junior subordinated debenture will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons who hold through participants). The laws of some states require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a global junior subordinated debenture. So long as DTC or its nominee is the registered owner of such global junior subordinated debenture, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the junior subordinated debentures represented by such global junior subordinated debenture for all purposes under the Indenture. Except as provided below, owners of beneficial interests in a global junior subordinated debenture will not be entitled to have any of the individual junior subordinated debentures represented by such global junior subordinated debenture registered in their names, will not receive or be entitled to receive physical delivery of any such junior subordinated debentures in definitive form and will not be considered the owners or holders thereof under the Indenture. 95 Payments of principal of (and premium, if any) and interest on individual junior subordinated debentures represented by a global junior subordinated debenture 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 junior subordinated debenture representing such junior subordinated debentures. None of NCF, the debenture trustee, any paying agent, or the securities registrar for such junior subordinated debentures 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 junior subordinated debenture representing such junior subordinated debentures or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. NCF expects that DTC or its nominee, upon receipt of any payment of principal, premium, if any, or interest in respect of a permanent global junior subordinated debenture representing any junior subordinated debentures, immediately will credit participants' accounts with payments in amounts proportionate to their respective beneficial interest in the principal amount of such global junior subordinated debenture for such junior subordinated debentures as shown on the records of DTC or its nominee. NCF also expects that payments by participants to owners of beneficial interests in such global junior subordinated debenture held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name." Such payments will be the responsibility of such participants. No global junior subordinated debenture may be exchanged in whole or in part for a certificated junior subordinated debenture, and no transfer of a global junior subordinated debenture may be registered in the name of any person or entity other than DTC or its nominee except (i) if DTC is at any time unwilling, unable or ineligible to continue as depositary, or (ii) if NCF at any time advises the debenture trustee in writing that it elects to terminate the book-entry system, or (iii) there shall have occurred and be continuing a debenture event of default. In any such instance, an owner of a beneficial interest in a global junior subordinated debenture will be entitled to physical delivery of certificated junior subordinated debentures equal in aggregate principal amount to such beneficial interest and to have such junior subordinated debentures registered in its name. Payment and Paying Agents Payment of principal of (and premium, if any) and any interest on junior subordinated debentures (other than junior subordinated debentures represented by global junior subordinated debentures) will be made at the office of the debenture trustee in the City of New York or at the office of such paying agent or paying agents as NCF may designate from time to time, except that at the option of NCF payment of any interest may be made (i) except in the case of global junior subordinated debentures, by check mailed to the address of the person entitled thereto as such address shall appear in the securities register or (ii) by transfer to an account maintained by the person entitled thereto as specified in the securities register, provided that proper transfer instructions have been received by the regular record date. Payment of any interest on the junior subordinated debentures will be made to the person in whose name such junior subordinated debentures are registered at the close of business on the regular record date for such interest, except in the case of defaulted interest. NCF may at any time designate additional paying agents or rescind the designation of any paying agent; however, NCF will at all times be required to maintain an office or agent in each place of payment for the junior subordinated debentures. Any moneys deposited with the debenture trustee or any paying agent, or held by NCF 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 NCF, be repaid to NCF, and the holder 96 of such junior subordinated debenture shall thereafter look, as a general unsecured creditor, only to NCF for payment thereof. Restrictions on Certain Payments NCF will also covenant that it will not, and will not permit any subsidiary of NCF to, (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of NCF's capital stock, (ii) make any payment of principal, interest or premium, if any, on or repay or repurchase or redeem any debt securities of NCF that rank pari passu with or junior in interest to the junior subordinated debentures or (iii) make any guarantee payments with respect to any guarantee by NCF of the debt securities of any subsidiary of NCF if such guarantee ranks pari passu with or junior in interest to the junior subordinated debentures (other than (a) dividends or distributions in capital stock of NCF, (b) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the Guarantee with respect to the trust preferred securities and (d) purchases of common stock related to the issuance of common stock or rights under any of NCF's benefit plans for its directors, officers or employees, related to the issuance of common stock or rights under a dividend reinvestment and stock purchase plan, or related to the issuance of common stock (or securities convertible into or exchangeable for common stock) as consideration in an acquisition transaction that was entered into prior to the commencement of the applicable deferral period) if at such time (i) there shall have occurred any event of which NCF has actual knowledge (a) that with the giving of notice or the lapse of time, or both, would constitute a "debenture event of default" under the Indenture with respect to the junior subordinated debentures and (b) in respect of which NCF shall not have taken reasonable steps to cure, (ii) if the junior subordinated debentures are held by the trust, NCF shall be in default with respect to its payment of any obligations under the Guarantee relating to the trust preferred securities or (iii) NCF shall have given notice of its election of a deferral period as provided in the Indenture with respect to the junior subordinated debentures and shall not have rescinded such notice, or such deferral period, or any extension thereof, shall be continuing. Modification of Indenture From time to time NCF and the debenture trustee may, without the consent of the holders of the junior subordinated debentures, amend, waive or supplement the Indenture for specified purposes, including, among other things, curing ambiguities, defects or inconsistencies (provided that any such curative action does not materially adversely affect the interests of the holders of the junior subordinated debentures or the holders of the trust preferred securities so long as they remain outstanding) and qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act. The Indenture contains provisions permitting NCF and the debenture trustee, with the consent of the holders of not less than a majority in principal amount of the outstanding junior subordinated debentures affected, to modify the Indenture in any other manner (which may adversely affect the rights of the holders of the junior subordinated debentures in a material respect); provided, 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 principal of or any installment of interest on the junior subordinated debentures, or reduce the principal amount or any premium payable upon the redemption thereof, or reduce the rate of interest thereon, or change the place of payment where, or the coin or currency in which, the junior subordinated debentures 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 (or redemption date, if applicable), (ii) reduce the percentage of principal amount of the junior subordinated debentures, the holders of which are required to consent to any such modification of the Indenture, (iii) modify certain voting provisions, except in favor of the holders of junior subordinated debentures or (iv) modify the subordination provisions 97 thereof. With respect to any such modification, so long as any trust preferred securities remain outstanding, (a) no such modification may be made that adversely affects the holders of such trust preferred securities in any material respect, and no termination of the Indenture may occur, and no waiver of any event of default or compliance with any covenant under the Indenture may be effective, without the prior consent of the holders of at least a majority of the aggregate liquidation amount of all outstanding trust preferred securities affected unless and until the principal of the junior subordinated debentures and all accrued and unpaid interest thereon have been paid in full and (b) no amendment shall be made to the provisions of the Indenture granting the holders of the trust preferred securities the right upon certain debenture events of default to institute suit directly against NCF to enforce payment to such holders of principal and interest under junior subordinated debentures having a principal amount equal to the liquidation amount of the trust preferred securities held by such holders without the prior consent of each holder of the trust preferred securities. Debenture Events of Default The Indenture provides that any one or more of the following events with respect to the junior subordinated debentures that has occurred and is continuing constitutes a "debenture event of default" with respect to such junior subordinated debentures: (i) failure for 30 days to pay any interest on the junior subordinated debentures when due (subject to NCF's right to defer any interest payment); or (ii) failure to pay any principal or premium, if any, on the junior subordinated debentures when due whether at maturity or upon redemption; or (iii) failure to observe or perform in any material respect certain other covenants contained in the Indenture for 90 days after written notice to NCF from the debenture trustee or the holders of at least 25% of the aggregate outstanding principal amount of the junior subordinated debentures; or (iv) certain events in bankruptcy, insolvency or reorganization of NCF. The holders of a majority in aggregate outstanding principal amount of 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. Upon a debenture event of default in connection with the bankruptcy or insolvency of NCF, the principal amount of the junior subordinated debentures shall automatically become immediately due and payable. In addition, the debenture trustee or the holders of not less than 25% in aggregate outstanding principal amount of junior subordinated debentures may declare the principal due and payable immediately upon any other debenture event of default, and, should the debenture trustee or such holders of the junior subordinated debentures fail to make such declaration, the holders of at least 25% in aggregate liquidation amount of the trust preferred securities shall have such right. The holders of a majority in aggregate outstanding principal amount of junior subordinated debentures may annul such declaration. Should the holders of the junior subordinated debentures fail to annul such declaration and waive such default, the holders of a majority in aggregate liquidation amount of the trust preferred securities affected shall have such right. The holders of a majority in aggregate outstanding principal amount of the junior subordinated debentures and the holders of a majority in aggregate liquidation amount of the trust preferred securities affected by a default may, on behalf of the holders of all the junior subordinated debentures or the holders of all the trust preferred securities, respectively, waive any such default, except a default in the payment of principal or interest (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the debenture trustee) or a default in respect of a covenant or provision 98 which under the Indenture cannot be modified or amended without the consent of the holder of each outstanding junior subordinated debenture. NCF is required to file annually with the debenture trustee a certificate as to whether or not NCF is in compliance with all the conditions and covenants applicable to it under the Indenture. In case a debenture event of default shall occur and be continuing, the debenture trustee will have the right to declare the principal of and the interest on the junior subordinated debentures, and any other amounts payable under the Indenture, to be forthwith due and payable and to enforce its other rights as a creditor with respect to such junior subordinated debentures. Enforcement of Certain Rights by Holders of Trust Preferred Securities If a debenture event of default with respect to the junior subordinated debentures has occurred and is continuing and such event is attributable to the failure of NCF to pay interest or principal on the junior subordinated debentures on the date such interest or principal is due and payable, a holder of trust preferred securities may institute a legal proceeding directly against NCF for enforcement of payment to such holder of the principal of or interest on the junior subordinated debentures having a principal amount equal to the aggregate liquidation amount of the trust preferred securities of such holder. NCF may not amend the Indenture to remove the foregoing right to bring such an action without the prior written consent of the holders of all of the trust preferred securities outstanding. If the right to bring such an action is removed, the trust may become subject to the reporting obligations under the Securities Exchange Act of 1934, as amended. NCF shall have the right under the Indenture to set off any payment made to such holder of trust preferred securities by NCF in connection with such an action. The holders of the trust preferred securities will not be able to exercise directly any remedies other than those set forth in the preceding paragraph available to the holders of the junior subordinated debentures unless there shall have been an event of default under the Trust Agreement. See "Description of the Trust Preferred Securities--Events of Default; Notice." Consolidation, Merger, Sale of Assets and Other Transactions The Indenture provides that NCF shall not consolidate with or merge into any other person or entity or convey, transfer or lease its properties and assets substantially as an entirety to any person or entity, and no person or entity shall consolidate with or merge into NCF or convey, transfer or lease its properties and assets substantially as an entirety to NCF, unless (i) in case NCF consolidates with or merges into another person or entity or conveys or transfers its properties and assets substantially as an entirety to any person or entity, the successor is organized under the laws of the United States or any state or the District of Columbia, and such successor expressly assumes NCF's obligations on the junior subordinated debentures issued under the Indenture; (ii) immediately after giving effect thereto, no debenture event of default, and no event which, after notice or lapse of time or both, would become a debenture event of default, shall have occurred and be continuing; (iii) such transaction is permitted under the Trust Agreement and Guarantee and does not give rise to any breach or violation of the Trust Agreement or Guarantee, and (iv) certain other conditions as prescribed by the Indenture are met. The general provisions of the Indenture do not afford holders of the junior subordinated debentures protection in the event of a highly leveraged or other transaction involving NCF that may adversely affect holders of the junior subordinated debentures. 99 Satisfaction and Discharge The 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 their stated maturity within one year or (iii) are to be called for redemption within one year under arrangements satisfactory to the debenture trustee for the giving of notice of redemption by the debenture trustee in the name, and at the expense, of NCF, and NCF deposits or causes to be deposited with the debenture trustee funds, in trust, for the purpose and in an amount in the currency or currencies in which the junior subordinated debentures are payable 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 Indenture will cease to be of further effect (except as to NCF's obligations to pay all other sums due pursuant to the Indenture and to provide the officers' certificates and opinions of counsel described therein), and NCF will be deemed to have satisfied and discharged the Indenture. Subordination In the Indenture, NCF has covenanted and agreed that the junior subordinated debentures issued thereunder will be subordinate and junior in right of payment to all Senior Debt (as defined below) of NCF to the extent provided in the Indenture. Upon any payment or distribution of assets of NCF upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshaling of assets or any bankruptcy, insolvency, debt restructuring or similar proceedings in connection with any insolvency or bankruptcy proceeding of NCF, the holders of Senior Debt will first be entitled to receive payment in full of principal of (and premium, if any) and interest, if any, on such Senior Debt before the holders of the junior subordinated debentures will be entitled to receive or retain any payment in respect of the principal of (and premium, if any) or interest, if any, on the junior subordinated debentures. No payments on account of principal (or premium, if any) or interest in respect of the junior subordinated debentures may be made if there shall have occurred and be continuing a default in any payment with respect to Senior Debt or an event of default with respect to any Senior Debt resulting in the acceleration of the maturity thereof. As used in this section, "Senior Debt" means with respect to NCF (except any other obligations which rank pari passu with the junior subordinated debentures), (i) the principal and interest in respect of (A) indebtedness of NCF for money borrowed and (B) indebtedness evidenced by securities, debentures, notes, bonds or other similar instruments issued by NCF, including, without limitation, any current or future indebtedness under any indenture (other than the Indenture) to which NCF is a party; (ii) all capital lease obligations of NCF; (iii) all obligations of NCF issued or assumed as the deferred purchase price of property, all conditional sale obligations of NCF and all obligations of NCF under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of NCF for the reimbursement of any letter of credit, any banker's acceptance, any security purchase facility, any repurchase agreement or similar arrangement, any interest rate swap, any other hedging arrangement, any obligation under options or any similar credit or other transaction; (v) all obligations of the type referred to in clauses (i) through (iv) above of other persons, the payment of which NCF is responsible or liable as obligor, guarantor or otherwise; and (vi) all obligations of the type referred to in clauses (i) through (v) above of other persons secured by any lien on any property or asset of NCF (whether or not such obligation is assumed by NCF), except for (1) any indebtedness between or among NCF or any affiliate of NCF and (2) any series of junior subordinated debentures issued pursuant to the Indenture and guarantees in respect of any such series of junior subordinated debentures. Senior Debt does not include (a) the junior subordinated debentures of any series, (b) any junior subordinated debt 100 securities issued in the future with subordinated terms substantially similar to the junior subordinated debentures of any series, (c) the guarantees in respect of the 1997 Trust Preferred Securities or (d) the 1997 Debentures. Senior Debt shall continue to be Senior Debt and be entitled to the subordination provisions irrespective of any amendment, modification or waiver of any term of such Senior Debt. Because NCF is a holding company, the right of NCF to participate in any distribution of assets of any subsidiary, including NBC and Central Carolina Bank, upon such subsidiary's liquidation or reorganization or otherwise, is subject to the prior claims of creditors of the subsidiary, except to the extent NCF may itself be recognized as a creditor of that subsidiary. Accordingly, the junior subordinated debentures will be effectively subordinated to all existing and future liabilities of NCF's subsidiaries, and holders of junior subordinated debentures should look only to the assets of NCF for payments on the junior subordinated debentures. The Indenture places no limitation on the amount of Senior Debt that may be incurred by NCF. NCF expects from time to time to incur additional indebtedness and other obligations constituting Senior Debt. Governing Law The Indenture is, and the junior subordinated debentures will be, governed by and construed in accordance with the laws of the State of New York. Information Concerning the Debenture Trustee The debenture trustee shall have and be subject to all the duties and responsibilities specified with respect to an indenture trustee under the Trust Indenture Act. Subject to such provisions, the debenture trustee is under no obligation to exercise any of the powers vested in it by the Indenture at the request of any holder of junior subordinated debentures, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which 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. BOOK-ENTRY ISSUANCE DTC will act as securities depositary for the trust preferred securities and the junior subordinated debentures. The trust preferred securities and the junior subordinated debentures will be issued only as fully-registered securities registered in the name of Cede & Co. (DTC's nominee). One or more fully-registered global certificates will be issued for the trust preferred securities and the junior subordinated debentures, representing in the aggregate the total number of the trust preferred securities or aggregate principal balance of junior subordinated debentures, respectively, and will be deposited with the property trustee as custodian for DTC. Investors may elect to hold interests in the global securities through either DTC (in the United States), or Clearstream Banking S.A. ("Clearstream") or Euroclear Bank S.A./N.V. ("Euroclear"), as operator of Euroclear System (outside the United States), if they are participants in those systems, or indirectly through organizations that are participants in those systems. Clearstream and Euroclear will hold interests on behalf of their participants through customers' securities accounts in Clearstream's 101 and Euroclear's names on the books of their respective depositaries. Those depositaries in turn hold those interests in customers' securities accounts in the depositaries' names on the books of DTC. Citibank, N.A. will act as depositary for Clearstream and JPMorgan Chase Bank will act as depositary for Euroclear. Except as described below, you will not be entitled to receive trust preferred securities certificates. See "Description of the Trust Preferred Securities--Global Trust Preferred Securities." DTC is a limited purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds securities that its participants deposit with DTC. DTC also facilitates the settlement among participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants' accounts, thereby eliminating the need for physical movement of securities certificates. "Direct participants" include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of its direct participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain custodial relationships with direct participants, either directly or indirectly. The rules applicable to DTC and its participants are on file with the Securities and Exchange Commission. Purchases of trust preferred securities or junior subordinated debentures within the DTC system must be made by or through direct participants, which will receive a credit for the trust preferred securities or junior subordinated debentures on DTC's records. The ownership interest of the actual purchaser of the trust preferred security and the junior subordinated debenture is in turn to be recorded on the direct and indirect participants' records. Beneficial owners will not receive written confirmation from DTC of their purchases, but beneficial owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the direct or indirect participants through which the beneficial owners purchased trust preferred securities or junior subordinated debentures. Transfers of ownership interests in the trust preferred securities or junior subordinated debentures are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in trust preferred securities or junior subordinated debentures, except in the event that use of the book-entry system for the trust preferred securities or junior subordinated debentures is discontinued. Transfers between participants will be effected in accordance with DTC's procedures and will be settled in same-day funds. Transfers between participants in Euroclear and Clearstream will be effected in the ordinary way in accordance with their respective rules and operating procedures. Cross-market transfers between participants, on the one hand, and Euroclear participants or Clearstream participants, on the other hand, will be effected in DTC in accordance with DTC's rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to DTC to take action to effect final settlement on its behalf by delivering or receiving interests in the trust 102 preferred securities or junior subordinated debentures in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to DTC. Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a trust preferred security or junior subordinated debenture from a participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear participant or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream, as the case may be) immediately following the DTC settlement date. Cash received in Euroclear or Clearstream as a result of sales of interests in a trust preferred security or junior subordinated debenture by or through a Euroclear or Clearstream participant to a participant in DTC will be received with value on the DTC settlement date but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following the DTC settlement date. DTC has no knowledge of the actual beneficial owners of the trust preferred securities or junior subordinated debentures. DTC's records reflect only the identity of the direct participants to whose accounts such trust preferred securities or junior subordinated debentures are credited, which may or may not be the beneficial owners. The participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to direct participants, by direct participants to indirect participants, and by direct participants and indirect participants to beneficial owners and the voting rights of direct participants, indirect participants and beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices will be sent to Cede & Co. as the registered holder of the trust preferred securities or junior subordinated debentures. If less than all of the trust preferred securities or the junior subordinated debentures are being redeemed, DTC's current practice is to determine by lot the amount of the interest of the direct participant to be redeemed. Although voting with respect to the trust preferred securities or the junior subordinated debentures is limited to the holders of record of the trust preferred securities or junior subordinated debentures, in those instances in which a vote is required, neither DTC nor Cede & Co. will itself consent or vote with respect to trust preferred securities or junior subordinated debentures. Under its usual procedures, DTC would mail an omnibus proxy to the trust as soon as possible after the record date. The omnibus proxy assigns Cede & Co.'s consenting or voting rights to those direct participants to whose accounts such trust preferred securities or junior subordinated debentures are credited on the record date (identified in a listing attached to the omnibus proxy). Distribution or interest payments on the trust preferred securities or the junior debentures will be made by the trust to DTC. DTC's practice is to credit direct participants' accounts on the relevant payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payments on such payment date. Payments by participants to beneficial owners will be governed by standing instructions and customary practices and will be the responsibility of such participant and not of DTC, the trust, or NCF, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of distributions or interest to DTC is the responsibility of the trust, disbursement of such payments to direct participants is the responsibility of DTC, and disbursements of such payments to the beneficial owners is the responsibility of direct and indirect participants. 103 DTC may discontinue providing its services as securities depositary with respect to the trust preferred securities or the junior subordinated debentures at any time by giving reasonable notice to the trust and NCF. In the event that a successor securities depositary is not obtained, definitive trust preferred security or junior subordinated debenture certificates representing such trust preferred securities or junior subordinated debentures are required to be printed and delivered. NCF, at its option, may decide to discontinue use of the system of book-entry transfers through DTC (or a successor depositary). After a debenture event of default, the holders of a majority in liquidation amount of trust preferred securities or aggregate principal amount of outstanding junior subordinated debentures may determine to discontinue the system of book-entry transfers through DTC. In any such event, definitive certificates for such trust preferred securities or junior subordinated debentures will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the trust and NCF believe to be accurate, but the trust and NCF assume no responsibility for the accuracy thereof. Neither the trust nor NCF has any responsibility for the performance by DTC or its participants of their respective obligations as described herein or under the rules and procedures governing their respective operations. Clearstream has advised NCF that it is incorporated under the laws of Luxembourg as a bank. Clearstream holds securities for its customers and facilitates the clearance and settlement of securities transactions between its customers through electronic book-entry transfers between their accounts. Clearstream provides to its customers, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Clearstream interfaces with domestic securities markets in over 30 countries through established depositary and custodial relationships. As a bank, Clearstream is subject to regulation by the Luxembourg Commission for the Supervision of the Financial Sector, also known as the Commission de Surveillance du Secteur Financier. Its customers are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Its customers in the United States are limited to securities brokers and dealers and banks. Indirect access to Clearstream is also available to other institutions such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with the customer. Distributions with respect to interests in trust preferred securities or the junior subordinated debentures held beneficially through Clearstream will be credited to cash accounts of Clearstream participants in accordance with its rules and procedures, to the extent received by DTC. Euroclear has advised NCF that it was created in 1968 to hold securities for participants of Euroclear and to clear and settle transactions between Euroclear participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of certificates and any risk from lack of simultaneous transfers of securities and cash. Euroclear includes various other services, including securities lending and borrowing, and interfaces with domestic markets in several countries. Euroclear is now operated by Euroclear Bank S.A./N.V., a Belgian bank. Euroclear Bank S.A./N.V. conducts all Euroclear operations, and all Euroclear securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear Bank S.A./N.V., not the Cooperative. The Cooperative establishes policy for Euroclear on behalf of Euroclear participants. Euroclear participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries and may include the underwriters for this offering. Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial relationship with a Euroclear participant, either directly or indirectly. Securities clearance accounts and cash accounts with Euroclear Bank S.A./N.V. are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System, and applicable Belgian law (collectively, the "Terms and Conditions"). The Terms 104 and Conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear, and receipts of payments with respect to securities in Euroclear. Euroclear Bank S.A./N.V. holds all securities in Euroclear on a fungible basis without attribution of specific certificates to specific securities clearance accounts. Euroclear Bank S.A./N.V. acts under the Terms and Conditions only on behalf of Euroclear participants and has no record of or relationship with persons holding through Euroclear participants. Distributions or interest with respect to interests in trust preferred securities or junior subordinated debentures held beneficially through Euroclear will be credited to the cash accounts of Euroclear participants in accordance with the Terms and Conditions, to the extent received by DTC. A global security will be exchangeable for junior subordinated debentures registered in the names of persons other than DTC or its nominee only as set forth in "Description of the Trust Preferred Securities--Global Trust Preferred Securities" and "Description of the Junior Subordinated Debentures--Global Junior Subordinated Debentures." Any global security that is exchangeable as described above will be exchangeable for definitive certificates registered in the names directed by DTC. Any trust preferred securities in certificated form will be in denominations of $25 and integral multiples of $25 in excess of $25. If the trust preferred securities are issued in certificated form, the record dates for payment of distributions will be the 15th day of the month in which the relevant distribution date occurs. If the trust preferred securities are issued in certificated form, distributions on the trust preferred securities will be paid, transfers and exchanges of trust preferred securities will be registered, and junior subordinated debentures will be distributed in exchange for trust preferred securities, at the corporate office of the property trustee in New York, New York, or at the offices of any paying agent or transfer agent appointed by the administrative trustees. However, payment of any distribution on the trust preferred securities may be made at the option of the administrative trustees by check or by wire transfer. Global Clearance and Settlement Procedures Initial settlement for the trust preferred securities will be made in immediately available funds. DTC participants will conduct secondary market trading with other DTC participants in the ordinary way in accordance with DTC's rules, and those secondary market trades will settle in immediately available funds. Clearstream and/or Euroclear participants will conduct secondary market trading with other Clearstream and/or Euroclear participants in the ordinary way in accordance with the applicable rules and operating procedures of Clearstream and Euroclear, and those secondary market trades will settle in immediately available funds. Although DTC, Clearstream and Euroclear have agreed to the above procedures in order to facilitate transfers of trust preferred securities and junior subordinated debentures among participants of DTC, Clearstream and Euroclear, they are under no obligation to perform or continue to perform those procedures and those procedures may be discontinued at any time. 105 DESCRIPTION OF THE GUARANTEE The Guarantee will be executed and delivered by NCF concurrently with the issuance by the trust of its trust preferred securities for the benefit of the holders from time to time of such trust preferred securities and trust common securities. The Bank of New York will act as guarantee trustee ("guarantee trustee") under the Guarantee for the purposes of compliance with the Trust Indenture Act, and the Guarantee will be qualified as an indenture under the Trust Indenture Act. This summary of certain provisions of the Guarantee, which summarizes the material terms thereof, does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the Guarantee, including the definitions therein of certain terms, and the Trust Indenture Act, to each of which reference is hereby made. The form of the Guarantee has been filed as an exhibit to the registration statement of which this prospectus forms a part. The guarantee trustee will hold the Guarantee for the benefit of the holders of the trust preferred securities and trust common securities. The Trust Agreement provides that, by your acceptance of trust preferred securities, you agree to the provisions of the Indenture and the Guarantee. General NCF will irrevocably agree to pay in full on a junior subordinated basis, to the extent set forth herein, the guarantee payments (as defined below) to the holders of the trust preferred securities and the trust common securities, as and when due, regardless of any defense, right of set-off or counterclaim that the trust may have or assert other than the defense of payment. The following payments with respect to the trust preferred securities, to the extent not paid by or on behalf of the trust, the "guarantee payments," will be subject to the Guarantee: (i) any accumulated and unpaid distributions required to be paid on such trust preferred securities, to the extent that the trust has funds on hand available therefor at such time, (ii) the redemption price with respect to any trust preferred securities called for redemption, to the extent that the trust has funds on hand available therefor at such time, or (iii) upon a voluntary or involuntary dissolution, winding up or liquidation of the trust (unless the junior subordinated debentures are distributed to holders of such trust preferred securities in exchange therefor), the lesser of (a) the liquidation distribution and (b) the amount of assets of the trust remaining available for distribution to holders of trust preferred securities and the trust common securities after satisfaction of liabilities to creditors of the trust as required by applicable law. NCF's obligation to make a guarantee payment may be satisfied by direct payment of the required amounts by NCF to the holders of the trust preferred securities and the trust common securities or by causing the trust to pay such amounts to such holders. The Guarantee will be an irrevocable guarantee on a junior subordinated basis of the trust's obligations under the trust preferred securities and the trust common securities, but will apply only to the extent that the trust has funds sufficient to make such payments, and is not a guarantee of collection. If NCF does not make interest payments on the junior subordinated debentures held by the trust, the trust will not be able to pay distributions on the trust preferred securities and will not have funds legally available therefor. The Guarantee will rank subordinate and junior in right of payment to all Senior Debt of NCF. See "--Status of the Guarantee." Because NCF is a holding company, the right of NCF to participate in any distribution of assets of any subsidiary, upon such subsidiary's liquidation or reorganization or otherwise, is subject to the prior claims of creditors of that subsidiary, except to the extent NCF may itself be recognized as a creditor of that subsidiary. Accordingly, NCF's obligations under the Guarantee will be effectively subordinated to all existing and future liabilities of NCF's subsidiaries, and claimants should look only to the assets of NCF for payments thereunder. The Guarantee does not limit the incurrence or issuance of other secured or unsecured debt of NCF, including Senior Debt, whether under the Indenture, any other existing indenture or any other indenture that NCF may enter into in the future or otherwise. 106 NCF has, through the Guarantee, the Trust Agreement, the junior subordinated debentures and the Indenture, taken together, fully, irrevocably and unconditionally guaranteed all of the trust's obligations under the trust preferred securities. No single document standing alone or operating in conjunction with fewer than all of 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 trust's obligations under the trust preferred securities. See "Relationship Among the Trust Preferred Securities, the Junior Subordinated Debentures and the Guarantee." Status of the Guarantee The Guarantee will constitute an unsecured obligation of NCF, ranking subordinate and junior in right of payment to all Senior Debt of NCF 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 for the benefit of the holders of the trust preferred securities. The Guarantee will not be discharged except by payment of the guarantee payments in full to the extent not paid by the trust or upon distribution to the holders of the trust preferred securities of the junior subordinated debentures. The Guarantee does not place a limitation on the amount of additional Senior Debt that may be incurred by NCF. NCF expects from time to time to incur additional indebtedness constituting Senior Debt. Amendments and Assignment Except with respect to any changes which do not materially adversely affect the rights of holders of the related trust 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 such outstanding trust preferred securities. The manner of obtaining any such approval will be as set forth under "Description of the Trust Preferred Securities -- Voting Rights; Amendment of the Trust Agreement." All guarantees and agreements contained in the Guarantee shall bind the successors, assigns, receivers, trustees and representatives of NCF and shall inure to the benefit of the trust preferred securities then outstanding. Events of Default An event of default under the Guarantee will occur upon the failure of NCF to perform any of its payment or other obligations thereunder. The holders of not less than a majority in aggregate liquidation amount of the trust preferred securities have the right to (i) to waive any past event of default and its consequences and (ii) 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 holder of the trust preferred securities may institute a legal proceeding directly against NCF to enforce its rights under the Guarantee without first instituting a legal proceeding against the trust, the guarantee trustee or any other person or entity. NCF, as guarantor, is required to file annually with the guarantee trustee a certificate as to whether or not NCF 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 NCF in performance of the Guarantee, undertakes to perform only such duties as are specifically set forth in 107 the Guarantee and, after 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 any trust securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. 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 trust preferred securities, upon full payment of the amounts payable upon liquidation of the trust or upon distribution of junior subordinated debentures to the holders of the trust preferred securities in exchange therefor. The Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of the trust preferred securities must restore payment of any sums paid under such trust preferred securities or the Guarantee. Governing Law The Guarantee will be governed by and construed in accordance with the laws of the State of New York. 108 RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES, THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE Full and Unconditional Guarantee Payments of distributions and other amounts due on the trust preferred securities (to the extent the trust has funds available for the payment of such distributions and other amounts) are irrevocably guaranteed by NCF as and to the extent set forth under "Description of the Guarantee." Taken together, NCF's obligations under the junior subordinated debentures, the Indenture, the Trust Agreement and the Guarantee provide, in the aggregate, a full, irrevocable and unconditional guarantee of payments of distributions and other amounts due on the trust preferred securities. No single document standing alone or operating in conjunction with fewer than all of the other documents constitutes the guarantee. It is only the combined operation of these documents that has the effect of providing a full, irrevocable and unconditional guarantee of the trust's obligations under the trust preferred securities. If and to the extent that NCF does not make payments on the junior subordinated debentures, the trust will not pay distributions or other amounts due on the trust preferred securities. The Guarantee does not cover payment of distributions when the trust does not have sufficient funds to pay such distributions. In such event, the remedy of a holder of trust preferred securities is to institute a legal proceeding directly against NCF pursuant to the terms of the Indenture for enforcement of payment of amounts equal to such distributions to such holder. The obligations of NCF under the Guarantee are subordinate and junior in right of payment to all Senior Debt of NCF. Sufficiency of Payments As long as payments of interest and other payments are made when due on the junior subordinated debentures, such payments will be sufficient to cover distributions and other payments due on the trust preferred securities, primarily because . the aggregate principal amount of the junior subordinated debentures will be equal to the sum of the aggregate stated liquidation amount of the trust preferred securities and trust common securities; . the interest rate and interest and other payment dates on the junior subordinated debentures will match the distribution rate and distribution and other payment dates for the trust preferred securities; . NCF shall pay for all and any costs, expenses and liabilities of the trust except the trust's obligations to holders of its trust preferred securities under such trust preferred securities; and . the Trust Agreement further provides that the trust will not engage in any activity that is not consistent with the limited purposes of the trust. Notwithstanding anything to the contrary in the Indenture, NCF has the right to set off any payment it is otherwise required to make thereunder with and to the extent NCF has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee. Enforcement Rights of Holders of Trust Preferred Securities A holder of any trust preferred security may institute a legal proceeding directly against NCF to enforce its rights under the Guarantee without first instituting a legal proceeding against the guarantee trustee, the trust or any other person or entity. A default or event of default under any Senior Debt of NCF would not constitute a default or event of default under the Indenture. However, in the event of payment defaults under, or 109 acceleration of, Senior Debt of NCF, the subordination provisions of the Indenture provide that no payments may be made in respect of the junior subordinated debentures until such Senior Debt has been paid in full or any payment default thereunder has been cured or waived. Failure to make required payments on the junior subordinated debentures would constitute an event of default under the Indenture. Limited Purpose of the Trust The trust preferred securities evidence beneficial interests in the trust, and the trust exists for the sole purpose of issuing its trust preferred securities and trust common securities and investing the proceeds thereof in junior subordinated debentures. A principal difference between the rights of a holder of a trust preferred security and a holder of a junior subordinated debenture is that a holder of a junior subordinated debenture is entitled to receive from NCF the principal amount of and interest accrued on junior subordinated debentures held, while a holder of trust preferred securities is entitled to receive distributions from the trust (or from NCF under the Guarantee) if and to the extent the trust has funds available for the payment of such distributions. Rights Upon Dissolution Upon any voluntary or involuntary dissolution of the trust involving the liquidation of the junior subordinated debentures, after satisfaction of liabilities to creditors of the trust as required by applicable law, the holders of the trust preferred securities will be entitled to receive, out of the assets held by the trust, the liquidation distribution in cash. See "Description of the Trust Preferred Securities--Liquidation Distribution Upon Dissolution." Upon any voluntary or involuntary liquidation or bankruptcy of NCF, the property trustee, as holder of the junior subordinated debentures, would be a subordinated creditor of NCF, subordinated in right of payment to all Senior Debt as set forth in the Indenture, but entitled to receive payment in full of principal and interest, before any shareholders of NCF receive payments or distributions. Since NCF is the guarantor under the Guarantee and has agreed to pay for all costs, expenses and liabilities of the trust (other than the trust's obligations to the holders of the trust preferred securities), the positions of a holder of trust preferred securities and a holder of junior subordinated debentures relative to other creditors and to shareholders of NCF in the event of liquidation or bankruptcy of NCF are expected to be substantially the same. 110 MATERIAL FEDERAL INCOME TAX CONSEQUENCES The following is a general discussion of the material United States federal income tax consequences that may be relevant to the purchase, ownership and disposition of the trust preferred securities. Unless otherwise stated, this summary deals only with trust preferred securities held as capital assets by United States Persons who purchase the trust preferred securities upon original issuance at their original issue price. As used in this summary, a "United States Person" means a person that is: . a citizen or resident of the United States; . a corporation, partnership or other entity created or organized in or under the laws of the United States or any of its political subdivisions; . an estate the income of which is subject to United States federal income taxation regardless of its source; or . a trust that (1) is subject to the supervision of a court within the United States and the control of one or more United States persons or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person. Your tax treatment may vary depending on your particular situation. This summary does not address all the tax consequences that may be relevant to holders who may be subject to special tax treatment, such as: . financial institutions; . real estate investment trusts; . regulated investment companies; . insurance companies; . dealers in securities or currencies; . tax-exempt investors; . persons holding trust preferred securities as part of a hedging, integrated, conversion or constructive sale transaction or a straddle; . traders in securities that elect the mark-to-market method of accounting for their securities holdings; . persons holding trust preferred securities whose "functional currency" is not the U.S. dollar; or . foreign investors. In addition, this summary does not include any description of the following, either of which may be applicable to you: . alternative minimum tax consequences; or . the tax laws of any state, local or foreign government. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations promulgated under the Code and administrative and judicial interpretations of the Code and those regulations, as of the date of this prospectus. All of the authorities on which this summary is based are subject to change at any time, possibly on a retroactive basis. 111 In addition, the authorities on which this summary is based are subject to various interpretations. The Internal Revenue Service, or "IRS," or the courts could disagree with the explanations or conclusions contained in this summary. No rulings have been or will be sought from the IRS with respect to the transactions described in this prospectus. Accordingly, there can be no assurance that the IRS will not challenge the conclusions expressed in this summary or that a court would not sustain such a challenge. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE TRUST PREFERRED SECURITIES, AS WELL AS THE CONSEQUENCES TO YOU UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS. Classification of the Trust In connection with the issuance of the trust preferred securities, Bass, Berry & Sims PLC will render its opinion generally to the effect that, under current law and assuming compliance with the terms of the Trust Agreement, and based on certain facts and assumptions contained in its opinion, the trust will be classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes. As a result, for United States federal income tax purposes, you generally will be treated as owning an undivided beneficial interest in the junior subordinated debentures and required to include in your gross income your pro rata share of the interest income or original issue discount that is paid or accrued on the junior subordinated debentures. See "--Interest Income and Original Issue Discount" below. Classification of the Junior Subordinated Debentures NCF, the trust and you, by your acceptance of a beneficial ownership interest in a trust preferred security, agree to treat the junior subordinated debentures as indebtedness for all United States tax purposes. In connection with the issuance of the junior subordinated debentures, Bass, Berry & Sims PLC will render its opinion generally to the effect that, under current law, and based on certain representations, facts and assumptions set forth in its opinion, the junior subordinated debentures will be classified as indebtedness for United States federal income tax purposes. Interest Income and Original Issue Discount NCF anticipates that the junior subordinated debentures will not be issued with an issue price that is less than their stated redemption price at maturity. Thus, except as discussed below, the junior subordinated debentures will not be subject to the special original issue discount ("OID") rules, at least upon initial issuance. You will generally be taxed on the stated interest on the junior subordinated debentures as ordinary income at the time it is paid or accrued in accordance with your regular method of tax accounting. If, however, NCF exercises its right to defer payments of interest on the junior subordinated debentures, the junior subordinated debentures will become OID instruments at that time. In that case, you will be subject to special OID rules described below. Once the junior subordinated debentures become OID instruments, they will be taxed as OID instruments for as long as they remain outstanding. Under the OID economic accrual rules, the following occurs: . regardless of your method of accounting, you would accrue an amount of interest income for the year that approximates the stated interest payments called for under the terms of the junior subordinated debentures using the constant-yield-to-maturity method of accrual described in Section 1272 of the Code; 112 . the actual cash payments of interest you receive on the junior subordinated debentures would not be reported separately as taxable income; . any amount of OID included in your gross income, whether or not during a deferral period, with respect to the trust preferred securities will increase your adjusted tax basis in those trust preferred securities; and . the amount of distributions that you receive in respect of that accrued OID will reduce your adjusted tax basis in those trust preferred securities. The Treasury regulations dealing with OID and the deferral of interest payments have not yet been addressed in any rulings or other interpretations by the IRS. It is possible that the IRS could assert that the junior subordinated debentures were issued initially with OID. If the IRS were successful, regardless of whether NCF exercises its option to defer payments of interest on the junior subordinated debentures, you would be subject to the special OID rules described above. Because the junior subordinated debentures are debt for tax purposes, you will not be entitled to a dividends-received deduction with respect to any income you recognize with respect to the trust preferred securities. Optional Liquidation of the Trust and Distribution of Junior Subordinated Debentures or Cash to Holders of Trust Preferred Securities As described under the caption "Description of the Trust Preferred Securities--Redemption or Exchange--Optional Liquidation of the Trust and Distribution of Junior Subordinated Debentures" above, the junior subordinated debentures held by the trust may be distributed to you in exchange for your trust preferred securities when the trust is liquidated. Under current law, this type of distribution from a grantor trust would not be taxable. Upon a distribution, you will receive your pro rata share of the junior subordinated debentures previously held indirectly through the trust. Your holding period and adjusted tax basis in the junior subordinated debentures will equal the holding period and adjusted tax basis that you had in your trust preferred securities before the distribution. If, however, the trust is treated as an association taxable as a corporation, a "Tax Event" will occur. If NCF elects to distribute the junior subordinated debentures to you at this time, the distribution would be taxable to the trust and to you. NCF also has the option to redeem the junior subordinated debentures and distribute the resulting cash in liquidation of the trust. This redemption would be taxable as described below in "--Sales of Trust Preferred Securities". Further, in other circumstances described under "Description of the Junior Subordinated Debentures--Redemption" and "--Conditional Right to Redeem Upon a Tax Event or Capital Treatment Event," NCF may redeem the junior subordinated debentures and distribute cash in liquidation of the trust. This redemption for cash would also be taxable as described below in "--Sales of Trust Preferred Securities." If you receive junior subordinated debentures in exchange for your trust preferred securities, you would accrue interest in respect of the junior subordinated debentures received from the trust in the manner described above under "--Interest Income and Original Issue Discount." Sales of Trust Preferred Securities If you sell or redeem your trust preferred securities, you will recognize gain or loss equal to the difference between: . your amount realized on the sale or redemption (less an amount equal to any accrued but unpaid interest (other than OID) that you did not previously include in income, which will be taxable as such); and . your adjusted tax basis in the trust preferred securities sold or redeemed. 113 Your gain or loss will be a capital gain or loss and will generally be a long-term capital gain or loss if you have held your trust preferred securities for more than one year. Long-term capital gains of individuals derived with respect to capital assets held for more than one year are subject to tax at a maximum rate of 20%. The deductibility of capital losses is subject to limitations. Non-United States Persons The following discussion only applies to you if you are a non-United States Person. As discussed above, the trust preferred securities will be treated as evidence of an undivided beneficial ownership interest in the junior subordinated debentures. See "--Classification of the Trust." As a result, under present United States federal income tax law, and subject to the discussion below concerning backup withholding: (1) no withholding of United States federal income tax will be required with respect to the payment by NCF or any paying agent of principal or interest (which for purposes of this discussion includes any OID) to you on the trust preferred securities (or the junior subordinated debentures) if you meet all of the following requirements: . you do not actually or constructively own 10% or more of the total combined voting power of all classes of NCF's voting stock within the meaning of Section 871(h)(3) of the Code and the regulations under that Section; . you are not a controlled foreign corporation related to NCF through stock ownership; and . you satisfy the statement requirement, described generally below, set forth in Section 871(h) and Section 881(c) of the Code and the regulations under those sections; and (2) no withholding of United States federal income tax generally will be required with respect to any gain you realize upon the sale or other disposition of the trust preferred securities (or the junior subordinated debentures). To satisfy the requirements referred to in (1) above, you must either: . provide your name and address, and certify, under penalties of perjury, that you are not a United States Person; this certification may be made on an IRS Form W-8BEN or a successor form; or . if you hold your trust preferred securities through certain foreign intermediaries, satisfy the certification requirements of applicable United States Treasury Regulations. If you cannot satisfy the requirements of the "portfolio interest" exception described in (1) above, payments of premium, if any, and interest (including OID) made to you will be subject to a 30% United States withholding tax unless you provide NCF or its paying agent, as the case may be, with one of the following properly executed forms: . IRS Form W-8BEN or a successor form claiming an exemption from or reduction of withholding tax under the benefit of an applicable tax treaty; or . IRS Form W-8ECI or a successor form stating that interest paid on the trust preferred securities (or the junior subordinated debentures) is not subject to this withholding tax because it is effectively connected with your conduct of a trade or business in the United States. If you are engaged in a trade or business in the United States and interest on the trust preferred securities (or the junior subordinated debentures) is effectively connected with the conduct of your trade or business, you will generally be subject to United States federal income tax on that interest on a net income basis in the same manner as if you were a United States Person. However, you will not be subject to the withholding described above. 114 In addition, if you are a foreign corporation, you may be subject to a branch profits tax equal to 30% (or lesser rate under an applicable tax treaty) of your effectively connected earnings and profits for the taxable year, subject to adjustments. For this purpose, that interest would be included in your earnings and profits. You will generally not be subject to United States federal income tax on any gain you realized upon a sale or other disposition of the trust preferred securities (or the junior subordinated debentures ) unless: . the gain is effectively connected with your trade or business in the United States; or . you are an individual and are present in the United States for 183 days or more in the taxable year of that sale, exchange or retirement, and certain other conditions are met; or . the gain represents accrued interest, in which case the rules for interest described above will apply. Special rules might also apply to a non-United States holder who is a qualified resident of a country with which the United States has an income tax treaty. Information Reporting and Backup Withholding Income on the trust preferred securities held of record by United States Persons (other than corporations and other exempt holders) will be reported annually to those holders and to the IRS. That income will be reported to you on Form 1099, which should be mailed to the holders of record prior to January 31 following the calendar year. "Backup withholding" at a rate of 30.5% (to be reduced gradually to 28% effective in 2006 and increased to 31% effective in 2011) will apply to payments of interest to non-exempt United States Persons unless you: . furnish your taxpayer identification number in the manner prescribed in applicable Treasury regulations; . certify that the number is correct; . certify that you have not lost any exemption from backup withholding; and . meet certain other conditions. With respect to non-United States Persons, United States information reporting requirements and backup withholding tax will not apply to payments on a trust preferred security if the beneficial owner (1) certifies its status as a non-United States Person under penalties of perjury and also satisfies documentary evidence requirements for establishing that it is a non-United States Person, or (2) otherwise establishes an exemption. In addition, information reporting requirements and backup withholding tax will not apply to any payment of the proceeds of the sale of a trust preferred security effected outside the United States by a foreign office of a foreign broker, provided that such broker derives less than 50% of its gross income for particular periods from the conduct of a trade or business in the United States, is not a controlled foreign corporation for United States federal income tax purposes, and is not a foreign partnership that, at any time during its taxable year, is 50% or more, by income or capital interest, owned by United States holders or is engaged in the conduct of a United States trade or business. Backup withholding tax will also not apply to the payment of the proceeds of the sale of a trust preferred security effected outside the United States by a foreign office of any other foreign or any U.S. broker. However, information reporting requirements will be applicable to such payment unless (1) such broker has documentary evidence in its records that the beneficial owner is a non-United States person and other conditions are met or (2) the beneficial owner otherwise establishes an exemption. 115 Information reporting requirements and backup withholding tax will apply to the payment of the proceeds of a sale of a trust preferred security by the United States office of a broker, unless the beneficial owner certifies its status as a non-United States Person under penalties of perjury or otherwise establishes an exemption. For purposes of applying the above rules for non-United States Persons to a person or entity that is treated as fiscally transparent, e.g., nominees, partnerships and certain trusts, the holder means each of the ultimate beneficial owners of the capital securities. In addition, the fiscally transparent person or entity will be required to provide the payer with a properly completed and executed IRS Form W-8IMY. Any amounts withheld from you under the backup withholding rules generally will be allowed as a refund or a credit against your United States federal income tax liability, provided that the required information is furnished to the IRS. U.S. Federal Estate Tax The estate of an individual non-U.S. person will not be subject to U.S. federal estate tax on a junior subordinated debenture beneficially owned by the individual at the time of his death, provided that (1) such individual did not own 10% or more of the total combined voting power of all classes of NCF voting stock (within the meaning of the Code and the U.S. Treasury Regulations) and (2) interest on the junior subordinated debenture would not have been, if received at the time of the individual's death, effectively connected with his conduct of a trade or business in the United States. 116 ERISA CONSIDERATIONS The fiduciary of any of the following (collectively referred to as "Plans"): . an employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); . a plan described in Section 4975(e)(1) of the Code, including an individual retirement account or a Keogh plan; . a plan subject to provisions under applicable federal, state, local, non-U.S. or other laws or regulations that are similar to the provisions of Title I of ERISA or Section 4975 of the Code ("Similar Laws"); and . any entity whose underlying assets include "plan assets" by reason of any such plan's investment in that entity, should consider the fiduciary standards and the prohibited transaction provisions of ERISA, applicable Similar Laws and Section 4975 of the Code in the context of the Plan's particular circumstances before authorizing an investment in the trust preferred securities. Among other factors, the fiduciary should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the Plan. Section 406 of ERISA and Section 4975 of the Code prohibit Plans from engaging in certain transactions involving "plan assets" with persons who are "parties in interest" under ERISA or "disqualified persons" under the Code (collectively, "Parties in Interest"). A violation of these "prohibited transaction" rules may result in an excise tax, penalty or other liability under ERISA and/or Section 4975 of the Code, unless exemptive relief is available under an applicable statutory or administrative exemption. In the case of an individual retirement account, the occurrence of a prohibited transaction involving the individual who established the individual retirement account, or his or her beneficiaries, would cause the individual retirement account to lose its tax exempt status, unless exemptive relief is available. Employee benefit plans that are governmental plans, as defined in Section 3(32) of ERISA, certain church plans, as defined in Section 3(33) of ERISA, and foreign plans, as described in Section 4(b)(4) of ERISA, are not subject to the requirements of ERISA or Section 4975 of the Code; however, such plans may be subject to similar provisions under applicable Similar Laws. Under a regulation issued by the U.S. Department of Labor (the "DOL"), referred to as the "Plan Assets Regulation", the assets of the trust would be deemed to be "plan assets" of a Plan for purposes of ERISA and Section 4975 of the Code (with respect to Plans subject to such laws) if "plan assets" of the Plan were used to acquire an equity interest in the trust and no exception were applicable under the Plan Assets Regulation. The Plan Assets Regulation defines an "equity interest" as any interest in an entity, other than an instrument that is treated as indebtedness under applicable local law and has no substantial equity features, and specifically includes a beneficial interest in a trust. Under exceptions contained in the Plan Assets Regulation, the assets of the trust would not be deemed to be "plan assets" of investing Plans if: . immediately after the most recent acquisition of an equity interest in the trust, less than 25% of the value of the class of equity interests in the trust were held by "Benefit Plan Investors", defined as Plans, and other employee benefit plans not subject to any Similar Laws; or . the trust preferred securities were "publicly-offered securities" for purposes of the Plan Assets Regulation. "Publicly-offered securities" are securities which are widely held, freely transferable, and either (i) part of a class of securities registered under Section 12(b) or 12(g) 117 of the Exchange Act or (ii) sold as part of an offering pursuant to an effective registration statement under the Securities Act of 1933 and then timely registered under the Exchange Act. No assurance can be given that Benefit Plan Investors will hold less than 25% of the total value of the trust preferred securities at the completion of the initial offering or thereafter, and NCF does not intend to monitor or take any other measures to assure satisfaction of the conditions to this exception. It is expected that the trust preferred securities will be offered in a manner consistent with the requirements of the publicly-offered securities exception described above; however, no assurance can be given that the trust preferred securities would be considered to be publicly-offered securities under the Plan Assets Regulation. Certain transactions involving the trust could be deemed to constitute direct or indirect prohibited transactions under ERISA and Section 4975 of the Code with respect to a Plan subject to such laws if the trust preferred securities were acquired with "plan assets" of the Plan and the assets of the trust were deemed to be "plan assets" of Plans investing in the trust. For example, if NCF were a Party in Interest with respect to a Plan (either directly or by reason of its ownership of NBC, Central Carolina Bank or other subsidiaries), extensions of credit between NCF and the trust (including the junior subordinated debentures and the Guarantee) would likely be prohibited by Section 406(a)(1)(B) of ERISA and Section 4975(c)(1)(B) of the Code, unless exemptive relief were available under an applicable administrative exemption (see below). In addition, if NCF were considered to be a fiduciary with respect to the trust as a result of certain powers it holds (such as its powers to remove and replace the property trustee and the administrative trustees), it is possible that the optional redemption or acceleration of the junior subordinated debentures would be considered to be a prohibited transaction under Section 406(b) of ERISA and Section 4975(c)(1)(E) of the Code. In order to avoid these prohibited transactions, the Benefit Plan Investor, by purchasing trust preferred securities, will be deemed to have directed the trust to invest in the junior subordinated debentures and to have appointed the property trustee. The DOL has issued five prohibited transaction class exemptions ("PTCEs") that may provide exemptive relief for direct or indirect prohibited transactions that may arise from the purchase or holding of the trust preferred securities. Those class exemptions are: . PTCE 96-23 (for certain transactions determined by in-house asset managers); . PTCE 95-60 (for certain transactions involving insurance company general accounts); . PTCE 91-38 (for certain transactions involving bank collective investment funds); . PTCE 90-1 (for certain transactions involving insurance company pooled separate accounts); and . PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). Such class exemptions may not, however, apply to all of the transactions that could be deemed prohibited transactions in connection with a Plan's investment in the trust preferred securities. To avoid certain prohibited transactions, the trust preferred securities may not be purchased or held by (or transferred to) any Plan or any person investing "plan assets" of any Plan, unless the purchaser or holder (or transferee) is eligible for the exemptive relief available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable exemption. By directly or indirectly purchasing or holding trust preferred securities or any interest in them you will be deemed to have represented that either: . you are not a Plan and are not purchasing the securities on behalf of or with "plan assets" of any Plan; or 118 . your purchase and holding of trust preferred securities is permissible under all applicable Similar Laws and either (i) will not result in a prohibited transaction under ERISA or the Code, or (ii) satisfies the requirements of, and is entitled to full exemptive relief under, PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable exemption, and you will be deemed to have covenanted not to transfer trust preferred securities to anyone unless they could make the same representations. If a purchaser or holder of the trust preferred securities that is a Plan elects to rely on an exemption other than PTCE 96-23, 95-60, 91-38, 90-1 or 84- 14, NCF and the trust may require a satisfactory opinion of counsel or other evidence of the availability of that exemption. Due to the complexity of the above rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other persons considering purchasing the trust preferred securities on behalf of or with "plan assets" of any Plan consult with their counsel regarding the potential consequences if the assets of the trust were deemed to be "plan assets" and regarding the availability of exemptive relief under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or any other applicable exemption. In addition, fiduciaries of Plans not subject to Title I of ERISA or Section 4975 of the Code, in consultation with their advisors, should consider the impact of their respective applicable Similar Laws on their investment in trust preferred securities, and the considerations discussed above, to the extent applicable. 119 CERTAIN TRANSACTIONS WITH DIRECTORS AND MANAGEMENT OF NCF Some of the NCF officers and directors and certain of their associates and immediate family members (including spouses, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law) are customers of NCF's subsidiaries. As customers, they have had transactions with NCF subsidiaries in the ordinary course of business, including borrowings. All of the borrowings were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and, in the opinion of management, do not involve more than normal risk of collectibility or present any other unfavorable features. Many of the NCF officers, directors and nominees and their associates and immediate family members maintain deposit relationships with NCF's subsidiaries in various types of accounts, including certificates of deposit. Interest rates paid on deposits of officers, directors and nominees and their associates and immediate family members are substantially similar to rates paid for comparable deposits of parties who are not affiliated with NCF. In December 1987, NBC issued $1,025,000 in term notes to the Mallory Partners, a Tennessee general partnership of which W. Neely Mallory, Jr., one of NCF's directors, and two trusts for the benefit of his sons are general partners. The term notes were issued on substantially the same terms, including interest rates, as those prevailing for comparable transactions with other persons. J. Bradbury Reed, one of NCF's directors, is a member of the law firm of Bass, Berry & Sims PLC. That firm from time to time represents NCF and certain of its subsidiaries including with respect to this offering. During 2000, Brame Specialty Co., Inc. supplied NCF and CCB with paper products, office supplies and equipment for approximately $1,081,000 in the aggregate. One of NCF's directors, James B. Brame, Jr., is the President of Brame Specialty Co., Inc. and owns a majority of its outstanding capital stock. In management's opinion, the terms of these transactions were fair to NCF and substantially the same as could have been obtained in transactions with unaffiliated parties. During 1993, Bruce E. Campbell, Jr., the former Chief Executive Officer of NCF, exercised his right under his employment agreement to convert to part-time status until age 65. Upon reaching age 65 on March 7, 1996, Mr. Campbell retired and has been retained by NCF as a consultant. Pursuant to his consulting agreement, Mr. Campbell was paid a consulting fee of $50,000 during 2000. During 2000, he received additional compensation consisting of director's fees of $20,200 and an award of 100 shares for attendance at all nine meetings of the NCF Board. 120 UNDERWRITING NCF, the trust and the underwriters named below have entered into an underwriting agreement relating to the offer and sale of the trust preferred securities, the form of which is filed as an exhibit to the registration statement. In the underwriting agreement, the issuer has agreed to sell to each underwriter, and each underwriter has agreed to purchase from the issuer, the number of trust preferred securities set forth opposite its name below:
Number of Trust Preferred Underwriter Securities ----------- ---------- J.P. Morgan Securities Inc. .................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated............................................ NBC Capital Markets Group, a division of Fenesco Financial Enterprises, Inc............................................... Salomon Smith Barney Inc........................................ UBS Warburg LLC................................................. First Union Securities, Inc..................................... Keefe, Bruyette & Woods, Inc. .................................. Morgan Keegan & Company, Inc.................................... Sandler O'Neill & Partners, L.P. ............................... SunTrust Capital Markets, Inc................................... ----- Total......................................................... =====
The obligations of the underwriters under the underwriting agreement, including their agreement to purchase the trust preferred securities from the issuer, are several and not joint. Those obligations are also subject to the satisfaction of certain conditions in the underwriting agreement. The underwriters have agreed to purchase all of the trust preferred securities if any are purchased. The underwriters have advised us that they propose to offer the trust preferred securities to the public at the public offering price that appears on the cover page of this prospectus. The underwriters may offer the trust preferred securities to selected dealers at the public offering price minus a selling concession of up to $. per trust preferred security. In addition, the underwriters may allow, and those selected dealers may reallow, a selling concession of up to $. per trust preferred security to certain other dealers. After the initial public offering, the underwriters may change the public offering price and any other selling term. Because the trust will use the proceeds from the sale of the trust preferred securities to purchase the junior subordinated debentures from NCF, NCF has agreed to pay the underwriters arranging the investment therein of such proceeds the following compensation: Per trust preferred security.......................................... $ Total................................................................. $
NCF will pay the expenses of NCF and the trust related to this offering, which NCF estimates will be $825,000. In addition, NCF and the trust agreed (i) to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933; and (ii) that until the closing of the sale of the trust preferred securities will not, without the consent of the underwriters, offer or sell any securities of the trust or NCF that are substantially similar to the trust preferred securities. The trust preferred securities are a new issue of securities, and there is currently no established trading market for the trust preferred securities. The trust preferred securities have been approved for 121 listing on the New York Stock Exchange, subject to official notice of issuance under the trading symbol "NCF Pr". NCF expects trading of the trust preferred securities on the New York Stock Exchange to begin on or prior to delivery of the trust preferred securities but can give no assurance of the actual date trading will begin. The underwriters have advised us that they intend to make a market in the trust preferred securities prior to the date trading on the New York Stock Exchange begins. However, the underwriters are not obligated to make such a market and may discontinue market making in the trust preferred securities at any time in their sole discretion. Therefore, NCF can give you no assurance as to the liquidity of the trading markets for the trust preferred securities. In order to meet one of the requirements for listing the trust preferred securities on the New York Stock Exchange, the underwriters have undertaken to sell lots of 100 or more trust preferred securities to a minimum of 400 beneficial holders. J.P. Morgan Securities Inc. will make the trust preferred securities available for distribution on the Internet through a proprietary Web site and/or a third-party system operated by Market Axess Inc., an Internet-based communications technology provider. Market Axess Inc. is providing the system as a conduit for communications between J.P. Morgan Securities Inc. and its customers and is not a party to any transactions. Market Axess Inc., a registered broker-dealer, will receive compensation from J.P. Morgan Securities Inc. based on transactions the underwriter conducts through the system. J.P. Morgan Securities Inc. will make the trust preferred securities available to its customers through the Internet distributions, whether made through a proprietary or third-party system, on the same terms as distributions made through other channels. In connection with this offering, the underwriters may engage in over- allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934. Over-allotment involves sales in excess of the offering size which create a short position for the underwriters. Stabilizing transactions involve bids to purchase the trust preferred securities in the open market for the purpose of pegging, fixing or maintaining the price of the trust preferred securities. Syndicate covering transactions involve purchases of the trust preferred securities in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the managing underwriter to reclaim a selling concession from a syndicate member when the trust preferred securities originally sold by that syndicate member are purchased in a syndicate covering transaction to cover a syndicate short position. Any of the foregoing activities by the underwriters may cause the price of the trust preferred securities to be higher than it otherwise might be in the absence of such activities. If the underwriters engage in any of the foregoing activities, they may discontinue those activities at any time. In the ordinary course of their respective businesses, the underwriters and their affiliates have engaged, and may in the future engage, in commercial banking and/or investment banking transactions with NCF and its affiliates. First Union Securities, Inc., a subsidiary of Wachovia Corporation, conducts its investment banking, institutional, and capital markets business under the trade name of Wachovia Securities. Any references to "Wachovia Securities" in this prospectus however, do not include Wachovia Securities, Inc., a separate broker-dealer subsidiary of Wachovia Corporation and sister affiliate of First Union Securities, Inc. which may or may not be participating as a separate selling dealer in the distribution of the notes. NCF owns directly or indirectly all of the outstanding common equity securities of the Trust. No underwriter may make sales in this offering to any discretionary account without prior approval of the customer. 122 NCF's subsidiary NBC Capital Markets Group, a division of Fenesco Financial Enterprises, Inc., is a member of the NASD and may participate as an underwriter in the offering of the trust preferred securities. Accordingly, offerings of securities in which NBC Capital Markets Group participates will conform with the provisions of Rule 2720 of the Conduct Rules of the NASD. VALIDITY OF SECURITIES Richards, Layton & Finger, P.A., Wilmington, Delaware, special Delaware counsel to NCF and the trust, will opine on certain matters of Delaware law relating to the validity of the trust preferred securities, the enforceability of the Trust Agreement and the creation of the trust. Bass, Berry & Sims PLC, Memphis, Tennessee, will opine on the validity of the guarantee and the junior subordinated debentures for NCF, and Cravath, Swaine & Moore, New York, New York, will opine on those matters for the underwriters. Bass, Berry & Sims PLC and Cravath, Swaine & Moore will rely on the opinion of Richards, Layton & Finger as to matters of Delaware law. Bass, Berry & Sims PLC, as tax counsel, will opine on certain matters relating to the United States federal income tax considerations described in this prospectus. Attorneys at Bass, Berry & Sims PLC working on the registration statement of which this prospectus is a part owned approximately 16,886 shares of NCF common stock as of the date of this prospectus. J. Bradbury Reed, one of NCF's directors, is a member of the law firm of Bass, Berry & Sims PLC. EXPERTS The consolidated financial statements of NCF at December 31, 2000 and 1999, and for each of the three years in the period ended December 31, 2000, appearing in this prospectus and registration statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included herein. Such consolidated financial statements have been included herein in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The consolidated financial statements of CCB Financial Corporation and subsidiaries as of December 31, 1999 and 1998, and for each of the years in the three-year period ended December 31, 1999, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION NCF and the trust have filed a registration statement on Form S-1 under the Securities Act with the SEC to register the trust preferred securities, junior subordinated debentures and the Guarantee offered by this prospectus. This prospectus does not contain all of the information set forth in the registration statement and the exhibits to the registration statement. You should refer to the registration statement and the exhibits and schedules to the registration statement for more information about NCF and the securities offered by this prospectus. NCF's statements in this prospectus concerning the contents of any document are not necessarily complete, and in each instance, you should refer to the copy of the document filed as an exhibit to the registration statement. Each statement about those documents is qualified in its entirety by this reference. NCF is subject to the reporting requirements of the Securities Exchange Act of 1934. In accordance with that law, NCF files reports and other information with the SEC. The registration statement and exhibits and NCF's reports and other information filed under the Securities Exchange Act may be inspected without charge at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional office of the SEC located at the 123 Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. Copies of all or any part of the registration statement may be obtained from the SEC's offices upon payment of fees prescribed by the SEC. The SEC maintains a World Wide Web site that contains reports, proxy and information statements, registration statements and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov. 124 Index to Financial Statements
Page ---- National Commerce Financial Corporation and Subsidiaries: Unaudited Pro Forma Condensed Combined Financial Statements: F-2 Unaudited Pro Forma Condensed Combined Statement of Income for the year ended December 31, 2000................................................ F-3 Notes to NCF Unaudited Pro Forma Condensed Combined Statement of Income................................................................. F-4 Annual Financial Statements: Consolidated Balance Sheets at December 31, 2000 and 1999............... F-5 Consolidated Statements of Income for each of the years in the three- year period ended December 31, 2000.................................... F-6 Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended December 31, 2000.......................... F-7 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2000.............................. F-8 Notes to Consolidated Financial Statements.............................. F-9 Report of Independent Auditors........................................... F-38 Quarterly Financial Statements: Consolidated Balance Sheets at September 30, 2001 (unaudited) and December 31, 2000...................................................... F-39 Consolidated Statements of Income for the three and nine months ended September 30, 2001 and 2000 (unaudited)................................ F-40 Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 (unaudited)................................ F-41 Notes to Consolidated Financial Statements (unaudited).................. F-42 CCB Financial Corporation and Subsidiaries: Annual Financial Statements: Consolidated Balance Sheets at December 31, 1999 and 1998............... F-48 Consolidated Statements of Income for each of the years in the three- year period ended December 31, 1999.................................... F-49 Consolidated Statements of Shareholders' Equity and Comprehensive Income for each of the years in the three-year period ended December 31, 1999................................................................... F-50 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1999.............................. F-51 Notes to Consolidated Financial Statements.............................. F-52 Independent Auditors' Report............................................. F-81
F-1 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The following unaudited pro forma condensed combined financial statements and explanatory notes are presented to show the impact on NCF's historical financial positions and results of operations of the July 5, 2000 business combination with CCB, which was accounted for utilizing the purchase method of accounting. Under the purchase method of accounting, all the assets and liabilities of the acquired company are recorded at their respective fair values as of the effective date of the transaction. The amount, if any, by which the purchase price by NCF exceeds the fair value of the net tangible and identifiable intangible assets acquired by NCF in the transaction is recorded as goodwill. The unaudited pro forma condensed combined statements of income give effect to the CCB merger as if it had been consummated at the beginning of the period presented. The unaudited pro forma condensed combined statement of income for the year ended December 31, 2000 includes the results of operations of NCF for the year ended December 31, 2000 and the results of operations of CCB from January 1, 2000 to July 5, 2000 (the date of the CCB business combination). The unaudited pro forma condensed combined financial statements are based on, derived from, and should be read in conjunction with, the historical consolidated financial statements and the related notes of NCF, and CCB which are included elsewhere in this document. The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not necessarily indicative of the financial position or operating results that would have occurred if the merger had been consummated at the beginning of the period or as of the date for which the pro forma data are presented, nor is it necessarily indicative of future operating results or financial position of the combined company. F-2 NATIONAL COMMERCE FINANCIAL CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME Year Ended December 31, 2000
CCB Historical- NCF Historical Period from Year Ended January 1, 2000 December 31, to July 5, Total Pro 2000 2000(1) Adjustments (1) forma -------------- --------------- --------------- --------- Interest income: Interest and fees on loans.................. $688,304 266,588 13,447 968,339 Interest and dividends on securities.......... 239,206 55,339 682 295,227 Other................... 10,466 2,502 -- 12,968 -------- ------- ------- --------- Total interest income............. 937,976 324,429 14,129 1,276,534 -------- ------- ------- --------- Interest expense: Deposits................ 364,433 134,218 2,601 501,252 Borrowings.............. 148,970 24,784 2,896 176,650 -------- ------- ------- --------- Total interest expense............ 513,403 159,002 5,497 677,902 -------- ------- ------- --------- Net interest income..... 424,573 165,427 8,632 598,632 Provision for loan losses................. 16,456 6,261 -- 22,717 -------- ------- ------- --------- Net interest income after provision for loan losses............ 408,117 159,166 8,632 575,915 -------- ------- ------- --------- Other income: Service charges on deposit accounts....... 68,766 33,258 -- 102,024 Trust and custodian fees................... 32,964 6,715 -- 39,679 Other service charges and fees............... 29,919 9,071 (604) 38,386 Broker/dealer revenue and other commissions.. 28,816 7,789 -- 36,605 Other operating......... 24,517 9,560 -- 34,077 Investment securities gains (losses)......... 4,509 1,097 -- 5,606 -------- ------- ------- --------- Total other income.. 189,491 67,490 (604) 256,377 -------- ------- ------- --------- Other expenses: Personnel............... 160,136 70,132 -- 230,268 Net occupancy and equipment.............. 44,618 18,251 -- 62,869 Losses on interest rate swaps.................. 77,227 -- -- 77,227 Merger-related expense.. 70,657 3,520 -- 74,177 Goodwill amortization... 26,884 1,942 19,442 48,268 Core deposit intangibles amortization........... 34,536 210 26,986 61,732 Other operating......... 103,640 35,301 -- 138,941 -------- ------- ------- --------- Total other expenses........... 517,698 129,356 46,428 693,482 -------- ------- ------- --------- Income before income taxes.................. 79,910 97,300 (38,400) 138,810 Income taxes............ 34,600 32,320 (7,488) 59,432 -------- ------- ------- --------- Net income.............. $ 45,310 64,980 (30,912) 79,378 ======== ======= ======= ========= Earnings per common share: Basic................. $ .29 1.66 -- .32 Diluted............... .28 1.65 -- .31 Weighted average shares outstanding: Basic................. 157,387 39,097 -- 251,430 Diluted............... 159,254 39,374 -- 253,297
The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements. F-3 NOTES TO NCF UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME For the Year Ended December 31, 2000 (1) The following CCB pro forma adjustments related to the unaudited pro forma condensed combined statement of income for the year ended December 31, 2000 reflect amortization on a seven-year sum-of-the-quarters' digits method for the deposit base intangible and a 15-year straight-line amortization method for goodwill (in thousands). Interest income adjustments: Accretion of fair value adjustments on loans.............. $ 13,447 Accretion of fair value adjustments on securities......... 682 -------- Increase in interest income........................... 14,129 Interest expense adjustments: Amortization of fair value adjustments on deposits........ 2,601 Amortization of fair value adjustments on borrowings...... 2,896 -------- Increase in interest expense.......................... 5,497 -------- Increase in net interest income....................... 8,632 Other income adjustments.................................... (604) Other expense adjustments: Goodwill amortization..................................... 19,442 Core deposit intangible amortization...................... 26,986 -------- Increase in other expense............................. 46,428 -------- Reduction in income before income taxes..................... (38,400) Income tax adjustment: Reduction in income before income taxes................... $(38,400) Less non-deductible goodwill amortization................. 19,442 -------- Taxable reduction in net income......................... (18,958) Income tax rate......................................... 39.5% -------- Total income tax adjustment........................... (7,488) -------- Reduction in income......................................... $(30,912) ========
In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. Statement 142 provides that goodwill and intangible assets with indefinite useful lives should no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. NCF is required to adopt the provisions of Statement 141 immediately and Statement 142 effective January 1, 2002. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the adoption of Statement 142. The pro forma condensed combined statements of income for the year ended December 31, 2000 include the amortization of goodwill associated with business combinations of $48,268, which will not be amortized in future periods upon adoption of Statement 142. F-4 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
As of December 31, --------------------- 2000 1999 ----------- --------- In Thousands Except Share Data ASSETS: Cash and due from banks................................. $ 446,712 179,082 Time deposits in other banks............................ 32,183 21,156 Federal funds sold and other short-term investments..... 52,572 61,058 Investment securities: Available for sale (amortized cost of $2,363,010 and $560,761)............................................ 2,401,526 553,928 Held to maturity (market values of $1,984,700 and $1,667,583).......................................... 2,016,795 1,759,383 Trading account securities.............................. 74,417 30,294 Loans................................................... 11,008,419 3,985,789 Less allowance for loan losses........................ 143,614 59,597 ----------- --------- Net loans............................................ 10,864,805 3,926,192 ----------- --------- Premises and equipment.................................. 204,903 47,830 Goodwill................................................ 934,467 96,214 Core deposit intangibles................................ 287,707 26,298 Other assets............................................ 429,705 212,351 ----------- --------- Total assets......................................... $17,745,792 6,913,786 =========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits: Demand (non-interest-bearing)......................... $ 1,366,178 454,146 Savings, NOW and money market accounts................ 4,474,114 1,707,464 Jumbo and brokered certificates of deposit............ 2,006,741 1,337,068 Time deposits......................................... 4,132,598 997,222 ----------- --------- Total deposits....................................... 11,979,631 4,495,900 Short-term borrowed funds............................... 1,212,903 883,038 Federal Home Loan Bank advances......................... 1,649,055 714,335 Long-term debt.......................................... 39,379 6,372 Other liabilities....................................... 450,064 114,991 ----------- --------- Total liabilities.................................... 15,331,032 6,214,636 ----------- --------- Capital trust pass-through securities................... 49,922 49,909 Stockholders' equity: Serial preferred stock. Authorized 5,000,000 shares; none issued.......................................... -- -- Common stock of $2 par value. Authorized 400,000,000 shares; 205,246,098 and 108,223,286 shares issued and outstanding in 2000 and 1999, respectively........... 410,492 216,446 Additional paid-in capital............................ 1,765,723 240,208 Retained earnings..................................... 165,829 196,755 Accumulated other comprehensive income (loss)......... 22,794 (4,168) ----------- --------- Total stockholders' equity........................... 2,364,838 649,241 ----------- --------- Total liabilities and stockholders' equity........... $17,745,792 6,913,786 =========== =========
Commitments and contingencies (note 16) See accompanying notes to consolidated financial statements. F-5 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31 ------------------------- 2000 1999 1998 -------- ------- ------- In Thousands Except Per Share Data Interest income: Interest and fees on loans....................... $688,304 301,063 257,478 Interest and dividends on investment securities: U.S. Treasury................................... 4,168 2,049 3,231 U.S. Government agencies and corporations....... 169,300 97,521 90,320 States and political subdivisions (primarily tax-exempt).................................... 8,398 7,485 7,714 Equity and other securities..................... 54,903 39,746 14,228 Interest and dividends on trading account securities...................................... 2,437 2,282 3,073 Interest on time deposits in other banks......... 1,597 951 -- Interest on federal funds sold and other short- term investments................................ 8,869 4,877 3,686 -------- ------- ------- Total interest income......................... 937,976 455,974 379,730 -------- ------- ------- Interest expense: Deposits......................................... 364,433 153,120 132,889 Short-term borrowed funds........................ 69,577 31,177 22,743 Federal Home Loan Bank advances.................. 77,913 41,432 27,885 Long-term debt................................... 1,480 369 6,135 -------- ------- ------- Total interest expense........................ 513,403 226,098 189,652 -------- ------- ------- Net interest income................................ 424,573 229,876 190,078 Provision for loan losses.......................... 16,456 16,921 10,710 -------- ------- ------- Net interest income after provision for loan losses............................................ 408,117 212,955 179,368 -------- ------- ------- Other income: Service charges on deposit accounts.............. 68,766 21,020 18,497 Trust and custodian fees......................... 32,964 8,100 9,395 Other service charges and fees................... 29,919 20,024 17,939 Broker/dealer revenue and other commissions...... 28,816 18,092 20,441 Other operating.................................. 24,517 23,086 17,316 Investment securities gains (losses)............. 4,509 (3,095) (804) -------- ------- ------- Total other income............................ 189,491 87,227 82,784 -------- ------- ------- Other expenses: Personnel........................................ 160,136 82,927 71,979 Net occupancy.................................... 27,251 13,800 11,883 Equipment........................................ 17,367 7,050 5,473 Losses (gains) on interest rate swaps............ 77,227 (1,499) -- Merger-related expense........................... 70,657 -- -- Goodwill amortization............................ 26,884 3,479 1,043 Core deposit intangibles amortization............ 34,536 3,977 1,880 Other operating.................................. 103,640 50,608 50,458 -------- ------- ------- Total other expenses.......................... 517,698 160,342 142,716 -------- ------- ------- Income before income taxes......................... 79,910 139,840 119,436 Income taxes....................................... 34,600 47,208 40,569 -------- ------- ------- Net income......................................... $ 45,310 92,632 78,867 ======== ======= ======= Earnings per common share: Basic............................................ $ .29 .88 .79 Diluted.......................................... .28 .87 .77 Weighted average shares outstanding: Basic............................................ 157,387 104,947 99,678 Diluted.......................................... 159,254 106,807 101,984
See accompanying notes to consolidated financial statements. F-6 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 2000, 1999, and 1998
Accumulated Other Comp- Additional rehensive Total Number of Common Paid-In Retained Income Stockholders' Shares Stock Capital Earnings (Loss) Equity ----------- -------- ---------- -------- ----------- ------------- In Thousands Except Share and Per Share Data Balance December 31, 1997................... 48,851,987 $ 97,704 52,523 196,025 2,250 348,502 Net income.............. -- -- -- 78,867 -- 78,867 Other comprehensive loss-- Unrealized loss on securities, net of deferred tax benefit of $588 and reclassification adjustment............ -- -- -- -- (852) (852) ----------- -------- --------- ------- ------- --------- Total comprehensive income.............. 78,015 Stock options exercised, net of shares tendered............... 943,427 1,887 8,400 -- -- 10,287 Purchase and retirement of shares.............. (1,236,030) (2,472) (31,464) -- -- (33,936) Two for one stock split effected in the form of a dividend............. 49,764,186 99,528 -- (99,528) -- -- Common stock issued for acquisitions........... 3,075,929 6,151 71,876 -- -- 78,027 Other transactions, net.................... 43,300 87 503 -- -- 590 Cash dividends ($.32 per share)................. -- -- -- (31,532) -- (31,532) ----------- -------- --------- ------- ------- --------- Balance December 31, 1998................... 101,442,799 202,885 101,838 143,832 1,398 449,953 Net income.............. -- -- -- 92,632 -- 92,632 Other comprehensive loss-- Unrealized loss on securities, net of deferred tax benefit of $3,546 and reclassification adjustment............ -- -- -- -- (5,566) (5,566) ----------- -------- --------- ------- ------- --------- Total comprehensive income.............. 87,066 Stock options exercised, net of shares tendered............... 1,063,472 2,127 9,725 -- -- 11,852 Stock offering.......... 3,564,529 7,129 73,119 -- -- 80,248 Purchase and retirement of shares.............. (1,051,500) (2,103) (20,822) -- -- (22,925) Common stock issued for acquisitions........... 3,085,486 6,171 75,462 -- -- 81,633 Other transactions, net.................... 118,500 237 886 (12) -- 1,111 Cash dividends ($.375 per share)............. -- -- -- (39,697) -- (39,697) ----------- -------- --------- ------- ------- --------- Balance December 31, 1999................... 108,223,286 216,446 240,208 196,755 (4,168) 649,241 Net income.............. -- -- -- 45,310 -- 45,310 Other comprehensive gain-- Unrealized gain on securities, net of deferred tax expense of $18,387 and reclassification adjustment............ -- -- -- -- 26,962 26,962 ----------- -------- --------- ------- ------- --------- Total comprehensive income.............. 72,272 Restricted stock transactions, net...... 434,415 869 807 -- -- 1,676 Stock options exercised, net of shares tendered............... 1,192,298 2,385 11,213 -- -- 13,598 Common stock issued in acquisitions........... 97,342,874 194,686 1,546,339 -- -- 1,741,025 Purchase and retirement of shares.............. (1,724,805) (3,450) (28,558) -- -- (32,008) Other transactions, net.................... (221,970) (444) (4,286) -- -- (4,730) Cash dividends ($.48 per share)................. -- -- -- (76,236) -- (76,236) ----------- -------- --------- ------- ------- --------- Balance December 31, 2000................... 205,246,098 $410,492 1,765,723 165,829 22,794 2,364,838 =========== ======== ========= ======= ======= =========
See accompanying notes to consolidated financial statements. F-7 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31 --------------------------------- 2000 1999 1998 ----------- --------- --------- In Thousands Operating activities: Net income................................ $ 45,310 92,632 78,867 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion, net..................................... (13,692) 17,169 7,095 Provision for loan losses................ 16,456 16,921 10,710 Net loss (gain) on sales of investment securities.............................. (4,509) 3,095 804 Net loss (gain) on interest rate swaps... 77,227 (1,499) -- Deferred income taxes.................... 27,051 (4,778) (3,036) Changes in: Trading account securities............... (44,123) 32,443 43,667 Other assets............................. 17,759 (48,376) (7,052) Other liabilities........................ 31,332 28,229 11,203 Other operating activities, net............. (2,517) 3,771 1,652 ----------- --------- --------- Net cash provided by operating activities............................ 150,294 139,607 143,910 ----------- --------- --------- Investing activities: Proceeds from: Maturities and issuer calls of investment securities held to maturity............. 151,243 72,370 617,791 Sales of investment securities available for sale................................ 1,449,337 265,466 223,463 Maturities and issuer calls of investment securities available for sale........... 123,153 130,349 530,760 Purchases of: Investment securities held to maturity... (334,518) (454,651) (781,312) Investment securities available for sale.................................... (1,631,343) (194,328) (983,922) Premises and equipment................... (23,927) (12,037) (11,977) Net originations of loans................... (539,862) (596,660) (415,729) Net cash acquired in acquisitions and dispositions............................... 318,633 7,660 27,668 ----------- --------- --------- Net cash used by investing activities.. (487,284) (781,831) (793,258) ----------- --------- --------- Financing activities: Net increase in deposit accounts.......... 511,590 295,090 420,846 Net increase (decrease) in short-term borrowed funds........................... (25,900) 291,194 168,256 Net increase (decrease) in Federal Home Loan Bank advances....................... 221,475 (18,239) 341,726 Repayments of long-term debt.............. -- -- (154,056) Issuances of common stock from exercise of stock options, net....................... 8,498 4,888 2,401 Stock offering............................ -- 80,248 -- Purchase and retirement of common stock... (32,008) (22,925) (33,936) Other equity transactions, net............ (258) 1,111 -- Cash dividends paid....................... (76,236) (39,697) (31,532) ----------- --------- --------- Net cash provided by financing activities............................ 607,161 591,670 713,705 ----------- --------- --------- Net increase (decrease) in cash and cash equivalents................................ 270,171 (50,554) 64,357 Cash and cash equivalents at beginning of year....................................... 261,296 311,850 247,493 ----------- --------- --------- Cash and cash equivalents at end of year.... $ 531,467 261,296 311,850 =========== ========= ========= Supplemental Disclosures of Cash Flow Information: Interest paid during the year............. $ 503,514 237,412 192,208 Income taxes paid during the year......... $ 44,789 53,315 33,878
See accompanying notes to consolidated financial statements. F-8 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The consolidated financial statements include the accounts and results of operations of National Commerce Financial Corporation ("NCF", formerly National Commerce Bancorporation) and its subsidiaries. NCF is a bank holding company that provides diverse financial services through a regional network of banking affiliates and a national network of nonbanking affiliates. NCF has two principal lines of business: traditional banking and financial enterprises. Financial enterprises include transaction processing, trust and asset management, retail banking consulting and capital markets. NCF's wholly-owned bank subsidiaries include Central Carolina Bank and Trust Company ("CCB"), National Bank of Commerce, ("NBC") and NBC Bank, FSB (collectively, the "Subsidiary Banks"). The consolidated financial statements also include the accounts and results of operations of the wholly-owned non-bank subsidiaries of NCF: TransPlatinum Service Corp., Commerce Capital Management, Inc., First Mercantile Trust, First Mercantile Capital Management, Inc., USI Alliance, National Commerce Capital Trust I, Senior Housing Crime Prevention Foundation Investment Corporation, and Monroe Properties. Also included in the consolidated financial statements are the subsidiaries of CCB (CCB Investment and Insurance Service Corporation; CCBDE, Inc.; Salem Trust Company; Salem Advisors, Inc.; Sprunt Insurance, LTD., Finance South, Inc. and Corcoran Holdings, Inc. and its subsidiary, Watts Properties, Inc.) and NBC (National Commerce Bank Services, Inc. and its wholly-owned subsidiary, BankersMart; NBC Insurance Services, Inc.; Kenesaw Leasing Inc.; J & S Leasing, Inc.; and National Commerce Real Estate Holding Company and its wholly-owned subsidiary, Commerce Real Estate Holding Company and its wholly-owned subsidiary, Commerce Real Estate Company. Additionally, NBC owns 80% of NBC Capital Markets Group, Inc. ("Capital Markets")). All significant intercompany transactions and accounts are eliminated in consolidation. NCF operates as two business segments. The Subsidiary Banks provide a full range of banking services to individual and corporate customers through their branch networks based in Tennessee, Mississippi, Arkansas, Georgia, North Carolina, South Carolina, Virginia and West Virginia. Neither NCF nor its Subsidiary Banks have active foreign operations. NCF believes that there is no concentration of risk with any single customer or supplier, or small group of customers or suppliers, whose failure or nonperformance would materially affect NCF's results. Products and services offered to customers include traditional banking services such as accepting deposits; making secured and unsecured loans; renting safety deposit boxes; performing trust functions for corporations, employee benefit plans and individuals; and providing certain insurance and brokerage services. The Subsidiary Banks are subject to competition from other financial entities and are subject to the regulations of certain Federal and state agencies and undergo periodic examinations by those regulatory agencies. Financial Statement Presentation In preparing the financial statements in conformity with accounting principles generally accepted in the United States, management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Certain amounts for prior years have been reclassified to conform to the 2000 presentation. For purposes of the Statements of Cash Flows, NCF considers time deposits in other banks, federal funds sold and other short-term investments to be cash equivalents. F-9 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Investment Securities Securities available for sale are carried at market. Unrealized gains or losses are excluded from earnings and reported as a separate component of stockholders' equity. Debt securities that NCF has the positive intent and ability to hold to maturity are classified as held for maturity and reported at amortized cost. Trading account securities consist of securities inventories held for the purpose of brokerage activities and are carried at fair value with changes in fair value included in earnings. Broker/dealer revenue includes the effects of adjustments to market values. The adjusted cost of the specific securities sold is used to compute gains or losses on the sale of securities. Loan Portfolio The loan portfolio is comprised of the following: commercial, financial and agricultural; real estate-construction; real estate-mortgage; consumer, revolving credit accounts and leases. The lease portfolio includes rolling stock such as automobiles, trucks and trailers as well as a broadly diversified base of equipment. Interest income on loans is recorded on the accrual basis. Accrual of interest on loans (including impaired loans) is discontinued at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection. Consumer and other retail loans are typically charged-off no later than 120 days past due. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Interest accrued but not collected on loans that are placed on non-accrual or are charged-off is reversed against interest income. Subsequent interest collected is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. Allowance for Loan Losses The allowance for loan losses is increased by provisions charged to expense and reduced by loan charge-offs, net of recoveries. The allowance is maintained at a level considered adequate by management to provide for probable loan losses. The allowance is comprised of specific loan loss allocations, non- accrual loan and classified loan allocations, and general allocations by loan type for all other loans. Specific loan loss allocations are determined for significant credits where management believes that a risk of loss exists. The evaluation of the allowance is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. While management uses the best information available on which to base estimates, future adjustments to the allowance may be necessary if economic conditions, particularly in the Subsidiary Banks' markets, differ substantially from the assumptions used by management. Additionally, bank regulatory agency examiners periodically review the loan portfolio and may require the Subsidiary Banks to charge-off loans and/or increase the allowance for loan losses to reflect their assessment of the collectibility of loans based on available information at the time of their examination. For all specifically reviewed loans for which it is probable that the Subsidiary Banks will be unable to collect all amounts due according to the terms of the loan agreement, the Subsidiary Banks determine a value at either the present value of expected cash flows discounted at the loan's F-10 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) effective interest rate, or if more practical, the market price or value of the collateral. If the resulting value of the impaired loan is less than the recorded balance, impairment is recognized by creating a valuation allowance for the difference and recognizing a corresponding bad debt expense. Derivatives and Hedging Activities NCF records derivatives at fair value in "other assets" (or "other liabilities") on the Consolidated Balance Sheets depending on whether the fair value is an unrealized gain or loss. Derivatives that are not hedges are adjusted to fair value through earnings. If the derivative is a hedge, depending on the nature of the hedge, changes in fair value of the derivatives are either offset through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. NCF's derivatives are interest rate swaps utilized to reduce interest rate sensitivity to wholesale funding and to convert U.S. Treasury-based liabilities to prime rate-based liabilities. These contracts are accounted for on the accrual basis and the net interest differential, including premiums paid, if any, are recognized as an adjustment to interest income or interest expense of the related asset or liability. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed over the estimated lives of the assets on accelerated and straight-line methods. Leasehold improvements are amortized over the term of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Intangibles Arising from Acquisitions Intangible assets arising from acquisitions result from paying amounts in excess of fair value for businesses, core deposits and tangible assets acquired. Such amounts are being amortized by systematic charges to income over a period no greater than the estimated remaining life of the assets acquired or not exceeding the estimated remaining life of the existing deposit base assumed. Goodwill is amortized on a straight-line basis over 20 years. Core deposit intangibles are amortized over a period of up to 10 years using the sum of the quarters' digits method, an accelerated method. Unamortized intangibles are reviewed for impairment whenever the facts and circumstances indicate that the carrying amount may not be recoverable. NCF assesses the recoverability of these intangible assets by determining whether the unamortized balance can be recovered through the future operating cash flows of the acquired institution over the remaining life of the intangible. Impairment, if any, is measured based on projected future operating cash flows using a discount rate reflecting NCF's average cost of funds. Comprehensive Income Comprehensive income is the change in NCF's equity during the period from transactions and other events and circumstances from non-owner sources. Total comprehensive income is divided into net income and other comprehensive income (loss). "Other comprehensive income (loss)" for the three-year period ended December 31, 2000 and "accumulated other comprehensive income (loss)" as of December 31, 2000 and 1999 are comprised of unrealized gains and losses on certain investments in debt and equity securities. F-11 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Income Taxes The provision for income taxes is based on income and expense reported for financial statement purposes after adjustment for permanent differences such as tax-exempt interest income. Deferred income taxes are provided when there is a difference between the periods items are reported for financial statement purposes and when they are reported for tax purposes and are recorded at the enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. Subsequent changes in tax rates will require adjustment to these assets and liabilities. Each subsidiary provides for income taxes based on its contribution to income tax expense (benefit) of the consolidated group. Incentive Plans NCF has incentive plans covering certain officers of NCF and its subsidiaries. The market value of shares issued under the incentive plans are being charged to operating expense over periods of up to three years. Generally, NCF grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares on the date of grant. NCF has elected to account for these stock option grants in accordance with Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and accordingly, recognizes no compensation expense for these stock option grants. For all variable stock option grants, compensation expense is recognized in accordance with APB Opinion No. 25 over the period the employee performs related service, the vesting period. An employer that continues to apply APB No. 25, which utilizes the intrinsic value accounting method rather than the "fair value based method" promulgated under Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-based Compensation, must disclose certain pro forma information. Under the fair value based method, compensation cost is measured at the grant date of the option based on the value of the award and is recognized over the service period, which is usually the vesting period. The required pro forma amounts reflect the difference between compensation cost, if any, included in net income and the related cost measured by the fair value based method, including tax effects, that would have been recognized in the income statement if the fair value based method had been used. Earnings Per Share Basic earnings per share ("EPS") excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding plus dilutive stock options (as computed under the treasury stock method) assumed to have been exercised during the period. Fair Value of Financial Instruments The financial statements include disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using F-12 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the financial instrument. As the fair value of certain financial instruments and all nonfinancial instruments are not presented, the aggregate fair value amounts presented do not represent the underlying value of NCF. (2) ACQUISITIONS On July 26, 2000, NCF completed its merger with First Mercantile Trust and First Mercantile Capital Management, Inc. (collectively, "First Mercantile"), a $7 million trust company based in Germantown, TN, in a transaction accounted for as a purchase. Under the terms of the agreement, First Mercantile shareholders received 1.7 million shares of stock for all of the First Mercantile stock outstanding. The approximate cost of the acquisition was $32.9 million, of which $28.4 million has been recorded as goodwill. Results of operations of First Mercantile have been included in NCF's consolidated statements of income from the date of acquisition. On July 5, 2000, NCF completed its merger with CCB Financial Corporation ("CCBF"), an $8.8 billion bank holding company based in Durham, North Carolina, in a transaction accounted for as a purchase. Under the terms of the agreement, CCBF shareholders received 2.45 shares of NCF stock for each share of CCBF stock held. Approximately 93.8 million shares of NCF common stock were issued in exchange for all of the CCBF common stock outstanding. The approximate cost of the acquisition, including the fair value of stock options assumed and transaction costs, was $1.7 billion, of which $814.2 million has been recorded as goodwill. Results of operations of CCBF have been included in NCF's consolidated statements of income from the date of acquisition. On April 11, 2000, NCF completed its merger with Piedmont Bancorp, Inc. ("PBI"), a $151 million bank holding company based in Hillsborough, North Carolina, in a transaction accounted for as a purchase. Under the terms of the agreements, PBI shareholders received .60499 shares of NCF stock for each share of PBI stock held. Approximately 1.5 million shares of NCF common stock were issued in exchange for all of the PBI common stock outstanding. The approximate cost of the acquisition, including the fair value of stock options assumed and transaction costs, was $32.3 million, of which $12.7 million has been recorded as goodwill. Results of operations of PBI have been included in NCF's consolidated statements of income from the date of acquisition. In March of 2000, TransPlatinum acquired Prime Financial Services, Inc., a receivables financing company serving the transportation industry, in a transaction accounted for as a purchase. This transaction is not material to the consolidated financial statements. On December 31, 1999, TransPlatinum completed the cash acquisition of FleetOne, LLC. This transaction is not material to the consolidated financial statements. On August 20, 1999, NCF completed its merger with Southeastern Mortgage of Tennessee, Inc. ("SMTI"), in a transaction accounted for as a purchase. This transaction is not material to the consolidated financial statements. F-13 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) On August 4, 1999, NCF completed its merger with First Financial Corporation of Mt. Juliet, Tennessee ("FFC"), a $277.7 million bank holding company, in a transaction accounted for as a purchase. Under the terms of the agreement, FFC shareholders received 2.8502 shares of NCF stock for each share of FFC held. Approximately 2.9 million shares of NCF stock were issued in exchange for all of the FFC common stock outstanding. The approximate cost of the acquisition, including the fair value of stock options assumed and transaction costs, was $77.1 million, of which $50.3 million has been recorded as goodwill. Results of operations of FFC have been included in NCF's consolidated statements of income from the date of acquisition. During 1998, NCF completed mergers with four financial institutions with combined assets of $312.6 million in transactions accounted for as purchases. Approximately 3.1 million shares of NCF stock were issued in connection with these mergers. The approximate cost of these acquisitions was $78.0 million, of which $42.2 million has been recorded as goodwill. Results of operations of these acquired companies have been included in NCF's consolidated statements of income from the dates of acquisition. The following unaudited proforma financial information presents the combined results of operations of NCF, First Mercantile, PBI and CCBF as if those acquisitions had occurred as of January 1, 2000 and 1999, respectively. These proforma results give effect to certain adjustments, primarily amortization of goodwill and core deposit intangibles, and related tax effects. The proforma financial information does not necessarily reflect the results of operations that would have occurred had the mergers occurred as of these proforma dates. Proforma financial information relating to other acquisitions has not been provided, as the acquisitions are not considered material to NCF's financial position or results of operations as of December 31, 2000.
2000 1999 ---------- --------- In Thousands Except Per Share Data Total revenue......................................... $1,536,457 1,343,149 Net income............................................ 48,335 171,515 Basic earnings per common share....................... .24 .84 Diluted earnings per common share..................... .23 .83
In connection with the 2000 mergers discussed above, NCF incurred merger and integration charges of $70,657,000. The components of the charges are shown below (in thousands): Merger and integration costs: Severance costs................................................... $ 2,211 Employee retention costs.......................................... 186 Restricted stock acceleration..................................... 759 Change-in-control related costs................................... 30,891 Other costs accrued............................................... 1,943 ------- Total personnel-related costs..................................... 35,990 Occupancy and equipment write-downs............................... 5,952 Systems and other integration costs............................... 26,713 Securities losses from balance sheet restructuring................ 2,002 ------- Total merger and integration costs.............................. $70,657 =======
F-14 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Personnel-related costs include accrued termination benefits for NCF employees in operational and support positions that management has elected to eliminate as a result of the CCBF merger integration plan. Of a total of 134 positions to be eliminated, 93 positions had been eliminated as of December 31, 2000. A total of $5.1 million of severance and employee retention costs for CCBF employees was included in the cost of the CCBF acquisition. Occupancy and equipment write-downs include impairment of assets and lease termination costs related to closed branches, plus redundant equipment resulting from integration of technology platforms. Systems and other integration costs include incremental costs such as consultants and contract labor related to the conversion of systems, customer communications and employee benefits integration costs. The following summarizes activity within NCF's merger accrual account during 2000 (in thousands): Balance at beginning of period................................... $ -- Provision charged to operating expense........................... 70,657 Cash outlays..................................................... (52,220) Non-cash write-downs............................................. (7,827) -------- Balance at end of period......................................... $ 10,610 ========
(3) RESTRICTIONS ON CASH AND DUE FROM BANKS The Subsidiary Banks are required to maintain reserve and clearing balances with the Federal Reserve Bank. These balances are included in "cash and due from banks" on the Consolidated Balance Sheets. For the reserve maintenance periods in effect at both December 31, 2000 and 1999, the Subsidiary Banks were required to maintain average reserve and clearing balances of $32,328,000 and $5,484,000, respectively. (4) INVESTMENT SECURITIES Investment securities with amortized costs of approximately $2,352,755,000 at December 31, 2000 and $1,914,616,000 at December 31, 1999 were pledged to secure public funds on deposit, repurchase agreements and for other purposes required by law. The investment securities portfolio is segregated into securities available for sale and securities held to maturity. Unrealized gains and losses on certain investments in debt and equity securities included in other comprehensive income (loss) for the years ended December 31, 2000, 1999 and 1998 follows:
2000 1999 1998 ------- ------ ------ In Thousands Unrealized holding gains (losses) arising during the year.......................................... $29,690 (7,438) (1,338) Less reclassification adjustment for net realized gains (losses) net of tax......................... 2,728 (1,872) (486) ------- ------ ------ Unrealized gains (losses) on securities, net of applicable income taxes........................... $26,962 (5,566) (852) ======= ====== ======
F-15 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Securities Available for Sale Securities available for sale are presented on the Consolidated Balance Sheets at their carrying value. The amortized cost and approximate carrying values of these securities at December 31, 2000 and 1999 were as follows:
2000 1999 ------------------------------- ----------------------------- Net Net Unrealized Unrealized Amortized Gains Carrying Amortized Gains Carrying Cost (Losses) Value Cost (Losses) Value ---------- ---------- --------- --------- ---------- -------- In Thousands U.S. Treasury........... $ 54,580 715 55,295 28,523 (137) 28,386 U.S. Government agencies and corporations....... 528,460 12,411 540,871 78,706 (800) 77,906 Mortgage-backed securities............. 1,021,566 19,614 1,041,180 160,848 (3,130) 157,718 States and political subdivisions........... 111,222 2,609 113,831 122,076 1,440 123,516 Debt and equity securities............. 647,182 3,167 650,349 170,608 (4,206) 166,402 ---------- ------ --------- ------- ------ ------- Total................. $2,363,010 38,516 2,401,526 560,761 (6,833) 553,928 ========== ====== ========= ======= ====== =======
Equity securities include the Subsidiary Banks' required investment in stock of the Federal Home Loan Bank (the "FHLB") which totaled $100,444,000 at December 31, 2000 and $61,511,000 at December 31, 1999. No ready market exists for this stock and it has no quoted market value. However, redemption of this stock has historically been at par value. Accordingly, the carrying amounts were deemed to be a reasonable estimate of fair value. Following is a maturity schedule of securities available for sale at December 31, 2000:
Amortized Carrying Cost Value ---------- --------- In Thousands Within 1 year........................................... $ 119,458 120,464 After 1 but within 5 years.............................. 100,397 105,111 After 5 but within 10 years............................. 455,350 465,404 After 10 years.......................................... 19,057 19,018 ---------- --------- Subtotal.............................................. 694,262 709,997 Mortgage-backed securities.............................. 1,021,566 1,041,180 Debt and equity securities.............................. 647,182 650,349 ---------- --------- Total securities available for sale................... $2,363,010 2,401,526 ========== =========
F-16 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Securities Held to Maturity The carrying values and approximate market values of securities held to maturity at December 31, 2000 and 1999 were as follows:
2000 1999 ------------------------------------------ ----------------------------------------- Carrying Unrealized Unrealized Market Carrying Unrealized Unrealized Market Value Gains Losses Value Value Gains Losses Value ---------- ---------- ---------- --------- --------- ---------- ---------- --------- In Thousands U.S. Government agencies and corporations....... $1,130,663 1,774 (22,411) 1,110,026 676,419 -- (46,057) 630,362 Mortgage-backed securities............. 303,619 1,795 (7,528) 297,886 645,690 4 (25,638) 620,056 States and political subdivisions........... 75,702 1,434 (27) 77,109 5,292 146 (13) 5,425 Debt and equity securities............. 506,811 5,573 (12,705) 499,679 431,982 -- (20,242) 411,740 ---------- ------ ------- --------- --------- --- ------- --------- Total.................. $2,016,795 10,576 (42,671) 1,984,700 1,759,383 150 (91,950) 1,667,583 ========== ====== ======= ========= ========= === ======= =========
Following is a maturity schedule of securities held to maturity at December 31, 2000:
Carrying Market Value Value ---------- --------- In Thousands Within 1 year........................................... $ 50,163 50,158 After 1 but within 5 years.............................. 20,159 20,299 After 5 but within 10 years............................. 741,924 735,951 After 10 years.......................................... 394,119 380,727 ---------- --------- Subtotal.............................................. 1,206,365 1,187,135 Mortgage-backed securities.............................. 303,619 297,886 Debt and equity securities.............................. 506,811 499,679 ---------- --------- Total securities held to maturity..................... $2,016,795 1,984,700 ========== =========
At December 31, 2000, the remaining net unrealized holding loss on securities reclassified from available for sale to held to maturity was $2,052,000. Consistent with the requirements of SFAS No. 115, the difference between the amortized cost of the security and its fair value at the date of transfer is amortized as a yield adjustment in accordance with SFAS No. 91. (5) LOANS A summary of loans at December 31, 2000 and 1999 follows:
2000 1999 ----------- --------- In Thousands Commercial, financial and agricultural................. $ 1,223,032 689,945 Real estate-construction............................... 1,907,533 283,033 Real estate-mortgage................................... 5,959,114 1,625,374 Consumer............................................... 1,730,940 1,356,824 Revolving credit....................................... 58,840 -- Lease financing........................................ 145,883 33,405 ----------- --------- Total gross loans.................................... 11,025,342 3,988,581 Less: Unearned income.................................. 16,923 2,792 ----------- --------- Total loans.......................................... $11,008,419 3,985,789 =========== =========
F-17 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Loans of $7,219,000 at December 31, 2000 were not accruing interest. Loans with outstanding balances of $4,569,000 in 2000 were transferred from loans to other real estate acquired through loan foreclosure. Other real estate acquired through loan foreclosures amounted to $5,652,000 and $271,000 at December 31, 2000 and 1999, respectively, and is included in "other assets" on the Consolidated Balance Sheets. Substantially all loans are made on a secured basis and, with the exception of marketable mortgage loans, are originated for retention in the Subsidiary Banks' portfolios. The Subsidiary Banks do not engage in highly leveraged transactions or foreign lending activities. The loan portfolios are well diversified and there are no significant concentrations of credit risk. At December 31, 2000, impaired loans totaled $12,533,000, of which $6,003,000 were on non-accrual status, and their related allowance for loan losses totaled $3,574,000. The average carrying value of impaired loans was $6,267,000 during 2000 and gross interest income recognized on impaired loans totaled $351,000. There were no impaired loans at December 31, 1999. During 2000 and 1999, the Subsidiary Banks had loan and deposit relationships with NCF's executive officers and directors and their associates. In the opinion of management, these loans do not involve more than the normal risk of collectibility and are made on terms comparable to other borrowers. Following is an analysis of these borrowings for the year ended December 31, 2000 (in thousands):
Beginning New Other End of of Year Loans Repayments Changes(1) Year --------- ------ ---------- ---------- ------- Directors, executive officers and associates................ $54,780 35,846 (21,540) 6,955 $76,041
- -------- (1) Includes changes in makeup of directors, executive officers, and their associates resulting from the merger of NCF with CCBF. As a result of the CCBF merger, NCF began servicing loans in 2000. Loans serviced for the benefit of others totaled $817 million at December 31, 2000. Mortgage servicing fees totaled $1,540,000 in 2000. The carrying amount of mortgage servicing rights at December 31, 2000 was $7,688,000, net of amortization of $1,097,000 during 2000. These mortgage servicing rights are included in "other assets" on the Consolidated Balance Sheets. No valuation allowance for capitalized mortgage servicing rights was required at December 31, 2000. Certain real estate-mortgage loans are pledged as collateral for advances from the FHLB as set forth in Note 10. (6) ALLOWANCE FOR LOAN LOSSES Following is a summary of the allowance for loan losses:
2000 1999 1998 -------- ------- ------- In Thousands Balance at beginning of year.................... $ 59,597 49,122 43,297 Provision charged to operations................. 16,456 16,921 10,710 Addition from acquired financial institutions... 82,228 2,044 2,725 Recoveries of loans previously charged-off...... 5,016 3,976 4,039 Loan losses charged to allowance................ (19,683) (12,466) (11,649) -------- ------- ------- Balance at end of year.......................... $143,614 59,597 49,122 ======== ======= =======
F-18 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (7) DERIVATIVES AND HEDGING ACTIVITIES On April 1, 1999, NCF adopted SFAS No. 133, Accounting For Derivative Instruments and Hedging Activities. The fair value of NCF's derivative contracts at adoption was immaterial and has been included in "Gains and losses on interest rate swaps" on the Consolidated Statements of Income. Upon adoption, NCF transferred held-to-maturity securities with a par value of approximately $302 million to the available for sale category as permitted upon adoption of SFAS No. 133. NCF utilizes interest rate swap agreements to provide an exchange of interest payments computed on notional amounts that will offset any undesirable change in cash flows or fair value resulting from market rate changes on designated hedged transactions or items. NCF limits the credit risks of these instruments by initiating the transactions with counterparties that have significant financial positions. Interest rate agreements designated as fair value hedges help manage exposure of outstanding fixed-rate, large time deposits (designated hedged item) to changes in fair value. These agreements involve the receipt of fixed- rate amounts in exchange for floating-rate payments over the life of the agreement without exchange of the underlying principal amount. The differential to be paid or received is accrued as interest rates change and is recognized as an adjustment to interest expense related to the item specifically designated as being hedged at the start of the agreement. The related amount payable or receivable from counterparties is included in "other assets" or "other liabilities" on the Consolidated Balance Sheet. The fair value of interest rate swaps designated as fair value hedges at December 31, 2000 and 1999 was $3,087,000 and ($850,000), respectively, and was included in "other assets" or "other liabilities" and other income or other expense as appropriate. The offset was a reduction to the carrying value of the designated large time deposits and other income. At December 31, 2000 and 1999, the notional amounts of interest rate agreements designated as fair value hedges were $125 million and $40 million, respectively. During 1999 and 2000, NCF used interest rate agreements to modify the interest payment characteristics of its outstanding debt and large time deposits from a floating-rate to a fixed-rate basis. These agreements involve the receipt of floating-rate amounts in exchange for fixed-rate payments over the life of the agreement without exchange of the underlying principal amount. During the rising interest rate environment experienced in the beginning of 2000, NCF increased its position in these interest rate contracts that reduced its interest rate sensitivity to its wholesale funding. The fair values of these contracts, which did not qualify for hedge accounting treatment under SFAS No. 133, are included in "other assets" or "other liabilities" on the Consolidated Balance Sheet. When interest rates declined in the latter half of 2000, NCF recognized unrealized losses on these contracts. Changes in the fair value of these contracts have been recorded in the Consolidated Statements of Income as "Gains / losses on interest rate swaps". The fair value of these contracts was ($77.2 million) and $1.5 million at December 31, 2000 and 1999, respectively, with corresponding notional amounts of $1.5 billion and $650 million. F-19 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (8) PREMISES AND EQUIPMENT Following is a summary of premises and equipment:
Accumulated Depreciation Net And Book Cost Amortization Value -------- ------------ ------- In Thousands December 31, 2000: Land............................................ $ 39,645 -- 39,645 Buildings....................................... 98,648 6,943 91,705 Leasehold improvements.......................... 40,043 14,909 25,134 Furniture and equipment......................... 96,323 47,904 48,419 -------- ------ ------- Total premises and equipment.................. $274,659 69,756 204,903 ======== ====== ======= December 31, 1999: Land............................................ $ 6,214 -- 6,214 Buildings....................................... 11,994 3,897 8,097 Leasehold improvements.......................... 25,779 11,537 14,242 Furniture and equipment......................... 53,548 34,271 19,277 -------- ------ ------- Total premises and equipment.................. $ 97,535 49,705 47,830 ======== ====== =======
(9) TIME DEPOSITS Maturities of time deposits for each of the years ending December 31 are as follows:
Total Maturities ------------ In Thousands 2001.......................................................... $4,660,264 2002.......................................................... 1,322,110 2003.......................................................... 68,601 2004.......................................................... 55,365 2005 and thereafter........................................... 32,999 ---------- Total....................................................... $6,139,339 ==========
(10) BORROWINGS At December 31, 1999, NCF had available $77 million in unsecured lines of credit with other financial institutions. No draws were outstanding as of December 31, 1999 or outstanding during 1999 or 2000. As of December 31, 2000, these lines of credit have expired and are currently under renegotiations. Short-term Borrowed Funds Short-term borrowed funds outstanding at December 31, 2000 and 1999 consisted of the following:
2000 1999 ---------- ------- In Thousands Federal funds purchased and master notes................ $ 633,087 235,633 Treasury tax and loan depository note account........... 16,532 855 Securities sold under agreements to repurchase.......... 563,284 646,550 ---------- ------- Total short-term borrowed funds....................... $1,212,903 883,038 ========== =======
F-20 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Master note borrowings are unsecured obligations of NCF which mature daily and bore a weighted average interest rate of 5.64% at December 31, 2000. The treasury tax and loan depository note account is payable on demand and is collateralized by various investment securities with amortized costs of $50,318,000 and market values of $49,880,000 at December 31, 2000. Interest on borrowings under this arrangement is payable at .25% below the weekly federal funds rate as quoted by the Federal Reserve. Securities sold under agreements to repurchase are collateralized by U.S. Treasury and U.S. Government agency and corporation securities with carrying and market values of $651,716,000 at December 31, 2000. FHLB Advances FHLB advances totaled $1,649,055,000 and $714,335,000 at December 31, 2000 and 1999, respectively. The FHLB advances bear interest at either a fixed rate, variable rate equal to one-month LIBOR, or at a fixed rate for a specified period of time after the issue date, and thereafter may be converted, at the option of the Federal Home Loan Bank, to a floating-rate equal to three-month LIBOR. The FHLB advances are collateralized by mortgage-related securities and by liens on first mortgage loans with book values not less than the outstanding principal balance of the obligations. Interest on the FHLB advances totaled $77,913,000 in 2000, $41,432,000 in 1999 and $27,885,000 in 1998. Maturities of FHLB allowances for each of the years ending December 31 are as follows:
Total Maturities ------------ In Thousands 2001........................................................... $1,188,660 2002........................................................... 50,128 2003........................................................... 36,314 2004........................................................... 1,497 2005........................................................... 369 Thereafter..................................................... 372,087 ---------- Total........................................................ $1,649,055 ==========
Long-Term Debt Following is a summary of long-term debt at December 31, 2000 and 1999:
2000 1999 ------- ----- In Thousands 6.75% subordinated notes..................................... $33,007 -- Term notes................................................... 6,372 6,372 ------- ----- Total long-term debt......................................... $39,379 6,372 ======= =====
NCF's 6.75% subordinated notes due December 1, 2003 pay interest semi- annually and are not redeemable prior to maturity. There is no sinking fund for the notes. The notes are unsecured and subordinated to all present and future senior indebtedness of NCF. Interest on the subordinated notes totaled $1,113,000 in 2000. The unsecured term notes originated in 1987, bearing interest payable at calendar quarters with a variable rate which is repriced every three years based on the yield on U.S. Treasury notes. The F-21 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) next reprice date for the notes is 2003. At December 31, 2000, the average rate was 5.48%. The notes mature in 2007. Interest on the term notes totaled $370,000 in 2000, $369,000 in 1999 and $367,000 in 1998. (11) CAPITAL TRUST PASS-THROUGH SECURITIES In 1997, National Commerce Capital Trust I (the "Trust"), NCF's Delaware business trust, sold $50 million of floating rate capital trust pass-through securities (the "Capital Securities") bearing interest at a variable annual rate equal to LIBOR plus .98 percent (7.80 percent and 6.98 percent at December 31, 2000 and 1999). The Trust used the net proceeds from the sale of the Capital Securities to purchase a like amount of floating rate junior subordinated deferred interest debentures due 2027 (the "Subordinated Debt Securities") from NCF. The Subordinated Debt Securities, which also bear interest at a variable annual rate equal to LIBOR plus .98 percent, are the sole assets of the Trust and are eliminated, along with the related income statement effects, in the consolidated financial statements. NCF used the proceeds from the sale of the Subordinated Debt Securities for general corporate purposes. NCF has fully and unconditionally guaranteed all of the obligations of the Trust. The guarantee covers the distributions and payments on liquidation or redemption of the Capital Securities but only to the extent of funds held by the Trust. The Subordinated Debt Securities mature and become due and payable, together with any accrued and unpaid interest, if any, on April 1, 2027. The Subordinated Debt Securities are unsecured and are effectively subordinated to all existing and future liabilities of NCF. NCF has the right, at any time, so long as no event of default has occurred, to defer payments of interest on the Subordinated Debt Securities for a period not to exceed 20 consecutive quarters. The proceeds from the Capital Securities qualify as Tier 1 capital under the risk-based capital guidelines established by the Federal Reserve Board. (12) EMPLOYEE BENEFITS Pension Plan NCF and CCB have noncontributory, qualified defined benefit pension plans covering substantially all full-time employees. The pension plan makes provisions for early and delayed retirement as well as normal retirement and provides participants with retirement benefits based on credited years of service. Contributions to the pension plan are funded as allowable for federal income tax purposes. No contributions were made in 2000, 1999 or 1998 by NCF due to funding limitations. At December 31, 2000, pension plan assets of both plans consisted primarily of corporate stocks, including 542,428 shares of NCF's common stock, corporate bonds, and obligations of U.S. government agencies and corporations. The plans' assets are held and administered by trust operations of the Subsidiary Banks. The change in benefit obligation, change in plan assets and F-22 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) funded status of the combined pension plan and the amounts included in "other liabilities" on the Consolidated Balance Sheets at December 31, 2000 and 1999 are shown below:
2000 1999 -------- ------ In Thousands Change in benefit obligation: Benefit obligation at January 1............................. $ 38,797 44,842 Addition for acquisitions................................... 80,394 -- Service cost................................................ 3,488 1,373 Interest cost............................................... 6,029 2,916 Actuarial gain.............................................. 578 5,136 Benefit payments............................................ (6,685) (9,167) Assumptions change.......................................... 1,957 (6,303) -------- ------ Benefit obligation at December 31........................... $124,558 38,797 ======== ====== Change in plan assets: Fair value of plan assets at January 1...................... $ 44,665 49,229 Addition for acquisitions................................... 89,940 -- Actual return on plan assets................................ 3,359 4,603 Benefit payments............................................ (6,685) (9,167) -------- ------ Fair value of plan assets at December 31.................... $131,279 44,665 ======== ====== Funded status: As of end of year........................................... $ 6,719 5,868 Unrecognized transition asset............................... (10) (20) Unrecognized prior-service cost............................. (1,947) (2,353) Unrecognized net gain....................................... 16,941 8,992 -------- ------ Accrued pension expense..................................... $ 21,703 12,487 ======== ======
The combined components of pension expense for the qualified plans for the years ended December 31, 2000, 1999 and 1998 are shown below:
2000 1999 1998 ------- ------ ------ In Thousands Service cost of benefits earned during the period.... $ 3,488 1,373 1,310 Interest cost on projected benefit obligation........ 6,029 2,916 2,880 Expected return on plan assets....................... (9,157) (5,234) (5,715) Amortization of transition asset..................... (10) (10) -- Amortization of prior service cost................... (406) (406) (408) Amortization of net gain............................. 384 475 -- ------- ------ ------ Net pension expense (benefit)...................... $ 328 (886) (1,933) ======= ====== ======
NCF and CCB also have noncontributory, nonqualified defined benefit pension plans covering highly-compensated employees. The total accumulated benefit obligation and accrued pension expense for both plans was $6,643,000 and $4,935,000 at December 31, 2000. For the NCF plan, these amounts were $9,905,000 and $7,659,000 at December 31, 1999. Net pension expense for these plans was $1,244,000 for the year ended December 31, 2000. For the NCF plan, net pension expense was $404,000 and $327,000 for the years ended December 31, 1999 and 1998, respectively. F-23 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Assumptions used in computing the actuarial present value of the projected benefit obligation for NCF in 2000 and 1999, and for CCB in 2000, were as follows:
2000 1999 ----- ----- Discount rate................................................ 7.75% 8.25 Rate of increase in compensation level of employees.......... 4.00% 3.50 Expected long-term rate of return on pension plan assets..... 10.50% 11.00
Postretirement Health and Life Insurance Plan NCF sponsors retirement medical and life insurance plans that provide post- retirement healthcare and life insurance benefits. The plan is contributory and contains other cost-sharing features such as deductibles and coinsurance. NCF's policy to fund the cost of medical benefits to employees varies by age and service at retirement. CCB maintains a defined dollar benefit plan which provides postretirement health and life insurance for all employees who retire after age 55 with ten years of service. Benefits are provided through a self- insured plan administered by an insurance company. The following table sets forth the combined plans' change in benefit obligation, funded status and the amounts included in "other liabilities" on the Consolidated Balance Sheets at December 31, 2000 and 1999:
2000 1999 -------- ------ In Thousands Change in benefit obligation: Benefit obligation at January 1.......................... $ 3,449 2,587 Addition for acquisitions................................ 7,894 -- Service cost............................................. 194 23 Interest cost............................................ 574 161 Actuarial (gain) loss.................................... (656) 596 Benefit payments......................................... (602) (346) Assumptions change....................................... 1,221 428 -------- ------ Benefit obligation at December 31........................ $ 12,074 3,449 ======== ====== Funded status: As of end of year........................................ $(12,074) (3,449) Unrecognized net loss.................................... 2,146 1,654 Unrecognized transition liability........................ 243 263 Unrecognized prior service cost.......................... (465) (507) -------- ------ Accrued postretirement benefit expense................... $(10,150) (2,039) ======== ======
The accumulated postretirement benefit obligation at December 31, 2000 was determined using a discount rate of 7.75%. The 1999 accumulated postretirement benefit obligation was determined using a discount rate of 8.25%. F-24 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Combined net periodic postretirement benefit expense charged to operations for the years ended December 31, 2000, 1999 and 1998 included the following components:
2000 1999 1998 ---- ---- ---- In Thousands Service cost................................................ $194 23 20 Interest cost............................................... 574 161 169 Amortization of net loss.................................... 52 (1) (2) ---- --- --- Net postretirement benefit expense........................ $820 183 187 ==== === ===
The health care trend rate was projected to be 8.5% for 2001 and 7.0% for the two years thereafter. A 1% change in the assumed health care trend rates would have the following effects (in thousands):
1% 1% Increase Decrease -------- -------- Effect on total of service and interest cost components of net periodic postretirement benefit expense......... $ 55 (47) Effect on the accumulated postretirement benefit obligation............................................. 766 (650)
Savings and Profit Sharing Plans NCF and CCB have defined contribution employee benefit plans covering substantially all employees with one year's service. Under these plan, employee contributions are partially matched. Stock Options and Restricted Stock Under NCF's 1994 Stock Plan, 12,200,000 shares of common stock were reserved for award to key employees as stock options and restricted stock. Options vest ratably over varying periods of up to five years from the date of grant. Under the 1994 Stock Plan, NCF instituted a program to encourage stock ownership by its employees. Under ShareNCBC, eligible employees who purchase NCF shares from its discount brokerage subsidiary are awarded two options for each share purchased. The options' exercise price equals the purchase price of the qualifying shares. The options vest after two years if the employee has held the purchased shares for the two-year period after purchase and remained in NCF's employ. As of December 31, 2000, approximately 230 employees were participating in the ShareNCBC program. NCF accounts for the ShareNCBC plan as a variable plan, and, accordingly, recognizes compensation expense ratably over the two-year vesting period based on differences in the options' exercise price and the market price of NCF stock on the reporting date. For the years ended December 31, 2000, 1999, and 1998, NCF recorded compensation expense of ($.5 million), $1.4 million, and $.6 million, respectively. During 2000, the terms of approximately 600,000 stock options were modified; as a result, NCF accounts for these option grants as variable grants. During 2000, $2.1 million was recorded as compensation expense related to these options. NCF continued in effect nonstatutory and incentive stock option plans existing at the date of merger with acquired financial institutions. The stock options under these plans were granted to directors and certain officers of the respective financial institutions and entitled them to purchase shares of common stock at an exercise price equal to the fair market value of the stock on the date F-25 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) of grant. The options granted under these plans were exercisable for periods of up to ten years with varying vesting provisions. All options outstanding at the time of the respective mergers were converted into options to acquire NCF common stock. NCF has elected to follow APB No. 25 and related interpretations in accounting for its employee stock options as permitted under SFAS No. 123. In accordance with APB No. 25, no compensation expense is recognized when stock options are granted and the exercise price of the stock options equals the market price of the underlying stock on the date of grant. Had compensation expense for the stock option plans been determined consistent with SFAS No. 123, NCF's net income and net income per share for the years ended December 31, 2000, 1999 and 1998 would have been reduced to the pro forma amounts indicated below. These pro forma amounts may not be representative of the effect on reported net income in future years.
2000 1999 1998 -------- ------- ------- In Thousands Except Per Share Data Net income As reported....................................... $ 45,301 92,632 78,867 Pro forma......................................... 37,914 88,697 76,928 Basic EPS As reported....................................... .29 .88 .79 Pro forma......................................... .24 .85 .77 Diluted EPS As reported....................................... .28 .87 .77 Pro forma......................................... .24 .83 .75
The weighted average fair value of options granted approximated $3.24 in 2000, $6.36 in 1999 and $5.59 in 1998. The fair values of the options granted in 2000, 1999 and 1998 are estimated on the date of the grants using the Black- Scholes option-pricing model. Option pricing models require the use of highly subjective assumptions, including expected stock volatility, which when changed can materially affect fair value estimates. The fair values were estimated using the following weighted-average assumptions:
2000 1999 1998 ------- ------- ------- Dividend yield.................................... 2.00% 2.00 2.00 Expected volatility............................... 35.00 35.00 35.00 Risk-free interest rate........................... 6.00 6.00 6.00 Expected average life............................. 5 years 5 years 5 years
F-26 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A summary of stock option activity and related information for the years ended December 31, 2000, 1999 and 1998 follows:
Outstanding Exercisable ---------------------------- -------------------------- Option Weighted Average Option Weighted Average Shares Exercise Price Shares Exercise Price ---------- ---------------- --------- ---------------- At December 31, 1997.... 6,188,984 $ 6.53 Granted................. 805,586 18.34 Assumed under acquisition of financial institution.. 202,560 7.82 Exercised............... (1,627,317) 4.84 Forfeited............... (343,828) 9.26 ---------- ------ At December 31, 1998.... 5,225,985 8.74 3,116,149 $ 6.72 ========== ====== ========= ====== Granted................. 1,101,100 16.49 Assumed under acquisition of financial institution.. 175,404 4.90 Exercised............... (1,208,848) 7.02 Forfeited............... (140,100) 14.08 ---------- ------ At December 31, 1999.... 5,153,541 10.53 3,232,541 $ 7.69 ========== ====== ========= ====== Granted................. 2,447,335 16.76 Assumed under acquisition of financial institution.. 4,602,911 16.09 Exercised............... (1,245,805) 7.89 Forfeited............... (287,775) 18.33 ---------- ------ At December 31, 2000.... 10,670,207 $14.45 7,508,818 $13.57 ========== ====== ========= ======
Exercise prices for options outstanding as of December 31, 2000 ranged from $1.06 to $26.13. The following table summarizes information about stock options outstanding at December 31, 2000:
Options Outstanding Options Exercisable --------------------------------------- ------------------------ Weighted Weighted Weighted Range of Number of Average Years Average Number of Average Exercise Prices Options Remaining Exercise Price Options Exercise Price --------------- ---------- ------------- -------------- --------- -------------- $ 1.06 to $ 9.00........ 2,152,486 2.95 $ 6.17 2,152,480 $ 6.17 $ 9.19 to $15.13........ 2,327,630 6.19 11.82 2,309,220 11.81 $15.25 to $16.22........ 2,370,090 4.36 15.93 187,246 15.43 $16.25 to $18.49........ 1,966,951 8.18 17.36 1,195,684 17.48 $18.50 to $26.13........ 1,853,050 5.36 22.39 1,664,188 22.56 ---------- ---- ------ --------- ------ $ 1.06 to $26.13........ 10,670,207 5.42 $14.45 7,508,818 $13.57 ========== ==== ====== ========= ======
Restricted stock awarded under the 1994 Stock Plan totaled 434,715 shares during 2000 and 30,000 shares during 1999. The grants in 2000 and 1999 were recorded at their fair values of $6,184,000 and $533,000, respectively, on the dates of grant and had weighted average fair values of $16.08 and $17.75 per share. None of the restricted stock awarded under the 1994 Stock Plan has been forfeited. Additionally, shares of restricted stock had been awarded under stock option and other incentive plans of acquired financial institutions. During 2000, 1999 and 1998, $1,003,000, $373,000, and $270,000, respectively, of compensation expense was recognized for restricted stock awards. F-27 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (13) STOCKHOLDERS' EQUITY Earnings Per Share The following schedule reconciles the numerators and denominators of the basic and diluted EPS computations for the years ended December 31, 2000, 1999 and 1998. Dilutive common shares arise from the potentially dilutive effect of NCF's stock options outstanding.
2000 1999 1998 -------- ------- ------- In Thousands Except Per Share Data Basic EPS Average common shares outstanding...................... 157,387 104,947 99,678 Net income............................................. $ 45,310 92,632 78,867 Earnings per share..................................... .29 .88 .79 ======== ======= ======= Diluted EPS Average common shares outstanding...................... 157,387 104,947 99,678 Average dilutive common shares......................... 1,867 1,860 2,306 -------- ------- ------- Adjusted average common shares......................... 159,254 106,807 101,984 -------- ------- ------- Net income............................................. $ 45,310 92,632 78,867 Earnings per share..................................... .28 .87 .77 ======== ======= =======
Regulatory Matters NCF and the Subsidiary Banks are subject to risk-based capital guidelines requiring minimum capital levels based on the perceived risk of assets and off- balance sheet instruments. As required by the Federal Deposit Insurance Corporation Improvement Act, the federal bank regulatory agencies have jointly issued rules which implement a system of prompt corrective action for financial institutions. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, there are minimum ratios of capital to risk- weighted assets. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors. Failure to meet minimum capital requirements can initiate certain mandatory and possibly discretionary actions by regulators that, if undertaken, could have a material effect on NCF's consolidated financial statements. Disclosure about the Subsidiary Banks' capital adequacy are set forth in the table below. Tier I capital consists of common equity less goodwill and certain other intangible assets. Tier I excludes the equity impact of adjusting available for sale securities to market value. Total capital is comprised of Tier I and Tier II capital. Tier II capital includes subordinated notes and loan loss allowance, as defined and limited according to regulatory guidelines. Balance sheet assets and the credit equivalent amount of off-balance sheet items per regulatory guidelines are assigned to broad risk categories and a category risk-weight is then applied. Management believes that as of December 31, 2000, NCF and the Subsidiary Banks met all capital adequacy requirements to which they were subject. F-28 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The risk-based capital and leverage ratios for NCF, CCB and NBC as of December 31, 2000 and for NCF and NBC as of December 31, 1999 are presented below.
NCF NBC CCB ---------------------- ------------------- --------- 2000 1999 2000 1999 2000 ----------- --------- --------- --------- --------- In Thousands Tier I capital............ $ 1,169,780 572,976 430,131 372,725 673,227 Total capital............. 1,326,588 631,917 478,556 416,265 760,173 Risk-weighted assets...... 12,292,660 4,715,316 4,732,927 3,668,168 7,415,044 Adjusted quarterly average assets................... 16,365,141 6,651,254 6,833,251 5,467,263 9,251,932 Risk-based capital ratios: Tier I capital to risk- weighted assets: Actual................ 9.52% 12.15 9.09 10.16 9.08 Regulatory minimum.... 4.00 4.00 4.00 4.00 4.00 Well-capitalized under prompt corrective action provisions.... -- -- 6.00 6.00 6.00 Total capital to risk- weighted assets: Actual................ 10.79 13.40 10.11 11.35 10.25 Regulatory minimum.... 8.00 8.00 8.00 8.00 8.00 Well-capitalized under prompt corrective action provisions...... -- -- 10.00 10.00 10.00 Leverage ratio: Actual................ 7.15 8.61 6.29 6.82 7.28 Regulatory minimum.... 3.00 3.00 4.00 4.00 4.00 Well-capitalized under prompt corrective action provisions.... -- -- 5.00 5.00 5.00
As of their most recent regulatory examination date, the Subsidiary Banks were categorized as well-capitalized. No conditions or events have occurred since December 31, 2000 that would change the capital categorizations presented as of December 31, 2000. Certain restrictions exist regarding the ability of the Subsidiary Banks to transfer funds to NCF in the form of cash dividends. Regulatory capital requirements must be met by the Subsidiary Banks as well as other requirements under applicable federal and state laws. Under these requirements, the Subsidiary Banks have approximately $189 million in retained earnings at December 31, 2000 that can be transferred to NCF in the form of cash dividends without prior regulatory approval. Total dividends declared by the Subsidiary Banks to NCF in 2000 were $82,215,000. As a result of the above requirements, consolidated net assets of the Subsidiary Banks amounting to approximately $2.1 billion at December 31, 2000 were restricted from transfer to NCF. Under Federal Reserve regulations, the Subsidiary Banks are also limited as to the amount they may loan to affiliates, including the Parent Company, unless such loans are collateralized by specified obligations. At December 31, 2000, the Subsidiary Banks had loans to the Parent Company totaling $49 million. F-29 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (14) SUPPLEMENTARY INCOME STATEMENT INFORMATION Following is a breakdown of the components of "other operating" expenses on the Consolidated Statements of Income:
Years Ended December 31, -------------------------- 2000 1999 1998 --------- ---------------- In Thousands Legal and professional fees........................ $ 21,828 5,556 2,275 Marketing.......................................... 7,748 2,314 2,495 Telecommunications................................. 9,055 3,928 2,663 All other.......................................... 65,009 38,810 43,025 --------- ------- ------- Total other operating expenses................... $ 103,640 50,608 50,458 ========= ======= =======
(15) INCOME TAXES The components of income tax expense for the years ended December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998 ------- ------ ------ In Thousands Current income taxes: Federal.............................................. $ 7,108 50,338 42,109 State................................................ 441 1,648 1,496 ------- ------ ------ Total current tax expense.......................... 7,549 51,986 43,605 ------- ------ ------ Deferred income tax expense (benefit): Federal.............................................. 27,995 (4,205) (2,695) State................................................ (944) (573) (341) ------- ------ ------ Total deferred tax expense (benefit)............... 27,051 (4,778) (3,036) ------- ------ ------ Total income tax expense........................... $34,600 47,208 40,569 ======= ====== ======
During 2000, 1999 and 1998, a total of $5,099,000, $6,964,000 and $7,886,000, respectively, of income tax benefit was credited to additional paid-in capital as a result of the exercise of certain stock options. A reconciliation of income tax expense to the amount computed by multiplying income before income taxes by the statutory federal income tax rate follows:
% of Pretax Amount Income ----------------------- ------------------- 2000 1999 1998 2000 1999 1998 ------- ------ ------ ----- ----- ----- In Thousands Tax expense at statutory rate on income before income taxes..... $27,969 48,944 41,803 35.00% 35.00 35.00 State taxes, net of federal benefit........................ (327) 698 753 (.41) .50 .63 Increase (reduction) in taxes resulting from: Tax-exempt interest on investment securities and loans........................ (2,678) (2,279) (2,793) (3.35) (1.63) (2.34) Non-deductible goodwill amortization................. 9,125 1,130 277 11.42 .81 .23 Other, net.................... 511 (1,285) 529 .64 (.92) .44 ------- ------ ------ ----- ----- ----- Income tax expense.............. $34,600 47,208 40,569 43.30% 33.76 33.96 ======= ====== ====== ===== ===== =====
F-30 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) At December 31, 2000 and 1999, NCF had recorded net deferred tax assets (liabilities) of $(120,607,000) and $7,092,000, respectively, which are included in "other assets" or "other liabilities" on the Consolidated Balance Sheets. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. In management's opinion, it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. In addition, taxes paid during the carryback period exceed NCF's recorded net deferred tax asset at December 31, 1999. Consequently, management has determined that a valuation allowance for deferred tax assets was not required at December 31, 2000 or 1999. The sources and tax effects of cumulative temporary differences that give rise to significant deferred tax assets (liabilities) at December 31, 2000 and 1999 are shown below:
2000 1999 --------- ------ In Thousands Deferred tax assets: Allowance for loan losses.............................. $ 62,185 22,821 Deferred compensation.................................. 2,656 -- Deductible goodwill.................................... 7,388 -- Unrealized losses on investment securities available for sale.............................................. -- 2,665 Other.................................................. 21,815 2,333 --------- ------ Total gross deferred tax assets...................... 94,044 27,819 --------- ------ Deferred tax liabilities: Intangible assets...................................... 109,425 6,521 Deferred loan fees and costs........................... 8,442 2,811 Premises and equipment................................. 12,347 -- FHLB dividends......................................... 10,287 5,696 Pension costs.......................................... 2,806 2,630 Unrealized gains on investment securities available for sale.................................................. 11,792 -- Mortgage servicing rights gain......................... 4,361 -- Deferred income........................................ 45,525 -- Other.................................................. 9,666 3,069 --------- ------ Total gross deferred tax liabilities................. 214,651 20,727 --------- ------ Net deferred tax asset (liabilities)................. $(120,607) 7,092 ========= ======
(16) COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK Commitments and Contingencies The Subsidiary Banks lease certain real property and equipment under long- term operating leases expiring at various dates to 2021. Total rental expense amounted to $14,510,000 in 2000, $7,909,000 in 1999 and $7,239,000 in 1998. A summary of the commitments under noncancellable, long-term leases in effect at December 31, 2000 for each of the years ending December 31 follows:
Type of Property -------------------------- Total Real Property Equipment Commitments ------------- ------------ ----------- In Thousands 2001.................................. $ 13,263 3,712 16,975 2002.................................. 12,909 2,837 15,746 2003.................................. 11,941 1,379 13,320 2004.................................. 10,798 636 11,434 2005.................................. 9,113 -- 9,113 Thereafter............................ 42,227 -- 42,227 -------- ----- ------- Total lease commitments............. $100,251 8,564 108,815 ======== ===== =======
F-31 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Generally, real estate taxes, insurance, and maintenance expenses are obligations of the Subsidiary Banks. It is expected that in the normal course of business, leases that expire will be renewed or replaced by leases on other properties; thus, it is anticipated that future minimum lease commitments will not be less than the amounts shown for 2001. Certain legal claims have arisen in the normal course of business in which NCF and certain of its Subsidiary Banks have been named as defendants. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management and counsel, any such liability will have no material effect on NCF's financial position or results of operations. Commitments to extend credit are agreements to lend to customers as long as there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer's credit worthiness is evaluated on a case-by-case basis and collateral, primarily real estate or business assets, is generally obtained. At December 31, 2000 and 1999, the Subsidiary Banks had commitments to extend credit of approximately $2.5 billion and $.9 billion. These amounts include unused revolving credit lines and home mortgage equity lines of $71 million and $816 million, respectively, at December 31, 2000 and $5 million and $249 million, respectively, at December 31, 1999. Standby letters of credit are commitments issued by the Subsidiary Banks to guarantee the performance of a customer to a third party. The standby letters of credit are generally secured by non-depreciable assets. The Subsidiary Banks had approximately $128 million and $73 million in outstanding standby letters of credit at December 31, 2000 and 1999. Off-Balance Sheet Risk Capital Markets, for trading purposes, enters into transactions involving financial instruments with off-balance sheet risk in order to meet the financing and hedging needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include forward contracts, when issued contracts and options written. All such contracts are for United States Treasury, federal agency or municipal securities. These financial instruments involve varying degrees of credit and market risk. The contract amounts of those instruments reflect the extent of involvement in particular classes of financial instruments. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in securities' market values and interest rates. The extent of the Capital Market's involvement in financial instruments with off- balance sheet risk as of December 31 was as follows:
2000 1999 ------- ------- In Thousands Forward contracts: Commitments to purchase.................................. $52,635 241,358 Commitments to sell...................................... 69,435 247,987 When issued contracts: Commitments to purchase.................................. 5,714 7,066 Commitments to sell...................................... 7,325 8,713 Option contracts: Written option contracts................................. -- 3,000 Purchased option contracts............................... -- 3,000
F-32 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (17) NATIONAL COMMERCE FINANCIAL CORPORATION (PARENT COMPANY) NCF's principal asset is its investment in its subsidiary banks and dividends from the subsidiary banks are its primary source of income. Condensed Balance Sheets as of December 31, 2000 and 1999 and the related Condensed Statements of Income and Cash Flows for the years ended December 31, 2000, 1999 and 1998 follow: CONDENSED BALANCE SHEETS As of December 31, 2000 and 1999
2000 1999 ---------- ------- In Thousands Cash and short-term investments.............................. $ 234,191 22,511 Loans........................................................ 71,587 -- Less allowance for loan losses............................. 792 -- ---------- ------- Net loans................................................ 70,795 -- Investment in subsidiaries................................... 2,387,801 612,654 Other assets................................................. 37,444 72,894 ---------- ------- Total assets............................................. $2,730,231 708,059 ========== ======= Master notes................................................. $ 195,070 -- Note payable to subsidiary................................... 50,547 -- Subordinated notes........................................... 82,928 49,909 Other liabilities............................................ 36,848 8,909 ---------- ------- Total liabilities........................................ 365,393 58,818 Stockholders' equity......................................... 2,364,838 649,241 ---------- ------- Total liabilities and stockholders' equity............... $2,730,231 708,059 ========== =======
CONDENSED INCOME STATEMENTS Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998 -------- ------ ------ In Thousands Dividends from subsidiaries......................... $ 82,215 60,844 68,402 Interest income..................................... 12,092 1,338 19 Other income........................................ 1,190 3,153 1,909 -------- ------ ------ Total operating income............................ 95,497 65,335 70,330 Interest expense.................................... 12,633 3,236 3,362 Other operating expenses............................ 5,023 2,879 4,714 -------- ------ ------ Total operating expenses.......................... 17,656 6,115 8,076 Income before income taxes.......................... 77,841 59,220 62,254 Income taxes........................................ (1,497) (648) (2,011) Income before equity in undistributed net income of subsidiaries....................................... 79,338 59,868 64,265 Equity in undistributed net income (loss) of subsidiaries....................................... (34,028) 32,764 14,602 -------- ------ ------ Net income........................................ $ 45,310 92,632 78,867 ======== ====== ======
F-33 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED STATEMENTS OF CASH FLOWS Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998 -------- ------- ------- In Thousands Net cash provided by operating activities......... $144,225 43,036 70,726 -------- ------- ------- Investment in subsidiaries........................ (24,914) (48,331) (8,103) Net decrease in loans to subsidiaries............. -- 25,626 (25,626) Net (increase) decrease in loans.................. (2,179) -- -- Other, net........................................ 189,094 (25,570) 26,569 -------- ------- ------- Net cash provided (used) by investing activities..................................... 162,001 (48,275) (7,160) -------- ------- ------- Increase in master notes.......................... 9,911 -- -- Net increase (decrease) in debt to subsidiaries... (4,453) -- -- Proceeds from stock issuance in acquisition....... -- 80,248 -- Purchase and retirement of common stock........... (32,008) (22,925) (33,936) Cash dividends.................................... (76,236) (39,697) (31,532) Other, net........................................ 8,240 5,999 2,991 -------- ------- ------- Net cash provided (used) by financing activities..................................... (94,546) 23,625 (62,477) -------- ------- ------- Net increase in cash and short-term investments... 211,680 18,386 1,089 Cash and short-term investments at beginning of year............................................. 22,511 4,125 3,036 -------- ------- ------- Cash and short-term investments at end of year.... $234,191 22,511 4,125 ======== ======= =======
(18) SEGMENT INFORMATION Before the merger with CCBF, NCF segregated its business into three segments: commercial banking, retail banking and other financial services. Following the merger, management has redefined the business and considers itself to operate two principal lines: traditional banking and financial enterprises. The traditional banking segment includes sales and distribution of financial products and services to individuals. These products and services include loan products such as residential mortgage, home equity lending, automobile and other personal financing needs. Traditional banking also offers various deposit products that are designed for customers' saving and transaction needs. This segment also includes lending and related financial services provided to large and medium-sized corporations. Included among these services are several specialty services such as real estate finance, asset-based lending and residential construction lending. Traditional banking also includes management of the investment portfolio and non-deposit based funding. The financial enterprises segment is comprised of trust services and investment management, transaction processing, retail banking consulting/in- store licensing and institutional broker/dealer activities. The accounting policies of the individual segments are the same as those of NCF as described in Note 1. Transactions between business segments are conducted at fair value and are eliminated for reporting consolidated financial position and results of operations. There are no significant intersegment revenues. Interest income for tax-exempt loans and securities is adjusted to a taxable-equivalent basis. Expenses for centrally provided services such as data processing, human resources, accounting and other back-office support functions and management overhead are allocated to each segment based upon various statistical information. F-34 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following tables present condensed income statements and average assets for each reportable segment. This presentation reflects management's determination that it operates two business segments.
Traditional Financial Banking Enterprises Total ----------- ----------- ---------- In Thousands Year ended December 31, 2000: Net interest income........................ $ 436,118 11,768 447,886 Provision for loan loss.................... 16,456 -- 16,456 ----------- ------- ---------- Net interest income after provision........ 419,662 11,768 431,430 Other income............................... 109,622 79,869 189,491 Other expense.............................. 460,069 57,629 517,698 ----------- ------- ---------- Income before income taxes................. 69,215 34,008 103,223 Income taxes............................... 44,893 13,020 57,913 ----------- ------- ---------- Net income................................. $ 24,322 20,988 45,310 =========== ======= ========== Average assets............................. $11,917,272 484,710 12,401,982 Year ended December 31, 1999: Net interest income........................ $ 232,318 11,173 243,491 Provision for loan loss.................... 16,921 -- 16,921 ----------- ------- ---------- Net interest income after provision........ 215,397 11,173 226,570 Other income............................... 40,748 46,479 87,227 Other expense.............................. 130,401 29,941 160,342 ----------- ------- ---------- Income before income taxes................. 125,744 27,711 153,455 Income taxes............................... 50,033 10,790 60,823 ----------- ------- ---------- Net income................................. $ 75,711 16,921 92,632 =========== ======= ========== Average assets............................. $ 6,029,284 329,544 6,358,828 Year ended December 31, 1998: Net interest income........................ $ 187,862 8,453 196,315 Provision for loan loss.................... 10,710 -- 10,710 ----------- ------- ---------- Net interest income after provision........ 177,152 8,453 185,605 Other income............................... 34,701 48,083 82,784 Other expense.............................. 112,047 30,669 142,716 ----------- ------- ---------- Income before income taxes................. 99,806 25,867 125,673 Income taxes............................... 36,727 10,079 46,806 ----------- ------- ---------- Net income................................. $ 63,079 15,788 78,867 =========== ======= ========== Average assets............................. $ 5,088,751 294,266 5,383,017
F-35 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (19) QUARTERLY FINANCIAL DATA (UNAUDITED)
2000 1999 ---------------------------------- ----------------------------------- 3rd 1st 4th 1st 4th Qtr. Qtr. 2nd Qtr. Qtr. Qtr. 3rd Qtr. 2nd Qtr. Qtr. -------- ------- -------- ------- ------- -------- -------- ------- In Thousands Except Per Share Data Interest income......... $334,073 329,090 142,391 132,422 125,314 118,946 107,596 104,118 Interest expense........ 182,232 180,253 79,897 71,021 61,959 59,359 53,256 51,524 -------- ------- ------- ------- ------- ------- ------- ------- Net interest income..... 151,841 148,837 62,494 61,401 63,355 59,587 54,340 52,594 Provision for loan losses................. 5,317 5,098 3,864 2,177 4,304 6,403 3,835 2,379 -------- ------- ------- ------- ------- ------- ------- ------- Net interest income after provision for loan losses............ 146,524 143,739 58,630 59,224 59,051 53,184 50,505 50,215 Securities gains (losses)............... (141) 4,522 127 1 224 (1,286) (2,034) 1 Other income............ 69,387 67,213 24,439 23,943 22,735 22,734 24,870 19,983 Other expenses.......... 226,851 194,910 48,061 47,876 43,057 41,482 38,807 36,996 -------- ------- ------- ------- ------- ------- ------- ------- Income before income taxes.................. (11,081) 20,564 35,135 35,292 38,953 33,150 34,534 33,203 Income taxes............ (2,669) 14,775 11,194 11,300 13,347 11,100 11,696 11,065 -------- ------- ------- ------- ------- ------- ------- ------- Net income (loss)....... $ (8,412) 5,789 23,941 23,992 25,606 22,050 22,838 22,138 ======== ======= ======= ======= ======= ======= ======= ======= Net income (loss) per share: Basic(1)............... $ (.04) .03 .22 .22 .24 .21 .22 .22 Diluted(1)............. (.04) .03 .22 .22 .23 .20 .22 .21
- -------- (1) For 2000, the sum of the quarterly per share net income amounts do not equal the annual per share net income presented elsewhere herein due to significant changes in net income and weighted average shares outstanding impacting the third and fourth quarter. (20) FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.
2000 1999 ---------------------- ------------------- Carrying Carrying Fair Amount Fair Value Amount Value ---------- ---------- --------- --------- In Thousands Financial assets: Cash and cash equivalents........ $ 531,467 531,467 261,296 261,296 Investment securities............ 4,418,321 4,386,226 2,313,311 2,221,511 Trading account securities....... 74,417 74,417 30,294 30,294 Net loans........................ 10,864,805 10,953,779 3,926,192 3,992,208 Financial liabilities: Deposits......................... 11,979,631 12,134,567 4,495,900 4,478,706 Short-term borrowings............ 1,212,903 1,212,903 883,038 883,038 Federal Home Loan Bank advances.. 1,649,055 1,648,979 714,335 712,546 Long-term debt................... 39,379 49,088 6,372 6,372 Capital trust pass-through securities...................... 49,922 49,922 49,909 49,909 Derivative financial instruments: Interest rate swaps.............. (74,140) (74,140) 649 649
F-36 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Cash and Cash Equivalents The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values. Investment and Trading Account Securities Fair values for investment and trading account securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Net Loans For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for certain mortgage loans (e.g., one-to-four family residential) and certain consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest approximates its fair value. Deposits The fair values disclosed for demand deposits (e.g., interest and non- interest checking, passbook savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate, fixed- term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Borrowings The carrying amounts of short-term borrowings and capital trust pass-through securities approximate their fair values. The fair values of FHLB advances and long-term debt are estimated using discounted cash flow analyses, based on NCF's incremental borrowing rates for similar types of borrowing arrangements. Interest Rate Swaps Fair values for interest rate swaps are based on discounted cash flow projections under the swap agreements based on assumptions about future interest rate movements. Off-Balance Sheet Financial Instruments The Subsidiary Banks have commitments to extend credit and standby letters of credit. These types of credit are made at market rates; therefore, there would be no market risk associated with these credits which would create a significant fair value liability. (21) SUBSEQUENT EVENT On February 15, 2001, NCF closed its position in certain interest rate swap contracts with notional amounts totaling $1.5 billion. The fair value of these contracts at the time of the transaction was $77,900,000 and consequently, NCF realized an additional $672,000 of loss on these contracts in the first quarter of 2001. F-37 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders of National Commerce Financial Corporation We have audited the accompanying consolidated balance sheets of National Commerce Financial Corporation and Subsidiaries ("the Company") as of December 31, 1999 and 2000, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Memphis, Tennessee June 22, 2001 F-38 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2001 and December 31, 2000
(Unaudited) September 30, December 31, 2001 2000 ------------- ------------ In Thousands Except Share Data ASSETS ------ Cash and due from banks............................. $ 547,899 446,712 Time deposits in other banks........................ 31,643 32,183 Federal funds sold and other short-term investments........................................ 11,982 52,572 Investment securities: Available for sale................................. 2,794,233 2,401,526 Held to maturity (fair values of $1,649,292 and $1,984,700)....................................... 1,489,414 2,016,795 Trading account securities.......................... 131,374 74,417 Loans............................................... 11,516,651 11,008,419 Less allowance for loan losses..................... 150,487 143,614 ----------- ---------- Net loans........................................ 11,366,164 10,864,805 ----------- ---------- Premises and equipment.............................. 202,222 204,903 Goodwill............................................ 909,541 934,467 Core deposit intangibles............................ 249,035 287,707 Other assets........................................ 748,047 429,705 Total assets..................................... $18,481,554 17,745,792 =========== ========== LIABILITIES Deposits: Demand (non-interest-bearing)...................... $ 1,564,212 1,366,178 Savings, NOW and money market accounts............. 4,834,686 4,474,114 Jumbo and brokered certificates of deposits........ 1,329,640 2,006,741 Consumer time deposits............................. 4,216,670 4,132,598 ----------- ---------- Total deposits................................... 11,945,208 11,979,631 Short-term borrowed funds........................... 1,308,387 1,212,903 Federal Home Loan Bank advances..................... 2,243,509 1,649,055 Long-term debt...................................... 39,375 39,379 Other liabilities................................... 487,569 450,064 ----------- ---------- Total liabilities................................ 16,024,048 15,331,032 ----------- ---------- Capital trust pass-through securities............... 42,642 49,922 STOCKHOLDERS' EQUITY Preferred stock, no par value. Authorized 5,000,000 shares; none issued................................ -- -- Common stock, $2 par value. Authorized 400,000,000 shares; 204,032,413 and 205,246,098 shares issued.. 408,064 410,492 Additional paid-in capital.......................... 1,726,548 1,765,723 Retained earnings................................... 247,153 165,829 Accumulated other comprehensive income.............. 33,099 22,794 ----------- ---------- Total stockholders' equity....................... 2,414,864 2,364,838 ----------- ---------- Total liabilities and stockholders' equity....... $18,481,554 17,745,792 =========== ==========
Commitments and contingencies (note 8) See accompanying notes to consolidated financial statements. F-39 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Three Months and Nine Months Ended September 30, 2001 and 2000 (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ---------------- ----------------- 2001 2000 2001 2000 -------- ------- -------- -------- In Thousands Except Per Share Data Interest Income Interest and fees on loans.................. $235,072 250,045 720,293 433,288 Interest and dividends on investment securities: U.S. Treasury............................. 772 2,472 2,209 3,345 U.S. Government agencies and corporations............................. 47,911 56,407 147,093 113,553 States and political subdivisions (primarily tax-exempt)................... 2,037 2,498 6,946 5,899 Equity and other securities............... 15,340 13,160 53,291 37,193 Interest and dividends on trading account securities................................. 591 656 2,251 1,652 Interest on time deposits in other banks.... 299 783 1,010 910 Interest on federal funds sold and other short-term investments..................... 470 3,069 2,510 8,063 -------- ------- -------- -------- Total interest income.................... 302,492 329,090 935,603 603,903 -------- ------- -------- -------- Interest Expense Deposits.................................... 102,057 132,028 346,223 228,283 Short-term borrowed funds................... 8,602 21,934 34,011 51,728 Federal Home Loan Bank advances............. 25,586 25,643 72,690 50,327 Long-term debt.............................. 646 648 1,934 832 -------- ------- -------- -------- Total interest expense................... 136,891 180,253 454,858 331,170 -------- ------- -------- -------- Net interest income......................... 165,601 148,837 480,745 272,733 Provision for loan losses................... 9,623 5,098 22,307 11,139 -------- ------- -------- -------- Net interest income after provision for loan losses..................................... 155,978 143,739 458,438 261,594 -------- ------- -------- -------- Other Income Service charges on deposit accounts......... 29,639 26,640 87,389 42,703 Other service charges and fees.............. 9,427 9,247 27,227 20,096 Trust and employee benefit plan income...... 11,422 14,275 38,686 18,987 Broker/dealer revenue and other commissions................................ 15,114 9,649 46,382 18,065 Other operating............................. 11,042 7,402 28,660 15,744 Investment securities gains................. 2,588 4,522 3,883 4,650 -------- ------- -------- -------- Total other income....................... 79,232 71,735 232,227 120,245 -------- ------- -------- -------- Other Expense Personnel................................... 58,063 57,241 180,410 99,510 Net occupancy............................... 9,610 10,119 28,091 17,590 Equipment................................... 6,399 6,464 18,369 10,104 Goodwill amortization....................... 12,060 11,941 36,180 14,824 Core deposit intangibles amortization....... 14,389 15,881 44,053 19,075 Conversion/merger expenses.................. 3,122 44,765 3,122 44,765 Losses on interest rate swaps............... -- 12,324 672 20,006 Other operating............................. 39,562 36,175 115,051 64,974 -------- ------- -------- -------- Total other expenses..................... 143,205 194,910 425,948 290,848 -------- ------- -------- -------- Income before income taxes.................. 92,005 20,564 264,717 90,991 Income taxes................................ 34,394 14,775 99,281 37,269 -------- ------- -------- -------- Net income.................................. $ 57,611 5,789 165,436 53,722 ======== ======= ======== ======== Earnings Per Common Share Basic..................................... $ .28 .03 .81 .38 Diluted................................... .28 .03 .80 .38 Weighted Average Shares Outstanding Basic..................................... 204,308 205,458 205,120 141,289 Diluted................................... 206,723 207,268 207,712 142,954
See accompanying notes to consolidated financial statements. F-40 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 2001 and 2000 (Unaudited)
2001 2000 ----------- ---------- In Thousands Operating Activities Net income........................................... $ 165,436 53,722 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion, net...... 78,564 44,918 Provision for loan losses.......................... 22,307 11,139 Net gain on sales of investment securities......... (3,883) (4,650) Losses on interest rate swaps...................... 672 20,006 Deferred income taxes.............................. 24,780 32,450 Changes in: Trading account securities....................... (56,957) (11,585) Other assets..................................... (329,682) (123,422) Other liabilities................................ 34,652 42,199 Other operating activities, net.................. (639) 1 ----------- ---------- Net cash provided (used) by operating activities.................................... (64,750) 64,778 ----------- ---------- Investing Activities Proceeds from: Maturities and issuer calls of investment securities held to maturity....................... 624,843 -- Sales of investment securities available for sale.. 78,482 1,403,904 Maturities and issuer calls of investment securities available for sale..................... 962,975 137,821 Purchases of: Investment securities held to maturity............. (92,720) (1,781,768) Investment securities available for sale........... (1,390,515) -- Premises and equipment............................. (10,819) (10,377) Net originations of loans............................ (392,209) (411,343) Net cash acquired (paid) in business combinations.... (12,641) 318,633 ----------- ---------- Net cash used by investing activities.......... (232,604) (343,130) ----------- ---------- Financing Activities Net increase (decrease) in deposit accounts.......... (171,600) 228,967 Net increase (decrease) in short-term borrowed funds............................................... 81,441 106,201 Net increase in FHLB advances........................ 590,412 366,955 Repurchase and retirement of capital trust pass- through securities.................................. (7,303) -- Issuances of common stock from exercise of stock options, net........................................ 13,571 3,938 Issuances of common stock and other.................. -- 311 Purchase and retirement of common stock.............. (64,943) (25,726) Cash dividends paid.................................. (84,167) (49,548) ----------- ---------- Net cash provided by financing activities...... 357,411 631,098 ----------- ---------- Net increase in cash and cash equivalents............ 60,057 352,746 Cash and cash equivalents at beginning of period..... 531,467 261,296 ----------- ---------- Cash and cash equivalents at end of period........... $ 591,524 614,042 =========== ========== Supplemental Disclosure of Cash Flow Information Interest paid during the period...................... $ 495,519 299,433 =========== ========== Income taxes paid during the period.................. $ 79,495 22,707 =========== ==========
See accompanying notes to consolidated financial statements. F-41 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of and for the Nine Months Ended September 30, 2001 and 2000 (Unaudited) (1) CONSOLIDATION AND PRESENTATION The accompanying unaudited consolidated financial statements of National Commerce Financial Corporation ("NCF") have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of NCF on a consolidated basis, and all such adjustments are of a normal recurring nature. These financial statements and the notes thereto should be read in conjunction with NCF's Amended Annual Report on Form 10-K/A for the year ended December 31, 2000. Operating results for the three- and nine-month periods ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. Consolidation NCF is a bank holding company that provides diverse financial services through a regional network of banking affiliates and a national network of nonbanking affiliates. NCF has two principal lines of business which are operated as business segments: traditional banking and financial enterprises. Financial enterprises include transaction processing, trust and asset management, retail banking consulting and capital markets. NCF's wholly-owned bank subsidiaries include Central Carolina Bank and Trust Company ("CCB"), National Bank of Commerce, ("NBC") and NBC Bank, FSB (collectively, the "Subsidiary Banks"). The consolidated financial statements also include the accounts and results of operations of the wholly-owned non-bank subsidiaries of NCF: TransPlatinum Service Corp., Commerce Capital Management, Inc., First Mercantile Trust, First Mercantile Capital Management, Inc., U.S.I. Alliance, Senior Housing Crime Prevention Foundation Investment Corporation, National Commerce Capital Trust I and Monroe Properties. Additionally, both CCB and NBC have subsidiaries that provide a variety of services including retail banking consulting, trust, investment advisory, insurance, broker/dealer and leasing services. All significant intercompany transactions and accounts are eliminated in consolidation. NCF acquired Piedmont Bancorp, Inc. in April 2000; CCB Financial Corporation, First Mercantile Trust and First Mercantile Capital in July 2000; and First Vantage-Tennessee in August 2001 in transactions accounted for as purchases. Accordingly, the results of operations of these acquired companies are included in NCF's operating results only from the dates of acquisition. Earnings Per Share Basic earnings per share ("EPS") excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding plus dilutive stock options (as computed under the treasury stock method) assumed to have been exercised during the period. Comprehensive Income Comprehensive income is the change in equity during the period from transactions and other events and circumstances from non-owner sources. Total comprehensive income is comprised of net F-42 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) income and other comprehensive income (loss). Other comprehensive income (loss) for the nine months ended September 30, 2001 and 2000 and accumulated other comprehensive income (loss) as of September 30, 2001, December 31, 2000 and September 30, 2000 are comprised of unrealized gains and losses on certain investments in debt and equity securities and certain hedging instruments. (2) RESTATEMENTS As a result of technical violations of pooling of interest rules regarding treasury share repurchases and stock options, NCF has restated its historical financial statements for the presentation of nine business combinations as purchases rather than as poolings of interests as previously reported. The reasons for, and financial impact of, the adjustments are described in NCF's Annual Report on Form 10-K/A for the fiscal period ended December 31, 2000. As a result of the foregoing, NCF's 2000 consolidated financial statements have been restated for the interim periods of 2000 and 1999, and fiscal years 2000, 1999 and 1998. The restated financial statements for the periods, including condensed financial statements for the nine months ended September 30, 2000, are included in NCF's Annual Report on Form 10-K/A for the fiscal period ended December 31, 2000. Management believes that NCF's consolidated financial statements, as restated, include all adjustments necessary for a fair presentation of NCF's financial position as of September 30, 2000 and its results of operations for the nine months then ended. (3) LOANS A summary of loans at September 30, 2001 and December 31, 2000 follows:
2001 2000 ----------- ---------- In Thousands Commercial, financial and agricultural................ $ 1,300,819 1,223,032 Real estate-construction.............................. 2,104,567 1,907,533 Real estate-mortgage.................................. 6,521,943 5,959,114 Consumer.............................................. 1,390,120 1,730,940 Revolving credit...................................... 61,896 58,840 Lease financing....................................... 155,381 145,883 ----------- ---------- Gross loans........................................... 11,534,726 11,025,342 Less unearned income.................................. 18,075 16,923 ----------- ---------- Total loans........................................... $11,516,651 11,008,419 =========== ==========
(4) ALLOWANCE FOR LOAN LOSSES Following is the activity in the allowance for loan losses during the nine months ended September 30, 2001 and 2000:
2001 2000 --------- ------- In Thousands Balance at beginning of period........................... $ 143,614 59,597 Provision charged to operations.......................... 22,307 11,139 Addition from acquired institutions...................... 1,331 82,228 Recoveries of loans previously charged-off............... 5,360 3,695 Loan losses charged to allowance......................... (22,125) (13,149) --------- ------- Balance at end of period............................... $ 150,487 143,510 ========= =======
F-43 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (5) RISK ASSETS Following is a summary of risk assets at September 30, 2001, December 31, 2000, and September 30, 2000:
September 30, December 31, September 30, 2001 2000 2000 ------------- ------------ ------------- In Thousands Nonaccrual loans...................... $15,466 7,219 26,432 Other real estate acquired through loan foreclosures.................... 8,347 5,652 3,219 Restructured loans.................... -- 2,232 2,235 Accruing loans 90 days or more past due.................................. 32,426 26,362 7,949 ------- ------ ------ Total risk assets.................... $56,239 41,465 39,835 ======= ====== ======
(6) COMPREHENSIVE INCOME The following table presents the components of other comprehensive income and the related tax effects allocated for the nine months ended September 30, 2001 and 2000:
2001 2000 ------------------------- ---------------------- Before Net of Before Net of tax Tax tax tax Tax tax amount expense amount amount expense amount ------- ------- -------- ------ ------- ------ In Thousands Unrealized gains on securities: Unrealized gains arising during holding period...... $20,649 (7,995) 12,654 13,555 (5,354) 8,201 Less: Reclassification adjustment for gains realized in net income..... 3,883 (1,534) 2,349 4,650 (1,837) 2,813 ======= ====== -------- ====== ====== ------ Other comprehensive income... 10,305 5,388 Net income................... 165,436 53,722 -------- ------ Comprehensive income......... $175,741 59,110 ======== ======
F-44 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (7) PER SHARE DATA The following schedule reconciles the numerators and denominators of the basic and diluted EPS computations for the three and nine months ended September 30, 2001 and 2000. Dilutive common shares arise from the potentially dilutive effect of NCF's stock options outstanding.
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------ 2001 2000 2001 2000 --------- ----------------- -------- In Thousand Except Per Share Data BASIC EPS Average common shares outstanding......... 204,308 205,458 205,120 141,289 Net income................................ $ 57,611 5,789 165,436 53,722 Earnings per share........................ .28 .03 .81 .38 --------- -------- -------- -------- DILUTED EPS Average common shares outstanding......... 204,308 205,458 205,120 141,289 Average dilutive common shares............ 2,415 1,810 2,592 1,665 --------- -------- -------- -------- Adjusted average common shares............ 206,723 207,268 207,712 142,954 Net income................................ $ 57,611 5,789 165,436 53,722 Earnings per share........................ .28 .03 .80 .38 ========= ======== ======== ========
(8) CONTINGENCIES Certain legal claims have arisen in the normal course of business, which, in the opinion of management and counsel, will have no material adverse effect on the financial position of NCF or its subsidiaries. (9) SEGMENT INFORMATION Traditional Banking This segment includes sales and distribution of financial products and services to consumer and corporate customers. These products and services include loan products such as residential mortgages, home equity loans, automobile and other personal loan products. Traditional banking also offers various deposit products that are designed for customers' saving and transaction needs. This segment also includes financial services provided to large and medium-sized corporations including real estate finance, asset-based lending and residential construction lending. Traditional banking also includes management of NCF's investment portfolio and non-deposit based funding. Financial Enterprises This segment is comprised of trust services and investment management, transaction processing, retail banking consulting/in-store licensing and institutional broker/dealer activities. The accounting policies of the individual segments are the same as those of NCF. Transactions between business segments are conducted at fair value and are eliminated for reporting consolidated financial position and results of operations. There are no significant intersegment revenues. Net interest income is presented on a taxable-equivalent basis. Expenses for centrally provided services such as data processing, human resources, accounting and other back- office support functions and management overhead are allocated to each segment based upon various statistical information. F-45 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following tables present condensed income statements and average assets for each reportable segment.
Traditional Financial banking Enterprises Total ----------- ----------- ---------- In Thousands Quarter ended September 30, 2001: Net interest income........................ $ 168,669 4,798 173,467 Provision for loan loss.................... 9,623 -- 9,623 ----------- ------- ---------- Net interest income after provision........ 159,046 4,798 163,844 Non-interest income........................ 43,298 35,934 79,232 Non-interest expense....................... 116,360 26,845 143,205 ----------- ------- ---------- Income before income taxes................. 85,984 13,887 99,871 Income taxes............................... 36,843 5,417 42,260 ----------- ------- ---------- Net income................................. $ 49,142 8,470 57,611 =========== ======= ========== Average assets............................. $17,354,164 545,454 17,899,618 Quarter ended September 30, 2000: Net interest income........................ $ 153,551 3,108 156,659 Provision for loan loss.................... (5,098) -- (5,098) ----------- ------- ---------- Net interest income after provision........ 148,453 3,108 151,561 Non-interest income........................ 42,102 29,633 71,735 Non-interest expense....................... (172,872) (22,038) (194,910) ----------- ------- ---------- Income before income taxes................. 17,683 10,703 28,386 Income taxes............................... (18,337) (4,260) (22,597) ----------- ------- ---------- Net income................................. $ (654) 6,443 5,789 =========== ======= ========== Average assets............................. $16,652,810 425,524 17,078,334
F-46 NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Traditional Financial Banking Enterprises Total ----------- ----------- ---------- In Thousands Nine months ended September 30, 2001: Net interest income.......................... $ 489,274 13,381 502,655 Provision for loan loss...................... 22,307 -- 22,307 ----------- ------- ---------- Net interest income after provision.......... 466,967 13,381 480,348 Non-interest income.......................... 124,502 107,725 232,227 Non-interest expense......................... 345,011 80,937 425,948 ----------- ------- ---------- Income before income taxes................... 246,458 40,169 286,627 Income taxes................................. 105,476 15,715 121,191 ----------- ------- ---------- Net income................................... $ 140,982 24,454 165,436 =========== ======= ========== Average assets............................... $17,168,020 528,523 17,696,543 Nine months ended September 30, 2000: Net interest income.......................... $ 280,191 8,975 289,166 Provision for loan loss...................... 11,139 -- 11,139 ----------- ------- ---------- Net interest income after provision.......... 269,052 8,975 278,027 Non-interest income.......................... 63,371 56,874 120,245 Non-interest expense......................... 249,629 41,219 290,848 ----------- ------- ---------- Income before income taxes................... 82,794 24,630 107,424 Income taxes................................. 43,932 9,770 53,702 ----------- ------- ---------- Net income................................... $ 38,862 14,860 53,722 =========== ======= ========== Average assets............................... $10,259,575 407,325 10,666,900
(10) SUBSEQUENT EVENTS On July 16, 2001, NCF announced that it had executed an agreement for NCF to acquire SouthBanc Shares, Inc., a financial institution with ten locations and $660 million of assets located in South Carolina. The acquisition is subject to regulatory approval and is expected to close in the fourth quarter of 2001. The transaction is anticipated to be accounted for as a purchase. NCF announced on August 13, 2001 that it had signed a definitive agreement to acquire 37 First Union and Wachovia branches and corresponding ATMs in North Carolina, South Carolina, Georgia and Virginia. The branch acquisition includes approximately $1.5 billion in deposits, complements NCF's existing branch network in the Southeast and expands its presence in the Carolinas. The branch acquisition is expected to close in the first quarter of 2002, subject to the approval of the appropriate regulatory authorities. The branches were required to be divested for the First Union and Wachovia merger to meet the U.S. Department of Justice's antitrust guidelines. The sale will include deposits, loans and related premises and equipment. NCF has also agreed to offer employment to divested branch personnel. Branches in North Carolina and South Carolina will operate under the name Central Carolina Bank and locations in Virginia and Georgia will take the National Bank of Commerce name. F-47 CCB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998
1999 1998 ---------- --------- (In Thousands Except for Share Data) ASSETS: Cash and due from banks (note 3)......................... $ 300,051 250,922 Time deposits in other banks............................. 63,020 59,529 Federal funds sold and other short-term investments...... 37,918 430,000 Investment securities (notes 4 and 8): Available for sale (amortized cost of $1,585,372 and $1,262,477)........................................... 1,563,120 1,284,198 Held to maturity (market values of $75,448 and $85,277).............................................. 73,370 80,189 Loans (notes 5, 8 and 9)................................. 5,954,184 5,487,337 Less reserve for loan losses (note 6)................. 77,266 73,182 ---------- --------- Net loans........................................... 5,876,918 5,414,155 Premises and equipment (notes 7 and 9)................... 113,858 92,770 Other assets (notes 5 and 13)............................ 158,043 128,590 ---------- --------- Total assets...................................... $8,186,298 7,740,353 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY: Deposits: Demand (noninterest-bearing)........................... $ 833,389 854,938 Savings and NOW accounts............................... 852,265 863,920 Money market accounts.................................. 1,895,099 1,784,091 Jumbo certificates of deposit (note 8)................. 422,280 452,808 Time deposits (note 8)................................. 2,713,992 2,504,007 ---------- --------- Total deposits.................................... 6,717,025 6,459,764 Short-term borrowed funds (note 8)....................... 329,670 288,256 Long-term debt (note 9).................................. 328,922 216,695 Other liabilities (notes 10 and 13)...................... 90,720 87,744 ---------- --------- Total liabilities................................. 7,466,337 7,052,459 ========== ========= Shareholders' equity (notes 4, 11 and 15): Serial preferred stock. Authorized 10,000,000 shares; none issued............................................. -- -- Common stock of $5 par value. Authorized 100,000,000 shares; 39,579,808 and 40,345,214 shares issued in 1999 and 1998, respectively.................................. 197,900 201,726 Additional paid-in capital............................... 29,690 73,771 Retained earnings........................................ 506,092 399,066 Accumulated comprehensive income (loss).................. (13,721) 13,331 ---------- --------- Total shareholders' equity........................ 719,961 687,894 ---------- --------- Total liabilities and shareholders' equity........ $8,186,298 7,740,353 ========== =========
Commitments and contingencies (note 14) See accompanying notes to consolidated financial statements. F-48 CCB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 -------- ------- ------- (In Thousands Except Per Share Data) Interest income: Interest and fees on loans....................... $478,908 470,664 442,618 Interest and dividends on investment securities: U.S. Treasury.................................. 23,127 27,502 31,546 U.S. Government agencies and corporations...... 65,255 53,117 55,613 States and political subdivisions (primarily tax-exempt)................................... 4,360 4,738 4,840 Equity and other securities.................... 3,147 3,135 3,070 Interest on time deposits in other banks.......... 2,750 2,377 2,716 Interest on federal funds sold and other short- term investments................................. 12,052 15,893 10,060 -------- ------- ------- Total interest income........................ 589,599 577,426 550,463 -------- ------- ------- Interest expense: Deposits......................................... 232,767 232,609 229,600 Short-term borrowed funds (note 8)............... 12,016 11,822 15,371 Long-term debt (note 9).......................... 12,764 10,131 5,128 -------- ------- ------- Total interest expense....................... 257,547 254,562 250,099 -------- ------- ------- Net interest income............................... 332,052 322,864 300,364 Provision for loan losses (note 6)................ 14,296 15,884 16,376 -------- ------- ------- Net interest income after provision for loan losses........................................... 317,756 306,980 283,988 -------- ------- ------- Other income: Service charges on deposit accounts.............. 61,831 54,117 44,937 Trust and custodian fees......................... 12,574 10,221 8,415 Sales and insurance commissions.................. 12,806 10,835 9,433 Merchant discount................................ 11,866 8,826 7,017 Secondary marketing and servicing of mortgages... 9,131 12,865 8,179 Accretion of negative goodwill from acquisitions.................................... 3,356 3,356 3,356 Other operating.................................. 12,675 10,683 11,582 Gain on sale of credit card receivables.......... 32,837 -- -- Investment securities gains (note 4)............. 1,381 2,205 578 Investment securities losses (note 4)............ (3) (27) (98) -------- ------- ------- Total other income........................... 158,454 113,081 93,399 -------- ------- ------- Other expenses: Personnel (note 10).............................. 136,305 124,419 114,572 Net occupancy (note 14).......................... 17,331 15,890 15,595 Equipment (note 14).............................. 17,713 14,522 12,867 Merger-related expense (note 2).................. -- -- 17,916 Other operating (note 12)........................ 72,687 75,386 65,248 -------- ------- ------- Total other expenses......................... 244,036 230,217 226,198 -------- ------- ------- Income before income taxes........................ 232,174 189,844 151,189 Income taxes (note 13)............................ 81,351 68,632 55,765 -------- ------- ------- Net income........................................ $150,823 121,212 95,424 ======== ======= ======= Earnings per common share (note 11): Basic............................................ $ 3.77 2.96 2.31 Diluted.......................................... 3.74 2.93 2.28 Weighted average shares outstanding (note 11): Basic............................................ 39,944 40,898 41,438 Diluted.......................................... 40,315 41,409 41,947
See accompanying notes to consolidated financial statements. F-49 CCB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME Years Ended December 31, 1999, 1998 and 1997
Accumulated Other Additional Comprehensive Management Total Common Paid-In Retained Income Recognition Shareholders' Stock Capital Earnings (Loss) Plans Equity -------- ---------- -------- ------------- ----------- ------------- (In Thousands) Balance December 31, 1996..................... $206,338 140,617 257,903 7,329 (738) 611,499 Net income.................................... -- -- 95,424 -- -- 95,424 Other comprehensive income-- Unrealized gains on securities, net of deferred tax expense of $3,956 and reclassification adjustment (note 4)........ -- -- -- 6,651 -- 6,651 ------- Total comprehensive income................. 102,075 Restricted stock transactions, net (note 10).. 54 373 (27) -- -- 400 Stock options exercised, net of shares tendered (note 10)........................... 1,377 2,729 (689) -- -- 3,417 Earned portion of management recognition plan (note 10).................................... -- -- -- -- 706 706 Other transactions, net....................... (5) 65 3 -- -- 63 Cash dividends ($.89 per share)............... -- -- (36,750) -- -- (36,750) -------- ------- ------- ------- ------ ------- Balance December 31, 1997..................... 207,764 143,784 315,864 13,980 (32) 681,360 Net income.................................... -- -- 121,212 -- -- 121,212 Other comprehensive loss-- Unrealized losses on securities, net of deferred tax benefit of $484 and reclassification adjustment (note 4)........ -- -- -- (649) -- (649) ------- Total comprehensive income................. 120,563 Restricted stock transactions, net (note 10).. 42 503 (10) -- -- 535 Stock options exercised, net of shares tendered (note 10)........................... 879 1,497 (403) -- -- 1,973 Earned portion of management recognition plan (note 10).................................... -- -- -- -- 32 32 Purchase and retirement of shares............. (6,957) (72,445) 2,801 -- -- (76,601) Other transactions, net....................... (2) 432 -- -- -- 430 Cash dividends ($.99 per share)............... -- -- (40,398) -- -- (40,398) -------- ------- ------- ------- ------ ------- Balance December 31, 1998..................... 201,726 73,771 399,066 13,331 -- 687,894 Net income.................................... -- -- 150,823 -- -- 150,823 Other comprehensive loss-- Unrealized losses on securities, net of deferred tax benefit of $16,920 and reclassification adjustment (note 4)........ -- -- -- (27,052) -- (27,052) ------- Total comprehensive income................. 123,771 Restricted stock transactions, net (note 10).. 9 93 -- -- -- 102 Stock options exercised, net of shares tendered (note 10)........................... 486 216 -- -- -- 702 Shares issued in acquisition (note 2)......... 3,228 23,067 -- -- -- 26,295 Purchase and retirement of shares............. (7,548) (67,448) -- -- -- (74,996) Other transactions, net....................... (1) (9) -- -- -- (10) Cash dividends ($1.10 per share).............. -- -- (43,797) -- -- (43,797) -------- ------- ------- ------- ------ ------- Balance December 31, 1999..................... $197,900 29,690 506,092 (13,721) -- 719,961 ======== ======= ======= ======= ====== =======
See accompanying notes to consolidated financial statements. F-50 CCB FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1999, 1998 and 1997
1999 1998 1997 --------- --------- --------- (In Thousands) Operating activities: Net income.................................. $ 150,823 121,212 95,424 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion, net...................................... 25,331 16,859 23,418 Provision for loan losses................. 14,296 15,884 16,376 Net gain on sales of investment securities............................... (1,378) (2,178) (480) Gains on sales of mortgage loans and credit card receivables.................. (36,315) -- -- Sales of loans held for sale.............. 724,883 576,595 232,095 Origination of loans held for sale........ (771,710) (630,658) (214,170) Changes in: Accrued interest receivable............... (5,230) 2,084 (4,202) Accrued interest payable.................. 429 (1,668) (17,550) Other assets.............................. 12,503 27,631 821 Other liabilities......................... 1,281 (4,282) 905 Other operating activities, net............... (6,507) (5,053) (5,600) --------- --------- --------- Net cash provided by operating activities............................. 108,406 116,426 127,037 --------- --------- --------- Investing activities: Proceeds from: Maturities and issuer calls of investment securities held to maturity.............. 7,636 1,407 2,622 Sales of investment securities available for sale................................. 44,715 36,036 176,481 Maturities and issuer calls of investment securities available for sale............ 550,654 628,252 501,394 Sales of mortgage loans and credit card receivables.............................. 386,729 -- 25,658 Purchases of: Investment securities available for sale.. (912,932) (571,024) (677,990) Premises and equipment.................... (34,980) (18,129) (10,584) Net originations of loans..................... (684,329) (360,194) (529,365) Net cash acquired (paid) in acquisitions and dispositions................................. (11,385) (8,675) 14,577 --------- --------- --------- Net cash used by investing activities... (653,892) (292,327) (497,207) --------- --------- --------- Financing activities: Net increase in deposit accounts............ 203,910 484,220 243,143 Net increase (decrease) in short-term borrowed funds............................. 30,614 11,819 (80,402) Proceeds from issuance of long-term debt.... 154,600 126,140 50,129 Repayments of long-term debt................ (64,558) (10,131) (7,997) Issuances of common stock from exercise of stock options, net......................... 261 1,973 3,417 Purchase and retirement of common stock..... (74,996) (76,601) -- Other equity transactions, net.............. (10) (14) (44) Cash dividends paid......................... (43,797) (40,398) (36,750) --------- --------- --------- Net cash provided by financing activities............................. 206,024 497,008 171,496 --------- --------- --------- Net increase (decrease) in cash and cash equivalents.................................. (339,462) 321,107 (198,674) Cash and cash equivalents at beginning of year (note 1)..................................... 740,451 419,344 618,018 --------- --------- --------- Cash and cash equivalents at end of year (note 1)........................................... $ 400,989 740,451 419,344 ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid during the year............... $ 257,118 256,250 267,649 Income taxes paid during the year........... 81,492 71,618 57,597
See accompanying notes to consolidated financial statements. F-51 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The consolidated financial statements include the accounts and results of operations of CCB Financial Corporation ("CCB") and its wholly-owned subsidiaries, Central Carolina Bank and Trust Company ("CCB Bank"), American Federal Bank, FSB ("AmFed") and Central Carolina Bank-Georgia ("CCB-Ga.") (collectively, the "Subsidiary Banks"). The consolidated financial statements also include the accounts and results of operations of the wholly-owned subsidiaries of CCB Bank (CCB Investment and Insurance Service Corporation; CCBDE, Inc.; Salem Trust Company; Salem Advisors, Inc.; Southland Associates, Inc. and Corcoran Holdings, Inc. and its subsidiary, Watts Properties, Inc.) and AmFed (American Service Corporation of S.C.; AMFEDDE, Inc.; Mortgage North; Finance South, Inc. and McBee Holdings, Inc. and its subsidiary, Greenville Participations, Inc.). All significant intercompany transactions and accounts are eliminated in consolidation. CCB operates as one business segment. CCB Bank and AmFed provide a full range of banking services to individual and corporate customers through their branch networks based in North Carolina and South Carolina, respectively. CCB Bank also provides trust services to customers in Virginia and Florida through trust offices located in each of those states. CCB-Ga. is a special purpose bank that provided nationwide credit card services until the sale of the majority of its credit card receivables during 1999. CCB-Ga. is in the process of being dissolved. Neither CCB nor its Subsidiary Banks have foreign operations. CCB believes that there is no concentration of risk with any single customer or supplier, or small group of customers or suppliers, whose failure or nonperformance would materially affect CCB's results. Products and services offered to customers include traditional banking services such as accepting deposits; making secured and unsecured loans; renting safety deposit boxes; performing trust functions for corporations, employee benefit plans and individuals; and providing certain insurance and brokerage services. The Subsidiary Banks are subject to competition from other financial entities and are subject to the regulations of certain Federal and state agencies and undergo periodic examinations by those regulatory agencies. Certain amounts for prior years have been reclassified to conform to the 1999 presentation. These reclassifications have no effect on shareholders' equity or net income as previously reported. Financial Statement Presentation In preparing the financial statements, management is required to make estimates and assumptions that affect the reported balances of assets and liabilities as of the date of the balance sheet and income and expenses for the periods presented. Actual results could differ from those estimates. For purposes of the Statements of Cash Flows, CCB considers time deposits in other banks, federal funds sold and other short-term investments to be cash equivalents. Investment Securities CCB classifies its investment securities in one of the three following categories: (a) debt securities that CCB has the positive intent and ability to hold to maturity are classified as held for investment and reported at amortized cost; (b) debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading and reported at F-52 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) fair value, with unrealized gains and losses included in earnings; and (c) debt and equity securities not classified as either held for investment or trading are classified as available for sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity. CCB has had no securities classified as trading securities. The net unrealized gains or losses on securities available for sale, net of taxes, are reported as a separate component of shareholders' equity. Changes in market values of securities classified as available for sale will cause fluctuations in shareholders' equity. Unrealized losses on securities held to maturity due to fluctuations in fair value are recognized when it is determined that an other than temporary decline in value has occurred. Investment securities classified as available for sale will be considered in CCB's asset/liability management strategies and may be sold in response to changes in interest rates, liquidity needs and/or significant prepayment risk. The cost of investment securities sold is determined by the "identified certificate" method. Premium amortization and discount accretion are computed using the interest method. Loan Portfolio The loan portfolio is comprised of the following: commercial, financial and agricultural; real estate-construction; real estate-mortgage; instalment loans to individuals, revolving credit accounts and leases. The lease portfolio includes rolling stock such as automobiles, trucks and trailers as well as a broadly diversified base of equipment. Interest income on loans is recorded on the accrual basis. Accrual of interest on loans (including impaired loans) is discontinued when management deems that collection of additional interest is doubtful. Interest received on nonaccrual loans and impaired loans is generally applied against principal or may be reported as interest income depending on management's judgment as to the collectibility of principal. When borrowers with loans on a nonaccrual status demonstrate their ability to repay their loans in accordance with the contractual terms of the notes, the loans are returned to accrual status. Reserve for Loan Losses The reserve for loan losses is increased by provisions charged to expense and reduced by loan charge-offs, net of recoveries. The reserve is maintained at a level considered adequate by management to provide for probable loan losses. The reserve is comprised of specific loan loss allocations, nonaccrual loan and classified loan allocations, and general allocations by loan type for all other loans. Specific loan loss allocations are determined for significant credits where management believes that a risk of loss exists. While management uses the best information available on which to base estimates, future adjustments to the reserve may be necessary if economic conditions, particularly in the Subsidiary Banks' markets, differ substantially from the assumptions used by management. Additionally, bank regulatory agency examiners periodically review the loan portfolio and may require CCB to charge- off loans and/or increase the reserve for loan losses to reflect their assessment of the collectibility of loans based on available information at the time of their examination. For all specifically reviewed loans for which it is probable that the Subsidiary Banks will be unable to collect all amounts due according to the terms of the loan agreement, the Subsidiary Banks determine a value at either the present value of expected cash flows discounted at the loan's F-53 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) effective interest rate, or if more practical, the market price or value of the collateral. If the resulting value of the impaired loan is less than the recorded balance, impairment is recognized by creating a valuation allowance for the difference and recognizing a corresponding bad debt expense. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed over the estimated lives of the assets on accelerated and straight-line methods. Leasehold improvements are amortized over the term of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Other Real Estate Other real estate acquired through loan foreclosures is valued at the lower of cost or fair value less estimated cost of sale. Mortgage Servicing Rights Mortgage servicing rights ("MSR") are the rights to service mortgage loans for others which are capitalized and included in "other assets" on the Consolidated Balance Sheets at the lower of their cost or market. The cost of mortgage loans originated or purchased is allocated between the cost of the loans and the MSR. Capitalization of the allocated cost of MSR occurs when the underlying loans are sold or securitized. The cost of the MSR is amortized over the estimated period of and in proportion to net servicing revenues. MSR for loans originated by the Subsidiary Banks prior to 1996 were not capitalized in accordance with the then current accounting standards. CCB periodically evaluates MSR for impairment by estimating the fair value based on market prices for similar servicing assets. For purposes of impairment evaluation, the MSR are stratified based on predominate risk characteristics of the underlying loans, including loan type (conventional or government), term and amortization type (fixed or adjustable). If the carrying value of the MSR exceed the estimated fair value, a valuation allowance is established. Changes to the valuation allowance are charged against or credited to mortgage servicing income and fees up to the original cost of the MSR. Subordinated Notes Underwriting discounts and commissions and issuance expenses of the subordinated notes are included in "other assets" on the Consolidated Balance Sheets. These expenses are being amortized over the life of the subordinated notes. Intangibles Arising from Acquisitions Intangible assets arising from acquisitions result from CCB paying amounts in excess of fair value for businesses, core deposits and tangible assets acquired. Such amounts are being amortized by systematic charges to income over a period no greater than the estimated remaining life of the assets acquired or not exceeding the estimated remaining life of the existing deposit base assumed (primarily for up to 10 years). Goodwill is amortized on a straight-line basis over periods ranging from 10 to 20 years. CCB's unamortized goodwill is reviewed for impairment whenever the facts and circumstances indicate that the carrying amount may not be recoverable. Unamortized goodwill associated with disposed assets is charged to current earnings. F-54 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Negative goodwill, included in "other liabilities" on the Consolidated Balance Sheets, represents the excess of fair value of net assets acquired over cost after recording the liability for recaptured tax bad debt reserves and after reducing the basis in noncurrent assets acquired to zero. Negative goodwill is being accreted into earnings on a straight-line basis over the estimated periods to be benefited (generally 10 years). Comprehensive Income Comprehensive income is the change in CCB's equity during the period from transactions and other events and circumstances from non-owner sources. Total comprehensive income is divided into net income and other comprehensive income (loss). CCB's "other comprehensive income (loss)" for the three-year period ended December 31, 1999 and "accumulated other comprehensive income (loss)" as of December 31, 1999 and 1998 are comprised solely of unrealized gains and losses on certain investments in debt and equity securities. Income Taxes The provision for income taxes is based on income and expense reported for financial statement purposes after adjustment for permanent differences such as tax-exempt interest income. Deferred income taxes are provided when there is a difference between the periods items are reported for financial statement purposes and when they are reported for tax purposes and are recorded at the enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. Subsequent changes in tax rates will require adjustment to these assets and liabilities. Incentive and Performance Unit Plans CCB has incentive and related performance unit plans covering certain officers of CCB and the Subsidiary Banks. The market value of shares issued under the incentive plans and the estimated value of awards under the performance unit plans are being charged to operating expense over periods of up to three years. Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" encourages but does not require that companies record compensation cost for stock-based employee compensation plans at fair value. CCB has chosen to account for stock-based compensation plans using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees". Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock. CCB's stock options have no intrinsic value at grant date, and consequently, no compensation cost is recognized for them. An employer that continues to apply the intrinsic value accounting method rather than the "fair value based method" must disclose certain pro forma information. Under the fair value based method, compensation cost is measured at the grant date of the option based on the value of the award and is recognized over the service period, which is usually the vesting period. The required pro forma amounts reflect the difference between compensation cost, if any, included in net income and the related cost measured by the fair value based method, including tax effects, that would have been recognized in the income statement if the fair value based method had been used. F-55 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Stock Split and Per Share Data All share and per share data has been retroactively restated for the two- for-one stock split effected in the form of a 100% stock dividend paid on October 1, 1998. Basic earnings per share ("EPS") excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding plus dilutive stock options (as computed under the treasury stock method) assumed to have been exercised during the period. Fair Value of Financial Instruments The financial statements include disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the financial instrument. As the fair value of certain financial instruments and all nonfinancial instruments are not presented, the aggregate fair value amounts presented do not represent the underlying value of CCB. Derivative Financial Instruments CCB uses off-balance sheet derivative contracts for interest rate risk management. These contracts are accounted for on the accrual basis and the net interest differential, including premiums paid, if any, are recognized as an adjustment to interest income or expense of the related asset or liability. CCB does not utilize derivative financial instruments for trading purposes. (2) ACQUISITIONS On October 1, 1999, CCB acquired Stone Street Bancorp, Inc. ("Stone Street"), a $129 million savings bank located in the Winston-Salem, North Carolina area. The acquisition was accounted for as a purchase and resulted in the issuance of approximately 646,000 shares of CCB stock. In accordance with purchase accounting, the operations and income of Stone Street are included in the income of CCB from the date of purchase. Goodwill totaling $3.6 million was recorded in the acquisition and is being amortized over a 15-year period. The Stone Street acquisition is not material to CCB's financial position or net earnings and pro forma information is not deemed necessary. (3) RESTRICTIONS ON CASH AND DUE FROM BANKS The Subsidiary Banks are required to maintain reserve and clearing balances with the Federal Reserve Bank. These balances are included in "cash and due from banks" on the Consolidated Balance Sheets. For the reserve maintenance periods in effect at both December 31, 1999 and 1998, the Subsidiary Banks were required to maintain average reserve and clearing balances of $7,600,000. F-56 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (4) INVESTMENT SECURITIES Investment securities with amortized costs of approximately $829,416,000 at December 31, 1999 and $638,400,000 at December 31, 1998 were pledged to secure public funds on deposit, repurchase agreements and for other purposes required by law. The investment securities portfolio is segregated into securities available for sale and securities held to maturity. CCB's other comprehensive income (loss) for the years ended December 31, 1999, 1998 and 1997 and accumulated other comprehensive income (loss) as of December 31, 1999 and 1998 are comprised solely of unrealized gains and losses on certain investments in debt and equity securities. Other comprehensive income (loss) for the years ended December 31, 1999, 1998 and 1997 follows:
1999 1998 1997 -------- ----- ----- (In Thousands) Unrealized holding gains (losses) arising during the year............................................... $(26,225) 658 6,939 Less reclassification adjustment for net realized gains, net of tax.................................. 827 1,307 288 -------- ----- ----- Unrealized gains (losses) on securities, net of applicable income taxes............................ $(27,052) (649) 6,651 ======== ===== =====
Securities Available for Sale Securities available for sale are presented on the Consolidated Balance Sheets at their market value. The amortized cost and approximate market values of these securities at December 31, 1999 and 1998 were as follows:
1999 1998 ------------------------------------------ ----------------------------------------- Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market Cost Gains Losses Value Cost Gains Losses Value ---------- ---------- ---------- --------- --------- ---------- ---------- --------- (In Thousands) U.S. Treasury........... $ 354,316 1,977 (1,063) 355,230 389,043 11,871 -- 400,914 U.S. Government agencies and corporations....... 1,109,062 439 (25,264) 1,084,237 672,502 4,222 (563) 676,161 Mortgage-backed securities............. 74,647 1,356 (98) 75,905 153,865 5,102 -- 158,967 Equity securities....... 47,347 539 (138) 47,748 47,067 1,090 (1) 48,156 ---------- ----- -------- --------- --------- ------ ----- --------- Total.................. $1,585,372 4,311 (26,563) 1,563,120 1,262,477 22,285 (564) 1,284,198 ========== ===== ======== ========= ========= ====== ===== =========
Equity securities include CCB Bank's and AmFed's required investment in stock of the Federal Home Loan Bank (the "FHLB") which totaled $25,494,000 at December 31, 1999 and $25,423,000.00 at December 31, 1998. No ready market exists for this stock and it has no quoted market value. However, redemption of this stock has historically been at par value. Accordingly, the carrying amounts were deemed to be a reasonable estimate of fair value. Net unrealized gains (losses) on securities available for sale totaled $(22,252,000), $21,721,000, and $22,731,000 at December 31, 1999, 1998 and 1997, respectively, and are included as a component of shareholders' equity, net of deferred tax liabilities (benefits) of $(8,531,000), $8,390,000 and $8,751,000 at December 31, 1999, 1998 and 1997, respectively. In the opinion of management, no securities are permanently impaired. F-57 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Gross gains and losses from sales of investment securities available for sale totaled $1,303,000 and $3,000, respectively in 1999, $2,203,000 and $26,000, respectively, in 1998 and $578,000 and $98,000, respectively, in 1997. Following is a maturity schedule of securities available for sale at December 31, 1999:
Amortized Carrying Cost Value ---------- --------- (In Thousands) Within 1 year........................................... $ 168,739 168,956 After 1 but within 5 years.............................. 934,610 922,795 After 5 but within 10 years............................. 351,841 339,700 After 10 years.......................................... 8,188 8,016 ---------- --------- Subtotal.............................................. 1,463,378 1,439,467 Mortgage-backed securities.............................. 74,647 75,905 Equity securities....................................... 47,347 47,748 ---------- --------- Total securities available for sale................... $1,585,372 1,563,120 ========== =========
Securities Held to Maturity The carrying values and approximate market values of securities held to maturity at December 31, 1999 and 1998 were as follows:
1999 1998 ------------------------------------- ------------------------------------- Carrying Unrealized Unrealized Market Carrying Unrealized Unrealized Market Value Gains Losses Value Value Gains Losses Value -------- ---------- ---------- ------ -------- ---------- ---------- ------ (In Thousands) States and political subdivisions........... $73,370 2,121 (43) 75,448 80,189 5,088 -- 85,277
Following is a maturity schedule of securities held to maturity at December 31, 1999:
Carrying Market Value Value -------- ------ (In Thousands) Within 1 year................................................ $ 1,600 1,603 After 1 but within 5 years................................... 10,878 11,248 After 5 but within 10 years.................................. 48,836 50,216 After 10 years............................................... 12,056 12,381 ------- ------ Total securities held to maturity.......................... $73,370 75,448 ======= ======
Gains from calls of securities held to maturity totaled $78,000 during 1999 and $2,000 during 1998. Losses from calls of securities held to maturity totaled $1,000 during 1998. F-58 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (5) LOANS A summary of loans at December 31, 1999 and 1998 follows:
1999 1998 ---------- --------- (In Thousands) Commercial, financial and agricultural.................. $ 697,776 686,133 Real estate-construction................................ 1,152,081 906,916 Real estate-mortgage.................................... 3,406,789 3,143,637 Instalment loans to individuals......................... 571,771 488,110 Revolving credit........................................ 58,926 214,685 Lease financing......................................... 76,424 54,955 ---------- --------- Total gross loans..................................... 5,963,767 5,494,436 Less: Unearned income................................... 9,583 7,099 ---------- --------- Total loans........................................... $5,954,184 5,487,337 ========== =========
During 1999, the Subsidiary Banks sold $151,342,000 of consumer credit card receivables to a large credit card issuer. As a result of the sale, the Subsidiary Banks realized a gain of $32,837,000. Under an agent bank agreement, the Subsidiary Banks will continue to offer consumer credit card products through the issuer bank. The Subsidiary Banks retained the commercial credit card portfolio. Loans of $15,950,000 and $16,761,000 at December 31, 1999 and 1998, respectively, were not accruing interest. Loans with outstanding balances of $4,248,000 in 1999, $2,205,000 in 1998 and $2,281,000 in 1997 were transferred from loans to other real estate acquired through loan foreclosure. Other real estate acquired through loan foreclosures amounted to $2,872,000 and $791,000 at December 31, 1999 and 1998, respectively, and is included in "other assets" on the Consolidated Balance Sheets. The following is an analysis of interest income related to loans on nonaccrual status for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997 ------ ----- ----- (In Thousands) Interest income that would have been recognized if the loans had been current at original contractual rates... $1,307 1,138 1,055 Amount recognized as interest income.................... 322 288 171 ------ ----- ----- Difference.............................................. $ 985 850 884 ====== ===== =====
In general, the Subsidiary Banks do not purchase loans or participate with others in the origination of loans and confine their lending activities to North and South Carolina with the exception of certain instalment loans which are available in market areas stretching from Virginia to Georgia. Substantially all loans are made on a secured basis and, with the exception of marketable mortgage loans, are originated for retention in the Subsidiary Banks' portfolios. Loans held for sale totaled $21,516,000 and $77,626,000 at December 31, 1999 and 1998, respectively. The Subsidiary Banks do not engage in highly leveraged transactions or foreign lending activities. The loan portfolios are well diversified and there are no significant concentrations of credit risk. F-59 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) At December 31, 1999, impaired loans totaled $8,903,000, of which $6,513,000 were on nonaccrual status, and their related reserve for loan losses totaled $1,897,000. The average carrying value of impaired loans was $14,442,000 during 1999 and gross interest income recognized on impaired loans totaled $1,075,000. At December 31, 1998, the carrying value of loans considered to be impaired totaled $15,766,000, of which $9,030,000 were on nonaccrual status. The related reserve for loan losses on the impaired loans totaled $2,574,000. The average carrying value of impaired loans was $15,267,000 during the year ended December 31, 1998. Gross interest income recognized on the impaired loans totaled $845,000 during 1998 and $320,000 during 1997. During 1999 and 1998, the Subsidiary Banks had loan and deposit relationships with Executive Officers and Directors of CCB and their Associates. In the opinion of management, these loans do not involve more than the normal risk of collectibility and are made on terms comparable to other borrowers. Following is an analysis of these borrowings for the year ended December 31, 1999 (in thousands):
Balance at Beginning New Balance at of Year Loans Repayments End of Year ---------- ----- ---------- ----------- Directors, Executive Officers and Associates....................... $38,518 7,690 5,850 $40,358
Loans serviced for the benefit of others totaled $948 million at December 31, 1999, $1.1 billion at December 31, 1998, and $1.2 billion at December 31, 1997. Mortgage servicing fees totaled $3,496,000 in 1999, $3,980,000 in 1998 and $3,978,000 in 1997. Mortgage servicing rights totaled $2,686,000 and $4,981,000 at December 31, 1999 and 1998, respectively, and are included in "other assets" on the Consolidated Balance Sheets. The estimated fair value of mortgage servicing rights was $3,270,000 at December 31, 1999 and $5,333,000 at December 31, 1998. Additionally, there is value associated with servicing originated prior to January 1, 1996 for which the carrying value is zero. No valuation allowance for capitalized mortgage servicing rights was required at December 31, 1999. The following table summarizes the changes in mortgage servicing rights during 1999 and 1998:
1999 1998 -------- ------- (In Thousands) Balance at beginning of year.............................. $ 4,981 3,640 Capitalized mortgage servicing rights..................... 12,508 12,980 Amortization.............................................. (1,391) (1,358) Sale of mortgage servicing................................ (13,412) (10,281) -------- ------- Balance at end of year.................................... $ 2,686 4,981 ======== =======
Certain real estate-mortgage loans are pledged as collateral for advances from the FHLB as set forth in Note 9. F-60 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (6) RESERVE FOR LOAN LOSSES Following is a summary of the reserve for loan losses:
1999 1998 1997 -------- ------- ------- (In Thousands) Balance at beginning of year........................ $ 73,182 67,594 61,257 Provision charged to operations..................... 14,296 15,884 16,376 Decrease from sale of credit card receivables....... (1,967) -- -- Addition from acquired financial institution........ 886 -- -- Recoveries of loans previously charged-off.......... 3,450 2,613 3,105 Loan losses charged to reserve...................... (12,581) (12,909) (13,144) -------- ------- ------- Balance at end of year.............................. $ 77,266 73,182 67,594 ======== ======= =======
(7) PREMISES AND EQUIPMENT Following is a summary of premises and equipment:
Accumulated Depreciation and Net Book Cost Amortization Value -------- ------------ -------- December 31, 1999: Land............................................. $ 19,624 -- 19,624 Buildings........................................ 75,091 36,406 38,685 Leasehold improvements........................... 16,526 5,168 11,358 Furniture and equipment.......................... 131,530 87,339 44,191 -------- ------- ------- Total premises and equipment................... $242,771 128,913 113,858 ======== ======= ======= December 31, 1998: Land............................................. $ 18,282 -- 18,282 Buildings........................................ 68,755 33,905 34,850 Leasehold improvements........................... 14,326 4,071 10,255 Furniture and equipment.......................... 105,964 76,581 29,383 -------- ------- ------- Total premises and equipment................... $207,327 114,557 92,770 ======== ======= =======
(8) TIME DEPOSITS AND OTHER SHORT-TERM BORROWED FUNDS Maturities of time deposits are as follows:
Total Year Ending December 31 Maturities ----------------------- -------------- (In Thousands) 2000......................................................... $2,193,963 2001......................................................... 765,478 2002......................................................... 148,393 2003......................................................... 28,160 2004 and thereafter.......................................... 278 ---------- Total...................................................... $3,136,272 ==========
F-61 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Short-term borrowed funds outstanding at December 31, 1999 and 1998 consisted of the following:
1999 1998 -------- ------- (In Thousands) FHLB short-term advances.................................... $100,000 105,000 Federal funds purchased and master notes.................... 174,748 128,482 Treasury tax and loan depository note account............... 10,568 8,513 Securities sold under agreements to repurchase.............. 44,354 46,261 -------- ------- Total short-term borrowed funds........................... $329,670 288,256 ======== =======
The short-term FHLB advances were drawn under CCB Bank's FHLB line of credit and are secured by a blanket collateral agreement on CCB Bank's mortgage loan portfolio. Master note borrowings are unsecured obligations of CCB which mature daily and bore a weighted average interest rate of 4.71% at December 31, 1999. The treasury tax and loan depository note account is payable on demand and is collateralized by various investment securities with amortized costs of $32,478,000 and market values of $32,172,000 at December 31, 1999. Interest on borrowings under this arrangement is payable at .25% below the weekly federal funds rate as quoted by the Federal Reserve. The following table presents certain information for securities sold under agreements to repurchase. These short-term borrowings by the Subsidiary Banks are collateralized by U.S. Treasury and U.S. Government agency and corporation securities with carrying and market values of $380,128,000 at December 31, 1999. The securities collateralizing the short-term borrowings have been delivered to a third-party custodian for safekeeping. Following is a summary of this type of borrowing for the three previous years:
1999 1998 1997 ------- ------ ------- (In Thousands) Balance at December 31................................ $44,354 46,261 76,500 Weighted average interest rate at December 31......... 4.65% 3.89 5.30 Maximum amount outstanding at any month end during the year................................................. $49,189 70,398 125,383 Average daily balance outstanding during the year..... $43,904 59,638 101,159 Average annual interest rate paid during the year..... 4.00% 4.88 5.29
CCB has an unsecured $50 million line of credit with a commercial bank. No draws were outstanding as of December 31, 1999 or outstanding during 1999. The maximum outstanding during 1998 was $10,000,000. Interest expense on the draw from the line of credit totaled $72,000 during 1998. The line of credit currently requires an annual commitment fee of 12 basis points and may be withdrawn under certain events of default including failure to comply with covenants, failure to make principal or interest payments within the specified timeframe or voluntary or involuntary liquidation, reorganization or other relief with respect to indebtedness. No draws were outstanding as of December 31, 1998 or 1997. F-62 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (9) LONG-TERM DEBT Following is a summary of long-term debt at December 31, 1999 and 1998:
1999 1998 -------- ------- (In Thousands) Federal Home Loan Bank advances maturing through 2017...... $295,937 183,622 6.75% subordinated notes................................... 32,985 32,985 Mortgage payable at 9%, collateralized by bank premises.... -- 88 -------- ------- Total long-term debt..................................... $328,922 216,695 ======== =======
The FHLB long-term advances are primarily at fixed rates of up to 6.30% and are collateralized by liens on first mortgage loans with book values not less than the outstanding principal balance of the obligations. Interest on the FHLB long-term advances totaled $10,530,000 in 1999, $7,895,000 in 1998 and $2,891,000 in 1997. CCB's 6.75% subordinated notes due December 1, 2003 pay interest semi- annually and are not redeemable prior to maturity. There is no sinking fund for the notes. The notes are unsecured and subordinated to all present and future senior indebtedness of CCB. Interest on the subordinated notes totaled $2,226,000 in 1999, 1998 and 1997. Maturities of long-term debt are as follows:
Total Year Ending December 31 Maturities ----------------------- -------------- (In Thousands) 2000....................................................... $ 2,165 2001....................................................... 194,028 2002....................................................... 170 2003....................................................... 29,172 2004....................................................... 33,148 Thereafter................................................. 70,239 -------- Total.................................................... $328,922 ========
(10) EMPLOYEE BENEFIT PLANS Pension Plan CCB has a noncontributory, defined benefit pension plan covering substantially all full-time employees. The pension plan, which makes provisions for early and delayed retirement as well as normal retirement, provides participants with retirement benefits based on credited years of service and an average salary for the five consecutive years within the last ten years preceding normal retirement that will produce the highest average salary. CCB's policy is to fund amounts allowable for federal income tax purposes. In 1998 and 1997, CCB contributed $2,614,000 and $2,871,000 respectively, to the pension plan. No contributions were made in 1999 due to funding limitations. At December 31, 1999, pension plan assets consist primarily of corporate stocks, including 64,100 shares of CCB's common stock, corporate bonds, and obligations of U.S. government agencies and corporations. The plan's assets are held and administered by CCB Bank's trust department. The change in benefit obligation, change in plan assets and funded status of the F-63 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) pension plan and the amounts included in "other liabilities" on the Consolidated Balance Sheets at December 31, 1999 and 1998 are shown below:
1999 1998 ------- ------ (In Thousands) Change in benefit obligation: Benefit obligation at January 1........................... $75,124 69,834 Service cost.............................................. 4,320 3,677 Interest cost............................................. 5,157 4,859 Actuarial gain............................................ (8,840) (899) Benefit payments.......................................... (2,836) (2,347) ------- ------ Benefit obligation at December 31......................... $72,925 75,124 ======= ====== Change in plan assets: Fair value of plan assets at January 1.................... $89,907 79,161 Actual return on plan assets.............................. 3,275 10,479 Employer contributions.................................... -- 2,614 Benefit payments.......................................... (2,836) (2,347) ------- ------ Fair value of plan assets at December 31.................. $90,346 89,907 ======= ======
1999 1998 -------- ------- (In Thousands) Funded status: As of end of year....................................... $ 17,421 14,782 Unrecognized transition asset........................... (211) (250) Unrecognized prior-service cost......................... 812 968 Unrecognized net gain................................... (21,117) (16,672) -------- ------- Accrued pension expense................................. $ (3,095) (1,172) ======== =======
Assumptions used in computing the actuarial present value of the projected benefit obligation were as follows:
1999 1998 ---- ---- Discount rate................................................... 7.75% 7.00 Rate of increase in compensation level of employees............. 4.50% 5.00 Expected long-term rate of return on pension plan assets........ 8.00% 8.00
The components of pension expense for the years ended December 31, 1999, 1998 and 1997 are shown below:
1999 1998 1997 ------- ------ ------ (In Thousands) Service cost of benefits earned during the period..... $ 4,320 3,677 3,576 Interest cost on projected benefit obligation......... 5,157 4,859 4,569 Expected return on plan assets........................ (7,078) (6,412) (5,395) Amortization of transition asset...................... (39) (46) (319) Amortization of prior service cost.................... 155 155 155 Amortization of net gain.............................. (592) (523) (1) ------- ------ ------ Net pension expense................................. $ 1,923 1,710 2,585 ======= ====== ======
F-64 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Savings and Profit Sharing Plans CCB has a defined contribution employee benefit plan covering substantially all employees with one year's service. Under the plan, employee contributions are partially matched. In addition, CCB may make discretionary contributions to the plan. Total expense under this plan was $2,259,000, $2,882,000 and $2,850,000 in 1999, 1998 and 1997, respectively. Stock Options, Restricted Stock and Other Incentive Plans CCB's Long-Term Incentive Plan provides up to 2,000,000 shares of common stock for award as performance-based stock and cash incentives and other equity-based incentives. As of December 31, 1999, a total of 1,077,346 stock options to purchase shares of CCB's common stock and 32,718 shares of restricted stock had been awarded. The options and restricted stock vest over varying periods, from immediate vesting up to three years. During 1993, CCB adopted nonstatutory and incentive stock option plans as part of transactions to acquire financial institutions. The stock options were granted to the directors and certain officers of the acquired financial institutions entitling them to purchase shares of common stock. The options are earned and exercisable over periods of up to ten years. Additionally, CCB continued in effect nonstatutory and incentive stock option plans existing at the date of merger with acquired financial institutions. The stock options under these plans were granted to directors and certain officers of the respective financial institutions and entitled them to purchase shares of common stock at an exercise price equal to the fair market value of the stock on the date of grant. The options granted under these plans were exercisable for periods of up to ten years and certain of the stock options included vesting provisions of up to five years. All stock options outstanding at the time of the respective mergers were converted into options to acquire CCB common stock. No additional options have been granted under these option plans. CCB has elected to follow APB No. 25 and related interpretations in accounting for its employee stock options as permitted under SFAS No. 123. In accordance with APB No. 25, no compensation expense is recognized when stock options are granted because the exercise price of the stock options equals the market price of the underlying stock on the date of grant. Had compensation expense for the stock option plans been determined consistent with SFAS No. 123, CCB's net income and net income per share for the years ended December 31, 1999, 1998 and 1997 would have been reduced to the pro forma amounts indicated below. These pro forma amounts may not be representative of the effect on reported net income in future years since only options granted since December 31, 1994 have been included.
1999 1998 1997 -------- ------- ------ (In Thousands Except Per Share Data) Net income As reported........................................ $150,823 121,212 95,424 Pro forma.......................................... 148,909 119,815 94,343 Basic EPS As reported........................................ 3.77 2.96 2.31 Pro forma.......................................... 3.73 2.93 2.27 Diluted EPS As reported........................................ 3.74 2.93 2.28 Pro forma.......................................... 3.69 2.89 2.25
F-65 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The weighted average fair value of options granted approximated $10.74 in 1999, $10.91 in 1998 and $8.32 in 1997. The fair values of the options granted in 1999, 1998 and 1997 are estimated on the date of the grants using the Black- Scholes option-pricing model. Option pricing models require the use of highly subjective assumptions, including expected stock volatility, which when changed can materially affect fair value estimates. The fair values were estimated using the following weighted-average assumptions:
1999 1998 1997 ------- ------- ------- Dividend yield...................................... 2.66% 2.00 2.00 Expected volatility................................. 20.00 15.00 19.51 Risk-free interest rate............................. 4.79 5.47 6.68 Expected average life............................... 5 years 5 years 5 years
A summary of stock option activity and related information for the years ended December 31, 1999, 1998 and 1997 follows:
Outstanding Exercisable ------------------- ---------------- Weighted Weighted Average Average Option Exercise Option Exercise Shares Price Shares Price --------- -------- ------- -------- At December 31, 1996...................... 1,035,746 $15.60 Granted................................. 442,166 32.90 Exercised............................... (287,582) 13.66 Forfeited............................... (24,510) 21.00 --------- ------ At December 31, 1997...................... 1,165,820 22.53 749,498 $18.22 ======= ====== Granted................................. 348,460 55.72 Exercised............................... (209,313) 18.14 Forfeited............................... (32,448) 42.06 --------- ------ At December 31, 1998...................... 1,272,519 31.81 800,464 $22.11 ======= ====== Granted................................. 338,140 55.57 Assumed under acquisition of financial institution............................ 82,059 45.31 Exercised............................... (155,940) 21.48 Forfeited............................... (45,118) 54.60 --------- ------ At December 31, 1999...................... 1,491,660 $38.39 979,150 $30.75 ========= ====== ======= ======
Exercise prices for options outstanding as of December 31, 1999 ranged from $2.60 to $56.75. The following table summarizes information about stock options outstanding at December 31, 1999:
Options Outstanding Options Exercisable ---------------------- --------------------- Weighted Weighted Weighted Average Average Average Range of Number of Years Exercise Number of Exercise Exercise Prices Options Remaining Price Options Price --------------- --------- --------- -------- --------- -------- $ 2.60 to $25.03 433,627 4.47 $16.63 433,627 $16.63 $31.46 to $45.31 428,860 7.18 35.11 360,907 34.90 $47.22 to $55.81 334,140 8.96 55.24 71,875 55.24 $55.97 to $56.75 295,033 8.29 56.03 112,741 56.12 --------- ---- ------ ------- ------ $ 2.60 to $56.75 1,491,660 7.10 $38.39 979,150 $30.75 ========= ==== ====== ======= ======
F-66 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A total of 32,718 shares of restricted stock have been awarded under the Long-Term Incentive Plan including 3,050 shares, 10,648 shares and 11,202 shares during 1999, 1998 and 1997, respectively. The grants in 1999, 1998 and 1997 were recorded at their fair values of $154,000, $580,000 and $388,000, respectively, on the dates of grant and had weighted average fair values of $50.54, $54.52 and $36.56 per share. Of the restricted stock awarded, a total of 3,780 shares have been forfeited. Forfeited stock totaled $52,000, $95,000 and $29,000 in 1999, 1998 and 1997. The tax benefit resulting from lapsed restrictions totaled $51,000 in 1998 and $41,000 in 1997. During 1999, 1998 and 1997, $390,000, $195,000, and $176,000, respectively, of compensation expense was recognized for restricted stock awards. The Long-Term Incentive Plan includes a Performance Unit Plan that covers certain senior officers. Eligible participants were awarded performance units which have a range in value from $0 to $200 each, with a target value of $100 each based on CCB's results as compared to a group of peer banks. As of December 31, 1999, 1998 and 1997, a total of 10,400, 13,330 and 17,614 units, respectively, were outstanding and will be deemed earned if and to the extent CCB meets profit objectives established by the Board of Directors over the three-year period ended December 31, 2000. Expense for this plan was $1,305,000, $1,200,000 and $1,100,000 for 1999, 1998 and 1997, respectively. CCB has a Management Performance Incentive Plan covering certain officers. The total award is based on a percentage of base salary of the eligible participants and financial performance of CCB as compared to certain targets established by the Board of Directors. Total expense under this plan was $7,304,000, $4,125,000, and $3,278,000 in 1999, 1998 and 1997, respectively. During 1993, CCB adopted Management Recognition Plans ("MRP") covering certain officers and directors. Common stock totaling 236,240 shares was awarded under the MRP and vested over periods of up to five years; all MRP shares were fully vested in 1998. Total expense under the MRP was $32,000 and $1,411,000 for 1998 and 1997, respectively. Postretirement Health and Life Insurance Plan CCB maintains a defined dollar benefit plan which provides postretirement health and life insurance for all employees who retire after age 55 with ten years of service. Benefits are provided through a self-insured plan administered by an insurance company. The following table sets forth the plan's change in benefit obligation, funded status and the amounts included in "other liabilities" on the Consolidated Balance Sheets at December 31, 1999 and 1998:
1999 1998 ------- ------ (In Thousands) Change in benefit obligation: Benefit obligation at January 1........................... $ 7,984 7,450 Service cost.............................................. 321 285 Interest cost............................................. 554 527 Actuarial (gain) loss..................................... (831) 97 Benefit payments.......................................... (428) (375) ------- ------ Benefit obligation at December 31......................... $ 7,600 7,984 ======= ====== Funded status: As of end of year......................................... $(7,600) (7,984) Unrecognized net loss..................................... 994 1,933 ------- ------ Accrued postretirement benefit expense.................... $(6,606) (6,051) ======= ======
F-67 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The accumulated postretirement benefit obligations at December 31, 1999 and 1998 were determined using discount rates of 7.75% and 7.00%, respectively. Net periodic postretirement benefit expense charged to operations for the years ended December 31, 1999, 1998 and 1997 included the following components:
1999 1998 1997 ---- ---- ---- (In Thousands) Service cost.................................................. $321 285 202 Interest cost................................................. 554 527 513 Amortization of net loss...................................... 107 103 90 ---- --- --- Net postretirement benefit expense.......................... $982 915 805 ==== === ===
The health care trend rate was projected to be 5% for 2000 and thereafter. A 1% change in the assumed health care trend rates would have the following effects:
1% 1% Increase Decrease -------- -------- (In Thousands) Effect on total of service and interest cost components of net periodic postretirement benefit expense........................................ $ 27 (24) Effect on the accumulated postretirement benefit obligation............ 389 (343)
(11) SHAREHOLDERS' EQUITY Earnings per Share The following schedule reconciles the numerators and denominators of the basic and diluted EPS computations for the years ended December 31, 1999, 1998 and 1997. Diluted common shares arise from the potentially dilutive effect of CCB's stock options outstanding.
1999 1998 1997 -------- ------- ------ (In Thousands Except Per Share Data) Basic EPS: Average common shares outstanding.................. 39,944 40,898 41,438 Net income......................................... $150,823 121,212 95,424 Earnings per share................................. 3.77 2.96 2.31 Diluted EPS: Average common shares outstanding.................. 40,315 41,409 41,947 Net income......................................... $150,823 121,212 95,424 Earnings per share................................. 3.74 2.93 2.28
F-68 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Preferred Stock CCB is authorized to issue up to 10,000,000 shares of serial preferred stock, of which 800,000 have been designated as Series A Junior Participating Preferred Stock. No shares of preferred stock have been issued or were outstanding at December 31, 1999 or 1998. Rights Plan In 1990, CCB entered into a Rights Agreement (the "Rights Agreement") with CCB which provided for a plan (the "Rights Plan") under which preferred stock purchase rights were authorized (the "Rights"). During 1998, the Rights Agreement was amended and restated to extend its term and to make other changes necessary to update the Rights Plan. For use in connection with the Rights Plan, CCB's Board of Directors has designated a series of preferred stock designated as Series A Junior Participating Preferred Stock ("Preferred Shares") consisting of 800,000 shares and having certain special rights for purposes of dividends and other distributions, voting, dissolution and liquidation, and in connection with certain mergers or acquisitions of the common stock of CCB. No Preferred Shares have been issued. In accordance with the Rights Plan, one Right was distributed during 1990 to CCB's shareholders for each of their shares of common stock. Also under the Rights Plan, after the date of the Rights Agreement and before the earlier of the "Distribution Date" (as defined below) or the date of redemption or expiration of the Rights, each new share of common stock issued after the date of the Rights Plan also has attached to it one Right. The Rights currently are not exercisable, but may become so in the future on a date (the "Distribution Date") which is ten business days after (i) a public announcement that any person or group has become an "Acquiring Person" by acquiring beneficial ownership of 15% or more (or 10% in certain circumstances) of the outstanding common stock of CCB, or (ii) the date of commencement by any person of, or the announcement by any person of his intention to commence, a tender or exchange offer which would result in his becoming an Acquiring Person. However, after the time any person becomes an Acquiring Person, all Rights held by or transferred to such person (or any associate or affiliate of such person) shall be void and of no effect. Until the Distribution Date, each Right will be evidenced by the certificate evidencing the common share to which it relates and may be transferred only with such common share, and the surrender for transfer of any common share certificate also will constitute the transfer of the Rights related thereto. After the Distribution Date, separate certificates evidencing each Right will be distributed to the record holders of the common stock to which such Rights are attached, and each such Right may then be exercised to purchase one one- hundredth ( 1/100) of a Preferred Share for a price of $187.50 (the "Purchase Price") (all as adjusted from time to time as described in the Rights Agreement). In the alternative (and subject to certain exceptions), after any person becomes an Acquiring Person (i) each Right may be exercised to purchase the number of shares of CCB's common stock equal to the result obtained by multiplying the then current Purchase Price by the number of Preferred Shares interests covered by the Right, and dividing that product by 50% of the "current market price" of a share of CCB's common stock, or (ii) unless the Acquiring Person has become the beneficial owner of more than 50% of the outstanding common stock, CCB's Board of Directors at its option may exchange one share of CCB's common stock, or a number of shares of F-69 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Preferred Shares having voting rights equivalent to one share of common stock, for all or part of the outstanding Rights (all as adjusted from time to time as described in the Rights Agreement). If CCB is acquired in a merger or other business combination or if 50% of its consolidated assets or earning power is sold, each Right will entitle the holder, other than an Acquiring Person, to purchase securities of the surviving company equal to the current Purchase Price multiplied by the number of Preferred Shares interests covered by the Right, and dividing that product by 50% of the "current market price" of a share of the common stock of the surviving or acquiring company. The Rights will expire on October 1, 2008, and may be redeemed by CCB at a price of $.01 per Right at any time prior to the acquisition by a person or group of 15% or more (or 10% in certain circumstances) of CCB's outstanding common stock. Regulatory Matters CCB and the Subsidiary Banks are subject to risk-based capital guidelines requiring minimum capital levels based on the perceived risk of assets and off- balance sheet instruments. As required by the Federal Deposit Insurance Corporation Improvement Act, the federal bank regulatory agencies have jointly issued rules which implement a system of prompt corrective action for financial institutions. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, there are minimum ratios of capital to risk- weighted assets. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors. Failure to meet minimum capital requirements can initiate certain mandatory and possibly discretionary actions by regulators that, if undertaken, could have a material effect on CCB's consolidated financial statements. Disclosure about the Subsidiary Banks' capital adequacy are set forth in the table below. Tier I capital consists of common equity less goodwill and certain other intangible assets. Tier I excludes the equity of adjusting available for sale securities to market value. Total Capital is comprised of Tier I and Tier II capital. Tier II capital includes subordinated notes and loan loss reserves, as defined and limited according to regulatory guidelines. Balance sheet assets and the credit equivalent amount of off-balance sheet items per regulatory guidelines are assigned to broad risk categories and a category risk-weight is then applied. Management believes that as of December 31, 1999, CCB and the Subsidiary Banks met all capital adequacy requirements to which they were subject. As of December 31, 1999 (the most recent notification), the Federal Deposit Insurance Corporation ("FDIC") categorized the Subsidiary Banks as well- capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Subsidiary Banks must meet minimum ratios for total risk-based, Tier I risk-based, and Tier I leverage (the ratio of Tier I capital to average assets) as set forth in the following table. There are no conditions or events since the latest notification that management believes have changed the Subsidiary Banks' category. F-70 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The risk-based capital and leverage ratios for CCB Bank, AmFed and CCB-Ga. as of December 31, 1999 and 1998 are presented below. CCB-Ga.'s high capital ratios are due to the sale of the majority of its assets (credit card receivables) without returning excess capital to the Parent Company. It is anticipated that CCB-Ga. will be dissolved in 2000 with the resulting return of capital to the Parent Company.
CCB Bank AmFed CCB-Ga. --------------------- ------------------- ------------- 1999 1998 1999 1999 1998 1998 ---------- --------- --------- --------- ------ ------ (In Thousands) Tier I capital.......... $ 590,141 500,016 113,975 105,287 10,067 12,781 Total capital........... 655,394 557,567 124,549 116,807 10,067 13,577 Risk-weighted assets.... 5,330,070 4,848,586 830,670 881,471 2,190 61,470 Adjusted quarterly average assets......... 6,866,296 6,396,674 1,256,837 1,218,405 28,623 88,290 Risk-based capital ratios: Tier I capital to risk-weighted assets: Actual.............. 11.07% 10.31 13.72 11.94 459.68 20.79 Regulatory minimum.. 4.00 4.00 4.00 4.00 4.00 4.00 Well-capitalized under prompt corrective action provisions......... 6.00 6.00 6.00 6.00 6.00 6.00 Total capital to risk- weighted assets: Actual.............. 12.30 11.50 14.99 13.25 459.68 22.09 Regulatory minimum.. 8.00 8.00 8.00 8.00 8.00 8.00 Well-capitalized under prompt corrective action provisions......... 10.00 10.00 10.00 10.00 10.00 10.00 Leverage ratio: Actual.............. 8.59 7.82 9.07 8.64 35.17 14.48 Regulatory minimum.. 4.00 4.00 4.00 4.00 4.00 4.00 Well-capitalized under prompt corrective action provisions......... 5.00 5.00 5.00 5.00 5.00 5.00
F-71 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (12) SUPPLEMENTARY INCOME STATEMENT INFORMATION Following is a breakdown of the components of "other operating" expenses on the Consolidated Statements of Income:
Years Ended December 31 --------------------- 1999 1998 1997 ------- ------ ------ (In Thousands) Marketing.............................................. $ 5,974 7,370 7,303 External data processing services...................... 6,298 5,364 4,446 Deposit and other insurance............................ 2,618 3,415 3,346 Postage and freight.................................... 4,449 4,486 4,107 Printing and office supplies........................... 8,017 7,935 6,178 Telecommunications..................................... 6,817 6,341 5,765 Legal and professional fees............................ 7,870 10,331 6,340 Amortization of intangible assets...................... 4,150 4,122 4,433 All other.............................................. 26,494 26,022 23,330 ------- ------ ------ Total other operating expenses....................... $72,687 75,386 65,248 ======= ====== ======
(13) INCOME TAXES The components of income tax expense for the years ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997 ------- ------ ------ (In Thousands) Current income taxes: Federal.............................................. $78,383 66,004 57,809 State................................................ 4,435 7,552 5,172 ------- ------ ------ Total current tax expense.......................... 82,818 73,556 62,981 ------- ------ ------ Deferred income tax benefit: Federal.............................................. (1,334) (4,071) (6,245) State................................................ (133) (853) (971) ------- ------ ------ Total deferred tax benefit......................... (1,467) (4,924) (7,216) ------- ------ ------ Total income tax expense........................... $81,351 68,632 55,765 ======= ====== ======
During 1999 and 1998, a total of $441,000 and $495,000, respectively, of income tax benefit was credited to additional paid-in capital as a result of the exercise of certain stock options and as a result of the lapse of restrictions on restricted stock. F-72 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A reconciliation of income tax expense to the amount computed by multiplying income before income taxes by the statutory federal income tax rate follows:
% of Pretax Amount Income ----------------------- ------------------- 1999 1998 1997 1999 1998 1997 ------- ------ ------ ----- ----- ----- (In Thousands) Tax expense at statutory rate on income before income taxes..... $81,261 66,445 52,916 35.00% 35.00 35.00 State taxes, net of federal benefit........................ 2,797 4,354 2,731 1.20 2.29 1.81 Increase (reduction) in taxes resulting from: Tax-exempt interest on investment securities and loans........................ (1,486) (1,370) (1,411) (.64) (.70) (.93) Other, net.................... (1,221) (797) 1,529 (.52) (.40) 1.00 ------- ------ ------ ----- ----- ----- Income tax expense.............. $81,351 68,632 55,765 35.04% 36.19 36.88 ======= ====== ====== ===== ===== =====
At December 31, 1999 and 1998, CCB had recorded net deferred tax assets of $35,582,000 and $16,295,000, respectively, which are included in "other assets" on the Consolidated Balance Sheets. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. In management's opinion, it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. In addition, taxes paid during the carryback period exceed CCB's recorded net deferred tax asset. Consequently, management has determined that a valuation allowance for deferred tax assets was not required at December 31, 1999 or 1998. In connection with the Stone Street acquisition, CCB acquired a net deferred tax asset of $900,000 representing tax bases in excess of financial amounts. The sources and tax effects of cumulative temporary differences that give rise to significant portions of the net deferred tax assets at December 31, 1999 and 1998 are shown below:
1999 1998 ------- ------ (In Thousands) Deferred tax assets: Reserve for loan losses................................... $28,784 26,370 Postretirement benefits................................... 4,234 2,853 Deferred compensation..................................... 2,338 2,453 Unrealized losses on investment securities available for sale..................................................... 8,530 -- Other..................................................... 4,918 5,838 ------- ------ Total gross deferred tax assets......................... 48,804 37,514 ------- ------ Deferred tax liabilities: Intangible assets......................................... 676 1,218 Deferred loan fees and costs.............................. 4,232 3,333 Premises and equipment.................................... 2,915 1,542 FHLB dividends............................................ 2,294 2,581 Unrealized gains on investment securities available for sale..................................................... -- 8,390 Mortgage servicing rights gain............................ 1,569 2,724 Other..................................................... 1,536 1,431 ------- ------ Total gross deferred tax liabilities.................... 13,222 21,219 ------- ------ Net deferred tax asset.................................. $35,582 16,295 ======= ======
F-73 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (14) COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK Commitments and Contingencies The Subsidiary Banks lease certain real property and equipment under long- term operating leases expiring at various dates to 2019. Total rental expense amounted to $8,601,000 in 1999, $7,467,000 in 1998 and $6,319,000 in 1997. A summary of noncancellable, long-term lease commitments at December 31, 1999 follows:
Type of Property ----------------------- Total Real Property Equipment Commitments ------------- --------- ----------- (In Thousands) Year Ending December 31 ----------------------- 2000..................................... $ 6,923 3,186 10,109 2001..................................... 6,447 2,637 9,084 2002..................................... 6,050 1,845 7,895 2003..................................... 5,264 276 5,540 2004..................................... 4,213 30 4,243 Thereafter............................... 31,535 -- 31,535 ------- ----- ------ Total lease commitments................ $60,432 7,974 68,406 ======= ===== ======
Generally, real estate taxes, insurance, and maintenance expenses are obligations of the Subsidiary Banks. It is expected that in the normal course of business, leases that expire will be renewed or replaced by leases on other properties; thus, it is anticipated that future minimum lease commitments will not be less than the amounts shown for 2000. Certain legal claims have arisen in the normal course of business in which CCB and certain of its Subsidiary Banks have been named as defendants. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management and counsel, any such liability will have no material effect on CCB's financial position or results of operations. In addition to legal actions in the normal course of business, AmFed filed a claim against the United States of America in the Court of Federal Claims in 1995. The complaint seeks compensation for exclusion of supervisory goodwill from the calculation of AmFed's regulatory capital requirements as a result of enactment of the Financial Institution Reform, Recovery and Enforcement Act of 1989 ("FIRREA"). During the 1980's, healthy thrift institutions were encouraged to buy troubled thrifts through the regulatory agencies allowing the thrifts to count supervisory goodwill as regulatory capital on their balance sheets and amortize the purchase over several decades. Supervisory goodwill represented the difference between the purchase price and the actual value of an insolvent thrift's tangible assets. However, when the FIRREA legislation was enacted in 1989, the acquiring thrifts were required to write-off their supervisory goodwill more rapidly, effectively wiping out a significant part of their regulatory capital. Over 100 lawsuits have been filed by the acquiring thrifts seeking compensation from the United States for the losses suffered from capital restrictions. AmFed's supervisory goodwill arose from acquisitions in 1982. CCB is vigorously pursuing this litigation. The amount of recovery, if any, which could result if AmFed were to prevail in its suit cannot be determined at this time. Legal expenses incurred in pursuit of the claim have been nominal. Commitments to extend credit are agreements to lend to customers as long as there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of these F-74 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer's credit worthiness is evaluated on a case-by-case basis and collateral, primarily real estate or business assets, is generally obtained. At December 31, 1999 and 1998, the Subsidiary Banks had commitments to extend credit of approximately $1.7 billion and $1.8 billion. These amounts include unused revolving credit lines and home mortgage equity lines of $94 million and $496 million, respectively, at December 31, 1999 and $403 million and $416 million, respectively, at December 31, 1998. Standby letters of credit are commitments issued by the Subsidiary Banks to guarantee the performance of a customer to a third party. The standby letters of credit are generally secured by non-depreciable assets. The Subsidiary Banks had approximately $39 million and $31 million in outstanding standby letters of credit at December 31, 1999 and 1998. Off-Balance Sheet Risk The Subsidiary Banks are parties to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of their customers and to reduce their own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit and interest rate contracts. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the Consolidated Balance Sheets. The contract or notional amount of these instruments reflects the extent of involvement that the Subsidiary Banks have in classes of financial instruments. The Subsidiary Banks use the same credit policies in making commitments to extend credit that are used for on-balance sheet instruments. For standby letters of credit, the Subsidiary Banks use a more strict credit policy due to the nature of the instruments. CCB's exposure to credit loss for commitments to extend credit and standby letters of credit in the event of the other party's nonperformance is represented by the contract amount of the instrument and is essentially the same as that involved in extensions of loans with collateral being obtained if deemed necessary. For interest rate contracts, the contract or notional amounts do not represent amounts to be exchanged between parties and are not a measure of financial risks, but only provide the basis for calculating interest payments between the counterparties. Potential credit risk on these contracts arises from the counterparty's inability to meet the terms of the contract. With management's policy of settling interest payments quarterly, the risk of loss from nonperformance is decreased. Management considers the credit risk of these contracts to be minimal and manages this risk through routine review of the counterparty's financial ratings. As of December 31, 1999, CCB had off-balance sheet derivative financial instruments in the form of interest rate swaps (basis swaps) with notional principal of $200 million. The interest rate swaps were entered into in July 1999 and April 1998 with two-year terms; the counterparties are large financial institutions. The purpose of entering into the interest rate swaps was to synthetically convert CCB's U.S. Treasury-based liabilities (certain types of deposit accounts) into prime rate-based liabilities and lock-in a favorable spread between the two indices. Payments or receipts of interest are computed by netting (1) payment of the notional amount times the prime rate, as adjusted by the terms of the basis swaps, and (2) receipt of the notional amount times the 91-day weekly Treasury Bill rate. Consequently, if the Treasury Bill rate increases more than the prime rate increases, CCB receives a greater net interest payment. Therefore, the negative impact of paying higher rates on the portions of the deposit base tied to the U.S. Treasury rates while earning "lower" F-75 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) yields on prime-based earning assets (loans), is decreased. Net interest payments received on these financial instruments had a positive impact on interest expense in 1999 of $353,000 and a negative impact of $105,000 in 1998. CCB was party to another basis swap for $100 million that expired during 1999 and was replaced by the basis swap entered into in July 1999. Since inception, the cumulative impact of the three interest rate swaps as of December 31, 1999 was to decrease deposit interest expense by $272,000. CCB's interest rate swaps provide for the quarterly exchange of interest payments between counterparties. At December 31, 1999, interest receivable on these contracts totaled $78,000. (15) DIVIDEND RESTRICTIONS Certain restrictions exist regarding the ability of the Subsidiary Banks to transfer funds to CCB in the form of cash dividends. Regulatory capital requirements must be met by the Subsidiary Banks as well as restrictions under the General Statutes of North Carolina in regard to CCB Bank. Under these requirements, the Subsidiary Banks have approximately $283,903,000 in retained earnings at December 31, 1999 that can be transferred to CCB in the form of cash dividends. Total dividends declared by the Subsidiary Banks to CCB in 1999 were $88,900,000. As a result of the above requirements, consolidated net assets of the Subsidiary Banks amounting to approximately $493,034,000 at December 31, 1999 were restricted from transfer to CCB. (16) CCB FINANCIAL CORPORATION (PARENT COMPANY) CCB Financial Corporation's principal asset is the investment in its Subsidiary Banks and its principal source of income is dividends from the Subsidiary Banks. The Parent Company's Condensed Balance Sheets at December 31, 1999 and 1998 and the related Condensed Statements of Income and Cash Flows for the three-years ended December 31, 1999 are as follows: Condensed Balance Sheets As of December 31, 1999 and 1998
1999 1998 ---------- ------- (In Thousands) Cash and short-term investments.............................. $ 185,840 177,036 Loans........................................................ 75,096 65,653 Less reserve for loan losses............................... 792 792 ---------- ------- Net loans................................................ 74,304 64,861 Investment in subsidiaries................................... 727,631 658,951 Other assets................................................. 19,969 17,772 ---------- ------- Total assets............................................. $1,007,744 918,620 ========== ======= Master notes................................................. $ 174,748 128,482 Note payable to subsidiary................................... 60,000 52,000 Subordinated notes........................................... 32,985 32,985 Other liabilities............................................ 20,050 17,259 ---------- ------- Total liabilities........................................ 287,783 230,726 Shareholders' equity......................................... 719,961 687,894 ---------- ------- Total liabilities and shareholders' equity............... $1,007,744 918,620 ========== =======
F-76 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Condensed Income Statements Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 -------- -------- ------- (In Thousands) Dividends from subsidiaries...................... $ 88,900 151,700 32,100 Interest income.................................. 11,413 10,909 9,811 Other income..................................... 48 66 8 -------- -------- ------- Total operating income......................... 100,361 162,675 41,919 -------- -------- ------- Interest expense................................. 11,714 10,188 8,881 Provision for loan losses........................ -- -- 102 Merger-related expense........................... -- -- 3,873 Management fees.................................. 589 563 150 Other operating expenses......................... 889 1,303 870 -------- -------- ------- Total operating expenses....................... 13,192 12,054 13,876 -------- -------- ------- Income before income taxes....................... 87,169 150,621 28,043 Income taxes..................................... (606) (377) (910) -------- -------- ------- Income before equity in undistributed net income of subsidiaries................................. 87,775 150,998 28,953 Equity in undistributed net income (loss) of subsidiaries.................................... 63,048 (29,786) 66,471 -------- -------- ------- Net income....................................... $150,823 121,212 95,424 ======== ======== ======= Condensed Statements of Cash Flows Years Ended December 31, 1999, 1998 and 1997 1999 1998 1997 -------- -------- ------- (In Thousands) Net cash provided by operating activities........ $ 88,980 153,493 26,347 Investment in subsidiaries....................... (32,683) -- 2,598 Net decrease in loans to subsidiaries............ -- 10,000 -- Net increase in loans............................ (9,443) (4,776) (7,835) Other, net....................................... (69) (24) (4) -------- -------- ------- Net cash provided (used) by investing activities.................................... (42,195) 5,200 (5,241) -------- -------- ------- Increase in master notes......................... 46,266 11,110 32,505 Proceeds from issuance of debt to subsidiaries... 8,000 3,000 4,800 Proceeds from stock issuance in acquisition...... 26,295 -- -- Purchase and retirement of common stock.......... (74,996) (76,601) -- Cash dividends................................... (43,797) (40,398) (36,750) Other, net....................................... 251 1,959 3,417 -------- -------- ------- Net cash provided (used) by financing activities.................................... (37,981) (100,930) 3,972 -------- -------- ------- Net increase in cash and short-term investments.. 8,804 57,763 25,078 Cash and short-term investments at beginning of year............................................ 177,036 119,273 94,195 -------- -------- ------- Cash and short-term investments at end of year... $185,840 177,036 119,273 ======== ======== =======
F-77 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (17) QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized consolidated quarterly financial data for the years ended December 31, 1999 and 1998 follows:
1999 1998 -------------------------------- ------------------------------- 3rd 2nd 1st 4th 3rd 2nd 1st 4th Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. -------- ------- ------- ------- ------- ------- ------- ------- (In Thousands Except Per Share Data) Interest income......... $154,344 146,486 145,796 142,973 145,517 145,683 144,562 141,637 Interest expense........ 69,620 63,741 62,071 62,115 62,756 64,604 64,234 62,968 -------- ------- ------- ------- ------- ------- ------- ------- Net interest income..... 84,724 82,745 83,725 80,858 82,761 81,079 80,328 78,669 Provision for loan losses................. 3,525 3,284 5,676 1,811 4,320 4,778 3,646 3,140 -------- ------- ------- ------- ------- ------- ------- ------- Net interest income after provision for loan losses............ 81,199 79,461 78,049 79,047 78,441 76,301 76,682 75,529 Gain on sale of credit card receivables....... -- -- 32,837 -- -- -- -- -- Other income............ 32,476 28,549 32,551 32,041 30,275 28,588 29,508 24,737 Other expenses.......... 62,765 60,453 61,596 59,222 58,313 58,894 58,918 54,092 -------- ------- ------- ------- ------- ------- ------- ------- Income before income taxes.................. 50,910 47,557 81,841 51,866 50,403 45,995 47,272 46,174 Income taxes............ 17,470 16,012 29,756 18,113 18,814 15,632 17,296 16,890 -------- ------- ------- ------- ------- ------- ------- ------- Net income.............. $ 33,440 31,545 52,085 33,753 31,589 30,363 29,976 29,284 ======== ======= ======= ======= ======= ======= ======= ======= Net income per share: Basic................. $ .84 .80 1.30 .84 .78 .75 .73 .70 Diluted............... .83 .79 1.29 .83 .77 .74 .72 .70
F-78 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (18) FAIR VALUE OF FINANCIAL INSTRUMENTS Disclosure of fair value estimates of on- and off-balance sheet financial instruments is required under SFAS No. 107. Certain financial instruments and all non-financial instruments are excluded from its disclosure requirements. Fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business. Significant assets and liabilities that are not considered financial instruments include premises and equipment, intangible assets, negative goodwill, the trust department and mortgage banking operations. In addition, the tax ramifications resulting from the realization of the unrealized gains and losses of the financial instruments would have a significant impact on the fair value estimates presented and have not been considered in any of the fair value estimates. Accordingly, the aggregate fair value amounts presented below do not represent the underlying value of CCB. Estimated fair values of certain on-and off-balance sheet financial instruments at December 31, 1999 and 1998 are presented below (in thousands):
1999 1998 -------------------- ------------------- Carrying Fair Carrying Fair Amount Value Amount Value ---------- --------- --------- --------- (In Thousands) Financial assets: Cash, time deposits in other banks and other short-term investments.. $ 400,989 400,989 740,451 740,451 Investment securities.............. 1,636,490 1,638,568 1,364,387 1,369,475 Net loans.......................... 5,876,918 5,912,856 5,414,155 5,527,581 Financial liabilities: Deposits........................... 6,717,025 6,705,433 6,459,764 6,475,689 Short-term borrowings.............. 329,670 329,670 288,256 288,256 Long-term debt..................... 328,922 320,295 216,695 219,236 Off-balance sheet financial instruments: Interest rate swaps................ 78 100 26 (430)
Fair value estimations are made at a point in time based on relevant market information and the characteristics of the on- and off-balance sheet financial instruments being valued. The estimated fair value presented does not represent the gain or loss that could result if CCB chose to liquidate all of its holdings of a financial instrument. Because no market exists for a large portion of CCB's financial instruments, fair value estimates are based on management's judgments about expected loss experience, current economic conditions, the risk characteristics of the individual financial instruments and other factors. Accordingly, these estimates are subjective in nature and involve a high degree of judgment and cannot be determined with a high degree of precision. Changes in assumptions and/or the methodology used could significantly impact the fair values presented above. Financial Assets The fair value of cash, time deposits in other banks and other short-term investments is equal to their carrying value due to the nature of those instruments. The fair value of investment securities is based on published market values. The fair value of net loans is based on the discounting of scheduled cash flows through estimated maturity using market rates and management's judgment about the credit risk inherent in the different segments of the loan portfolio. Estimates of maturity, except for residential mortgage loans, are based on the stated term of the loan or CCB's estimates of F-79 CCB FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) prepayments considering current economic and lending conditions. Estimates of maturity for residential mortgage loans are based on prepayments estimated by secondary market sources. Financial Liabilities The fair value of noninterest-bearing deposits, savings and NOW accounts and money market accounts is the amount payable on demand at December 31, 1999 and 1998. The fair value of time deposits is estimated based on the discounted value of contractual cash flows using the currently offered rate for deposits with similar remaining maturities. Short-term borrowings are generally due within 90 days, and, accordingly, the carrying amount of these instruments is considered to be a reasonable approximation of their fair value. The estimated fair value of long-term debt is based on quoted market rates for the same or similar issues or is based on the market rates for debt of the same remaining maturities. Off-Balance Sheet Financial Instruments The estimated fair value of commitments to extend credit and standby letters of credit are equal to their carrying value due to the majority of these off- balance sheet instruments having relatively short terms to maturity and being written at variable rates. The carrying amounts of commitments to extend credit and standby letters of credit are comprised of unamortized fee income, if any. These amounts are not material to CCB. The carrying amounts are reasonable estimates of the fair value of these off-balance sheet financial instruments due to their maturity and repricing terms. F-80 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders CCB Financial Corporation We have audited the consolidated balance sheets of CCB Financial Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1999. 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 auditing standards generally accepted in the United States of America. 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 CCB Financial Corporation and subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Raleigh, North Carolina January 20, 2000 F-81 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- $200,000,000 National Commerce Capital Trust II % Trust Preferred Securities Liquidation Amount $25 per Trust Preferred Security Fully and Unconditionally Guaranteed, to the extent described in this prospectus, by National Commerce Financial Corporation JPMorgan Merrill Lynch & Co. ---------------- NBC Capital Markets Group Salomon Smith Barney UBS Warburg Wachovia Securities ---------------- Keefe, Bruyette & Woods, Inc. Morgan Keegan & Company, Inc. Sandler O'Neill & Partners, L.P. SunTrust Robinson Humphrey , 2001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The expenses of this offering in connection with this registration statement, other than underwriting compensation, are estimated as follows: SEC Registration Fee............................................... $ 50,000 New York Stock Exchange Listing Fee................................ 58,300 Accounting Fees and Expenses....................................... 125,000 Legal Fees and Expenses............................................ 225,000 Printing and Engraving............................................. 150,000 Trustee Fees and Expenses.......................................... 30,000 Fees of Rating Agencies............................................ 170,000 Miscellaneous...................................................... 16,700 -------- Total............................................................ $825,000 ========
The foregoing expenses are to be paid by NCF. Item 14. Indemnification of Directors and Officers NCF is a Tennessee corporation. Sections 48-18-501 through 48-18-509 of the Tennessee Business Corporation Act contain detailed provisions on indemnification of directors and officers of a Tennessee corporation against reasonable expenses. NCF's Restated Charter provides that no director of NCF shall be personally liable to NCF or its shareholders for monetary damages for breach of fiduciary duty as a director, except: (i) for any breach of the director's duty of loyalty to NCF or its shareholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (iii) for unlawful distributions under Section 48-18-304 of the Tennessee Business Corporation Act. NCF's Bylaws provide that NCF shall indemnify any person who is made a party to a suit by or in the right of NCF to procure a judgment in its favor by reason of the fact that he, his testator or intestate is or was a director or officer of NCF against amounts paid in settlement and reasonable expenses including attorneys' fees actually and necessarily incurred as a result of such suit or proceeding or any appeal therein to the extent permitted by and in the manner provided by the laws of Tennessee. NCF shall indemnify any person made or threatened to be made a party to a suit or proceeding other than by or in the right of any company of any type or kind, domestic or foreign, by reason of the fact that he, his testator or intestate, was a director or officer of NCF or served such other company in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such suit or proceeding, or any appeal therein, if such director or officer acted in good faith for a purpose which he reasonably believed to be in the best interest of NCF and, in criminal actions or proceedings, in addition, had no reasonable cause to believe that this conduct was unlawful, and to the extent permitted by, and in the manner provided by, the laws of Tennessee. The directors and officers of NCF are covered by an insurance policy indemnifying them against certain civil liabilities, including liabilities under the federal securities laws, which might be incurred by them in such capacity. II-1 Pursuant to the underwriting agreement, a form of which is filed as Exhibit 1.1 to this registration statement, the underwriters have agreed to indemnify, under certain conditions, the directors, officers and controlling persons of NCF against certain civil liabilities that may be incurred in connection with this offering, including certain liabilities under the Securities Act of 1933. Under the Trust Agreement, NCF will agree to indemnify each of the trustees of the trust or any predecessor trustee for the trust, and to hold the trustees harmless against, any loss, damage, claims, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the Trust Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties under the Trust Agreement. Item 15. Recent Sales of Unregistered Securities On July 26, 2000, NCF acquired FMT Holding Company, the former parent of First Mercantile Trust Company and First Mercantile Capital Management, Inc. Pursuant to the Agreement and Plan of Reorganization between NCF and FMT Holding Company, NCF issued 1,700,000 shares of its unregistered common stock to the shareholders of FMT Holding Company in exchange for all the outstanding common stock of FMT Holding Company. On August 18, 1999, NCF acquired Southeastern Mortgage of Tennessee, Inc. NCF issued 199,250 shares of its unregistered common stock to the shareholders of Southeastern Mortgage of Tennessee, Inc. in exchange for all of that company's outstanding common stock. In both of these transactions, NCF issued its common stock without registration under the Securities Act of 1933, as amended, pursuant to the exemption from registration provided by Rule 506 promulgated under the Securities Act. In both transactions, NCF reasonably believed that there were no more than 35 purchasers of NCF's common stock and that each purchaser who was not an accredited investor had such knowledge and experience in financial and business matters that he was capable of evaluating the merits and risks of the investment in NCF common stock. Item 16. Exhibits and Financial Statement Schedules An index to Exhibits appears on the pages following the signature pages hereof. Item 17. Undertakings Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of each of the registrants under this registration statement pursuant to the foregoing provisions, or otherwise, each registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by each registrant of expenses incurred or paid by a director, officer or controlling person of each registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, each registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Each of the undersigned registrants hereby undertakes that, for the purposes of determining any liability under the Securities Act of 1933, each filing of a registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of II-2 an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this registration statement 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. Each undersigned registrant undertakes that: 1. For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by each 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. For the purpose of determining any liability under the Securities Act of 1933, 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. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, NCF has duly caused this amendment number 1 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on December 5, 2001. National Commerce Financial Corporation /s/ Ernest C. Roessler By: _________________________________ Ernest C. Roessler President and Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints K. Elizabeth Whitehead and Charles A. Neale, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post- effective amendments) to this registration statement and any registration statement relating to the same offering as this registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done be virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this amendment number 1 to the registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- * Chairman of the Board and December 5, 2001 ______________________________________ Director Thomas M. Garrott * President and Chief December 5, 2001 ______________________________________ Executive Officer Ernest C. Roessler (Principal Executive Officer) and Director * Chief Financial Officer December 5, 2001 ______________________________________ (Principal Financial Sheldon M. Fox Officer) * Accounting Officer December 5, 2001 ______________________________________ (Principal Accounting Mark A. Wendel Officer) * Director December 5, 2001 ______________________________________ James B. Brame, Jr. * Director December 5, 2001 ______________________________________ Bruce E. Campbell, Jr.
II-4
Signature Title Date --------- ----- ---- * Director December 5, 2001 ______________________________________ John D. Canale, III * Director December 5, 2001 ______________________________________ James H. Daughdrill, Jr. Director , 2001 ______________________________________ Thomas C. Farnsworth, Jr. * Director December 5, 2001 ______________________________________ Blake P. Garrett, Jr. * Director December 5, 2001 ______________________________________ R. Lee Jenkins * Director December 5, 2001 ______________________________________ C. Dan Joyner * Director December 5, 2001 ______________________________________ W. Neely Mallory, Jr. * Director December 5, 2001 ______________________________________ Eugene J. McDonald Director , 2001 ______________________________________ James E. McGehee, Jr. Director , 2001 ______________________________________ Phillip H. McNeill, Sr. * Director December 5, 2001 ______________________________________ Eric B. Munson Director , 2001 ______________________________________ J. Bradbury Reed * Director December 5, 2001 ______________________________________ David E. Shi Director , 2001 ______________________________________ H. Allen Tate, Jr. Director , 2001 ______________________________________ Phail Wynn, Jr. /s/ Charles A. Neale December 5, 2001 *By: _________________________________ Charles A. Neale As Attorney-in-Fact
II-5 Pursuant to the requirements of the Securities Act of 1933, the undersigned registrant has duly caused this amendment number 1 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Memphis, Tennessee on December 5, 2001. National Commerce Capital Trust II /s/ Sheldon M. Fox By: _________________________________ Name: Sheldon M. Fox Title:Trustee /s/ Charles A. Neale By: _________________________________ Name: Charles A. Neale Title:Trustee II-6 INDEX TO EXHIBITS
Exhibit Number Description of Exhibits ------- ---------------------------------------------------------------------- 1.1** Form of Underwriting Agreement. 2.1 Agreement and Plan of Reorganization entered into as of July 15, 2001 by and between NCF and SouthBanc Shares, Inc. is incorporated by reference from Exhibit 2.1 of NCF's Form S-4 filed on September 13, 2001. 3.1 Articles of Amendment to NCF's Amended and Restated Charter is incorporated by reference from Exhibit 3.1 of NCF's Form S-3/A filed on July 9, 2001. 3.2 NCF's Amended and Restated Charter is incorporated by reference from Exhibit 3.1 to NCF's Form 8-K dated July 11, 2000. 3.3 Bylaws of NCF as amended is incorporated by reference from Exhibit 3.2 to NCF's Annual Report on Form 10-K for the year ended December 31, 1995. 4.1 Specimen Stock Certificate of NCF is incorporated herein by reference from Exhibit 4.1 of NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. 4.2** Certificate of Trust of National Commerce Capital Trust II. 4.3 Intentionally Omitted. 4.4 Intentionally Omitted. 4.5** Trust Agreement of National Commerce Capital Trust II. 4.6** Form of Preferred Securities Certificate. 4.7 Intentionally Omitted. 4.8** Form of Subordinated Debenture. 4.9** Form of Junior Subordinated Indenture. 4.10** Form of Guarantee Agreement. 4.11 Form of indenture dated November 1, 1993 between CCB Financial Corporation and Bank of New York as successor to Wachovia Bank of North Carolina, N.A., Trustee, pursuant to which NCF's Subordinated Notes are issued and held is incorporated herein by reference from Exhibit 4.2 of the Central Carolina Bank and Trust Company Registration Statement No. 33-50793 on Form S-3 (File No. 001-11989). 4.12 Article 5 of the Amended and Restated Charter (included in Exhibit 3.2). 4.13 Articles II and IV of the Bylaws (included in Exhibit 3.3). 4.14** Form of Amended and Restated Trust agreement of National Commerce Capital Trust II. 5.1** Opinion of Bass, Berry & Sims PLC, counsel to NCF, as to the legality of the securities being registered. 5.2** Opinion of Richards, Layton & Finger, P.A. 8.1** Opinion of Bass, Berry & Sims PLC, counsel to NCF, as to certain federal income tax matters. 10.1 Form of Promissory Notes of National Bank of Commerce payable to The Mallory Partners is incorporated herein by reference from Exhibit 10.1 to NCF's Annual Report on Form 10-K for the year ended December 31, 1987 (File No. 0-6094). 10.2* Amended and Restated Employment Agreement entered into as of November 1, 2001 by and between NCF and Thomas M. Garrott.
II-7
Exhibit Number Description of Exhibits ------- ---------------------------------------------------------------------- 10.3* Employment Agreement entered into as of November 1, 2001, by and between NCF and Ernest C. Roessler. 10.4 Employment Agreement entered into as of March 17, 2000, effective as of July 5, 2000, by and among NCF and William R. Reed, Jr. is incorporated by reference from Exhibit 10.24 to NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. 10.5 Employment Agreement entered into as of March 17, 2000, effective as of July 5, 2000, by and among NCF and Richard L. Furr is incorporated by reference from Exhibit 10.25 to NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. 10.6 Employment Agreement entered into as of March 17, 2000, effective as of July 5, 2000, by and among NCF and Lewis E. Holland is incorporated by reference from Exhibit 10.26 to NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. 10.7 Employment Agreement entered into as of March 17, 2000, effective as of July 5, 2000, by and among NCF and J. Scott Edwards is incorporated by reference from Exhibit 10.27 to NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. 10.8 Employment Agreement entered into as of March 17, 2000, effective as of July 5, 2000, by and among NCF and Sheldon M. Fox is incorporated by reference from Exhibit 10.28 to NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. 10.9 Employment Agreement entered into as of March 17, 2000, effective as of July 5, 2000, by and among NCF and David T. Popwell is incorporated by reference from Exhibit 10.29 to NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. 10.10 Employment Agreement entered into as of March 17, 2000, effective as of July 5, 2000, by and among NCF and Tom W. Scott is incorporated by reference from Exhibit 10.30 to NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. 10.12 Change of Control Agreement dated as of July 5, 2000 by and between National Commerce Financial Corporation and William R. Reed is incorporated by reference from Exhibit 10.32 to NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. 10.13 Change of Control Agreement dated as of July 5, 2000 by and between National Commerce Financial Corporation and Richard L. Furr is incorporated by reference from Exhibit 10.33 to NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. 10.14 Change of Control Agreement dated as of July 5, 2000 by and between National Commerce Financial Corporation and Lewis E. Holland is incorporated by reference from Exhibit 10.34 to NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. 10.15 Change of Control Agreement dated as of July 5, 2000 by and between National Commerce Financial Corporation and J. Scott Edwards is incorporated by reference from Exhibit 10.35 to NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. 10.16 Change of Control Agreement dated as of July 5, 2000 by and between National Commerce Financial Corporation and Sheldon M. Fox is incorporated by reference from Exhibit 10.36 to NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
II-8
Exhibit Number Description of Exhibits ------- ---------------------------------------------------------------------- 10.17 Change of Control Agreement dated as of July 5, 2000 by and between National Commerce Financial Corporation and David T. Popwell is incorporated by reference from Exhibit 10.37 to NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. 10.18 Change of Control Agreement dated as of July 5, 2000 by and between National Commerce Financial Corporation and Tom W. Scott is incorporated by reference from Exhibit 10.38 to NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. 10.19 Hillsborough Savings Bank, Inc., SSB Management Recognition Plan is incorporated by reference to Exhibit 10.II.B of the Form 10-K of Piedmont Bancorp, Inc. ("PBI") for the fiscal year ended June 30, 1996 (File No. 001-14070). 10.20 Piedmont Bancorp, Inc. Stock Option Plan is incorporated by reference to Exhibit 10.II.A to PBI's Form 10-K for the fiscal year ended June 30, 1996 (File No. 001-14070). 10.21 1993 Incentive Stock Option Plan is incorporated by reference to Exhibit 28 to the Registration Statement No. 33-61270 on Form S-8 of CCB Financial Corporation ("CCB") (File No. 001-11989). 10.22 Salem Trust Bank 1986 Incentive Stock Option Plan is incorporated by reference to Exhibit 99 of Central Carolina Bank and Trust Company's Registration Statement No. 333-22031 on Form S-8 (File No. 001-11989). 10.23 1995 Directors Performance Plan of American Federal Bank, FSB is incorporated by reference to Exhibit 99 to Central Carolina Bank and Trust Company's Registration Statement No. 333-34231 on Form S-8 (File No. 001-11989). 10.24 1993 Nonstatutory Stock Option Plan for CCB Savings Bank of Lenoir, Inc., SSB is incorporated by reference to Exhibit 99 of Central Carolina Bank and Trust Company's Registration Statement No. 33-53599 on Form S-8, as amended by Amendment No. 1 to the 1993 Nonstatutory Stock Option Plan for CCB Savings Bank of Lenoir, Inc., SSB (incorporated by reference to Exhibit 10(G) of Central Carolina Bank and Trust Company's Annual Report on Form 10-K for the year ended December 31, 1993)(File No. 001-11989). 10.25 1993 Nonstatutory Stock Option Plan for Graham Savings Bank, Inc., SSB is incorporated by reference to Exhibit 99 to Central Carolina Bank and Trust Company's Registration Statement No. 33-53595 on Form S-8 (File No. 001-11989). 10.26 Security Capital Bancorp Omnibus Stock Ownership and Long Term Incentive Plan is incorporated by reference to Exhibit 99 to Central Carolina Bank and Trust Company's Registration Statement No. 33-61791 on Form S-8 (File No. 001-11989). 10.27 Long-Term Incentive Plan is incorporated by reference to Exhibit 99 to Central Carolina Bank and Trust Company's Registration Statement No. 33-54645 on Form S-8 (File No. 001-11989). 10.28 American Federal Bank, FSB Amended and Restated 1988 Stock Option and Incentive Plan is incorporated by reference to Exhibit 99 of Central Carolina Bank and Trust Company's Registration Statement No. 33-34207 on Form S-8 (File No. 001-11989). 10.29 Stone Street Bancorp, Inc. Stock Option Plan is incorporated by reference to Exhibit 99 of Central Carolina Bank and Trust Company's Registration Statement No. 33-9158 on Form S-8 (File No. 001-11989). 10.30 Deferred Compensation Agreement as of December 1, 1983 for Thomas M. Garrott is incorporated by reference to Exhibit 10c(2) to NCF's Form 10-K for the year ended December 31, 1984 (File No. 0-6094).
II-9
Exhibit Number Description of Exhibits ------- ---------------------------------------------------------------------- 10.31 1990 Stock Plan of NCF is incorporated by reference from Exhibit A to NCF's Proxy Statement for the 1990 Annual Meeting of Shareholders (File No. 0-6094). 10.32 1994 Stock Plan of NCF, as amended and restated effective as of November 1, 1996, is incorporated by reference from Exhibit A to NCF's Proxy Statement for the 1997 Annual Meeting of Shareholders. 10.33 Amendment Number One to the 1994 Stock Plan of NCF, as amended and restated effective as of November 1, 1996, is incorporated by reference from Exhibit 10.17 to NCF's Annual Report on Form 10-K for the year ended December 31, 1998. 10.34 Amendment Number Two to the 1994 Stock Plan of NCF, as amended and restated effective as of November 1, 1996, is incorporated by reference from Exhibit 10.21 to NCF's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. 10.35 Resolution authorizing Pension Restoration Plan is incorporated by reference from Exhibit 10(c)(7) to NCF's Annual Report on Form 10-K for the year ended December 31, 1986 (File No. 0-6094). 10.36 National Commerce Financial Corporation Deferred Compensation Plan effective January 1, 1999, is incorporated by reference from Exhibit 10.19 to NCF's Annual Report on Form 10-K for the year ended December 31, 1998. 10.37 CCB Financial Corporation Retirement Income Equity Plan as amended and restated effective January 1, 1998 is incorporated by reference from Exhibit 10.1 to NCF's Annual Report on Form 10-K for the year ended December 31, 2000. 12.1* Statement re: computation of ratios. 16.1 A letter from Ernst & Young LLP regarding change in certifying accountant is incorporated by reference from Exhibit 16.1 to NCF's Current Report on Form 8-K dated March 20, 2001, as amended June 11, 2001 on Form 8-K/A. 21.1 List of subsidiaries of NCF is incorporated by reference from NCF's Form S-4 filed on September 13, 2001. 23.1* Consent of Ernst & Young LLP. 23.2** Consent of KPMG LLP. 23.3** Consent of Bass, Berry & Sims PLC (included in the opinion filed as Exhibit 5.1). 23.4** Consent of Richards, Layton & Finger, P.A. (included in the opinion filed as Exhibit 5.2). 24.1 Powers of Attorney (included on the signature page of this registration statement). 25.1** Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York, as trustee under the Indenture. 25.2** Form T-1 Statement of Eligibility for The Bank of New York, as property trustee under the Amended and Restated Declaration of Trust for National Commerce Capital Trust II. 25.3** Form T-1 Statement of Eligibility for The Bank of New York, as guarantee trustee under the Guarantee Agreement.
- -------- * Filed previously. ** Filed herewith. II-10 EX-1.1 3 dex11.txt FORM OF UNDERWRITING AGREEMENT EXHIBIT 1.1 [ ] Trust Preferred Securities NATIONAL COMMERCE CAPITAL TRUST II (a Delaware statutory business trust) [ ]% Trust Preferred Securities (Liquidation Amount of $25 per Trust Preferred Security) Underwriting Agreement December , 2001 J.P. Morgan Securities Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated As Representatives of the Several Underwriters Listed in Schedule I c/o J.P. Morgan Securities Inc. 270 Park Avenue New York, New York 10017 Ladies and Gentlemen: National Commerce Capital Trust II, a statutory business trust created under the laws of the State of Delaware (the "Trust"), and National Commerce Financial Corporation, a Tennessee corporation (the "Company"), propose to issue and sell to the several Underwriters listed in Schedule I hereto (the "Underwriters"), for whom you are acting as representatives (the "Representatives"), an aggregate of [ ] of [ ]% trust preferred securities (liquidation amount of $25 per trust preferred security) of the Trust (the "Preferred Securities"), representing preferred undivided beneficial interests in the assets of the Trust. The proceeds of the sale of the Preferred Securities to the public and of common securities of the Trust (the "Common Securities") to the Company concurrently with the sale of the Preferred Securities are to be invested by the Trust in $[ ] aggregate principal amount of [ ]% junior subordinated deferrable interest debentures due [ ] (the "Subordinated Debentures"), to be issued by the Company pursuant to the Indenture dated as of [ ], 2001 (the "Indenture"), between the Company and The Bank of New York, as trustee (the "Debenture Trustee"). The principal asset of the Trust will consist of the Subordinated Debentures. The Preferred Securities may be exchangeable into Subordinated Debentures as described in the Prospectus (as defined below). The Company will guarantee payments of amounts due under the Preferred Securities (the "Guarantee") to the extent set forth in the Guarantee Agreement dated as of [ ], 2001, between the Company and The Bank of New York, as guarantee trustee (the "Guarantee Trustee"). The Preferred Securities and the Common Securities will be issued pursuant to the Amended and Restated Trust Agreement dated as of [ ], 2001 (the "Trust Agreement"), among the Company, as depositor, The Bank of New York, as property trustee (the "Property Trustee"), The Bank of New York (Delaware), as Delaware trustee (the "Delaware Trustee"), the administrative trustees named therein (the "Administrative Trustees") and the Holders (as defined therein). For all purposes of this Agreement the Trust shall be considered a "subsidiary" of the Company. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Securities Act"), a registration statement, including a prospectus, relating to (i) the Preferred Securities, (ii) the Guarantee and (iii) the Subordinated Debentures. The registration statement as amended at the time when it shall become effective, or, if a post- effective amendment is filed with respect thereto, as amended by such post- effective amendment at the time of its effectiveness, including in each case information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act, is referred to in this Agreement as the "Registration Statement", and the prospectus in the form first used to confirm sales of Preferred Securities is referred to in this Agreement as the "Prospectus". If the Company has filed an abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration Statement"), then any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462 Registration Statement. The Trust and the Company, jointly and severally, each hereby agrees with the Underwriters as follows: 1. The Trust agrees to issue and sell the Preferred Securities to the several Underwriters as hereinafter provided, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees to purchase, severally and not jointly, from the Trust the respective number of Preferred Securities set forth opposite such Underwriter's name in Schedule I hereto at a price equal to 100% of their principal amount plus accrued distributions, if any, from ___________, 2001 to the date of payment and delivery. 2. The Trust and the Company understand that the Underwriters intend (i) to make a public offering of their respective portions of the Preferred Securities as soon after (A) the Registration Statement has become effective and (B) the parties hereto have executed and delivered this Agreement, as in the judgment of the Representatives is advisable and (ii) initially to offer the Preferred Securities upon the terms set forth in the Prospectus. 2 3. Payment for the Preferred Securities shall be made by wire transfer in immediately available funds to the account specified by the Trust to the Representatives on [ ], 2001, or at such other time on the same or such other date, not later than the fifth Business Day thereafter, as the Representatives, the Trust and the Company may agree upon in writing. The time and date of such payment is referred to herein as the "Closing Date". As used herein, the term "Business Day" means any day other than a day on which banks are permitted or required to be closed in New York City. Payment for the Preferred Securities shall be made against delivery to the nominee of The Depository Trust Company for the respective accounts of the several Underwriters of one or more global securities (collectively, the "Global Preferred Security") representing the Preferred Securities, with any transfer taxes payable in connection with the transfer to the Underwriters of the Preferred Securities duly paid by the Company. The Global Preferred Security will be made available for inspection by the Representatives at the office of J.P. Morgan Securities Inc. at the address set forth above not later than 1:00 P.M., New York City time, on the Business Day prior to the Closing Date. As compensation to the Underwriters for their commitments hereunder, and in consideration of the fact that the proceeds of the sale of the Preferred Securities will be used by the Trust to purchase the Subordinated Debentures of the Company, the Company hereby agrees to pay to J.P. Morgan Securities Inc., for the accounts of the several Underwriters, an amount equal to $[ ] per Preferred Security to be delivered by the Trust hereunder on the Closing Date. On [ ], 2001, or on such other date, no later than the fifth Business Day thereafter, as the Representatives, the Trust and the Company may agree upon in writing, the Company will pay or cause to be paid, by wire transfer, in immediately available funds, such commission to the account specified by J.P. Morgan Securities Inc. 4. The Trust and the Company, jointly and severally, each represents and warrants to each Underwriter that: (a) no order preventing or suspending the use of any preliminary prospectus has been issued by the Commission, and each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Trust or the Company in writing by such Underwriter through the Representatives expressly for use therein; 3 (b) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or, to the knowledge of the Trust or the Company, threatened by the Commission; and the Registration Statement and Prospectus (as amended or supplemented if the Trust or the Company shall have furnished any amendments or supplements thereto) comply, or will comply, as the case may be, in all material respects with the Securities Act and the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Trust Indenture Act") and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the date of the Prospectus and any amendment or supplement thereto, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus, as amended or supplemented, if applicable, at the Closing Date will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; except that the foregoing representations and warranties shall not apply to (i) that part of the Registration Statement which constitutes the Statement of Eligibility and Qualification (Form T-1) of the Trustee under the Trust Indenture Act, and (ii) statements or omissions in the Registration Statement or the Prospectus made in reliance upon and in conformity with information relating to any Underwriter furnished to the Trust or the Company in writing by such Underwriter through the Representatives expressly for use therein; (c) the historical financial statements, and the related notes thereto, included in the Registration Statement and the Prospectus present fairly the financial position of the Company and its consolidated subsidiaries or CCB Financial Corporation and its consolidated subsidiaries, as applicable, as of the dates indicated and the results of their respective operations and the changes in their respective cash flows for the periods specified; said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis, and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein; and the pro forma financial information, and the related notes thereto, included in the Registration Statement and the Prospectus has been prepared in accordance with the applicable requirements of the Securities Act and is based upon good faith estimates and assumptions believed by the Company to be reasonable; (d) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any material change in the capital stock or long-term debt of the Company or any of its subsidiaries, or any event or occurrence that would have a material adverse effect on the general affairs, business, prospects, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole (a "Material Adverse Effect"), otherwise than as set forth or contemplated in the Prospectus; and except as set forth or contemplated in the Prospectus neither the 4 Company nor any of its subsidiaries has entered into any transaction or agreement (whether or not in the ordinary course of business) material to the Company and its subsidiaries taken as a whole; (e) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, with corporate power and authority to own its properties and conduct its business as described in the Prospectus and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where the failure to be so qualified or in good standing would not have a Material Adverse Effect; (f) the Trust has been duly created and is validly existing as a statutory business trust in good standing under the laws of the State of Delaware, with power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus, and the Trust has conducted no business to date, and it will conduct no business in the future that would be inconsistent with the description of the Trust set forth in the Prospectus; the Trust is not a party to or bound by any agreement or instrument other than this Agreement, the Trust Agreement and instruments contemplated by the Trust Agreement; the Trust has no liabilities or obligations other than those arising out of the transactions contemplated by this Agreement and the Trust Agreement and described in the Prospectus; and the Trust is not a party to or subject to any action, suit or proceeding of any nature; (g) each of the Company's subsidiaries that is a national banking association holds a valid Certificate of Authority from the Comptroller of the Currency of the United States of America (the "Comptroller") to do business as a national banking association under the laws of the United States and is not in arrears with respect to reports required to be filed with the Comptroller; each of the Company's subsidiaries that is a federally chartered savings bank holds a valid Certificate of Charter from the Office of Thrift Supervision (the "OTS") to do business as a federally chartered savings bank and is not in arrears with respect to reports required to be filed with the OTS; and each other of the Company's subsidiaries has been duly incorporated or organized and is validly existing as a corporation or limited liability company under the laws of its jurisdiction of incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and each subsidiary of the Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where the failure to be so qualified or in good standing would not have a Material Adverse Effect; and all the outstanding shares of capital stock of each subsidiary of the Company have been duly authorized and validly issued, are fully-paid and non-assessable, and (except for NBC Capital 5 Markets, Inc., of which 20% of the issued and outstanding shares of capital stock are owned by employees) are owned by the Company, directly or indirectly, free and clear of all liens, encumbrances, security interests and claims; (h) this Agreement has been duly authorized, executed and delivered by the Trust and the Company; (i) the Company has an authorized capitalization as set forth in the Prospectus. All of the outstanding shares of capital stock of the Company have been duly authorized and validly issued, are fully-paid and non- assessable and are not subject to any pre-emptive or similar rights; and, except as described in the Prospectus and rights outstanding under the Company's stock option plans, there are no outstanding rights (including, without limitation, pre-emptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company or any of its subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company or any such subsidiary, any such convertible or exchangeable securities or any such rights, warrants or options; (j) the Preferred Securities have been duly authorized by the Trust, and, when issued and delivered to and paid for by the Underwriters in accordance with the terms of this Agreement, will be duly issued and delivered, will be fully paid and non-assessable, will constitute valid and binding obligations of the Trust and will conform to the descriptions thereof in the Prospectus; and the issuance of the Preferred Securities is not subject to any preemptive or similar rights; (k) the Common Securities have been duly authorized by the Trust and upon delivery by the Trust to the Company against payment therefor as contemplated in the Trust Agreement, will be duly issued and fully paid and, subject to the qualification that holders of Common Securities may be obligated to make payments as set forth in the Trust Agreement, non- assessable and will conform to the description thereof contained in the Prospectus; and the issuance of the Common Securities is not subject to any preemptive or similar rights; (l) the Guarantee, the Trust Agreement, the Subordinated Debentures and the Indenture (the Guarantee, the Trust Agreement, the Subordinated Debentures and the Indenture being collectively referred to herein as the "Company Agreements") have each been duly authorized by the Company and when validly executed and delivered by the Company and, in the case of the Guarantee, by the Guarantee Trustee, in the case of the Trust Agreement, by the Property Trustee, the Delaware Trustee and the Administrative Trustees and, in the case of the Indenture, by the Debenture Trustee, and, in the case of the Subordinated Debentures, when validly issued by the Company and duly authenticated and delivered by the Debenture Trustee against payment therefor as contemplated by the Company Agreements, will constitute valid and legally 6 binding obligations of the Company, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (regardless of whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing; the Trust Agreement, the Indenture and the Guarantee have each been duly qualified under the Trust Indenture Act; the Subordinated Debentures are entitled to the benefits of the Indenture; and the Company Agreements, which will be in substantially the form filed as exhibits to the Registration Statement, will conform in all material respects to the descriptions thereof in the Prospectus; (m) the issue and sale of the Preferred Securities and the Common Securities by the Trust, the purchase of the Subordinated Debentures by the Trust and the performance by the Trust of all of its obligations under the Preferred Securities, the Common Securities, the Trust Agreement and this Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Trust is a party or by which the Trust is bound or to which any of the property or assets of the Trust is subject, nor will any such action result in any violation of the provisions of the Trust Agreement or any applicable law or statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Trust or any of its respective properties; and no consent, approval, authorization, order, license, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Preferred Securities and the Common Securities by the Trust, the purchase of the Subordinated Debentures by the Trust or the consummation by the Trust of the transactions contemplated by the Trust Agreement or this Agreement, except such consents, approvals, authorizations, orders, licenses, registrations or qualifications as have been obtained under the Securities Act, the Trust Indenture Act and as may be required under state securities or Blue Sky Laws in connection with the purchase and distribution of the Preferred Securities by the Underwriters; (n) neither the Company nor any of its subsidiaries is, or with the giving of notice or lapse of time or both would be, in violation of or in default under, its Charter or Certificate of Incorporation or By-Laws or other organizational document or any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of them or any of their respective properties is bound, except for violations and defaults which individually or in the aggregate would not have a Material Adverse Effect or which would not, individually or in the aggregate, have a material adverse effect on the rights of the holders of the Preferred Securities; the issuance by the Company of the Guarantee and the Subordinated Debentures, the purchase of the Common Securities and the performance by the Company of all of the provisions of its obligations under the 7 Company Agreements and this Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will any such action result in any violation of the provisions of the Charter, Articles or the By-Laws of the Company or any of its subsidiaries or any applicable law or statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company, its subsidiaries or any of their respective properties, except for conflicts, breaches, violations and defaults (other than any conflicts, breaches, violations or defaults in respect of the Charter or the By-Laws of the Company) that would not, individually or in the aggregate, have a Material Adverse Effect; and no consent, approval, authorization, order, license, registration or qualification of or with any such court or governmental agency or body is required for the issuance by the Company of the Guarantee and the Subordinated Debentures, the purchase of the Common Securities or the consummation by the Company of the transactions contemplated by the Company Agreements and this Agreement, except such consents, approvals, authorizations, orders, licenses, registrations or qualifications as have been obtained under the Securities Act, the Trust Indenture Act and as may be required under state securities or Blue Sky Laws in connection with the issuance of the Guarantee and the Subordinated Debentures by the Company; (o) other than as set forth or contemplated in the Prospectus, there are no legal or governmental investigations, actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its subsidiaries or any of their respective properties or to which the Company or any of its subsidiaries is or may be a party or to which any property of the Company or any of its subsidiaries is or may be the subject which, if determined adversely to the Company or any of its subsidiaries, could individually or in the aggregate have, or reasonably be expected to have, a Material Adverse Effect, and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; and there are no statutes, regulations, contracts or other documents that are required to be filed as an exhibit to the Registration Statement or required to be described in the Registration Statement or the Prospectus which are not filed or described as required; (p) Ernst & Young LLP who have audited certain financial statements of the Company and its subsidiaries and KPMG, LLP who have audited certain financial statements of the Company and its subsidiaries and of CCB Financial Corporation and its subsidiaries are each independent public accountants as required by the Securities Act; 8 (q) the Company and its subsidiaries have good and marketable title in fee simple to all items of real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described or referred to in the Prospectus or such as would not have a Material Adverse Effect; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, existing and enforceable leases with such exceptions as are not material and do not interfere with the use of such property and buildings by the Company or its subsidiaries; (r) no relationship, direct or indirect, exists between or among the Company or any of its subsidiaries on the one hand, and the directors, officers, stockholders, customers or suppliers of the Trust or the Company or any of its subsidiaries on the other hand, which is required by the Securities Act to be described in the Registration Statement and the Prospectus which is not so described; (s) the Trust is not and, after giving effect to the offering and sale of the Preferred Securities and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); and (t) each of the Company and its subsidiaries owns, possesses or has obtained all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all federal, state, local and other governmental authorities (including foreign regulatory agencies), all self-regulatory organizations and all courts and other tribunals, domestic or foreign, necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as conducted as of the date hereof, except where the failure to own, possess or obtain any such license, permit, certificate, consent, order approval or other authorization would not have a Material Adverse Effect. Neither the Company nor any such subsidiary has received any actual notice of any proceeding relating to revocation or modification of any such license, permit, certificate, consent, order, approval or other authorization, except as described in the Registration Statement and the Prospectus; and each of the Company and its subsidiaries is in compliance with all laws and regulations relating to the conduct of its business as conducted as of the date hereof, except where the failure to be in compliance with such laws and regulations would not have a Material Adverse Effect. 5. The Trust and the Company, jointly and severally, each covenants and agrees with each of the several Underwriters as follows: (a) to use its best efforts to cause the Registration Statement to become effective at the earliest possible time and, if required, to file the final 9 Prospectus with the Commission within the time periods specified by Rule 424(b) and Rule 430A under the Securities Act; and to furnish copies of the Prospectus to the Underwriters in New York City prior to 10:00 a.m., New York City time, on the Business Day next succeeding the date of this Agreement in such quantities as the Representatives may reasonably request; (b) to deliver, at the expense of the Company, to the Representatives, 10 conformed copies of the Registration Statement (as originally filed) and each amendment thereto, in each case including exhibits, and to each other Underwriter a conformed copy of the Registration Statement (as originally filed) and each amendment thereto, in each case without exhibits and, during the period mentioned in paragraph (e) below, to each of the Underwriters as many copies of the Prospectus (including all amendments and supplements thereto) as the Representatives may reasonably request; (c) before filing any amendment or supplement to the Registration Statement or the Prospectus, whether before or after the time the Registration Statement becomes effective, to furnish to the Representatives a copy of the proposed amendment or supplement for review and not to file any such proposed amendment or supplement to which the Representatives reasonably object; (d) to advise the Representatives promptly, and to confirm such advice in writing or via electronic mail, (i) when the Registration Statement has become effective, (ii) when any amendment to the Registration Statement has been filed or becomes effective, (iii) when any supplement to the Prospectus or any amendment to the Prospectus has been filed and to furnish the Representatives with copies thereof, (iv) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for any additional information, (v) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus or the initiation or threatening of any proceeding for that purpose, (vi) of the occurrence of any event, within the period referenced in paragraph (e) below, as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, and (vii) of the receipt by the Trust or the Company of any notification with respect to any suspension of the qualification of the Preferred Securities, the Guarantee or the Subordinated Debentures for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and to use its best efforts to prevent the issuance of any such stop order, or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus, or of any order suspending any such qualification of the Preferred Securities, the Guarantee or the Subordinated Debentures, or notification of any such order thereof and, if issued, to obtain as soon as possible the withdrawal thereof; 10 (e) if, during such period of time after the first date of the public offering of the Preferred Securities as in the opinion of counsel for the Underwriters and the Company a prospectus relating to the Preferred Securities is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Prospectus to comply with law, forthwith to prepare and furnish, at the expense of the Company, to the Underwriters and to the dealers (whose names and addresses the Representatives will furnish to the Company) to which Preferred Securities may have been sold by the Representatives on behalf of the Underwriters and to any other dealers upon request, such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law; (f) to endeavor to qualify the Preferred Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives shall reasonably request and to continue such qualification in effect so long as reasonably required for distribution of the Preferred Securities; provided that neither the Trust nor the Company shall be -------- required to file a general consent to service of process in any jurisdiction; (g) to make generally available to its security holders and to the Representatives as soon as practicable an earnings statement of the Company and its consolidated subsidiaries which will satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the "effective date" (as defined in Rule 158) of the Registration Statement; (h) so long as the Preferred Securities are outstanding, to furnish to the Representatives copies of all reports or other communications (financial or other) furnished to holders of the Preferred Securities, and copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange; (i) during the period beginning on the date hereof and continuing to and including the Business Day following the Closing Date, not to offer, sell, contract to sell, or otherwise dispose of, except as provided hereunder, any Preferred Securities, any other beneficial interests in the assets of the Trust, or any preferred securities or any other securities of the Trust or the Company, as the case may be, that are substantially similar to the Preferred Securities (including any guarantee of such securities) or any securities that are convertible into or exchangeable for, or that represent the right to receive securities, preferred 11 securities or any such substantially similar securities of either the Trust or the Company without the prior written consent of the Representatives; (j) in the case of the Company, to issue the Guarantee concurrently with the issue and sale of the Preferred Securities as contemplated herein and in the Prospectus; (k) to use the net proceeds received by the Company from the sale of the Preferred Securities pursuant to this Agreement in the manner specified in the Prospectus under the caption "Use of Proceeds"; (l) to use its best efforts to list, subject to notice of issuance, the Preferred Securities on the New York Stock Exchange (the "Exchange"); and, if the Company elects to dissolve the Trust and to distribute the Subordinated Debentures to the holders of the Preferred Securities in liquidation of the Trust, to use its best efforts to list the Subordinated Debentures, subject to notice of issuance, on the Exchange prior to such distribution; (m) to pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Preferred Securities, the Guarantee and the Subordinated Debentures under the Securities Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any Agreement among Underwriters, this Agreement, any Company Agreement, the Preferred Securities, the Subordinated Debentures, any Blue Sky Memorandum, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Preferred Securities, the Guarantee and Subordinated Debentures; (iii) all expenses in connection with the qualification of the Preferred Securities, the Guarantee and the Subordinated Debentures for offering and sale under state securities laws as provided in Section 5(f) hereof, including the fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey(s); (iv) any fees charged by securities rating services for rating the Preferred Securities, the Guarantee and the Subordinated Debentures; (v) any filing fees incident to any required reviews by the National Association of Securities Dealers, Inc. of the terms of the sale of the Preferred Securities and the issuance of the Guarantee and the Subordinated Debentures; (vi) the cost of preparing the Preferred Securities and the Subordinated Debentures; (vii) the fees and expenses of any Trustee (as defined in the Trust Agreement), Debenture Trustee and Guarantee Trustee, and any agent of any trustee and the fees and disbursements of counsel for any trustee in connection with the Trust Agreement, the Indenture, the Guarantee and the Preferred Securities; (viii) the cost of qualifying the Preferred Securities with The Depository Trust Company; (ix) any expenses incurred by the Company in connection with a 12 "road show" presentation to potential investors; (x) the cost and charges of any transfer agent; (xi) any fees and expenses in connection with listing the Preferred Securities and the Subordinated Debentures on the Exchange and the cost of registering the Preferred Securities and the Subordinated Debentures under Section 12 of the Exchange Act; and (xii) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section. 6. The several obligations of the Underwriters hereunder to purchase the Preferred Securities on the Closing Date are subject to the performance by each of the Trust and the Company of its obligations hereunder and to the following additional conditions: (a) the Registration Statement shall have become effective (or if a post-effective amendment is required to be filed under the Securities Act, such post-effective amendment shall have become effective) not later than 5:00 P.M., New York City time, on the date hereof; and no stop order suspending the effectiveness of the Registration Statement or any post- effective amendment shall be in effect, and no proceedings for such purpose shall be pending before or, to the knowledge of the Company or the Trust, threatened by the Commission; the Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Securities Act and in accordance with Section 5(a) hereof; and all requests for additional information shall have been complied with to the satisfaction of the Representatives; (b) the representations and warranties of the Trust and the Company contained herein are true and correct on the date hereof and on and as of the Closing Date as if made on and as of the Closing Date and the Trust and the Company shall have complied with all agreements and all conditions on their part to be performed or satisfied hereunder at or prior to the Closing Date; (c) on the Closing Date, the Preferred Securities and the Subordinated Debentures shall be rated in one of the four highest rating categories for long term debt by Moody's Investor's Service and by Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., and the Company shall have delivered to the Representatives a letter dated the Closing Date, from each such rating agency, or other evidence satisfactory to the Representatives, confirming that the Preferred Securities and the Subordinated Debentures have such ratings; and subsequent to the execution and delivery of this Agreement and prior to the Closing Date, there shall not have been any downgrading, nor shall any notice have been given of (i) any downgrading, (ii) any intended or potential downgrading or (iii) any review or possible change that does not indicate an improvement, in the rating accorded any securities of or guaranteed by the Company by any "nationally recognized statistical rating organization", as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; 13 (d) since the date hereof or the respective dates as of which information is given in the Prospectus there shall not have been any material change in the capital stock or long-term debt of the Company or any of its subsidiaries or any event or occurrence having a Material Adverse Effect, otherwise than as set forth or contemplated in the Prospectus, the effect of which in the reasonable judgment of the Representatives makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Preferred Securities on the Closing Date on the terms and in the manner contemplated in the Prospectus; and neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included in the Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order to decree, otherwise than as set forth or contemplated in the Prospectus; (e) the Representatives shall have received on and as of the Closing Date certificates of executive officers of the Trust and the Company, with specific knowledge about the Trust and the Company's financial matters, satisfactory to the Representatives to the effect set forth in subsections (a) through (c) (with respect to the respective representations, warranties, agreements and conditions of the Trust and the Company) of this Section and to the further effect that there has not been any event or occurrence having a Material Adverse Effect except as set forth or contemplated in the Registration Statement; (f) Bass, Berry & Sims PLC, counsel for the Trust and the Company, shall have furnished to the Representatives their written opinion, dated the Closing Date, in form and substance satisfactory to the Representatives, to the effect that: (i) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; (ii) the Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where the failure to be so qualified or in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole; (iii) each of the Company's subsidiaries that is a national banking association holds a valid Certificate of Authority from the Comptroller to do business as a national banking association under the laws of the United States; each of the Company's subsidiaries that is a federally chartered savings bank holds a valid Certificate of Charter from the OTS to do business as a federally chartered savings bank under the laws of the United 14 States; and each of the Company's subsidiaries that is a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X promulgated by the Commission (a "significant subsidiary") has been duly incorporated and is validly existing as a corporation under the laws of its jurisdiction of incorporation with corporate power and authority to own its properties and conduct its business as described in the Prospectus, and each such significant subsidiary has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where the failure to be so qualified and in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole; and all of the outstanding shares of capital stock of each subsidiary have been duly and validly authorized and issued, are fully paid and non- assessable, and (except for shares of NBC Capital Markets, Inc. owned by employees thereof) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; (iv) other than as set forth or contemplated in the Prospectus, there are no legal or governmental investigations, actions, suits or proceedings pending or, to such counsel's knowledge, threatened against or affecting the Company or any of its subsidiaries or any of their respective properties or to which the Company or any of its subsidiaries is or may be a party or to which any property of the Company or its subsidiaries is or may be the subject which, if determined adversely to the Company or any of its subsidiaries, could individually or in the aggregate have, or reasonably be expected to have, a Material Adverse Effect; to such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; and such counsel does not know of any statutes, regulations, contracts or other documents required to be described in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required; (v) this Agreement has been duly authorized, executed and delivered by the Company; (vi) the Subordinated Debentures are in the form prescribed in or pursuant to the Indenture, have been duly and validly authorized by the Company by all necessary corporate action and, when completed, executed and authenticated as specified in or pursuant to the Indenture and issued and delivered against payment therefor as specified in the Company Agreements, will be valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to the effects of bankruptcy, insolvency, fraudulent transfer or conveyance, reorganization, arrangement, moratorium and other similar laws relating to or affecting 15 creditors' rights generally, to general equitable principles (whether considered in a proceeding in equity or at law); (vii) the Indenture, the Guarantee and the Trust Agreement have each been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery by the Debenture Trustee (in the case of the Indenture), by the Guarantee Trustee (in the case of the Guarantee) and by the Property Trustee, the Delaware Trustee and the Administrative Trustees (in the case of the Trust Agreement) constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer or conveyance, reorganization, arrangement, moratorium and other similar laws relating to or affecting creditors' rights generally, to general equitable principles (whether considered in a proceeding in equity or at law); and the Indenture, the Guarantee and the Trust Agreement have been duly qualified under the Trust Indenture Act; (viii) neither the Company nor any of its significant subsidiaries is, or with the giving of notice or lapse of time or both would be, in violation of or in default under, its Charter, Articles or Certificate of Incorporation or By-Laws or other organizational document or any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which it or any of them or any of their respective properties is bound, except for violations and defaults which individually and in the aggregate would not have a Material Adverse Effect; the issue and sale of the Preferred Securities and the Common Securities by the Trust, the issuance of the Guarantee and the Subordinated Debentures by the Company, the purchase of the Common Securities by the Company, the performance by the Trust of its obligations under the Trust Agreement and this Agreement, and the performance by the Company of its obligations under the Company Agreements and this Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will any such action result in any violation of the provisions of the Charter, Articles or the By-Laws of the Company or its subsidiaries or, to such counsel's knowledge, any applicable law or statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company, its subsidiaries or any of their respective properties; 16 (ix) no consent, approval, authorization, order, license, registration or qualification of or with any court or governmental agency or body is required for the issue and sale of the Preferred Securities and the Common Securities by the Trust or the issuance of the Guarantee and the Subordinated Debentures or the purchase of the Common Securities by the Company or the consummation of the other transactions contemplated by the Company Agreements or this Agreement, except such consents, approvals, authorizations, orders, licenses, registrations or qualifications as have been obtained under the Securities Act and the Trust Indenture Act and as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Preferred Securities by the Underwriters or the issuance of the Guarantee and the Subordinated Debentures by the Company; (x) the statements set forth (i) in the Prospectus under the captions "Information about National Commerce Financial Corporation -- Government Regulation and Supervision", "Risk Factors -- Risks Related to an Investment in National Commerce Financial Corporation -- NCF is Subject to Significant Government Regulation Over Which It Has No Control. Unforeseen Changes in Regulations Applicable to NCF's Business Could Affect its Financial Conditions", "Description of the Trust", "Description of the Junior Subordinated Debentures", "Description of the Trust Preferred Securities", "Description of the Guarantee" and "Relationship Among the Trust Preferred Securities, the Junior Subordinated Debentures and the Guarantee", and (ii) in the Prospectus as amended or supplemented under similar applicable titles, insofar as they purport to constitute summaries of certain terms of the Preferred Securities, the Subordinated Debentures and the Guarantee and the Company Agreements, in each case constitute accurate summaries of the Company Agreements and of the terms of the Preferred Securities, the Subordinated Debentures and the Guarantee, as set forth in the Company Agreements, in all material respects; (xi) such counsel is of the opinion that the Registration Statement and the Prospectus and any amendments and supplements thereto (other than the financial statements included therein as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Securities Act and the Trust Indenture Act and no facts have come to such counsel's attention which lead them to believe that (other than the financial statements included therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Securities Act and the Trust Indenture Act and believes that (other than the financial statements included therein, as to which such counsel need express no belief and other than that part of the Registration Statement which constitutes the Form T-1 of the Trustee under the Trust Indenture Act) the 17 Registration Statement and the prospectus included therein at the time the Registration Statement became effective contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that the Prospectus, as amended or supplemented, if applicable, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (xii) the Trust is not and, after giving effect to the offering and sale of the Preferred Securities, will not be an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act; and (xiii) to such counsel's knowledge, each of the Company and its subsidiaries owns, possesses or has obtained all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all federal, state, local and other governmental authorities (including foreign regulatory agencies), all self-regulatory organizations and all courts and other tribunals, domestic or foreign, necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as conducted as of the date hereof except where the failure to own, possess or obtain any such item or make such declaration or filing would not, individually or in the aggregate, have a Material Adverse Effect, and, to such counsel's knowledge, neither the Company nor any such subsidiary has received any actual notice of any proceeding relating to revocation or modification of any such license, permit, certificate, consent, order, approval or other authorization, except as described in the Registration Statement and the Prospectus or except such revocations or modifications that would not, individually or in the aggregate, have a Material Adverse Effect; and each of the Company and its subsidiaries is in substantial compliance with all laws and regulations relating to the conduct of its business as conducted as of the date of the Prospectus; (g) Richards, Layton & Finger, P.A., special Delaware counsel to the Trust and the Company, shall have furnished to the Representatives, the Company and the Trust their written opinion, dated the Closing Date, in form and substance satisfactory to the Representatives, to the effect that: (i) the Trust has been duly created and is validly existing in good standing as a business trust under the Delaware Business Trust Act, and all filings required under the laws of the State of Delaware with respect to the creation and valid existence of the Trust as a business trust have been made; 18 (ii) under the Delaware Business Trust Act and the Trust Agreement, the Trust has the trust power and authority to own its property and conduct its business, all as described in the Prospectus; (iii) the Trust Agreement constitutes a legal, valid and binding obligation of the Company and the Trustees (as defined in the Trust Agreement), and is enforceable against the Company and the Trustees (as defined in the Trust Agreement), in accordance with its terms, except to the extent the same may be limited by (1) bankruptcy, insolvency, fraudulent transfer and conveyance, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and remedies, (2) general principles of equity, including applicable law relating to fiduciary duties (regardless of whether considered and applied in a proceeding at equity or at law), and (3) the effect of applicable public policy on the enforceability of provisions relating to indemnification and contribution; (iv) under the Delaware Business Trust Act and the Trust Agreement, the Trust has the trust power and authority to (a) execute and deliver, and perform its obligations under, this Agreement and (b) issue and perform its obligations under the Preferred Securities and the Common Securities; (v) under the Delaware Business Trust Act and the Trust Agreement, the execution and delivery by the Trust of this Agreement, and the performance by the Trust of its obligations hereunder, have been duly authorized by all necessary action on the part of the Trust; (vi) the Preferred Securities are authorized by the Trust Agreement and, when issued and delivered by the Trust to the purchasers thereof against payment therefor in accordance with the Trust Agreement, will be validly issued and, subject to the qualifications set forth herein, fully paid and nonassessable undivided beneficial interests in the assets of the Trust and will entitle holders of the Preferred Securities (the "Securityholders") to the benefits provided by the Trust Agreement; the Securityholders, as beneficial owners of the Trust, will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware; provided that such counsel may note that the Securityholders may be obligated, pursuant to the Trust Agreement, to (a) provide indemnity and/or security in connection with and pay taxes or governmental charges arising from transfers or exchanges of securities certificates and the issuance of replacement securities certificates and (b) provide security and indemnity in connection with requests of or directions to the Property Trustee to exercise its rights and remedies under the Trust Agreement; 19 (vii) the Common Securities are authorized by the Trust Agreement and, when issued and delivered by the Trust to the Company in accordance with the Trust Agreement, will be validly issued undivided beneficial interests in the assets of the Trust; (viii) under the Delaware Business Trust Act and the Trust Agreement, the issuance of the Preferred Securities and the Common Securities is not subject to preemptive rights; (ix) the issuance and sale by the Trust of the Preferred Securities and the Common Securities, the execution, delivery and performance by the Trust of this Agreement, the consummation by the Trust of the transactions contemplated hereby and compliance by the Trust with its obligations hereunder will not violate (a) any of the provisions of the Certificate of Trust of the Trust or the Trust Agreement, or (b) any applicable Delaware law or administrative regulation; (x) assuming that the Trust derives no income from or connected with sources within the State of Delaware and has no assets, activities (other than maintaining the Delaware Trustee as required by the Delaware Business Trust Act and the filing of documents with the Secretary of State of the State of Delaware) or employees in the State of Delaware, no authorization, approval, consent or order of any Delaware court or governmental authority or agency is required to be obtained by the Trust solely in connection with the issuance and sale of the Preferred Securities and the Common Securities (in rendering the opinion expressed in this paragraph (x), such counsel need express no opinion concerning the securities laws of the State of Delaware); and (xi) assuming that the Trust derives no income from or connected with sources within the State of Delaware and has no assets, activities (other than maintaining the Delaware Trustee as required by the Delaware Business Trust Act and the filing of documents with the Secretary of State of the State of Delaware) or employees in the State of Delaware and that the Trust is treated as a grantor trust for United States federal income tax purposes, the Securityholders (other than those Securityholders who reside or are domiciled in the State of Delaware) will have no liability for income taxes imposed by the State of Delaware solely as a result of their participation in the Trust, and the Trust will not be liable for any income tax imposed by the State of Delaware; (h) Bass, Berry & Sims PLC, tax counsel for the Trust and the Company, shall have furnished to the Representatives their written opinion, dated the Closing Date, in form and substance satisfactory to the Representatives, to the effect that: 20 (i) the statements in the Prospectus under the caption "Material Federal Income Tax Consequences", to the extent that they constitute summaries of matters of laws or regulation or legal conclusions, have been reviewed by such counsel and fairly summarize the matters described therein in all material respects; (ii) the Trust will be classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes. Accordingly, for United States federal income tax purposes, each holder of Preferred Securities will generally be treated as owning an undivided beneficial interest in the Subordinated Debentures; and (iii) the Subordinated Debentures will be classified for United States federal income tax purposes as indebtedness of the Company. In rendering the opinions described in paragraphs (f), (g) and (h) above, each such counsel may rely (A) as to matters involving the application of laws other than the laws of the United States and the States of New York, Delaware and Tennessee, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to Underwriters' counsel) of other counsel reasonably acceptable to the Underwriters' counsel, familiar with the applicable laws; and (B) as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Trust and the Company and certificates or other written statements of officials of jurisdictions having custody of documents respecting the corporate existence or good standing of the Trust and the Company. The opinion of such counsel for the Trust and the Company shall state that the opinion of any such other counsel upon which they relied is in form satisfactory to such counsel and, in such counsel's opinion, the Underwriters and they are justified in relying thereon. With respect to the matters to be covered in subparagraph (xi) of paragraph (f) above counsel may state their opinion and belief is based upon their participation in the preparation of the Registration Statement and the Prospectus and any amendment or supplement thereto but is without independent check or verification except as specified. The opinions described in paragraphs (f), (g) and (h) above shall be rendered to the Underwriters at the request of the Trust and the Company and shall so state therein. (i) on the effective date of the Registration Statement and the effective date of the most recently filed post-effective amendment to the Registration Statement and also on the Closing Date, Ernst & Young LLP and KPMG LLP shall have furnished to the Representatives letters, dated the respective dates of delivery thereof, in form and substance satisfactory to the Representatives, containing statements and information of the type customarily included in accountants' "comfort letters" to underwriters with respect to the financial 21 statements and certain financial information contained in the Registration Statement and the Prospectus; (j) the Representatives shall have received on and as of the Closing Date an opinion of Cravath, Swaine & Moore, counsel to the Underwriters, with respect to the validity of the Preferred Securities, the Trust Agreement, the Subordinated Debentures, the Indenture, the Guarantee, the Registration Statement, the Prospectus and other related matters as the Representatives may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (k) the Preferred Securities to be delivered on the Closing Date shall have been approved for listing on the Exchange, subject to official notice of issuance; and (l) on or prior to the Closing Date the Trust and the Company shall have furnished to the Representatives such further certificates and documents as the Representatives shall reasonably request. 7. The Trust and the Company jointly and severally agree to indemnify and hold harmless each Underwriter, each affiliate of any Underwriter which assists such Underwriter in the distribution of the Preferred Securities, and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, the legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (as amended or supplemented if the Trust or the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Underwriter furnished to the Trust and the Company in writing by such Underwriter through the Representatives expressly for use therein. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Trust and the Company, its directors, its officers who sign the Registration Statement and each person who controls the Trust and the Company within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Trust and the Company to each Underwriter, but only with reference to information relating to such Underwriter furnished to the Trust and the Company in writing by such Underwriter through the Representatives expressly for use in the 22 Registration Statement, the Prospectus, any amendment or supplement thereto, or any preliminary prospectus. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (the "Indemnified Person") shall promptly notify the person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Underwriters, each affiliate of any Underwriter which assists such Underwriter in the distribution of the Preferred Securities and such control persons of Underwriters shall be designated in writing by J.P. Morgan Securities Inc. and any such separate firm for the Trust and the Company, their respective directors, their respective officers who sign the Registration Statement and such control persons of the Trust and the Company shall be designated in writing by the Trust and the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Person to reimburse the Indemnified Person for fees and expenses of counsel as contemplated by the third sentence of this paragraph, the Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such 23 Indemnified Person from all liability on claims that are the subject matter of such proceeding and does not include a statement as to or an admission of culpability or a failure to act by or on behalf of any Indemnified Party. If the indemnification provided for in the first and second paragraphs of this Section 7 is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Trust and the Company on the one hand and the Underwriters on the other hand from the offering of the Preferred Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Trust and the Company on the one hand and the Underwriters on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Trust and the Company on the one hand and the Underwriters on the other shall be deemed to be in the same respective proportions as the net proceeds from the offering (before deducting expenses) received by the Trust and the Company and the total underwriting discounts and the commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate public offering price of the Preferred Securities. The relative fault of the Trust and the Company on the one hand and the Underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Trust and the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Trust, the Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro --- rata allocation (even if the Underwriters were treated as one entity for such - ---- purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total price at which the Preferred Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant 24 to this Section 7 are several in proportion to the respective number of Preferred Securities set forth opposite their names in Schedule I hereto, and not joint. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law of in equity. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Trust and the Company set forth in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the Trust and the Company, its officers or directors or any other person controlling the Trust or the Company and (iii) acceptance of and payment for any of the Preferred Securities. 8. Notwithstanding anything herein contained, this Agreement may be terminated in the absolute discretion of the Representatives, by notice given to the Trust and the Company, if after the execution and delivery of this Agreement and at any time on or prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York, Tennessee, North Carolina, South Carolina, [Florida], Virginia, Mississippi, Arkansas, Georgia or West Virginia shall have been declared by either Federal, New York, Tennessee, North Carolina, South Carolina, [Florida], Virginia, Mississippi, Arkansas, Georgia or West Virginia authorities, or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the judgment of the Representatives, is material and adverse and which, in the judgment of the Representatives, makes it impracticable or inadvisable to market the Preferred Securities on the terms and in the manner contemplated in the Prospectus or (v) a material disruption has occurred in commercial banking or securities settlement of clearance in the United States or with respect to Clearstream or Euroclear systems in Europe. 9. This Agreement shall become effective upon the later of (x) execution and delivery hereof by the parties hereto and (y) release of notification of the effectiveness of the Registration Statement (or, if applicable, any post- effective amendment) by the Commission. If on the Closing Date any one or more of the Underwriters shall fail or refuse to purchase Preferred Securities which it or they have agreed to purchase hereunder on such date, and the aggregate number of Preferred Securities which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Preferred Securities to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Preferred Securities set forth opposite their respective names in Schedule I bears to the aggregate number of Preferred Securities set forth opposite the names of all such non- defaulting Underwriters, or in such other proportions as the Representatives may specify, to 25 purchase the Preferred Securities which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided -------- that in no event shall the number of Preferred Securities that any Underwriter has agreed to purchase pursuant to Section 1 be increased pursuant to this Section 9 by a number in excess of one-tenth of such number of Preferred Securities without the written consent of such Underwriter. If on the Closing Date any Underwriter or Underwriters shall fail or refuse to purchase Preferred Securities which it or they have agreed to purchase hereunder on such date, and the aggregate number of Preferred Securities with respect to which such default occurs is more than one-tenth of the aggregate number of Preferred Securities to be purchased on such date, and arrangements satisfactory to the Representatives and the Company for the purchase of such Preferred Securities are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Trust and the Company. In any such case either the Representatives or the Trust and the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 10. If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Trust or the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Trust or the Company shall be unable to perform its obligations under this Agreement or any condition of the Underwriters' obligations cannot be fulfilled, the Company agrees to reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and expenses of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder. The Company and the Trust shall in no event be liable to the Underwriters for the loss of anticipated profits from the transactions contemplated by this Agreement. 11. This Agreement shall inure to the benefit of and be binding upon the Trust, the Company, the Underwriters, each affiliate of any Underwriter which assists such Underwriter in the distribution of the Preferred Securities, any controlling persons referred to herein and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person, firm or corporation any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. No purchaser of Preferred Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. 12. Any action by the Underwriters hereunder may be taken by the Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of the Underwriters, and any such action taken by [the Representatives jointly or by J.P. Morgan Securities Inc. shall be binding upon the Underwriters. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any 26 standard form of telecommunication. Notices to the Underwriters shall be given to the Representatives c/o J.P. Morgan Securities Inc., 270 Park Avenue, New York, New York 10017 (telefax:______); Attention: Syndicate Department. Notices to the Company shall be given to it at One Commerce Square, Memphis, Tennessee 38150, (telefax: (901) 523-3284); Attention: Chief Financial Officer. 13. This Agreement may be signed in counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. 14. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflicts of laws provisions thereof. 27 If the foregoing is in accordance with your understanding, please sign and return four counterparts hereof. Very truly yours, NATIONAL COMMERCE CAPITAL TRUST II, By: National Commerce Financial Corporation, as depositor, By:_______________________ Title: NATIONAL COMMERCE FINANCIAL CORPORATION, By:_______________________ Title: Accepted: December, 2001 J.P. Morgan Securities Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated Acting severally on behalf of themselves and the several Underwriters listed in Schedule I hereto. By: J.P. Morgan Securities Inc. By:___________________________ Title: 28 SCHEDULE I Number of Preferred ------------------- Underwriter Securities to be Purchased ----------- -------------------------- J.P. Morgan Securities Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated EX-4.2 4 dex42.txt CERTIFICATE OF TRUST EXHIBIT 4.2 CERTIFICATE OF TRUST OF NATIONAL COMMERCE CAPITAL TRUST II THIS Certificate of Trust of National Commerce Capital Trust II (the "Trust"), dated as of November 16, 2001, is being duly executed and filed on behalf of the Trust by the undersigned, as trustees, to form a business trust under the Delaware Business Trust Act (12 Del. C. (S)(S) 3801 et seq.) (the ------- -- --- "Act"). 1. Name. The name of the business trust formed by this Certificate of ---- Trust is National Commerce Capital Trust II. 2. Delaware Trustee. The name and business address of the trustee of the ---------------- Trust in the State of Delaware are The Bank of New York (Delaware), 700 White Clay Center, Route 273, Newark, Delaware 19711. 3. Effective Date. This Certificate of Trust shall be effective upon -------------- filing. IN WITNESS WHEREOF, the undersigned have duly executed this Certificate of Trust in accordance with Section 3811(a)(1) of the Act. THE BANK OF NEW YORK (DELAWARE), not in its individual capacity, but solely as Delaware Trustee By: /s/ James Longshaw ---------------------------------------------- Name: James Longshaw Title: Senior Vice President /s/ Sheldon Fox ---------------------------------------------- Name: Sheldon Fox, not in his individual capacity, but solely as administrative trustee /s/ Charles Neale ----------------------------------------------- Name: Charles Neale, not in his individual capacity, but solely as administrative trustee EX-4.5 5 dex45.txt TRUST AGREEMENT/CAPITAL TRUST II EXHIBIT 4.5 TRUST AGREEMENT OF NATIONAL COMMERCE CAPITAL TRUST II THIS TRUST AGREEMENT is made as of November 16, 2001 (this "Trust Agreement"), by and among National Commerce Financial Corporation, a Tennessee corporation, as depositor (the "Depositor"), Sheldon Fox and Charles Neale, as administrative trustees (the "Administrative Trustees"), and The Bank of New York (Delaware), a Delaware banking corporation, as Delaware trustee (the "Delaware Trustee," and together with the Administrative Trustees, the "Trustees"). The Depositor and the Trustees hereby agree as follows: 1. The trust created hereby shall be known as "National Commerce Capital Trust II" (the "Trust"), in which name the Trustees or the Depositor, to the extent provided herein, may conduct the business of the Trust, make and execute contracts on behalf of the Trust, and sue and be sued on behalf of the Trust. 2. The Depositor hereby assigns, transfers, conveys and sets over to the Trust the sum of $10. Such amount shall constitute the initial trust estate. It is the intention of the parties hereto that the Trust created hereby constitute a business trust under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. (S)(S) 3801 et seq. (the "Business Trust Act"), and that this Trust ------- -- --- Agreement constitute the governing instrument of the Trust. The Trustees are hereby authorized and directed to execute and file a certificate of trust in the office of the Secretary of State of the State of Delaware in such form as the Trustees may approve. The Trust is hereby established by the Depositor and the Trustees for the purpose of (i) issuing preferred securities (the "Preferred Securities") and common securities (the "Common Securities") representing undivided beneficial interests in the assets of the Trust in exchange for cash, and investing the proceeds thereof in certain debt securities of the Depositor, and (ii) engaging in such other activities as are necessary, convenient or incidental thereto. 3. The Depositor and the Trustees will enter into an amended and restated Trust Agreement (the "Amended and Restated Trust Agreement") satisfactory to each such party, to provide for the contemplated operation of the Trust created hereby and the issuance by the Trust of the Preferred Securities and Common Securities referred to therein. Prior to the execution and delivery of such Amended and Restated Trust Agreement, the Trustees shall not have any duty or obligation hereunder or with respect of the trust estate, except as otherwise required by applicable law or as may be necessary to obtain prior to such execution and delivery any licenses, consents or approvals required by applicable law or otherwise. Notwithstanding the foregoing, the Trustees may take all actions which the Depositor deems necessary, convenient or incidental to effect the transactions contemplated herein and as the Trustees shall be directed in writing by the Depositor. 4. The Depositor, as the depositor of the Trust, is hereby authorized, in its discretion, (i) to file with the Securities and Exchange Commission (the "Commission") and execute, in each case on behalf of the Trust, (a) the Registration Statement on such form as the Depositor determines (the "1933 Act Registration Statement"), including any pre-effective or post-effective amendments to the 1933 Act Registration Statement (including the prospectus, prospectus supplements and the exhibits contained therein), relating to the registration under the Securities Act of 1933, as amended, of the Preferred Securities of the Trust and possibly certain other securities and (b) a Registration Statement on such appropriate form as the Depositor determines (the "1934 Act Registration Statement") (including all pre-effective and post- effective amendments thereto) relating to the registration of the Preferred Securities of the Trust under the Securities Exchange Act of 1934, as amended; (ii) to file with the New York Stock Exchange or any other national stock exchange or The Nasdaq National Market (each, an "Exchange") and execute on behalf of the Trust one or more listing applications and all other applications, statements, certificates, agreements and other instruments as shall be necessary or desirable to cause the Preferred Securities to be listed on any of the Exchanges; (iii) to file and execute on behalf of the Trust such applications, reports, surety bonds, irrevocable consents, appointments of attorney for service of process and other papers and documents as shall be necessary or desirable to register the Preferred Securities under the securities or blue sky laws of such jurisdictions as the Depositor, on behalf of the Trust, may deem necessary or desirable; (iv) to execute and deliver letters or documents to, or instruments for filing with, a depository relating to the Preferred Securities; and (v) to execute on behalf of the Trust that certain Underwriting Agreement relating to the Preferred Securities, among the Trust, the Depositor and the several Underwriters named therein, substantially in the form included as an exhibit to the 1933 Act Registration Statement. In the event that any filing referred to in clauses (i), (ii) or (iii) above is required by the rules and regulations of the Commission, an Exchange or state securities or blue sky laws, to be executed on behalf of the Trust by any of the Administrative Trustees, each of the Administrative Trustees, in its capacity as a trustee of the Trust, is hereby authorized and directed to join in any such filing and to execute on behalf of the Trust any and all of the foregoing. In connection with all of the foregoing, the Depositor hereby constitutes and appoints Sheldon Fox and Charles Neale as its true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the Depositor or in the Depositor's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to the 1933 Act Registration Statement and the 1934 Act Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as the Depositor might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their substitute or substitutes, shall do or cause to be done by virtue hereof. 5. This Trust Agreement may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. -2- 6. The number of trustees of the Trust initially shall be three and thereafter the number of trustees of the Trust shall be such number as shall be fixed from time to time by a written instrument signed by the Depositor which may increase or decrease the number of trustees of the Trust; provided, however, that to the extent required by the Business Trust Act, one trustee of the Trust shall either be a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable Delaware law. Subject to the foregoing, the Depositor is entitled to appoint or remove without cause any trustee of the Trust at any time. Any trustee of the Trust may resign upon thirty (30) days' prior notice to the Depositor. 7. The Depositor hereby agrees, to the fullest extent permitted by applicable law, to (i) reimburse the Trustees for all reasonable expenses (including reasonable fees and expenses of counsel and other experts) and (ii) indemnify, defend and hold harmless the Trustees and any of the officers, directors, employees and agents of the Trustees (the "Indemnified Persons") from and against any and all losses, damages, liabilities, claims, actions, suits, costs, expenses, disbursements (including the reasonable fees and expenses of counsel), taxes and penalties of any kind and nature whatsoever (collectively, "Expenses"), to the extent that such Expenses arise out of or are imposed upon or asserted at any time against such Indemnified Persons with respect to the performance of this Trust Agreement, the creation, operation or termination of the Trust or the transactions contemplated hereby; provided, however, that the Depositor shall not be required to indemnify any Indemnified Person for any Expenses which are a result of the willful misconduct, bad faith or gross negligence of such Indemnified Person. 8. The Trust may be dissolved and terminated without issuing any Preferred Securities at the election of the Depositor. 9. This Declaration shall be governed by, and construed in accordance with, the laws of the State of Delaware (without regard to conflict of laws principles). [SIGNATURE PAGES FOLLOW] -3- IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be duly executed as of the day and year first above written. NATIONAL COMMERCE FINANCIAL CORPORATION, as Depositor By: /s/ Beth Whitehead -------------------------------------------- Name: Beth Whitehead Title: Vice President and Associate Counsel THE BANK OF NEW YORK (DELAWARE), as Delaware Trustee By: /s/ James Longshaw -------------------------------------------- Name: James Longshaw Title: Senior Vice President /s/ Sheldon Fox -------------------------------------------------- Name: Sheldon Fox, as Administrative Trustee /s/ Charles Neale -------------------------------------------------- Name: Charles Neale, as Administrative Trustee -4- EX-4.6 6 dex46.txt FORM OF PREFERRED SECURITIES CERTIFICATE EXHIBIT 4.6 THIS IS A PREFERRED SECURITIES CERTIFICATE WITHIN THE MEANING OF THE TRUST AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITARY") OR A NOMINEE OF THE DEPOSITARY. THIS PREFERRED SECURITY IS EXCHANGEABLE FOR PREFERRED SECURITIES 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 NO TRANSFER OF THIS PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS PREFERRED SECURITY 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) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE TRUST AGREEMENT REFERRED TO BELOW. UNLESS THIS PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO NATIONAL COMMERCE CAPITAL TRUST II OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY PREFERRED SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. CERTIFICATE NUMBER: NUMBER OF PREFERRED SECURITIES: AGGREGATE LIQUIDATION AMOUNT OF PREFERRED SECURITIES: [ ] CUSIP NO. 635458 CERTIFICATE EVIDENCING TRUST PREFERRED SECURITIES OF NATIONAL COMMERCE CAPITAL TRUST II ___% TRUST PREFERRED SECURITIES, (LIQUIDATION AMOUNT $25.00 PER TRUST PREFERRED SECURITY) National Commerce Capital Trust II, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that _________________ (the "Holder") is the registered owner of preferred securities in the aggregate liquidation amount of $200,000,000 of the Trust representing undivided beneficial interests in the assets of the Trust and designated the National Commerce Capital Trust II [______%] Trust Preferred Securities (liquidation amount $25.00 per Trust Preferred Security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer as provided in Section 5.4 of the Trust Agreement (as defined below). The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities are set forth in, and this certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Trust Agreement of the Trust, dated as of as __________ _____, 2001, among National Commerce Financial Corporation, as Depositor, The Bank of New York, as Property Trustee, The Bank of New York (Delaware), as Delaware Trustee, the Administrative Trustees named therein and the holders, from time to time, of undivided beneficial interests in the assets of the Trust, as the same may be amended from time to time (the "Trust Agreement") including the designation of the terms of Preferred Securities as set forth therein. The Holder is entitled to the benefits of the Guarantee Agreement entered into by National Commerce Financial Corporation, a Tennessee corporation ("NCF"), and The Bank of New York, a New York banking corporation, as guarantee trustee, dated as of December _____, 2001 (the "Guarantee"), to the extent provided therein. The Trust will furnish a copy of the Trust Agreement and the Guarantee to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder. This certificate and the Preferred Securities evidenced hereby shall be construed in accordance with and governed by the laws of the State of Delaware (without regard to conflict of laws principles). IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed this certificate this ____ day of __________, 2001. NATIONAL COMMERCE CAPITAL TRUST II, By: ------------------------------------- Name: ----------------------------------- Administrative Trustee This is one of the Securities referred to in the within mentioned Trust Agreement. Date of Authentication: THE BANK OF NEW YORK, as Property Trustee, By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Countersignature (in the event the administrative trustee signs above by facsimile): Date: ----------------------------- THE BANK OF NEW YORK, as Transfer Agent, By: ------------------------------- Name: ----------------------------- Title: ---------------------------- EX-4.8 7 dex48.txt FORM OF SUBORDINATED DEBENTURE EXHIBIT 4.8 UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO DTC, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO BELOW. NATIONAL COMMERCE FINANCIAL CORPORATION [ ]% Junior Subordinated Deferrable Interest Debentures No. R-1 $ NATIONAL COMMERCE FINANCIAL CORPORATION, a corporation organized and existing under the laws of the State of Tennessee (hereinafter called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to The Bank of New York, as Property Trustee (the "Property Trustee") for National Commerce Capital Trust II, a statutory business trust formed under the laws of the State of Delaware, or registered assigns, the principal sum of [ ] ($[ ]) on [ ], 2001. The Company further promises to pay interest on said principal sum from , 2001, or from the most recent interest payment date on which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on [ ], [ ], [ ], and [ ] of each year (each, an "Interest Payment Date"), commencing , 2002. The interest rate for the initial Interest Period and for each Interest Period thereafter will be [ ]% per annum until the principal hereof shall have become due and payable, plus Additional Interest (as defined in the Indenture referred to on the reverse hereof) at the per annum rate equal to [ ]% until the principal hereof is paid or duly provided for or made available for payment and on any overdue principal at the per annum rate equal to [ ]%. "Interest Period" as used herein shall mean the period beginning on and including [ ], 2001, and ending on but excluding the first Interest Payment Date and each successive period beginning on and including an Interest Payment Date and ending on but excluding the next succeeding Interest Payment Date. The amount of interest payable for any Interest Period shall be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Security is not a Business Day, then a payment of the interest 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 such delay), except that, if such Business Day would thereby fall in the next calendar year, such payment shall be made on the immediately preceding Business Day. The term "interest" as used herein shall include quarterly interest payments and interest on quarterly interest payments not paid on the applicable Interest Payment Date, as applicable. Notwithstanding anything to the contrary set forth above, if the maturity date falls on a day that is not a Business Day, the payment of principal and interest payable on such date will be made on the next succeeding day that is a Business Day, and no interest or other payment will accumulate for the period from and after the maturity date. A "Business Day" shall mean any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in The City of New York 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 is closed for business. The interest installment 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 Business Day next preceding such Interest Payment Date or, if this Security is held in certificated form by any Holder other than the Property Trustee or Cede & Co., the date which is fifteen days next preceding such Interest Payment Date (whether or not a Business Day). Any such interest installment 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 the Holder of this Security not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Securities of this series may be listed or traded, and upon such notice as may be required by such exchange or self-regulatory organization, 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 to defer payment of interest on this Security, at any time or from time to time, for up to 20 consecutive quarterly Interest Periods with respect to each deferral period (each an "Extension Period"). During any such Extension Period the Company shall have the option to make partial payments of interest on any Interest Payment Date, and at the end of any such Extension Period the Company shall pay all interest then accrued and unpaid (together with Additional Interest thereon to the extent permitted by applicable law); provided, however, that no Extension Period shall extend beyond the Stated Maturity of the principal of this Security; provided, further, that during any such Extension Period, the Company shall not, and shall not permit any Subsidiary of the Company to, (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, 2 on or repay, repurchase or redeem any debt security of the Company that ranks pari passu with or junior in interest to this Security or (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to this Security (other than (a) dividends or distributions in the Company's capital stock, (b) any declaration of a dividend in connection with the implementation of a Rights Plan or the redemption or repurchase of any rights distributed pursuant to a Rights Plan, (c) payments under the Guarantee with respect to this Security, and (d) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees, related to the issuance of Common Stock or rights under a dividend reinvestment and stock purchase plan, or related to the issuance of Common Stock (or securities convertible or exchangeable for Common Stock) as consideration in an acquisition transaction that was entered into prior to the commencement of such Extension Period). 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 Periods or extend beyond the Stated Maturity of the principal of this Security. Upon the termination of any such Extension Period and upon the payment of all accrued and unpaid interest and any Additional Interest then due, the Company may elect to begin a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period except at the end thereof. The Company shall give the Holder of this Security and the Trustee, the Property Trustee and the Administrative Trustees notice of its election to begin any Extension Period at least one Business Day prior to the next succeeding Interest Payment Date on which interest on this Security would be payable but for such deferral or, with respect to the Securities issued to a Trust, so long as such Securities are held by such Trust, prior to the earlier of (i) the next succeeding date on which Distributions on the Preferred Securities would be payable but for such deferral or (ii) the date the Administrative Trustees are required to give notice to any securities exchange or other applicable self-regulatory organization or 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 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) by wire transfer in immediately available funds at such place and to such account as may be designated in writing at least 15 days before the relevant Interest Payment Date by the Person entitled thereto as specified in the Securities Register; provided further, that for so long as this Security is held by the Property Trustee, payments of principal of and interest on the Security shall be made by wire transfer in immediately available funds to such account at the Property Trustee as the Property Trustee may designate in writing to the Securities Registrar at least one Business Day before the date such payment is due. 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 Debt, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each 3 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 behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. Each Holder hereof, by his acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Debt, 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. NATIONAL COMMERCE FINANCIAL CORPORATION, By: --------------------------------------- Name: Title: Attest: - ------------------------------------ Name: Title: 4 This is one of the Securities referred to in the within Indenture. Dated: December , 2001 THE BANK OF NEW YORK, as Trustee, By: --------------------------------------- Authorized Signatory 5 [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 in one or more series under the Junior Subordinated Indenture, dated as of , 2001 (herein called the "Indenture"), between the Company and The Bank of New York, 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 Trustee, the Company 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 Amended and Restated Trust Agreement, dated as of , 2001, as amended from time to time (the "Trust Agreement"), for National Commerce Capital Trust II, among National Commerce Financial Corporation, as Depositor, the Trustees named therein and the Holders (as defined therein), shall have the meanings assigned to them in the Indenture or the Trust Agreement, as the case may be. The Company may, at its option, on or after [ ], and subject to the terms and conditions of Article XI of the Indenture, redeem this Security in whole at any time or in part from time to time. Upon the occurrence and during the continuation of a Tax Event or a Capital Treatment Event, in respect of a Trust, the Company may, at its option, at any time within 90 days of the occurrence of such Tax Event or Capital Treatment Event redeem this Security, in whole but not in part, subject to the provisions of Section 11.07 and the other provisions of Article XI of the Indenture, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, including Additional Interest, if any, to the Redemption Date. 6 In all cases, the Redemption Price with respect to this Security shall be equal to 100% of the principal amount of this Security plus accrued and unpaid interest, including Additional Interest, if any, to the Redemption Date. This Security shall be subject to partial redemption only in the amount of $25, or integral multiples thereof. 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 provisions of Section 3.04 of the Indenture shall not apply to this Security. The Indenture contains provisions for satisfaction and discharge 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 of this series. The Indenture also contains provisions permitting Holders of specified percentages in principal amount of the Securities of this series at the time Outstanding, on behalf of the Holders of Securities of this series, 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 7 future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange hereof 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 of this series 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 principal amount of the Outstanding Securities of this series may declare the principal amount of all the Securities of this series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that, in the case of the Securities of this series issued to a Trust, if upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of this series fails to declare the principal of all the Securities of this series to be immediately due and payable, the holders of at least 25% in aggregate Liquidation Amount of the Preferred Securities then outstanding shall have such right 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 of this series 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. The Holders of a majority in principal amount of the Outstanding Securities of this series may annul such declaration and waive such default. If the Holders of a majority in principal amount of the Outstanding Securities fail to annul such declaration and waive such default, the holders of a majority in aggregate Liquidation Amount of the Preferred Securities affected then outstanding shall have such right. 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 on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Securities Register, upon surrender of this Security for registration of transfer at the office or agency of the Company maintained under Section 10.02 of the Indenture 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 his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. 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 Securities of this series are issuable only in registered form without coupons in denominations of $25 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are 8 exchangeable for a like aggregate principal amount of Securities of such series of a different authorized denomination, as requested by the Holder surrendering the same. 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 agree that for United States federal, state and local tax purposes it is intended that this Security constitute indebtedness. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 9 EX-4.9 8 dex49.txt FORM OF JUNIOR SUBORDINATED INDENTURE EXHIBIT 4.9 NATIONAL COMMERCE FINANCIAL CORPORATION AS ISSUER TO THE BANK OF NEW YORK AS TRUSTEE ----------------------------- JUNIOR SUBORDINATED INDENTURE DATED DECEMBER , 2001 ----------------------------- Table of Contents ----------------- Page ---- ARTICLE I Definitions and Other Provisions of General Application --------------------- --------------------------------- SECTION 1.01. Definitions............................................... 2 SECTION 1.02. Compliance Certificate and Opinions....................... 13 SECTION 1.03. Forms of Documents Delivered to Trustee................... 14 SECTION 1.04. Acts of Holders........................................... 14 SECTION 1.05. Notices, Etc. to Trustee and Company...................... 17 SECTION 1.06. Notice to Holders; Waiver................................. 18 SECTION 1.07. Conflict with Trust Indenture Act......................... 18 SECTION 1.08. Effect of Headings and Table of Contents.................. 18 SECTION 1.09. Successors and Assigns.................................... 18 SECTION 1.10. Separability Clause....................................... 19 SECTION 1.11. Benefits of Indenture..................................... 19 SECTION 1.12. Governing Law............................................. 19 SECTION 1.13. Non-Business Days......................................... 19 ARTICLE II Security Forms -------------- SECTION 2.01. Forms Generally........................................... 19 SECTION 2.02. Form of Face of Security.................................. 20 SECTION 2.03. Form of Reverse of Security............................... 25 SECTION 2.04. Additional Provisions Required in Global Security......... 29 SECTION 2.05. Form of Trustee's Certificate of Authentication........... 29 ARTICLE III The Securities -------------- SECTION 3.01. Title and Terms........................................... 30 SECTION 3.02. Denominations............................................. 33 SECTION 3.03. Execution, Authentication, Delivery and Dating............ 33 SECTION 3.04. Temporary Securities...................................... 35 SECTION 3.05. Registration, Transfer and Exchange....................... 36 SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities.......... 38 SECTION 3.07. Payment of Interest; Interest Rights Preserved............ 39 SECTION 3.08. Persons Deemed Owners..................................... 41 SECTION 3.09. Cancellation.............................................. 41 SECTION 3.10. Computation of Interest................................... 42 SECTION 3.11. Deferrals of Interest Payment Dates....................... 42 SECTION 3.12. Right of Set-Off.......................................... 44 SECTION 3.13. Agreed Tax Treatment...................................... 44 SECTION 3.14. Shortening or Extension of Stated Maturity................ 44 SECTION 3.15. CUSIP Numbers............................................. 45 ARTICLE IV Satisfaction and Discharge -------------------------- SECTION 4.01 Satisfaction and Discharge of Indenture................... 45 SECTION 4.02. Application of Trust Money................................ 46 ARTICLE V Remedies -------- SECTION 5.01. Events of Default......................................... 47 SECTION 5.02. Acceleration of Maturity; Rescission and Annulment........ 48 SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee................................................ 50 SECTION 5.04. Trustee May File Proofs of Claim.......................... 51 SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities................................................ 52 SECTION 5.06. Application of Money Collected............................ 52 SECTION 5.07. Limitation on Suits....................................... 53 SECTION 5.08. Unconditional Right of Holders To Receive Principal, Premium and Interest; Direct Action by Holders of Preferred Securities...................................... 54 SECTION 5.09. Restoration of Rights and Remedies........................ 54 SECTION 5.10. Rights and Remedies Cumulative............................ 55 SECTION 5.11. Delay or Omission Not Waiver.............................. 55 SECTION 5.12. Control by Holders........................................ 55 SECTION 5.13. Waiver of Past Defaults................................... 56 SECTION 5.14. Undertaking for Costs..................................... 57 SECTION 5.15. Waiver of Usury, Stay or Extension Laws................... 57 ARTICLE VI The Trustee ----------- SECTION 6.01. Certain Duties and Responsibilities....................... 57 SECTION 6.02. Notice of Defaults........................................ 59 SECTION 6.03. Certain Rights of Trustee................................. 59 SECTION 6.04. Not Responsible for Recitals or Issuance of Securities.... 61 SECTION 6.05. May Hold Securities....................................... 61 SECTION 6.06. Money Held in Trust....................................... 61 SECTION 6.07. Compensation and Reimbursement............................ 61 SECTION 6.08. Disqualification; Conflicting Interests................... 62 SECTION 6.09. Corporate Trustee Required; Eligibility................... 62 SECTION 6.10. Resignation and Removal; Appointment of Successor......... 63 ii SECTION 6.11. Acceptance of Appointment by Successor.................... 65 SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business.................................................. 66 SECTION 6.13. Preferential Collection of Claims Against Company......... 67 SECTION 6.14. Appointment of Authenticating Agent....................... 67 ARTICLE VII Holder's Lists and Reports by Trustee and Company ------------------------------------------------- SECTION 7.01. Company To Furnish Trustee Names and Addresses of Holders. 70 SECTION 7.02. Preservation of Information, Communications to Holders.... 70 SECTION 7.03. Reports by Trustee........................................ 70 SECTION 7.04. Reports by Company........................................ 71 ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease ---------------------------------------------------- SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms...... 71 SECTION 8.02. Successor Corporation Substituted......................... 72 ARTICLE IX Supplemental Indentures ----------------------- SECTION 9.01. Supplemental Indentures without Consent of Holders........ 73 SECTION 9.02. Supplemental Indentures with Consent of Holders........... 75 SECTION 9.03. Execution of Supplemental Indentures...................... 77 SECTION 9.04. Effect of Supplemental Indentures......................... 77 SECTION 9.05. Conformity with Trust Indenture Act....................... 77 SECTION 9.06. Reference in Securities to Supplemental Indentures........ 77 ARTICLE X Covenants --------- SECTION 10.01. Payment of Principal, Premium and Interest................ 78 SECTION 10.02. Maintenance of Office or Agency........................... 78 SECTION 10.03. Money for Security Payments To Be Held in Trust........... 79 SECTION 10.04. Statement as to Compliance................................ 80 SECTION 10.05. Waiver of Certain Covenants............................... 81 SECTION 10.06. Payment of Trust Costs and Expenses....................... 81 SECTION 10.07. Additional Covenants...................................... 82 SECTION 10.08. Calculation of Original Issue Discount.................... 83 iii ARTICLE XI Redemption of Securities ------------------------ SECTION 11.01. Applicability of This Article............................. 83 SECTION 11.02. Election To Redeem; Notice to Trustee..................... 83 SECTION 11.03. Selection of Securities To Be Redeemed.................... 84 SECTION 11.04. Notice of Redemption...................................... 84 SECTION 11.05. Deposit of Redemption Price............................... 85 SECTION 11.06. Payment of Securities Called for Redemption............... 86 SECTION 11.07. Right of Redemption of Securities Initially Issued to a Trust................................................ 86 ARTICLE XII Sinking Funds ------------- SECTION 12.01. Applicability of Article.................................. 87 SECTION 12.02. Satisfaction of Sinking Fund Payments with Securities..... 87 SECTION 12.03. Redemption of Securities for Sinking Fund................. 88 ARTICLE XIII Subordination of Securities --------------------------- SECTION 13.01. Agreement to Subordinate.................................. 90 SECTION 13.02. Default on Senior Debt.................................... 91 SECTION 13.03. Liquidation; Dissolution; Bankruptcy...................... 91 SECTION 13.04. Subrogation............................................... 94 SECTION 13.05. Trustee to Effectuate Subordination....................... 95 SECTION 13.06. Notice by the Company..................................... 95 SECTION 13.07 Reliance on Judicial Order or Certificate of Liquidating Agent......................................... 97 SECTION 13.08 Rights of the Trustee; Holders of Senior Debt............. 97 SECTION 13.09. Subordination May Not Be Impaired......................... 98 SECTION 13.10. Article Applicable to Paying Agents....................... 99 iv Reconciliation and tie between the Trust Indenture Act of 1939 (including cross-references to provisions of Sections 310 to and including 317 which, pursuant to Section 318 (c) of the Trust Indenture Act of 1939, as amended by the Trust Reform Act of 1990, are a part of and govern the Indenture whether or not physically contained therein) and the Junior Subordinated Indenture, dated as of , 2001 TRUST INDENTURE INDENTURE ACT SECTION SECTION - ------------- ----------------- Section 310 (a) (1), (2) and (5)..6.09 (a) (3)...............Not Applicable (a) (4)...............Not Applicable (b)...................6.08 ......................6.10 (c)...................Not Applicable Section 311 (a)...................6.13(a) (b)...................6.13(b) (b) (2)...............7.03(a) (2) ......................7.03(a) (2) Section 312 (a)...................7.01 ......................7.02(a) (b)...................7.02(b) (c)...................7.02(c) Section 313 (a)...................7.03(a) (b)...................7.03(b) (c)...................7.03(a), 7.03(b) (d)...................7.03(c) Section 314 (a) (1), (2) and (3)..7.04 (a) (4)...............10.05 (b)...................Not Applicable (c) (1)...............1.02 (c) (2)...............1.02 (c) (3)...............Not Applicable (d)...................Not Applicable (e)...................1.02 (f)...................Not Applicable Section 315 (a)...................6.01(a) (b)...................6.02 ......................7.03(a) (6) (c)...................6.01(b) (d)...................6.01(c) (d) (1)...............6.01(a) (1) (d) (2)...............6.01(c) (2) (d) (3)...............6.01(c) (3) (e)...................5.14 Section 316 (a)...................1.01 (a) (1) (A)...........5.12 (a) (1) (B)...........5.13 (a) (2)...............Not Applicable (b)...................5.08 (c)...................1.04(f) Section 317 (a) (1)...............5.03 (a) (2)...............5.04 (b)...................10.3 Section 318 (a)...................1.07 v Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Junior Subordinated Indenture. vi JUNIOR SUBORDINATED INDENTURE, dated as of December , 2001, between NATIONAL COMMERCE FINANCIAL CORPORATION, a Tennessee corporation (hereinafter called the "Company") having its principal office at One Commerce Square, Memphis, Tennessee, 38150 and THE BANK OF NEW YORK, a New York banking corporation, as Trustee (hereinafter called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured junior subordinated debt securities in one or more series (hereinafter called the "Securities") of substantially the tenor hereinafter provided, including, - ----------- without limitation, Securities issued to evidence loans made to the Company of the proceeds from the issuance from time to time by one or more business trusts (each a "Trust," and, collectively, the "Trusts") of preferred interests in such ----- ------ Trusts (the "Preferred Securities") and common interests in such Trusts (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. All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of any series thereof, as follows: 2 ARTICLE I Definitions and Other --------------------- Provisions of General Application --------------------------------- SECTION 1.01. Definitions. For all purposes of this Indenture, ------------ except as otherwise expressly provided or unless the context otherwise requires: (1) The terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) All other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles which are generally accepted at the date or time of such computation; provided, that when two or more principles are so -------- generally accepted, it shall mean that set of principles consistent with those in use by the Company; and (4) The words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act" when used with respect to any Holder has the meaning specified --- in Section 1.04. "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 from the applicable Interest Payment Date. "Additional Taxes" means the sum of any additional taxes, duties and ---------------- other governmental charges to which a Trust has become subject from time to time as a result of a Tax Event. 3 "Administrative Trustee" means, in respect of any Trust, each Person ---------------------- identified as an "Administrative Trustee" in the related Trust Agreement, solely in such Person's capacity as Administrative Trustee of such Trust under such Trust Agreement and not in such Person's individual capacity, or any successor administrative trustee 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; provided, however, no Trust to which -------- ------- Securities have been issued shall be deemed to be an Affiliate of the Company. 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. For purposes of the definition of "Senior Debt" only, "Affiliate" shall mean, with respect to a specified Person, (a)any Person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities or other ownership interests of the specified Person, (b) any Person 10% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person, (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person, (d) a partnership in which the specified Person is a general partner, (e) any executive officer or director of the specified Person, and (f) if the specified Person is an individual, any entity of which the specified Person is an executive officer, director or general partner. "Authenticating Agent" means any Person authorized by the Trustee -------------------- pursuant to Section 6.14 to act on behalf of the Trustee to authenticate Securities of one or more series. "Board of Directors" means either the board of directors of the ------------------ Company or any committee of that board duly authorized to act hereunder. "Board Resolution" means a copy of a resolution certified by the ---------------- Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors, or such committee of the Board of Directors or officers of 4 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 City of New York 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 of a series initially issued to a Trust, the principal office of the Property Trustee under the related Trust Agreement, is closed for business. "Capital Securities Guarantee Agreement" means the Guarantee Agreement -------------------------------------- dated as of March 27, 1997, between the Company and The Bank of New York, as guarantee trustee, for the benefit of the Holders (as defined therein) from time to time of the Capital Securities (as defined therein) of National Commerce Capital Trust I, a subsidiary of the Company. "Capital Treatment Event", with respect to a Trust, means the ----------------------- reasonable determination by the Company that, as a result of (i) any amendment to, or change in, the laws or regulations of the United States or any political subdivision thereof or therein that becomes effective on or after the date of the initial issuance of the Preferred Securities of such Trust, (ii) any proposed change in such laws or regulations that is announced on or after the date of the initial issuance of the Preferred Securities of such Trust, or (iii) any official administrative decision, judicial decision, administrative action or other official pronouncement interpreting or applying such laws or regulations that is announced on or after the date of issuance of the Preferred Securities of such 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 defined in the related Trust Agreement) of such Preferred Securities as "Tier 1 Capital" (or the then equivalent thereof) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to the Company. "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 Indenture such Commission is not existing and performing the duties now assigned to it under the Trust 5 Indenture Act, then the body performing such duties at such time. "Common Securities" has the meaning specified in the first recital of ----------------- this Indenture. "Common Securities Guarantee Agreement" means the Guarantee Agreement ------------------------------------- dated as of March 27, 1997, executed and delivered by the Company for the benefit of the Holders (as defined therein) from time to time of the Common Securities (as defined therein) of National Commerce Capital Trust I, a subsidiary of the Company. "Common Stock" means the common stock, par value $2.00 per share, of ------------ the Company. "Company" means the Person named as the "Company" in the first ------- paragraph of this Indenture until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" and "Company Order" mean, respectively, the written --------------- ------------- request or order signed in the name of the Company by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Corporate Trust Office" means the principal office of the Trustee at ---------------------- which at any particular time its corporate trust business shall be administered, which at the date hereof is 101 Barclay Street, Floor 21 West, New York, New York 10286. "corporation" includes a corporation, association, company, joint- ----------- stock company or business trust. "Defaulted Interest" has the meaning specified in Section 3.07. ------------------ "Depositary" means, with respect to the Securities of any series ---------- 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 3.01 with respect to such series (or any successor thereto). "Discount Security" means any security which provides for an amount ----------------- less than the principal amount 6 thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02. "Distributions", with respect to the Trust Securities issued by a ------------- Trust, means amounts payable in respect of such Trust Securities as provided in the related Trust Agreement and referred to therein as "Distributions". "Dollar" 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. "Event of Default" unless otherwise specified in the supplemental ---------------- indenture creating a series of Securities has the meaning specified in Article V. "Exchange Act" means the Securities Exchange Act of 1934 and any ------------ statute successor thereto, in each case as amended from time to time. "Expiration Date" has the meaning specified in Section 1.04(f). --------------- "Extension Period" has the meaning specified in Section 3.11. ---------------- "Federal Reserve" means the Board of Governors of the Federal Reserve --------------- System, as from time to time constituted, or if at any time after the execution of this Indenture the Federal Reserve is not existing and performing the duties now assigned to it, then the body performing such duties at such time. "Global Security" means a Security in the form prescribed in Section --------------- 2.04 evidencing all or part of a series of Securities, issued to the Depositary or its nominee for such series, and registered in the name of such Depositary or its nominee. "Guarantee", with respect to the Trust Securities issued by a Trust, --------- means the guarantee by the Company of Distributions on such Trust Securities to the extent provided in the Guarantee Agreement. "Guarantee Agreement", with respect to the Trust Securities issued by ------------------- a Trust, means the Guarantee Agreement substantially in the form attached hereto as Annex B, or substantially in such form as may be specified as 7 contemplated by Section 3.01 with respect to the Securities of any series, in each case as amended 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 and shall include the terms of each particular series of Securities established as contemplated by Section 3.01. "Interest Payment Date" means as to each series of Securities the --------------------- Stated Maturity of an installment of interest on such Securities. "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. "Moody's" means Moody's Investors Service, Inc. ------- "1997 Debentures" means the Floating Rate Junior Subordinated --------------- Deferrable Interest Debentures due 2027, issued pursuant to the 1997 Indenture. "1997 Guarantees" means the Company's guarantees in respect of the --------------- "Trust Securities" (as defined in the 1997 Indenture) issued pursuant to the Capital Securities Guarantee Agreement and the Common Securities Guarantee Agreement. "1997 Indenture" means the Indenture dated as of March 27, 1997, -------------- between the Company and The Bank of New York, as trustee, as supplemented by the Supplemental Indenture dated as of March 27, 1997, between the Company and The Bank of New York, as trustee. "Notice of Default" means a written notice of the kind specified in ----------------- Section 5.01(3). "Officers' Certificate" means a certificate signed by the Chairman of --------------------- the Board of Directors, a Vice Chairman of the Board of Directors, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the 8 Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be ------------------ counsel for the Company, and who shall be acceptable to the Trustee. "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: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment or Redemption Price 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 (iii) Securities in substitution for or in lieu of which other Securities have been authenticated and delivered or which have been paid pursuant to Section 3.06, 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 shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. Upon the written request of the Trustee, the Company shall furnish to the Trustee promptly an Officers' Certificate listing and identifying all Securities, if any, 9 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, and, subject to the provisions of Section 6.01, the Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth and of the fact that all Securities not listed therein are Outstanding for the purpose of any such determination. "Paying Agent" means the Trustee or any Person authorized by the ------------ Company to pay the principal of (or premium, if any) or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint ------ venture, limited liability company, trust, unincorporated organization or government or any agency or political subdivision thereof or any other similar organization. "Place of Payment" means, with respect to the Securities of any ---------------- series, the place or places where the principal of (and premium, if any) and interest on the Securities of such series are payable pursuant to Sections 3.01 and 3.11. "Predecessor Security" of any particular Security means every previous -------------------- Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.06 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Security. "Preferred Securities" has the meaning specified in the first recital -------------------- of this Indenture. "Property Trustee" means, in respect of any Trust, the commercial bank ---------------- or trust company identified as the "Property Trustee" in the related Trust Agreement, solely in its capacity as Property Trustee of such Trust under such Trust Agreement and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as therein provided. "Redemption Date", when used with respect to any Security to be --------------- redeemed, means the date fixed for such redemption by or pursuant to this Indenture. 10 "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 of a series means, unless otherwise provided pursuant to Section 3.01 with respect to Securities of a series, (i) in the case of Securities of a series represented by one or more Global Securities, the Business Day next preceding such Interest Payment Date and (ii) in the case of Securities of a series not represented by one or more Global Securities, the date which is fifteen days next preceding such Interest Payment Date (whether or not a Business Day). "Responsible Officer" when used with respect to the Trustee means any ------------------- officer of the Trustee assigned by the Trustee from time to time to administer its corporate trust matters. "Rights Plan" means a plan of the Company providing for the issuance ----------- by the Company to all holders of its Common Stock of rights entitling the holders thereof to subscribe for or purchase shares of Common Stock or any class or series of preferred stock of the Company, which rights (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, in each case until the occurrence of a specified event or events. "S&P" means Standard & Poor's Ratings Services. --- "Securities" or "Security" means any debt securities or debt security, ---------- -------- as the case may be, authenticated and delivered under this Indenture. "Securities Register" and "Securities Registrar" have the respective ------------------- -------------------- meanings specified in Section 3.05. "Senior Debt" means, with respect to the Company (except any other ----------- obligations which rank pari passu with the Securities of a series), (i) the ---- ----- principal and interest in respect of (A) indebtedness of the Company for money borrowed and (B) indebtedness evidenced by securities, debentures, notes, bonds or other similar instruments issued by the Company, including, without limitation, any current or future indebtedness under any indenture (other than this Indenture) to which the Company is a party; (ii) all capital lease obligations of the Company; (iii) all obligations of 11 the Company issued or assumed as the deferred purchase price of property, all conditional sale obligations of the Company and all obligations of the Company under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of the Company for the reimbursement of any letter of credit, any banker's acceptance, any security purchase facility, any repurchase agreement or similar arrangement, any interest rate swap, any other hedging arrangement, any obligation under options or any similar credit or other transaction; (v) all obligations of the type referred to in clauses (i) through (iv) above of other Persons for the payment of which the Company is responsible or liable as obligor, guarantor or otherwise; and (vi) all obligations of the type referred to in clauses (i) through (v) above of other Persons secured by any lien on any property or asset of the Company (whether or not such obligation is assumed by the Company), except for (1) any indebtedness between or among the Company or any Affiliate of the Company and (2) any series of Securities issued pursuant to this Indenture and guarantees in respect of any such series of Securities. Senior Debt does not include (a) the Securities of any series, (b) any junior subordinated debt securities issued in the future with subordination terms substantially similar to the Securities of any series, (c) the 1997 Guarantees or (d) the 1997 Debentures. Senior Debt shall continue to be Senior Debt and be entitled to the subordination provisions irrespective of any amendment, modification or waiver of any term of such Senior Debt. "Special Record Date" for the payment of any Defaulted Interest means ------------------- a date fixed by the Trustee pursuant to Section 3.07. "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 date on which the principal of such Security or such installment of interest is due and payable, in the case of such principal, as such date may be shortened or extended as provided pursuant to the terms of such Security and this Indenture. "Subsidiary" means a corporation more than 50% of the outstanding ---------- voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For purposes of this definition, "voting stock" means stock which ordinarily has voting power for the 12 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. "Tax Event", with respect to a Trust, means the receipt by such Trust --------- or the Company of an Opinion of Counsel (as defined in the relevant Trust Agreement) experienced in such matters to the effect that, as a result of (i) any amendment to, or change in, the laws or any regulations of the United States or any political subdivision or taxing authority thereof or therein that becomes effective after the date of issuance of the Preferred Securities of such Trust, (ii) any proposed change in such laws or regulations that is announced after the date of issuance of the Preferred Securities of such Trust, or (iii) any official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying such laws or regulations that is announced after the date of issuance of the Preferred Securities of such Trust, there is more than an insubstantial risk that (A) such Trust is, or will be within 90 days of the date 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 such Trust, (B) interest payable by the Company on such corresponding series of Securities is not, or within 90 days of the date 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) such Trust is, or will be within 90 days of the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties or other governmental charges. "Trust" has the meaning specified in the first recital of this ----- Indenture. "Trust Agreement", with respect to a Trust, means a Trust Agreement --------------- substantially in the form attached hereto as Annex A, as amended by the form of Amended and Restated Trust Agreement substantially in the form attached hereto as Annex B, or substantially in such form as may be specified as contemplated by Section 3.01 with respect to the Securities of any series, in each case as amended from time to time. "Trustee" means the Person named as the "Trustee" in the first ------- paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable 13 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 of any series shall mean the Trustee with respect to Securities of that series. "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. ------------------- Section 77aaa-77bbb), as amended and as in effect on the date of this Indenture, except as provided in Section 9.05. "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 1.02. Compliance Certificate and Opinions. Upon any ------------------------------------ application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers Certificate stating that all conditions precedent (including covenants, compliance with which constitutes a condition precedent), if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent (including covenants compliance with which constitutes a condition precedent), if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than the certificates provided pursuant to Section 10.05) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; 14 (3) a statement that, in the opinion of each such individual, he has made or caused to be made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.03. Forms of Documents Delivered to Trustee. In any case ---------------------------------------- where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer or counsel knows, that the certificate or opinion or representations with respect to the matters upon which his or her certificate or opinion is based are erroneous. Any 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 rendering such Opinion of Counsel knows that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions, or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.04. 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 15 more instruments of substantially similar tenor signed by such Holders in person or by an agent or proxy 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 or proxy shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) 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 the execution thereof. Where such execution is by a Person acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his 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 proved in any other manner which 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, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (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, 16 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 of such series, 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 paragraph. If any record date is set pursuant to this paragraph, the Holders of the relevant 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 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 the relevant 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 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 the relevant 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 the relevant Securities in the manner set forth in Section 1.06. 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 5.02, (iii) any request to institute proceedings referred to in Section 5.07(2) or (iv) any direction referred to in Section 5.12, in each case with respect to the relevant Securities. If any record date is set pursuant to this paragraph, the Holders of the relevant 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 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 the relevant Outstanding Securities on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new 17 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 the relevant 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 the relevant Securities in the manner set forth in Section 1.06. With respect to any record date set pursuant to this Section, the party hereto which 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 the relevant Outstanding Securities in the manner set forth in Section 1.06, 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 which 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. SECTION 1.05. Notices, Etc. to Trustee and Company. Any request, ------------------------------------- demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder, any holder of Preferred Securities or the Company shall be sufficient 18 for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) 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 5.01) hereunder if in writing and mailed, first class, postage prepaid, to the Company 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 1.06. 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. 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 1.07. Conflict with Trust Indenture Act. If any provision of ---------------------------------- this Indenture limits, qualifies or conflicts with the duties imposed by any of Sections 310 to 317, inclusive, of the Trust Indenture Act through operation of Section 318(c) thereof, such imposed duties shall control. SECTION 1.08. Effect of Headings and Table of Contents. The Article ----------------------------------------- and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.09. Successors and Assigns. All covenants and agreements ----------------------- in this Indenture by the Company 19 shall bind its successors and assigns, whether so expressed or not. SECTION 1.10. Separability Clause. In case any provision of 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 Debt, the Holders of the Securities and, to the extent expressly provided in Sections 5.02, 5.08, 5.09, 5.11, 5.13, 9.01 and 9.02, the holders of Preferred Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.12. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL -------------- BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THEREOF. SECTION 1.13. Non-Business Days. In any case where any Interest ------------------ Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day (and no interest shall accrue 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 2.01. Forms Generally. The Securities of each series 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 20 or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with applicable tax laws or the rules of any securities exchange or automated quotation system on which the Securities may be listed or traded 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 of any series 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 3.03 with respect to the authentication and delivery of such Securities. The Trustee's certificates of authentication shall be substantially in the form set forth in this Article. The definitive Securities shall be typewritten, printed, lithographed or engraved or produced by any combination of these methods, if required by any securities exchange or automated quotation system on which the Securities may be listed or traded, 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 or automated quotation system on which the Securities may be listed or traded, all as determined by the officers executing such Securities, as evidenced by their execution of such securities. SECTION 2.02. Form of Face of Security. ------------------------- NATIONAL COMMERCE FINANCIAL CORPORATION CUSIP _______ ___% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES No. $ NATIONAL COMMERCE FINANCIAL CORPORATION, a corporation organized and existing under the laws of the state of Tennessee (hereinafter called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to , or registered assigns, the principal sum of Dollars on , [; provided that the Company may, subject to 21 certain conditions set forth in Section 3.14 of the Indenture, (i) shorten the Stated Maturity of the principal of this Security to a date not earlier than , and (ii) extend the Stated Maturity of the principal of this Security at any time on one or more occasions, but in no event to a date later than ]. The Company further promises to pay interest on said principal sum from , or from the most recent interest payment date (each such date, an "Interest Payment ---------------- Date") on which interest has been paid or duly provided for, [monthly] - ---- [quarterly] [semi-annually] [if applicable, insert -(subject to deferral as set forth herein)] in arrears on [insert applicable Interest Payment Dates] of each year, commencing , at the rate of % per annum, until the principal hereof shall have become due and payable, [if applicable, insert plus Additional Interest at a per annum rate equal to %, if any,] until the principal hereof is paid or duly provided for or made available for payment [if applicable, insert - and on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the rate of % per annum, compounded [monthly] quarterly] [semi-annually]. The amount of interest payable for any period shall be computed on the basis of twelve 30-day months and a 360-day year. The amount of interest payable for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Security is not a Business Day, then a payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date the payment was originally payable. A "Business -------- Day" shall mean any day other than (i) a Saturday or Sunday, (ii) a day on which - --- banking institutions in The City of New York 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 [if applicable, insert - or the principal office of the Property Trustee under the Trust Agreement hereinafter referred to for [name of applicable Trust]--,] is closed for business. The interest installment 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 22 installment, which shall be the [insert definition of Regular Record Dates]. Any such interest installment not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Securities of this series may be listed or traded, and upon such notice as may be required by such exchange or self-regulatory organization, all as more fully provided in said Indenture. [If applicable, insert - 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 to defer payment of interest on this Security, at any time or from time to time, for up to consecutive [monthly] [quarterly] [semi-annual] 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 (together with Additional Interest thereon to the extent permitted by applicable law); provided, however, that no Extension Period shall extend beyond the Stated Maturity of the principal of this Security; provided, further, that during any such Extension Period, the Company shall not, and shall not permit any Subsidiary of the Company to, (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 security of the Company that ranks pari passu with or junior in interest to this Security or (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to this Security (other than (a) dividends or distributions in the Company's capital stock, (b) any declaration of a dividend in connection with the implementation of a Rights Plan or the redemption or repurchase of any rights distributed pursuant to a Rights 23 Plan, (c) payments under the Guarantee with respect to this Security, and (d) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees, related to the issuance of Common Stock or rights under a dividend reinvestment and stock purchase plan, or related to the issuance of Common Stock (or securities convertible or exchangeable for Common Stock) as consideration in an acquisition transaction that was entered into prior to the commencement of such Extension Period). 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 ___ consecutive [months] [quarters] [semi-annual] periods or extend beyond the Stated Maturity of the principal of this Security. Upon the termination of any such Extension Period and upon the payment of all accrued and unpaid interest and any Additional Interest then due, the Company may elect to begin a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period except at the end thereof. The Company shall give the Holder of this Security and the Trustee, the Property Trustee and the Administrative Trustees notice of its election to begin any Extension Period at least one Business Day prior to the next succeeding Interest Payment Date on which interest on this Security would be payable but for such deferral [if applicable, insert - or, with respect to the Securities issued to a Trust, so long as such Securities are held by such Trust, prior to the earlier of (i) the next succeeding date on which Distributions on the Preferred Securities would be payable but for such deferral or (ii) the date the Administrative Trustees are required to give notice to any securities exchange or other applicable self-regulatory organization or 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 principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the United States, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts [if applicable, insert -; 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) by wire transfer in immediately available funds at such place and to such account as may be designated in writing at least 15 days 24 before the relevant Interest Payment Date by the Person entitled thereto as specified in the Securities Register]. The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Debt, 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 behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. Each Holder hereof, by his acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Debt, 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. NATIONAL COMMERCE FINANCIAL CORPORATION, by ------------------------------------- [President or Vice President] Attest: - ---------------------------------- [Secretary or Assistant Secretary] 25 SECTION 2.03. 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 in one or more series under a Junior - ----------- Subordinated Indenture, dated as of , 2001 (herein called the "Indenture"), between the Company and The Bank of New York, 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 Trustee, the Company 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 [if applicable, insert -or in the Trust Agreement, dated as of ___________, 2001, as amended (the "Trust Agreement"), for [National Commerce Capital Trust II,] among --------------- National Commerce Financial Corporation, as Depositor, and the Trustees named therein, shall have the meanings assigned to them in the Indenture [if applicable, insert -or the Trust Agreement, as the case may be]. [If applicable, insert--The Company may at any time, at its option, on or after ___________, ____, and subject to the terms and conditions of Article XI of the Indenture, redeem this Security in whole at any time or in part from time to time, without premium or penalty, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest [if applicable, insert - including Additional Interest, if any] to the Redemption Date.] [If applicable, insert--Upon the occurrence and during the continuation of a Tax Event or a Capital Treatment Event in respect of a Trust, the Company may, at its option, at any time within 90 days of the occurrence of such Tax Event or Capital Treatment Event redeem this Security, in whole but not in part, subject to the provisions of Section 11.07 and the other provisions of Article XI of the Indenture, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, including Additional Interest, if any, to the Redemption Date.] In the event of redemption of this Security in part only, a new Security or Securities of this series for 26 the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. The Indenture contains provisions for satisfaction and discharge 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 of all series to be affected by such supplemental indenture. The Indenture also contains provisions permitting Holders of specified percentages in principal amount of the Securities of all series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. [If the Security is not a Discount Security, -As provided in and subject to the provisions of the Indenture, if an Event of Default with respect to the Securities of this series 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 principal amount of the Outstanding Securities of this series may declare the principal amount of all the Securities of this series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that, in the case of the Securities of this -------- series issued to a Trust, if upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of this series fails to declare the principal of all the Securities of this series to be immediately due and payable, the holders of at least 25% in aggregate Liquidation Amount of the Preferred Securities then outstanding shall have such right by a notice in writing to the Company and the Trustee; and upon any such declaration the principal amount of and the accrued interest 27 (including any Additional Interest) on all the Securities of this series 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. The Holders of a majority in principal amount of the Outstanding Securities of this series may annul such declaration and waive such default. If the Holders of a majority in principal amount of the Outstanding Securities fail to annul such declaration and waive such default, the holders of a majority in aggregate Liquidation Amount of the Preferred Securities affected then outstanding shall have such right.] [If the Security is a Discount Security, -As provided in and subject to the provisions of the Indenture, if an Event of Default with respect to the Securities of this series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than such portion of the principal amount as may be specified in the terms of this series may declare an amount of principal of the Securities of this series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that, in the case of the Securities of this series issued to a Trust, if upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of this series fails to declare the principal of all the Securities of this series to be immediately due and payable, the holders of at least 25% in aggregate Liquidation Amount of the Preferred Securities then outstanding shall have such right by a notice in writing to the Company and the Trustee. Such amount shall be equal to - insert formula for determining the amount. Upon any such declaration, such amount of the principal of and the accrued interest (including any Additional Interest) on all the Securities of this series 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. Upon payment (i) of the amount of principal so declared due and payable and (ii) of interest on any overdue principal and overdue interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the payment of the principal of and interest, if any, on this Security shall terminate.] 28 No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. 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 10.02 of the Indenture 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 his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. 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 Securities of this series are issuable only in registered form without coupons in denominations of $ and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of such series of a different authorized denomination, as requested by the Holder surrendering the same. 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 agree that for United States Federal, state and local tax purposes it is intended that this Security constitute indebtedness. 29 THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. SECTION 2.04. Additional Provisions Required in Global Security. Any -------------------------------------------------- Global Security issued hereunder shall, in addition to the provisions contained in Sections 2.02 and 2.03, bear a legend in substantially the following form: "This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee of a Depositary. This Security is exchangeable for Securities registered in the name of a person other than the Depositary or its nominee only in the limited circumstances described in the Indenture and may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary." SECTION 2.05. Form of Trustee's Certificate of Authentication. This ------------------------------------------------ is one of the Securities referred to in the within mentioned Indenture. Dated: THE BANK OF NEW YORK, as Trustee, by ------------------------------------- Authorized Signatory 30 ARTICLE III The Securities -------------- SECTION 3.01. Title and Terms. The aggregate principal amount of ---------------- Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued from time to time in one or more series. The following matters shall be established in or pursuant to a Board Resolution, and set forth in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of a series: (a) the title of the Securities of such series, which shall distinguish the Securities of the series from all other Securities; (b) the limit, if any, upon the aggregate principal amount of the Securities of such series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 3.04, 3.05, 3.06, 9.06 or 11.06 and except for any Securities which, pursuant to the last paragraph of Section 3.03, are deemed never to have been authenticated and delivered hereunder); provided, however, that the authorized aggregate principal -------- ------- amount of such series may be increased above such amount by a Board Resolution to such effect; (c) the Stated Maturity or Maturities on which the principal of the Securities of such series is payable or the method of determination thereof; (d) the rate or rates, if any, at which the Securities of such series shall bear interest, if any, the rate or rates and extent to which Additional Interest, if any, shall be payable in respect of any Securities of such series, the Interest Payment Dates on which such interest shall be payable, the right, pursuant to Section 3.11 or as otherwise set forth therein, of the Company to defer or extend an Interest Payment Date, and the Regular Record Date for the interest payable on any Interest Payment Date or the method by which any of the foregoing shall be determined; 31 (e) the place or places where the principal of (and premium, if any) and interest on the Securities of such series shall be payable, the place or places where the Securities of such series may be presented for registration of transfer or exchange, and the place or places where notices and demands to or upon the Company in respect of the Securities of such series may be made; (f) the period or periods within which, or the date or dates on which, if any, the price or prices at which and the terms and conditions upon which the Securities of such series may be redeemed, in whole or in part, at the option of the Company; (g) the obligation or the right, if any, of the Company to redeem, repay or purchase the Securities of such series pursuant to any sinking fund, amortization or analogous provisions or upon the happening of a specified event, or at the option of a Holder thereof, and the period or periods within which, the price or prices at which, the currency or currencies (including currency unit or units) in which and the other terms and conditions upon which Securities of the series shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation; (h) the denominations in which any Securities of such series shall be issuable, if other than denominations of $25 and any integral multiple thereof; (i) if other than Dollars, the currency or currencies (including currency unit or units) in which the principal of (and premium, if any) and interest, if any, on the Securities of the series shall be payable, or in which the Securities of the series shall be denominated; (j) the additions, modifications or deletions, if any, in the Events of Default or covenants of the Company set forth herein with respect to the Securities of such series; (k) if other than the principal amount thereof, the portion of the principal amount of Securities of such series that shall be payable upon declaration of acceleration of the Maturity thereof; 32 (l) the additions or changes, if any, to this Indenture with respect to the Securities of such series as shall be necessary to permit or facilitate the issuance of the Securities of such series in bearer form, registrable or not registrable as to principal, and with or without interest coupons; (m) any index or indices used to determine the amount of payments of principal of and premium, if any, on the Securities of such series or the manner in which such amounts will be determined; (n) whether the Securities of the series, or any portion thereof, shall initially be issuable in the form of a temporary Global Security representing all or such portion of the Securities of such series and provisions for the exchange of such temporary Global Security for definitive Securities of such series; (o) if applicable, that any Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the respective Depositaries for such Global Securities, the form of any legend or legends which shall be borne by any such Global Security in addition to or in lieu of that set forth in Section 2.04 and any circumstances in addition to or in lieu of those set forth in Section 3.05 in which any such Global Security may be exchanged in whole or in part for Securities registered, and any transfer of such Global Security in whole or in part may be registered, in the name or names of Persons other than the Depositary for such Global Security or a nominee thereof; (p) the appointment of any Paying Agent or Agents for the Securities of such series; (q) the terms of any right to convert or exchange Securities of such series into any other securities or property of the Company, and the additions or changes, if any, to this Indenture with respect to the Securities of such series to permit or facilitate such conversion or exchange; (r) the form or forms of the Trust Agreement, Amended and Restated Trust Agreement and Guarantee Agreement, if different from the forms attached hereto as Annexes A, B and C, respectively; 33 (s) the relative degree, if any, to which the Securities of the series shall be senior to or be subordinated to other series of Securities in right of payment, whether such other series of Securities are Outstanding or not; and (t) any other terms of the Securities of such series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided herein or in or pursuant to such Board Resolution and set forth in such Officers' Certificate or in any such indenture supplemental hereto. If any of the terms of the Securities of any series are 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 Officers' Certificate setting forth the terms of the series. The Securities shall be subordinated in right of payment to Senior Debt as provided in Article XIII. SECTION 3.02. Denominations. The Securities of each series shall be -------------- in registered form without coupons and shall be issuable in denominations of $25 and any integral multiple thereof, unless otherwise specified as contemplated by Section 3.01. SECTION 3.03. Execution, Authentication, Delivery and Dating. The ----------------------------------------------- Securities shall be executed on behalf of the Company by its President or one of its Vice Presidents [under its corporate seal reproduced or impressed thereon] 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. 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 of any series executed by the Company to the Trustee for authentication, together with a 34 Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and make such Securities available for delivery. If the form or terms of the Securities of the series have been established by or pursuant to one or more Board Resolutions as permitted by Sections 2.01 and 3.01, 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 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating, (1) if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 2.01, that such form has been established in conformity with the provisions of this Indenture; (2) if the terms of such Securities have been established by or pursuant to Board Resolution as permitted by Section 3.01, that such terms have been established in conformity with the provisions of this Indenture; (3) 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; and (4) that all requirements of New York, Tennessee and Federal law in respect of the execution and delivery by the Company of such Securities, and all covenants and conditions set forth in this Indenture which are conditions precedent hereto, have been complied with. 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 which is not reasonably acceptable to the Trustee. 35 Notwithstanding the provisions of Section 3.01 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 3.01 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by the manual signature of one of its authorized signatories, 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 3.09, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall not be entitled to the benefits of this Indenture. SECTION 3.04. Temporary Securities. Pending the preparation of --------------------- definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and make available for delivery, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities of such series in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities of any series are issued, the Company will cause definitive Securities of such series 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 36 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 make available for delivery in exchange therefor one or more definitive Securities of the same series, 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 of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. SECTION 3.05. Registration, Transfer and Exchange. 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 of 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 office or agency of the Company designated for that purpose the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Securities of the same series of any authorized denominations, of a like aggregate principal amount, of the same Original Issue Date and Stated Maturity and having the same terms. At the option of the Holder, Securities may be exchanged for other Securities of the same series of any authorized denominations, of a like aggregate principal amount, of the same Original Issue Date and Stated Maturity and having the same terms, 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 make available for delivery, the Securities which 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. 37 Every Security presented or surrendered for transfer or exchange shall (if so required by the Company or the Securities Registrar) 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 his 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. The provisions of Clauses (1), (2), (3) and (4) below shall apply only to Global Securities: (1) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (A) such Depositary is unwilling, unable or ineligible to continue as Depositary for such Global Security, (B) the Company advises the Trustee in writing that it elects to terminate the book-entry system, or (C) after the occurrence of an Event of Default, owners of a beneficial interest in a series of Securities of at least a majority in aggregate outstanding principal amount of such Securities advises the Trustee in writing that the continuation of the book-entry system is no longer in the best interest of the owners of such Securities. (3) Subject to Clause (2) above, any exchange of a Global Security for other Securities may be made in 38 whole or in part, and all securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct. (4) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Section, Section 3.04, 3.06, 9.06 or 11.06 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. Neither the Company nor the Trustee shall be required, pursuant to the provisions of this Section, (a) to issue, transfer or exchange any Security of any series 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 notice of redemption or (b) to transfer or exchange any Security so selected for redemption in whole or in part, except, in the case of any Security to be redeemed in part, any portion thereof not to be redeemed. SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities. 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 make available for delivery in exchange therefor a new Security of the same issue and series of like tenor and principal amount, having the same Original Issue Date and Stated Maturity and bearing the same interest rate as such mutilated Security, and bearing a number not contemporaneously outstanding. 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, the Company shall execute and upon its request the Trustee shall authenticate and make available for delivery, in lieu of any such destroyed, lost or stolen Security, a new Security of the same issue and series of like tenor and principal amount, having the same Original Issue Date and Stated Maturity and bearing the same 39 interest rate as such destroyed, lost or stolen Security, and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.07. Payment of Interest; Interest Rights Preserved. ----------------------------------------------- Interest on any Security of any series which is payable, and is punctually paid or duly provided for, on any Interest Payment Date, shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest in respect of Securities of such series, except that, unless otherwise provided in the Securities of such series, 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 of any series which 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 3.01 with respect to the related series of Securities. At the option of the Company, interest on any series of Securities may be paid (i) by check mailed to the address of the Person entitled thereto as it shall appear on the Securities Register of such series or (ii) by wire transfer in immediately available funds at such place and to 40 such account as designated by the Person entitled thereto as specified in the Securities Register of such series. Any interest on any Security which is payable, but is not timely paid or duly provided for, on any Interest Payment Date for Securities of such series (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 (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series 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 at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class, postage prepaid, to each Holder of a Security of such series 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 41 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 of such series (or their respective Predecessor Securities) are registered on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Securities of the series in respect of which interest is in default may be listed or traded and, upon such notice as may be required by such exchange or automated quotation system (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, such payment shall be deemed practicable by the Trustee. Any interest on any Security which is deferred or extended pursuant to Section 3.11 shall not be Defaulted Interest for the purposes of this Section 3.07. 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, which were carried by such other Security. SECTION 3.08. Persons Deemed Owners. The Company, the Trustee and ---------------------- any agent of the Company or the Trustee may 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 3.07) any interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 3.09. 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. Notwithstanding any other provision of this Indenture, the Company may 42 at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly 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 returned by the Trustee to the Company and destroyed by the Company. SECTION 3.10. Computation of Interest. Except as otherwise specified ------------------------ as contemplated by Section 3.01 for Securities of any series, interest on the Securities of each series for any period shall be computed on the basis of a 360-day year of twelve 30-day months and interest on the Securities of each series for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. SECTION 3.11. Deferrals of Interest Payment Dates. If specified as ------------------------------------ contemplated by Section 2.01 or Section 3.01 with respect to the Securities of a particular series, 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 such series, from time to time to defer the payment of interest on such Securities for such period or periods as may be specified as contemplated by Section 3.01 (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. 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 of such series to the extent permitted by applicable law) to the Persons in whose names such Securities are registered at the close of business on the Regular Record Date with respect to the Interest Payment Date at the end of such Extension Period; provided, however, that no Extension Period shall extend -------- ------- beyond the Stated Maturity of the principal of the Securities of such series; provided further, that during any such Extension Period, the Company shall not, - ---------------- and shall not permit any Subsidiary to, (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, (ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt security of the Company that ranks pari ---- 43 passu with or junior in interest to the Securities of such series or (iii) make - ----- any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company that by their terms rank pari passu ---- ----- with or junior in interest to the securities of such series (other than (a) dividends or distributions in the Company's capital stock, (b) any declaration of a dividend in connection with the implementation of a Rights Plan, or the redemption or repurchase of any rights distributed pursuant to a Rights Plan, (c) payments under the Guarantee with respect to such Security, and (d) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees, related to the issuance of Common Stock or rights under a dividend reinvestment and stock purchase plan, or related to the issuance of Common Stock (or securities convertible or exchangeable for Common Stock) as consideration in an acquisition transaction that was entered into prior to the commencement of such Extension Period). 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 the period or periods specified in such Securities or extend beyond the Stated Maturity of the principal of such Securities. Upon termination of any 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 requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. The Company shall notify the Property Trustee, the Administrative Trustees, the Trustee and if the Property Trustee is not the sole Holder of the Securities of such series, the Holders of the Securities of such Series, of its election to begin any such Extension Period at least one Business Day prior to the earlier of (i) the next succeeding date on which Distributions on the Trust Securities of such Trust would be payable in the absence of the deferral election; (ii) the date the Administrative Trustees of such Trust are required to give notice to any securities exchange or quotation system on which the Preferred Securities of such Trust are then listed or quoted or to the Holders of Securities; and (iii) one Business Day prior to such record date. The Trustee shall promptly give notice, in the name and at the expense of the Company, of the Company's 44 election to begin any such Extension Period to the Holders of the Outstanding Securities of such series. SECTION 3.12. Right of Set-Off. With respect to the Securities of a ----------------- series issued to a Trust, notwithstanding anything to the contrary in the Indenture, the Company shall have the right to set-off any payment it is otherwise required to make thereunder 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 under Section 5.08 of the Indenture. SECTION 3.13. 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 intend that such Security constitutes indebtedness and agree to treat such Security as indebtedness for United States Federal, local and state tax purposes. SECTION 3.14. Shortening or Extension of Stated Maturity. If ------------------------------------------- specified as contemplated by Section 2.01 or Section 3.01 with respect to the Securities of a particular series, the Company shall have the right to (i) shorten the Stated Maturity of the principal of the Securities of such series at any time to any date not earlier than the first date on which the Company has the right to redeem the Securities of such series, and (ii) extend the Stated Maturity of the principal of the Securities of such series at any time at its election for one or more periods, but in no event to a date later than the 49th anniversary of the Original Issue Date of the Securities of such series; provided that, if the Company elects to exercise its right to extend the Stated - -------- Maturity of the principal of the Securities of such series pursuant to clause (ii), above, at the time such election is made and at the time of extension (A) the Company is not in bankruptcy, otherwise insolvent or in liquidation, (B) the Company is not in default in the payment of any interest or principal on such Securities, (C) in the case of any series of Securities held by a Trust, such Trust is not in arrears on payments of Distributions on the Preferred Securities issued by such Trust and no deferred Distributions are accumulated and (D) such Securities are rated not less than BBB- by S&P or Baa3 by Moody's or the equivalent by any other nationally recognized statistical rating organization. In the event the Company elects to shorten or extend the Stated Maturity of the Securities of a particular series, it shall give written 45 notice to the Trustee, and the Trustee shall give notice of such shortening or extension to the Holders, no less than 30 and no more than 60 days prior to the effectiveness thereof. 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 notices of redemption 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 Securities or as contained in any notice of a redemption 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. The Company will promptly notify the Trustee of any change in the CUSIP numbers. ARTICLE IV Satisfaction and Discharge -------------------------- SECTION 4.01. 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 4.01) and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.03) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or 46 (ii) will become due and payable at their Stated Maturity within one year of the date of deposit, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of Clause (B) (i), (ii) or (iii) 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 of such series are payable sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest (including any Additional Interest) to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.07, 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 (B) of clause (1) of this Section, the obligations of the Trustee under Section 4.02 and the last paragraph of Section 10.03 shall survive. SECTION 4.02. Application of Trust Money. Subject to the provisions --------------------------- of the last paragraph of Section 10.03, all money deposited with the Trustee pursuant to Section 4.01 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 47 through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for the payment of which such money or obligations have been deposited with or received by the Trustee. ARTICLE V Remedies -------- SECTION 5.01. Events of Default. "Event of Default", wherever used ------------------ ---------------- herein with respect to the Securities of any series, 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): (1) default in the payment of any interest upon any Security of that series, 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 interest payment date in the case of an Extension Period); or (2) default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity or upon redemption; or (3) default in the performance, or breach, in any material respect, of any covenant or warranty of the Company in this Indenture with respect to that series (other than a covenant or warranty a default in the performance of which or the breach of which is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied; or (4) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company a bankrupt or insolvent, or approving as 48 properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company 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 the Company 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 (5) the institution by the Company 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 other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit for 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 the Company in furtherance of any such action; or (6) any other Event of Default provided with respect to Securities of that series. SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. If --------------------------------------------------- an Event of Default (other than an Event of Default specified in Section 5.01(4) or 5.01(5)) with respect to Securities of any series 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 principal amount of the Outstanding Securities of that series may declare the principal amount (or, if the Securities of that series are Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all the Securities of that series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that, in the case of the Securities of a series issued to a Trust, if, upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of 49 the Outstanding Securities of that series fail to declare the principal amount (or, if the Securities of that series are Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all the Securities of that series to be immediately due and payable, the holders of at least 25% in aggregate liquidation amount of the corresponding series of Preferred Securities then outstanding shall have such right 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 of such series shall 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. If an Event of Default specified in Section 5.01(4) or 5.01(5) with respect to Securities of any series at the time Outstanding occurs, the principal amount of all the Securities of that series (or, if the Securities of that series are Discount Securities, such portion of the principal amount of such Securities as may be specified by the terms of that series) shall automatically, and without any declaration or other action on the part of the Trustee or any Holder, become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (1) the Company has paid or deposited with the Trustee a sum sufficient to pay: (A) all overdue installments of interest (including any Additional Interest) on all Securities of that series, (B) the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, and 50 (C) 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 (2) all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which has become due solely by such acceleration, have been cured or waived as provided in Section 5.13; provided that, in the case of Securities of a series held by a Trust, if the - -------- Holders of at least a majority in principal amount of the Outstanding Securities of that series fails to rescind and annul such declaration and its consequences, the holders of a majority in aggregate Liquidation Amount (as defined in the Trust Agreement under which such Trust is formed) of the related series of Preferred Securities then outstanding shall have such right by written notice to the Company and the Trustee, subject to the satisfaction of the conditions set forth in Clauses (1) and (2) above of this Section 5.02. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 5.03. Collection of Indebtedness and Suits for Enforcement ---------------------------------------------------- by Trustee. The Company covenants that if: - ----------- (1) 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 (2) default is made in the payment of the principal of (and premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal, including any sinking fund payment or analogous obligations (and premium, if any) and interest (including any Additional Interest); and, in addition thereto, all amounts owing the Trustee under Section 6.07. 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 51 proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default with respect to Securities of any series 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 of such series 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 5.04. Trustee May File Proofs of Claim. In case of the --------------------------------- pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, (a) the Trustee (irrespective of whether the principal of the Securities of any series shall then be due and payable as therein expressed or by declaration of acceleration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal (and premium, if any) or interest (including any Additional Interest)) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (or, if the Securities of that series are Discount Securities, such portion of the principal amount as may be due and payable pursuant to a declaration in accordance with Section 5.02) (and premium, if any) and interest (including any Additional Interest) owing and unpaid in respect to the Securities and to file such other papers or documents as may be necessary or advisable and to take any and all actions as are authorized under the Trust Indenture Act in order to have the claims of the Holders and any predecessor to the Trustee under Section 6.07 allowed in any such judicial proceedings; and 52 (ii) in particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same in accordance with Section 5.06; and (b) any custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee for distribution in accordance with Section 5.06, 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 6.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, -------- ------- that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors or other similar committee. SECTION 5.05. Trustee May Enforce Claims Without Possession of ------------------------------------------------ Securities. All rights of action and claims under this Indenture or the - ----------- Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of all the amounts owing the Trustee and any predecessor Trustee under Section 6.07, 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 5.06. Application of Money Collected. Any money or property ------------------------------- collected or to be applied by the Trustee with respect to a series of 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 premium, if any) or interest (including any Additional Interest), upon presentation of the Securities 53 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 6.07; SECOND: Subject to Article XIII, to the payment of the amounts then due and unpaid upon such series of Securities for principal (and premium, if any), interest (including any Additional Interest) and Additional Taxes, 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 series of Securities for principal (and premium, if any) and interest (including any Additional Interest), respectively; and THIRD: The balance, if any, to the Person or Persons entitled thereto. SECTION 5.07. Limitation on Suits. No Holder of any Securities of -------------------- any series 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: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of security or indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60- 54 day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; 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 5.08. 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 premium, if any) and (subject to Section 3.07) interest (including any Additional Interest) on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. In the case of Securities of a series held by a Trust, any holder of the corresponding series of Preferred Securities held by such Trust shall have the right, upon the occurrence of an Event of Default described in Section 5.01(1) or 5.01(2), to institute a suit directly against the Company for enforcement of payment to such holder of principal of (premium, if any) and (subject to Section 3.07) interest (including any Additional Interest) on the Securities having a principal amount equal to the aggregate Liquidation Amount (as defined in the Trust Agreement under which such Trust is formed) of such Preferred Securities of the corresponding series held by such holder. SECTION 5.09. Restoration of Rights and Remedies. If the Trustee, any ----------------------------------- Holder or any holder of Preferred Securities 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, the 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, the Holders and the holders of 55 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 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of ----------------------------- the Trustee, any Holder of any Security or any holder of any Preferred Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. 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 5.08 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 a majority in ------------------- principal amount of the Outstanding Securities of any series 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 of such series, provided that: (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) subject to the provisions of Section 6.01, 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 56 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. The Holders of not less than ------------------------ a majority in principal amount of the Outstanding Securities of any series and, in the case of any Securities of a series issued to a Trust, the holders of a majority in Liquidation Amount (as defined in the relevant Trust Agreement) of Preferred Securities issued by such Trust may waive any past default hereunder and its consequences with respect to such series except a default: (1) in the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Security of such series (unless all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which has become due solely by such acceleration, have been cured or annulled as provided in Section 5.03 and the Company has paid or deposited with the Trustee a sum sufficient to pay all overdue installments of interest (including any Additional Interest) on all Securities of that series, the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, and all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel), or (2) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Any such waiver shall be deemed to be on behalf of the Holders of all the Securities of such series or, in the case of a waiver by holders of Preferred Securities issued by such Trust, by all holders of Preferred Securities issued by such Trust. 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. 57 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 and expenses, 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 principal amount of the Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Security on or after the respective Stated Maturities expressed in such Security. 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 6.01. Certain Duties and Responsibilities. (a) Except ------------------------------------ during the continuance of an Event of Default, (1) 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 58 shall be read into this Indenture against the Trustee; and (2) 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 which 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 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 (1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section; (2) 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 (3) 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 of such series. (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 59 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. SECTION 6.02. 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 of any series, the Trustee shall transmit by mail to all Holders of Securities of such series, 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 premium, if any) or interest (including any Additional Interest) on any Security of such series, 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 of such series; and provided further, that, in the case of any ---------------- default of the character specified in Section 5.01(3), no such notice to Holders of Securities of such series shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means ------- any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. SECTION 6.03. Certain Rights of Trustee. Subject to the provisions -------------------------- of Section 6.01: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, Security or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; 60 (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 selection 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 which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, indenture, Security or other paper or document, but the Trustee in its discretion may make such inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; and (h) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. 61 SECTION 6.04. Not Responsible for Recitals or Issuance of Securities. ------------------------------------------------------- The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of the Securities or the proceeds thereof. SECTION 6.05. 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 6.08 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 6.06. 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 in writing with the Company. SECTION 6.07. Compensation and Reimbursement. The Company, as ------------------------------- borrower, agrees (1) to pay to the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify each of the Trustee and any predecessor Trustee for, and to hold it harmless against, any and all loss, liability, damage, claim or 62 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 costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. This indemnification shall survive the termination of this Agreement. To secure the Company's payment obligations in this Section, the Company and the Holders agree that the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee. Such lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 5.01(4) or (5) 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 6.08. Disqualification; Conflicting Interests. The Trustee ---------------------------------------- for the Securities of any series 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 6.09. Corporate Trustee Required; Eligibility. There shall ---------------------------------------- at all times be a Trustee hereunder which shall be: (a) a corporation organized and doing business under the laws of the United States of America or of any state or territory or the District of Columbia, authorized under such laws to exercise corporate trust powers and subject to supervision or examination by Federal, state, territorial or District of Columbia authority, or (b) a corporation or other Person 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 63 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 corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then, for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in 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 of any series 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 of one or more series 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 with respect to the Securities of such series. (c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after such removal, the Trustee being removed may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. 64 (d) If at any time: (1) the Trustee shall fail to comply with Section 6.08 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company, acting pursuant to the authority of a Board Resolution, may remove the Trustee with respect to all Securities, or (ii) 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 himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities 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 of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee with respect to the Securities of that or those series. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series 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 of such series and supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series 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 65 Security for at least six months may, subject to Section 5.14, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities of such series 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 of such series and the address of its Corporate Trust Office. SECTION 6.11. Acceptance of Appointment by Successor. (a) In case --------------------------------------- of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) 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 Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all 66 the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall 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, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring 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 retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. (c) Upon reasonable 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) or (b) of this Section, as the case may be. (d) 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 corporation into which the Trustee may be merged or converted or - --------- with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. 67 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. The Trustee may ------------------------------------ appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue and upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 3.06, 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 a corporation organized and doing business under the laws of the United States of America, or of any state or territory or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or state authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating 68 Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of an Authenticating Agent shall be the successor Authenticating Agent hereunder, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment in the manner provided in Section 1.06 to all Holders of Securities of the series with respect to which such Authenticating Agent will serve. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provision of this Section. The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section. 69 If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities referred to in the within mentioned Indenture. Dated: /s/ THE BANK OF NEW YORK As Trustee By: ----------------------- As Authenticating Agent By: ----------------------- Authorized Officer 70 ARTICLE VII Holder's Lists and Reports by Trustee and Company ------------------------------------------------- SECTION 7.01. Company To Furnish Trustee Names and Addresses of ------------------------------------------------- Holders. The Company will furnish or cause to be furnished to the Trustee: - -------- (a) semi-annually, not more than 15 days after January 15 and July 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 January 1 and July 1, 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 7.02. 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 7.01 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 7.01 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 7.03. Reports by Trustee. (a) The Trustee shall transmit to ------------------- Holders such reports concerning the Trustee and its actions under this Indenture as may be 71 required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within sixty days after each May 15 following the date of this Indenture deliver to Holders a brief report, dated as of such May 15, which complies with the provisions of such Section 313(a). (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed and also with the Commission. The Company will promptly notify the Trustee when any Securities are listed on any stock exchange. SECTION 7.04. Reports by Company. The Company shall file 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; provided that any such information, documents or -------- reports required to be filed with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is required to be filed with the Commission. Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall continue to file with the Commission and provide the Trustee with the annual reports and the information, documents and other reports which are specified in Sections 13 and 15(d) of the Exchange Act. The Company also shall comply with the other provisions of Trust Indenture Act Section 314(a). Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease ---------------------------------------------------- SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms. ----------------------------------------------------- The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its 72 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: (1) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation or partnership organized and existing under the laws of the United States of America or any State or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest (including any Additional Interest) on all the Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed; (2) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; (3) in the case of the Securities of a series held by a Trust, such consolidation, merger, conveyance, transfer or lease is permitted under the related Trust Agreement and Guarantee and does not give rise to any breach or violation of the related Trust Agreement or Guarantee; and (4) 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 complies with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with; and the Trustee, subject to Section 6.01, may rely upon such Officers' Certificate and Opinion of Counsel as conclusive evidence that such transaction complies with this Section 8.01. SECTION 8.02. Successor Corporation Substituted. Upon any ---------------------------------- consolidation or merger by the Company with or 73 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 8.01, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; and 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 and may be dissolved and liquidated. Such successor Person may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the written 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 make available for delivery any Securities which 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 which such successor Person thereafter shall cause to be signed 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 as though all of such Securities had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale, conveyance or lease, such changes in phraseology and form may be made in the Securities thereafter to be issued as may be appropriate. ARTICLE IX Supplemental Indentures ----------------------- SECTION 9.01. Supplemental Indentures without Consent of Holders. --------------------------------------------------- Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into 74 one or more indentures supplemental hereto, in form reasonably satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Securities contained; or (2) 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; or (3) to establish the form or terms of Securities of any series as permitted by Sections 2.01 or 3.01; or (4) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (5) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such additional Events of Default are to be for the benefit of less than all series of Securities, stating that such additional Events of Default are expressly being included solely for the benefit of such series); or (6) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only -------- when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or (7) to cure any ambiguity, to correct or supplement any provision herein which 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 (7) shall not adversely affect the interest of the Holders of Securities of any series in any material respect or, in the case of the Securities of a series issued to a Trust and for so long as any of the corresponding 75 series of Preferred Securities issued by such Trust shall remain outstanding, the holders of such Preferred Securities; or (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series 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 (9) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act. SECTION 9.02. Supplemental Indentures with Consent of Holders. With ------------------------------------------------ the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series 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 of such series under this Indenture; provided, however, that no such -------- ------- supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) except to the extent permitted by Section 3.11 or as otherwise specified as contemplated by Section 2.01 or Section 3.01 with respect to the deferral of the payment of interest on the Securities of any series, 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 reduce 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 Maturity thereof pursuant to Section 5.02, 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 76 the case of redemption, on or after the Redemption Date), or (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section, Section 5.13 or Section 10.05, 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; or (4) modify the provisions in Article XIII of this Indenture with respect to the subordination of Outstanding Securities of any series in a manner adverse to the Holders thereof; provided further, that, in the case of the Securities of a series issued to a - -------- ------- Trust, so long as any of the corresponding series of Preferred Securities issued by such 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 under which such Trust is organized) of such Preferred Securities then outstanding unless and until the principal (and premium, if any) of the Securities of such series and all accrued and, subject to Section 3.07, unpaid interest (including any Additional Interest) thereon have been paid in full and (ii) no amendment shall be made to Section 5.08 of this Indenture that would impair the rights of the holders of Preferred Securities provided therein without the prior consent of the holders of each Preferred Security then outstanding unless and until the principal (and premium, if any) of the Securities of such series and all accrued and (subject to Section 3.07) unpaid interest (including any Additional Interest) thereon have been paid in full. A supplemental indenture that changes or eliminates any covenant or other provision of this Indenture 77 that has expressly been included solely for the benefit of one or more particular series of Securities or Preferred Securities, or which modifies the rights of the Holders of Securities or holders of Preferred Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities or holders of Preferred Securities of any other series. 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 9.03. 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 6.01) 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 have been complied with. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.04. 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 9.05. 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 9.06. 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 of any series so modified as to conform, in the opinion of the 78 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 of such series. ARTICLE X Covenants --------- SECTION 10.01. Payment of Principal, Premium and Interest. The ------------------------------------------- Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of (and premium, if any) and interest (including Additional Interest) on the Securities of that series in accordance with the terms of such Securities and this Indenture. SECTION 10.02. Maintenance of Office or Agency. The Company will -------------------------------- maintain in each Place of Payment for any series of Securities, an office or agency where Securities of that series may be presented or surrendered for payment and an office or agency where Securities of that series may be surrendered for transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series 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. 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 of any series 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. 79 SECTION 10.03. Money for Security Payments To Be Held in Trust. If ------------------------------------------------ the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its failure so to act. 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 on any Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal and premium (if any) or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest (including Additional Interest) on 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; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal (and premium, if any) or interest (including Additional Interest); (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (4) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent. 80 The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by the Company or any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest (including Additional Interest) on any Security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall (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 10.04. Statement as to Compliance. The Company shall deliver --------------------------- to the Trustee, within 120 days after the end of each calendar year of the Company ending after the date hereof, an Officers' Certificate, one of the signatories of which shall be the principal executive, principal financial or principal accounting officer of the Company, 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 81 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 10.04, compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture. SECTION 10.05. Waiver of Certain Covenants. The Company may omit in ---------------------------- any particular instance to comply with any covenant or condition provided pursuant to Section 3.01, 9.01(3) or 9.01(4) with respect to the Securities of any series, if before or after the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of such series 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 10.06. Payment of Trust Costs and Expenses. Since, in the ------------------------------------ case of the Securities of a series held by a Trust, such Trust is being formed solely to facilitate an investment in the Securities of such series, the Company, in its capacity as the issuer of the Securities of such series, hereby covenants to pay all debts and obligations (other than with respect to the Preferred Securities and Common Securities issued by such Trust) and all costs and expenses of such Trust (including, but not limited to, all costs and expenses relating to the organization of such Trust, the fees and expenses of the trustees thereof, all costs and expenses relating to the operation of such Trust and any costs, expenses or liabilities of such Trust that are required by applicable law to be satisfied in connection with the termination of such Trust) and to pay any and all taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed on such Trust by the United States, or any other taxing authority (including Additional Taxes), so that the net amounts received and retained by such Trust and the Property Trustee thereof after paying such expenses will be equal to the amounts such Trust and the Property Trustee would have received had no such costs or expenses been incurred by or imposed on such Trust. The obligations of the Company to pay all debts, obligations, costs and expenses of each such Trust (other than with respect to the Preferred Securities and Common Securities issued by such Trust) shall constitute additional 82 indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture. SECTION 10.07. Additional Covenants. The Company covenants and --------------------- agrees with each Holder of Securities of each series that it shall not, and it shall not permit any Subsidiary of the Company to, (i) 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 (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 with or junior in interest to the Securities of such series or (iii) make any guarantee payments with respect to any guarantee by the Company of debt securities of any subsidiary of the Company if such guarantee ranks pari passu ---- ----- with or junior in interest to the Securities (other than (a) dividends or distributions in the Company's capital stock, (b) any declaration of a dividend in connection with the implementation of a Rights Plan or the redemption or repurchase of any rights distributed pursuant to a Rights Plan, (c) payments under the Guarantee with respect to the Securities of such Series, and (d) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees, related to the issuance of Common Stock or rights under a dividend reinvestment and stock purchase plan, or related to the issuance of Common Stock (or securities convertible or exchangeable for Common Stock) as consideration in an acquisition transaction that was entered into prior to the commencement of such Extension Period) if at such time (x) there shall have occurred any event of which the Company has actual knowledge that (A) with the giving of notice or the lapse of time or both, would constitute an Event of Default with respect to the Securities of such series and (B) in respect of which the Company shall not have taken reasonable steps to cure, (y) if the Securities of such series are held by a 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 such Trust or (z) the Company shall have given notice of its election to begin an Extension Period with respect to the Securities of such series 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 of a series issued to a Trust (i) to maintain directly or indirectly 100% ownership of the Common 83 Securities of such Trust; provided, however, that any permitted successor of the Company hereunder may succeed to the Company's ownership of such Common Securities, (ii) not to voluntarily terminate, wind-up or liquidate such Trust, except (a) in connection with a distribution of the Securities of such series to the holders of the Trust Securities of such Trust in liquidation of such Trust or (b) in connection with certain mergers, consolidations or amalgamations permitted by the related Trust Agreement and (iii) to use its reasonable efforts, consistent with the terms and provisions of such Trust Agreement, to cause such Trust to remain classified as a grantor trust and not an association taxable as a corporation for United States federal income tax purposes. SECTION 10.08. Calculation of Original Issue Discount. The Company --------------------------------------- shall file with the Trustee promptly at the end of each calendar year a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on Outstanding Securities as of the end of such year, if any. ARTICLE XI Redemption of Securities ------------------------ SECTION 11.01. Applicability of This Article. Redemption of ------------------------------ Securities of any series (whether by operation of a sinking fund or otherwise) 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. Except as otherwise set forth in the form of Security for such series, each Security of such series shall be subject to partial redemption only in the amount of $25 or, in the case of the Securities of a series issued to a Trust, $25, or integral multiples thereof. SECTION 11.02. 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 of the Securities, the Company shall, not less than 45 nor more than 60 days prior to the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such date and of the 84 principal amount of Securities of that series to be redeemed. 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 11.03. Selection of Securities To Be Redeemed. If less than --------------------------------------- all the Securities of any series are to be redeemed (unless all the Securities of such series and of a specified tenor are to be redeemed or unless such redemption affects only a single Security), 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 of such series not previously called for redemption, by lot or such other method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a portion of the principal amount of any Security of such series, 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. If less than all the Securities of such series and of a specified tenor are to be redeemed (unless such redemption affects only a single Security), 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 of such series and specified tenor not previously called for redemption in accordance with the preceding sentence. 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 which has been or is to be redeemed. If the Company shall so direct, Securities registered in the name of the Company, any Affiliate or any Subsidiary thereof shall not be included in the Securities selected for redemption. SECTION 11.04. 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, 85 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 of each series to be redeemed, each notice of redemption shall identify the Securities to be redeemed (including CUSIP number, if a CUSIP number has been assigned to such Securities of such Series) and shall state: (a) the Redemption Date; (b) the Redemption Price; (c) if less than all Outstanding Securities of such particular series and having the same terms 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; and (f) 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 not be irrevocable. The notice if mailed in the manner herein provided 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 11.05. 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 11.04, 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 10.03) an amount of 86 money sufficient to pay the Redemption Price of, and any accrued interest (including Additional Interest) on, all the Securities which are to be redeemed on that date. SECTION 11.06. Payment of Securities Called for Redemption. If any -------------------------------------------- notice of redemption has been given as provided in Section 11.04, 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. 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, unless otherwise specified as contemplated by Section 3.01, installments of 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 3.07. Upon presentation of any Security redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the Holder thereof, at the expense of the Company, a new Security or Securities of the same series, 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. If a Global Security is so surrendered, such new Security will also be a new Global Security. If any Security called for redemption shall not be so paid upon 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 11.07. Right of Redemption of Securities Initially Issued to ----------------------------------------------------- a Trust. In the case of the Securities of a series initially issued to a Trust, - -------- except as otherwise established pursuant to Section 3.01 for the Securities of a Series, the Company, at its option, subject to prior approval of the Federal Reserve if then so required under applicable capital guidelines or policies, may redeem such Securities (i) on or after the date [five years] after the Original Issue Date of such Securities, in whole at any time 87 or in part from time to time, or (ii) upon the occurrence and during the continuation of a Tax Event or a Capital Treatment Event, at any time within 90 days following the occurrence of such Tax Event or Capital Treatment Event in respect of such Trust, in whole (but not in part), in each case at a Redemption Price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, including any Additional Interest, if any, to the Redemption Date. ARTICLE XII Sinking Funds ------------- SECTION 12.01. Applicability of Article. The provisions of this ------------------------- Article shall be applicable to any sinking fund for the retirement of Securities of any series except as otherwise specified as contemplated by Section 3.01 for such Securities. The minimum amount of any sinking fund payment provided for by the terms of any Securities of any series is herein referred to as a "mandatory sinking fund payment", and any sinking fund payment in excess of such minimum amount which is permitted to be made by the terms of such Securities of any series is herein referred to as an "optional sinking fund payment". If provided for by the terms of any Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.02. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of such Securities. SECTION 12.02. Satisfaction of Sinking Fund Payments with Securities. ------------------------------------------------------ In lieu of making all or any part of a mandatory sinking fund payment with respect to any Securities of a series in cash, the Company may at its option, at any time no more than 16 months and no less than 30 days prior to the date on which such sinking fund payment is due, deliver to the Trustee Securities of such series (together with the unmatured coupons, if any, appertaining thereto) theretofore purchased or otherwise acquired by the Company, except Securities of such series that have been redeemed through the application of mandatory or optional sinking fund payments pursuant to the terms of the Securities of such series, accompanied by a Company Order instructing the Trustee to credit such obligations and stating that the Securities of such series were originally issued by the Company by way of bona fide sale or other 88 negotiation for value; provided that the Securities to be so credited have not been previously so credited. The Securities to be so credited shall be received and credited for such purpose by the Trustee at the redemption price for such Securities, as specified in the Securities so to be redeemed, for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. SECTION 12.03. Redemption of Securities for Sinking Fund. Not less ------------------------------------------ than 60 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for such Securities pursuant to the terms of such Securities, the portion thereof, if any, which is to be satisfied by payment of cash in the currency in which the Securities of such series are payable (except as provided pursuant to Section 3.01) and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities pursuant to Section 12.02 and will also deliver to the Trustee any Securities to be so delivered. Such Officers' Certificate shall be irrevocable and upon its delivery the Company shall be obligated to make the cash payment or payments therein referred to, if any, on or before the succeeding sinking fund payment date. In the case of the failure of the Company to deliver such Officers' Certificate (or, as required by this Indenture, the securities and coupons, if any, specified in such Officers' Certificate), the sinking fund payment due on the succeeding sinking fund payment date for such series shall be paid entirely in cash and shall be sufficient to redeem the principal amount of the Securities of such series subject to a mandatory sinking fund payment without the right to deliver or credit securities as provided in Section 12.02 and without the right to make the optional sinking fund payment with respect to such series at such time. Any sinking fund payment or payments (mandatory or optional) made in cash plus any unused balance of any preceding sinking fund payments made with respect to the Securities of any particular series shall be applied by the Trustee (or by the Company if the Company is acting as its own Paying Agent) on the sinking fund payment date on which such payment is made (or, if such payment is made before a sinking fund payment date, on the sinking fund payment date immediately following the date of such payment) to the redemption of Securities of such series at the Redemption Price specified in such Securities with respect to the sinking fund. Any sinking fund moneys not so applied or 89 allocated by the Trustee (or, if the Company is acting as its own Paying Agent, segregated and held in trust by the Company as provided in Section 10.03) for such series and together with such payment (or such amount so segregated) shall be applied in accordance with the provisions of this Section 12.03. Any and all sinking fund moneys with respect to the Securities of any particular series held by the Trustee (or if the Company is acting as its own Paying Agent, segregated and held in trust as provided in Section 10.03) on the last sinking fund payment date with respect to Securities of such series and not held for the payment or redemption of particular Securities of such series shall be applied by the Trustee (or by the Company if the Company is acting as its own Paying Agent), together with other moneys, if necessary, to be deposited (or segregated) sufficient for the purpose, to the payment of the principal of the Securities of such series at Maturity. The Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.03 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 11.04. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Section 11.06. On or before each sinking fund payment date, the Company shall pay to the Trustee (or, if the Company is acting as its own Paying Agent, the Company shall segregate and hold in trust as provided in Section 10.03) in cash a sum in the currency in which Securities of such series are payable (except as provided pursuant to Section 3.01) equal to the principal and any interest accrued to the Redemption Date for Securities or portions thereof to be redeemed on such sinking fund payment date pursuant to this Section 12.03. 90 Neither the Trustee nor the Company shall redeem any Securities of a series with sinking fund moneys or mail any notice of redemption of Securities of such series by operation of the sinking fund for such series during the continuance of a default in payment of interest, if any, on any Securities of such series or of any Event of Default (other than an Event of Default occurring as a consequence of this paragraph) with respect to the Securities of such series, except that if the notice of redemption shall have been provided in accordance with the provisions hereof, the Trustee (or the Company, if the Company is then acting as its own Paying Agent) shall redeem such Securities if cash sufficient for that purpose shall be deposited with the Trustee (or segregated by the Company) for that purpose in accordance with the terms of this Article XII. Except as aforesaid, any moneys in the sinking fund for such series at the time when any such default or Event of Default shall occur and any moneys thereafter paid into such sinking fund shall, during the continuance of such default or Event of Default, be held as security for the payment of the Securities and coupons, if any, of such series; provided, however, that in case such default or Event of Default shall have been cured or waived herein, such moneys shall thereafter be applied on the next sinking fund payment date for the Securities of such series on which such moneys may be applied pursuant to the provisions of this Section 12.03. ARTICLE XIII Subordination of Securities --------------------------- SECTION 13.01. Agreement to Subordinate. ------------------------ The Company covenants and agrees, and each Holder of a Security issued hereunder by such Holder's acceptance thereof likewise covenants and agrees, that all Securities shall be issued subject to the provisions of this Article XIII; and each Holder of a Security, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Company of the principal of, and premium, if any, and interest (including any Additional Interest) on all Securities issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to the prior payment in full of all Senior Debt of the Company, whether 91 outstanding at the date of this Indenture or thereafter incurred. No provision of this Article XIII shall prevent the occurrence of any default or Event of Default hereunder. SECTION 13.02. Default on Senior Debt. ---------------------- In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other payment due on any Senior Debt of the Company following any grace period, or in the event that the maturity of any Senior Debt of the Company has been accelerated because of a default, then, in either case, no payment shall be made by the Company with respect to the principal (including redemption and sinking fund payments) of, or premium, if any, or interest (including any Additional Interest) on the Securities. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding paragraph of this Section 13.02, such payment shall, subject to Section 13.06, be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior Debt (or their representative or representatives or a trustee) notify the Trustee in writing within 90 days of such payment of the amounts then due and owing on the Senior Debt and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Debt. SECTION 13.03. Liquidation; Dissolution; Bankruptcy. ------------------------------------ 92 Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due upon all Senior Debt of the Company shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company, on account of the principal (and premium, if any) or interest (including any Additional Interest) on the Securities; and upon any such dissolution or winding-up or liquidation or reorganization, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee would be entitled to receive from the Company, except for the provisions of this Article XIII, shall be paid by the Company, or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Debt of the Company (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Debt may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior Debt in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Debt, before any payment or distribution is made to the Holders or to the Trustee. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee before all Senior Debt of the Company is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior Debt or their representative or representatives, or to the trustee 93 or trustees under any indenture pursuant to which any instruments evidencing such Senior Debt may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Debt of the Company, remaining unpaid to the extent necessary to pay such Senior Debt in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Senior Debt. For purposes of this Article XIII, the words "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article XIII with respect to the Securities to the payment of all Senior Debt of the Company, that may at the time be outstanding, provided that (i) such Senior Debt is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of such Senior Debt are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article VIII of this Indenture shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 13.03 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article VIII of this Indenture. Nothing in Section 13.02 or in this Section 13.03 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.07 of this Indenture. 94 SECTION 13.04. Subrogation. ----------- Subject to the payment in full of all Senior Debt of the Company, the Holders shall be subrogated to the rights of the holders of such Senior Debt to receive payments or distributions of cash, property or securities of the Company, applicable to such Senior Debt until the principal of (and premium, if any) and interest (including any Additional Interest) on the Securities shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Senior Debt of any cash, property or securities to which the Holders or the Trustee would be entitled except for the provisions of this Article XIII, and no payment over pursuant to the provisions of this Article XIII to or for the benefit of the holders of such Senior Debt by Holders or the Trustee, shall, as between the Company, its creditors other than holders of Senior Debt of the Company, and the Holders of the Securities be deemed to be a payment or distribution by the Company to or on account of such Senior Debt. It is understood that the provisions of this Article XIII are and are intended solely for the purposes of defining the relative rights of the Holders of the Securities, on the one hand, and the holders of such Senior Debt, on the other hand. Nothing contained in this Article XIII or elsewhere in this Indenture or in the Securities is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Debt of the Company, and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of (and premium, if any) and interest (including any Additional Interest) on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Securities and creditors of the Company, other than the holders of Senior Debt of the Company, nor shall anything herein or therein prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XIII of the holders of such Senior Debt in respect of cash, property or 95 securities of the Company, received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article XIII, the Trustee, subject to the provisions of Article VI of this Indenture, and the Holders shall be entitled to conclusively rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XIII. SECTION 13.05. Trustee to Effectuate Subordination. ----------------------------------- Each Holder by such Holder's acceptance thereof authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XIII and appoints the Trustee such Holder's attorney-in-fact for any and all such purposes. SECTION 13.06. Notice by the Company. --------------------- 96 The Company shall give prompt written notice to a Responsible Officer of the Trustee at the Corporate Trust Office of the Trustee of any fact known to the Company that would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities pursuant to the provisions of this Article XIII. Notwithstanding the provisions of this Article XIII or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities pursuant to the provisions of this Article XIII, unless and until a Responsible Officer of the Trustee at the Corporate Trust Office of the Trustee shall have received written notice thereof from the Company or a holder or holders of Senior Debt or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Article VI of this Indenture, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 13.06 at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (or premium, if any) 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 money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date. The Trustee, subject to the provisions of Article VI of this Indenture, shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Debt of the Company (or a trustee or representative on behalf of such holder), to establish that such notice has been given by a holder of such Senior Debt or a trustee or representative on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of such Senior Debt to participate in any payment or distribution pursuant to this Article XIII, the Trustee may request such Person to furnish evidence to the reasonable 97 satisfaction of the Trustee as to the amount of such Senior Debt 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 XIII, 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 13.07. Reliance on Judicial Order or Certificate of -------------------------------------------- Liquidating Agent. - ----------------- Upon any payment or distribution of assets of the Company referred to in this Article XIII, the Trustee, subject to the provisions of Article VI of this Indenture, and the Holders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the Trustee or to the Holders, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of Senior Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XIII. SECTION 13.08. Rights of the Trustee; Holders of Senior Debt. --------------------------------------------- The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XIII in respect of any Senior Debt at any time held by it, to the same extent as any other holder of Senior Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Senior Debt of the Company, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article XIII, and no implied 98 covenants or obligations with respect to the holders of such Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of such Senior Debt and, subject to the provisions of Article VI of this Indenture, the Trustee shall not be liable to any holder of such Senior Debt if it shall pay over or deliver to Holders, the Company or any other Person money or assets to which any holder of such Senior Debt shall be entitled by virtue of this Article XIII or otherwise. Nothing in this Article XIII shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.07 of this Indenture. SECTION 13.09. Subordination May Not Be Impaired. --------------------------------- No right of any present or future holder of any Senior Debt of the Company to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company, or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company, with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt of the Company may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders, without incurring responsibility to the Holders, and without impairing or releasing the subordination provided in this Article XIII or the obligations hereunder of the Holders of the Securities to the holders of such Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Debt, or otherwise amend or supplement in any manner such Senior Debt or any instrument evidencing the same or any agreement under which such Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Debt; (iii) release any Person liable in any manner for the collection of such 99 Senior Debt; and (iv) exercise or refrain from exercising any rights against the Company, and any other Person. The Bank of New York hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions herein above set forth. SECTION 13.10. 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. 100 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. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the day and year first above written. NATIONAL COMMERCE FINANCIAL CORPORATION, by Name: ---------------------------- Title: --------------------------- THE BANK OF NEW YORK, as Trustee, by Name: ----------------------------- Title: ---------------------------- ANNEX A [TRUST AGREEMENT] ANNEX B [AMENDED AND RESTATED TRUST AGREEMENT] ANNEX C [GUARANTEE AGREEMENT] EX-4.10 9 dex410.txt FORM OF GUARANTEE AGREEMENT EXHIBIT 4.10 - -------------------------------------------------------------------------------- GUARANTEE AGREEMENT Between NATIONAL COMMERCE FINANCIAL CORPORATION, as Guarantor, and THE BANK OF NEW YORK, as Trustee, dated as of , 2001 ------------------------------------------------------------------------------- CROSS-REFERENCE TABLE*
Section of Trust Indenture Act Section of of 1939, as amended Guarantee Agreement - ------------------- ----------------------------- 310(a)................................................................ 4.1(a) 310(b)................................................................ 2.8, 4.1(c) 310(c)................................................................ Inapplicable 311(a)................................................................ 2.2(b) 311(b)................................................................ 2.2(b) 311(c)................................................................ Inapplicable 312(a)................................................................ 2.2(a) 312(b)................................................................ 2.2(b) 313................................................................... 2.3 314(a)................................................................ 2.4 314(b)................................................................ Inapplicable 314(c)................................................................ 2.5 314(d)................................................................ Inapplicable 314(e)................................................................ 1.1, 2.5, 3.2 314(f)................................................................ 2.1, 3.2 315(a)................................................................ 3.1(d) 315(b)................................................................ 2.7 315(c)................................................................ 3.1 315(d)................................................................ 3.1(d) 316(a)................................................................ 1.1, 2.6, 5.4 316(b)................................................................ 5.3 316(c)................................................................ 8.2 317(a)................................................................ Inapplicable 317(b)................................................................ Inapplicable 318(a)................................................................ 2.1(b) 318(b)................................................................ 2.1 318(c)................................................................ 2.1(a)
_____________________________ * This Cross-Reference Table does not constitute part of the Guarantee Agreement and shall not affect the interpretation of any of its terms or provisions. GUARANTEE AGREEMENT This GUARANTEE AGREEMENT, dated as of , 2001, is executed and delivered by NATIONAL COMMERCE FINANCIAL CORPORATION, a Tennessee corporation (the "Guarantor") having its principal office at One Commerce Square, Memphis, Tennessee 38150, and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the "Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities and the Common Securities (each as defined herein and together, the "Securities") of National Commerce Capital Trust II, a Delaware statutory business trust (the "Issuer"). WHEREAS, pursuant to the Amended and Restated Trust Agreement, dated as of , 2001 (the "Trust Agreement"), among the Guarantor, as Depositor, the Property Trustee and the Delaware Trustee named therein, the Administrative Trustees named therein and the Holders from time to time of undivided beneficial interests in the assets of the Issuer, the Issuer is issuing $[ ] aggregate Liquidation Amount (as defined in the Trust Agreement) of its [ ]% Preferred Securities, Liquidation Amount $25 per preferred security (the "Preferred Securities") representing preferred undivided beneficial interests in the assets of the Issuer and having the terms set forth in the Trust Agreement; WHEREAS, the Preferred Securities will be issued by the Issuer and the proceeds thereof, together with the proceeds from the issuance of the Issuer's Common Securities (as defined herein), will be used to purchase the Debentures (as defined in the Trust Agreement) of the Guarantor which will be deposited with The Bank of New York, as Property Trustee under the Trust Agreement, as trust assets; and WHEREAS, as incentive for the Holders to purchase the Securities the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth herein, to pay to the Holders of the Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the purchase by each Holder of Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the benefit of the Holders from time to time of the Securities. 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 or otherwise defined 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. "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; provided, however, that an Affiliate of the Guarantor shall not be deemed to be an Affiliate of the Issuer. 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. "Board of Directors" means either the board of directors of the Guarantor or any committee of that board duly authorized to act hereunder or any directors or officers of the Guarantor to whom such board of directors or such committee shall have duly delegated its authority. "Common Securities" means the securities representing common undivided beneficial interests in the assets of the Issuer. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Guarantee Agreement; provided, however, that, except with respect to a default in payment of any Guarantee Payments, the Guarantor shall have received notice of default and shall not have cured such default within 90 days after receipt of such notice. "Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Securities, to the extent not paid or made by or on behalf of the Issuer: (i) any accumulated and unpaid Distributions (as defined in the Trust Agreement) required to be paid on the Securities, to the extent the Issuer shall have funds on hand available therefor at such time, (ii) the Redemption Price with respect to any Securities called for redemption by the Issuer, to the extent the Issuer shall have funds on hand available therefor at such time, and (iii) upon a voluntary or involuntary termination, winding up or liquidation of the Issuer, unless Debentures are distributed to the Holders in exchange therefor, the lesser of (a) the aggregate of the Liquidation Amount plus accrued and unpaid Distributions thereon to the date of payment and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer after satisfaction of liabilities to creditors of the Issuer as required by applicable law (in either case, the "Liquidation Distribution"). "Guarantee Trustee" means The Bank of New York, 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. "Holder" means any holder, as registered on the books and records of the Issuer, of any Securities; provided, however, that in determining whether the holders of the requisite percentage of 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 , 2001, between the Guarantor and The Bank of New York, as trustee. 2 "List of Holders" has the meaning specified in Section 2.2(a). "Majority in aggregate Liquidation Amount of the Securities" means, except as provided by the Trust Indenture Act, a vote by the Holder(s), voting separately as a class, of more than 50% of the aggregate Liquidation Amount of all then outstanding Securities issued by the Issuer. "Officers' Certificate" means, with respect to any Person, a certificate signed by the Chairman or a Vice Chairman of the Board of Directors of such Person or the President or a Vice President of such Person, and by the 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 that each officer signing the Officers' Certificate 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 each officer in rendering the Officers' Certificate; (c) a statement that each officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each 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. "Responsible Officer" means, with respect to the Guarantee Trustee, any officer within the Corporate Trust Office of the Guarantee Trustee, including any vice president, any assistant vice president, any assistant treasurer or other officer of the Corporate Trust Office of the Guarantee Trustee customarily performing functions similar to those performed by any of the above designated officers, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Successor Guarantee Trustee" means a successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.1. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. ARTICLE II. TRUST INDENTURE ACT Section 2.1. Trust Indenture Act; Application. (a) This Guarantee Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Guarantee Agreement and shall, to the extent applicable, be governed by such provisions. 3 (b) If and to the extent that any provision of this Guarantee 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. Section 2.2. List of Holders. (a) The Guarantor will furnish or cause to be furnished to the Guarantee Trustee: (i) semi-annually, not more than 15 days after January 15 and July 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 January 1 and July 1, 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, excluding from any such list names and addresses received by the Guarantee Trustee in its capacity as Securities Registrar. (b) The Guarantee Trustee shall comply with its obligations under Section 311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act. Section 2.3. Reports by the Guarantee Trustee. The Guarantee Trustee shall transmit to Holders such reports concerning the Guarantee Trustee and its actions under this Guarantee Agreement as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Guarantee Trustee shall, within sixty days after each May 15 following the date of this Guarantee Agreement deliver to Holders a brief report, dated as of such May 15, which complies with the provisions of such Section 313(a). Section 2.4. Periodic Reports to the Guarantee Trustee. The Guarantor shall provide to the Guarantee Trustee, the Securities and Exchange Commission 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. Delivery of such reports, information and documents to the Guarantee Trustee is for informational purposes only and the Guarantee Trustee's receipt of such shall not constitute constructive notice of any information contained therein, including the Guarantor's compliance with any of its covenants hereunder (as to which the Guarantee Trustee is entitled to rely exclusively on Officers' Certificates). 4 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 aggregate Liquidation Amount of the Securities may, by vote, on behalf of the Holders, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent therefrom. Section 2.7. Event of Default; Notice. (a) The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders, notices of all Events of Default actually known to the Guarantee Trustee, unless such defaults 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 of the Guarantee Trustee shall have received written notice. 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 a Holder exercising his or her rights pursuant to Section 5.4(iv) or to a Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its 5 appointment to act as Successor Guarantee Trustee. The right, title and interest of the Guarantee Trustee 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. (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 undertake to perform only such duties as are specifically set forth in this Guarantee Agreement, and no implied covenants or obligations shall be read into this Guarantee Agreement against the Guarantee Trustee. In case 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, 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; 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; 6 (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 aggregate Liquidation Amount of the Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee Agreement; and (iv) no provision of this Guarantee Agreement shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably 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 of its selection, which shall be agreed to by the Guarantor, and the advice or opinion of such legal counsel with respect to legal matters shall be full and complete 7 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 adequate security and indemnity as would satisfy a reasonable person in the position of the Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Guarantee Trustee; provided that, nothing contained in this Section 3.2(a)(v) shall be taken to relieve the Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Guarantee Agreement. (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 misconduct or negligence on the part of any such agent or attorney appointed with due care by it hereunder. (viii) Whenever in the administration of this Guarantee Agreement the Guarantee Trustee shall deem it desirable to receive written 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 written instructions are received, and (C) shall be protected in conclusively relying on or acting in accordance with such written instructions. (ix) The Guarantee Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Guarantee Agreement. 8 (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 for, and to hold it harmless against, any and all loss, liability or expense including taxes (other than taxes based upon the income of the Guarantee Trustee) incurred without negligence or bad faith on the part of the Guarantee Trustee, arising out of or in connection with the acceptance or administration of this Guarantee Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The provisions of this Section 3.3 shall survive the termination of this Guarantee Agreement or the resignation or removal of the Guarantee Trustee. Section 3.4 Guarantee Trustee Not Responsible for Recitals The recitals contained in this Guarantee Agreement shall be taken as the statements of the Guarantor, and the Guarantee Trustee does not assume any responsibility for their correctness. The Guarantee Trustee makes no representations as to the validity or sufficiency of this Guarantee. 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(c). (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. 9 Section 4.2. Appointment, Removal and Resignation of the Guarantee Trustee. (a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor upon written notice thereof delivered to the Guarantee Trustee. (b) The Guarantee Trustee shall not be removed until a Successor Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor. If an instrument of acceptance by a Successor Guarantee Trustee shall not have been delivered to the Guarantee Trustee within 30 days after its appointment, the Guarantee Trustee being removed may petition any court of competent jurisdiction for the appointment of a Successor Guarantee Trustee. (c) The Guarantee Trustee appointed hereunder shall hold office until a Successor Guarantee Trustee shall have been appointed and shall have accepted such appointment or until its removal or resignation. The Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee Trustee. (d) If no Successor Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery to the Guarantor of an instrument of resignation, the resigning Guarantee Trustee may petition, at the expense of the Guarantor, any court of competent jurisdiction for appointment of a Successor Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee. ARTICLE V. GUARANTEE Section 5.1. Guarantee. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by or on behalf of the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim which the Issuer may have or assert other than 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 to pay such amounts to the Holders. 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, Issuer or any other Person before 10 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 of any express or implied agreement, covenant, term or condition relating to the Securities to be performed or observed by the Issuer; (b) the extension of time for the payment by the Issuer 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 Debentures as provided in the Indenture), Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the 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 Securities, or any action on the part of the Issuer 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 or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in, the 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, it being the intent of this Section 5.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain the consent of, the Guarantor with respect to the happening of any of the foregoing. Section 5.4. Rights of Holders. The Guarantor expressly acknowledges that: (i) this Guarantee Agreement will be deposited with the Guarantee Trustee to be held for the benefit of the Holders; (ii) the Guarantee 11 Trustee has the right to enforce this Guarantee Agreement on behalf of the Holders; (iii) the Holders of a Majority in aggregate Liquidation Amount of the 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 (iv) 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 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) or upon distribution of Debentures to Holders as provided in the Trust Agreement. Section 5.6. Subrogation. The Guarantor shall be subrogated to all (if any) rights of the Holders against the Issuer in respect of any amounts paid to the Holders by the Guarantor under this Guarantee Agreement and shall have the right to waive payment by the Issuer pursuant to Section 5.1; 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 with respect to the Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.3 hereof. ARTICLE VI. COVENANTS AND SUBORDINATION Section 6.1. Subordination. The obligations of the Guarantor under this Guarantee Agreement will constitute unsecured obligations of the Guarantor and will rank subordinate and junior in right of payment to all present and future Senior Debt (as defined in the Indenture) of the Guarantor. By their acceptance thereof, each Holder of Securities agrees to the foregoing provisions of this 12 Guarantee Agreement and the other terms set forth herein. The obligations of the Guarantor hereunder do not constitute Senior Debt of the Guarantor. If an "Event of Default" (as defined in the Trust Agreement) has occurred and is continuing, the rights of Holders of the Common Securities to receive payments under this Guarantee Agreement are subordinated to the rights of Holders of Preferred Securities to receive Guarantee Payments. The obligations of the Guarantor under this Guarantee Agreement shall rank pari passu with (a) the 1997 Guarantees (as defined in the Indenture), (b) the - ---- ----- 1997 Debentures (as defined in the Indenture) and (c) any similar guarantee agreements issued by the Guarantor on behalf of the holders of preferred securities or capital securities, in each case ranking pari passu with the ---- ----- Preferred Securities, issued by the Issuer 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 (i) full payment of the Redemption Price of all Securities, (ii) the distribution of Debentures to the Holders in exchange for all of the Securities or (iii) full payment of the amounts payable in accordance with the Trust Agreement upon liquidation of the Issuer. 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 must restore payment of any sums paid with respect to Securities or this Guarantee Agreement. ARTICLE VIII. MISCELLANEOUS Section 8.1. Successors and Assigns. All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the 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 successor or assignee agrees in writing to perform the Guarantor's obligations hereunder, the Guarantor shall not assign its obligations hereunder. Section 8.2. Amendments. Except with respect to any changes which do not adversely affect the rights of the Holders or the Guarantee Trustee in any material respect (in which case no consent of the Holders or the Guarantee Trustee, as the case may be, will be required), this Guarantee 13 Agreement may only be amended with the prior approval of the Holders of not less than a Majority in aggregate Liquidation Amount of all the outstanding Securities and of the Guarantee Trustee. 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 or mailed by first class mail as follows: (a) if given to the Guarantor, to the address set forth below or such other address, facsimile number or to the attention of such other Person as the Guarantor may give notice to the Holders: 14 National Commerce Financial Corporation One Commerce Square Memphis, Tennessee 38150 Facsimile No.: 901-523-3284 Attention: Chief Financial Officer (b) if given to the Issuer, in care of the Guarantee Trustee, at the Issuer's (and the Guarantee Trustee's) address set forth below or such other address as the Guarantee Trustee on behalf of the Issuer may give notice to the Holders: National Commerce Capital Trust II c/o National Commerce Financial Corporation One Commerce Square Memphis, Tennessee 38150 Facsimile No.: 901-523-3284 Attention: Chief Financial Officer (c) if given to the Guarantee Trustee, at the address set forth below or such other address as the Guarantee Trustee may give to the Holders: The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Facsimile No.: 212-896-7298 Attention: Corporate Trust Administration (d) if given to any Holder, at the address set forth on the books and records of the Issuer. 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. This Guarantee Agreement is solely for the benefit of the Holders and is not separately transferable from the Securities. 15 Section 8.5. Interpretation. In this Guarantee Agreement, unless the context otherwise requires: (a) capitalized terms used in this Guarantee Agreement but not defined in the preamble hereto have the respective meanings assigned to them in Section 1.1; (b) a term defined anywhere in this Guarantee Agreement has the same meaning throughout; (c) all references to "the Guarantee Agreement" or "this Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented or amended from time to time; (d) all references in this Guarantee Agreement to Articles and Sections are to Articles and Sections of this Guarantee Agreement unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Guarantee Agreement unless otherwise defined in this Guarantee Agreement or unless the context otherwise requires; (f) a reference to the singular includes the plural and vice versa; and (g) the masculine, feminine or neuter genders used herein shall include the masculine, feminine and neuter genders. Section 8.6. Governing Law. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. 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. 16 THIS GUARANTEE AGREEMENT is executed as of the day and year first above written. NATIONAL COMMERCE FINANCIAL CORPORATION, By: __________________________________ Name: Title: THE BANK OF NEW YORK, as Guarantee Trustee, By: __________________________________ Name: Title: 17 EX-4.14 10 dex414.txt FORM OF AMENDED AND RESTATED TRUST AGREEMENT EXHIBIT 4.14 AMENDED AND RESTATED TRUST AGREEMENT among NATIONAL COMMERCE FINANCIAL CORPORATION, as Depositor, THE BANK OF NEW YORK, as Property Trustee, THE BANK OF NEW YORK (DELAWARE), as Delaware Trustee, and THE ADMINISTRATIVE TRUSTEES NAMED HEREIN Dated as of December ___, 2001 NATIONAL COMMERCE CAPITAL TRUST II NATIONAL COMMERCE CAPITAL TRUST II Certain Sections of this Trust Agreement relating to Sections 310 through 318 of the Trust Indenture Act of 1939:
Trust Indenture Trust Agreement Act Section Section - ----------------------------- --------------------------- (Section) 310 (a) (1)............................. 8.7 (a) (2)............................. 8.7 (a) (3)............................. 8.9 (a) (4)............................. 2.7(a)(ii) (b)................................. 8.8 (Section) 311 (a)................................. 8.13 (b)................................. 8.13 (Section) 312 (a) 5.7 (b) 5.7 (c) 5.7 (Section) 313 (a) 8.14(a) (a) (4) 8.14(a) (b) 8.14(a) (c) 10.9 (d) 8.14(b) (Section) 314 (a) 8.15 (b) Not applicable (c) (1) 8.16 (c) (2) 8.16 (c) (3) Not applicable (d) Not applicable (e) 1.1, 8.16 (Section) 315 (a) 8.1(a), 8.3(a) (b) 8.2, 10.9 (c) 8.1(a) (d) 8.1, 8.3 (e) Not Applicable (Section) 316 (a) Not Applicable (a) (1) (A) Not Applicable (a) (1) (B) Not Applicable (a) (2) Not Applicable (b) 5.14 (c) 6.7 (Section) 317 (a) (1) Not Applicable (a) (2) Not Applicable (b) 5.9 (Section) 318 (a) 10.11 Note: This reconciliation and tie sheet shall not, for any purpose, be deemed to be a part of the Trust Agreement.
TABLE OF CONTENTS -----------------
Page ---- ARTICLE I. DEFINED TERMS................................................................................ 1 Section 1.1 Definitions................................................................. 1 ARTICLE II. CONTINUATION OF THE TRUST.................................................................... 10 Section 2.1 Name........................................................................ 10 Section 2.2 Office of the Delaware Trustee; Principal Place of Business................. 10 Section 2.3 Initial Contribution of Trust Property; Organizational Expenses............. 10 Section 2.4 Issuance of the Preferred Securities........................................ 10 Section 2.5 Issuance of the Common Securities; Subscription and Purchase of Debentures...................................................... 11 Section 2.6 Declaration of Trust........................................................ 11 Section 2.7 Authorization to Enter into Certain Transactions............................ 11 Section 2.8 Assets of Trust............................................................. 15 Section 2.9 Title to Trust Property..................................................... 15 ARTICLE III. PAYMENT ACCOUNT.............................................................................. 15 Section 3.1 Payment Account............................................................. 15 ARTICLE IV. DISTRIBUTIONS; REDEMPTION.................................................................... 15 Section 4.1 Distributions............................................................... 15 Section 4.2 Exchange and Redemption..................................................... 17 Section 4.3 Subordination of Common Securities.......................................... 20 Section 4.4 Payment Procedures.......................................................... 21 Section 4.5 Tax Returns and Reports..................................................... 21 Section 4.6 Payment of Expenses of the Trust............................................ 21 Section 4.7 Payments under Indenture or Pursuant to Direct Actions...................... 22 ARTICLE V. TRUST SECURITIES CERTIFICATES................................................................ 22 Section 5.1 Initial Ownership........................................................... 22 Section 5.2 The Trust Securities Certificates........................................... 22 Section 5.3 Execution and Delivery of Trust Securities Certificates..................... 22 Section 5.4 Registration of Transfer and Exchange of Preferred Securities Certificates.. 23 Section 5.5 Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates.......... 23 Section 5.6 Persons Deemed Securityholders.............................................. 24 Section 5.7 Access to List of Securityholders' Names and Addresses...................... 24 Section 5.8 Maintenance of Office or Agency............................................. 24 Section 5.9 Appointment of Paying Agent................................................. 24 Section 5.10 Ownership of Common Securities by Depositor................................. 25
Section 5.11 Book-Entry Preferred Securities Certificates; Common Securities Certificate. 25 Section 5.12 Notices to Clearing Agency.................................................. 26 Section 5.13 Definitive Preferred Securities Certificates................................ 26 Section 5.14 Rights of Securityholders................................................... 27 Section 5.15 CUSIP Numbers............................................................... 29 ARTICLE VI. ACTS OF SECURITYHOLDERS; MEETINGS; VOTING.................................................... 29 Section 6.1 Limitations on Voting Rights................................................ 29 Section 6.2 Notice of Meetings.......................................................... 30 Section 6.3 Meetings of Preferred Securityholders....................................... 31 Section 6.4 Voting Rights............................................................... 31 Section 6.5 Proxies, etc................................................................ 31 Section 6.6 Securityholder Action by Written Consent.................................... 31 Section 6.7 Record Date for Voting and Other Purposes................................... 32 Section 6.8 Acts of Securityholders..................................................... 32 Section 6.9 Inspection of Records....................................................... 33 ARTICLE VII. REPRESENTATIONS AND WARRANTIES............................................................... 33 Section 7.1 Representations and Warranties of the Property Trustee and the Delaware Trustee............................................ 33 Section 7.2 Representations and Warranties of Depositor................................. 34 ARTICLE VIII. THE TRUSTEES................................................................................. 35 Section 8.1 Certain Duties and Responsibilities......................................... 35 Section 8.2 Certain Notices............................................................. 36 Section 8.3 Certain Rights of Property Trustee.......................................... 36 Section 8.4 Not Responsible for Recitals or Issuance of Securities...................... 38 Section 8.5 May Hold Securities......................................................... 38 Section 8.6 Compensation; Indemnity; Fees............................................... 39 Section 8.7 Corporate Property Trustee Required; Eligibility of Trustees................ 40 Section 8.8 Conflicting Interests....................................................... 40 Section 8.9 Co-Trustees and Separate Trustee............................................ 40 Section 8.10 Resignation and Removal; Appointment of Successor........................... 42 Section 8.11 Acceptance of Appointment by Successor...................................... 43 Section 8.12 Merger, Conversion, Consolidation or Succession to Business................. 44 Section 8.13 Preferential Collection of Claims Against Depositor or Trust................ 44 Section 8.14 Reports by Property Trustee................................................. 45 Section 8.15 Reports to the Property Trustee............................................. 45 Section 8.16 Evidence of Compliance with Conditions Precedent............................ 45 Section 8.17 Number of Trustees.......................................................... 45 Section 8.18 Delegation of Power......................................................... 46
ii ARTICLE IX. TERMINATION, LIQUIDATION AND MERGER.......................................................... 46 Section 9.1 Dissolution Upon Expiration Date............................................ 46 Section 9.2 Early Dissolution........................................................... 47 Section 9.3 Termination................................................................. 47 Section 9.4 Liquidation................................................................. 47 Section 9.5 Mergers, Consolidations, Amalgamations or Replacements of the Trust......... 49 ARTICLE X. MISCELLANEOUS PROVISIONS..................................................................... 50 Section 10.1 Limitation of Rights of Securityholders..................................... 50 Section 10.2 Liability of the Common Securityholder...................................... 50 Section 10.3 Amendment................................................................... 50 Section 10.4 Separability................................................................ 51 Section 10.5 Governing Law............................................................... 51 Section 10.6 Payments Due on Non-Business Day............................................ 51 Section 10.7 Successors.................................................................. 52 Section 10.8 Headings.................................................................... 52 Section 10.9 Reports, Notices and Demands................................................ 52 Section 10.10 Agreement Not to Petition................................................... 52 Section 10.11 Trust Indenture Act; Conflict with Trust Indenture Act...................... 53 Section 10.12 Acceptance of Terms of Trust Agreement, Guarantee and Indenture............. 53 Section 10.13 Holders are Parties......................................................... 54 Section 10.14 Counterparts................................................................ 54
iii AMENDED AND RESTATED TRUST AGREEMENT, dated as of December ___, 2001, among (i) National Commerce Financial Corporation, a Tennessee corporation (including any successors or assigns, the "Depositor"), (ii) The Bank of New York, a New York banking corporation, as property trustee (in each such capacity, the "Property Trustee" and, in its separate corporate capacity and not in its capacity as Property Trustee, the "Bank"), (iii) The Bank of New York (Delaware), a banking corporation organized under the laws of the State of Delaware, as Delaware trustee (the "Delaware Trustee"), (iv) Sheldon M. Fox, an individual, and Charles A. Neale, an individual, each of whose address is c/o National Commerce Financial Corporation, One Commerce Square, Memphis, Tennessee 38150 (each an "Administrative Trustee" and collectively the "Administrative Trustees") (the Property Trustee, the Delaware Trustee and the Administrative Trustees referred to collectively as the "Trustees") and (v) the several Holders, as hereinafter defined. WITNESSETH WHEREAS, the Depositor, the Administrative Trustees and the Delaware Trustee have heretofore duly declared and established a business trust pursuant to the Delaware Business Trust Act by the entering into that certain Trust Agreement, dated as of November 16, 2001, (the "Original Trust Agreement"), and by the execution and filing with the Secretary of State of the State of Delaware of the Certificate of Trust, filed on November 16, 2001, attached as Exhibit A (the "Certificate of Trust"); and WHEREAS, the Depositor and the Trustees desire to amend and restate the Original Trust Agreement in its entirety as set forth herein to provide for, among other things, (i) the issuance of the Common Securities by the Trust to the Depositor, (ii) the issuance and sale of the Preferred Securities by the Trust pursuant to the Underwriting Agreement and (iii) the acquisition by the Trust from the Depositor of all of the right, title and interest in the Debentures. NOW THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, each party, for the benefit of the other parties and for the benefit of the Securityholders, hereby amends and restates the Original Trust Agreement in its entirety and agrees 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; (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; 1 (c) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Trust Agreement; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or other subdivision. "Act" has the meaning specified in Section 6.8. "Additional Amount" means, with respect to Trust Securities of a given Liquidation Amount and/or 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. "Administrative Trustee" means each of the individuals identified as an "Administrative Trustee" in the preamble to this Trust Agreement solely in such individual's capacity as Administrative Trustee of the Trust and not in such individual's individual capacity, or such Administrative Trustee's successor in interest in such capacity, or any successor trustee appointed as herein 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. "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 2 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 10.10. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Depositor to have been duly adopted by the Depositor's Board of Directors, or such committee of the Board of Directors or officers of the Depositor to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, and delivered to the Trustees. "Book-Entry Preferred Securities Certificate" means a Preferred Securities Certificate issued in certificated, fully registered form, evidencing ownership of Book-Entry Preferred Securities. "Book-Entry Preferred Security" means a beneficial interest in a Preferred Security, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 5.11. "Business Day" means a day other than (a) a Saturday or Sunday, (b) a day on which banking institutions 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 Corporate Trust Office of the Debenture Trustee is closed for business. "Capital Treatment Event" means the reasonable determination by the Depositor that, as a result of (i) any amendment to, or change in, the laws or any regulations of the United States or any political subdivision thereof or therein that becomes effective on or after the date of the initial issuance of the Preferred Securities, (ii) any proposed change in such laws or regulations that is announced on or after the date of the initial issuance of the Preferred Securities, or (iii) any official administrative decision, judicial decision, administrative action or other official pronouncement interpreting or applying such laws or regulations that is announced on or after the date of initial issuance of the Preferred Securities hereunder, there is more than an insubstantial risk that the Depositor 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) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to the Depositor. "Certificate Depository Agreement" means the agreement among the Trust, the Depositor and The Depository Trust Company, as the initial Clearing Agency, dated as of the Closing Date, relating to the Trust Securities Certificates, as the same may be amended and supplemented from time to time. "Certificate of Trust" has the meaning specified in the recitals hereof, as amended from time to time. "Clearing Agency" means an organization registered as a "clearing agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. The Depository Trust Company will be the initial Clearing Agency. 3 "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 date of execution and delivery of this Trust Agreement. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, as amended, 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 as Exhibit C. "Common Security" means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $25.00 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 (i) when used with respect to the Property Trustee, the principal office of the Property Trustee located in New York, New York, and (ii) when used with respect to the Debenture Trustee, the principal office of the Debenture Trustee located in New York, New York. "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 under the Indenture. "Debenture Tax Event" means a "Tax Event" as defined in the Indenture. "Debenture Trustee" means The Bank of New York, a New York banking corporation, as trustee under the Indenture, and any successor trustee appointed as provided therein. "Debentures" means the $_____ aggregate principal amount of the Depositor's [___%] Junior Subordinated Deferrable Interest Debentures issued pursuant to the Indenture. "Deferral Period" has the meaning specified in Section 4.2(a)(iv). "Definitive Preferred Securities Certificates" means Preferred Securities Certificates issued to Owners in certificated, fully registered form as provided in Section 5.13. "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. 4 "Delaware Trustee" means the Person identified as the "Delaware Trustee" in the preamble to this Trust Agreement solely in its capacity as Delaware Trustee of the Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor trustee appointed as herein provided. "Depositor" has the meaning specified in the preamble to this Trust Agreement. "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; or (b) default by the Trust in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or (c) default by the Trust in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or (d) default in the performance, or breach, in any material respect, of any covenant or warranty of the Trustees in this Trust Agreement (other than a covenant or warranty a default in the performance or breach of which is dealt with in clause (b) or (c) above) and continuation of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Trust or the defaulting Trustee or Trustees 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 a Bankruptcy Event with respect to the Property Trustee and the failure by the Depositor to appoint a successor Property Trustee within 90 days thereof. "Expiration Date" has the meaning specified in Section 9.1. "Federal Reserve" means the Board of Governors of the Federal Reserve System, as from time to time constituted, or if at any time after the execution of this Trust Agreement the Federal Reserve is not existing and performing the duties now assigned to it, then the body performing such duties at such time. "Guarantee" means the Guarantee Agreement executed and delivered by the Depositor and The Bank of New York, as trustee, contemporaneously with the execution and delivery of 5 this Trust Agreement, for the benefit of the Holders of the Trust Securities, as amended from time to time. "Indemnified Person" has the meaning specified in Section 8.6(c). "Indenture" means the Junior Subordinated Indenture, dated as of December ___, 2001, between the Depositor and the Debenture Trustee, as trustee, as amended or supplemented from time to time. "Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of trust, adverse ownership interest, hypothecation, assignment, security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever. "Like Amount" means (a) with respect to a redemption of Trust Securities, Trust Securities having a Liquidation Amount equal to the portion of the principal amount of Debentures to be contemporaneously redeemed in accordance with the Indenture, the proceeds of which will be used to pay the Redemption Price of such Trust Securities in exchange therefor, and (b) with respect to a distribution of Debentures to Holders of Trust Securities in connection with a dissolution or liquidation of the Trust, Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the Holder to whom such Debentures are distributed. "Liquidation Amount" means the stated amount of $25.00 per Trust Security. "Liquidation Date" means the date on which Debentures are to be distributed to Holders of Trust Securities in connection with a dissolution and liquidation of the Trust pursuant to Section 9.4(a). "Liquidation Distribution" has the meaning specified in Section 9.4(d). "1940 Act" means the Investment Company Act of 1940, as amended. "Officers' Certificate" means a certificate signed by the Chairman, Chief Executive Officer, President, or any Vice President, and by the Treasurer, an Associate Treasurer, an Assistant Treasurer, the Controller, the Secretary or an Assistant Secretary, of the Depositor, and delivered to the appropriate Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 8.16 shall be the principal executive, financial or accounting officer of the Depositor. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Trust Agreement shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; 6 (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Trust, the Property Trustee or the Depositor, and who shall be reasonably acceptable to the Property Trustee. "Original Trust Agreement" has the meaning specified in the recitals to this Trust Agreement. "Outstanding" when used with respect to Trust Securities means, as of the date of determination, all Trust Securities theretofore issued under this Trust Agreement, except: (a) Trust Securities represented by a Trust Securities Certificate that was theretofore cancelled by the Securities Registrar or delivered to the Securities Registrar 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 Trust 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 Trust Securities represented by Trust Securities Certificates in exchange for or in lieu of which other Trust Securities Certificates have been executed and delivered pursuant to this Trust Agreement, including pursuant to Sections 5.4, 5.5, 5.11 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 Trustee or any Affiliate of the Depositor or any Trustee shall be disregarded and deemed not to be Outstanding, except that (a) in determining whether any Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Preferred Securities that such Trustee actually knows to be so owned shall be so disregarded and (b) 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 Trustees 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 Administrative Trustees 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 Book-Entry Preferred Securities as reflected in the records of the Clearing Agency or, if a Clearing Agency Participant is not the beneficial owner, then as reflected in the records of a Person maintaining an account 7 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 5.9 and shall initially be the Bank. "Payment Account" means a segregated non-interest-bearing corporate trust account maintained by the Property Trustee with the Bank in its corporate trust department for the benefit of the Securityholders in which all amounts paid in respect of the Debentures will be held and from which the Property Trustee, through the Paying Agent, shall make payments to the Securityholders in accordance with Sections 4.1 and 4.2. "Person" means any individual, corporation, partnership, joint venture, trust, limited liability company or corporation, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Securities Certificate" means a certificate evidencing ownership of Preferred Securities, substantially in the form attached as Exhibit D. "Preferred Security" means a ___% Trust Preferred Security representing an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $25.00 and 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 Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as herein provided. "Redemption Date" means, with respect to any Trust Security to be redeemed, the date fixed for such redemption by or pursuant to this Trust Agreement; provided that each Debenture Redemption Date and the stated maturity of the Debentures shall be a Redemption Date for a Like Amount of Trust Securities. "Redemption Price" means, with respect to any Trust Security, the Liquidation Amount of such Trust Security, plus accumulated and unpaid Distributions to the Redemption Date, plus the related amount of the premium, if any, paid by the Depositor upon the concurrent redemption of a Like Amount of Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among the Trust Securities. "Relevant Trustee" shall have the meaning specified in Section 8.10. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 5.4. "Securityholder" or "Holder" means a Person in whose name a Trust Security or Trust Securities is registered in the Securities Register; any such Person shall be a beneficial owner within the meaning of the Delaware Business Trust Act; provided, however, that in determining 8 whether the Holders of the requisite amount of Preferred Securities have voted on any matter provided for in this Trust Agreement, then for the purpose of any such determination, so long as Definitive Preferred Securities Certificates have not been issued, the term Securityholders or Holders as used herein shall refer to the Owners. A Holder of Common Securities, Preferred Securities or Trust Securities may be referred to from time to time herein as a "Common Securityholder," "Preferred Securityholder" or "Trust Securityholder," respectively. "Tax Event" means the receipt by the Trust or the Depositor of an Opinion of Counsel experienced in such matters to the effect that, as a result of (i) any amendment to, or change in the laws or regulations of the United States or any political subdivision or taxing authority thereof or therein, which amendment or change is effective after the date of issuance of the Preferred Securities under this Trust Agreement, (ii) any proposed change in such laws or regulations that is announced after the date of issuance of the Preferred Securities under this Trust Agreement, or (iii) any official administrative or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced after the date of issuance of the Preferred Securities under this Trust Agreement, there is more than an insubstantial risk that (A) the Trust is, or will be within 90 days after the date of such opinion of Counsel, subject to United States federal income tax with respect to income received or accrued on the Debentures, (B) interest payable by the Depositor on the Debentures is not, or within 90 days after the date 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 Trust is, or will be within 90 days after the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties or other governmental charges. "Trust" means the Delaware business trust created and continued hereby and identified on the cover page to this Trust Agreement. "Trust Agreement" means this Amended and Restated Trust Agreement, as the same may be modified, amended or supplemented in accordance with the applicable provisions hereof, including (i) all exhibits hereto and (ii) for all purposes of this Trust Agreement and any such modification, amendment or supplement, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Trust Agreement and any such modification, amendment or supplement, respectively. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trust Property" means (a) the Debentures, (b) any cash on deposit in, or owing to, the Payment Account and (c) all proceeds and rights in respect of the foregoing. "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. 9 "Trustees" means, collectively, the Property Trustee, the Delaware Trustee and the Administrative Trustees. "Underwriting Agreement" means the Underwriting Agreement dated as of December ___, 2001 among the Trust, the Depositor, J.P. Morgan Securities Inc. and Merrill, Lynch, Pierce, Fenner and Smith Incorporated as representatives of the underwriters named therein. ARTICLE II. CONTINUATION OF THE TRUST Section 2.1 Name. The Trust continued hereby shall be known as "National Commerce Capital Trust II," as such name may be modified from time to time by the Administrative Trustees following written notice to the Holders of Trust Securities and the other Trustees, in which name the Trustees engage in the transactions contemplated hereby, make and execute contracts and other instruments on behalf of the 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 c/o The Bank of New York (Delaware), White Clay Center, Route 273, Newark, Delaware 19711, Attention: Corporate Trust Department, or such other address in the State of Delaware as the Delaware Trustee may designate by written notice to the Securityholders and the Depositor. The principal executive office of the Trust is c/o National Commerce Financial Corporation, One Commerce Square, Memphis, Tennessee 38150. Section 2.3 Initial Contribution of Trust Property; Organizational Expenses. The Property Trustee acknowledges receipt in trust from the Depositor in connection with the Original Trust Agreement of the sum of $10, which constituted the initial Trust Property. The Depositor shall pay organizational expenses of the Trust as they arise or shall, upon request of any Trustee, promptly reimburse such Trustee for any such expenses paid by such Trustee. The Depositor shall make no claim upon the Trust Property for the payment of such expenses. Section 2.4 Issuance of the Preferred Securities As of December __, 2001, the Depositor, on behalf of the Trust and pursuant to the Original Trust Agreement, executed and delivered the Underwriting Agreement. Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Underwriters named in the Underwriting Agreement Preferred Securities Certificates, registered in the name of the nominee of the initial Clearing Agency, representing an aggregate amount of 8,000,000 Preferred Securities having an aggregate Liquidation Amount of $200,000,000, against receipt of an aggregate purchase price plus accrued distributions of such Preferred Securities of $______, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. 10 Section 2.5 Issuance of the Common Securities; Subscription and Purchase of Debentures. Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Depositor Common Securities Certificates, registered in the name of the Depositor, representing an aggregate amount of Common Securities having an aggregate Liquidation Amount of $_________ against payment by the Depositor of an aggregate purchase price therefor of $_________, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase from the Depositor Debentures, registered in the name of the Property Trustee and having an aggregate principal amount equal to $________ and, in satisfaction of the purchase price plus accrued interest from ______ for such Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum of $___________ (being the sum of the amounts delivered to the Property Trustee pursuant to (i) the second sentence of Section 2.4 and (ii) the first sentence of this Section 2.5). Section 2.6 Declaration of Trust. The exclusive purposes and functions of the Trust are (a) to issue and sell Trust Securities, (b) to use the proceeds from such sale to acquire the Debentures, and to hold and dispose of the Debentures as contemplated herein, and (c) to engage in those activities necessary or incidental thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to have all the rights, powers and duties to the extent set forth herein, and the Trustees hereby accept such appointment. The Property Trustee hereby declares that it will hold the Trust Property in trust upon and subject to the conditions set forth herein for the benefit of the Trust and the Securityholders. The Administrative Trustees shall have all rights, powers and duties set forth herein and in accordance with applicable law with respect to accomplishing the purposes of the Trust. The Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities, of the Property Trustee or the Administrative Trustees set forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Delaware Business Trust Act. Section 2.7 Authorization to Enter into Certain Transactions. (a) The Trustees shall conduct the affairs of the Trust in accordance with the terms of this Trust Agreement. Subject to the limitations set forth in paragraph (b) of this Section 2.7, Article VIII and in accordance with the following provisions (i) and (ii), the Trustees shall have the authority to enter into all transactions and agreements determined by the Trustees to be appropriate in exercising the authority, express or implied, otherwise granted to the Trustees under this Trust Agreement, and to perform all acts in furtherance thereof, including without limitation, the following: (i) As among the Trustees, each Administrative Trustee shall have the power and authority to act on behalf of the Trust with respect to the following matters: 11 (A) the issuance and sale of the Trust Securities; (B) to cause the Trust to enter into, and to execute, deliver and perform on behalf of the Trust, the Certificate Depository Agreement, the Trust Securities Certificates and such other agreements as may be necessary or desirable in connection with the purposes and function of the Trust; (C) assisting in the registration of the Preferred Securities under the Securities Act of 1933, as amended, and under state securities or blue sky laws, and the qualification of this Trust Agreement as a trust indenture under the Trust Indenture Act; (D) assisting in the listing, if any, of the Preferred Securities upon such national securities exchange or exchanges or automated quotation system or systems as shall be determined by the Depositor and the registration of the Preferred Securities under the Securities Exchange Act of 1934, as amended, and the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing; (E) the sending of notices (other than notices of default) and other information regarding the Trust Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; (F) the appointment of a Paying Agent and Securities Registrar and, if applicable, a transfer agent, in accordance with this Trust Agreement; (G) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust and the execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware; (H) unless otherwise determined by the Depositor, the Property Trustee or the Administrative Trustees, or as otherwise required by the Delaware Business Trust Act or the Trust Indenture Act, to execute on behalf of the Trust (either acting alone or together with any or all of the Administrative Trustees) any documents that the Administrative Trustees have the power to execute pursuant to this Trust Agreement; and (I) the taking of any action incidental to the foregoing as the Trustees may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder). 12 (ii) As among the Trustees, the Property Trustee shall have the power, duty and authority to act on behalf of the Trust with respect to the following matters: (A) the establishment of the Payment Account; (B) the receipt of the Debentures; (C) the collection of interest, principal and any other payments made in respect of the Debentures in the Payment Account; (D) the distribution through the Paying Agent of amounts owed to the Securityholders in respect of the Trust Securities; (E) the exercise of all of the rights, powers and privileges of a holder of the Debentures; (F) the sending of notices of default and other information regarding the Trust Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; (G) the distribution of the Trust Property in accordance with the terms of this Trust Agreement; (H) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust and the execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware; and (I) except as otherwise expressly provided in this Section 2.7(a)(ii), the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 2.7(a)(i). (b) So long as this Trust Agreement remains in effect, the Trust (or the Trustees acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, the Trustees shall not (i) acquire any investments or engage in any activities not authorized by this Trust Agreement, (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Securityholders, except as expressly provided herein, (iii) take any action that would cause the Trust to fail or cease to qualify as a "grantor trust" for United States federal income tax purposes, (iv) incur any indebtedness for borrowed money or issue any other debt, (v) take or consent to any action that would result in the placement of a Lien on any of the Trust Property, (vi) invest any proceeds received by the Trust from holding the Debentures, but shall distribute all such proceeds to Holders of Trust Securities pursuant to the terms of this Trust Agreement and of the Trust Securities; (vii) acquire any assets other than the Trust Property, (viii) possess any power or otherwise act in such a way as to vary the Trust Property, (ix) possess any power or otherwise act in such a way as to vary the terms of 13 the Trust Securities in any way whatsoever (except to the extent expressly authorized in this Trust Agreement or by the terms of the Trust Securities) or (x) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Trust Securities. The Administrative Trustees shall defend all claims and demands of all Persons at any time claiming any Lien on any of the Trust Property adverse to the interest of the Trust or the Securityholders in their capacity as Securityholders. (c) In connection with the issue and sale of the Preferred Securities, the Depositor shall have the right and responsibility to assist the Trust with respect to, or effect on behalf of the Trust, the following (and any actions taken by the Depositor in furtherance of the following prior to the date of this Trust Agreement are hereby ratified and confirmed in all respects): (i) the preparation and filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on the appropriate form in relation to the Preferred Securities, including any amendments thereto; (ii) the determination of the states in which to take appropriate action to qualify or register for sale all or part of the Preferred Securities and the determination of any and all such acts, other than actions which must be taken by or on behalf of the Trust, and the advice to the Trustees of actions they must take on behalf of the Trust, and the preparation for execution and filing of any documents to be executed and filed by the Trust or on behalf of the Trust, as the Depositor deems necessary or advisable in order to comply with the applicable laws of any such states; (iii) the preparation for filing by the Trust and execution on behalf of the Trust of an application to the New York Stock Exchange or any other national stock exchange or the Nasdaq National Market or any other automated quotation system for listing upon notice of issuance of any Preferred Securities and filing with such exchange or self-regulatory organization such notifications and documents as may be necessary from time to time to maintain such listing; (iv) the negotiation of the terms of, and the execution and delivery of, the Underwriting Agreement providing for the sale of the Preferred Securities; and (v) the taking of any other actions necessary or desirable to carry out any of the foregoing activities. (d) Notwithstanding anything herein to the contrary, the Administrative Trustees are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust will not be deemed to be an "investment company" required to be registered under the 1940 Act, or fail to be classified as a grantor trust for United States federal income tax purposes and so that the Debentures will be treated as indebtedness of the Depositor for United States federal income tax purposes. In this connection, the Depositor and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law, the Certificate of 14 Trust or this Trust Agreement, that each of the Depositor and any Administrative Trustee determines in its 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 Preferred Securities. Section 2.8 Assets of Trust. The assets of the 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 Trust and the Securityholders in accordance with this Trust Agreement. Section 2.10 Execution of Documents Unless otherwise determined by the Administrative Trustees, and except as otherwise required by the Business Trust Act, any Administrative Trustee is authorized to execute on behalf of the Trust any documents which the Administrative Trustees have the power and authority to execute pursuant to 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 any agent of the Property Trustee shall have exclusive control and sole right of withdrawal with respect to the Payment Account for the purpose of making deposits in and withdrawals from the Payment Account in accordance with this Trust Agreement. All monies and other property deposited or held from time to time in the Payment Account shall be held by the Property Trustee in the Payment Account for the exclusive benefit of the Securityholders and for distribution as herein provided, including (and subject to) any priority of payments provided for herein. (b) The Property Trustee shall deposit in the Payment Account, promptly upon receipt, all payments of principal of or interest or premium on, and any other payments or proceeds with respect to, the Debentures. Amounts held in the Payment Account shall not be invested by the Property Trustee. ARTICLE IV. DISTRIBUTIONS; REDEMPTION Section 4.1 Distributions. 15 (a) The Trust Securities represent undivided beneficial ownership interests in the Trust Property, and Distributions (including of Additional Amounts) will be made on the Trust Securities at the rate and on the dates that payments of interest (including of Additional Interest, as defined in the Indenture) are made on the Debentures. Accordingly: (i) Distributions on the Trust Securities shall be cumulative, and will accumulate whether or not there are funds of the Trust available for the payment of Distributions. Distributions shall accrue from ________, 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 [ ], [ ], [ ] and [ ] of each year, commencing on _______. If any date on which a Distribution is otherwise payable on the Trust Securities is not a Business Day, then the payment of such Distribution shall be made on the next succeeding day that is a Business Day (and without any additional Distributions or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, payment of such Distribution shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date (each date on which Distributions are payable in accordance with this Section 4.1(a), a "Distribution Date"). (ii) Assuming payments of interest on the Debentures are made when due (and before giving effect to Additional Amounts, if applicable), Distributions on the Trust Securities shall be payable at the rate per annum of the Liquidation Amount provided for in the Debentures. The amount of Distributions for any Distribution period shall be computed on the basis of the number of days elapsed in a 360- day year of twelve 30-day months. The amount of Distributions payable for any period shall include the Additional Amounts, if any. (iii) 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 Trust has funds then on hand and available in the Payment Account for the payment of such Distributions. (iv) So long as no Debenture Event of Default has occurred and is continuing, the Depositor shall have the right as set forth in (and subject to the terms and conditions of) the Indenture to defer payment of interest on the Debentures, at any time or from time to time, for up to 20 consecutive quarterly interest payment periods with respect to each deferral period (each a "Deferral Period") but not beyond the Stated Maturity (as defined in the Indenture) of the Debentures. If the Depositor exercises such right, the Trust will also defer paying quarterly Distributions on the Trust Securities during any such Deferral Period. During any such Deferral Period, Distributions will continue to accrue on the Trust Securities at the annual rate of [__]%, compounded quarterly. 16 Prior to the termination of any such Deferral Period, the Depositor may further extend such Deferral Period as set forth in (and subject to the terms conditions of) the Indenture, provided that no Deferral Period shall exceed 20 consecutive quarterly Distribution periods or extend beyond the Stated Maturity (as defined in the Indenture) of the Debentures. Upon the termination of any such Deferral Period and upon the payment of all accrued and unpaid Distributions and any Additional Amounts then due, the Depositor may elect to begin a new Deferral Period, subject to the above requirements. No Distributions shall be due and payable during a Deferral Period except at the end thereof. Payments of accrued Distributions will be payable to Holders of Trust Securities as they appear on the Securities Register for the Trust Securities on the relevant record date for the first Distribution Date occurring at or after the end of the Deferral Period. The Depositor shall give the Holder of this Trust Security and the Property Trustee notice of its election to begin any Deferral Period at lease one Business Day prior to the next succeeding Distribution Date on which a Distribution on this Trust Security would be payable but for such deferral. (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 on the relevant record date, which shall be one Business Day prior to such Distribution Date; provided, however, that in the event that the Preferred Securities do not remain in book-entry-only form, the relevant record date shall be the 15th day of the month prior to the relevant Distribution Date (whether or not such record date is a Business Day). Section 4.2 Exchange or Redemption. (a) The Depositor shall have the right to exchange the Preferred Securities as set forth below: 17 (i) If at any time the Depositor or any of its Affiliates (in either case, a "Depositor Affiliated Owner/Holder") is the Owner or Holder of any Preferred Securities, such Depositor Affiliated Owner/Holder shall have the right to deliver to the Property Trustee all or such portion of its Preferred Securities as it elects and receive, in exchange therefor, a Like Amount of Debentures. Such election (i) shall be exercisable effective on any Distribution Date by such Depositor Affiliated Owner/Holder delivering to the Property Trustee a written notice of such election specifying the Liquidation Amount of Preferred Securities with respect to which such election is being made and the Distribution Date on which such exchange shall occur, which Distribution Date shall be not less than ten Business Days after the date of receipt by the Property Trustee of such election notice and (ii) shall be conditioned upon such Depositor Affiliated Owner/Holder having delivered or caused to be delivered to the Property Trustee or its designee the Preferred Securities which are the subject of such election by 10:00 A.M. New York time, on the Distribution Date on which such exchange is to occur. After the exchange, such Preferred Securities will be canceled and will no longer be deemed to be outstanding and all rights of the Depositor or its Affiliates(s) with respect to such Preferred Securities will cease. (ii) In the case of an exchange described in Section 4.2(a), the Trust will, on the date of such exchange, exchange Debentures having a principal amount equal to a proportional amount of the aggregate Liquidation Amount of the Outstanding Common Securities, based on the ratio of the aggregate Liquidation Amount of the Preferred Securities exchanged pursuant to Section 4.2(a) divided by the aggregate Liquidation Amount of the Preferred Securities outstanding immediately prior to such exchange, for such proportional amount of Common Securities held by the Depositor (which contemporaneously shall be canceled and no longer be deemed to be Outstanding); provided, that the Depositor delivers or caused to be delivered to the Property Trustee or its designee the required amount of Common Securities to be exchanged by 10:00 A.M. New York time, on the date of distribution on which such exchange is to occur. (b) On each Debenture Redemption Date and on the stated maturity of the Debentures, the Trust will be required to redeem a Like Amount of Trust Securities at the Redemption Price. (c) 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; (iii) the CUSIP number; 18 (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 accrue on and after said date; and (vi) if the Preferred Securities are no longer in book-entry-only form, the place and address where the Holders shall surrender their Preferred Securities Certificates. (d) The Trust Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the proceeds from the contemporaneous redemption or payment at stated maturity of Debentures. Redemptions of the Trust Securities shall be made and the Redemption Price shall be payable on each Redemption Date only to the extent that the Trust has funds then on hand and available in the Payment Account for the payment of such Redemption Price. (e) 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(d), the Property Trustee will, so long as the Preferred Securities are in book-entry-only form, irrevocably deposit with the Clearing Agency for the Preferred Securities 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 thereof. If the Preferred Securities are no longer in book-entry-only form, the Property Trustee, subject to Section 4.2(d), will irrevocably deposit with the Paying Agent 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 thereof upon surrender of their Preferred Securities Certificates. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Trust Securities called for redemption shall be payable to the Holders of such Trust Securities as they appear on the Securities Register for the Trust Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of Securityholders holding Trust Securities so called for redemption will cease, except the right of such Securityholders to receive the Redemption Price and any Distribution payable on or prior to the Redemption Date, but without interest thereon, and such Trust Securities will cease to be Outstanding. In the event that any date on which any Redemption Price is payable is not a Business Day, then payment of the Redemption Price payable on such date 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 Trust or by the Depositor pursuant to the Guarantee, Distributions on such Trust Securities will continue to accrue, at the then applicable rate, from the Redemption Date originally established by the Trust for such Trust Securities to the date such Redemption Price is 19 actually paid, in which case the actual payment date will be the date fixed for redemption for purposes of calculating the Redemption Price. (f) Payment of the Redemption Price on the Trust Securities shall be made to the recordholders thereof as they appear on the Securities Register for the Trust Securities on the relevant record date, which shall be one Business Day prior to the relevant Redemption Date; provided, however, that in the event that the Preferred Securities do not remain in book-entry-only form, the relevant record date shall be the date fifteen days prior to the relevant Redemption Date. (g) Subject to Section 4.3(a), if less than all the Outstanding Trust Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of Trust Securities to be redeemed shall be allocated on a pro rata basis (based on Liquidation Amounts) among the Common Securities and the Preferred Securities. The particular Preferred Securities to be redeemed shall be selected on a pro rata basis (based upon Liquidation Amounts) not more than 60 days prior to the Redemption Date by the Property Trustee from the Outstanding Preferred Securities not previously called for redemption, by such method (including, without limitation, by lot) as the Property Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $25.00 or an integral multiple of $25.00 in excess thereof) of the Liquidation Amount of Preferred Securities of a denomination larger than $25.00. The Property Trustee shall promptly notify the Security Registrar 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 this 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 Liquidation Amount of Preferred Securities that has been or is to be redeemed. Section 4.3 Subordination of Common Securities. (a) Payment of Distributions (including Additional Amounts, if applicable) on, and the Redemption Price of, the Trust Securities, as applicable, shall be made, subject to Section 4.2(g), pro rata among the Common Securities and the Preferred Securities based on the Liquidation Amount of the Trust Securities; provided, however, that if on any Distribution Date or Redemption Date any Event of Default resulting from a Debenture Event of Default shall have occurred and be continuing, no payment of any Distribution (including Additional Amounts, if applicable) on, or Redemption Price of, any Common Security, and no other payment on account of the redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions (including Additional Amounts, if applicable) on all Outstanding 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, shall have been made or provided for, and all funds immediately available to the Property Trustee shall first be applied to the payment in full in cash of all Distributions (including Additional Amounts, if applicable) on, or the Redemption Price of, Preferred Securities then due and payable. 20 (b) In the case of the occurrence of any Event of Default resulting from any Debenture Event of Default, the Holder of Common Securities will be deemed to have waived any right to act with respect to any such Event of Default under this Trust Agreement until the effect of all such Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated. Until any such Event of Default under this Trust Agreement with respect to the Preferred Securities has been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the Holders of the Preferred Securities and not 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 Additional Amounts, if applicable) in respect of the Preferred Securities shall be made by check mailed to the address of the Person entitled thereto as such address shall appear on the Securities Register or, if the Preferred Securities are held by a Clearing Agency, such Distributions shall be made to the Clearing Agency in immediately available funds, which shall credit the relevant Persons' accounts at such Clearing Agency on the applicable Distribution Dates. Payments in respect of the Common Securities shall be made in such manner as shall be mutually agreed in writing between the Property Trustee and the Holder of such Common Securities. Section 4.5 Tax Returns and Reports. The Administrative Trustees shall prepare (or cause to be prepared), at the Depositor's expense, and file all United States federal, state and local tax and information returns and reports required to be filed by or in respect of the Trust. In this regard, the Administrative Trustees shall (a) prepare and file (or cause to be prepared and filed) the appropriate Internal Revenue Service Form required to be filed in respect of the Trust in each taxable year of the Trust and (b) prepare and furnish (or cause to be prepared and furnished) to each Securityholder the appropriate Internal Revenue Service form and the information required to be provided on such form. The Administrative Trustees shall provide the Depositor and the Property Trustee with a copy of all such returns and reports promptly after such filing or furnishing. The Trustees shall comply with United States federal withholding and backup withholding tax laws and information reporting requirements with respect to any payments to Securityholders under the Trust Securities. Section 4.6 Payment of Expenses of the Trust. Pursuant to Section 10.6 of the Indenture, the Depositor, as borrower, has agreed to pay to the Trust, and reimburse the Trust for, the full amount of any costs, expenses or liabilities of the Trust (other than obligations of the Trust to pay the Holders of any Preferred Securities or other similar interests in the Trust the amounts due such Holders pursuant to the terms of the Preferred Securities or such other similar interests, as the case may be), including, without limitation, any taxes, duties or other governmental charges of whatever nature (other than withholding taxes) imposed on the Trust by the United States or any other taxing authority. Such payment obligation includes any such costs, expenses or liabilities of the Trust that are required by applicable law to be satisfied in connection with a termination of the Trust. 21 Section 4.7 Payments under Indenture or Pursuant to Direct Actions. Any amount payable hereunder to any Holder of Preferred Securities shall be reduced by the amount of any corresponding payment such Holder (or an Owner with respect to the Holder's Preferred Securities) has directly received pursuant to Section 5.8 of the Indenture or Section 5.14 of this Trust Agreement. ARTICLE V. TRUST SECURITIES CERTIFICATES Section 5.1 Initial Ownership. Upon the creation of the 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 Trust. Section 5.2 The Trust Securities Certificates. The Preferred Securities Certificates shall be issued in minimum denominations of $25.00 Liquidation Amount and integral multiples of $25.00 in excess thereof, and the Common Securities Certificates shall be issued in denominations of $25.00 Liquidation Amount and integral multiples thereof. The Trust Securities Certificates shall be executed on behalf of the Trust by manual or facsimile signature of at least one Administrative Trustee and, if executed on behalf of the Trust by facsimile, countersigned by a transfer agent or its agent. The Preferred Securities Certificates shall be authenticated by the Property Trustee by manual signature of an authorized signatory thereof. Trust Securities Certificates bearing the manual signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf of the Trust or the Property Trustee or, if executed on behalf of the Trust or the Property Trustee by facsimile, countersigned by a transfer agent or its agent, shall be validly issued and entitled to the benefits of this Trust Agreement, notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the delivery of such Trust Securities Certificates or did not hold such offices at the date of delivery of such Trust Securities Certificates. A transferee of a Trust Securities Certificate shall become a Securityholder, and shall be entitled to the rights and subject to the obligations of a Securityholder hereunder, upon due registration of such Trust Securities Certificate in such transferee's name pursuant to Sections 5.4, 5.11 and 5.13. Section 5.3 Execution and Delivery of Trust Securities Certificates. On the Closing Date, the Administrative Trustees 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 Trust and delivered to or upon the written order of the Depositor, signed by its chairman of the board, its president, any executive vice president or any vice president, treasurer or assistant treasurer or controller without further corporate action by the Depositor, in authorized denominations. 22 Section 5.4 Registration of Transfer and Exchange of Preferred Securities Certificates. The Depositor shall keep or cause to be kept, at the office or agency maintained pursuant to Section 5.8, a register or registers for the purpose of registering Trust Securities Certificates and transfers and exchanges of Preferred Securities Certificates (the "Securities Register") in which the transfer agent and registrar designated by the Administrative Trustees (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 5.10 in the case of the Common Securities Certificates) and registration of transfers and exchanges of Preferred Securities Certificates as herein provided. The Bank shall be the initial Securities Registrar. Upon surrender for registration of transfer or exchange of any Preferred Securities Certificate at the office or agency maintained pursuant to Section 5.8, the Administrative Trustees or any one of them shall execute on behalf of the Trust (and if executed on behalf of the Trust by a facsimile signature, such certificate shall be countersigned by a transfer agent or its agent) and deliver, in the name of the designated transferee or transferees, one or more new Preferred Securities Certificates in authorized denominations of a like aggregate Liquidation Amount dated the date of execution by such Administrative Trustee or Trustees. Such new Preferred Securities Certificates shall be authenticated by the Property Trustee by manual signature of an authorized signatory thereof. The Securities Registrar shall not be required to register the transfer of any Preferred Securities that have been called for redemption during a period beginning at the opening of business 15 days before the day of selection for such redemption. At the option of a Holder, Preferred Securities Certificates may be exchanged for other Preferred Securities Certificates in authorized denominations of the same class and of a like aggregate Liquidation Amount upon surrender of the Preferred Securities Certificates to be exchanged at the office or agency maintained pursuant to Section 5.8. Every Preferred Securities Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in form satisfactory to an Administrative Trustee and the Securities Registrar duly executed by the Holder or his attorney duly authorized in writing. Each Preferred Securities Certificate surrendered for registration of transfer or exchange shall be cancelled and subsequently disposed of by an Administrative Trustee or the Securities Registrar in accordance with such Person's customary practice. No service charge shall be made for any registration of transfer or exchange of Preferred Securities Certificates, but the Securities Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Preferred Securities Certificates. Section 5.5 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 23 destruction, loss or theft of any Trust Securities Certificate and (b) there shall be delivered to the Securities Registrar and the Administrative Trustees such security or indemnity as may be required by them to save each of them harmless, then in the absence of notice that such Trust Securities Certificate shall have been acquired by a bona fide purchaser or protected purchasers, the Administrative Trustees, or any one of them, on behalf of the Trust shall execute by manual or facsimile signature and, if executed on behalf of the Trust by facsimile signature, such certificate shall be countersigned by a transfer agent, and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities Certificate of like class, tenor and denomination. Such new Trust Securities Certificates shall be authenticated by the Property Trustee by manual signature of an authorized signatory thereof. In connection with the issuance of any new Trust Securities Certificate under this Section, the Administrative Trustees or the Securities Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Securities Certificate issued pursuant to this Section shall constitute conclusive evidence of an undivided beneficial interest in the Trust Property, as if originally issued, whether or not the lost, stolen or destroyed Trust Securities Certificate shall be found at any time. Section 5.6 Persons Deemed Securityholders. The Trustees or the Securities Registrar shall treat the Person in whose name any Trust Securities Certificate shall be registered in the Securities Register as the owner of such Trust Securities Certificate for the purpose of receiving Distributions and, except as otherwise expressly provided in the definition of "Securityholder," for all other purposes whatsoever, and neither the Trustees nor the Securities Registrar shall be bound by any notice to the contrary. Section 5.7 Access to List of Securityholders' Names and Addresses. Each Holder and each Owner shall be deemed to have agreed not to hold the Depositor, the Property Trustee or the Administrative Trustees accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived. Section 5.8 Maintenance of Office or Agency. The Administrative Trustees shall maintain 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 Trustees in respect of the Trust Securities Certificates may be served. The Administrative Trustees initially designate The Bank of New York, 101 Barclay Street, Floor 21 West, New York, New York 10286, Attn: Corporate Trust Department, as its principal corporate trust office for such purposes. The Administrative Trustees shall give prompt written notice to the Depositor, the Property Trustee and to the Securityholders of any change in the location of the Securities Register or any such office or agency. Section 5.9 Appointment of Paying Agent. The Paying Agent shall make Distributions to Securityholders from the Payment Account and shall report the amounts of such Distributions to the Property Trustee and the Administrative 24 Trustees. Any Paying Agent shall have the revocable power to withdraw funds from the Payment Account for the purpose of making the Distributions referred to above. The Administrative Trustees may revoke such power and remove the Paying Agent if such Trustees determine in their sole discretion that the Paying Agent shall have failed to perform its obligations under this Trust Agreement in any material respect. The Paying Agent shall initially be the Bank, and any co- paying agent chosen by the Bank, and acceptable to the Administrative Trustees and the Depositor. Any Person acting as Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Administrative Trustees, the Property Trustee and the Depositor. In the event that the Bank shall no longer be the Paying Agent or a successor Paying Agent shall resign or its authority to act be revoked, the Administrative Trustees shall appoint a successor that is acceptable to the Property Trustee and the Depositor to act as Paying Agent (which shall be a bank or trust company). The Administrative Trustees shall cause such successor Paying Agent or any additional Paying Agent appointed by the Administrative Trustees to execute and deliver to the Trustees an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustees that as Paying Agent, such successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Securityholders in trust for the benefit of the Securityholders entitled thereto until such sums shall be paid to such Securityholders. The Paying Agent shall return all unclaimed funds to the Property Trustee and upon resignation or removal of a Paying Agent such Paying Agent shall also return all funds in its possession to the Property Trustee. The provisions of sections 8.1, 8.3 and 8.6 herein shall apply to the Bank also in its role as Paying Agent, for so long as the Bank shall act as Paying Agent and, to the extent applicable, to any other paying agent appointed hereunder, and any Paying Agent shall be bound by the requirements with respect to paying agents of securities issued pursuant to the Trust Indenture Act. Any reference in this Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise. Section 5.10 Ownership of Common Securities by Depositor. On the Closing Date, the Depositor shall acquire and retain beneficial and record ownership of the Common Securities. To the fullest extent permitted by law, other than a transfer in connection with a consolidation or merger of the Depositor into another Person, or any conveyance, transfer or lease by the Depositor of its properties and assets substantially as an entirety to any Person, pursuant to Section 8.1 of the Indenture, any attempted transfer of the Common Securities shall be void. The Administrative Trustees shall cause each Common Securities Certificate issued to the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE TO ANY PERSON OTHER THAN AS SET FORTH IN THE TRUST AGREEMENT REFERRED TO BELOW". Section 5.11 Book-Entry Preferred Securities Certificates; Common Securities Certificate. (a) The Preferred Securities Certificates, upon original issuance, will be issued in the form of one or more Book-Entry Preferred Securities Certificates, to be delivered to The Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the Trust. Such Preferred Securities Certificate or Certificates shall initially be registered on the Securities Register in the name of Cede & Co., the nominee of the initial Clearing Agency, and no Owner will receive a Definitive Preferred 25 Securities Certificate representing such Owner's interest in such Preferred Securities, except as provided in Section 5.13. Unless and until Definitive Preferred Securities Certificates have been issued to Owners pursuant to Section 5.13: (i) the provisions of this Section 5.11(a) shall be in full force and effect; (ii) except as otherwise expressly provided in the definition of "Securityholder," the Securities Registrar and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Trust Agreement relating to the Book-Entry Preferred Securities Certificates (including the payment of the Liquidation Amount of and Distributions on the Preferred Securities evidenced by Book-Entry Preferred Securities Certificates and the giving of instructions or directions to Owners of Preferred Securities evidenced by Book-Entry Preferred Securities Certificates) as the sole Holder of Preferred Securities evidenced by Book- Entry Preferred Securities Certificates and shall have no obligations to the Owners thereof; (iii) to the extent that the provisions of this Section 5.11 conflict with any other provisions of this Trust Agreement, the provisions of this Section 5.11 shall control; and (iv) the rights of the Owners of the Book-Entry Preferred Securities Certificates 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 and/or the Clearing Agency Participants. Pursuant to the Certificate Depository Agreement, unless and until Definitive Preferred Securities Certificates are issued pursuant to Section 5.13, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit payments on the Preferred Securities to such Clearing Agency Participants. (b) A single Common Securities Certificate representing the Common Securities shall be issued to the Depositor in the form of a definitive Common Securities Certificate. Section 5.12 Notices to Clearing Agency. To the extent that a notice or other communication to the Owners is required under this Trust Agreement, unless and until Definitive Preferred Securities Certificates shall have been issued to Owners pursuant to Section 5.13, the Trustees shall give all such notices and communications specified herein to be given to Owners to the Clearing Agency, and shall have no obligations to the Owners. Section 5.13 Definitive Preferred Securities Certificates. If (a) the Depositor advises the Trustees in writing that the Clearing Agency is no longer willing, able or eligible to properly discharge its responsibilities with respect to the Preferred 26 Securities Certificates, and a successor depositary is not appointed by the Trust within 90 days, (b) the Depositor at its option advises the Trustees in writing that it elects to terminate the book-entry system through the Clearing Agency or (c) after the occurrence of a Debenture Event of Default, Owners of at least a majority of the aggregate Liquidation Amount of the Preferred Securities advise the Administrative Trustees in writing that the continuation of a book- entry system through the Clearing Agency is no longer in the best interest of the Owners, then the Administrative Trustees shall notify the other Trustees and the Clearing Agency, and the Clearing Agency, in accordance with its customary rules and procedures, shall notify all Clearing Agency Participants for whom it holds Preferred Securities of the occurrence of any such event and of the availability of the Definitive Preferred Securities Certificates to Owners, requesting the same. Upon surrender to the Administrative Trustees of the typewritten Preferred Securities Certificate or Certificates representing the Book-Entry Preferred Securities by the Clearing Agency, accompanied by registration instructions, the Administrative Trustees, or any one of them, shall execute the Definitive Preferred Securities Certificates in accordance with the instructions of the Clearing Agency or, if executed on behalf of the Trust by facsimile, countersigned by a transfer agent or its agent. The Definitive Preferred Securities Certificates shall be authenticated by the Property Trustee by manual signature of an authorized signatory thereof. Neither the Securities Registrar nor the Trustees shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Preferred Securities Certificates, the Trustees shall recognize the Holders of the Definitive Preferred Securities Certificates as Securityholders. The Definitive Preferred Securities Certificates shall be typewritten, printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrative Trustees that meets the requirements of any stock exchange or automated quotation system on which the Preferred Securities are then listed or approved for trading, as evidenced by the execution thereof by the Administrative Trustees or any one of them. Section 5.14 Rights of Securityholders. (a) The legal title to the Trust Property is vested exclusively in the Property Trustee (in its capacity as such) in accordance with Section 2.9, and the Securityholders shall not have any right or title therein other than the undivided beneficial ownership interest in the assets of the Trust conferred by their Trust Securities, and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below. The Trust Securities shall be personal property giving only the rights specifically set forth therein and in this Trust Agreement. The Trust Securities shall have no preemptive or similar rights and when issued and delivered to Securityholders against payment of the purchase price therefor will be validly issued, fully paid and nonassessable by the Trust. The Holders of the Preferred 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. (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 Debentures fail to declare the principal of all of the Debentures to be immediately due and payable, the Holders of at least 25% in Liquidation Amount of the Preferred Securities then Outstanding shall have such right by a notice in writing 27 to the Depositor and the Debenture Trustee; and upon any such declaration such principal amount of and the accrued interest on all of the Debentures shall become immediately due and payable as set forth in the Indenture, provided that the payment of principal, premium and interest on such Debentures shall remain subordinated to the extent provided in the Indenture. At any time after such a declaration of acceleration with respect to the Debentures has been made and before a judgment or decree for payment of the money due has been obtained by the Debenture Trustee as in the Indenture provided, 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 (including any Additional Interest (as defined in the Indenture)) on all of the Debentures, (B) the principal of (and premium, if any, on) any Debentures which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Debentures, and (C) 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 Debentures, other than the non-payment of the principal of the 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 a majority in aggregate 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, premium or interest (which default may be waived only if all Events of Default with respect to the Debentures, other than the non-payment of the principal of the Debentures which has become due solely by such acceleration, have been cured or annulled as provided in Section 5.03 of the Indenture and the Depositor has paid or deposited with the Debenture Trustee a sum sufficient to pay all overdue installments of interest (including any Additional Interest (as defined in the Indenture)) on the Debentures, the principal of (and premium, if any, on) any Debentures which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Debentures, and 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) or a default in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each outstanding Debenture. No such rescission shall affect any subsequent default or impair any right consequent thereon. 28 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 are represented by Book-Entry Preferred Securities Certificates, 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 of Outstanding Preferred Securities 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 5.14(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(1) or 5.1(2) 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 premium or interest on Debentures having a principal amount equal to the Liquidation Amount of the Preferred Securities of such Holder (a "Direct Action"). Except as set forth in Section 5.14(b) and this Section 5.14(c), 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 Debentures. Section 5.15 CUSIP Numbers. The Administrative Trustees in issuing the Preferred Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Property Trustee shall use "CUSIP" numbers in notices of redemption 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 Preferred Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Preferred Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Administrative Trustees will promptly notify the Property Trustee of any change in the CUSIP numbers. ARTICLE VI. ACTS OF SECURITYHOLDERS; MEETINGS; VOTING Section 6.1 Limitations on Voting Rights. (a) Except as provided in this Section, in Sections 5.14, 8.10 and 10.3 and in the Indenture and as otherwise required by law, no Holder of Preferred Securities shall have any 29 right to vote or in any manner otherwise control the administration, operation and management of the Trust or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Trust Securities Certificates, be construed so as to constitute the Securityholders from time to time as partners or members of an association. (b) So long as any Debentures are held by the Property Trustee, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or executing any trust or power conferred on the Debenture Trustee with respect to such Debentures, (ii) waive any past default which is waiveable under Section 5.13 of the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the Holders of at least a majority in Liquidation Amount of all Outstanding Preferred Securities, provided, however, that where a consent under the Indenture would require the consent of each holder of Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior written consent of each Holder of Preferred Securities. The Trustees 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 from the Debenture Trustee with respect to the Debentures. In addition to obtaining the foregoing approvals of the Holders of the Preferred Securities, prior to taking any of the foregoing actions, the Administrative Trustees shall, at the expense of the Depositor, obtain an Opinion of Counsel experienced in such matters to the effect that such action shall not cause the Trust to be classified as an association or publicly traded partnership taxable as a corporation for United States federal income tax purposes. (c) If any proposed amendment to the Trust Agreement provides for, or the Trustees otherwise propose to effect, (i) any action that would adversely affect in any material respect the powers, preferences or special rights of the Preferred Securities, whether by way of amendment to the Trust Agreement or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than pursuant to the terms of this Trust Agreement, then the Holders of Outstanding Preferred 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 Outstanding 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 Trust to be classified as an association or publicly traded partnership taxable as a corporation for United States federal income tax purposes. Section 6.2 Notice of Meetings. Notice of all meetings of the Preferred Securityholders, stating the time, place and purpose of the meeting, shall be given by the Property Trustee pursuant to Section 10.9 to each Preferred Securityholder of record, at his registered address, at least 15 days and not more than 90 days before the meeting. At any such meeting, any business properly before the meeting may be so considered whether or not stated in the notice of the meeting. Any adjourned meeting may be held as adjourned without further notice. 30 Section 6.3 Meetings of Preferred Securityholders. No annual meeting of Securityholders is required to be held. The Administrative Trustees, however, shall call a meeting of Preferred Securityholders to vote on any matter upon the written request of the Preferred Securityholders of record of 25% of the Outstanding Preferred Securities (based upon their Liquidation Amount) and the Administrative Trustees or the Property Trustee may, at any time in their discretion, call a meeting of Preferred Securityholders to vote on any matters as to which Preferred Securityholders are entitled to vote. Preferred Securityholders of record at least 50% of the Outstanding Preferred Securities (based upon their Liquidation Amount), present in person or by proxy, shall constitute a quorum at any meeting of Preferred Securityholders. If a quorum is present at a meeting, an affirmative vote by the Preferred Securityholders of record present, in person or by proxy, holding a majority of the Outstanding Preferred Securities (based upon their Liquidation Amount) held by holders of record of Outstanding Preferred Securities present, either in person or by proxy, at such meeting shall constitute the action of the Preferred Securityholders, unless this Trust Agreement requires a greater number of affirmative votes. Section 6.4 Voting Rights. Securityholders shall be entitled to one vote for each $25.00 of Liquidation Amount represented by their Trust Securities in respect of any matter as to which such Securityholders are entitled to vote. Section 6.5 Proxies, etc. At any meeting of Securityholders, any Securityholder entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Administrative Trustees, or with such other officer or agent of the Trust as the Administrative Trustees may direct, for verification prior to the time at which such vote shall be taken. 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 Securityholders of record shall be entitled to vote. When Trust Securities are held jointly by several Persons, any one of them may vote at any meeting in person or by proxy in respect of such Trust Securities, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Trust Securities. A proxy purporting to be executed by or on behalf of a Securityholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. No proxy shall be valid more than three years after its date of execution. Section 6.6 Securityholder Action by Written Consent. Any action which may be taken by Securityholders at a meeting may be taken without a meeting and without prior notice if Securityholders holding a majority of all Outstanding Trust Securities (based upon their Liquidation Amount) entitled to vote in respect of such action (or 31 such larger proportion thereof as shall be required by any express 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 Securityholders who are entitled to notice of and to vote at any meeting or by written consent, or to participate in any Distribution on the Trust Securities in respect of which a record date is not otherwise provided for in this Trust Agreement, or for the purpose of any other action, the Administrative Trustees may from time to time fix a date, not more than 90 days prior to the date of any meeting of Securityholders or the payment of a Distribution or other action, as the case may be, as a record date for the determination of the identity of the Securityholders of record for such purposes. Section 6.8 Acts of Securityholders. Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Trust Agreement to be given, made or taken by Securityholders or Owners may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders or Owners in person or by an agent duly appointed in writing; and, except as otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to an Administrative Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Securityholders or Owners 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 Trustees, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which any Trustee receiving the same deems sufficient. The ownership of Preferred Securities shall be proved by the Securities Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Securityholder of any Trust Security shall bind every future Securityholder of the same Trust Security and the Securityholder of every Trust Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustees or the Trust in reliance thereon, whether or not notation of such action is made upon such Trust Security. Without limiting the foregoing, a Securityholder entitled hereunder to take any action hereunder with regard to any particular Trust Security may do so with regard to all or any part of the Liquidation Amount of such Trust Security or by one or more duly appointed agents each of 32 which may do so pursuant to such appointment with regard to all or any part of such Liquidation Amount. If any dispute shall arise between the Securityholders and the Administrative Trustees or among such Securityholders or Trustees with respect to the authenticity, validity or binding nature of any request, demand, authorization, direction, consent, waiver or other Act of such Securityholder or Trustee under this Article VI, then the determination of such matter by the Property Trustee shall be conclusive with respect to such matter. Section 6.9 Inspection of Records. Upon reasonable notice to the Administrative Trustees and the Property Trustee, the records of the Trust shall be open to inspection by Securityholders during normal business hours for any purpose reasonably related to such Securityholder's interest as a Securityholder. 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 Securityholders that: (a) the Property Trustee is a New York banking corporation duly organized, validly existing and in good standing under the laws of the State of New York; (b) the Property Trustee has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement; (c) the Delaware Trustee is a Delaware banking corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (d) the Delaware Trustee has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement; (e) this Trust Agreement has been duly authorized, executed and delivered by the Property Trustee and the Delaware Trustee and constitutes the valid and legally binding agreement of each of the Property Trustee and the Delaware Trustee enforceable against each of them in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer and conveyance, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; 33 (f) the execution, delivery and performance of this Trust Agreement have been duly authorized by all necessary corporate or other action on the part of the Property Trustee and the Delaware Trustee and do not require any approval of stockholders of the Property Trustee and the Delaware Trustee and such execution, delivery and performance will not (i) violate the charter or by-laws of the Property Trustee or the Delaware Trustee, (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Property Trustee or the Delaware Trustee is a party or by which it is bound, or (iii) violate any law, governmental rule or regulation of the State of New York or the State of Delaware, as the case may be, governing the banking, trust or general powers of the Property Trustee or the Delaware Trustee (as appropriate in context) or any order, judgment or decree applicable to the Property Trustee or the Delaware Trustee; (g) neither the authorization, execution or delivery by the Property Trustee or the Delaware Trustee of this Trust Agreement nor the consummation of any of the transactions by the Property Trustee or the Delaware Trustee (as appropriate in context) contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any governmental authority or agency under any existing New York or Delaware law governing the banking, trust or general powers of the Property Trustee or the Delaware Trustee, as the case may be; and (h) there are no proceedings pending or, to the best of each of the Property Trustee's and the Delaware Trustee's knowledge, threatened against or affecting the Property Trustee or the Delaware Trustee in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Property Trustee or the Delaware Trustee, as the case may be, to enter into or perform its obligations as one of the Trustees under this Trust Agreement. Section 7.2 Representations and Warranties of Depositor. The Depositor hereby represents and warrants for the benefit of the Securityholders that: (a) the Trust Securities Certificates issued at the Closing Date on behalf of the Trust have been duly authorized and will have been duly and validly executed, issued and delivered by the Trustees pursuant to the terms and provisions of, and in accordance with the requirements of, this Trust Agreement and the Securityholders will be, as of such date, entitled to the benefits of this Trust Agreement; and (b) there are no taxes, fees or other governmental charges payable by the Trust (or the Trustees on behalf of the Trust) under the laws of the State of Delaware or any political subdivision thereof in connection with the execution, delivery and performance by the Property Trustee or the Delaware Trustee, as the case may be, of this Trust Agreement. 34 ARTICLE VIII. THE TRUSTEES Section 8.1 Certain Duties and Responsibilities. (a) The duties and responsibilities of the Trustees shall be as provided by this Trust Agreement and, in the case of the Property Trustee, by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Trust Agreement shall require the Trustees to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to 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 Trustees shall be subject to the provisions of this Section. Nothing in this Trust Agreement shall be construed to release an Administrative Trustee from liability for its own gross negligent action, its own gross negligent failure to act, or its own willful misconduct. To the extent that, at law or in equity, an Administrative Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to the Securityholders, such Administrative Trustee shall not be liable to the Trust or to any Securityholder for such Trustee's good faith reliance on the provisions of this Trust Agreement. The provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities of the Administrative Trustees otherwise existing at law or in equity, are agreed by the Depositor and the Securityholders to replace such other duties and liabilities of the Administrative Trustees. (b) All payments made by the Property Trustee or a Paying Agent in respect of the Trust Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the Property Trustee or a Paying Agent to make payments in accordance with the terms hereof. Each Securityholder, by its acceptance of a Trust Security, agrees that it will look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Trustees are not personally liable to it for any amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 8.1(b) does not limit the liability of the Trustees expressly set forth elsewhere in this Trust Agreement or, in the case of the Property Trustee, in the Trust Indenture Act. (c) No provision of this Trust Agreement shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) the Property Trustee shall not be liable for any error of judgment made in good faith by an authorized officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (ii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of 35 the Holders of not less than a majority in Liquidation Amount of the Trust Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Trust Agreement; (iii) the Property Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Payment Account shall be to deal with such property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Trust Agreement and the Trust Indenture Act; (iv) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree in writing 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; and (v) the Property Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees or the Depositor with their respective duties under this Trust Agreement, nor shall the Property Trustee be liable for the default or misconduct of the Administrative Trustees or the Depositor. Section 8.2 Certain Notices. Within ten Business Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit, in the manner and to the extent provided in Section 10.9, notice of such Event of Default to the Securityholders, the Administrative Trustees and the Depositor, unless such Event of Default shall have been cured or waived. 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 Debentures pursuant to the Indenture, the Administrative Trustee shall transmit, in the manner and to the extent provided in Section 10.9, notice of such exercise to the Securityholders and the Property Trustee, unless such exercise shall have been revoked. Section 8.3 Certain Rights of Property Trustee. Subject to the provisions of Section 8.1: (a) the Property Trustee may conclusively rely and shall be protected in acting or refraining from acting in good faith upon any resolution, Opinion of Counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; 36 (b) if (i) in performing its duties under this Trust Agreement the Property Trustee is required to decide between alternative courses of action or (ii) in construing any of the provisions of this Trust Agreement the Property Trustee finds the same ambiguous or inconsistent with any 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 entitled to vote under the terms of this Trust Agreement, the Property Trustee shall deliver a notice to the Depositor requesting written instructions of the Depositor as to the course of action to be taken and the Property Trustee shall take such action, or refrain from taking such action, as the Property Trustee shall be instructed in writing to take, or to refrain from taking, by the Depositor; provided, however, that if the Property Trustee does not receive such instructions of the Depositor within ten 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 two Business Days), it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Trust Agreement as it shall deem advisable and in the best interests of the Securityholders, in which event the Property Trustee shall have no liability except for its own bad faith, negligence or willful misconduct; (c) any direction or act of the Depositor or the Administrative Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by an Officers' Certificate; (d) whenever in the administration of this Trust Agreement, the Property Trustee shall deem it desirable that a matter be established before undertaking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Depositor or the Administrative Trustees; (e) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or reregistration thereof; (f) the Property Trustee may consult with counsel of its selection (which counsel may be counsel to the Depositor or any of its Affiliates, and may include any of its employees) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice, such counsel may be counsel to the Depositor or any of its Affiliates, and may include any of its employees; the Property Trustee shall have the right at any time to seek instructions concerning the administration of this Trust Agreement from any court of competent jurisdiction; (g) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of any of the Securityholders pursuant to this Trust Agreement, unless such Securityholders shall have offered to the Property Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; 37 (h) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or document, unless requested in writing to do so by one or more Securityholders, but the Property Trustee may make such further inquiry or investigation into such facts or matters as it may see fit; (i) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, provided that the Property Trustee shall be responsible for its own negligence or recklessness with respect to selection of any agent or attorney appointed by it hereunder; (j) whenever in the administration of this Trust Agreement the Property Trustee shall deem it desirable to receive written instructions with respect to enforcing any remedy or right or taking any other action hereunder the Property Trustee (i) may request written instructions from the Holders of the Trust Securities which written 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 written instructions are received, and (iii) shall be protected in acting in accordance with such written instructions; (k) except as otherwise expressly provided by this Trust Agreement, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Trust Agreement; (l) the Property Trustee may request that the Depositor deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Trust Agreement, which Officers' Certificate may be signed by any person authorized to sign an Officers' Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded; and (m) the rights, privileges, protections, immunities and benefits given to the Property Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Property Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. No provision of this Trust Agreement shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Property Trustee shall be construed to be a duty. Section 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 Trust, and the Trustees do not assume any responsibility for their correctness. The Trustees shall not be accountable for the use or application by the Depositor of the proceeds of the Debentures. The Trustees make no representations as to the validity or sufficiency of this Trust Agreement or the Trust Securities. Section 8.5 May Hold Securities. 38 Any Trustee or any other agent of any Trustee or the Trust, in its individual or any other capacity, may become the owner or pledgee of Trust Securities and, subject to Sections 8.8 and 8.13, except as provided in the definition of the term "Outstanding" in Article I, may otherwise deal with the Trust with the same rights it would have if it were not a Trustee or such other agent. Section 8.6 Compensation; Indemnity; Fees. Pursuant to Section 10.6 of the Indenture, the Depositor, as borrower, agrees: (a) to pay to the Trustees from time to time such compensation as shall be agreed in writing with the Depositor 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) except as otherwise expressly provided herein, to reimburse the Trustees upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (c) to the fullest extent permitted by applicable law, to indemnify and hold harmless (i) each Trustee, (ii) any Affiliate of any Trustee, (iii) any officer, director, shareholder, employee, representative or agent of any Trustee, and (iv) any employee or agent of the Trust or its Affiliates, (referred to herein as an "Indemnified Person") from and against any and all loss, damage, liability, penalty, expense, including taxes (other than taxes based upon the income of the Trustee) or claim of any kind or nature whatsoever incurred by such Indemnified Person by reason of the creation, operation or termination of the Trust or any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the 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. When the Property Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(4) or Section 5.1(5) of the Indenture, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. The provisions of this Section 8.6 shall survive the termination of this Trust Agreement and the resignation or removal of any Trustee. No 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 and any Trustee (in the case of the Property Trustee, subject to Section 8.8 hereof) 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 Trust, and 39 the 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 Trust, shall not be deemed wrongful or improper. Neither the Depositor, nor any Trustee, shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and the Depositor or any Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any 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. (a) There shall at all times be a Property Trustee hereunder with respect to the Trust Securities. The Property Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section, 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. (b) There shall at all times be one or more Administrative Trustees hereunder with respect to the Trust Securities. Each Administrative Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more persons authorized to bind that entity. (c) There shall at all times be a Delaware Trustee with respect to the Trust Securities. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware or (ii) a legal entity with its principal place of business in the State of Delaware and that otherwise meets the requirements of applicable Delaware law that shall act through one or more persons authorized to bind such entity. Section 8.8 Conflicting Interests. If the Property Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Property Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Trust Agreement. 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 Depositor and 40 the Administrative Trustees, by agreed action of the majority of such Trustees, shall have power to appoint, and upon the written request of the Administrative Trustees, the Depositor shall for such purpose join with the Administrative Trustees 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. If the Depositor does not join in such appointment within 15 days after the receipt by it of a request so to do, or in case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. Any co-trustee or separate trustee appointed pursuant to this Section 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 and delivered and all rights, powers, duties, and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustees specified hereunder shall be exercised solely by such Trustees and not by such co-trustee or separate trustee. (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 or by the Property Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Property Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, 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 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 41 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. No resignation or removal of any 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. Subject to the immediately preceding paragraph, the Relevant Trustee may resign at any time by giving written notice thereof to the Securityholders. If the instrument of acceptance by the successor Trustee required by Section 8.11 shall not have been delivered to the Relevant Trustee within 30 days after the giving of such notice of resignation, the Relevant Trustee may petition, at the expense of the Trust, any court of competent jurisdiction for the appointment of a successor Relevant Trustee. Unless a Debenture Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by Act of the Holder of Common Securities. If a Debenture Event of Default shall have occurred and be continuing, the Property Trustee or the Delaware Trustee, or both of them, may be removed at such time by Act of the Holders of a majority in Liquidation Amount of the Preferred Securities, delivered to the Relevant Trustee (in its individual capacity and on behalf of the Trust). An Administrative Trustee may be removed only by the Common Securityholder and at any time. If the instrument of acceptance by the successor Trustee required by Section 8.11 shall not have been delivered to the Relevant Trustee within 30 days after such removal, the Relevant Trustee may petition, at the expense of the Trust, any court of competent jurisdiction for the appointment of a successor Relevant Trustee. If any Trustee shall resign, be removed or become incapable of acting as Trustee, or if a vacancy shall occur in the office of any Trustee for any cause, at a time when no Debenture Event of Default shall have occurred and be continuing, the Common Securityholder, by Act of the Common Securityholder delivered to the retiring Trustee, shall promptly appoint a successor Trustee or Trustees, and the retiring Trustee shall comply with the applicable requirements of Section 8.11. If the Property Trustee or the Delaware Trustee shall resign, be removed or become incapable of continuing to act as the Property Trustee or the Delaware Trustee, as the case may be, at a time when a Debenture Event of Default shall have occurred and be continuing, the Preferred Securityholders, by Act of the Securityholders of a majority in Liquidation Amount of the Preferred Securities then Outstanding delivered to the retiring Relevant Trustee, shall promptly appoint a successor Relevant Trustee or Trustees, and such successor Trustee shall 42 comply with the applicable requirements of Section 8.11. If an Administrative Trustee shall resign, be removed or become incapable of acting as Administrative Trustee, at a time when a Debenture Event of Default shall have occurred and be continuing, the Common Securityholder by Act of the Common Securityholder delivered to the Administrative Trustee shall promptly appoint a successor Administrative Trustee or Administrative Trustees and such successor Administrative Trustee or Trustees shall comply with the applicable requirements of Section 8.11. If no successor Relevant Trustee shall have been so appointed by the Common Securityholder or the Preferred Securityholders and accepted appointment in the manner required by Section 8.11, any Securityholder who has been a Securityholder of Trust Securities for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Relevant Trustee. The Property Trustee shall give notice of each resignation and each removal of a Trustee and each appointment of a successor Trustee to all Securityholders in the manner provided in Section 10.9 and shall give notice to the Depositor. Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust Office if it is the Property Trustee. Notwithstanding the foregoing or any other provision of this Trust Agreement, in the event any Administrative Trustee or a Delaware Trustee who is a natural person dies or becomes, in the opinion of the Depositor, incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by (a) the unanimous act of the remaining Administrative Trustees if there are at least two of them or (b) otherwise by the Depositor (with the successor in each case being a Person who satisfies the eligibility requirement for Administrative Trustees or Delaware Trustee, as the case may be, set forth in Section 8.7). Section 8.11 Acceptance of Appointment by Successor. In case of the appointment hereunder of a successor Relevant Trustee, the retiring Relevant Trustee (if requested by Depositor) and each successor Relevant Trustee with respect to the Trust Securities shall execute and deliver an amendment hereto wherein each successor Relevant Trustee shall accept such appointment and which (a) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust and (b) shall add to or change any of the provisions of this Trust Agreement as shall be necessary to provide for or facilitate the administration of the Trust by more than one Relevant Trustee, it being understood that nothing herein or in such amendment shall constitute such Relevant Trustees co-trustees and upon the execution and delivery of such amendment the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Relevant Trustee; but, on written request of the Trust or any successor Relevant Trustee such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Relevant Trustee all Trust Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Trust Securities and the Trust. 43 Upon written request of any such successor Relevant Trustee, the Trust shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Relevant Trustee all such rights, powers and trusts referred to in the preceding paragraph. No successor Relevant Trustee shall accept its appointment unless at the time of such acceptance such successor Relevant Trustee shall be qualified and eligible under this Article. Section 8.12 Merger, Conversion, Consolidation or Succession to Business. Any Person into which the Property Trustee, the Delaware Trustee or any Administrative Trustee that is not a natural person 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 such Person 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. Section 8.13 Preferential Collection of Claims Against Depositor or Trust. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other similar judicial proceeding relative to the Trust or any other obligor upon the Trust Securities or the property of the Trust or of such other obligor or their creditors, the Property Trustee (irrespective of whether any Distributions on the Trust Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Property Trustee shall have made any demand on the 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 moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the 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 44 to authorize the Property Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 8.14 Reports by Property Trustee. (a) The Property Trustee shall transmit to Securityholders such reports concerning the Property Trustee and its actions under this Trust Agreement as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313 (a) of the Trust Indenture Act, the Property Trustee shall, within sixty days after each May 15 following the date of this Trust Agreement deliver to Securityholders a brief report, dated as of such May 15, which complies with the provisions of such Section 313(a). (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Property Trustee with each national stock exchange, the Nasdaq National Market or such other interdealer quotation system or self- regulatory organization upon which the Trust Securities are listed or traded, if any, with the Commission and with the Depositor. The Depositor will promptly notify the Property Trustee of any such listing or trading. Section 8.15 Reports to the Property Trustee. The Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314(a) of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Delivery of such reports, information and documents to the Property Trustee is for informational purposes only and the Property Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Trust's compliance with any of its covenants hereunder (as to which the Property Trustee is entitled to rely exclusively on Officers' Certificates). Section 8.16 Evidence of Compliance with Conditions Precedent. Each of the Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Trust Agreement that relate to any of the matters set forth in Section 314 (c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers' Certificate. Section 8.17 Number of Trustees. (a) The number of Trustees shall be four, provided that the Holder of all of the Common Securities by written instrument may increase or decrease the number of Administrative Trustees. The Property Trustee and the Delaware Trustee may be the same Person. 45 (b) If a Trustee ceases to hold office for any reason and the number of Administrative Trustees is not reduced pursuant to Section 8.17(a), or if the number of Trustees is increased pursuant to Section 8.17(a), a vacancy shall occur. The vacancy shall be filled with a Trustee appointed in accordance with Section 8.10. (c) The death, resignation, retirement, removal, bankruptcy, incompetence or incapacity to perform the duties of a Trustee shall not operate to dissolve, terminate or annul the Trust. Whenever a vacancy in the number of Administrative Trustees shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 8.10, the Administrative Trustees in office, regardless of their number (and notwithstanding any other provision of this Agreement), shall have all the powers granted to the Administrative Trustees and shall discharge all the duties imposed upon the Administrative Trustees by this Trust Agreement. (d) At all times, the Property Trustee must be (i) a bank as defined in Section 581 of the Code or (ii) a U.S. government-owned agency or U.S. government sponsored enterprise. (e) At all times, each Trustee must be a United States Person as defined in Section 7701(a)(30) of the Code. Section 8.18 Delegation of Power. (a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 2.7(a), including any registration statement or amendment thereto filed with the Commission, or making any other governmental filing; provided that such person is a United States Person as defined in Section 7701(a)(30) of the Code; and (b) The Administrative Trustees shall have power to delegate from time to time to such of their number or to the Depositor the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of this Trust Agreement, as set forth herein; provided that such person is a United States Person as defined in Section 7701(a)(30) of the Code. ARTICLE IX. DISSOLUTION, LIQUIDATION AND MERGER Section 9.1 Dissolution Upon Expiration Date. Unless earlier dissolved, the Trust shall automatically dissolve on December _____, 20__ (the "Expiration Date"). Upon such dissolution, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, the Trust Property shall be distributed in accordance with Section 9.4. 46 Section 9.2 Early Dissolution. The first to occur of any of the following events is an "Early Termination Event", the occurrence of which shall cause a dissolution of the Trust: (a) the occurrence of a Bankruptcy Event in respect of, or the dissolution or liquidation of, the Holder of the Common Securities; (b) the written direction to the Property Trustee from the Depositor at any time to dissolve the Trust (subject to the Depositor having received prior approval of the Federal Reserve if so required under applicable capital guidelines or policies) and, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, distribute Debentures to Securityholders in exchange for the Preferred Securities (which direction is optional and wholly within the discretion of the Depositor); (c) the redemption of all of the Preferred Securities in connection with the redemption of all of the Debentures; and (d) the entry of an order for dissolution of the Trust by a court of competent jurisdiction. Section 9.3 Termination. The respective obligations and responsibilities of the Trustees and the Trust created and continued hereby shall terminate upon the latest to occur of the following: (a) the distribution by the Property Trustee to Securityholders upon the liquidation of the Trust pursuant to Section 9.4, or upon the redemption of all of the Trust Securities pursuant to Section 4.2, of all amounts required to be distributed hereunder upon the final payment of the Trust Securities; (b) the payment of any expenses owed by the Trust; (c) the discharge of all administrative duties of the Administrative Trustees, including the performance of any tax reporting obligations with respect to the Trust or the Securityholders; and (d) the filing of a Certificate of Cancellation with the Secretary of State of the State of Delaware. 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 Trust shall be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction or the making of reasonable provisions for the payment of liabilities to creditors of the Trust as provided by applicable law, to each Securityholder a Like Amount of 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 30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust Securities at such Holder's address appearing in the Securities Register. All notices of liquidation shall: (i) state the CUSIP Number of the Trust Securities; (ii) state the Liquidation Date; 47 (iii) 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 Debentures; and (iv) provide such information with respect to the mechanics by which Holders may exchange Trust Securities Certificates for Debentures, or if Section 9.4(d) applies receive a Liquidation Distribution, as the Administrative Trustees or the Property Trustee shall deem appropriate. (b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect the liquidation of the Trust and distribution of the Debentures to Securityholders, the Property Trustee shall establish a record date for such distribution (which shall be not more than 45 days prior to the Liquidation Date) and, either itself acting as exchange agent or through the appointment of a separate exchange agent, shall establish such procedures as it shall deem appropriate to effect the distribution of Debentures in exchange for the Outstanding Trust Securities Certificates. (c) Except where Section 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) certificates representing a Like Amount of Debentures will be issued to Holders of Trust Securities Certificates, upon surrender of such certificates to the Administrative Trustees or their agent for exchange, (iii) the Depositor shall use its best efforts to have the Debentures listed on the New York Stock Exchange or on such other exchange, interdealer quotation system or self- regulatory organization as the Preferred Securities are then listed or traded, (iv) any Trust Securities Certificates not so surrendered for exchange will be deemed to represent a Like Amount of Debentures, accruing interest at the rate provided for in the Debentures from the last Distribution Date on which a Distribution was made on such Trust Securities Certificates until such certificates are so surrendered (and until such certificates are so surrendered, no payments of interest or principal will be made to Holders of Trust Securities Certificates with respect to such Debentures) and (v) all rights of Securityholders holding Trust Securities will cease, except the right of such Securityholders to receive Debentures upon surrender of Trust Securities Certificates. (d) In the event that, notwithstanding the other provisions of this Section 9.4, whether because of an order for dissolution entered by a court of competent jurisdiction or otherwise, distribution of the Debentures in the manner provided herein is determined by the Property Trustee not to be practical, the Trust Property shall be liquidated, and the Trust shall be wound- up by the Property Trustee. In such event, Securityholders will be entitled to receive out of the assets of the Trust available for distribution to Securityholders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the Liquidation Amount per Trust Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then, subject to the next succeeding sentence, the amounts payable by the Trust on the Trust Securities shall be paid on a pro rata basis (based upon Liquidation Amounts). The Holder of the Common Securities will be entitled to receive Liquidation Distributions upon any such dissolution, winding-up or termination pro rata 48 (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. Section 9.5 Mergers, Consolidations, Amalgamations or Replacements of the Trust. The Trust may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other Person or entity, except pursuant to this Article IX. At the request of the Depositor, with the consent of the Administrative Trustees and without the consent of the Holders of the Preferred Securities, the Property Trustee or the Delaware Trustee, the 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, that (i) such successor entity either (a) expressly assumes all of the obligations of the 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 rank the same as the Preferred Securities rank in priority with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) the Depositor expressly appoints a trustee of such successor entity possessing the same powers and duties as the Property Trustee as the holder of the Debentures, (iii) the Successor Securities are listed or traded, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or other organization on which the Preferred Securities are then listed or traded, if any, (iv) 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, (v) 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, (vi) such successor entity has a purpose substantially identical to that of the Trust, (vii) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Depositor and the Property Trustee have received an Opinion of Counsel from independent counsel to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Preferred Securities (including any Successor Securities) in any material respect, and (b) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor such successor entity will be required to register as an investment company under the 1940 Act and (viii) the Depositor owns all of the common securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not, except with the consent of Holders of 100% in Liquidation Amount of the 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 Person or permit any other Person to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause the Trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. 49 ARTICLE X. MISCELLANEOUS PROVISIONS Section 10.1 Limitation of Rights of Securityholders. The death, incapacity, liquidation, dissolution, termination or bankruptcy of any Person having an interest, beneficial or otherwise, in Trust Securities shall not operate to terminate this Trust Agreement, nor dissolve, terminate or annul the Trust, nor entitle the legal representatives or heirs of such Person or any Securityholder for such Person, to claim an accounting, take any action or bring any proceeding in any court for a partition or winding up of the arrangements contemplated hereby, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. Section 10.2 Liability of the Common Securityholder. The Holder of the Common Securities shall be liable for all of the debts and obligations of the Trust (other than with respect to the Securities) to the extent not satisfied out of the Trust's assets. Section 10.3 Amendment. (a) This Trust Agreement may be amended from time to time by the Property Trustee, the Administrative Trustees and the Depositor, without the consent of any Securityholders, (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, which shall not be inconsistent with the other provisions of this Trust Agreement, 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 Trust will be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are Outstanding or to ensure that the Trust will not be required to register as an investment company under the 1940 Act; provided, however, that in the case of clause (i) or clause (ii), such action shall not adversely affect in any material respect the interests of any Securityholder, and any such amendments of this Trust Agreement shall become effective when notice thereof is given to the Securityholders. (b) Except as otherwise provided in Section 10.3(a) or Section 10.3 (c) hereof, any provision of this Trust Agreement may be amended by the Trustees and the Depositor with (i) the consent of Trust Securityholders representing not less than a majority (based upon Liquidation Amounts) of the Trust Securities then Outstanding and (ii) receipt by the Trustees of an Opinion of Counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment will not affect the Trust's status as a grantor trust for United States federal income tax purposes or the Trust's exemption from status of an investment company under the 1940 Act. (c) In addition to and notwithstanding any other provision in this Trust Agreement, without the consent of each affected Securityholder this Trust Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the 50 Trust Securities as of a specified date or (ii) restrict the right of a Securityholder to institute suit for the enforcement of any such payment on or after such date; and notwithstanding any other provision herein, without the unanimous consent of the Securityholders, this paragraph (c) of this Section 10.3 may not be amended. (d) Notwithstanding any other provisions of this Trust Agreement, no Trustee shall enter into or consent to any amendment to this Trust Agreement which would cause the Trust to fail or cease to qualify for the exemption from status of an investment company under the 1940 Act or fail or cease to be classified as a grantor trust for United States federal income tax purposes. (e) Notwithstanding anything in this Trust Agreement to the contrary, without the consent of the Depositor, this Trust Agreement may not be amended in a manner which imposes any additional obligation on the Depositor. (f) In the event that any amendment to this Trust Agreement is made, the Administrative Trustees shall promptly provide to the Depositor a copy of such amendment. (g) Neither the Property Trustee nor the Delaware Trustee shall be required to enter into any amendment to this Trust Agreement which affects its own rights, duties or immunities under this Trust Agreement. The Property Trustee shall be entitled to receive an Opinion of Counsel and an Officers' Certificate stating that any amendment to this Trust Agreement is in compliance with this Trust Agreement. Section 10.4 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 10.5 Governing Law. THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES). Section 10.6 Payments Due on Non-Business Day. If the date fixed for any payment on any Trust Security shall be a day that is not a Business Day, then such payment need not be made on such date but may be made on the next succeeding day that is a Business Day (except as otherwise provided in Sections 4.1(a) and 4.2(e)), with the same force and effect as though made on the date fixed for such payment, and no interest shall accrue thereon for the period after such date. 51 Section 10.7 Successors. This Trust Agreement shall be binding upon and shall inure to the benefit of any successor to the Depositor, the Trust or the Relevant Trustee, including any successor by operation of law. Except in connection with a consolidation, merger or sale involving the Depositor that is permitted under Article Eight 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 10.8 Headings. The Article and Section headings are for convenience only and shall not affect the construction of this Trust Agreement. Section 10.9 Reports, Notices and Demands. Any report, notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon any Securityholder or the Depositor may be given or served in writing by deposit thereof, first-class postage prepaid, in the United States mail, hand delivery or facsimile transmission, in each case, addressed, (a) in the case of a Preferred Securityholder, to such Preferred Securityholder as such Securityholder's name and address may appear on the Securities Register; and (b) in the case of the Common Securityholder or the Depositor, to National Commerce Financial Corporation, One Commerce Square, Memphis, Tennessee 38150, Attention: Chief Financial Officer, facsimile no.: (901) 523-3284. Such notice, demand or other communication to or upon a Securityholder shall be deemed to have been sufficiently given or made, for all purposes, upon hand delivery, mailing or transmission. Any notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon the Trust, the Property Trustee, the Delaware Trustee or the Administrative Trustees shall be given in writing addressed (until another address is published by the Trust) as follows: (a) with respect to the Property Trustee to The Bank of New York, 101 Barclay Street, New York, New York 10286, Attention: Corporate Trust Administration; (b) with respect to the Delaware Trustee, to The Bank of New York (Delaware), White Clay Center, Route 273, Newark, Delaware 19711, with a copy to the Property Trustee at the address set forth in Clause (a); and (c) with respect to the Administrative Trustees, to them at the address above for notices to the Depositor, marked "Attention Administrative Trustees of National Commerce Capital Trust II." Such notice, demand or other communication to or upon the Trust or the Property Trustee shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Trust or the Property Trustee. Section 10.10 Agreement Not to Petition. Each of the Trustees and the Depositor agree for the benefit of the Securityholders that, until at least one year and one day after the Trust has been terminated in accordance with Article IX, they shall not file, or join in the filing of, a petition against the Trust under any bankruptcy, insolvency, reorganization or other similar law (including, without limitation, the United States 52 Bankruptcy Code) (collectively, "Bankruptcy Laws") or otherwise join in the commencement of any proceeding against the Trust under any Bankruptcy Law. In the event the Depositor takes action in violation of this Section 10.10, the Property Trustee agrees, for the benefit of Security 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 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 stopped and precluded therefrom and such other defenses, if any, as counsel for the Trustee or the Trust may assert. The provisions of this Section 10.10 shall survive the termination of this Trust Agreement. Section 10.11 Trust Indenture Act; Conflict with Trust Indenture Act. (a) This Trust Agreement is subject to the provisions of the Trust Indenture Act that are required or deemed to be part of this Trust Agreement and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee that is a trustee for the purposes of the Trust Indenture Act. (c) If any provision hereof limits, qualifies or conflicts with another provision hereof which is required or deemed to be included in this Trust Agreement by any of the provisions of the Trust Indenture Act, such required or deemed provision shall control. If any provision of this Trust Agreement modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Trust Agreement as so modified or excluded, as the case may be. (d) The application of the Trust Indenture Act to this Trust Agreement shall not affect the nature of the Trust Securities as equity securities representing undivided beneficial interests in the assets of the Trust. Section 10.12 Acceptance of Terms of Trust Agreement, Guarantee and Indenture. THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS. 53 Section 10.13 Holders are Parties. Notwithstanding that Holders have not executed and delivered this Trust Agreement or any counterpart thereof, Holders shall be deemed to be parties to this Trust Agreement and shall be bound by all of the terms and conditions hereof and of the Trust Securities by acceptance and delivery of the Trust Securities. Section 10.14 Counterparts. This Trust Agreement may contain more than one counterpart of the signature page and this Trust Agreement may be executed by the affixing of the signature of each of the Trustees on one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. [Signature Page to Follow] 54 NATIONAL COMMERCE FINANCIAL CORPORATION, By: ---------------------------------------------- Name: -------------------------------------------- Title: ------------------------------------------- THE BANK OF NEW YORK, as Property Trustee, By: ---------------------------------------------- Name: -------------------------------------------- Title: ------------------------------------------- THE BANK OF NEW YORK (DELAWARE), as Delaware Trustee, By: ---------------------------------------------- Name: -------------------------------------------- Title: ------------------------------------------- -------------------------------------------------- SHELDON M. FOX, as Administrative Trustee -------------------------------------------------- CHARLES A. NEALE, as Administrative Trustee 55 EXHIBIT A See Exhibit 4.2 to the Registration Statement to which this Trust Agreement is an exhibit. 56 EXHIBIT B See Exhibit 4.8 to the Registration Statement to which this Trust Agreement is an exhibit. 57 EXHIBIT C THIS CERTIFICATE IS NOT TRANSFERABLE TO ANY PERSON OTHER THAN AS SET FORTH IN THE TRUST AGREEMENT REFERRED TO BELOW Certificate Number: Number of Common Securities: CERTIFICATE EVIDENCING COMMON SECURITIES OF NATIONAL COMMERCE CAPITAL TRUST II COMMON SECURITIES (LIQUIDATION AMOUNT $25.00 PER COMMON SECURITY) National Commerce Capital Trust II, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that National Commerce Financial Corporation (the "Holder") is the registered owner of ______ common securities of the Trust representing beneficial ownership interests of the Trust and designated the Common Securities (Liquidation Amount $25.00 per Common Security) (the "Common Securities"). Except as provided in Section 5.10 of the Trust Agreement (as defined below) the Common Securities are not transferable and, to the fullest extent permitted by law, any attempted prohibited transfer hereof shall be void. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth in, and this certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Trust Agreement of the Trust dated as of December _____, 2001 among National Commerce Financial Corporation, as Depositor, The Bank of New York, as Property Trustee, The Bank of New York (Delaware), as Delaware Trustee, the Administrative Trustees named therein and the holders, from time to time, of undivided beneficial interests in the assets of the Trust, as the same may be amended from time to time (the "Trust Agreement") including the designation of the terms of the Common Securities as set forth therein. The Trust will furnish a copy of the Trust Agreement to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder and by acceptance hereof agrees to the provisions of (i) the Guarantee Agreement entered into by National Commerce Financial Corporation, a Tennessee corporation ("NCF") and The Bank of New York, a New York banking corporation ("The Bank of New York"), as guarantee trustee, dated as of December _____, 2001, and (ii) the Indenture entered into by NCF and The Bank of New York, as trustee, dated as of December _____, 2001. 58 THIS CERTIFICATE AND THE COMMON SECURITIES EVIDENCED HEREBY SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES). IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed this certificate. NATIONAL COMMERCE CAPITAL TRUST II, By: ---------------------------------------------- Name: -------------------------------------------- Administrative Trustee 59 EXHIBIT D [If a Book-Entry Preferred Securities Certificate, add the following-- THIS IS A PREFERRED SECURITIES CERTIFICATE WITHIN THE MEANING OF THE TRUST AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITARY") OR A NOMINEE OF THE DEPOSITARY. THIS PREFERRED SECURITY IS EXCHANGEABLE FOR PREFERRED SECURITIES 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 NO TRANSFER OF THIS PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS PREFERRED SECURITY 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) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE TRUST AGREEMENT REFERRED TO BELOW. UNLESS THIS PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO NATIONAL COMMERCE CAPITAL TRUST II OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY PREFERRED SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] CERTIFICATE NUMBER: NUMBER OF PREFERRED SECURITIES: AGGREGATE LIQUIDATION AMOUNT OF PREFERRED SECURITIES: [ ] CUSIP NO. 635458 CERTIFICATE EVIDENCING TRUST PREFERRED SECURITIES OF NATIONAL COMMERCE CAPITAL TRUST II ___% TRUST PREFERRED SECURITIES, (LIQUIDATION AMOUNT $25.00 PER TRUST PREFERRED SECURITY) National Commerce Capital Trust II, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that _________________ (the "Holder") is the registered owner of preferred securities in the aggregate liquidation amount of $200,000,000 of the Trust representing undivided beneficial interests in the assets of the Trust and designated the National Commerce Capital Trust II [______%] Trust Preferred Securities (liquidation 60 amount $25.00 per Trust Preferred Security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer as provided in Section 5.4 of the Trust Agreement (as defined below). The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities are set forth in, and this certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Trust Agreement of the Trust, dated as of as __________ _____, 2001, among National Commerce Financial Corporation, as Depositor, The Bank of New York, as Property Trustee, The Bank of New York (Delaware), as Delaware Trustee, the Administrative Trustees named therein and the holders, from time to time, of undivided beneficial interests in the assets of the Trust, as the same may be amended from time to time (the "Trust Agreement") including the designation of the terms of Preferred Securities as set forth therein. The Holder is entitled to the benefits of the Guarantee Agreement entered into by National Commerce Financial Corporation, a Tennessee corporation ("NCF"), and The Bank of New York, a New York banking corporation, as guarantee trustee, dated as of December _____, 2001 (the "Guarantee"), to the extent provided therein. The Trust will furnish a copy of the Trust Agreement and the Guarantee to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder. This certificate and the Preferred Securities evidenced hereby shall be construed in accordance with and governed by the laws of the State of Delaware (without regard to conflict of laws principles). IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed this certificate this ____ day of __________, 2001. NATIONAL COMMERCE CAPITAL TRUST II, By: ------------------------------------- Name: ----------------------------------- Administrative Trustee This is one of the Securities referred to in the within mentioned Trust Agreement. Date of Authentication: THE BANK OF NEW YORK, as Property Trustee, By: ------------------------------- Name: ----------------------------- Title: ---------------------------- 61 Countersignature (in the event the administrative trustee signs above by facsimile): Date: ----------------------------- THE BANK OF NEW YORK, as Transfer Agent, By: ------------------------------- Name: ----------------------------- Title: ---------------------------- 62 EX-5.1 11 dex51.txt OPINION OF BASS BERRY & SIMS/LEGALITY EXHIBIT 5.1 [BASS, BERRY & SIMS PLC LETTERHEAD] December 4, 2001 National Commerce Financial Corporation One Commerce Square Memphis, Tennessee 38150 National Commerce Capital Trust II c/o National Commerce Financial Corporation One Commerce Square Memphis, Tennessee 38150 Re: Registration Statement on Form S-1 Ladies and Gentlemen: We have acted as counsel for National Commerce Financial Corporation, a Tennessee corporation (the "Company"), and National Commerce Capital Trust II, a statutory business trust created under the laws of Delaware (the "Trust"), in connection with the preparation and filing of a Registration Statement on Form S-1 (the "Registration Statement") filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), for the purpose of registering (i) 8,000,000 ____% Trust Preferred Securities (the "Preferred Securities") to be issued by the Trust, (ii) $______________ aggregate principal amount of the Company's ____% Subordinated Debentures due [2031] (the "Subordinated Debentures") to be issued by the Company to the Trust, and (iii) the Company's guarantee (the "Guarantee") which guarantees the payment of distributions and payments on liquidation or redemption of the Preferred Securities, to be issued by the Company to the Trust in connection with such issuance of the Preferred Securities. In rendering this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of (i) the Registration Statement; (ii) the form of Preferred Securities Certificate of the Trust; (iii) the form of Guarantee Agreement; (iv) the form of Subordinated Debenture; and (v) the form of Indenture for the Subordinated Debentures (the "Indenture"), all in the forms filed as exhibits to the Registration Statement. We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such other documents, certificates and records as we have deemed necessary or appropriate for purposes of rendering the opinions set forth herein. In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. In making our examination of documents executed by parties other than the Company or the Trust, we National Commerce Financial Corporation December 4, 2001 Page 2 have assumed that such parties had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and that such documents constitute valid and binding obligations of such parties. In addition, we have assumed that the Preferred Securities Certificate of the Trust, the Guarantee, the Subordinated Debentures and the Indenture will be executed in substantially the form reviewed by us. As to any facts material to the opinions expressed herein which were not independently established or verified, we have relied upon factual statements and factual representations of officers, trustees and other representatives of the Company and the Trust, and others. Based upon and subject to the foregoing and to the other qualifications and limitations set forth herein, we are of the opinion that: 1. The Subordinated Debentures have been duly authorized by all requisite corporate action, and when duly executed, delivered, authenticated and issued in accordance with the Indenture and delivered and paid for as contemplated by the Registration Statement, the Subordinated Debentures will be valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization, rearrangement, receivership, moratorium, or other laws and matters of public policy now or hereafter in effect relating to or affecting creditors' rights generally, and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). 2. The Guarantee has been duly authorized by all requisite corporate action, and when duly executed and delivered by the parties thereto, the Guarantee will be a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization, rearrangement, receivership, moratorium, or other laws and matters of public policy now or hereafter in effect relating to or affecting creditors' rights generally, and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). Our opinion is based solely on and limited to the laws of the State of Tennessee and the federal laws of the United States of America. We express no opinion as to the laws of any other jurisdiction. We note that the Indenture and the Guarantee are governed by the laws of the State of New York, and we have assumed the effectiveness of this choice of law provision. For purposes of this opinion, we have assumed with your permission that the laws of the State of New York are the same as the laws of the State of Tennessee in all pertinent respects. As to matters of Delaware law, we have relied on the opinion of Richards, Layton & Finger, P.A., special Delaware counsel for the Company and the Trust. National Commerce Financial Corporation December 4, 2001 Page 3 We hereby consent to the use of our name under the caption "Legal Matters" in the prospectus and the filing of this opinion with the Commission as an exhibit to the Registration Statement. In giving this consent, we do not hereby concede that we are within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission promulgated thereunder. Very truly yours, BASS, BERRY & SIMS PLC EX-5.2 12 dex52.txt OPINION OF RICHARDS, LAYTON & FINGER EXHIBIT 5.2 [Letterhead of Richards, Layton & Finger Appears Here] December 4, 2001 National Commerce Capital Trust II c/o National Commerce Financial Corporation One Commerce Square Memphis, Tennessee 38150 Re: National Commerce Capital Trust II ---------------------------------- Ladies and Gentlemen: We have acted as special Delaware counsel for National Commerce Financial Corporation, a Tennessee corporation (the "Company"), and National Commerce Capital Trust II, a Delaware business trust (the "Trust"), in connection with the matters set forth herein. At your request, this opinion is being furnished to you. For purposes of giving the opinions hereinafter set forth, our examination of documents has been limited to the examination of originals or copies of the following: (a) The Certificate of Trust of the Trust, dated as of November 16, 2001 (the "Certificate"), as filed in the office of the Secretary of State of the State of Delaware (the "Secretary of State") on November 16, 2001; (b) The Trust Agreement of the Trust, dated as of November 16, 2001, among the Company, the trustees of the Trust named therein, and the holders, from time to time, of undivided beneficial interests in the assets of the Trust; (c) A form of Amended and Restated Trust Agreement of the Trust (including Exhibit A, C and D) (the "Trust Agreement"), to be entered into among the Company, as depositor, the trustees of the Trust named therein, and the holders, from time to time, of undivided beneficial interests in the assets of the Trust, attached as an exhibit to the Registration Statement (as defined below); National Commerce Capital Trust II December 4, 2001 Page 2 (d) The Registration Statement on Form S-1, as amended by Amendment No. 1 thereto (as so amended, the "Registration Statement"), including a prospectus (the "Prospectus"), relating to the Preferred Securities of the Trust representing undivided beneficial interests in the assets of the Trust (each, a "Preferred Security" and collectively, the "Preferred Securities"), as proposed to be filed by the Company and the Trust with the Securities and Exchange Commission on or about December 4, 2001; and (e) A Certificate of Good Standing for the Trust, dated December 4, 2001, obtained from the Secretary of State. Capitalized terms used herein and not otherwise defined are used as defined in the Trust Agreement. For purposes of this opinion, we have not reviewed any documents other than the documents listed in paragraphs (a) through (e) above. In particular, we have not reviewed any document (other than the documents listed in paragraphs (a) through (e) above) that is referred to in or incorporated by reference into the documents reviewed by us. We have assumed that there exists no provision in any document that we have not reviewed that is inconsistent with the opinions stated herein. We have conducted no independent factual investigation of our own but rather have relied solely upon the foregoing documents, the statements and information set forth therein and the additional matters recited or assumed herein, all of which we have assumed to be true, complete and accurate in all material respects. With respect to all documents examined by us, we have assumed (i) the authenticity of all documents submitted to us as authentic originals, (ii) the conformity with the originals of all documents submitted to us as copies or forms, and (iii) the genuineness of all signatures. For purposes of this opinion, we have assumed (i) that the Trust Agreement and the Certificate are in full force and effect and have not been amended, (ii) except to the extent provided in paragraph 1 below, the due creation or due organization or due formation, as the case may be, and valid existence in good standing of each party to the documents examined by us under the laws of the jurisdiction governing its creation, organization or formation, (iii) the legal capacity of natural persons who are parties to the documents examined by us, (iv) that each of the parties to the documents examined by us has the power and authority to execute and deliver, and to perform its obligations under, such documents, (v) the due authorization, execution and delivery by all parties thereto of all documents examined by us, (vi) the receipt by each Person to whom a Preferred Security is to be issued by the Trust (collectively, the "Preferred Security Holders") of a Preferred Securities Certificate for such Preferred Security and the payment for the Preferred Security acquired by it, in accordance with the Trust Agreement and the Registration Statement, and (vii) that the Preferred Securities are issued and sold to the Preferred Security Holders in accordance with the Trust Agreement and the Registration Statement. We have not participated in the preparation of the Registration Statement and assume no responsibility for its contents. National Commerce Capital Trust II December 4, 2001 Page 3 This opinion is limited to the laws of the State of Delaware (excluding the securities laws of the State of Delaware), and we have not considered and express no opinion on the laws of any other jurisdiction, including federal laws and rules and regulations relating thereto. Our opinions are rendered only with respect to Delaware laws and rules, regulations and orders thereunder that are currently in effect. Based upon the foregoing, and upon our examination of such questions of law and statutes of the State of Delaware as we have considered necessary or appropriate, and subject to the assumptions, qualifications, limitations and exceptions set forth herein, we are of the opinion that: 1. The Trust has been duly created and is validly existing in good standing as a business trust under the Delaware Business Trust Act. 2. The Preferred Securities will represent valid and, subject to the qualifications set forth in paragraph 3 below, fully paid and nonassessable undivided beneficial interests in the assets of the Trust. 3. The Preferred Security Holders, as beneficial owners of the Trust, will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. We note that the Preferred Security Holders may be obligated to make payments as set forth in the Trust Agreement. We consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement. In addition, we hereby consent to the use of our name under the heading "Validity of Securities" in the Prospectus. In giving the foregoing consents, we do not thereby admit that we come within the category of Persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. Except as stated above, without our prior written consent, this opinion may not be furnished or quoted to, or relied upon by, any other Person for any purpose. Very truly yours, /s/ Richards, Layton & Finger, P.A. BJK/MVP/GWN EX-8.1 13 dex81.txt TAX OPINION EXHIBIT 8.1 [BASS, BERRY & SIMS LETTERHEAD] December 4, 2001 National Commerce Financial Corporation One Commerce Square Memphis, Tennessee 38150 National Commerce Capital Trust II c/o National Commerce Financial Corporation One Commerce Square Memphis, Tennessee 38150 RE: REGISTRATION STATEMENT ON FORM S-1 Ladies and Gentlemen: We have acted as counsel for National Commerce Financial Corporation, a Tennessee corporation (the "Company"), and National Commerce Capital Trust II, a statutory business trust created under the laws of Delaware (the "Trust"), in connection with the preparation and filing of a Registration Statement on Form S-1 (the "Registration Statement"), filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), for the purpose of registering (i) 8,000,000 ______% Trust Preferred Securities (the "Preferred Securities") to be issued by the Trust, (ii) $___________ aggregate principal amount of the Company's _____% Junior Subordinated Debentures due ____ (the "Subordinated Debentures") to be issued by the Company to the Trust, and (iii) the Company's guarantee (the "Guarantee") which guarantees the payment of distributions and payments on the liquidation or redemption of the Preferred Securities, to be issued by the Company to the Trust in connection with such issuance of the Preferred Securities and the preparation of a prospectus included in the Registration Statement for use in connection with the offer and sale of the foregoing securities (the "Prospectus"). In rendering this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of (i) the Certificate of Trust of the Trust dated as of November 16, 2001; (ii) the form of Amended and Restated Trust Agreement of the Trust; (iii) the form of Preferred Securities Certificate of the Trust; (iv) the form of the Guarantee Agreement for the Trust; (v) the form of Junior Subordinated Debenture; and (vi) the form of Indenture for the Subordinated Debentures (the "Indenture"), all in the forms filed as exhibits to the Registration Statement. We have also examined originals or copies, certified or otherwise December 4, 2001 Page 2 identified to our satisfaction, of such other documents, certificates and records as we have deemed necessary or appropriate for purposes of rendering the opinions set forth herein. In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. In making our examination of documents executed by parties other than the Company or the Trust, we have assumed that such parties had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and that such documents constitute valid and binding obligations of such parties. In addition, we have assumed that the Amended and Restated Trust Agreement of the Trust, the Preferred Securities Certificate of the Trust, the Guarantee Agreement, the Subordinated Debentures and the Indenture will be executed in substantially the form reviewed by us and that the terms of the Subordinated Debentures, when established in conformity with the Indenture, will not violate any applicable law, and that all obligations imposed by any such document on the parties thereto are enforceable and have been or will be performed or satisfied in full compliance with the terms of such documents. As to any facts material to the opinions expressed herein which were not independently established or verified, we have relied upon factual statements and factual representations of officers, trustees and other representatives of the Company and the Trust, and others. Based upon and subject to the foregoing, we are of the following opinions: (1) The statements in the Prospectus under the caption "Material Federal Income Tax Consequences" to the extent that they constitute summaries of matters of laws or regulation or legal conclusions, have been reviewed by us and fairly summarize the matters described therein in all material respects. (2) The Trust will be classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes. Accordingly, for United States federal income tax purposes, each beneficial owner of the Preferred Securities will generally be treated as owning an undivided beneficial interest in the Subordinated Debentures. (3) The Subordinated Debentures will be classified for United States federal income tax purposes as indebtedness of the Company. The opinions expressed in this letter are based on the Internal Revenue Code of 1986, as amended, the United States Treasury Regulations promulgated thereunder and judicial authorities reported as of the date hereof. We have also considered the administrative position of the Internal Revenue Service ("Service") reflected in published and private rulings. Although we are not aware of any pending December 4, 2001 Page 3 changes to these authorities that would alter our opinions, there can be no assurances that future legislation or administrative changes, court decisions or Service interpretations will not adversely affect the opinions rendered herein and the tax consequences to the Trust and holders of Preferred Securities. It is possible that contrary positions with regard to the purchase, ownership and disposition of the Preferred Securities may be taken by the Service and that a court may agree with such contrary positions. Furthermore, our opinions cannot be relied upon if any of the facts contained in the documents that we have examined, or if any of the assumptions that we have made, are, or later become, inaccurate. Our opinion is being furnished in connection with the filing of the Registration Statement and is limited to the federal income tax issues specifically considered herein. It is not to be used, circulated, quoted or otherwise referred to for any other purpose without our written consent. We do not express any opinion as to any other United States federal income tax issues or any state or local or foreign tax issues. Although the opinions expressed herein are based upon our best interpretation of existing sources of law and represent what we believe a court would properly conclude if presented with these issues, no assurance can be given that such interpretations would be followed if they were to become the subject of judicial or administrative proceedings. This opinion is given as of the date hereof, and we assume no obligation to update this opinion to reflect any fact or circumstances that may hereafter come to our attention or any change in any law or regulation that may hereafter occur. We hereby consent to the use of our name under the caption "Federal Income Tax Consequences" in the Prospectus and the filing of this opinion with the Commission as an exhibit to the Registration Statement. In giving this consent, we do not hereby concede that we are within the category of persons whose consent is required under Section 7 of the Act or the rules and thereunder. Very truly yours, Bass, Berry & Sims PLC EX-23.2 14 dex232.txt CONSENT OF KPMG LLP EXHIBIT 23.2 Consent of Independent Auditors The Board of Directors National Commerce Financial Corporation: We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus/registration statement. /s/ KPMG LLP Memphis, Tennessee December 4, 2001 EX-25.1 15 dex251.txt FORM T-1 FOR JUNIOR SUBORDINATED DEBENTURES EXHIBIT 25.1 ======================================================================== FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) National Commerce Financial Corporation (Exact name of obligor as specified in its charter) Tennessee 62-0784645 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) One Commerce Square Memphis, Tennessee 38150 (Address of principal executive offices) (Zip code) _____________ Junior Subordinated Debentures (Title of the indenture securities) ======================================================================== 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject.
- ---------------------------------------------------------------------------------- Name Address - ---------------------------------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a- 29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. -2- SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 20th day of November, 2001. THE BANK OF NEW YORK By: /s/ STACEY POINDEXTER ---------------------------------------- Name: STACEY POINDEXTER Title: ASSISTANT TREASURER EXHIBIT 7 --------- Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business March 31, 2001, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts ASSETS In Thousands Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin........................................... $ 2,811,275 Interest-bearing balances..................................................................... 3,133,222 Securities: Held-to-maturity securities................................................................... 147,185 Available-for-sale securities................................................................. 5,403,923 Federal funds sold and Securities purchased under agreements to resell.................................................................... 3,378,526 Loans and lease financing receivables: Loans and leases held for sale................................................................ 74,702 Loans and leases, net of unearned income...................................................... 37,471,621 LESS: Allowance for loan and lease losses..................................................... 599,061 Loans and leases, net of unearned income and allowance........................................ 36,872,560 Trading Assets................................................................................. 11,757,036 Premises and fixed assets (including capitalized leases)....................................... 768,795 Other real estate owned........................................................................ 1,078 Investments in unconsolidated subsidiaries and associated companies............................ 193,126 Customers' liability to this bank on acceptances outstanding................................... 592,118 Intangible assets Goodwill.................................................................................... 1,300,295 Other intangible assets..................................................................... 122,143 Other assets................................................................................... 3,676,375 ----------- Total assets................................................................................... $70,232,359 ===========
LIABILITIES Deposits: In domestic offices............................................... $25,962,242 Noninterest-bearing............................................... 10,586,346 Interest-bearing.................................................. 15,395,896 In foreign offices, Edge and Agreement subsidiaries, and IBFs........................................... 24,862,377 Noninterest-bearing............................................... 373,085 Interest-bearing.................................................. 24,489,292 Federal funds purchased and securities sold under agreements to repurchase.................................... 1,446,874 Trading liabilities................................................ 2,373,361 Other borrowed money: (includes mortgage indebtedness and obligations under capitalized leases)......................................... 1,381,512 Bank's liability on acceptances executed and outstanding....................................................... 592,804 Subordinated notes and debentures.................................. 1,646,000 Other liabilities.................................................. 5,373,065 ----------- Total liabilities.................................................. $63,658,235 =========== EQUITY CAPITAL Common stock....................................................... $ 1,135,284 Surplus............................................................ 1,008,773 Retained earnings.................................................. 4,426,033 Accumulated other comprehensive income............................. 4,034 Other equity capital components.................................... 0 ----------- Total equity capital............................................... 6,574,124 ----------- Total liabilities and equity capital............................... $70,232,359 ===========
I, Thomas J. Mastro, Senior Vice President and Comptroller of the above- named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Thomas J. Mastro, Senior Vice President and Comptroller We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Renyi Gerald L. Hassell Directors Alan R. Griffith EX-25.2 16 dex252.txt FORM T-1/PREF. SEC. OF NC CAPITAL TRUST II EXHIBIT 25.2 ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) National Commerce Financial Corporation (Exact name of obligor as specified in its charter) Tennessee 62-0784645 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) One Commerce Square Memphis, Tennessee 38150 (Address of principal executive offices) (Zip code) ----------- Guarantee of Trust Preferred Securities of National Commerce Capital Trust II (Title of the indenture securities) ================================================================================ 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject.
- ---------------------------------------------------------------------------------- Name Address - ---------------------------------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a- 29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. -2- SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 20th day of November, 2001. THE BANK OF NEW YORK By: /s/ STACEY POINDEXTER ------------------------------------------ Name: STACEY POINDEXTER Title: ASSISTANT TREASURER EXHIBIT 7 --------- Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business March 31, 2001, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts ASSETS In Thousands Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin........................................... $ 2,811,275 Interest-bearing balances..................................................................... 3,133,222 Securities: Held-to-maturity securities................................................................... 147,185 Available-for-sale securities................................................................. 5,403,923 Federal funds sold and Securities purchased under agreements to resell.................................................................... 3,378,526 Loans and lease financing receivables: Loans and leases held for sale................................................................ 74,702 Loans and leases, net of unearned income...................................................... 37,471,621 LESS: Allowance for loan and lease losses..................................................... 599,061 Loans and leases, net of unearned income and allowance........................................ 36,872,560 Trading Assets................................................................................. 11,757,036 Premises and fixed assets (including capitalized leases)....................................... 768,795 Other real estate owned........................................................................ 1,078 Investments in unconsolidated subsidiaries and associated companies............................ 193,126 Customers' liability to this bank on acceptances outstanding................................... 592,118 Intangible assets Goodwill.................................................................................... 1,300,295 Other intangible assets..................................................................... 122,143 Other assets................................................................................... 3,676,375 ----------- Total assets................................................................................... $70,232,359 ===========
LIABILITIES Deposits: In domestic offices............................................... $25,962,242 Noninterest-bearing............................................... 10,586,346 Interest-bearing.................................................. 15,395,896 In foreign offices, Edge and Agreement subsidiaries, and IBFs........................................... 24,862,377 Noninterest-bearing............................................... 373,085 Interest-bearing.................................................. 24,489,292 Federal funds purchased and securities sold under agreements to repurchase.................................... 1,446,874 Trading liabilities................................................ 2,373,361 Other borrowed money: (includes mortgage indebtedness and obligations under capitalized leases)......................................... 1,381,512 Bank's liability on acceptances executed and outstanding....................................................... 592,804 Subordinated notes and debentures.................................. 1,646,000 Other liabilities.................................................. 5,373,065 ----------- Total liabilities.................................................. $63,658,235 =========== EQUITY CAPITAL Common stock....................................................... $ 1,135,284 Surplus............................................................ 1,008,773 Retained earnings.................................................. 4,426,033 Accumulated other comprehensive income............................. 4,034 Other equity capital components.................................... 0 ----------- Total equity capital............................................... 6,574,124 ----------- Total liabilities and equity capital............................... $70,232,359 ===========
I, Thomas J. Mastro, Senior Vice President and Comptroller of the above- named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Thomas J. Mastro, Senior Vice President and Comptroller We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Renyi Gerald L. Hassell Directors Alan R. Griffith EX-25.3 17 dex253.txt FORM T-1 FOR TRUST PREFERRED SECURITIES EXHIBIT 25.3 ======================================================================== FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) National Commerce Capital Trust II (Exact name of obligor as specified in its charter) Delaware Applied For (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) One Commerce Square Memphis, Tennessee 38150 (Address of principal executive offices) (Zip code) _____________ Trust Preferred Securities (Title of the indenture securities) ======================================================================== 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject.
- ---------------------------------------------------------------------------------- Name Address - ---------------------------------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a- 29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. -2- SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 20th day of November, 2001. THE BANK OF NEW YORK By: /s/ STACEY POINDEXTER ----------------------------------------- Name: STACEY POINDEXTER Title: ASSISTANT TREASURER EXHIBIT 7 --------- Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business March 31, 2001, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts ASSETS In Thousands Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin........................................... $ 2,811,275 Interest-bearing balances..................................................................... 3,133,222 Securities: Held-to-maturity securities................................................................... 147,185 Available-for-sale securities................................................................. 5,403,923 Federal funds sold and Securities purchased under agreements to resell.................................................................... 3,378,526 Loans and lease financing receivables: Loans and leases held for sale................................................................ 74,702 Loans and leases, net of unearned income...................................................... 37,471,621 LESS: Allowance for loan and lease losses..................................................... 599,061 Loans and leases, net of unearned income and allowance........................................ 36,872,560 Trading Assets................................................................................. 11,757,036 Premises and fixed assets (including capitalized leases)....................................... 768,795 Other real estate owned........................................................................ 1,078 Investments in unconsolidated subsidiaries and associated companies............................ 193,126 Customers' liability to this bank on acceptances outstanding................................... 592,118 Intangible assets Goodwill.................................................................................... 1,300,295 Other intangible assets..................................................................... 122,143 Other assets................................................................................... 3,676,375 ----------- Total assets................................................................................... $70,232,359 ===========
LIABILITIES Deposits: In domestic offices............................................... $25,962,242 Noninterest-bearing............................................... 10,586,346 Interest-bearing.................................................. 15,395,896 In foreign offices, Edge and Agreement subsidiaries, and IBFs........................................... 24,862,377 Noninterest-bearing............................................... 373,085 Interest-bearing.................................................. 24,489,292 Federal funds purchased and securities sold under agreements to repurchase.................................... 1,446,874 Trading liabilities................................................ 2,373,361 Other borrowed money: (includes mortgage indebtedness and obligations under capitalized leases)......................................... 1,381,512 Bank's liability on acceptances executed and outstanding....................................................... 592,804 Subordinated notes and debentures.................................. 1,646,000 Other liabilities.................................................. 5,373,065 ----------- Total liabilities.................................................. $63,658,235 =========== EQUITY CAPITAL Common stock....................................................... $ 1,135,284 Surplus............................................................ 1,008,773 Retained earnings.................................................. 4,426,033 Accumulated other comprehensive income............................. 4,034 Other equity capital components.................................... 0 ----------- Total equity capital............................................... 6,574,124 ----------- Total liabilities and equity capital............................... $70,232,359 ===========
I, Thomas J. Mastro, Senior Vice President and Comptroller of the above- named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Thomas J. Mastro, Senior Vice President and Comptroller We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Renyi Gerald L. Hassell Directors Alan R. Griffith -----END PRIVACY-ENHANCED MESSAGE-----